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Chapter 11

CASE STUDY: HEINZ LOOKS BEYOND KETCHUP FOR GROWTH

       Heinz’s ketchup may flow slowly but its sales are growing quickly. Ketchup is the brightest star among the four thousand products marketed by global food giant H.J. Heinz, which is based in Pittsburgh. Backed by extensive advertising and the introduction of new variations, Heinz ketchup has boosted its U.S. market share from 48 percent to 54 percent in recent years.

       However, other Heinz products have lagged behind ketchup’s stellar sales performance. Star-Kist tuna, the world’s top-selling tuna brand, is faltering because of declining tuna prices and changing consumer tastes. Sales of canned pet foods, such as Heinz’s 9-Lives brand, are taking a back seat to sales of dry pet foods, where competitors such as Ralston Purina are stronger. Heinz’s Weight Watchers business has felt increased pressure from ConAgra’s Healthy Choice and other frozen-food rivals.

      To reverse these sales trends and strengthen its global position, Heinz executives have decided to reorganize the company into seven product categories. The largest is the category covering the flagships ketchup brand as will as condiments and sauces such as Heinz 57 steak sauce. This category contributes a bit laws than one-third of Heinz’s overall sales. The next largest category is frozen foods such as Ore-Ida potato products. The remaining five categories are pet products; soups, beans, and pastas; tuna foods; baby foods; and an “other” category, which covered Weight Watchers until Heinz management decided to sell it.

      In the past, local operations managers were in charge of handling Heinz’s products in each country. Now Heinz has brought management of all its brands under headquarters control to reduce duplication and improve coordination. Along with job cuts, factory closings, and other changes that enabled the company to focus its resources on fewer products, Heinz was able to shave $200 million off its yearly costs.

     The company has also been working on a strategy to grow through acquisitions—although not all its plans have worked out. For example, Heinz wanted to buy the Beech-Nut Nutrition product line to combine with its existing baby foods for more competitive power against Gerber, which holds a 70 percent market share. But the Federal Trade Commission did not allow the purchase because it would have reduced competition in the U.S. market from three strong players to just two. Other acquisitions, such as the purchase of Yoshida brand Asian sauces, have helped Heinz diversify into complementary product areas.

     In another change, Heinz has begun investing more to promote current products and launch promising new products. Licensing the Boston Market brand, Heinz has introduced a line of frozen Boston Market Home Style Meals and a line of Boston Market jarred gravies to expand its sales. At the same time, management is carefully nurturing its market-leading products to keep sales on the upswing. One recent innovation is the introduction of green ketchup, enriched with vitamin C, in squeezable containers. The unconventional coloring and easy-grip bottles were designed specifically for children, who make up the largest group of ketchup consumers. Heinz is also starting to package Star-Kist tuna in an easy-open pouch, backing this introduction with a $20 million ad campaign. Ketchup may stick be the star of its corporate sales, but Heinz is working hand to give other products a brighter glow.

Case Questions

1. Is Heinz moving toward centralization or decentralization? How is this move likely to affect the balance between line and staff positions?
2. What type of departmentalization is Heinz using? Why is this departmentalization appropriate for the company?
How do acquisitions, such as the purchase of Yoshida brand Asian sauces, affect Heinz’s organization structure?

Chapter 12

CASE STUDY: MANAGING THE GOLDEN ARCHES AROUND WORLD

       From Boston to Beijing and beyond, the golden arches of McDonald’s look out on highways and streets in nearly every country around the world. The Illinois-based fast-food chain is working toward higher sales and is defending its market leadership in partnership with the thousand franchise owners who operate twenty-seven thousand restaurants in the United States and abroad. Although a variety of hamburgers and fish sandwiches built the chain into a powerhouse, McDonald’s has not had a large-scale, new-product hit for some years. Therefore, in addition to boosting sales in franchised restaurants, a good portion of McDonald’s future growth may have to come from its stakes in nonburger chains, including Donatos Pizza, Chipotle Mexican Grill, and Boston Market.

       For years, managers at McDonald’s Illinois headquarters tightly controlled prices, product development, and other key functions to ensure chainwide consistency and quality. However, franchisees objected to some corporate decisions. For example, many U.S. franchisees refused to follow the corporation’s strategy 1997. Following that clash between franchisees and decentralize pricing, among other operational details. Now the specially priced Happy Meal is the only discount that headquarters supports with national advertising, leaving other pricing to the discretion of local franchisees.

       McDonald’s has also divided its global business into five regional zones and delegated decision-making authority to the managers overseeing each of these regions. This structure put the focus on each region’s opportunities and challenges to encourage faster and more responsive reaction to emerging changes and trends. On the local level, franchisees have the freedom to tailor their restaurants and menus to each local market. Customers at one McDonald’s in Burleson, Texas, can play computer games while the sip their soft drinks; at a store in Plano, Texas, they sit on richly stained chairs beneath chandeliers. Halfway around the world, customers who visit McDonald’s in Hong Kong can order tea and lounge around reading or bring their children to meet Uncle McDonald (the local counterpart of chain mascot Ronald McDonald).

       Although the golden arches are clearly a symbol of American culture, franchises carefully blend the corporation’s efficient operating methods with locally influenced food and décor. They also follow McDonald’s time-tested practice of promoting from within to build the ranks of local management. Behind the scenes, the fast-food giant searches out local suppliers for international restaurants rather than relying on long-distance shipments of potatoes and other ingredients from a few central suppliers, These details matter because McDonald’s has all but saturated the U,S. market, so management id keenly interested in international expansion.

       With even more attention to detail, the company is improving its operational expertise by introducing a sophisticated cooking system to speed food preparation and keep menu items hot. Meanwhile, back in the kitchens at McDonald’s Illinois headquarters, new-product experts are cooking up new offerings to supplement the chain’s traditional menu selections. Did somebody say higher sales?

Case Questions

1. Which organization design is McDonald’s using internationally? How is this design appropriate for the company’s international situation?
2. How does McDonald’s working relationship with franchisees make it a learning organization?
3. Where in the organizational life cycle would you position McDonald’s? How does this affect the company’s organization design?

Chapter 13

CASE STUDY: GENERAL ELECTRIC’S GLOBAL CULTURE OF CHANGE

        Jack Welch, the long-time CIO of General Electric (GE), was well aware that large organizations can be unwieldy and complacent, even though they need to be streamlined and speedy. This predicament is why Welch and his successor worked out various strategies for managing change and innovation to take advantage of GE’s size rathe than being tripped up by it. Over the years, GE has been successfully transformed from a largely U.S.-focused company into a truly global, boundary less business—one of the world’s most profitable.

       General Electric has long had a few joint ventures in Europe, but for years, its main international business activity was exporting. This situation changed in 1987, when the company exchanged its consumer electronics business for ownership of a French-base medical equipment manufacturer. Within two years, GE made another European acquisition, this time buying a Hungarian lighting manufacturer. Since then, GE has bought more than 133 European firms in industries ranging from insurance to energy equipment, swelling its European payroll to ninety thousand and generating more than $20 billion in annual revenue from the area.

       After so many years, GE has worked out a pattern for effectively managing change during and after an acquisition. Even before management gas finished negotiating a deal, experts from finance and human resources are drafting a plan to set change in motion immediately after the contract is signed. The first change that occurs after a deal has been completed is that GE’s finance expert shows up and starts converting the firm’s financial systems to the accepted GE format. GE also sends in an integration manager to supervise the unification effort, while the overall manager of the acquired company concentrates on operations and profitability issues.

      Within one hundred days or less, GE has the basic change plan well underway, covering activities ranging from cost-cutting measures to plans for switching from matrix or geographical departmentalization (where it exists) to a functional organization. By this time, GE’s experts will have identified and taken steps to remove people who seem to blocking change within the acquired firm. They will also have identified which personnel should be retained; these people are offered key roles within the integrated organization.

      Next, GE introduces its special brand of management tools, including highly effective quality management programs and the best-practices tools that have proven to boost profit margins significantly in other acquired firms. One tool, known as Work-Out, encourages employees to get together and think of a plan for solving any problem in the business, then to present it to management for immediate approval or rejection. This seemingly informal, no-nonsense team tool brings about needed change more quickly and with more grass-roots support than the traditional method of passing the problem up and down the hierarchy in the course of debating and making a decision. In fact, teams are commonplace in every GE unit around the world, moving information through the organization at lightning speed and allowing employees to get the job done without intense management supervision.

      The Internet is a powerful catalyst for overall change within GE because top management sees the Web as redefining relationships with customers, employees, and suppliers. To get the corporation ready to take advantage of emerging web-related opportunities, management called for a three-month Work-Out procedure held entirely on-line. Participants shared ideas for breaking down bureaucratic blocks and moving more quickly to implement e-commerce strategies that represent GE’s future. GE knows that with the advent of the Internet, no country is isolated, so it plans to continue its winning ways by bringing systematic change to every unit around the world.

Case Questions

1. Does Work-Out represent planned or reactive change? Explain your answer.
2. Identify some of the most important internal and external forces for change affecting GE.
In what areas does GE intervene to make change after an acquisition? Why does GE concentrate on these areas?

Chapter 14

CASE STUDY: HOW THE MOST ADMIRED COMPANIES MANAGE CHANGE

         The most admired companies in America have at least one thing in common: they all pay careful attention to the management of that most precious asset, their employees. General Electrics, which appears at the top of many “best-manages’ lists, has made training and development one of its top priorities. Through ongoing training, assignment rotation, and performance evaluation, GE gives promising managers the skills and seasoning they need to move up and to handle increased responsibilities. The company has also created a unique mentoring program that pairs tech-savvy younger employees teach the senior managers how to navigate the Internet, both benefit from the sharing of ideas and expertise, Given GE’s intense focus on human resources, it’s not surprising that the company attracts twenty applicants for every job opening.

         Another company widely admired for its management of human resources is Southwest Airlines. Consistently profitable in a notoriously completive industry, Southwest hires a mere 4 percent of the ninety thousand people who apply for the jobs every year. The airline uses personality tests to identify applicants with the right mix of can-do attitude, communication skills, decision making skills, and team spirit. New hires are immersed in intensive training at the company’s University of People before they start their jobs. When internal conflicts occasionally erupt between employees who handle different jobs, Southwest has the employees switch jobs for a day so they can see the issue from the other side—a tactic that generally diffuses the tension.

        Wal-Mart, a perennial on most-admired lists, calls its human resources management group the People Division as reflection of the firm’s no-nonsense approach. Wal-Mart, like other retailing firms, has been plagued by turnover that can run as high as 70 percent among hourly store workers. As many as four hundred thousand employees leave and must be replaced every year. Factoring in new store openings,Wal-Mart winds up hiring some 550,000 employees annually. Now the company is aiming to slash this turnover rate by being more selective in hiring, training, and communicating more effectively, and offering recognition and pay for performance. The effort is already paying off: turnover is dropping, which means Wal-Mart, is well on its way toward saving a huge chunk of its recruiting and training budget. The retailer is also known for promoting from within, which attracts ambitious people who are looking for opportunity and who are willing to be held accountable for their decisions—another Wal-Mart hallmark.

        Chip-maker Intel, much admired for its management excellence, is always on the lookout for new employees with potential. Competition for applicants with high-tech skills is so fierce that Intel has set up an internship program to attract college students before they are in the market for full-time jobs. Every year, one thousand college interns rotate through different departments, moving from service operations to procurement and other groups to get hands-on, practical experience in the work world. The interns also get immersed in Intel’s culture and from relationships that come in handy id they continue working at Intel after graduation—which 70 percent do. Intel invites interns to participate in benefits such as the stock purchase plan and counts their internship period toward vacation time once they sign on as full-time employees. These college internships help Intel tap a fresh pool of talented employees every year.

Case Questions

1. What recruiting techniques are being used by the companies in this chapter closing case? Why are these techniques effective?
2. Why would Southwest and other companies go beyond the use of applications and interviews when selecting new employees?
How do training and development programs help companies reduce turnover?

Chapter 15

CASE STUDY: THE RISE OF FREE AGENTS

      The sports tradition of free agents is taking hold in the business world. Free agents—self-employed individuals who contract for organizational work on project basis—already make up more then one-quarter of the U.S. workforce. Within a decade, as many as four in ten workers are likely to be free agents, going from project to project and company to company as their talents are needed.

       Several factors are fueling this trend. First, companies that downsized in earlier years find they sometimes need specialists with particular skills to handle certain projects, technologies, or clients. Second, companies can avoid the expense and hassles of constant hiring-firing cycles by selectively contracting with free agents to supplement their full-time, permanent workforces during peak sales, planning, or production periods. And third, companies now have the technology to transcend organizational and geographical boundaries by connecting free agents outside the organization with employees inside for effective teamwork and collaboration.

       For their part, free agents gain more flexibility in choosing among clients and projects, learning and applying new skills, managing time and other resources, balancing work and family obligations, and negotiating compensation. Free agents can work solo or come together as needed for specific projects. For example, web site designer Andrew Keeler often establishes temporary teams to work with him on projects for Adobe Systems, Hewlett-Packard, and other clients. Keeler has had face-to-face contact with only a few of his free-agent colleagues; in most cases, he uses e-mail to assemble a team, coordinate all word, and complete the project—quickly.

      Keeler’s experience illustrates one of the downsides to being a free agent: lack of personal interaction. E-mail a joke adorned with a smiley face just isn’t the same as sharing a laugh with a colleague while standing around the proverbial water cooler. Also, free agents can’t always find as much work as they’d like, nor do they always get paid on time. Still, free agents in high-demand fields such as e-commerce technology can earn significant more independents than as employees, even though they have to arrange for their own health insurance and fund their own retirement accounts instead of receiving those items as corporate benefits.

        Companies are increasingly using free agents to keep their organizations flat and lean. When the Finnish telecommunications giant Nokia began selling computer displays in the United States, it hired only five permanent employees to staff the new office.  The company relied on a network of free agents and outside suppliers to manage a wide range of activities, from marketing and sales to shipping and technical support.

             But how do companies and free agents find each other? In addition to word of mouth communication, more matches are being made on the Internet. Monster Talent Market (http://www.talentmarket.monster.co,) allows free agents to post information about their skills, schedules, and pries so companies can bid for their services. FreeAgent.com (www.freeagent.com) stores free agents’ resumes for review by prospective clients and list  projects open for free agent’s bids; similarly, eLance (http://www.elance.com) displays resumes and projects which companies are seeking free agents. Free-agents in search of community can visit guru.com (http://wwwguru.com), a site that goes beyond project and free-agent listings to offer articles and advice about working independently. Watch for even more web sites as the free-agent movement gathers momentum outside high-tech industries.  

Case question

1. How is the free-agent movement to influence workplace behaviors?
2. What work-related attitudes are more important for employees than for free agents?
3. Which personality traits do free agents need to be effective?