The Problem with Snapple, Part I

CEO William D. Smithburg of Quaker Oats purchased Snapple for $1.7 billion in 1994. In 1997 Smithburg sold Snapple to Nelson Peltz for $300 million, reported a $1.11 billion quarterly loss, and resigned from his position as CEO (Hartley, 2005). Smithburg’s decision to purchase Snapple was not based on solid financial reasoning or research, but an egotistical hunch that he could turn Snapple around as he had done with Gatorade. By acquiring the already declining Snapple, Quaker Oats was forced to spend the next few years trying to salvage what was left of a company with too much market competition and an outdated production system. In the end, Smithburg proved to be a socially irresponsible manager whose duty to uphold Quaker Oats’ profits was less important than (dis)proving his own managerial superiority.

Do you think Snapple could have been turned around?

No I do not think Snapple could have been turned around once it was purchased by Quaker Oats for two reasons, neither of which have to do with the very high price of its acquisition. First, Snapple iced tea sales were already lagging at the time of purchase. The main reason for this lag was increased market competition by firms such as Coke, Pepsi, and Lipton, who were able to manufacture and sell similar drinks for lower prices than could Snapple (Hartley, 2005). Because Quaker Oats could not eliminate this competition, and had no concrete plans of how to make Snapple drinks more appealing to consumer after the purchase of Snapple other than to pair it with Gatorade, Quaker Oats’ other popular drink, there was no reason to believe that Snapple sales would or could rise in the future. Second, the production and distribution system of Snapple was not thoroughly investigated before its purchase (Hartley, 2005). This meant that Quaker Oats had very little information regarding the costs associated with producing Snapple, making it nearly impossible to correctly gauge its profit/cost ratios, or what would be needed to streamline the production of Snapple to lower its overall production costs. Taken together, these reasons show that Quaker Oats had no idea how it would make Snapple profitable from either the demand side (by eliminating or stemming market competition) or the supply side (by lowering production costs).

Do you think the premium retail price for Snapple was a serious impediment?

Yes, I think the premium price of Snapple was a very serious problem that ultimately brought about its demise. When Snapple was first introduced into the market it was the only flavored iced tea drink of its kind, making its premium price sustainable. However, as other companies began producing similar drinks that could be substituted for Snapple, the only choice Snapple had to remain competitive would have been a reduction in price. Basic supply and demand dictates that as supply rises and demand is held constant, the equilibrium price of a good will fall, and any company continuing to sell at above market, or premium, prices will eventually be forced out of the market completely (Mankiw, 2007). Because Snapple chose to keep its prices above that of the market equilibrium (perhaps due to its high production costs), its sales decreased, and it became obvious that they could not rely on consumer brand loyalty to keep sales up and the company profitable.

Better to Make a Mistake Than Do Nothing At All

Not making a decision is as potentially damaging to a company as making a bad decision. It is easy to see how errors of omission could be made and go unnoticed until the consequences of inaction become apparent much later on. Many people, managers included, delay making decisions that are difficult or complicated. This delay may take the form of over-analyzing, mental procrastination, or hoping that the problem will simply "resolve itself" in time. In both one's personal and professional lives omissions usually lead to undesirable outcomes since no direct action was taken to avoid or change them.

Errors of commission, on the other hand, are easily made by pro-active people. Bad decisions can be due to haste, under-analyzing a situation, making a decision without first having all the facts or data. The results of these mistakes can be seen quickly and can often be traced back to a particular source or decision.

In today's rapidly changing business environment, errors of omission may perhaps take less time to notice that they did in the past, whereas errors of commission ma be easier to fix by making another hasty corrective decision. Although both types of errors have the potential to break a company, I think it would be more advantageous to act quickly and then make a corrective decision if necessary than to not act at all and watch your company slowly fade.

Making the Perfect Gen Y Work Environment - Or Else!

As the first wave of Generation Y makes its way into the workforce, well established corporate cultures are being forced to change - not only the way employees are recruited, but also the way new recruits are treated. Born between 1977 and 1997, Generation Y is the first to have grown up with the internet, be technologically savvy, and have career ambitions that go well beyond earning a high salary. (Business Week, 2005) As company’s are quickly realizing, Generation Y expects to be treated with respect, be constantly challenged with new and innovative tasks, and have the freedom to set their own schedules. As Daun Paris, president of Eastern Consolidated points out, “They want to be able to create their own situations and do it their way.“ (Marsh, 2007) Because of this, Generation Y is largely against high degrees of power distance, and do not feel obligated to stay working for a company that makes them uncomfortable or does not suit their own particular needs.

Despite being deemed self-centered and self-interested by former generations, Generation Y also has a fierce desire to help and protect the larger community; ranging from environmental concerns to human rights activism. (Business Week, 2005) They are consciously seeking out jobs that allow them to work toward these larger causes while at the same time satisfying their own personal growth needs.

So, what does this mean in terms of corporate culture? Using the nine criteria suggested by the GLOBE research program, (Robbins 2005) a successful work environment for Generation Y would be:

Assertive - High: The ability to be confrontational and tough, particularly with higher-ups, is an essential component for Generation Y. They want their opinions to be heard and respected, as well as for their ideas to be taken seriously.

Future Orientation - High: Organizing, planning, and creating “the next new thing” is exactly what motivates Generation Y.

Gender Differentiation - Low: Growing up on the heels of the 1970s feminist movement, this generation does not believe gender should be a factor in the workforce. Both genders should be equally heard and represented.

Uncertainty Avoidance - Low: Social norms and conventions are precisely what Generation Y enjoys breaking and going against. They hold innovation and change above tradition.

Power Distance - Low: Although their may be “leaders,” everyone’s ideas should be taken seriously, and a friendly (rather than respectfully reserved) work environment should be fostered.

Individualism/Collectivism - Both Low and High: Although highly individualized in the sense that they value personal success over company loyalty, they are largely collective in as they want to work toward larger societal causes such as environmentalism.

In-Group Collectivism - High: They value being part of a “team.” This can be exploited through group projects, and a strong company culture. They want to be proud of where they work and what they stand for.

Performance Orientation - Medium: Although it is important to be successful in the end, Generation Y also believes that how they get achieve success is also important. Trying is considered just as valuable as succeeding.

Humane Orientation - High: More so than previous generation, Generation Y is concerned with being fair, tolerant, embraces diversity, and believes equality is crucial to success.

Each of these dimensions should be carefully considered by existing organization trying to retain new recruits from Generation Y. Because they’ve grown up in a culture where job and family stability is a thing of the past, members of Generation Y do not think twice about leaving jobs that they dislike. Catering to their expectations, rather than trying to impose existing company values upon them, is a necessity for company’s wanting to lower turn-over and increase new employee retention.

Overall Generation Y will have it their way, and if they don’t find a company that suits their needs, they will simply create one.

Sources:

Marsh, Amanda. Management Matters. 2/16/2007.
Commercial Property News, Vol 21, Issue 4. P. 16. Reference URL: http://ebsco.waldenu.edu/ehost/detail?vid=11&hid=15&sid=
e515f4da-425b-4bf8-80da-8e159d847566%40sessionmgr2

Welcome to the Gen Y Workplace. May 4, 2005. Business Week Online. Reference URL: http://www.businessweek.com/bwdaily/dnflash/may2005/
nf2005054_4640_db_083.htm?chan=search

Robbins, Stephen P. and Mary Coulter. 2005. Management. Eighth edition. Upper Saddle River, NY. Pearson Education Inc.

Connection Between Women Managers and the Internet

Having the ability to embrace diversity and incorporate change quickly is one of the greatest determining factors of success for companies today. Changes in workforce composition and the medium of conducting day-to-day business activities are two key factors that need to be fully considered and addressed by managers at all organizational levels. In particular, more women are occupying top-management positions, in part due to the proliferation of e-businesses.

According to an article published in the Journal of Leadership Studies (2000), online businesses are providing a way for more women to become top-level managers. Because e-businesses are still a fairly new frontier, they are breaking many of the “traditional” pathways to becoming CEOs or Company Directors. These positions were often handed down from one man to another via familial or social networks, creating the “glass ceiling” effect that many women encountered during the 1980s and 90s. However, since the introduction of the more egalitarian culture, strongly supported by e-businesses, such networks are largely frowned upon and women are encouraged to pursue top-level positions. (Klein 2000)

However, the link between women in top-level management and the internet seems to go both ways. Not only do e-businesses facilitate the insertion of women into these positions, but women who have made it into these top- level positions in more “traditional” companies are now leading those companies toward the internet. Ann Moore, Chairman-CEO of Time Inc., is a perfect example of a women who has taken over a very “traditional,” male-dominated company and is now spearheading an initiative to take things digital. Not only did she preside over the launch of People.com, but she is currently working towards a new health portal that should rival WebMD. (Business Week 2007) Moore is trying to create a place for Time Inc. to prosper in the future by staying abreast of new technologies and remaining competitive without dragging the company down in the process.

Regardless of the particular circumstances, it is necessary for managers to make pro-active decisions that allow their companies to change with the times, be it more women in top-level management or a greater reliance on technological advances such as the internet.

Sources:

Klein, Esther E. The Impact of Information Technology on Leadership Opportunities for Women: The Leveling of the Playing Field. Journal of Leadership Studies, Vol. 7, 2000.

Moore, Ann. Edgy Days at the Top of Time Inc. Business Week, 2/12/2007. Issue 4021, p23-23, 1p, 2c. Reference URL: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=23855503&loginpage
=Login.asp&site=ehost-live&scope=site