Research On Odwalla’S Crisis: Causes, Results And Solutions
The Odwalla case, which happened in 1996 and involved the poisoning of sixty people, has been analyzed. The company, which is involved in the beverage business, has shown weaknesses in key managerial areas such as crisis, risk, and communication. By addressing the weaknesses in these managerial areas, possible solutions are offered to help restore the company’s image and reputation in the society and market. The methodology used in the report is to be qualitative, where five participants of different backgrounds and qualifications have been interviewed and ten questions were asked from which the answers have been analyzed and compared to previous studies in an effort to understand how the company performed from a managerial and strategic perspective. In addition, by conducting this report, the aim is to find answers to following questions: How did Odwalla fare during and after the crisis made it to the public? Did the management implement a communication plan? Does the company need to establish a risk management team to help avoid financial risks? Lastly, the report is concluded by addressing the solutions to Odwalla’s problem and paying attention to the need for an effective use of communication, risk, and crisis management skills for they provide protection against future related crisis and help maintain the company’s image. Also, recommendations are provided for future researchers on key areas that may require improvement through better use of resources. Improvement in these key areas will provide more insight and findings from an analytical perspective.
Introduction
Odwalla, a beverage company involved in the making of a variety of healthy foods and juices and has been a subsidiary of Coca Cola since 2001, had been involved in a crisis situation in 1996, in which 60 people had been poisoned and one infant was pronounced dead due to the contracting of what is called E-coli bacteria. These bacteria were found in Odwalla’s apple juice and they are known to affect, mostly, the elderly and infants due to having weak immune systems. The company made a public appearance in response to the crisis by claiming responsibility and was later forced to use pasteurization on their formerly famous fresh juices in an effort to show commitment to the cause and health of the society. In this report, the Odwalla’s crisis case is analyzed in an effort to provide solutions to their problem, by suggesting the need to develop the strategy to improve certain key managerial areas. Developing a strategy helps companies compete in the market by enhancing their products for instance; it also helps with the evading and monitoring of risk.
The method being used in conducting this report is a qualitative study, in which five people were asked ten questions, and their answers were analyzed to establish a trend and then are compared with previous studies. In writing the report, limitations are found in terms of the inability to interview certain business owners, who may have the right background and the experience to provide a deeper insight and more added value into the Odwalla’s case. The inability to find business-owning interviewees had to do with the lack of time allocated for the report. With more time, a more thorough analysis could be made using more interviews and, therefore, more value can be added to the report. Lastly, perhaps a group of three people would be sufficient to conduct the work for it is relatively easier to manage the tasks of a small group compared to a bigger group of five or six people.
Methodology
Regarding the matter of identifying, evaluating and measuring the impact or damage for the crisis occurred in Odwalla’s production quality and safety, the subjective or qualitative approach was chosen. The reason behind choosing interviews to gather information is because of the depth and width of the type of data needed for such crisis. Also, it is important to highlight management’s reaction or attitude as they represent the leadership of the company. We targeted interviewees whom position titles were clustered in the middle management hierarchy because we believe that valid and reliable information on such crisis can be acquired. Through the series of 10 questions for each of the 5 interviewees who are related to the subject, an observation concluded regarding the reasoning and the possible occurrence of such crisis. An analysis is conducted regarding the cause of the crisis, the proposed suggestion to overcome it and how to keep consistency to avoid second occurrence. In the interview process, the interviewees preferred to disclose their work place, position title and number of experience but desired to have their names undisclosed. The purpose for the interview was explained to them along with the questions and how they are related to the research. The interviewees were targeted based on their experience on the production, market reaction and managerial aspects. The questions expressed the dimensions of management, cost and reputation of the company.
Results and Findings
The result of the interview indicated that the primary actions to be taken to experience minimum damage on the company is to look after developing risk strategy (in other words, production and workforce costs), focus on financing and developing the Research and Development department (ideally developing crisis management) and to have stronger internal and external communication (with staff, the market and the media). The proposed solution will reap its benefits in the long run because the type of crisis does not show any short-term recovery. The combination of ineffective fast production, poor regulatory production process, poor quality assurance and not willing to remove bad bacteria from their food through pasteurization resulted in having number of their customers affected by E. coli Bacteria through their juices. The effect from such company disaster could be in a form of losing control of company’s core principles and values as the plans to achieve its missions would not be implemented effectively. Also, because company disasters appear to take place in a sudden, organizational hierarchies would not seem to function effectively because communication will then become in a state of mayhem. Communication such as consistently and effectively coordinate and follow up with reporting lines and subordinates to identify, analyze and solve problems.
Moreover, the type of decisions made to overcome such problems should be addressed (either decisions based on analytical and objective studies or based on subjective qualitative ones). This hinders any company’s reputation and sales and as per the results of the interviews, a trend was noticed in terms of minimizing the damage either long or short term.
Communication
Company Hierarchal Authority
During a crisis, and in the management dimension, the first step is believed to re-assess the decision makers and re-distribute the delegation of authority, and leaning towards centralizing processes. Problems with heavy impact on the organization usually is handled by executive management, lower management employees are expected to experience loss of accessibility and decision authority because this will help executive management staff to reduce distractions caused by the rest of employees. Centralizing processes and limiting employees’ decision authority and accessibility slows down achievement of objectives, slows down communication and motivate conflict among staff. Odwalla is expected to develop and manage crisis model or effectively implement crisis management. In other words, and according to Biswas, U. , & Biswas, S. (2010), an Entity should put more focus on the networking aspect (communication within the company and with the market and media) staff are usually in need to stay connected with different units and procedures in order to have a clear vision to what is expected to be done and what is not, also, investors and customers are expected to be well informed of the development of the firm as well. To implement the company’s internal transformation process, it is recommended to immediately stop production and develop and apply strict guidelines, policies and procedures and regulatory compliance models in order to identify, assess and fix loop holes in the production process. Investing in up-to-date technology for their production (since struggling to meet market demands when Odwalla boomed indicates having ineffective technology tools and management excellence).
Social Media and Marketing
Lastly, such crisis will damage Odwalla’s sales, net profits and performance. Investing in technology, marketing and developing business models and restricting the company to attain better management is costly and takes time. According to Yu, T. , Sengul, M. , & Lester, R. (2008), Executive or top management acquire the upper hand in controlling and directing the organization philosophy and path. For example, the Board of Directors could react and involve in some managerial objectives and recondition the working environment and resources. The company will need to freeze current production and start to transform its business production models. To suffer as minimum damage as possible, it is better for the company to cut workforce cost by replacing some of their employees with machines, targeting other employees and changing their contracts from (full time) to (outsource) contracts, temporarily eliminate employee rewards (incentives and bonuses) and redesign their supply change management model.
Odwalla should focus on investing more on marketing. In times of company crisis, attaining customer analysis, tracking customer behavior and market trends are essentials in order to regain customers’ and shareholders’ trust and loyalty. Marketing identifies methods to keep hold on loyal stakeholders and regain lost customers and this can be achieved by communicating what representatives want to deliver to their stakeholders in a clear and effective way. Since Odwalla company do not desire to pasteurize their food, they should invest in machines or other methods to identify harmful bacteria.
Development and improvement of risk strategy
Production and workforce costs
Secondly, the company should appoint a representative, someone who’s a member of the company and has high managerial level, to speak to the press with honesty and openness, since this is a clear flop by the company itself. Also, develop training programs to enhance awareness and keep employees alerted to ensure accurate and smooth workflow and to train managers on the methodologies and different techniques to handle stress, typically situations where mangers are expected to make the right decisions in an exceptionally short time. Also, in today’s modern technologies, because rumors spread in social media fast, Odwalla should ensure that all information that concerns the company should be published in formal statements from the company itself to tackle false information that could hinder the company’s image. Odwalla is expected to develop an organizational chart (company hierarchy) based on the nature of their industry, in other words, investing in the right machines and technologies to perfectly fit the philosophy or hierarchy of the company. The most effective decision for Odwalla executives to make is to make the company more dynamic and responsive to external forces. This can be achieved by reducing the head count and replacing them with machines and software systems. Executive management will have more control on their staff, their performance and production efficiency because complex technology reduces organizational hierarchy, shrinking the hierarchy helps people to communicate effectively, lately, effective communication motivate the company to better develop conflict management plans, enhances relationships with stakeholders and reduce uncertainty.
Development of crisis management (improvement of Research and Development unit and implementing Business Intelligent software):
The third approach to minimize damage and loss for such unpredicted and unplanned disasters is to develop an effective process to reduce uncertainty and become more pro-active. The first advantage to implement such management is illustrated below:
- During a company crisis, managers tend to experience intense pressure as they face a catastrophic situation and their decisions are highly dependent on solving the problem or worsening it.
- Implementing such crisis strategy will help the company identify similar hazards that occurred in the past (how the company encountered them and what is the best solution based on historical data). It will help the company to effectively assign the right people who attain the right skills to handle any level of negative impact.
- Implementing Business Intelligence software is crucial during a crisis because executive leadership are expected to provide the correct decisions in a very short period of time. Relying on business intelligence would be a wise move because it gathers big data and present them in a clear and simple way. Through this Decision Support software, it will be easier to recognize and evaluate threats. Moreover, Business Intelligence will help to provide more than one effective decision in a timely matter and following up (and documentation) to such decisions can be tracked.
Discussion
Both the interviews and the references agree that there should have been a better communication strategy, risk management strategy, and crisis management strategy. Odwalla’s CEO was just trying to impose his ideas without talking to anybody explaining why he just wants fresh juice without pasteurization. He is just saying it because it’s the idea of the company and its mission. He did not communicate with anybody, but he just imposed it. Stephen Williamson the CEO just wanted fresh juice. Since he chose that decision, he should have studied the risks that accompany such a decision. Williamson only cared that the taste changes, but he did not study other outcomes, as such what happened with the E-Coli outbreak. He should have known that an E-Coli outbreak was possible because Odwalla did not pasteurize their juices. This is part of the risk-management strategy where the company studies possible risks that it might get into due to the production process, management strategies, and/or marketing strategies. Obviously, Odwalla did not have a clear risk-management strategy. Moreover, the risk happened and Odwalla went into a crisis. Therefore, Odwalla also did not have a clear method or strategy of what to do when they are in crisis. Hence, Williamson was in deep trouble. Odwalla and Williamson should have known better that not pasteurizing juice is a serious risk and not to be taken for granted. This should have been the first thing in their crisis management and risk management strategies. Williamson should have communicated with his team that such strategies are required and are necessary to go along with the company’s current mission at that time which was producing fresh juice without pasteurization. Furthermore, Odwalla had a lot of money and they could have easily invested in research and development to produce pasteurized juice without changing the taste. It would have been an easy task if Williamson communicated with his staff where they logically discuss their concerns and he addresses them. This communication gap was the basis of the crisis Odwalla went into and it would have been prevented with simple communication.
Conclusion and Recommendations
In conclusion, the Odwalla crisis case provides a good example of how a lack of communication skills, risk analysis skills, and crisis management skills can lead up to a company facing the possibility of losing its business, image, and reputation. Moreover, it’s worth noting that the interviews conducted for the sake of the report provided the most interesting findings and results, some of which were aligned with previous studies that discuss improvement of strategy and restructuring of the corporate businesses, as well as, the ways to maintain corporate image. In approaching the three research questions regarding the implementation of crisis, communication, and risk management skills, the consensus is that they are vital for the survival of any major corporate business. As for the recommendations, it’s certain that the company should re-evaluate the strategy every five years. In addition, it can change the juice processing cycle by making a random patching test, whilst, focusing on product differentiation through manufacturing of other types of drinks and foods. By doing so, the survival, as well as, the profit of a corporate business can be sustained. Moreover, establishing a public relation division would be beneficial, as it allows the company the chance to be more prepared when facing with similar crises in the future. Lastly, the company can be involved in CSR programs, live community projects and events while taking advantage of the social influencers to promote their brand and enhance its image.
