Case Study: MERRITT'S BAKERY

by Steven L. McShane, Curtin University (Australia) and University of Victoria (Canada)

In 1979, Larry Merritt and his wife Bobbie bought The Cake Box, a small business located in a tiny 42-square metre store in Tulsa, Oklahoma. The couple were the only employees. "I would make cakes and Bobbie would come in and decorate them," Larry recalls. Bobbie Merritt was already skilled in decorating cakes, whereas baking was a new occupation for Larry Merritt, who previously worked as a discount store manager. So, Larry spent hours pouring over baking books in the local library and testing recipes through trial-and-error experimentation. "I threw away a lot of ingredients that first year," he recalls.

Sales were initially slow. Then, a doughnut shop around the corner was put up for sale and its owner made it possible for the Merritts to buy that business. They moved to the larger location and changed the company's name to Merritt's Bakery to reflect the broader variety of products sold. The Merritts hired their first two employees, who performed front store sales and service. Over the next decade, Merritt's Bakery's physical space doubled and its revenues increased 13-fold. The company employed 20 people by the time it made its next move.

In 1993, Merritt's Bakery moved to a 557-square metre location across the street. The business became so popular that customers were lining up down the street to buy its fresh-baked goods. "That looks like success to a lot of people, but that was failure," says Bobbie Merritt. Page 388The problem was that the couple didn't want to delegate production to employees, but they couldn't produce their baked goods or decorate their carefully crafted cakes fast enough to keep up with demand. "We felt like failures because we had to work those 20 hours (per day)," she reflects.

At some point, the Merritts realized that they had to become business owners and managers rather than bakers. They devised a plan to grow the business and drew up an organizational structure that formalized roles and responsibilities. When a second Merritt's Bakery store opened across town in 2001, each store was assigned a manager, a person in charge of baking production, another in charge of cake decorating and pastries, and someone responsible for sales. A third store opened a few years later. Larry worked on maintaining quality by training bakery staff at each store. "Because it is so difficult to find qualified bakers nowadays, I want to spend more time teaching and developing our products," he said at the time.

Christian Merritt, one of Larry and Bobbie's sons, joined the business in 2000 and has since become head of operations. An engineer by training with experience in the telecommunications industry, Christian soon developed flow charts that describe precise procedures for most work activities, ranging from simple store-front tasks (cashiering) to unusual events such as a power outage. These documents standardized work activities to maintain quality with less reliance on direct supervision. Christian also introduced computer systems to pool information across stores about current inventory levels, which products are selling quickly, and how much demand exists for Merritt's famous custom cakes. The information improved decision making about production, staffing, and purchasing without having to directly contact or manage each store as closely.

In late 2007, Merritt's Bakery's opened a dedicated production centre near the original store and moved all production staff into the building, affectionately called "the Fort." The centralized production facility reduced costs by removing duplication of staff and equipment, provided more consistent quality, and allowed the stores to have more front store space for customers.

Merritt's Bakery refined its training programs, from the initial orientation session to a series of modules on specific skills. For example, front store staff now complete a series of clinics that add up to 20 hours of training. The company also introduced special selection processes so people with the right personality and skills are hired into these jobs. Employees at Merritt's production facility receive decorator training through a graduated program over a longer time. One or two managers at the production site closely coach up to five new hires.

Today, Merritt's Bakery employs more than 80 people, including production managers, store managers, and a marketing director. Two-thirds of the business is in the creation of cakes for birthdays, weddings, and other events, but the company also has three busy and popular stores across Tulsa. "We're just now getting the pieces in place to start to treat Merritt's Bakery like a business, with a lot of parts that we manage from a distance," says Christian Merritt. "We're present but detached; we have our hands in a lot of things, but it's in managing stores instead of operating them." Discussion Questions

1 How have the division and coordination of labour evolved at Merritt's Bakery from its beginnings to today?

2 Describe how span of control, centralization, and formalization have changed at Merritt's Bakery over the years? Is the company's organizational structure today more mechanistic or organic? Are these three organizational structure elements well-suited to the company in their current form? Why or why not?

3 What form of departmentalization currently exists at Merritt's Bakery? Would you recommend this form of departmentalization to this company? Why or why not?

Critical Thinking Questions

1 Sobeys' organizational structure was described at the beginning of this chapter. What coordinating mechanism is likely most common in this organization? Describe the extent and form in which the other two types of coordination might be apparent at Sobeys.

2 Think about the business school or other educational group where you are currently attending classes. What is the dominant coordinating mechanism used to guide or control the instructor? Why is this coordinating mechanism used the most here?

3 Administrative theorists concluded many decades ago that the most effective organizations have a narrow span of control. Yet today's top-performing manufacturing firms have a wide span of control. Why is this possible? Under what circumstances, if any, should manufacturing firms have a narrow span of control?

4 Leaders of large organizations struggle to identify the best level and types of centralization and decentralization. What should companies consider when determining the degree of decentralization?

5 Diversified Technologies Ltd. (DTL) makes four types of products, with each type to be sold to different types of clients. For example, one product is sold exclusively to automobile repair shops, whereas another is used mainly in hospitals. Expectations within each client group are surprisingly similar throughout the world. The company has separate marketing, product design, and manufacturing facilities in Asia, North America, Europe, and South America because, until recently, each jurisdiction had unique regulations governing the production and sales of these products. However, several governments have begun the process of deregulating the products that DTL designs and manufactures, and trade agreements have opened several markets to foreign-made products. Which form of departmentalization might be best for DTL if deregulation and trade agreements occur?

6 Mechanistic and organic structures are two organizational forms. How do the three types of coordination mechanisms operate through these forms?

7 From an employee perspective, what are the advantages and disadvantages of working in a matrix structure?

8 Suppose you have been hired as a consultant to diagnose the environmental characteristics of your college or university. How would you describe the school's external environment? Is the school's existing structure appropriate for this environment?