A History of Innovation Kellogg Company A History of Innovation Graham Thompson Jonathan Seppi Inho Suh Charles Stein

Background A.K.A. Kellogg, Kellogg’s, or Kellogg’s of Battle Creek Founded in 1906 Global Headquarters in Battle Creek, MI, USA Executive Statement: “W.K. Kellogg put his signature on every package of cereal to express his personal pledge to quality and nutrition. In doing so, he began building trust in the Kellogg brand. A century later, our vision is to be the food company of choice.”

Organizational Architecture U-Shaped CEO, COO, and VP all serve on the board of directors Each in charge of a region or department

Decision Rights Final decision rights to board of directors Division of company focused into regional branches Kellogg North America, Kellogg Europe, etc. Provides excellent architecture for decision making Separated by department Investing separated from accounting. Properly divided decision rights so specific knowledge can stay relevant

Business Environment: Competition Main Competitors: General Mills Nestle Ralcorp Holdings Kellogg Company holds 34% market share Largest of all competitors

Business Environment: Diversity Manufacturers in 18 countries Marketed in over 180 Use Transnational Strategy

Business Environment: Relationships Requires suppliers to follow code of conduct Failure to comply requires suppliers to take immediate action to correct deficiency at the risk of termination of contracts. Focus on ensuring responsible and reliable suppliers Failing to do so could reflect poorly and have perverse effects on products

Employee Evaluation: K-Values Evaluations are defined by K-Values: Integrity Accountability Passion Humility Simplicity Results Evaluated on how well their conduct follows these core values and code of conduct W.K. Kellogg Award given to those who best embody the values

Employee Evaluation: Performance Evaluations The Nominating and Governance Committee is in charge of conducting the performance evaluations of employees Review performance reviews, comments, and report to the board Also in charge of selecting the nominees qualified to become board members Evaluate directors who are subject to renomination Reviews director’s compensations by performance assessments

Incentive Structure: Kellogg Share Incentive Plan In UK employees may contribute up to 1,500 pounds annually to invest in Firm Stock Match contributions on a 1:1 basis and buy common stock at market value Plan expires when employees leave organization Eligible employees also income and tax benefits if the shares are held for a specific number of years

Incentive Structure: Feeling Gr-r-reat Incentives to “get healthy and stay healthy” Provides numerous health related benefits to the employees Health screenings Flu shots Health coaching Exercising Weight management

Incentive Structure: Stock Options Executive Directors stock options Directors may convert all available compensation into units which are credited to accounts Units have value equal to Kellogg’s common stock Dividend equivalents are earned on the whole units into accounts Units may be paid in cash or shares of stock either in lump sum or over 10 installments throughout the year Payments begin when director’s service as director terminates Limit 150,000 shares

Current Issues Cereal recall June 2010 voluntary recall of over 28 million boxes of cereal Odd smell and flavor made some customers ill Approx. 20 complaints No serious health risks were posed by the problem Employee Satisfaction Disconnect between employees and managers because of the size

Capacity to Solve Issues Health concerns dealt with by massive Recall Efficiency, scope, and speed of recall shows the capacity to deal with problems Employee issues Handled by Human Resources Vast internal scope makes problem difficult Office politics do exist frequently Currently attempting to divide the company by region and department to make employees feel more comfortable with managers

Future of Kellogg Company Creating closer relationships between company and its suppliers Keep organizational architecture clear and structured Continue to be the world’s leading producer of cereal

End Graham Thompson Jonathan Seppi Inho Suh Charles Stein