Odwalla Company Management - Case Study Example

The Odwalla Company Case I. Background The Odwalla company is a health conscious corporation which offers organic fruit juices as its main product. An offshoot of financial need, it grew from Greg Steltenpohl’s initial idea of selling organic juice using a $200 juicer, and was later appreciated and further grown when partners Gerry Percy and Bonnie Bassett came into the picture, some 20 years ago. In its methods of production, it avoids the use of chemical preservatives and other preservation methods such as pasteurization. In 1983 Odwalla introduced carrots to their market and moved into a larger production facility. By 1993, Odwalla went public and offered to sell 1 million shares of common stock at an initial price of $6,375/share. The revenue was used to build a production facility in Dinuba. The Odwalla Company is based on Half Moon Bay, California II. Growth By the fall of 1996 Odwalla’s sales hit $59 million, an increase of 40% from the previous fiscal year. A half gallon jug was bought by a customer for five dollars with the company’s commitment of producing only fresh juice which was not pasteurized, with this the company was growing with an annual sales approaching $90 million. Soon they were providing stores with their own refrigerators with their brand stamped on them. Odwalla also wanted to make sure the company’s growth would not interfere with their vision, so the company initiated a three day training session called, Living Vision Conference, for employees to talk about applying the vision to everyday operations. Not only was Odwalla supplying fresh juice to the public, they also provided social and environmental awareness to the community. They used community service to help aid farm families, scholarships to study nutrition, and cash or juice gifts to local community organizations. They provided recycling programs for their plastic bottles, and attempted to divert organic waste from landfills by selling their pulp to livestock feed and citrus peel for use in teas and condiments, they also used out of code juice for biofuel. They also participated in energy conservation awareness practices. The employees at the Odwalla Juice facility used a cost-effective way to significantly reduce energy consumption. Employees are encouraged to turn off or shut down idle processing equipment, lights, fans, air compressors, and other types of energy consuming components that are not being used. In short they were environmentally and socially conscious as well. III. Crisis E. coli Contamination Everything changed for the Odwalla Company on October 30, 1996. Washington state’s health officials informed then an Escherichia strain had been discovered in Odwalla’s apple juice. Which could have been avoided if the company did not fail to act immediately although their knowledge that bacteria especially the E. Coli strain could be procured in non pasteurized food products. From an article in the United Kingdom Health Department’s website publications “Once potential and actual risks have been identified, they must be properly analysed to identify lessons for policy and practice.” (2007) we could insinuate that Odwalla company has indeed fail in the prevention of such contamination if processes to ensure product safety were made. However, it must also be taken into consideration that Odwalla company has banked on the fact that: It was once believed that E. Coli could not survive in an acidic environment, such as Citrus and apple juice. Odwalla’s juice had a pH balance of 4.3, which was approved by the FDA, who originally declared that fresh juice with a pH lower than 4.6 was not potentially hazardous. Still it could not be avoided if it was hindered from its prodromal stage, if feasibility studies and food test studies were done then the E. coli 0157:H7 strain contamination would have been avoided. “E. coli O157:H7 is one of hundreds of strains of the bacterium Escherichia coli. Although most strains are harmless, this strain produces a powerful toxin that can cause severe illness. E. coli O157:H7 has been found in the intestines of healthy cattle, deer, goats, and sheep.” (Center for Disease Controls and Prevention, 2006) . IV. Response Immediate Response Odwalla’s CEO, Stephen Williamson called for the immediate recall of the Odwalla Juices which covered almost 4,600 retail locations in 7 different states across America. Internal damage control teams were created and activated. This recall cost Odwalla close to 6.5 million dollars, but was completed in two days. Within 24 hours Odwalla also created a website wherein the company explained the situation to the people, they also maintained constant communication with the press, and tried to maintain the move of being “not defensive” as its offense. Media Intervention By November 1, 1996, CNN released the news headlining “E. coli poisoning leads to Odwalla juice recall”.(CNN, 1996). CNN identified the types of juice drinks which were pulled out from the stores “Thirteen types of juice were being pulled from the shelves of stores in seven Western states and Canada. While they all contain some form of apple juice, some, like Blackberry Fruitshake," do not have "apple" in their names.” (CNN, 1996), CNN also identified the other juice drinks which were probably contaminated “The other potentially tainted Odwalla flavors are: Mango Tango, Super Protein, Strawberry Banana Smoothie, Raspberry Smoothie, C-Monster, MoBeta, Femme Vitale, Strawberry C- Monster, Superfood, Serious Ginseng and Deep in Peach.”(CNN, 1996). A good point in the response of Odwalla is that, since it was a company which is socially responsible and very much involved in community works, it was very receptive to the idea of change management, and its crisis management teams did not have problems similar to the four types of errors described by Raiffa (1968), such as rejecting a course of action, accepting a wrong solution to a problem, solving the wrong problem, and solving the right problem correctly but too late. Damages However, during the outbreak, one child died and more than 60 people from the West Coast and in Canada were inflicted by the bacteria making them sick. Sales plummetted by 90%, Odwallas stock price fell 34%. Customers filed more than 20 personal-injury lawsuits and the company looked as though it could well be destroyed, Odwalla was fined $1.5 million, which is the largest fine in a food industry case by the US Food and Drug Administration. If certain precautions were taken, then probably this would not have to hit the acute stage which was- to give due credit- handled by the Odwalla company properly. The Odwalla company’s proper handling of the situation led to the easy handling of the Chronic and Crisis resolution stages. Feedback After the incident the companys entire approach that had been founded on fresh unpasteurised juice because only juice which had been untampered with could have the best flavour was changed. The company decided quickly that this had been wrong. The company moved quickly to introduce a process called "flash pasteurisation" which would guarantee that E-coli had been destroyed whilst leaving the best flavoured juice possible. (mallenbaker.net 2007). If a feasibility study of this process was initially done before the actual throughout selling of Odwalla’s products, then maybe there had been no crisis at all. Pasteurization is the process of heating liquids for the purpose of destroying viruses and harmful organisms such as bacteria, protozoa, molds, and yeasts. (en.wikipedia.org, May 2007) If it was Odwalla’s concern that it would no longer be organic if it undergoes a process of pasteurization, then it must have made innovative plans to maintain food sterility such as making its workplace thoroughly clean and its raw materials subject to all quality inspection methods. Odwalla could also apply a different method of ensuring safety from E. coli which is Ultra Violet pasteurization which yields very efficient results when it comes to combating E. coli. Tests have shown that this particular design reduced E. coli 0157:H7 contamination from 100,000 microorganisms per ml to 1 organism per ml in a single pass.(McCandless, 1998). Odwalla’s crisis was basically an example of Seymour and Moore’s python crisis which was disrupted just as it was about to totally crush the corporation. (2000) V. Rebuilding Quick Reorganization Some months after the incident, the Odwalla company was quick to rise back and has emerged from the realms of being down. On December 5, that same year it was able to secure its market back with the assurance of food sterility through the method of flash sterilization. Within months of the outbreak, the company had in place what some experts described as "the most comprehensive quality control and safety system in the fresh juice industry." (Mallenbaker.net, 2007). It employed the process of Flash Pasteurization; Flash Pasteurization is a method of heat pasteurizing beer and other beverages prior to filling into containers for the purposes of killing spoilage micro-organisms. In this process the product is handled in a controlled, continuous flow and subjected to a temperature, normally in the range of 71.5ºC (160ºF) to 74ºC (165ºF), for a time period of 15 to 30 seconds. (Gunn, 1999). Odwalla had to sacrifice the taste of its juice in doing such process as it made the juice taste lighter than it had tasted before. This process however, would be more likely prone to bacteria than any other pasteurization process. The Safe Tables Our Priority (S.T.O.P.) Organization Web site discussed that, “If for some reason,  the juice heats unevenly, or the equipment doesnt work right, or the strain of organisms is more heat resistant, or the juice has different levels of acidity, sweetness, etc., flash pasteurization is more likely to end up with contamination than other forms of pasteurization, specifically because the margin for error is smaller.” (2007) This process must once again put into question, as this might again turn out to be a python crisis that would inevitably destroy the Odwalla Company once and for all. The biggest reason that Odwalla was successful was that they had great internal communications: “Williamson conducted regular company-wide conference calls on a daily basis, giving employees the chance to ask questions and get the latest information” (mallenbaker.net, 2007). This provided workers with psychological security, through constant updates about where their company was heading. This is an example of good crisis management when it comes to good communication and trust. The company ensured the high level of trust between them and their employees thus avoiding the issue of having a failed credibility, through this, they also established their image of having concern not only for their consumers and their finances but to their employees as well. This move became a valuable capacity, since it became a factor for Odwalla’s quick comeback in the rise of sales. Instead of placing their workers in a massive lay-off, most of their workers’ jobs were diverted to customer service, such as that their delivery truck drivers maintaining constant communication with the stores and shops which Odwalla was serving. This act saved Odwalla’s reputation with its workers and its customers. They were able to make a swift recovery and were voted by The San Francisco Magazine as “Best Brand Name in the Bay Area” the year after. This was mainly due to Odwalla’s actions of constant communications with the media and their customers. Odwalla’s crisis management and the involvement of its employees on crisis resolution should be given due credit. Taking a Guilty Plea These actions suggest that the Odwalla company also has a good Stress and incident Management as it demonstrated acts which involved clear thinking and grace under pressure during the whole course of the incident. Considering the fact that it gave an immediate response to contravene the fiscal damage intensive corporate crisis. Another point to consider in the Odwalla case is its taking of a guilty plea for the criminal charges filed against it. It paid $1.5 m in criminal fees and paid about $15 M for court settlement. “Although terms of the settlement were confidential, The New York Times reported that the company agreed to pay between $ 12 million and $ 15 million.” In an article in the news archive of the Marler Clark Law Firm. (1998) Although surprising, it is quite explainable why the mother of the child who died during the outbreak was also not taking it that bad. She was even positive in the way she talked about the company in one of her statements in a Business Digest article by Jon Entine (1998).  "I dont blame the company," said Christy Gimmestad of Evans, Colo. after the death of her 16-month-old daughter after drinking her favorite juice. The statement was just a reflection of how Odwalla remarkably managed the crisis that it experienced. Yet still it was not quite acceptable due to the corporate impacts that it got when the crisis blew up. Impacts Societal Impacts Even though Odwalla maintained its reputation for serving fresh juice, the crisis impacted some perceptions towards the corporation. The crisis caused the U.S. Army itself to refuse the consumption of such produce. Numerous investigations also flocked the company during the outbreak and stated different facts about Odwalla’s negligence on its operations. Investigators now contend that Odwalla had significant flaws in its safety procedures and citrus-processing equipment was so poorly maintained that it was breeding bacteria in "black rotten crud" and "inoculating every drop of juice."   Before the outbreak, Odwalla had received letters from customers who become violently ill, but had not addressed the problem. (Entine 1998) Strong criticisms on Odwalla were raised, saying that the Odwalla corporation had it coming as one of its officers David Stevenson knew the problem before the crisis, yet senior officers didn’t listen to his proposal to use chlorine saying that this would leave a bitter aftertaste to the product. Yet it was either Odwalla was really lucky, or did really well in crisis communication that it had blocked all the propaganda and the statements against it. Financial Damages The crisis also cost the Odwella company more or less $20 million in losses, payment of fines, and crisis operational fees which are not that hard to recover since it has covered most of the west coast, and it did not stop operations for more than half a year. After Odwalla’s successful comeback, due to its successful face saving operations, also led to its flourishing and eventual merger with the Fresh Samantha Corporation which enabled it to pursue its coverage attempts over the East coast. “Odwalla Inc. of Half Moon Bay, Calif., bought Saco-based Fresh Samantha three years ago for stock worth an estimated $27 million at the time” (BEVnet, 2003). The remarkable reorganization also done by the Odwalla corporation made huge contributions to its profits and later outcome. “The publicly traded company lost about $ 12.4 million in the fiscal year ended Aug. 31, but said in its latest quarterly filing with the Securities and Exchange Commission that sales have returned to almost pre-recall levels. Gallagher said that 75,000 people continue to buy Odwalla products daily.” (Nax, Pollock, 1998). It was able to recuperate maintaining its outputs before the actual crisis. Odwalla reaped the benefits of “rebuilding its reputation for the future”, as it was eventually bought by the Coca-Cola in 2001 for a hefty sum of $181 million. This maybe looked upon as the long term effect of its successful crisis management five years before it sold its rights to the Coca-Cola Corporation. Selling Odwalla however impacted consumers of Fresh Samantha, as Coke phased-out Coca Cola Products to give more focus on Odwalla products. Conclusion The Odwalla Company crisis may be seen as one of the most successful rescue and salvage operations known in the corporate world. Odwalla’s performance before, during and after the crisis contributed to its success in bringing itself up and eventually selling itself to the Coca-Cola Corporation. Before the crisis, Odwalla was into Corporate Social Responsibility and thus it has already established trust on the market. While it provided jobs to its employees, it also gave scholarship to study nutrition, and cash and gifts to local community organizations. They were also environment friendly in their manners of work, as they try to recycle their residue for biofuel, and try to reduce energy consumption by instructing its employees to turn the lights off when they were not in use. This became Odwalla’s advantage point during the crisis since it was able to secure a pool of consumers for their products. This tagged them as a socially responsible company and thus garnered sympathy from their consumers. This is the advantage they might have used during the incident as they argued innocence over the presence of the E. coli in their juices. As Entine criticized them about the incident in his article.(1998) “Since the incident, Odwalla has publicly accepted "responsibility" for the poisonings, although it continues to disingenuously portray itself as a victim.   "We didnt test for E. coli because we believed evidence showed it was not found at that acid level," said founder Steltenpohl.   In other words, Odwalla pleaded guilty to the lesser crime of ignorance and to not anticipating the health dangers of unpasteurized juice.” (Entine, 1998) Odwalla has actually made a good contact to a community which it has interacted with through its socially conscious projects which may have added a value to its positive image. However, during the course of the crisis, Odwalla has had an act of irresponsibility as it valued its personal or selfish ethics over the safety of its customers. “Founder Greg Steltenpohl was fond of saying that he was dedicated to a Zen-like "respect for the fruit."”(Entine, 1998) Respect for one’s belief has always been given value in the states, however, it must always be considered that public safety and interest must always be given priority over any other selfish qualms, even if it was part of the vision of the corporation. The fact that Odwalla was knowledgeable of the situation, that their products being prone to contamination without the proper pasteurization process. This maybe viewed as stage 2 or the precipitating event in the Turner’s Disaster Management Sequence. The part wherein there is an accumulation of an unnoticed set of events, which in this case was noticed yet was not recognized by the corporation’s big fishes. After the crisis, the Odwalla company however paid for its dues and adapted to the culture of social safety by employing a method to pasteurized its juice. Yet however, in the cultural readjustment of the corporation, it was still taking another risk by employing a method which was highly prone to bacteria and might spark another crisis. Although Odwalla managed the crisis very well, it was not very well prepared for the crisis. As crisis management is crisis is very important in all corporations. “Companies must anticipate the possibility of a crisis and must take steps in the ordinary course of business to be prepared for one.” (Bennet R, 2007) The importance of crisis management however, must be reiterated again and again, for corporations sometimes gear only towards the acquisition of more income forgetting their responsibilities to the public. References Bennett R. .2007. An interview on How to Manage Corporate Crises. [Online]. Skadden Crisis Management. Available: http://www.skadden.com/content/attorneyFiles/attorneyFiles6_0.pdf [20 July 2007] BevNET.com. July 29 2004. Odwalla Pulls Plug on Fresh Samantha Line. [Online]. Available: http://www.bevnet.com/news/2003/07-29-2003-odwalla.asp [30 July 2007] Center for Disease Controls and Prevention, United States Department of Health and Human Servicses. 2006. Escherichia coli O157:H7.[Online] US Department of Health. Available: http://www.cdc.gov/ncidod/dbmd/diseaseinfo/escherichiacoli_g.htm#What%20is%20Escherichia%20coli%20O157:H7 CNN interactive. November 1, 1996. E. coli poisoning leads to Odwalla juice recall. [Online]. CNN. Available: http://www.cnn.com/HEALTH/9611/01/e.coli.poisoning/ [30 July 2007] En.wikipedia.org. May 2007. Pasteurization. [Online]. Available : http://en.wikipedia.org/wiki/Pasteurization [30 July 2007] Entine, Jon. September/October 1998. 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Available : http://www.mallenbaker.net/csr/CSRfiles/crisis05.html [30 July 2007] Nax, S. and Pollock, D. 1998. Suits Against Odwalla Mount in E. coli Case. [Online]. Marler Clark News Archives. Available: http://www.marlerclark.com/news/odwalla8.htm [30 July 2007]. Raiffa, H. 1968 Decision Analysis: Introductory Lectures on Choices Under Uncertainty, New York: McGraw-Hill, Inc. Seymour, M. and Moore, S. 2000 Effective Crisis Management Worldwide Principles and Practice, Continuum: London Safe Tables Our Priority (STOP) Organization. 2006. Feedborne Illness Frequently Asked Questions : What is Flash Pasteurization?. [Online]. Available: http://www.safetables.org/Foodborne_Illness/fbi_faq.html [ 30 July 2007] United Kingdom Department of Health. 2007. An Organization With A Memory : Factors Influencing Learning From Failure. [Online]. UK Department of Health. Available: http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/Browsable/DH_4936802 [30 July 2007] Read More