This is the first Manage This post, a regular commentary series by Coins2Day Senior Editor Jennifer Reingold on management and leadership. Suggestions/Comments? Write me! [email protected]
“Freedom is good.” “Capitalism works.” And “Efficiency = Business Success.” These are three of our economy’s unquestioned truisms; whatever they actually mean, it’s hard to find anyone who disagrees with them.
The third maxim goes a long way toward explaining why a heavily indebted processed food conglomerate—the Kraft Heinz Company (KHC)—closed up 5% on its first two trading days as a public entity, even as massive macro issues, like Greece’s economic crisis and China’s stock market woes, roiled the general markets.
Kraft Heinz is a public company, but it is 51% owned by Brazilian private equity firm 3G and superinvestor Warren Buffett. 3G, which also owns AB InBev, Burger King, and Tim Horton’s, has gained a reputation as the most rational, ruthless business operator out there. “The 3G way” is becoming legendary, a model of extreme efficiency in which any cost that can’t be justified—whether it has been around for 100 years or not—is simply eliminated. The same applies to human capital, which 3G views more as a cost center than a profit center. That means job cuts–lots of them, among senior-level executives who don’t buy into the new way and lower-level employees who are quickly being made obsolete (for more on this, see Coins2Day’sSqueezing Heinz). 3G is famous for gutting HR departments in particular.
The result: Instead of 2 +2 equaling 5, as one often says with regard to mergers, 2+2 = 3, at least in terms of people. That, in turn, say investors, will translate to 5 in either profits, shareholder value, or, ideally, both. (Heinz, for example, has seen sales drop by 11% in the past year, though profits have risen.)
But does that improvement last? It’s not clear. A growing number of people, such as management experts Ram Charan and Dennis Carey, think that people must come first when it comes to long-term success (the two are writing a new book on the topic called, as you might have guessed, People Before Strategy). With Kraft, the short-term profit gains will be major, but can brutal efficiency turn around the secular decline of consumer packaged goods companies? (See Beth Kowitt’s The War on Big Food for more on this question.)
It seems like, in addition to cuts, what Kraft Heinz really needs are some creative thinkers. But they might take up too many chairs at headquarters.