Answer & Explanation:1.
From
the list provided below, choose one (1) theory or concept that was new to you,
and discuss how you plan to utilize this new skill going forward. Justify why
it is an important skill to have.
Creating a
Sense Of Urgency
Communication the
Vision of Change
Creating
a Guiding Coalition
Sustaining
Change
Assessing
Change Readiness
Understanding
the Impact of Organizational Culture on Change
Creating
Short-term Wins
Empowering
People to Act
2. Read
the article attached titled “Ten Best Practices for Restructuring the
Organization”. Next, evaluate your current organization, one in which you are
interested, or one with which you are familiar. Select three (3) of the ten
(10) proposed strategies you believe are most relevant to the organization, and
explain why you selected those three (3).
3. Please
respond to one (1) of the following:
Read the article
titled “Multilevel Readiness to Organizational Change: A Conceptual
Approach”. Give your opinion on which two (2) means of diagnosing change are
most relevant to today’s organizations. What is meant by the term “readiness”?
Review the case study attached
entitled “Charles Chocolates”. Next, evaluate the organization and its
industry in terms external and internal pressures. Create a proposal about how
the company can overcome internal and external pressure.
charlies_chocolates.pdf
multilevel_readiness_to_organizational_change_a_conceptual_approach.pdf
ten_best_practices_for_restructuring_the_organization.pdf
Unformatted Attachment Preview
9B13M094
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CHARLES CHOCOLATES
Professor Charlene Zietsma wrote this case solely to provide material for class discussion. The author does not intend to illustrate
either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying
information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Version: 2014-11-17
C
Copyright © 2013, Richard Ivey School of Business Foundation
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In March, 2012, Steve Parkland started his new job as president of Charles Chocolates (Charles), a
privately held premium chocolate producer based in Portland, Maine. The board of directors had asked
him to double or triple the size of the company within 10 years. Each member of the board and the
management team had a different idea about what Charles needed to do. Parkland needed to devise a
strategy that would fit the company’s culture, and then gain the support of the board, the management
team and the employees.
THE PREMIUM CHOCOLATE MARKET
N
The U.S. market for chocolates was US$19.3 billion 1 in 2011, and had been growing at about 6 per cent
annually. The premium chocolate market ($2.7 billion), which had higher margins, was growing at 10 per
cent annually, and imports of ethically produced cocoa grew by 156 per cent 2 as aging baby boomers
emphasized quality and ethics in their purchases. Incumbents such as Hershey’s and Cadburys had
moved into the premium chocolate market through acquisitions or upmarket launches.
D
O
About one-quarter of annual chocolate sales typically occur in the eight weeks prior to Christmas.
Twenty per cent of “heavy users” account for more than half of these pre-Christmas sales. These heavy
users tend to be established families, middle aged childless couples and empty nesters with high incomes.
They purchase more high quality boxed chocolate than bars or lower quality chocolate. 3
In line with social trends, demand was growing for organic chocolate and dark chocolate due to its hearthealthy anti-oxidant properties. At the same time, however, large chocolate manufacturers wanted the
United States Food and Drug Administration to redefine the term “chocolate” to allow them to produce
cheaper versions (with less chocolate content) and still call it chocolate. Consumers and employees also
increasingly demanded corporate social responsibility. Chocolate companies were targeted because
1
All currency in U.S. dollars unless specified otherwise.
http://www.vreelandassociates.com/us-chocolate-sales-up-6-while-premium-jumps-10/, accessed August 14, 2013.
3
Company insider citing a presentation by Neilson at the Confectionary Manufacturer’s Association conference, 2007.
2
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forced labor and child labor was still sometimes used in cocoa bean production in West Africa.
Environmental concerns influenced packaging, procurement and operational decisions.
COMPETITORS
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Chocolate competitors in the premium chocolate segment in the United States featured strong regional
brands and large international players. Godiva, backed by Nestle, had taken the business by storm with
glitzy packaging, high price points, and widespread distribution among gift retailers. Godiva’s quality
was not as high as Charles, but it obtained about 15 per cent higher price points for standard products on
the strength of its sleek and modern packaging, variations in chocolate molding and coloring, advertising
and distribution. Godiva’s high-end products sold for 200 per cent to 300 per cent of Charles prices.
Lindt, a large Swiss firm, sold mid-quality chocolate bars and truffles broadly in mass merchandisers,
drug and grocery retailers, and their pricing was about 90 per cent of Charles.
T
C
Strong regional players included Delice Chocolates and Cardon’s. Delice, based in Providence, Rhode
Island, had 32 retail stores, mostly in tourist and downtown locations in northeastern states, with four
stores in California. The company’s quality was high and it excelled at frequent flavour introductions.
Delice’s copper boxes could be customized at the store. Pricing was similar to Godiva. Cardon’s was a
120 year-old Boston firm with 50 locations nationally, nearly all in malls. Cardon’s was most successful
in New England. It had tried to launch in Chicago, but had not done well there. Cardon’s price point was
about 35 per cent lower than Charles, and it had moderate product quality level. Cardon’s did a strong
business in corporate gifts and group purchases, offering 20 per cent to 25 per cent discounts for high
volume orders.
N
O
Other premium chocolate companies included extremely high end custom chocolatiers, Belgian producers
that sold through American retailers or online and niche wholesalers of single varietal bean or organic
chocolates. Other companies commanded price premiums over their quality level because of their
distribution and/or store concept. For example, Dolce Via, which emphasized mall stores, and The Great
American Candy Company, which sold more candy than chocolate and used a franchise model, had
higher price points than Cardon’s but lesser quality.
CHARLES CHOCOLATES COMPANY HISTORY
D
O
Founded in 1885, Charles Chocolates was New England’s oldest chocolate company. For the last two
decades (during which time sales had grown by more than 900 per cent), the company had been owned by
a private group comprised principally of two financial executives, an art dealer, and a former owner of a
bus company. These four plus a past president of Charles comprised the board of directors. Charles’ head
office was located above its flagship store in Portland’s Old Port area, a tourist area known for its
cobblestone streets, 19th century buildings, and active nightlife.
Charles produced high-quality, hand-wrapped chocolates including its premier line, Portland Creams,
along with truffles, nuts and chews, almond bark, chocolate-covered ginger, caramels, brittles, and orange
peel in various assortments, bars, nutcorn and premium ice cream novelties. Charles chocolates were of
the highest quality, and the company had many loyal customers around the world. In 2009, the company
won a prestigious Superior Taste Award from Belgium’s Institute for Taste, which described the product
as “classy, refined and elegant,” and “top-of-the-range,” with “rich chocolate aromas.”
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PRODUCTION
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Charles chocolates were made in a 24,000-square-foot factory owned by Charles on the outskirts of
Portland. There were 75 retail and 35 production employees, all non-unionized, and 20 employees in
management, administration and sales (see Exhibit 1). Production took place from 7 a.m. to 4 p.m. each
day. With so many different products, batch processing and hand packing were used, and set-up times
were a significant component of costs. Employees learned multiple job functions and enjoyed a variety of
work and tasks. There were no measures of productivity or efficiency in the plant, and thus no way of
telling on a day to day basis if the plant was doing a good job.
C
Demand forecasting was difficult due to the seasonality of sales, but product shelf life was long (up to a
year), and significant inventories were kept. Nevertheless, there were significant problems with out-ofstocks each week. The Christmas season was particularly chaotic. The wholesale business required early
seasonal production, whereas the online and retail business required late production. Production planning
was complicated by data distortions arising from out-of-stocks and over stocks. When an item was
produced after being out of stock for a month, filling back orders would unnaturally spike sales, yet these
spikes would be used for production planning the following year. Similarly, when there was too much
stock, the retail stores would push or discount the items, creating distortions in the sales data, which
would be used for production planning the following year. Because out-of-stocks in the wholesale
channel created problems with customers, short supplies were diverted from the company’s own stores
and delivered to wholesalers. Furthermore, when a special order arrived in wholesale, it was not
uncommon for the plant to put production plans on hold to focus on the special order.
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BUSINESS LINES
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The company’s heritage, commitment to quality and strong family values were cherished by employees,
some of whom were third-generation Charles employees. New ideas were often resisted by employees
over fears that the company was compromising its values and heritage. Turnover was low, and wages
were competitive. Permanent employees were on a first-name basis with all of the senior leaders,
including the president.
D
O
Charles earned revenues in four major areas: retailing chocolate products through company-owned stores,
wholesaling, online/phone sales and sales from Sandwich Heaven, a well-known eatery in Portland,
which Charles had purchased in 2009.
Retail. Charles’ 11 wholly owned retail stores produced 50 per cent of sales. The stores’ theme was
heritage, and the flagship store had been designated a heritage site. Sales staff offered chocolate samples
to customers, and the aromas and images in the store contributed to an excellent retail experience. In
2005, Charles had won America’s Innovative Retailer of the Year award in the small business category.
Most stores were in tourist locations, such as Bar Harbor, and Boston’s Back Bay and Beacon Hill areas.
Most were leased, though the flagship store was owned. Stores were about 500 square feet in size, with
the exception of the Bar Harbor and cruise ship terminal locations, which were booths. Although other
retailers sold Charles Chocolates, they purchased the products wholesale through direct sales from
Charles. Exhibit 2 shows the store locations and their approximate annual sales. The two newest stores,
Back Bay and Beacon Hill in Boston, were showing steady sales growth in their first two years of
operations, but significantly shy of expectations. The Portland stores benefited from Charles iconic brand
image in Maine.
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9B13M094
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Wholesale. Approximately 30 per cent of sales came from wholesale accounts in five categories: 1)
independent gift/souvenir shops, 2) large retail chains, 3) tourist retailers, such as duty-free stores, airport
or train station stores and hotel gift shops, 4) corporate accounts that purchased Charles products for gifts
for customers or employees and 5) specialty high-end food retailers. Some large accounts, including
department stores, gift chains and coffee chains, had been significant Charles customers, but had recently
changed their purchasing to focus either on their own products or on less expensive lines. A salaried
national sales manager based in Boston oversaw eight sales agents across the United States, and a salaried
rep located in Maine. Sales agents had exclusive rights to sell Charles products within their territory but
also carried non-competing giftware lines. Many had been with the company as long as the previous
president, who had established the wholesale division nearly two decades earlier, but contractually, they
could be terminated with 90 days’ notice. Marketing Vice-President Mary Bird said:
C
Some [reps] perform very well. They cite many challenges with our brand — niche market, high
prices, inadequate shelf life, old fashioned (“not glitzy or fashionable enough”) packaging, and an
unknown brand in many areas. Some reps have stronger lines and just carry Charles as an add-on.
The salaried rep in Maine receives constant requests for our products, as it is our “home turf” and
we do extensive advertising locally for our own stores. In Portland, some accounts will say they
are honored to carry Charles. In other parts of the United States, they have not heard of us and are
dismissive of the products and their price points as they do not understand the brand and the value
of the product. If the remote reps are not well trained, they just cannot present the brand
adequately and sell it.
N
O
T
Retailers typically marked items up by 100 per cent. Charles earned about half the gross margins on
wholesale sales as it did on retail and online sales and the company paid its sales agents approximately 10
per cent commission. There were 585 active wholesale customers in 2011. Of these, 221 purchased less
than $1,000 per year, and another 125 purchased between $1,000 and $2,000 per year. There had been
problems in the past with smaller accounts selling stock past its expiration date. Some wholesale
accounts ordered custom products, such as logo bars for special events. In the past, some regular
customers had ordered with too little lead time, so the plant typically kept some logo bars in inventory for
customers in anticipation of their orders.
D
O
Online and Phone. Charles’ online business generated four per cent of sales and its phone business
generated 6 per cent of sales. Sixty per cent of all orders were from regular customers. Average sales were
$138 by phone and $91 from the website. The proportion of people who shopped online in the United
States had grown considerably in the last decade, with about 59 per cent of respondents in a 2012 Neilsen
poll saying they prefer to shop online because of its convenience. 4 Charles’ online business had not gone
up with the trends. Orders received by phone, mail or online were processed within three to four days,
then shipped via FedEx. Shipping was free for orders over $500. Orders went to the United States (60 per
cent), Canada (35 per cent) and 50 countries internationally (5 per cent). They were delivered to the far
North, sometimes via dogsled, to lighthouses on both coasts and to Antarctica. Online and phone orders
were given priority for inventory allocation, and stock would be transferred back to the factory from the
retail stores if necessary.
Sandwich Heaven. Ten per cent of sales came from Sandwich Heaven, which featured made-to-order
sandwiches, soups and salads, desserts (including Charles ice cream) and wine and beer. At lunch in the
summer, the lineup regularly extended out the door. Since Charles had purchased Sandwich Heaven, most
of the long term staff had turned over, and recruiting new employees was difficult in Portland’s tight labor
4
http://www.medialifemagazine.com/nielsen-59-percent-prefer-to-shop-online/, posted June 7, 2012.
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market. Sandwich Heaven had had to curtail its evening hours due to staff recruiting problems. Although
Sandwich Heaven had a liquor license, the volume of alcohol sold was very small.
MARKETING
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Since Charles’ chocolates were fairly expensive, the company targeted affluent customers for themselves
or for gifts. Cruise ship visitor and other tourists visited the store then often became phone or online
customers. Locals were frequent and loyal purchasers. Local businesses also saw Charles as their
corporate gift of choice. According to Bird:
Our most loyal clients have an emotional connection to Charles. For example, they were in the
Portland store on a holiday, or it was a traditional gift in their family. Many then give Charles as a
gift and some of those recipients then become loyal customers. Other customers are affluent
people who want something unique. They see us as an obscure but classic gift. But how do you
reach these people to promote to them? They are scattered across the United States and of course
they are courted by every advertiser. We cannot make mistakes or disappoint them in any way. If
we do, we apologize and replace the product immediately — good old-fashioned service.
C
The Charles brand emphasized heritage, with traditional packaging, including pink or brown ginghamwrapped squares, packed in a burgundy box or tins. Some tins featured old-fashioned scenes such as
English roses, cornucopias or floral arrangements, while others featured American art. Chocolate bars
came in a variety of packaging.
T
The brand had a very loyal following. Parkland described the brand perception:
N
O
When I first began investigating Charles, I asked everyone I knew what they thought of the brand.
Most people had never heard of it. Others said “Oooooh, Charles! That’s the best chocolate I’ve
ever had.” The retail experience is key in creating memories that lead to repeat sales. Through
store décor, sampling, aromas, taste and service, I think Charles delivers “chocolate orgasms” to
its customers.
D
O
The growth challenge would be to increase awareness without diluting the brand. The premium price
scared some consumers and wholesalers. Discounting, or making cheaper products to piggyback on the
brand, would risk brand integrity. The brand’s heritage image was an issue. As Charles’ loyal customers
aged, would younger buyers appreciate the traditional image? Bird cited brands such as Chanel and
Lancôme, which had developed classic images and refused to compromise, and brands such as Jaguar,
Cadillac, BMW and Volvo, which had developed a younger, sexier image while maintaining core design
elements to maintain brand integrity.
Charles advertised in tourist publications, seasonal print media and radio spots. Charles also donated
product extensively to charitable events. Direct mail and solid search engine rankings promoted the online
business. Charles’ website was kept basic to make it load easily. It had an ordering facility, a reminder
service that emailed customers about their upcoming special occasions and optimized search engine
placement. The website also had links to resellers, however, the sales agents had not been good about
providing links for their top accounts, as they did not seem to understand the value provided by such
links.
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FINANCIALS
5
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Charles was in a strong financial position. Although Charles had gone through a period of significant
growth just after the current shareholders acquired the company, growth had slowed considerably in the
past few years. In part, this decline had resulted from the slowdown in tourism since the financial crisis.
In fact, chocolate sales had declined since 2008, though the company’s revenues had grown slightly due
to the contributions of Sandwich Heaven. Margins remained strong, however, at about 50 per cent of sales
on average. Financial statements are shown in Exhibits 3 to 6.
LEADERSHIP
Jim Bell had been president of Charles from 1989 until 2012. When he announced his intention to retire
in 2010, the controlling shareholders (and board of directors) considered selling Charles. It was a healthy
company with significant assets, great cash flow and good margins. Yet the board felt that Charles had
significant potential to grow and sought a new leader (see Exhibit 7). In the two years during the search,
managers knew that Bell was retiring, and decisions were put off until a new leader could be found.
T
C
Steve Parkland was vice-president of operations for a meat processing company, in charge of six plants
and approximately 2,300 employees, when he saw the ad. Previously, Parkland had been president of a
seafood company and general manager of a meat processing subsidiary. His career had involved stints in
marketing and sales in addition to operations, and he had an MBA from Duke University. Parkland had an
empowering style and a strong commitment to values and integrity. Charles appealed to Parkland becau …
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