Harvard-business-school---Pillsbury-Customer-Drive

HarvardBusinessSchool9-195-144Rev.April26,1995ProfessorRobertS.KaplanpreparedthiscasewithassistancefromDoctoralStudentKenKogaasthebasisforclassdiscussionratherthantoillustrateeithereffectiveorineffectivehandlingofanadministrativesituation.Copyright©1995bythePresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685orwriteHarvardBusinessSchoolPublishing,Boston,MA02163.Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,usedinaspreadsheet,ortransmittedinanyformorbyanymeans—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.TheFinancialinformationcontainedhereinisforillustrativepurposesonly.1Pillsbury:CustomerDrivenReengineeringWeenteredourCustomerDrivenReengineeringintiativeexpectingtoachievesignificantlevelsofcostreductionandefficiency.Toourdelight,wealsodiscoveredanewwaytocompete.PaulSWalshCEO,ThePillsburyCompanyCompanyThePillsburyCompanywasfoundedin1869asaflourmillingfirminMinnesota.Itsmillingoperationssoonextendedintobrandedbakerygoodsproducts,and,duringthenextcentury,thecompanyexpandedtobecomeoneoftheleadingbrandedfoodproductcompanies.In1989,GrandMetropolitan(GrandMet),adiversifiedUK-basedconsumergoodsandretailingcorporation,purchasedThePillsburyCompanyfor$5.8billion(seeExhibit1forasummaryofPillsbury'sfinancialinformationpriortoitsacquisitionin1989).TheacquisitionwaspartofGrandMet'snewstrategytobecomeaworldleaderinbrandedfoodanddrinksbusinesses.In1994,theannualsalesofGrandMet'sNorthAmericanFoodoperations,nowcalledthePillsbury-NorthAmericasector,were$4.0billion.Includedinthesector,ofcourse,wasthePillsburybrandofprepareddoughproducts,bakingmixesandflour,aleaderintheU.S.market,withrefrigerateddoughproductsachievinga75percentmarketshareoftherefrigerateddoughcategory.TheGreenGiantdivisionwasthenumberonebrandedvegetableproducerintheU.S.andCanada,producingcanned,jarred,frozenandfreshvegetablessuchascorn,peas,andbeans.Thefrozenpizzabusiness,withTotino's,Jeno'sandPappalo'sbrands,heldthenumberonepositioninitsmarketsegments.Häagen-Dazswastheworld'sleadingmakerofsuperpremiumicecreamandfrozenyogurtproducts.GrandMetFoodservicewasaleadingproviderofflour,drybakingmixesandfrozenunbakedandpre-bakedproductstoin-store,foodserviceandwholesalebakerymarkets.Pillsburyproductswereperhapsmostidentifiedwithtwowell-knowncharacters—theJollyGreenGiantandPoppin'FreshthePillsburyDoughboy.Pillsbury'sstrongestcompetitorsincludedDeanFoods(Bird'sEyeBrands),DelMonte,GeneralMillsandNestlefoodcompanies.Purchasedbyzhizhang(ringofl[e-mail])onSeptember28,2011195-144Pillsbury:CustomerDrivenReengineering2GrandMet,withitsoriginsinhoteloperationshadacquiredovertheyearsadiversifiedcollectionoffood,beverage,andretailingcompanies.Inthelate1980s,GrandMetbeganthesaleofbillionsofdollarsofassets,includingitsoriginalhoteloperations,sothatitcouldconcentrateonbecomingaleaderinthebrandedfood,anddrinkbusinesses.Exhibit2presentsasummaryofGrandMet'srecentfinancialinformation.ConsistentwithPaulWalsh'sstrategyoffocusingoncorebusinesses,Pillsburyitselfhadrecentlysoldallofitsflourmills,someofwhoseownershipdatedbackmorethanacentury.In1991,fourmillsweresoldtoCargillwithPillsburycontinuingtoreceivetheprocessedflouroutputfromtheseplantsthroughsuppliercontracts.Twoyearslater,PillsburysolditsfourremainingmillstoArcher-DanielsMidland(ADM),alargegrainproducer.PillsburyretainedaccesstotheoutputfromtheseADMmillsthroughalongtermsupplyagreement.TomDebrowski,SeniorVicePresidentofOperations,explainedtherationalefortheflourmillsales:Itbecameapparentthatwewerenotthelowcostproducerofflour.Inarapidlyconsolidatingandhighlycompetitivemarket,wewantedtofocusourassetsonthemorevalue-addedpartsofthebakerybusiness,ourbrandedfoodproducts.Thesaleoftheflourmillsenabledustogetlargeamountsofaging,under-utilizedassetsoffourbalancesheet,whilegainingguaranteedaccesstoalong-termsupplyoflow-cost,high-qualityflour,producedtoourspecifications.PillsburyCapabilitiesCompetitivepressures,technologyadvances,anddemandingconsumerpreferenceswerecausingallcompaniesinthefoodindustrytoreexaminetheiroperationsandattempttoeliminatewasteandinefficiencythroughoutthefoodchain.TheEfficientConsumerResponse(ECR)effortwasamulti-industryproject,involvingfoodprocessors,manufacturers,distributors,wholesalers,brokers,andretailers.ECR'sgoalsweretoreducecostsanddriveinventorylevelsdownthroughoutthesystem,whilesimultaneouslyenhancingcapabilitiestomeettheneedsofdiverseconsumermarketsegments.PillsburyexecutiveswereunsurewhethertheircompanywaspreparedforthenewECRenvironment.LarryMcWilliams,VicePresident,FrozenSales,identifiedthecurrentchallengeforPillsbury:WhenIcametothecompany18monthsago,Iencounteredacompanywithstrongbrandsbutwithlittleprospectforvolumegrowth.Customersperceivedusasanaveragecompany,notthebest,nottheworst,andwithoutmuchinnovation.JohnMann,SeniorVicePresidentandGeneralSalesManager,andanothernewcomertothePillsburyseniormanagementteam,concurredwithMcWilliams'assessment:Wewereviewedasalaid-backMidwesterncompany