UV5970 Case Writer Rebecca Goldberg

UV5970
Rev. June 9, 2010
This case was prepared by Case Writer Rebecca Goldberg (MBA ’03), Andrew Moon (MBA ’09), and Robert D.
Landel, Henry E. McWane Professor of Business Administration. It was written as a basis for class discussion rather
than to illustrate effective or ineffective handling of an administrative situation. Copyright  2010 by the University
of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system,
used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying,
recording, or otherwise—without the permission of the Darden School Foundation. Rev. 6/10.
SOUTHEASTERN MILLS: THE EIGHTH ELEMENT?
Continuing the Evolution
Southeastern Mills (SEM), a group of flour-milling, mix-manufacturing, and productdevelopment facilities owned and operated by the Grizzard family, was headquartered in Rome,
Georgia, one hour north of Atlanta. Its plants ground fresh wheat and corn and mixed it with
other dry ingredients such as baking powder, baking soda, and spices to produce flours, corn
meal, mixes for baked goods, gravy, soups, and food coatings such as fried chicken batter. SEM
also sold individually packaged consumer products and produced custom biscuit and pancake
mixes and chicken coatings in bulk for national food-processor, retail, and food-service accounts
(Figures 1 and 2).
Figure 1. Southeastern Mills products.
Source: Company document, 2010.
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Source: Company document, 2010.
In June 2009, SEM’s holdings included three facilities in Georgia and plants in Idaho, Oregon,
Alabama, and Hawaii.1 Its superior manufacturing facilities featured computer-controlled
equipment and extensive quality testing procedures, and its Center for Innovation offered
product support from development to scale-up production.
For the previous 13 years, the Grizzards and all of the employees at SEM had spent
considerable time and effort developing a unique, extremely successful company culture that was
founded on trust and a decentralized management systems structure. Each employee was treated
as an adult and held responsible for their performance. Work teams were expected to respond to
customer orders by working together and with as little supervision from the top as possible.
Teams developed their own process improvement plans, and each plan was different. The culture
at Southeastern Mills was based on a philosophy called High Performance Work Place (HPWP)
(Figure 3) and was grounded in the following seven elements:
1 Production facilities other than those located in Rome, Georgia were held under the separate corporation
Millner Milling and operated under separate management but were also High Performance Work Places (HPWP).
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 Positive assumptions: Assumptions about people drive our behavior. Therefore, positive
assumptions are a prerequisite if behavior is to be productive and positive.
 Mutual trust and respect: The basic foundation of a work environment where people are
treated as adults and trusted to perform to the best of their ability.
 Identification and elimination of negatives: A negative is defined as anything that
minimizes as opposed to maximizes a person’s sense of value to the organization.
 Training: The Grizzards believe that a company’s investment in training reflects its value
for the people. It is classified into three categories—Leadership skills, Technical skills,
and Team skills.
 Open two-way communication: Two-way communication builds trust and understanding.
It takes longer but produces better results. There is better understanding, more
involvement, and a better outcome.
 Employee involvement: When employees are given the tools to succeed and trusted to
conduct themselves with integrity, then there is room for everyone’s voice to be heard.
Employee involvement spans both institutionalized feedback forums and informal team
problem solving. Participation grew commitment, and commitment grew success. People
should be involved in every decision that affects them.
 Competitive wages and benefits: The objective is to make wages and benefits a nonissue.
Southeastern Mills conducts yearly surveys of wages and benefits. All market data and
range data is open to all employees. They tried not be the highest, certainly not the
lowest, but competitive. People view “competitive” as “fair.” Being noncompetitive
violates people’s trust in the company.
Figure 3. The High Performance Work Place, 2009.
Source: Goldberg Productions, Inc., 2009.
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At the core of HPWP was the belief that 95% of its employees at all levels were
responsible workers who wanted SEM and its customers to be successful and to be successful
themselves. The seven elements described how all employees interacted with one another and
how they served their customers and consumers.
SEM enjoyed a period of financial stability during the severe economic recession that
began in 2007. Employees and owners attributed this stability to the company’s can-do culture.
During 2008 and 2009, SEM launched a new line of dry soup mixes under the label Shore
Lunch. In 2008, only 3% of new food-product introductions in the industry sold more than $1
million, and Shore Lunch was included in that percentage. Its attractive packaging, home-style
recipes, and ingredients of superior quality positioned it as a candidate for quick home cooking
during a time when many U.S. citizens were eating many more home-cooked meals.
One of SEM’s core values was maintaining long-term relationships with both its
suppliers and customers, especially during this difficult time when some of SEM’s customers
were involved in bankruptcy turnarounds. While some suppliers to these companies cancelled
their contracts, SEM did not. The company had built trusting business relationships with these
customers and continued to provide them with products. SEM reasoned that suppliers who
abandoned large clients undergoing bankruptcy restructuring would be less likely to have their
contracts renewed when these companies were viable again.
SEM’s continued to build its national reputation in the food industry for loyalty,
consistency, and flour-based products of premium quality, hoping that its solid reputation would
help it develop long-term relationships with larger restaurant chain customers such as Wendy’s
and McDonald’s. These larger food service customers often preferred centralized, standardized
process improvement capabilities in the operational processes of their suppliers because they
wanted both sides of the supplier relationship to speak the same language regarding process
improvement. Because operating systems using Lean and Six Sigma principles and tools were
standard in many high-volume operations. SEM thought incorporating the language and tools of
these into its culture give it a competitive edge in seeking larger contracts.
SEM was also ready to take another step toward self-improvement by achieving a Level 3
Certification from the Safe Quality Food (SQF) Institute. The SQF program was a leading,
global food safety and quality certification program and management system, designed to meet
the needs of buyers and suppliers. The program provided proof through certification that a
supplier’s food safety and quality management system complied with international and domestic
food safety regulations. This certification assured customers that the supplier’s food has been
produced, processed, prepared, and handled according to the required standards at all levels of
the supply chain.
The Grizzards and their management team felt that now was a good time to explore the
possibility of adopting an eighth element as a catalyst for further developing SEM’s approach to
managing improvement. Jason Marion, director of HR, headed a team charged with surveying
the available options for centralized process improvement. He had attended an executive
seminar, Leading High Performance, at the University of Virginia and had toured a local carpet
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mill in its second year of Lean implementation. He had also interviewed two potential consultant
groups in order to evaluate their fit with the HPWP culture. Marion wanted to find a way to raise
the bar higher by using what he knew about HPWP and what he had gained managing human
resources at SEM.
SEM History
SEM started out as a family business. The first generation had the last name of Parrish,
and opened Parrish Bakeries in 1941. The second generation, the Grizzards, came to Rome in
1951 and started a branch of Parrish Bakeries, which was sold in 1968. In 1971, the Gizzards
acquired the first of the SEM facilities. One of these, Mondo Bakery, was started as a division of
SEM in 1982. Mondo Bakery produced Rice Krispies Treats for Kellogg’s. SEM and Mondo
Bakery were both managed by the third generation of Grizzard family members. When Mondo
Bakery was sold in 2000, third-generation Grizzard siblings, Bob, Linda, and Vernon invested
the profits from this sale in their flour mill and mix plant, which their father, Vernon Grizzard,
had purchased in the 1970s. Through three generations of family ownership, SEM evolved into a
sophisticated food company.
The product lines of SEM had changed and grown over the years. By 2010, SEM was a
vertically integrated food manufacturing company. The company converted wheat and corn into
flour and cornmeal using traditional dry milling processes and mixed these with a variety of
other ingredients to produce food coating systems, gravies, and baking mixes (Figures 4 and 5).
Figure 4. The flour creation process.
Source: Goldberg Productions, Inc., 2009.
The competitive landscape was different for each of SEM’s market segments. In
business-to-business transactions, it competed against different suppliers depending on the size
of the customer. At retail point-of-sale locations, such as grocery stores, SEM’s products were
often less well-known, so it competed on price and quality against category leaders; the gravy
and soup mixes were in this category. SEM also provided private label retail commodities to
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retail grocery stores. For instance, the company produced and packaged flour for Piggly Wiggly
grocery stores under that name. Most of SEM’s corporate customers were middle-tier regional
customers, such as Bojangles’ and Cracker Barrel. Now that SEM was involved with premium
national food services accounts, such as Wendy’s and McDonalds, it was viewed differently by
the competition. It competed against the largest suppliers in the nation, who benefitted from
sophisticated operating systems, raw-materials procurement advantages, and other economies of
scale.
Figure 5. Mill grinding machine.
Source: Goldberg Productions, Inc., 2009.
Bringing Personal Values to a Family Business
In 1996, the Grizzard siblings looked for ways to bring their personal values to SEM in a
process that benefitted both the employees and the company. They had always prided themselves
on their commitment to providing a healthy, safe work environment where people felt valued for
their contributions. But they also wanted to develop a training program and workplace culture
that reflected their personal values of individual responsibility and integrity, team problem
solving, and mutual respect and trust to an even greater extent. They began searching for a
consultant group to help them incorporate these values into SEM.
The Grizzards were introduced to Ken and Sue Bingham by Joe Coning, the former
president of the Mondo Baking Company in 1996. The Binghams were consultants who had
developed HPWP and were deeply committed to its implementation. They recognized the power
of mutual trust and respect to improve any corporate setting, regardless of the industry. These
consultants were convinced that a strong company culture could be successful if the power of
collective responsibility of each member were harnessed. The Binghams had seen many
companies that were structured to treat everyone equally, trust everyone unconditionally, and
provide everyone with opportunities for growth, undergo significant transformations. They told
the Grizzards that SEM could surpass all expectations if it were fully committed to HPWP
principles.
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The Binghams said this method of leadership was the more difficult road to take for
many companies, especially initially but that SEM was a good candidate for long-term success
because of the personal commitment of its leaders. The seven elements required intense personal
and organizational scrutiny, which would probably result in a small percentage of naysayers until
a critical mass of employees supported the system and the culture shifted. Then Ken Bingham
created a cultural platform that dovetailed with the Grizzards’ personal ideals. The Grizzards
embarked on the transformation journey, committing wholeheartedly to the culture change and
anticipating there would be some surprises ahead.
Early Implementation
Identification and elimination of negatives
In a leap of faith, in 1996, SEM put itself to the first test of commitment. All of the more
than 1,200 SEM employees were introduced to the HPWP philosophy by the Binghams at
workshops where anything that made an employee feel like a second-class citizen was changed
or removed. Reserved parking spaces were no longer available in the lot, and employees,
whether owner or temporary worker, were allowed to park in any space. The list of rules for
personal conduct was torn up and replaced by only one rule: Every employee should act in the
best interest of his or her fellow employees and the company. All SEM employees were placed
on salary with full benefits, even sanitation workers. Because of the seasonal nature of the work,
and the increased need for manpower when ramping up new products, it was impossible to
eliminate temporary workers completely. Full-time workers were expected to uphold the honor
system by reporting their work hours themselves electronically.
Individual responsibility and high performance were highlighted during the many
meetings and group sessions that followed. Employees were encouraged to work out issues with
their peers as adults at the team level and were responsible for their own work rather than being
micromanaged from above with a plethora of rules. The Grizzards, managers, and all employees
discussed the amount of time they had used creating, learning, and measuring themselves
according to a long list of company rules in relation to the time now being saved by everyone
being trusted to do the right thing. Now, with decentralized decision making a priority, SEM saw
evidence of success in fits and starts as customer orders were filled quickly and easily from the
floor.
Absenteeism and attrition had always been low at SEM. But after the advent of HPWP,
absenteeism began to fall even more, despite paid time off being included in FTE benefits.
Attrition declined as well, at first only slightly and then with increasing momentum. People
worked more closely with their work teams as they realized that part of the HPWP perspective
was being accountable for solving problems with their peers. As a symbol of their trust and high
expectations, the Grizzards passed out a key to the facility to each employee.
One of the concepts that the Binghams utilized in their HPWP program was the term
“five percenters.” It meant that the resources of a company should be used to benefit the 95% of
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the members of community who wanted to “do right” and not to punish or protect themselves
against the other 5% who took advantage of the system by attempting to work it to their personal
advantage. Not giving in to this negative energy and keeping focused on the wheels that were not
squeaky required managers to trust that the system would work.
An instance that might have prompted retaliation in another setting only reinforced the
HPWP culture for both the owners and employees one holiday weekend when someone stole
something from the office of the company president. Although every employee had a key to the
facility, their keys were not confiscated because that would be expending energy on the other
5%. This application of HPWP culture by managers not only strengthened HPWP culture but
ended up becoming a part of company lore.
Customer orientation
The HPWP culture grounded in the seven elements had other benefits. SEM community
members found that they had more time to focus on serving customers. Every employee learned
that customers’ needs were primary, and compensation packages were aligned with everyone
working together to achieve customer service and company success. A yearly bonus, based on
company performance, could be as high as 7% of every employee’s salary, whether it was
$30,000 or $250,000. “If the business succeeds, we all share in that success,” was a SEM maxim.
As a result, the seasonality and inconsistency of customer orders were voluntarily absorbed in
part by the work force. If car problems or family commitments necessitated absence from work,
paid time off was granted. If an order was not filled by quitting time, it was assumed that the
team responsible for the order would arrange for it to be filled, regardless of the effort. Team
members worked together to cover for one another in service of the common goal: satisfied
customers.
Honest mistakes versus breaking trust
Under the HPWP system, making honest mistakes was considered part of the normal
learning process as opposed to workers being dishonest or not working to the best of their ability.
These actions were regarded as breaking the trust that SEM had established (Figure 6). Breaking
the trust was taken as a personal affront by SEM because a community where employees trusted
each other was valued by all employees.
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Source: Goldberg Productions, Inc., 2009.
An environment of trust was more of a rare commodity in a setting that typically
employed only lower-paid hourly employees. SEM employees, including machine operators and
the director, knew this and made every effort to protect that environment. Therefore managers
who made mistakes apologized.
One manager recalled the time he lost his temper. “I went in there and yelled at them to
get their [butts] up to finish the order,” he said. He was not proud of his conduct. “They were just
in the wrong place at the wrong time. I apologized to them.” The team forgave him. They knew
he had been wrong, and yet they cut him some slack for being human.
Team members made mistakes as well. Some mistakes were part of the normal learning
process of mastering a new job. Others were interpersonal. One floor employee recalled, “There
was one guy who was supposed to have 24 batches ready for the next shift, but it was always 12
or 13. We [the team] talked to him many times. But we had to call a team meeting with the
manager.” Teams attempted to resolve issues about performance with its members and only after
repeated attempts were supervisors involved.
As a last resort in correcting a situation after repeated undesirable behavior, SEM used
letters of commitment that employees were asked to submit if they wanted to remain at SEM.
Occasionally, when asked to submit a letter, the employee voluntarily left and often an employee
who voluntarily left, in the future, was asked to return. The employee who left to work in a
traditional factory culture eventually realized the inherent benefits of SEM. In 2009, 13 years
after the start of the HPWP program, turnover was less than 4% per year across all facilities.
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Communication and connection
Clearly stated communication that reinforced or followed the principles of HPWP was
evident everywhere in SEM facilities. The HPWP commitment was reflected in direct actions,
written and in-person communications, development of traditions and celebrations, and even
building design and architecture. The mission statement, company goals and other quotes or
sayings about HPWP with a folklore feel were evident in offices, break rooms, and hallways.
There was a collective sense that other manufacturing styles, referred to by SEM employees as
traditional, were less desirable, and that SEM culture was something special and unique that
should be protected.
Direct connection between company owners, directors, supervisors, and shift workers
occurred at monthly communications meetings. Every shift worker was present at each meeting
in the Rome location, including operators and sanitation workers, along with the highest
members of the administration. During a second-shift meeting on June 16, 2009, the director of
sales and marketing presented the results of SEM’s most recent new product introduction, Shore
Lunch, including the rationale behind the packaging decisions, details about the design of the
flats that were delivered to grocery stores, information about market penetration and market
share, and explanations of all terms pertaining to the product. The CFO explained in detail the
accounting and expected profits and losses from each business segment in an accessible,
conversational manner. The owner presented a letter that was written by a visiting college
professor who had visited the location. The self-appointed safety team lead went over safety
rules and his goals for zero incidents in 2009. Plans for a celebration were announced, provided
SEM met certain performance targets. This incorporation of everyone in the dissemination of
information about company decisions, investments, priorities, and successes or failures had the
critical effect of cementing the symbiotic relationship between the employers and the employed.
In addition to the company taking actions, incorporating traditions, and investing in
written and oral communications, the architecture that SEM chose to employ in its newly
designed facility also reflected the HPWP culture. Clear glass was chosen to separate offices
from hallways. An open-door policy ensured so that everyone felt free to talk to the owners or
directors for any appropriate reason.
Reconceptualizing job security
As one employee said, “If I do my job to the best of my ability, then I will be taken care
of. I might be able to make a higher wage somewhere else. But I wouldn’t have this quality of
life.” Another employee told of a recent family emergency. When his father had a heart attack,
he had to leave the state for an extended period. A co-worker asked him, “Did you ever have a
doubt in your mind that you wouldn’t get full pay?” The employee replied, “No.” Another
example of the owners’ commitment to giving back to their employee base were the scholarships
offered to many employees and their children each year. In addition to direct monetary support
for higher education, the children of employees could work at SEM during the summer months
to save money for college.
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Because the time employees spent at work was used more efficiently, there was more
time available for family and spiritual life. The experience of Chesley Heck, director of
operations, was a poignant example. Heck had previously worked as an upper-level supervisor in
a traditional manufacturing setting for almost 20 years. He had been successful but had missed
out on so much of his family life. Heck also did not realize how much more rewarding working
could be by leading though coaching and by example. When asked what HPWP meant to him
personally, close to tears he replied, “I got my life back.” Commitments outside of work and
time for family were honored and supported at SEM under the assumption that employees happy
with their home situations would be happy and productive at SEM.
The relief of being able to work in a place where they were trusted to do their jobs and
treated as adults, whether skilled, unskilled, or professional was expressed by many employees.
Absenteeism was at an all-time low in 2009, and while many of SEM’s suppliers, customers, and
direct competitors struggled, SEM experienced its best year since HPWP had been implemented.
It seemed that being part of a company that prioritized personal and team commitment and asked
people to raise their own performance bar offered rich personal benefits that also contributed to
company performance.
Growth and Expansion
The duplication and expansion of the HPWP culture outside of the Rome facility was put
to the test when SEM extended its acquired facilities in other states. By 2009, SEM had
expanded to Portland, Oregon, Hawaii, Alabama, and Idaho. The primary method for
incorporating the HPWP culture on an ongoing basis was a one-week training course taught by
HPWP facilitators for new employees. These new full-time employees were brought to the Rome
facility from other sites for the experience, which had acquired a “boot-camp” mystique among
those employees who had been through it. The HPWP training was distinct from the orientation
that occurred immediately after an individual was hired. With HPWP training, the new hire
worked at SEM for a specific period before a session would be run. The training week was a
shared experience among the members of each training team, who often kept in touch after
returning to their home sites in other states.
The HPWP training week designed by the Binghams was full of activities to help
inductees realize through direct experience that a performance culture based on trust resulted in
higher gains, in all areas of life, for everyone involved—and that every individual had the ability
to make a choice for excellence. One such activity was the high jump, where each member of the
class, organized into two groups, was asked to jump as high as possible and mark that point on a
wall with a pen. Then, each student was asked to make a second mark on the wall while jumping
with ankle weights after the two groups had first been separated and read a different paragraph.
One paragraph described ankle weights as heavy emotional baggage, so if the second mark
wasn’t as high as the first, it was normal. The second group was read a paragraph claiming that
when people acted under pressure, they were able to perform at higher levels. These employees
were encouraged to jump two inches higher. The Binghams reported that without fail, the first
group consistently placed its second mark below its first, while the second group placed its
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second mark higher. Both groups had ankle weights—the only distinction was the way each
group mentally approached the task. Part of HPWP was setting high expectations. When high
expectations were set and the proper tools, training, and culture provided, SEM employees
consistently performed at the highest of their ability.
A second activity was red and black, the object of which was to maximize profitability.
For each of the 10 rounds, two teams had to choose red or black. A round was scored as follows:
 If both teams chose black, each received $3 million.
 If both teams chose red, each lost $3 million.
 If one team chose black and the other chose red, the black team lost $5 million, and the
red team gained $5 million.
Rather than trying to earn the $60 million awarded in the win-win situation by choosing
black at every opportunity, players often tried to trick one another and maximize their
opponent’s losses rather than maximizing their own gain. When the goal of maximizing one’s
own profit was confused with the goal of preventing another group from maximizing its profit as
well, the game often degenerated and left participants unsatisfied. The game’s learning lesson
was recognized by the player who said, “This game is about working together.”
A learning lesson such as this was applied to work situations at SEM, so when R&D labs
invented a particularly challenging or complicated recipe, machine operators understood they
were attempting to create a product that consumers liked rather than just performing a difficult
task. And when an SEM team was confident that another team would not pass the buck, a certain
sense of stability and common good will was the result, which benefited everyone.
This principle of working together existed in the realm outside SEM as well. SEM’s costs
were directly dependent on commodities’ prices, which, in turn, depended on seasonal variation,
fuel costs, and weather. If SEM could work with its employees, its suppliers, and its customers to
reduce variations and ensure consistent contracts in a process that assumed a great deal of trust,
then it could succeed on many levels while it assisted each stakeholder group in increasing its
profits at the same time. The week-long training used games and experiential learning to solidify
bonds across SEM sites and demonstrate the essential aspects of HPWP that made it all work.
The boot-camp mentality of the training created a sense of shared experience that workers
carried with them when they returned to their home manufacturing plants.
Process Improvements
Consistent with SEM’s decentralized and customer-focused team mentality, work teams
were encouraged to look for and act upon opportunities for improvement within their own
workflow. Each team was independently responsible for identifying, prioritizing, and acting
upon improvement areas. One example of process improvement initiated by a request from the
plant floor was double-decker manufacturing lines, which were significantly more productive.
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These frameworks were welded from steel and used gravity and shorter total travel distance to
perform the same bagging procedures using less energy.
In general, the employees reported if a project was proposed that could improve
efficiency and repay its investment within three years, it was undertaken. For example, the work
platform in one area where custom products were mixed to exact specifications with various
spices was redesigned. SEM invested $200,000 in a bigger steel platform with more space in
which to stand and manipulate bags, with mechanized arms, and more advanced machineoperating technology. In another area, where 50-pound bags were stacked on palettes, a large
mechanized robot arm now lifted and stacked the bags.
Every team had its own process for listing, prioritizing, and planning these projects. Jason
Marion, was at one point a process (team) leader during his 19 years with the company. He
recalled, “I had a clipboard that we called the PIL—the Process Improvement List. It was
detailed, and it worked, but it was informal and none of the other groups used that same system.
We each had our own way of managing process improvement.”
What Flavor?
Marion and his team were charged with investigating and recommending a design for
continuous improvement management and hopefully incorporating some variety of Six Sigma or
Lean tools into the HPWP culture. He had heard of Six Sigma, and the national clients that SEM
was currently courting often preferred a common process-improvement language. Speaking the
same language as its customers would help to provide SEM with a competitive edge. Although
Marion knew that Lean programs required the support of a solid, unified culture, he did not want
to alter the HPWP culture that SEM had taken so long to develop. Because of this, he was
considering the option of a “home-grown” version. This approach typically involved sending a
few employees off to Lean or Six Sigma certification training and have then undertake a few
projects. Then these same employees conducted internal training and led additional projects.
Marion also considered utilizing the services of a consulting group that specialized in
instruction and the integration of Lean and Six Sigma toolsets. He interviewed several different
consulting groups to evaluate their processes, deliverables, and approach. Marion wanted to learn
as much as he could about the available options and to identify which group of consultants, if
any, could articulate the vision that made the most sense for SEM. The first question he asked
was, “What would a SEM Lean-Six Sigma implementation look like to you?”
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