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Johnsonville foods empowers employees for involvement in strategy
At Johnsonville foods, a firm in
the forefront of the movement to spread responsibility for strategic management
thought the organizations; employees on the factory floor play a key role in
shaping and carrying out the firm’s strategies. Johnsonville foods CEO, Ralph
Stayer, were approached by a major food retailer about producing sausages the
retailer would market under a private label. Stayer ’s initial reaction was to
say no, reasoning that the extra work would overload his plant and his workers.
But before actually tuning down the contract, he discussed the matter with the
firm’s 200 production workers, a routine practice at Johnsonville foods.
In teams of twenty, all the
workers were asked to weigh the potential benefits of and drawbacks to
accepting the proposed contract. The most important potential benefit was that
the added production would result in economies of scale that would lower costs.
This coupled with the higher volume, would raise company profits, and because
every worker at Johnsonville foods was on a bonus system linked to company
profits, all employees stood to gain. The drawbacks to and risks of the new
contract centered around the argument that the tremendous increase in volume
would overstress the factory and the workforce, and overall quality would slip.
If this happened, not only would the company lose the new contract; it would
also have jeopardized its relationship with its existing customers.
After ten days of deliberation,
‘the teams reported back:’ we can do it’. Their analysis showed that after
working seven day weeks in the short run, they could eventually expand their
hourly production output, and the workload would level off. The teams then
divided up to address specific challenges such as what new machinery would be
required, how many and what sort of people should be hired, and how production
would be scheduled. One team discovered
how volume could be increased by 40% while holding cost increase to only 20%.
Another group designed new equipment and performed a discounted cash flow
analysis to back up its requests for capital. Such issues as these would
traditionally have been assigned to managers far away from a factory floor.
In the end, the Johnsonville foods
employees’ strategic plans for expansion were successful. Productivity rose 50%
after the firm took on the new contract. Since then, sales have continued to
rise at twice the rate of payroll expenses as employees continue to find more
efficient ways of doing things. CEO Stayer is sold on the ability of his
workforce to help make strategic decisions and then make those decisions work.
‘If I had tried to implement this
from above, we would have lost the whole business…. The past debacle of
ordering change and watching it fall to occur showed me my limitation. I had
come to realize that I didn’t really control the performance of people at
Johnsonville foods, that as a manager, I really didn’t manage people. They
managed themselves. But I did manage the context…. Contextual factors with the
ability to shape the way people think and what they expect.’- This was the
thinking of a great CEO before allowing it to be accomplished by the bottom
level people in the organization.