Cooking Up A New Structure

A few years ago, Sara Lee CEO John H. Bryan realized that he had a problem. During the 25 years of his tenure, the firm had grown beyond its foundation in food products to encompass dozens of lines of businesseverything from cake mixes to insecticide to lingerie. The new businesses were acquisitions, and the original managers controlled each one as if it were a separate company. Calculating the cost of all this duplication, Bryan reached the conclusion that the company could not afford high costs at a time when price competition was heating up.

In an effort to fix things, Bryan sold or eliminated about one-quarter of the firm's 200 products. He cut redundant factories and the workforce, reduced the number of products, and standardized company-wide processes. He called his extensive restructuring program "deverticalization," and his goal was to remove Sara Lee from manufacturing while strengthening its focus and effectiveness as a marketer. In the meantime, however, he continued to acquire rival firms to sustain the company's growth. Despite Bryan's efforts, Sara Lee continued to suffer from high costs and remained unfocussed and inefficient. Said one industry analyst about Bryan's strategy: "Sometimes, the more chairs you move around, the more dust you see behind the chairs."

When C. Steven McMillan took over from Bryan at Sara Lee, it was, in the immortal words of Yogi Berra, ". . . dj vu all over again." McMillan quickly realized that Bryan's moves had had little impact on the firm's performance and that he himself would need to start making some big changes. Borrowing a page from rival Kraft Foods, he began by merging the sales forces that specialized in various brands to create smaller, customer-focussed teams. In meats alone, for instance, Sara Lee had 10 different brands, including Ball Park, Hillshire Farms, Bryan, and Jimmy Dean. "So, if you're a Safeway," explained McMillan, "you've got to deal with 10 different organizations and multiple invoices." Teams reduced duplication and were more convenient for buyersa win-win situation. National retailers like Wal-Mart responded by increasing their orders for Sara Lee products.

McMillan also centralized decision making at the firm by shutting down 50 weaker regional brands and reorganizing the firm into three broad product categories: Food and Beverage, Intimates and Underwear, and Household Products. He abolished several layers of corporate hierarchy, including many of the middle managers the firm had inherited from its acquisitions. He created category managers to oversee related lines of business, and the flattened organizational structure led to improved accountability and more centralized control over Sara Lee's far-flung operations.

McMillan also borrowed some tactics from his predecessor, divesting 15 businesses, including Coach leather goods, and laying off 10 percent of his workers. In another move that was widely questioned by industry observers, he paid $2.8 billion for breadmaker Earthgrains. The move increased Sara Lee's market share in baked goods, but many observers felt that McMillan paid too much for a small potential return.

McMillan still had a few tricks up his sleeves. One bold move was developing a chain of retail stores named Inner Self. Each store features a spa-like atmosphere in which to sell Sara Lee's Hanes, Playtex, Bali, and Wonderbra products. Susan Nedved, head of development for Inner Self, thinks that the company-owned stores provide a more realistic and comforting environment for making underwear purchases than do some specialty outlets. "There seems to be an open void for another specialty concept that complements Victoria's Secret," says Nedved. "There was a need for shopping alternatives that really cater to the aging population."

McMillan remains confident that his strategymore centralization, coordination, and focuswill do the trick at Sara Lee. "I do believe the things we're doing will enhance the growth rate of our company," he says. But many observers are less optimistic. As for Inner Self and underwear, one analyst points out that "even if you fix that business, it's still apparel, and it's not really viewed as a high-value-added business."

Even if McMillan's strategy does manage to cut costs and increase market share, skeptics point out that there is no logic behind the idea of housing baked goods, meats, coffee, underwear, shoe polish, and household cleaners under one corporate roof. Unless McMillan can find some as-yet-undiscovered synergy among such disparate units, Sara Lee is probably headed for a breakup into several smaller, more focussed, more profitable companies.

Questions for Discussion

1. Describe the basic structural components at Sara Lee.

2. What role does specialization play at Sara Lee?

3. What kinds of authority are reflected in this case?

4. What kind of organizational structure does Sara Lee seem to have?

5. What role has the informal organization played in Sara Lee's various acquisitions and divestments?