CASE FOR ANALYSIS | Sunflower Incorporated

Sunflower Incorporated is a large distribution company with more than 5,000 employees and gross sales of more than $700 million (2008). The company purchases salty snack foods and liquor and distributes them to independent retail stores throughout the United States and Canada. Salty snack foods include corn chips, potato chips, cheese curls, tortilla chips, pretzels, and peanuts. The United States and Canada are divided into 22 regions, each with its own central warehouse, salespeople, finance department, and purchasing department. The company distributes national and local brands and packages some items under private labels. Competition in this industry is intense. The demand for liquor has been declining, and snack food competitors like Procter & Gamble and Frito- Lay have developed new products and low-carb options to gain market share from smaller companies like Sunflower. The head office encourages each region to be autonomous because of local tastes and practices. In the northeastern United States, for example, people consume a greater percentage of Canadian whiskey and American bourbon, whereas in the West they consume more light liquors, such as vodka, gin, and rum. Snack foods in the Southwest are often seasoned to reflect Mexican tastes, and customers in the Northeast buy a greater percentage of pretzels. Early in 2003, Sunflower began using a financial reporting system that compared sales, costs, and profits across company regions. Each region was a profit center, and top management was surprised to learn that profits varied widely. By 2006, the differences were so great that management decided some standardization was necessary. Managers believed highly profitable regions were sometimes using lower-quality items, even seconds, to boost profit margins. This practice could hurt Sunflower's image. Most regions were facing cutthroat price competition to hold market share. Triggered by price cuts by Eagle Snacks, national distributors such as Frito-Lay, Borden, Nabisco, Procter & Gamble (Pringles), and Kraft Foods (Planters Peanuts) were pushing to hold or increase market share by cutting prices and launching new products. Independent snack food distributors had a tougher and tougher time competing, and many were going out of business. As these problems accumulated, Joe Steelman, president of Sunflower, decided to create a new position to monitor pricing and purchasing practices. Loretta Williams was hired from the finance department of a competing organization. Her new title was director of pricing and purchasing, and she reported to the vice president of finance, Peter Langly. Langly gave Williams great latitude in organizing her job and encouraged her to establish whatever rules and procedures were necessary. She was also encouraged to gather information from each region. Each region was notified of her appointment by an official memo sent to the 22 regional directors. A copy of the memo was posted on each warehouse bulletin board. The announcement was also made in the company newspaper.

After three weeks on the job, Williams decided two problems needed her attention. Over the long term, Sunflower should make better use of information technology. Williams believed information technology could provide more information to headquarters for decision making. Top managers in the divisions were connected to headquarters by an intranet, but lower-level employees and salespeople were not connected. Only a few senior managers in about half the divisions used the system regularly. In the short term, Williams decided fragmented pricing and purchasing decisions were a problem and these decisions should be standardized across regions. This strategy should be undertaken immediately. As a first step, she wanted the financial executive in each region to notify her of any change in local prices of more than 3 percent. She also decided that all new contracts for local purchases of more than $5,000 should be cleared through her office. (Approximately 60 percent of items distributed in the regions were purchased in large quantities and supplied from the home office. The other 40 percent were purchased and distributed within the region.) Williams believed the only way to standardize operations was for each region to notify the home office in advance of any change in prices or purchases. She discussed the proposed policy with Langly. He agreed, so they submitted a formal proposal to the president and board of directors, who approved the plan. The changes represented a complicated shift in policy procedures, and Sunflower was moving into peak holiday season, so Williams wanted to implement the new procedures right away. She decided to send an e-mail message followed by a fax to the financial and purchasing executives in each region notifying them of the new procedures. The change would be inserted in all policy and procedure manuals throughout Sunflower within four months.

Williams showed a draft of the message to Langly and invited his comments. Langly said the message was a good idea but wondered if it was sufficient. The regions handled hundreds of items and were accustomed to decentralized decision making. Langly suggested that Williams ought to visit the regions and discuss purchasing and pricing policies with the executives. Williams refused, saying that such trips would be expensive and time consuming. She had so many things to do at headquarters and said that the trips were impossible to schedule. Langly also suggested waiting to implement the procedures until after the annual company meeting in three months, when Williams could meet the regional directors personally. Williams said this would take too long because the procedures would then not take effect until after the peak sales season. She believed the procedures were needed now. The messages went out the next day. During the next few days, e-mail replies came in from seven regions. The managers said they were in agreement and were happy to cooperate. Eight weeks later, Williams had not received notices from any regions about local price or purchase changes. Other executives who had visited regional warehouses indicated to her that the regions were busy as usual. Regional executives seemed to be following usual procedures for that time of year. She telephoned one of the regional managers and discovered that he did not know who she was and had never heard of her position. Besides, he said, "we have enough to worry about reaching profit goals without additional procedures from headquarters." Williams was chagrined that her position and her suggested changes in procedure had no impact. She wondered whether field managers were disobedient or whether she should have used another communication strategy.

STRUCTURE & CONTROL SYSTEMS

Analyze structure and control systems and determine the degree of fit between the company's strategy (strategies) and structure.

ALTERNATIVE COURSES OF ACTION

List all possible courses of action that could reduce or eliminate the problem.

A

B

C

D

EVALUATION OF ALTERNATIVES

List probable consequences of alternatives (at least four possibilities).

RECOMMENDED COURSE OF ACTION

Select the most desirable alternative. Make sure your recommendations are consistent with desired strategy and written in the form of an action plan that may include a timetable of sequential actions...