ASSIGNMENT BMOM5203

JULY SEMESTER 2013

ORGANIZATIONAND BUSINESS MANAGEMENT BMOM5203
ASSIGNMENT (60%)
ASSIGNMENT OBJECTIVES: Upon completion of this assignment, the students are expected
to be able to:
understand fundamental concepts and principles of management, including the basic roles, skills,
and functions of management;
be familiar with interactions between the environment, technology, human resources, and
organizations in order to achieve high performance;
INSTRUCTIONS:
Read all six cases below and answer the questions at the end of each case. This is an individual
assignment which is worth 60% of the total course's grade.
ASSIGNMENT FORMAT:
Use double space and 12-point of Times New Roman font, one inch for every margin.
The assignments length should not exceed 5000 words excluding reference and appendix.
Always provide reference for each citation (if any). References should follow the American
Psychological Association (APA) format
Notes:

Assignments must be submitted by the exam day at the beginning of the exam
session. Assignment must be printed. No electronic submission will be
accepted.
Plagiarism is not acceptable. If you are not sure what is meant by plagiarism, refer to the various
websites which discuss this matter, e.g. owl.english.purdue.edu/handouts.

Case 1: STARBUCKS
Seattle, Washington.

Twenty years ago, if you said, Give me a venti, vanilla, nonfat latte, no room, three
Splendas, people would have thought you were speaking a foreign language. And you would
have been because Starbucks was just getting started. It began with 4 stores in Seattle in 1987,
and today there are over 17,000 stores in 40 different countries. That means Starbucks has
opened an average of 8 new stores per day! Unfortunately, with profits now a thing of the past,
Starbucks has closed 800 stores and laid off 25,000 workers.
Starbucks clearly overexpanded, providing fodder for late-night TV comedians who have
cracked jokes about Starbucks opening new stores inside existing stores. Customer Leslie Miller
said, Starbucks was stupid. They put them right next to each other. Because managers focused
on opening new stores for new customers, they paid less attention to existing stores where samestore sales dropped by 3 percent. While that doesnt seem like much, Starbucks has to lose only 6
to 8 customers per store per day to see a 1 percent drop in a stores sales. In other words, small
changes in customer buying habits make a big difference in Starbucks growth and profitability.
Consumers are stretching their dollars, which means Starbucks is fighting the perception
some would say realitythat Starbucks is a luxury. McDonalds coffee is undoubtedly
cheaper, but Starbucks points out that half of its coffee drinks are less than 3 dollars, while onethird are less than 2 dollars. Moreover, Starbucks coffee is actually less expensive than Dunkin
Donuts coffee after adjusting for the small serving sizes at Dunkin Donuts. Most consumers,
however, dont see it that way. Graduate student Amy Osbourne has cut her monthly Starbucks
budget from $60 to $30. Said Osbourne, I havent been going as often. Ive been making my tea
at home.
When Starbucks board of directors fired CEO James Donald, it asked founder Howard
Schultz to take charge again. Even though he had stepped down as CEO to become the boards
chair in 2000, he stayed involved in such operational details as deciding the color of holiday
cups. Schultz has always been a detail-oriented, hands-on boss, a perfectionist who demands a
lot of last-minute changes. When Starbucks launched its new Pike Place Roast coffee, he
selected the logo and then had it redesigned right before going to market. He even rewrote the
press release. Schultz is revered at Starbucks and workers sometimes applaud when he enters
meeting rooms or stores. He is such a legend within the company that What will Howard
think? drives nearly all decisions. Not surprisingly, that creates a tremendous amount of anxiety
among managers and employees. Schultz recognizes that this isnt a good thing. Said Schulz,
Its not healthy for the organization if everyones waiting for me to tell them what to do. Still,
Stanley Hainsworth, who was a vice president under Schultz, would have to tell people, Youre
not meeting with the king. Said Hainsworth, A lot of people were nervous, so if Howard asked
them what they thought, they would tell him what he wanted to hear.
Schultzs return has unfortunately not yet produced a turnaround in sales or profits.
Shultz, who is feeling the pressure, told employees, We have to defend our position; we have
lots of companies small and large who want to take a piece of our business away.

Questions
1.
So, what does Starbucks need to do to return to growth and profitability? Should it lower
prices? Should it expand its menu? What should be its strategy?
+ International expansion
Go for geographical expansion through licensing
Increase marketing efforts
Product based on regional preferences
Focus on innovative products
Implement process re-engineering to reduce waste
+ Product diversification
+ Change in marketing strategy
Schultzs transformation agenda 2008 2010:
+ Slowing the pace of new store
+ Closing 900 underperforming company-operated stores in US
+ Restructuring store in Australia and close 61 stores
+ Raising the projected return on capital requirement for new store location
+ Enhancing the customer experience at Starbuck stores
+ Share the best experience across all stores world wide
+ Cut the operation cost
+ Gain more revenue
+ Social responsibility
+ Raising the loyal.
An recommend form Ganchao Wang on 2 April 2013:
+ Continue the strategies in 2008
+ Expansion:
- Entering the new international markets using licensing
- Continue growth in the existing markets with licensing or conpany-owned store.
+ Begin night markets in Starbuck stores.
+ Increase marketing and promotion by CSR innitiatives.

2.
As founder, Schultz brought enormous success to Starbucks. But is he the right leader for
Starbucks now? Should he continue as CEO? Is he meeting his basic responsibilities as
Starbucks top manager? What key mistakes is he making?
3.
Finally, how should Starbucks counter its new competition, McDonalds and Dunkin
Donuts? If you were CEO of Starbucks, what would you do?
http://books.google.com.vn/books?
id=yRbbuXQidjYC&pg=PT25&lpg=PT25&dq=what+does+Starbucks+need+to+do+to+return+t
o+growth+and+profitability&source=bl&ots=tkk5U0Y-xI&sig=UE1LiggC-DYo4WHFfN7WC6YdOg&hl=en&sa=X&ei=DxJfVKHJMOO7mAWPk4D4Cg&ved=0CDQQ6AEwBA#v=onepa

ge&q=what%20does%20Starbucks%20need%20to%20do%20to%20return%20to%20growth
%20and%20profitability&f=false
http://books.google.com.vn/books?
id=Jr7V4HtKuOsC&pg=PR9&lpg=PR9&dq=If+you+were+the+CEO+of+Starbucks,+
+what+would+you+do?
+effective+management+chuck+williams&source=bl&ots=RtvwsrXqj3&sig=0RhvCS6SIP8A8
Dwa3BDfVuTuXuM&hl=en&sa=X&ei=wCJfVOT6B4bCmAWDqIDQDA&ved=0CCgQ6AEw
Aw#v=onepage&q=If%20you%20were%20the%20CEO%20of%20Starbucks%2C%20%20what
%20would%20you%20do%3F%20effective%20management%20chuck%20williams&f=false
Sources: Is the Global Domination of Starbucks Finally on the Wane? Belfast Telegraph, 3
July 2008, 1; J. Adamy, Schultzs Second Act Jolts of Starbucks; Already Intense, He Faces
New Pressure: Peltz Owns a Stake, The Wall Street Journal, 19 May 2008, A1; M. Barbaro and
A. Martin, Overhaul, Make It a Venti, The New York Times, 30 January 2008, C1; E. Campbell,
E. Ailworth, and A. Jennings, Average Joe Figured Out the Problem a While Ago, The Boston
Globe, 3 July 2008, E1; P. McNamara and B. Hutchinson, Not So Grande for Starbucks. Java
Giants Bean Counters to Close 600 Stores, New York Daily News, 2 July 2008, 6; D. Mitchell,
Starbucks Faces Existential Crisis in Downturn, The Washington Post, 22 March 2009, G01.

Case 2: WAL-MART
Bentonville, Arkansas.id,

With annual revenue of $430 billion, 2 million employees, and 7,300 stores worldwide
(and even larger numbers by the time you read this), Wal-Mart is the largest company in the
world and has held the number-one spot on the Fortune 500 list 6 out of the last 7 years. But, as
the worlds largest company, Wal-Mart is also one of the worlds largest targets for anti-corporate
groups and lawsuits. Indeed, to its critics, over the last decade Wal-Mart has become the default
symbol of corporate evil.
On the issue of employee pay, Wal-Mart has been accused of forcing employees to work
off the clock (working overtime and during breaks without pay) and of paying Wal-Mart
employees wages that fall below the poverty line. In terms of health-care benefits, critics such as
http://www.wake-upWalMart .com complain that Wal-Mart provides health insurance for only 43
percent of its employees compared to 66 percent for most other companies; that although
managers receive health benefits their first day on the job, full-time and part-time employees
must wait 6 months and 12 months, respectively, before enrolling in Wal-Marts health insurance
program; and finally, that average Wal-Mart employees must spend a disproportionate share of
their income, approximately 22 to 40 percent, to cover their health insurance premiums and
medical deductibles. Wal-Mart, of course, disputes these facts and allegations and argues that
many of these critical organizations and websites are financed by unions that have tried
unsuccessfully for two decades to organize Wal-Marts employees, who represent the largest
work force in the world.
Environmental groups, like the Sierra Club, have also been highly critical of Wal-Mart.
According to the Sierra Club, Big Box stores like Wal-Mart threaten our landscape, our
communities, and the environment by building on the fringe of town, paving vast areas for stores
and parking lots, and undermining the economic health of existing downtown shopping areas.
The Sierra Club also opposes new Wal-Mart stores because it believes their development
destroys wetlands and increases the risk of flooding-based pollution.
With the average footprint of a Wal-Mart supercenter running about 18 acres, the Sierra
Club believes that Wal-Mart is a major contributor to non-point source water pollution, which
it says is the leading cause of water pollution in the U.S. According to the Sierra Club, an
undeveloped acre with trees and grass and flowers and bushes only produces 2,700 gallons of
rainwater runoff for each inch of precipitation. In other words, most of the rainwater is absorbed
into the ground. By contrast, a developed acre, meaning an acre that has been paved and has
buildings, produces 25,000 gallons of rainwater runoff for each inch of precipitation. Since the
average Wal-Mart supercenter is 18 acres, an inch of precipitation leads to 450,000 gallons of
rainwater runoff filled with pollutants such as oil, chemicals, and bacteria.
Unrelenting attacks have undoubtedly affected how people view Wal-Mart. Gerald Baron,
founder and president of a corporate relations consulting company, says, Wal-Mart has a
reputation crisis. Ironically, though, this has had little effect on Wal-Marts sales. Indeed, WalMarts internal research shows that less than 0.1 percent of the people who are familiar with
these criticisms would not shop or have stopped shopping at Wal-Mart.

Questions
So, with almost no impact on its sales and little concern among its customers, should Wal-Mart
take on its critics and fight back, or should it focus on its business and let its results speak for
themselves?
What should Wal-Mart do, if anything, in regard to highly publicized criticisms about the pay
and benefits it awards to its employees? Should it ignore them or address them?
Should Wal-Mart view environmentalists complaints as a threat or an opportunity for the
company? If you were the CEO of Wal-Mart, what would you do?
Sources: Stop Sprawl: How Big Box Stores like Wal-Mart Affect the Environment and
Communities, The Sierra Club, available online at http://www.SierraClub.com [accessed 13
May 2009]; P. Gogoi, Wal-Mart: A Reputation Crisis, BusinessWeek, 31 October 2006,
available online at http://www.businessweek .com [accessed 13 May 2009]; M. Hamstra, WalMart to Settle Labor Lawsuits, Supermarket News, 5 January 2009; S. Kapner, Changing of the
Guard at Wal-Mart, Fortune, 2 March 2009, 6876; C. Palmeri, For Exiting Wal-Mart, CEO
Victory Lap, BusinessWeek, 24 November 2008, 11.

Case 3: FORD MOTOR COMPANY

Dearborn, Michigan

You turned Boeing around from billion-dollar losses to huge profitsand increased market
share. But when you became Ford Motor Companys CEO, people asked, What does an
airplane guy know about the car business? Well, on your first day as CEO, you reviewed the
product lineup and discovered something missing, the Ford Taurus, the best-selling car in
company history. Where was it? you asked. We killed it. After a while, they didnt sell very
well, so we stopped. Incredulous, you replied, You stopped? How many billions of dollars did
it cost to build brand loyalty around the Taurus name? Well, youve got until tomorrow to find a
vehicle to put the Taurus name on. Then, you have two years to make a new Taurus, which had
better be the coolest vehicle that you can possibly make. So, in less than four hours, you made
your first billion-dollar decision. It wouldnt be your last. With billions of dollars in losses, you
eliminated 46,000 jobs, sold off Aston Martin, Jaguar, and Land Rover, and cut truck and SUV
production by 40 percent. Despite these drastic moves, Ford still lost $12.6 billion your second
year and $2.7 billion your third.
With losses still mounting, the first major issue you need to address is vehicle customization, that
is, maximizing consumer choice by producing different cars with different parts for different
world markets. Vehicle customization originated in 1967 when Fords European operations were
created to design and manufacture cars just for Europe. Consequently, when Ford attempted to
cut costs by creating a common world car to be sold in Europe and the United States, it failed.
The resulting cars (yes, cars), one designed in Detroit and the other in Germany, were
completely different except for two shared parts.
The second major issue is that Fords management teams have difficulty staying on target and
tracking company performance. Even with downsizing, Ford is a complex company with
205,000 employees, multiple product lines, and international operations on four continents.
Surprisingly, Fords managers only stay in their jobs a few years. And, if youre off to your next
job and dont have to live with the consequences of your decisions, why care about whether you
meet your departments or divisions goals?
The final issue is that contentious relationships between Fords divisions have produced
dysfunctional decision making. Different geographic regions and functional divisions, such as
engineering, production, and sales, are more interested in doing what they want than what is best
for Ford as a whole. Feelings on this issue are so strong that your management team pleaded with
you to remove Fords blue logo from one of your PowerPoint presentations so as not to
alienate those who worked for Fords Volvo, Jaguar, and Lincoln divisions. At the time you
agreed, but now realize it was a mistake.
Three years ago, you arranged for $23 billion in loans to get the company through tough times.
And with Chrysler and GM in bankruptcy, and industry sales off 35 percent, youve needed
every dime. But, youre 65 percent through those funds, so youve got to address these key
issues. Fords survival depends on it. Should Ford continue to make different cars for Europe and
the United States? If so, how do you lower expenses? If not, then how do you get the company to
produce the world cars, when it has failed to do so before? What should Fords strategic
objective be here? Beyond making managers stay longer in their jobs, which wont be popular,
how will you change Fords culture so that managers pay attention to company plans and feel
accountable for meeting performance targets? Finally, what will you do to address the
dysfunctional way in which decisions are made, where different departments and uni/ts care

more about their issues than the companys issues? If you were the CEO of Ford, what would
you do?
Questions
1.
Should Ford continue to make different cars for Europe and the United States? If so, how
do you lower expenses? If not, then how do you get the company to produce the world cars,
when it has failed to do so before? What should Fords strategic objective be here?
2.
Beyond making managers stay longer in their jobs, which wont be popular, how will you
change Fords culture so that managers pay attention to company plans and feel accountable for
meeting performance targets?
3.
Finally, what will you do to address the dysfunctional way in which decisions are made,
where different departments and units care more about their issues than the companys issues?
Sources: M. Dolan, J. Stoll, and N. Boudette, Fords Stumble Signals Rising Risks; Pickup,
SUV Sales Take Surprisingly Steep Fall; Return to Profi t in 09 Now unlikely, The Wall
Street Journal, 23 May 2008, A1; D. Kiley, Fords Savior? BusinessWeek, 16 March 2009, 30;
M. Spector, Ford Eyes More Cuts As Recovery Advances; Earnings Improve, Quality Ratings
up; Volvo Sales Possible, The Wall Street Journal, 23 April 2008, A1; M. Spector, Ford Plans a
Taurus Redesign, The Wall Street Journal, 23 January 2008, D7; A. Taylor, Can This Car Save
Ford? Fortune, 5 May 2008, 170; A. Taylor, Fixing up Ford, Fortune, 25 May 2009, 44.

Case 4: CISCO SYSTEMS

Palo Alto, California.

Your board of directors wants to know: How should Cisco grow? Your response was,
Well, the way weve grown in the past is. . . . No. Thats not the question. Looking backward
is easy. How should we grow in the future? Should we build or buy? And with the next board
meeting in only three months, you dont have much time to come up with the answer. Cisco
started in 1984 as the plumbers of the Internet by making the switches and routers that direct data
traffic over corporate networks and then later, the Internet. Its products werent sexy, but every
company with an expanding network needed them. So Cisco became the fastest-growing and
most valuable company in the world (on the basis of its stock price and total market
capitalization). That is, until the technology crash of 2001, which resulted in a $2.5 billion charge
for unsold inventory and a stock price that dropped by 83 percent. However, by laying off 10,000
employees, redesigning routers and switches to have fewer and more interchangeable parts, and
reducing its 50 product lines to 40, Cisco cut expenses 17 percent and became profitable again.
Nearly a decade later, things are much different. Ciscos revenues are six times larger than the
combined revenues of its top 11 competitors. Cisco has nearly 60,000 employees who work in
450 offices in 96 countries. And, the company pulls in $40 billion a year in revenue, threequarters of which comes from routers and switches (i.e., plumbing) with 65 percent gross
profit margins. But as you and your board know from experience, theres no guarantee that this
success will last, especially in high tech, where competitors catch up with and replace the leading
firms in their industries on a regular basis.
How should Cisco grow? Build or buy? Well, 75 percent of our revenues already come from
routers and switches, and its unlikely that we could become more dominant in this area. So if we
were to build, in other words, to come up with new products in new areas, what might those be?
Should we focus on products that businesses buy? After all, thats who we sell to now. Or, should
we take our expertise in routers and switches and focus on consumer products? Finally, while
Cisco is growing 15 percent per year, thats down significantly from the 40 percent growth that
weve had since inception, save for 2001. So we need to identify high-growth markets and
products that we could design and build.
If we grow by purchasing technology firms with already established products or services, should
we stick to our knitting by buying firms with products and services closely related to our existing
business? Or should we diversify by buying firms that are very different from our basic business,
routers and switches? For instance, Cisco has the opportunity to acquire a firm that specializes in
technology security (spam, viruses, malware, and other Internet threats), an area in which it has
no experience. Whats more likely to work and be less risky, buying firms with similar products
or services (like Ciscos) or buying firms with different products or services? Basically, should
Cisco move beyond its core business?
Finally, if we do decide to buy firms with already established products or services, how can we
make sure those acquisitions work? Study after study shows that most mergers and acquisitions
have no better than a 5050 shot of working. In other words, buy another firm, try to merge its
products and services and culture and people into your firm, and theres only a 50 percent chance
of success. Those are lousy odds. If we buy existing firms, what could we do to increase the odds
that our acquisitions would be successful? If you were the CEO of Cisco, what would you do?

Questions
1.
How should Cisco grow? Build or buy?
2.
If we grow by purchasing technology firms with already established products or services,
should we stick to our knitting by buying firms with products and services closely related to our
existing business? Or should we diversify by buying firms that are very different from our basic
business, routers and switches? Basically, should Cisco move beyond its core business?
3.
Finally, if we do decide to buy firms with already established products or services, how
can we make sure those acquisitions work? If we buy existing firms, what could we do to
increase the odds that our acquisitions would be successful?
Sources: R. Burrows and A. Ricadela, Cisco Seizes the Moment, BusinessWeek, 25 May 2009,
46; E. McGirt, How Ciscos CEO John Chambers Is Turning the Tech Giant Socialist, Fast
Company, 25 November 2008, available online at http://www.fastcompany.com [accessed 8 June 2009];
B. White, Ciscos Homegrown Experiment; Slower Growth Forces Networking Company to Be
Its Own Start-Up, The Wall Street Journal, 23 January 2007, A14; B. White and V. Vara, ReRouted: Cisco Changes Tack in Takeover Game, The Wall Street Journal, 17 April 2008, A1; S.
Wildstrom, Meet Cisco, the Consumer Company, BusinessWeek, 4 May 2009, 73.

Case 5: YAHOO!
Sunnyvale, California.

When Yahoo! co-founder Jerry Yang invited you to his house, you said, Im not taking
the CEO job, so I hope you have good wine. When Yang started talking about Yahoo!, it was a
bit confusing, so you asked him to draw an organizational chart so you could follow along. As he
drew, you thought, Thats really the organization? So you asked who makes key decisions
about, for example, Yahoo!s search function and engine. Yang started drawing arrows, lines
crisscrossed all over, and you thought, This is just like a Dilbert cartoon. You couldnt figure
out who was in charge of what. I got it, you told him, What Yahoo! needs is a manager.
But, you werent the first to figure that out. Several years earlier, Yahoo! senior executive Brad
Garlinghouse wrote what came to be known as the Peanut Butter Manifesto, in which he said,
Ive heard our strategy described as spreading peanut butter across the myriad opportunities that
continue to evolve in the online world. The result: a thin layer of investment spread across
everything we do and thus we focus on nothing in particular. I hate peanut butter. We all should.
Garlinghouse went on to say that Yahoo! lacked a focused, cohesive vision, clarity of
ownership and accountability, and decisiveness. He attributed many of those problems to the
companys structure, saying, We are separated into silos that far too frequently dont talk to
each other. And when we do talk, it isnt to collaborate on a clearly focused strategy, but rather to
argue and fight about ownership, strategies and tactics. We now operate in an organizational
structureadmittedly created with the best of intentionsthat has become overly bureaucratic.
For far too many employees, there is another person with dramatically similar and overlapping
responsibilities. This slows us down and burdens the company with unnecessary costs. In the
end, Garlinghouse concluded, The current business unit structure must go away, and that the
smoothly spread peanut butter needs to turn into a deliberately sculpted strategythat is
narrowly focused.
This is not the first time that Yahoo! has had problems finding the right organizational structure.
At one time, Yahoo! didnt even have a direct sales unit! Speedy growth, organizational
complexity and the fast-paced change of online business have made it difficult to properly
structure the company. Indeed, Yahoo! just went through a reorganization less than a year ago in
which heads of international markets were given more autonomy so their units could do a better
job of appealing to customer preferences in different parts of the world. But complaints started
immediately, as few in the company really understood who was responsible for what. Clay
Moran, senior vice president and market research analyst for an investment firm, summed up
skeptics views by saying, We have seen no noticeable impact from recent restructurings.
With profits down 78 percent and a recent layoff of 5 percent of the company workforce, you
wonder where you should start. Clearly, with so many different business units and widespread
confusion under the current matrix structure, a new structure is inevitable. But, as you look at
Yahoo!s website, you wonder if a functional, customer, product, or geographic structure would
work best, and why? Next, what steps can you take to instill ownership, accountability and
decisiveness throughout, but still give the techies enough freedom to innovate and create? In
other words, what tradeoff s and balance do you need to make in terms of centralization and
decentralization? Finally, the lack of a cohesive vision appears to be at the center of Yahoo!s
organizational structure issues. Is Yahoo!, like Google, a search and Web advertising company?
Is it a media company that draws 600 million visitors a year to its rich sources of news, financial
information, and online communities? Or, is it a technology conglomerate that builds and

delivers Web applications and services? Which should be Yahoo!s cohesive vision, and whats
the right way to structure the company to support that vision? If you were the new CEO at
Yahoo!, what would you do?
Questions
1.
For Yahoo!, would a functional, customer, product, or geographic structure work best,
and why?
2.
What steps can you take to instill ownership, accountability and decisiveness throughout,
but still give the techies enough freedom to innovate and create? In other words, what tradeoff s
and balance do you need to make in terms of centralization and decentralization?
3.
Which should be Yahoo!s cohesive vision, and whats the right way to structure the
company to support that vision?
Sources: C. Bartz, A Question of Management: Carol Bartz on How Yahoos Organizational
Structure Got in the Way of Innovation, The Wall Street Journal, 2 June 2009, R4; K. Delaney,
Spreading Change: As Yahoo Falters, Executives Memo Calls for Overhaul; Peanut Butter
Manifesto Seeking Focus and Cuts Makes Waves at Web Titan; Can It Wring More From Ads?
The Wall Street Journal, 18 November 2006, A1; J. Fortt, Yahoos Taskmaster, Fortune, 27
April 2009, 80-84; B. Garlinghouse, Yahoo Memo: The Peanut Butter Manifesto, The Wall
Street Journal, 18 November 2006, available online at http://online.wsj.com [accessed 6
December 2009]; R. Hof, What Yahoo Needs from Bartz Right Now, BusinessWeek, 14
January 2009, 7; R. Hof, Yahoos Bartz Starts Strong, BusinessWeek, 23 April 2009, 24; J.
Vascellaro, Yahoos Decker Sets a New Reorganization, The Wall Street Journal, 21 June
2008, A4; J. Vascellaro, Yahoo CEO Set to Install Top-Down Management, The Wall Street
Journal, 23 February 2009, B1; J. Vascellaro, Yahoo Posts 78% Profit Drop, Cuts Jobs, The
Wall Street Journal, 22 April 2009, B1.

Case 6: BURGERVILLE, Walla Walla, Washington.

Hey boss, wheres the drive-through cook? Customers cars are backed up to the street
and are waiting seven minutes for their orders, way over our goal of three minutes! Well, the
drive-through cook never showed up, and with employee turnover running 128 percent per year,
a cook isnt coming until you hire a new one.
The problem with that much turnover is you cant consistently produce a quality product.
Making hamburgers and fries may seem simple, but a Burgerville customer spends about $2
more on average than a McDonalds customer, which is reflected in the complexity of your
menu. For example, because you source all ingredients locally, hamburgers are not frozen, but
made fresh from grass-fed beef. That means more steps than just throwing a frozen hamburger
patty onto a hot grill. Each summer, fresh Oregon blackberries and raspberries are hand
processed by your employees to make smoothies and milk shakes. Your vice president of
marketing and menu development explains the extra work involved, Each year we train our staff
to quickly clean, hull, and chop these berries to ensure freshness, and each restaurant goes
through an average of eight flats a day of fresh berries! Likewise, each summer, employees hand
cut 250,000 pounds of fresh onions from Walla Walla, Washington, to make Burgervilles famous
(and huge!) onion rings. Again, your vice president of marketing and menu development
explains, To ensure consistent quality, each year we have a training session at one of our
supplier partners to teach trainers the best ways to slice the onions, coat them in batter, [and]
season and fry them. Finally, salads are made with wild Coho salmon, hazelnuts, shell-smoked
blue cheese, baby brunia arugula, and organic cranberries and apples, and cheeseburgers are
made with locally produced Tillamook cheddar cheese.
Burgerville turned to local sourcing and fresh ingredients in the 1990s because it couldnt
compete with McDonalds, Burger King, or Wendys. Guest counts had dropped significantly, so
it looked for a way to differentiate itself from the burger giants. Higher costs usually prevent
fast-food restaurants from using fresh, locally grown ingredients, but with an aggressive supply
chain effort, you found ways to work successfully with local suppliers and keep costs down. But
now, your high turnover rates are threatening the companys strategy. Indeed, a quit rate of 128
percent means the company has to recruit, hire, and train 1,920 workers a year just to maintain its
workforce of 1,500 employees across 39 restaurants. The restaurant industry estimates that it
costs $3,000 to replace each hourly worker, so employee turnover is costing Burgerville $5.76
million a year in replacement costs alone, not to mention the lost revenue from decreases in
quality (which hurt sales and customer retention) and lost productivity (it takes 3090 days for
most of your employees to learn their jobs). Most of your jobs pay minimum wage. The
question, of course, is what to do about it.
Sources: M. Gottfied, What a Cause with That? Forbes, 8 January 2007, 83; A. Levin, Chain
Profile: Burgerville, Food Service Equipment & Supplies, October 2006, 5254; C. Lydgate,
Reinventing the Cheeseburger, Inc. Magazine, November 2007, 124125; S. Reda, Sticky
Strategies for Retention: Retailers Take Different Approaches to Keeping Associates in the
Field, Stores, October 2008, available online at http://www.stores.org [accessed on 13
December 2009]; M. Rogers, Natural Resources, Chain Leader, March 2006, 5358.
Questions

1.
So, should you increase pay like Starbucks has, or are there other things on which you
should focus to recruit more qualified applicants?
2.
How do you select or screen people for preparing food, handling the cash register, and
taking orders? Are interviews enough?
3.
Finally, what might you do to make working at Burgerville more satisfying? That is, once
theyve taken the job, how do you get them to stay more than a few months?