Student Feedback: Ben & Jerry Case - Value Based Strategy 2019 Seminar 1 & 2 PDF

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Anthony Henry ...

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STUDENT FEEDBACK Value Based Strategy 2019

Seminar 1 and Seminar 2 (Ice-Cream Wars video) Ben & Jerry’s vs. Häagen Dazs

1) What were the challenges facing Ben and Jerry in the on-line video? 2) To what extent was their strategy planned? 3) To what extent was their strategy emergent? 4) How would you determine if their strategy was successful? 5) How does this case help you think about “What is strategy?”

1) What were the challenges facing Ben and Jerry in the on-line video? In his book Good Strategy/Bad Strategy (2011), Richard Rumelt argues that most people are unclear about what is strategy since the term has been equated with ambition, success, innovation, and aspirational leadership. However, for Rumelt strategy deals with the challenges faced by organisations. As such, strategy should provide an approach to overcome these challenges. Some of the challenges facing Ben and Jerry were: •

Lack of money and success in finding a job - Their response was to look at the macro-social or macro-economic trends: “The two big things happening in food at the time were bagels & home-made ice-cream” - Their solution: bagels too expensive, it had to be ice-cream

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How to response to lack of ice-cream sales in the winter - Vermont is the seventh coldest state in the country - Vermont's winters are "too cold to snow"; the air is too cold to contain sufficient moisture - Their solution: sell their ice-cream to local restaurants as a temporary measure to stay afloat 1

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Expand their distribution and sales of ice-cream beyond the “cold” state of Vermont

With a basic level of strategic analysis e.g. PESTLE it would be apparent to Ben and Jerry that ice cream sales from a store front is seasonal. Once the summer is over sales will plummet. Therefore, to survive they would need to sell their ice cream beyond the boundaries of the shop. -

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Their solution was to contact 2 national distributors and convince them that Ben and Jerry’s ice cream was worth them distributing.

Once they had the agreement of both distributors to sell their ice cream the next challenge was how to survive the competitor move from Haagen-Dazs - This solution to this challenge involves both emergent and deliberate strategy

If we look at what was Ben and Jerry’s strategy in the video, we see: 

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Decisions were strategic in the sense that they affected their company as a whole and determined the company’s scope and direction e.g. - To make ice-cream as opposed to bagels - Outsource the new function of distribution  Reconfigured resources and competences - As a start-up, resources and competences had to be bought/developed (Buy ice cream-making equipment, set up shop, learn to make ice cream) - Later, new competences were bought in as needed (distribution) - Pursue goals of survival initially, then competitive advantage

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B&J choose a strategic position of differentiation (Porter, 1996): - The key was their UNIQUE ice-cream – inventing the ‘chunk’ and producing ‘weird flavours with lumps in’. They don’t try to improve on existing products, but produce a completely new type of ice cream. - They consciously position themselves as ALTERNATIVE i.e. organic, hippie and ‘homegrown’ as opposed to foreign, luxurious and exotic - Built an experience around the consumption of ice-cream in their shop (‘it was just the funkiest ice cream shop I have been in’).

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B&J achieve a great strategic fit between: - External: Positioning their ice-cream in the market to seize opportunities in macro-level trends (ice-cream sales and hippie culture) - Internal: All activities align to reinforce each other (improvised shop, ‘free cone day’, piano playing etc.) - Internal: Activities leverage existing capabilities (ice-cream making, being hippies) and does not require any others capabilities to be developed in-house

2) To what extent was their strategy planned? AND 3) To what extent was their strategy emergent?

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It was both planned and emergent. - What, in retrospect, appears as a well-planned strategy actually contains emergent and planned, and imposed elements

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Initially Ben & Jerry’s strategy was emergent. - Lack of money and resources - Set up the business because they “loved food” - Bagel-making equipment too expensive, it had to be ice-cream which fortunately aligned with macro-level trends (the external environment) - Very much responding to threats to survival – bankruptcy looming, crisis, “we were just doing whatever come into our heads” - They might not have been able to predict Häagen-Dazs’s response, but they should have anticipated at least some kind of competitive push back. So they didn’t really seem to be thinking about their external environment that much. - Drucker (1995) Theory of the Business is helpful here: organisations encounter difficulties when the assumptions on which they are based no longer fit reality - Their success was, in part, brought about because of the publicity that arose because HaagenDazs (Pillsbury) attacked them.

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Then their strategy becomes planned. - They created a buzz with their campaign – David vs Goliath - Their response to a competitor moves was – deliberately targeting Pillsbury, attacking Doughboy - Retaliation against Mateus low-fat ice-cream with the same tactic initially deployed against Ben & Jerry (Clear evidence of learning) - In fact, they were smarter than Häagen-Dazs in that Häagen-Dazs didn’t have exclusive agreements with distributers.

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By contrast, how did Haagen-Dazs come about? - In contrast, Haagen-Dazs was – from the outset – planned to be a luxury brand with a foreign and exotic appeal

4) How would you determine if their strategy was successful? • Ben & Jerry’s survived and won the ‘ice cream war’ against Haagen-Dazs - Developed (sustainable) competitive advantage - Founded in 1978, achieved an annual growth rate of 120% in 1983-4 - Expanded internationally - Can also assess with - Suitability; Feasibility; Acceptability of strategy - See Postscript (below) 5) How does this case help you think about what strategy is? -

Nature of strategy questions (BHAGs bet-the-company, big challenge) Importance of positioning (external environment and capabilities) Grant 1991, Barney 2001 Do you have a competitive advantage? Ben & Jerry took on the “mighty” Haagen-Dazs. Internal and external fit

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Barriers to entry and competitive rivalry (Porter, 1980)

Now if Haagen-Dazs had just left them alone Ben & Jerry actually might have failed for lots of reasons. •

Everything we are learning is you have to respond to competitive threats and you have to be moving all the time, but actually Haagen-Dazs might have done better to actually just sit back for a while and just watch what was going on. Scenario planning (Schoemaker, 1995). They had a knee jerk reaction and made the wrong decision. So judging WHEN IS THE TIME to act is a difficult part of strategy.

 Postscript. Did it remain successful? Yes, and No.   Ben and Jerry’s had strong counterculture and a social mission. They came to view the business as, in Cohen’s words, “an experiment to see if it was possible to use the tools of business to repair society.” In 1985 they created the Ben & Jerry’s Foundation and the company agreed to contribute 7.5 percent of its pre-tax profits. They relied heavily on local suppliers of milk. They hired a local artist to design their cartons and graphics. As the company’s need for capital increased, they resisted venture capitalist financing, and sold stock to Vermont residents, reinforcing the company’s local roots. They also adopted a compensation system whereby the highest paid firm employee could earn no more than five times the income of the lowest paid firm employee. This restricted their ability to acquire senior management talent to drive growth and profitability. 1990s. The frozen desert market consolidated rapidly during the 1990s, but Ben and Jerry’s icecream remained independent firm because of their commitment to maintaining a social mission. Their resistance to merge hampered their ability to access broader distribution network and managerial talent that would have been available if they had merged with another firm, the company’s growth and profitability lagged. 1994, the company’s annual report disclosed that sales growth slowed and it had suffered its first financial loss. By 1999 the stock had dropped nearly 50 percent from its peak, because of the company’s weaker financial performance. Some investors argued that the company’s social mission was a luxury it could no longer afford. This attracted interest from prospective buyers who thought they could manage the company more profitably. 2002, the company was acquired by Unilever for $326 million. Cohen’s and Greenfield’s shares were worth close to $40 million and $10 million respectively. After more than 20 years as an independent enterprise, Ben & Jerry’s became a wholly owned subsidiary of Unilever.

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