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
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.
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...
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