Ben and jerry's case study analysis

Organization Development & Change

Thomas G. Cummings

University of Southern California

Christopher G. Worley University of Southern California Pepperdine University

#.. " · SOUTH-WESTERN

· • C EN G AG E Learning·

Aus tr alia • Brazil • Canada • Mexico • Singapore • Spain, Un it e dKingdom, Un itedSt ates

;· SOUTH-WESTERN

· _, CENGAGE Learning·

Organization Development& Change, 9th Edition

Thomas G. Cummings &

Christopher G. Worley

Vice President of Editorial, Business: Jack W. Calhoun

Vice President/Editor-in-Chief: Melissa Acuna Executive Editor: Joe Sabatino Developmental Editor: Denise Simon Marketing Manager: Clint Kernen

Content Project Manager: D. Jean Buttrom

Manager of Technology, Editorial: John Barans Media Editor: Rob Ellington

Website Project Manager: Brian Courter

Frontlist Buyer, Manufacturing: Doug Wilke

Production Service: lntegra Software Services, Pvt., Ltd.

Sr. Art Director: Tippy Melntosh

Cover and Internal Designer: Mike Stratton, Stratton Design

Cover Image: Chad Baker, Getty Images

© 2009, 2005 South-Western, a part of (engage Learning

ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means­ graphic, electronic, or mechanical, including photocopying, recording, taping. Web distribution, information storage and retrieval systems, or in any other manner-except as may be permitted by the license terms

herein.

For product information andtechnology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 For permission to use material from this text or product, submit a l l requests online at www.cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com

Exam View® is a registered trademark of elnstruction Corp. Windows is a registered trademark of the Microsoft Corporation used herein under license. Macintosh and Power Macintosh are registered trademarks of Apple Computer, Inc. used herein under license.

© 2008 Cengage Learning. All Rights Reserved.

Library of Congress Control Number:1234567890

Student Edition ISBN 13: 978-0-324-42138-S Student Edition ISBN 10: 0-324-42138-9

Instructor's Edition ISBN 13: 978-0-324-58054-9

Instructor 's Edition ISBN10: 0-324-58058-1

South -Weste rn Cengage Learning

5191 Natorp Boulevard

Mason, OH 45040 USA

Cengage Learning products are represented in Canada by Nelson Education, Ltd.

For your course and learning solutions, visit academic.cengage.com Purchase any of our products at your local college store or at our preferred online store www.ichapters.com

Printed in Canada

l 2 3 4 5 6 7 12 11 10 09 08

 Ben & Jerry's (A): Team Development Intervention

"Two real guys," Ben Cohen and Jerry Greenfield, head Ben & Jerry's Homemade Inc., an independent ice cream producer that has gained market share and public approba­ tion against industry competitors Haagen­ Dazs (made by Pillsbury), Frusen Gladje (made by Kraft), and Steve's . The story of the found­ ers has a romantic, antiestablishment quality to it that reads like a new-age entrepreneur's dream.

The "boys," childhood friends, each dropped out of college in the late '60s, worked at odd jobs for a time, and together opened a small ice cream scoop shop in Burlington, Vermont, in 1978 with scant know-how (they learned ice-cream making through a $5 correspon­ dence course) and less capital (they started with $12,000-a third of it borrowed). But they had something else going for them: a combination of old fashioned values and new­ fangled ideas.

Neither Ben nor Jerry had any intention of becoming businessmen. From the start, how­ ever, both were committed to making the best ice cream possible and to having fun while doing it. More than this, these "self-styled Vermont hippies," as the press calls them, were committed to the simple notion that business draws from the community and is obliged to give something back to it. In the early days, this meant giving away ice cream to loyal cus­ tomers and worthy charities. As the company grew to sales of near $50 million, B&J's embraced what it calls a social mission to improve the quality oflife-not only of employ­ ees, but also locally, nationally, and internationally-and to do so in an innovative and upbeat way.

The economics of R&-J's show fast-track growth over the past several years character­ istic of very successful startup companies (see

Exhibit 1 from the l 988 annual report). Sales doubled annually from 1984 to 1986 and increased nearly 50 percent from 1987 to 1988. The company is today the super­ premium market leader in Boston and New York City and distributes its products in gro­ cery stores and mom-and-pop convenience outlets in Florida, the West Coast and parts of the Midwest. Some 80 franchises operate scoop shops in these markets, and the company's "pints" manufacturing facility and headquarters in Burlington have become Vermont's second-largest tourist attraction with over 600,000 visitors annually.

In addition to expanding this facility, B&J's recently built a novelty plant in Springfield, Vermont, to manufacture ice-cream brownie bars and stick pops and leased space to house its marketing, franchising, promotion, and art departments. Today, over 350 people work at B&J's. Production runs around the clock, staffed by a few dairy experts and many more offbeat people who gravitated to the company because of competitive wages, its funky image, and its social mission. Among the production staff is a team of handicapped employees who have distinct and important responsibilities.

The product side of B&J's blends what Time magazine calls "incredibly delicious" ice cream. The story goes that Ben has deficient taste buds, so products have to be particularly pungent to stir his palate. This means "double­ fudge" and "big-ch un k" add-ins to the ice cream. Funky flavors, like "Cherry Garcia," an assortment of T-shirts, Vermont "cow" paraphernalia, and wacky promotions all make word-of-mout h marketing the key to B&J's commercial success. And, yes, the founders insist on having fun. At annual meetings, Jerry, trained in carnival tricks, uses

--------------------------'Exhibit 1]

Annual Report 1988: A Report to Shareholders, Customers, Community Members, Suppliers, and Employees

Five Year Financial Highlights (in thousands except per share data)

Summary of Operations:

Year Ended December 31

1988 1987 1986 1985 1984

Net sales .................................

$47,561

$31,838

$19,954

$9,858

$4,115

Cost of sales ...........................

33,935

22,673

14,144

7,321

2,949

Gross profit ............................

13,627

9,165

5,810

2,537

1,166

Selling, delivery and

administrative expenses .........

10,655

6,774

4,101

1,812

822

Operating income ..................

2,972

2,391

1,709

725

344

Other income (expense)-net

(274)

305

208

(31)

(13)

Income before income taxes

2,698

2,696

1,917

694

331

Income taxes ..........................

1,079

1,251

901

143

118

Net income .............................

1,618

1,445

1,016

551

213

Net income per

common share (1) ...................

$.63

$.56

$.40

$.28

$.12

Average common shares

outstanding (1) ..... ............... 2,579 2,572 2,565 1,991 1,724

308 PART 3 Human Process Interventions

SELECTED CASES 311

Balance Sheet Data:

Year Ended December 31

1988 1987 1986 1985 1984

Working capital ......................

$5,614

$3,902

$3,678

$4,955

$676

Total assets .............................

26,307

20,160

12,805

11,076

3,894

Long-term debt ......................

9,670

8,330

2,442

2,582

2,102

Stockholders' equity (2) ..........

11,245

9,231

7,758

6,683

1,068

(1) The per share amounts and average shares outstanding have been adjusted for the effects of all stock splits, including stock splits in the form of stock dividends.

(2) No cash dividends have been declared or paid by the company on its capital stock since the company's organization and none are presently contemplated.

a sledgehammer to break a cement block over the stomach of the mystical "Habeeni Ben Coheeni."

lt is, however, the social mission of B&J's that most distinguishes it from corporate America. The good works of the company are many and range from regular donations to community

and social action groups to a commitment to buy only Vermont-based cream from area dairy cooperatives. B&J's embraces socially responsi­ ble marketing and has proposed to "adopt a stop" in the New York subway system (which the company would clean and maintain in lieu of advertising) and begun an innovative joint

venture with the Knowledge Society in the Soviet Union.

Recently, the company introduced "Peace Pops" as part of the "l % for Peace Campaign." This effort is aimed at encouraging other businesses to join a movement urging the gov­ ernment to devote one percent of the defense budget explicitly to peaceful purposes. A new product featuring Brazilian nuts obtained at above-fair-market price from native Brazilians is further evidence o[ the founders' social commitments.

INNOVATING INSIDE OF B&J'S

Ben and Jerry have been at the edge of innova­ tion since the company went public. Rather than seeking venture capital to expand the busi­ ness, they drew up a stock prospectus on their own and sold shares to Vermonters door to door. One in every l 00 Vermont families bought in to the tune of $750,000. When Haagen-Dazs tried to pressure shopkeepers to keep "Vermont's finest" off their shelves, Ben and Jerry started a grass-roots campaign against Pillsbury replete with bumper stickers (What's the Doughboy afraid of?) and a one-person picket line (Jerry) at the Pillsbury headquarters.

Ben and Jerry have tried to introduce this same funky and socially responsible orientation inside the company. The company's mission and many of its policies and practices (see Exhibit 2) reflect the upbeat and caring values of the founders. A policy of "linked prosperity" ensures that 7.5 percent of pretax profits go to good works and five percent is returned to emplo y­ ees via profit sharing. The salary ratio between the top paid and least paid in B&J's is set at five to one. This means, if managers want to earn more, they have to increase the base wage throughout the company.

Employees come in all shapes and sizes. Most are young (under 30) and many have respon­ sibilities well beyond their experience. It is a matter of pride to all that B&Jer's can speak, act, and dress "like themselves." Still, the

work is demanding and the pace frenetic. The production room is often awash in cream, and the freezer crew works in chilling condi­ tions. There is nothing akin to market research in the company, demand is fluid and unpre­ dictable, and when I first arrived on the scene, the franchising and sales managers weren't communicating with each other and neither paid attention to the marketing director.

In 1987, it became evident to Ben and Jerry, as well as to managers and employees, that the company's external image-of funk, [un, and love- was out of sync with the atmo­ sphere inside the company. The company was always short on ice cream and long on hours, pressure, and problems. The author was commissioned to work with the founders and board of directors and with the manage­ ment and work force of the company to undertake organizational development and bring people, functions, aspirations, and directions together.

ENTRY

Henry Morgan, former dean of the School of Management at Boston University and board member at B&J's, contacted me about this project. Henry comes from a long line of New England activists deeply committed to the improvement of the human condition. His family lineage traces to Hawaii where ancestors were missionaries, and Henry has had a career as an entrepreneur, management innovator, and social investor. In addition to his mem ber­ ship on B&J's board, he is active on other boards and is a leader in the Council of Economic Priorities' efforts to promote corporate social responsibility.

Entry through Henry, !1owever, posed some risks. For example, like Henry, I was an out­ sider coming into B&J's where the emphasis, to this point, had been on "homegrown" innovation. Ben, Jerry, and Jeff Furman, an attorney and longtime B&J's counsel, had

--------------------------1Exhibit 2]

Ben & Jerry's Mission and Operating Principles

Ben & Jerry's, a Vermont-based ice-cream producer, is dedicated to the creation and demonstra­ tion of a new corporate concept of linked prosperity. The company has three central missions and several key operating principles.