Cadbury Schweppes Strategic Dilemma Of Trebor Bassett

INTRODUCTION

Cadbury Schweppes is a UK-based beverage and confectionary group founded in 1969 with the merger of two English groups (Cadbury and Schweppes). This family-managed group grew and flourished through the years. It became an international major player in the late 80s and was admired by its peers for such an ascent.

In 1990 the group bought two little entities from the same business and merged them into a single unit: Trebor Bassett. The CEO of this unit soon became the CEO of the group (1993) and he then realized that the success of the past years was seriously in danger and that a real turn needed to be taken. John Sunderland (CS'CEO) and John Stake (Human Resources Director) decided to spend time trying to understand the problem and finding the adapted solutions.

Let us see how to change from a budget-driven strategy to a sustainable value-driven strategy.

The following pages will try to show how the precedent success was in fact a satisfactory underperformance of CS, then how a real change in the way of seeing the business helped to recover and finally what became the challenge in 1999.

I. Cadbury Schweppes in 1996: a satisfactory underperformance

1. An admired company

Cadbury Schweppes, born after the merger of two major companies in 1969, was an admired company in 1996. Indeed thanks to Sir Dominic Cadbury's governance from 1983 to 1996, based on an international development and several strategic acquisitions, the company had become a truly global player: the financial company turnover increased by 30% between 1990 and 1996, the operating profit by 144%. This performance was underlined by the Most Admired UK Company Prize, awarded by the representatives of Britain's top 250 publicly traded companies and 10 leading investment dealer companies.

In 1996, Cadbury Schweppes gathered activities in two major fields, both consumer-oriented: confectionary and beverages. The beverages branch was highly competitive, all the more so as few giant players operated on the market. Cadbury Schweppes owned international bottling and partnership operations and sold products in 149 countries. The company, divided into five divisions in 1996, had a varied product portfolio, based on international brands such as Schweppes or Dr. Pepper/Seven Up, acquired by the group in 1995. As for the confectionary stream, it was a capital intensive, very fragmented and highly competitive market. A lot of brands operated in the market, the majority of which were supported through extensive marketing expenditures. Cadbury Schweppes was a global force in chocolate and sugar confectionary, had plants in 25 countries and sold products in more than 170 countries. The company defended its position with many power brands, like Lion for instance. In 1996 the company had two major objectives: to grow internationally and to get bigger. For example, the confectionary branch's goal was to sell 1 million tons of consumption by the year 2000.

However, although the company was globally admired for its performance and its management, its results were certainly not as good as believed. As evidence, the annual shareholder return was only 8.8% (Coca Cola offered to its shareholders a return of 32,8%). In addition the operating profit had decreased yearly since its peak in 1994, suffering for a fall of 16% between 1994 and 1996.

2. A control and management system ...

Cadbury Schweppes had a complex control and management system, which we can define as a budget-driven decision making process and corporate control system: the budget had an essential place. Indeed, every day the yearly budget drove all the company's strategic and operating decisions. The "meet the numbers" culture was the one we could find in the company. Due to the preponderance of the budget, Cadbury Schweppes' top managers controlled over business units through extensive series of mechanism, symbolised by all the "coloured Books". The annual budget established specific performance targets between the group and the business units.

Few strategic tools were thought about by the managers: indeed, the only control tool was the "Green Book", which aimed at covering the long-term performance of the business units over a five-year programme. However, it presented basically the budget for the following year. And even if some figures were notified for the next 5-year, nobody cared about them. Used in a responsible way, a budget provides the basis for clear understanding between organizational levels and can help senior executives maintain control over multiple divisions and business units. However in the wrong hands it can result in "earnings management".

As a result, Cadbury Schweppes did not implement a lot of long-term projects, simply because profits had to increase year after year.

3. ... that leads to management difficulties: the example of Trebor Bassett

Cadbury Schweppes acquired in 1989 the George Bassett Group and the Trebor group, two of the largest British sugar confectionary firms. Trebor Bassett started life as a full entity in 1990 and became the sugar confectionery market leader with a 27% market share ahead of its major competitors Nestlй (12%), Mars (7%), and Wrigley's (6%). However, after its results peak in 1994, TB came to symbolize all the shortcomings of Cadbury Schweppes management process. Indeed, TB's financial performance had fallen from its maximum in 1994 and its current strategy of achieving market volume and exploiting scale economy was no longer valid.

First, the budget-driven policy of the group was leading to a financially dominated dialogue centered on budgeting process, which was limiting all possible discussion between the top management and any business unit. Communication was formal and a relation of control had been set up. Added to this, the group was too far away to appreciate the complex strategy issues of TB and was missing strategically-rooted mechanisms and systems on which to base a dialogue. In fact, the Group was keeping tracks of the numbers through several "books" that finally were isolated documents that contained very little strategic analysis.

The "culture of variance" that came with the reach of budget objectives led to a lack of trust between the Group and TB since managers just gave enough results of what they needed to shield their performance from blemishes and "under