Topic: Management & Organization

Instructions:

After reading the below scenario, Please answer the following questions:

1. In several sentences, Define zero-based budgeting. What is it? How does it work?
2. Read the following articles about the Kraft Heinz disaster.

   1. Kraft Heinz Cant Ketchup With Millennials

   2. Kraft Heinz is Keeping Five Test Kitchens Busy

   3. Brutal Cost-Cutting Wont Save Packaged Foods

3. Based on your research, Which philosophy of control was being used at Kraft Heinz? Hierarchical or Decentralized Control? In one paragraph, explain which philosophy was being used and give examples that support your answer.
4. In a paragraph, Give three reasons why the Kraft Heinz merger was a failure. Explain how zero-based budgeting might be incompatible with research and development needs. Explain how Kraft Heinz might be out of touch with their markets.
5. Kraft Heinz operates under a divisional structure. In a paragraph, using your text and the Kraft Heinz organizational chart, Explain how a divisional structure works. Is it more of a tall or a flat organization? Discuss what role their organizational structure may have played. Would another organizational structure work better? Which one?

Scenario:

On March 8, 2019, Kraft Heinz posted a startling announcement. The company is lowering its own value by nearly 16 BILLION dollars. This amounts to an annual loss of about $1.2 billion or 30% in net earnings to shareholders. Their announcement sent shock waves through the US stock market. How could such a stable blue-chip company suddenly depress its own value?

Simply put, it goes back to 2016 when Heinz purchased Kraft Foods. Immediately following the purchase, the company decided to increase profits through a form of strategic budget control called Zero-Based Budgeting. This organizational approach requires that all departments begin at zero each year. A rationale or justification must then be given for every single expense in the budget. No budgetary balance from the previous year is carried over. The success of this strategy is that it allows major corporations to shave slush and focus on learner productivity. It falls in line with the tenets of Total Quality Management in that it exerts control over every part of the value chain.

Initially, the Zero-Based approach seemed to be working. Between 2016 and 2017, two of their major expenses- marketing and general overhead- were pushed down by over 4%. Research and development were also dramatically reduced. However, only one year later, the costs of operation had risen over 10%. The company was forced to take out loans.

Long story short, Kraft Heinz is proving the Zero-Based Budget may be flawed.