Situational Analysis

Mike Valenti, owner of Michael’s Homestyle Pasta (MHP) (having revenue of USD 17 Mn),
acquired the Southern Pasta (SP) company of Florida on 10th December in order to eliminate the
only competition that MHP faced for its special stuffed pasta product.
The work culture at SP was not transparent with top level management putting pressure on the
lower management to deliver products, even if tested negatively in quality tests. For instance, in
May 2001, SP had to recall contaminated products, following a FDA enquiry, which cost them
0.5 USD Mn.
However, 3 weeks after the acquisition, on morning of 31st December, Mike comes to know that
seafood-stuffed seashells sent to 200+ restaurants to be used in the evening are contaminated
with salmonella, a bacterium responsible for about 600 deaths per year.
A decision has to be taken quickly and hence Mike starts analysing the facts. Few of the facts
and inferences derived are as follows:
1. The restaurant company needs to heat the product above 160ºF according to the standards
set by FDA. So in case, there is any health problem that takes place, the restaurant would
also be jointly responsible as it would mean that they did not follow the regulation of
heating the product above 160 degrees.
2. Considering that virtually every lot of the seafood-stuffed shells were contaminated
before acquisition and there were no reported health issues among the public, it can be
safely assumed that the cooking process is robust across all the restaurants. The cooking
process can further be assumed to be robust across all the restaurants owing to the fact
that all the restaurants are a part of a single restaurant chain.
3. The restaurant chain, with over 200 restaurants to which contaminated products have
been dispatched generates $3.5 MN revenue out of total of $8 MN for SP. Thus, there is a
risk of losing nearly 44% of the newly acquired business.
4. Taking no action can lead to Mike’s image as an interactive and hands-on manager can
being tarnished in front of employees like Fred Jones (SP’s quality assurance manager)
5. Since the contaminated food lots delivered to the restaurant chain were manufactured in
November and early December i.e. before the acquisition, the blame, in case of crisis
could be shifted to the previous owners. This could prevent the company from being shut
down but again the reputation would take a hit.
Problem Statement
Mike Velanti faces a potential financial and reputational loss, and extreme ramifications including
the shutdown of the entire company. He has to decide on a course of action that minimizes the
above loss.

Alternatives
1. No action: Based on the assumption that cooking is robust across all restaurants and would
continue to remain the same, taking no action would suffice. Also, according to the lawyer,
even if any incident occurs, the liability could be shifted to the previous owners, as the
production of the bacteria tainted batch happened before the acquisition.
However as it is the New Year’s Eve, the demand could be significantly higher than normal
days and could lead to restaurants not following the regulation of heating the pasta to 160ºF.
If anyone falls ill due to consumption of the pasta, the goodwill of MHP could be
compromised. A negative cultural precedence would be set by Mike.
2. Recall: Mike can recall the shipments from all the restaurants of the customer. This would
lead to a loss of over $0.5 MN as per the past experience, which is only 2% of the revenue.
The goodwill of the company would be less damaged, as the decision would show Mike’s
integrity. Mike would also set a positive cultural precedence. However the restaurant would
face revenue loss as New Year’s Eve brings in a lot of revenue. This could lead them to
drop the item from the menu.
3. Inform and Incentivize: Mike can inform the restaurant chain about the situation, and
request them to ensure that the pasta is heated to 160ºF before serving. However, to
maintain healthy relations with restaurant chain, next product lot will be provided at a
discount.
4. Inform, Recall and Incentivize: Mike can inform the restaurant chain about the situation,
and request them that the pasta should be heated to 160ºF before serving. This would lead
to less sales of pasta as it would take time to heat. He can offer to recall and subsequently
replace all the unused pasta. He can also offer the next batch of pasta at a discounted rate.
The loss would be in tune with the second case ($0.5 Mn). But this would lead to less sour
relations with the customer, as it would show Mike’s integrity as well as his willingness to
go the extra mile to satisfy his customers. A very positive cultural precedence would be set
by Mike in terms of quality and customer satisfaction.
Criteria for Evaluation
4: Most Effective 1: Least Effective

Criterion

Avoiding
Minimizing Maintaining
Minimizing relationship loss Cumulative
reputational cultural
financial loss with the score
loss precedence
restaurant chain
A No action 1 4 1 2 8
l
t Recall 2 1 4 1 8
e
r Inform and
3 3 2 3 11
n Incentivize
a
t Inform, Recall
i and 4 2 3 4 13
v Incentivise
e

● Minimizing reputational loss: While there can be significant loss of reputation in case
any health crisis takes place after no action is taken by Mike, properly informing the chain
and providing them option to recall products along with incentive plan would lead to least
reputational loss.
● Minimizing financial loss: Recalling without informing will lead to maximum financial
loss whereas taking no action will lead to no financial loss.
● Maintaining cultural precedence: Taking no action would lead to loss of cultural
precedence of Mike’s company.
● Avoiding relationship loss with the restaurant chain: Recalling without informing the
reason behind the same, there are chances of the business relation getting spoiled between
Mike’s company and the restaurant chain. However, providing option of incentive can help
avoid this situation.

Recommendations
As analysed through evaluation criteria, ‘Inform, Recall and Incentivize’ satisfies most of the
criteria in an effective manner and carries a cumulative score of 13, this alternative can be
recommended to Mike.
Action Plan
 Immediately call the headquarters of the restaurant chain, and request them to send out
word to all their restaurants to only sell that amount of pasta which could be properly heated
to 160ºF.
 Locating current status of all batches.
 Arranging logistics for collecting contaminated batches.
 Destroy the contaminated batches.