The Johnsonville Sausage Co. was founded by the Stayers in 1945 as a rural meat market in Johnsonville, Wisconsin. The company started as a family home with a storefront, sausage kitchen, slaughter shed and smokehouse; the Stayers opened retail food stores between 1946 and 1952. In 1965 when their son, Ralph Stayer, graduated from Notre Dame with a degree in business, he and his father studied the wholesale and retail operations and decided to focus their efforts on building the wholesale business. After assuming most of the day-today decision-making authority in the 1970s, Ralph was officially named president in 1978. He “built the company’s wholesale business to $4 million in sales in 1975, $15 million in 1980, and $50 million in 1985. Between 1980 and 1985, return on equity climbed from 18% to 27%, and the debt-to-equity ratio hovered between 55% and 65%.” The transition from a mom-and-pop store to a world-class enterprise with over 500 employees was a feat of organizational change management.
As the company grew, Stayer realized problems with his management style. By 1980, he “began to feel uncomfortable with the business and the way in which he was managing it.” The quality of the product was slipping and employees were not invested in their work. General morale was low and performance was poor. In many ways, Stayer’s early management style was responsible for creating a corporate culture that discouraged employee involvement. Initially, Stayer ran the business “from the sausage stuffer” and made all day-to-day decisions about purchasing, production scheduling, pricing, advertising, and sales. Previously competent managers fell into a rhythm of taking orders and lost the ability to take think strategically and take on responsibility. Stayer realized that change was critical for the success of the business. At the same time, he heard a lecture from Dr. Lee Thayer of the University of Wisconsin addressing how managers could change their philosophy and style of management. Stayer worked with Thayer to develop and implement a new philosophy that focused on performance and the idea that the job of management is to help people accomplish their objectives by clearly defining jobs, explicitly outlining performance standards, and giving them the resources they need to succeed.
Johnsonville’s new values included a deep moral commitment to the individual. The primary objective became to make people better, rather than the business better. Stayer came to see his role as a leader supporting his subordinates rather than controlling them. Additionally, the new philosophy encouraged each employee to commit to the company’s success and to see themselves as entrepreneurs responsible for the company’s success. Stayer sought to develop an atmosphere of ongoing learning and development by supporting creativity, encouraging responsibility, and empowering employees to develop solutions rather than simply follow orders.
Johnsonville’s organizational model was changed to support this new culture of employee empowerment. Hierarchies were flattened and the company became more democratic. Traditional management roles were replaced by worker-run teams such that workers controlled their compensation, hiring, firing, quality control, and near-and long-term company goals. Innovative solutions were encouraged and evaluated and each member of the company was called upon to contribute to the company’s success. A more rewarding compensation system was introduced that encouraged members to stay with the company, develop their skills and improve their performance. These changes positively impacted the workforce, the community, and the company’s customers. Stayer had accomplished a complete organizational transformation.
The Palmer Sausage Decision
In mid-1985, Palmer Sausage experienced an employee strike and farmed out some of its production to Johnsonville. Based on the success of the products Johnsonville provided during this time, Palmer asked the company to continue making the product even after the strike was settled. A year later, Palmer’s vice president of manufacturing informed Stayer that Palmer was thinking of closing one of its Midwestern plants and would consider contracting Johnsonville to take over the majority of the business.
Evaluation of Alternatives
Stayer has two main alternatives: he can accept or decline Palmer’s offer to take over the business. The primary advantages of taking over the business would the opportunity for growth and additional revenue. Private label business offers a 25% return on assets. However, there are notable disadvantages to accepting the offer. Johnsonville’s most recent business plan included a decision not to push private label business over 15% after which it could compete for capital with the rest of the business. Additionally, given that the company is currently running at a very high capacity utilization, it would be necessary to run two long shifts for six or seven days a week in order to process the new business. This change runs the risk of hurting employee morale and the quality of products. While some of these negative consequences could be mitigated by building another plant, there is a risk that Palmer could cancel the business with only 30 days’ notice in which case the return on investment would suffer and workers hired to support the new business would need to be laid off.
It is recommended that Johnsonville accept Palmer’s offer in order to take advantage of the revenue and growth opportunities. However, it’s critical that Stayer implement the new business in a way that doesn’t undermine the cultural change success of the last 5 years. Stayer should involve employees in the decision to accept the private label business and the planning to handle the additional workload. He should encourage teams to meet together to evaluate staffing requirements, production and quality goals. By keeping workers involved and giving them responsibility for the important decisions, he will help secure their buy-in for tackling the challenges ahead.