solution

Sarah Woodley, CEO and Founder of Sarah’s Snacks, sat at her desk preparing to meet with her executive team. It had been eighteen months since the company adapted a consultant’s recommendation to change the company from a functional organization to a process-based one. Despite expectations that performance would improve, little had changed. The extended length of time it took to introduce new products cost the company market share as competitors more quickly came out with flavors that better matched emerging consumer trends. Production delays due to supply shortages led to stockouts at some of the largest supermarket customers. The organizational changes were intended to resolve these problems as well as create efficiencies that would reduce overall costs. Woodley needed her team to determine why the company was not yet seeing those results and to help her decide whether they needed to make additional changes. Company Background Sarah’s Snacks was a producer of organic popcorn, pretzels, tortilla chips, and other snack foods. Woodley launched the company in 1995 by selling hand-packed bags of varieties of popcorn kernels grown in her native Indiana at local farmer’s markets. From its modest beginnings, the company had become one of the top ten independent producers of organic snacks in the United States. Years of steady revenue growth as the company expanded its product line and entered new geographic markets confirmed that the strategy of offering a broad line of organic products with distinctive flavors aligned with what customers were looking for. Over time, however, new entrants into their product categories cut into sales and made price a more important factor to consumers. At the same time, because of growing demand for organic ingredients, the cost of supplies was rising. This resulted in profit margins being squeezed. To help investigate what might be done to reverse this trend and other performance issues, Woodley hired a consultant to advise her. After analyzing the situation, his recommendation was that the company redesign how it operates to make better use of information technology to integrate its business processes. He provided a plan for the initial steps the company should take to implement the solution. Formal Organization Sarah’s Snacks operated as a functional organization, which meant activities were divided between departments where employees with similar skills worked together. Those functional areas included purchasing, product development, operations, marketing and sales, accounting, and information technology (see diagram below). Each department was led by a director who typically had two or three direct reports responsible for managing others. Roles and duties were clearly spelled out in detailed job descriptions. Departments set goals independently of each other, and employees were evaluated and rewarded based on their individual performance. Promotions were typically within department, and employees seldom moved between functional areas. The company had no formal training process. While the company had a single information technology infrastructure, many departments used their own applications to record transactions and manage data. Work Production workers operated the largely automated production lines and were responsible for assessing quality. Horizontal coordination across functions, including information flows, occurred on a limited basis. For instance, after the product development team came up with new snacks, their involvement ended after they passed the specifications on to the manufacturing group to determine how to produce them. Except for the product development group, most work was done independently and without much collaboration. Informal Organization The culture at Sarah’s Snacks was integrally linked with Woodley’s core belief in the importance to health and wellness of eating organic products. Even at the top levels of the company, success was defined as meeting customers’ desires for snacks they could feel good about eating. This mission drove everything the company set out to do and represented a set of values that motivated employees seeking to serve a higher purpose. One employee noted that “most of us are here as much out of the sense that we’re doing good as for a paycheck.” Most employees regarded their co-workers as a family, and Woodley reinforced this sense in how she interacted with them. To the extent anyone thought about customers, it was as snack consumers with whom they would never directly interact. The predominant management style was characterized by benevolence and a high degree of trust; the executive team tended to smooth over conflict in search of reaching consensus on decisions. People In most functional areas, Sarah’s Snacks hired people based on their knowledge and skills rather than their psycho-social profile on such factors as adaptability or learning orientation. Some of its non-production staff joined the company soon after college graduation and had worked for no other employer. Sixty percent of employees were women, including a majority of the executive team. More than half of the employees had worked at the company for over ten years, and a few had been there almost since the start. Organizational Change In line with the consultant’s advice, the first order of business in changing the organization focused on how work was done. Woodley assigned her executive team the task of identifying key business processes. These included order fulfillment, which encompassed everything from taking orders from customers to receiving payment; product development, including analyzing market needs, moving from concept to prototype, market testing, and manufacturing and equipment design; procurement, which incorporated activities related to acquiring supplies, such as inputting purchase orders, receiving goods, and accounts payable. The next step identified how the processes could be redesigned and integrated across functions using information technology. This began with considering the perspective of the customer, then eliminating non-value adding steps, and finally devising new ways of organizing the work across functional lines. Doing so created new process flows of information supported by an integrated set of databases and portals that were part of an off-the-shelf system purchased by the company. The consultant had advised that to meet an aggressive implementation schedule, decisions at this important phase would need to be made quickly. Senior managers within the functional groups shared responsibility for process redesign. Often there was disagreement about the best solution; after long discussions, they generally took the approach that garnered the most support. The company took an incremental but accelerated approach to implementation by starting with the procurement process; other processes followed soon after. The changes focused exclusively on how work was done; no other organizational changes were made. They affected all employees at the company, although some more than others and manufacturing workers least of all. The new processes required employees to learn new ways of doing things, including how to use the new information technology system intended to replace existing applications. They also meant many employees needed to work with others in different departments for the first time. In addition, a key element of moving to a process-based organization was adopting a new, broader, internally focused view of who a customer was. Employees now had to think about whom the recipient of their work was and focus on the quality and timeliness of what they were sending. Results Implementing the new process designs proved more difficult than expected. The company had undertaken rolling out additional processes before the preceding ones had been completed. Many employees continued to rely on the old processes rather than adopting the new ways of doing things, which they regarded as both confusing and ineffective. They also continued to use existing applications that had not yet been retired, often failing to enter data in the new system. Most of these omissions were not discovered and rectified until weeks later. Employees found the new system difficult to learn, and it was much easier to do things the way they always had. As the key processes were being implemented, administration of the practices that were not affected continued unchanged. Annual reviews of non-production employees relied on existing performance plans since managers were too busy with the process redesigns to revise them. One consequence of the process changes was that a number of management positions were eliminated. Those who were laid off received two weeks’ notice and the promise of positive recommendations to their potential new employers. At the same time, recruitment and hiring of new employees continued unabated in order to replace essential ones who had left the company rather than deal with the effects of the process changes. Based on the consultant’s guidance, Woodley had anticipated cost savings of 10%-15% from reducing errors and rework, experiencing fewer stockouts, and eliminating most legacy software applications. She also expected a reduction of up to 30% in the time from conceiving a new product to producing and selling it. After a year and a half of effort, none of these outcomes had been achieved. Woodley wondered what had gone wrong and whether there was anything she could do about it.

Sarah’s Snacks (pp. 97-99 of Deszca).

1. Write a vision statement for Sarah Snack’s change initiative.

2. Evaluate your vision

• Clear, concise, and easily understood?
• Memorable?
• Exciting and inspiring?
• Challenging?
• Excellence centered?
• Stable and yet flexible?
• Implementable and tangible?

• 5. Does the vision promote change and a sense of direction?

  4. Does the vision provide the basis from which you can develop the implementation strategy and plan?

  5. Does the vision provide focus and direction to those who must make ongoing decisions?