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(Solved) Douglas Fine Foods The Douglas family business, Douglas Dairy, was started in 1929, by Matthew's father and grandfather as a dairy farm and one-horse...


After reading the case, please responds to the case questions in a 3-4 page APA formatted paper. 


1. Analyze the evolutionary stages of conflict in the case

2. What are the various factors that fueled the conflict in the mind of Rao?

3. “Line and staff function overlap in the conflict”- comment and substantiate your interpretation using the information from the case.

4. What are the various methods the management can employ for resolving the conflicts?

Douglas Fine Foods
The Douglas family business, Douglas Dairy, was started in 1929, by Matthew's father and grandfather as a
dairy farm and one-horse delivery service just outside of Calgary, Alberta. Over the years, the business sold a
number of products and services that were in demand, most of which had one common theme—food and
beverage. The family business that had spanned nearly a century, concentrated on dairy products, soft drink
bottling, vending machines, tobacco and fresh foods. Through the 1970s, the company began to focus more on
over the counter food services, expanding from a local vending company to a regional cafeteria food services
company as DFF continued to grow and adapt to customer needs. In 1991, Matthew Douglas's two older
brothers, Jason and Mark, had purchased the family business from their father in 1975. From 1992 to 2006,
Matthew Douglas played a limited role in the business, but progressively helped his father and brothers, who
were actively managing multiple business ventures. In 2007, Matthew Douglas purchased one-third of the
family business and became more involved in growing DFF. Later that year, he was asked to take the helm as
interim CEO for a couple of months while his brother, Jason, took time for a personal sabbatical. Things ran
smoothly for his trial CEO period, and Douglas made an effort not to "shake things up," never placing much
effort on a strategic agenda because he knew his brother would pick up where he had left off when he arrived
home. Unfortunately, no One could have prepared Douglas for what happened next. Jason arrived back in
Canada rested and re-thinking his role in the business only to face the sudden passing away of the middle
Douglas brother, Mark. After much consulting with his soon to retire older brother Jason, it became a moment
in time when Douglas said, "I can let this crush me or use it as a catalyst." He chose the latter and, in June
2008, took the full-time reins as CEO of DEE.
By 2008, DFF had grown to be the largest privately held Canadian food services company. Still headquartered
in Calgary, DEE provided nutritious and healthy business dining, residence and camp food services, catering,
vending machine services as well as food service equipment and design. The business serviced clients in
various industries, schools, sports arenas, concessions, warehouses, government offices and corporations. DFF
was proud to employ 850 full-time staff and relished in the history and legacy of the company's tremendous
growth story, from a $1 million business in 1991 to a $30 million business by 2008. The business focused on
creating relation-ships with a wide range of organizations that had a consistent need for food and beverage
services. Not just a "food provider," I)FF offered a broad spectrum and full array of services in nearly every
aspect of the value chain, beginning with the design, construction, financing and equip-ping of a food service
facility (e.g. a cafeteria) and extending to staffing and providing full-scale operations for delivery of the food
service. In the majority of cases, the food services infra-structure was already in place, and DFF offered its
expertise in working to adjust and augment the associated people, programs and operations. DFF prided itself
in its ability to offer flexible and unique services to clients. The company was able to accommodate any
catering requirement from simple luncheons to elaborate high-end banquets for hundreds of guests and even
outdoor events, such as corporate picnics for thousands of patrons. DFF offered several dining concepts for its
institutional clients: Main Street Café for business, university and college settings; and Hero's for high schools.
The company also offered the products of a number of national "brand" franchises to strengthen and support
their services in large venues. Main Street Café was DFF's own internally branded dining concept that offered
product variety and menu flexibility, with a full range of healthy options. The Hero's program provided school
cafeterias with excellent food quality and variety at reasonable prices and was able to compete with outside
retailers. An important asset was DFF's position as an authorized franchisee for four popular national chains:
Tim Hortons, Canada's largest coffee chain; Pita Pit, a retail chain specializing in healthy, fresh food; Subway,
the world's largest sandwich chain and Star-bucks, the world's largest coffee chain, all of which provided the
necessary complement of brand recognition. In addition, DFF had its own unique blend of first-quality coffee,
JOJO Stop, which was made with top-of-the-line equipment and was designed to compete with the national
gourmet coffee retailers. DFF's corporate goals provided important guidelines for decision making in the
organization. Douglas felt they both provided guidance for steering the company in the right direction and
embodied many of the lifelong family les-sons instilled in the company's history. Industry: The industry was divided into commercial food service (food and beverage outlets and restaurants),
which represented 79 per cent of the market, and non-commercial food service (food services nonrestaurants), which represented 21 per cent of the market. See Exhibit 1 for a further breakdown of the market
segments. The food services industry in Canada was mature with a high degree of competition. Canadian food
service operators were expected to face their most challenging business environment in the next decade as
cutbacks on consumer and business spending were beginning to surface amid a potential economic slowdown.
A Canadian Restaurant and Foodservices Association (CRFA) report' forecast real growth in food service sales
to slip by 4.6 per cent, which equated to an industry sales forecast of nearly $59 billion for 2009. See Exhibit 2
for historical and forecast food service sales. On the basis of this economic outlook, commercial food service
sales would slip 2.5 per cent in 2009, and in particular, total caterer sales were forecast to drop by 3.0 per cent
due to a decline in social catering and reduced contract catering spending in the business segment. Noncommercial food service as expected to see a modest increase of 2.8 per cent, and institutional food service
leading the growth with a 5.8 per cent increase. See Exhibit 3 for the latest detailed forecast of food services
sales by channel. Food costs (35.4 per cent of sales) and labor costs (31.5 per cent) accounted for the two
largest expenses borne by foodservice operators. For a breakdown of average industry expenses as a
percentage of operating revenue. Although the average pre-tax profit was 4.3 per cent of sales, this percentage
varied significantly by province (from 2 per cent to 7 per cent). Profit margins diverged even further from one
sector to the next.
Competitive Landscape: DFF was vying to compete with global, regional and local players in the food services
business. In Canada, only three major global competitors accounted for the majority of the food services
business. These companies each had Cdn$20 billion or more in worldwide sales and tended to focus on the
larger contracts. Similar to DFF, a handful of well-recognized regional Canadian competitors each had their own
target clientele and levels of service in the market-place. In addition, DFF always kept a watchful eye on local
competition. With low barriers to entry, a significant number of "mom and pop" shops had opened, although
these competitors tended to be smaller, niche players that only serviced local clientele. Although this
atmosphere sometimes made small local contracts competitive, these undersized players did not have the
scale or expertise to supply larger institutional clients. In the food services business, the name of the game was
reputation, relationships and retention. If a company was doing a good job of servicing a client, it was hard to
lose the business. Typically, the larger food services contracts were tendered through a request for proposal
(RFP) method and were fixed five-year contracts. The RFP required not only a formal response but usually also
included presentations and product samples. It was not uncommon for a company to keep a contract well
beyond its expiration date if the supplier was providing excellent service. By winning a new contract, a vendor
was typically taking business from a competitor who was inadequately servicing the needs of the client.
Global Competitors:
Compass Group: Compass Group' was founded in 1941 and was the world's largest food service company with
operations in more than 60 countries. Compass Group provided hospitality and food service for a variety of
businesses and public sector clients, including cultural institutions, hospitals and schools. It also offered
vending services and catering and concession services for events and sports venues. Compass Group employed
more than 365,000 employees worldwide. It grew to its leadership position through aggressive expansion and
numerous acquisitions and was now focused primarily on streamlining operations and maximizing profits. It
saw continued growth coming from its efforts to extend additional services to clients, particularly in the
corporate hospitality segment. Compass was also working to expand its facilities management business.
Compass Group in Canada tended to focus on health care, education (college and university), remote sites and
travel concessions. The company's total revenue and EBITDA (earnings before interest, taxes, depreciation and
amortization) were USS19.1 billion and US$1.5 billion respectively for fiscal 2008.
Sodexo: Sodexo was the world's number-two contract food service provider with operations in 80 countries, where it employed more than 212,000 staff. Its subsidiaries offered corporate food service and hospitality
services, vending services and food services for educational institutions and other public sector clients. Other
operations included event concessions, health care food services and such outsourced facilities management
services as cleaning, grounds keeping and laundry. Sodexo was focused on winning new clients for its
outsourcing services, especially in the area of facilities management. The company had also been making
targeted acquisitions to expand both its services and geographical reach, In Canada, Sodexo tended to focus
more on universities, private schools, health care and camps. Sodexo's total revenue and EBITDA were US$20.4
billion and US$1.03 billion respectively for fiscal 2008.
Aramark: Aramark was the world's number-three con-tract food service provider and was also a leader in the
uniform supply business. It employed 250,000 staff. Aramark offered corporate dining services and operated
concessions at many sports arenas and other entertainment venues. The company also provided facilities
management services and continued to look for opportunities to expand not only its client base but also the
number of services it supplied to its existing customers. Aramark targeted industry segments such as
correctional facilities and health care operators. Keen on international expansion, the company had recently
focused on Europe and Asia, where it was the official food service provider for the 2008 Olympic Games in
Beijing. Aramark in Canada focused on education (colleges, universities and private schools), health care,
business dining and remote camps. Aramark's total revenue and EBITDA were US$13.29 billion and US$1.04
billion respectively for fiscal 2008.
Regional Competitors:
Diana Hospitality: was formed in 1988 and pro-vided a workplace environment with quality food. The
company offered hospitality programs and management services to a wide range of clients who valued fresh
on-site culinary services, with a strong focus on retail food service partnerships. It had experience in the health
care, education, and business and industry sec-tors where labor management agreements were required.
Diana Hospitality's Food Consulting Services Inc. was a management advisory service specializing in innovative,
resourceful solutions for clients who wanted to improve their food services.
Williams Foods: Williams Foods had built a strong reputation by providing quality food products and
exceptional customer service. The company continued to grow in size and strength and enjoyed exceptional
corporate partnership with its clients. Williams Foods offered event planning and management, culinary
expertise, signature brands and cafeteria services. Williams Foods took care of all aspects of food service at a
site, including vending with nationally branded products and their own prepared foods. Williams Foods also
specialized in facility design from complete renovation to minor makeovers. The company provided food
services to corporations, government, industrial sites, sports centers, golf clubs, educational facilities, fine
dining restaurant facilities and high-profile tourism destinations. For Williams Foods, the choice of client was as
important an issue as the choice of a food service company must be to any potential client. Williams Foods
experience was built on quality performance and was dependent on management capability, high staff morale
and the insistence that their staff show a high degree of commitment to each con-tract. The company believed
that its staff must feel a degree of "pride and ownership" and consequently be directly accountable for all
aspects of each contract.
West Coast Company (WCC): WCC was a family-run business originating in Western Canada, now with
locations across the nation. WCC had 70 major clients and primarily provided services to the education
segment (secondary and college education) as well as health care. WCC had good relations with its customers
and had a very similar culture and skill set to DFF.
Current Situation
In June 2008, Douglas's eldest brother announced that he would like to retire. As a result, Douglas was working
on a financing arrangement to acquire all the remaining shares in the business and become the sole owner of
the family enterprise. Douglas spent his first several months as the official CEO reviewing operations, talking to
employees, meeting with suppliers and discussing operational agendas with DFF's clients. After taking all this
into consideration, Douglas sat back and wondered in what direction he should lead the business. After nearly
every question posed to the staff, he wound up hearing the same answer: "because we've always done it that way:' as the new CEO, he wondered how he would be able to change the mindset of employees who had
worked in the Douglas family business their entire lives. Although the business was profitable, he wasn't sure
what to do and how to prioritize his decisions. One option Douglas had at his disposal was to position DFF for
either immediate or eventual sale to a financial buyer, a private equity firm or a strategic buyer/competitor. His
attitude had always been to work every day to prepare his companies for a sale. Having the good fortune to
have his hand in many entrepreneurial activities in his life, Douglas understood what it took to build a
successful organization, how hard it was to be profitable and how quickly the business reputation could be
tarnished. DFF had achieved a positive reputation in a mature, well-established industry, which made the
company a ripe acquisition target. Recently, a few of DFF's smaller competitors had been acquired by larger
international players; Douglas speculated he could be next. On the other hand, he needed to make a pragmatic
decision; he enjoyed the earnings and leadership role and wasn't sure how he would be perceived if he sold
the business before even giving it a try as its new leader. Douglas wondered what changes could be made to
make the business even healthier and more attractive to a potential buyer. Douglas thought about where he
should position the company to compete. He knew that if DFF consolidated a number of the smaller or midlevel market players, the company would have a stronger advantage against larger competitors and would have
a unique, more customized approach to serve segments of the market. Because margins seemed to be
tightening year after year and, except for the larger competitors, few companies had critical mass in the midmarket space, he wondered whether this situation was an attractive opportunity to take over other companies.
He was also aware that the large contracts, typically won by the bigger competitors, offered higher margins
and could be won without significantly increasing the number of employees or adjusting operations. This
option was advantageous because it would grow volume, achieve economies of scale and quickly grow EBITDA
to position the company for a possible sale. Another option Douglas contemplated was dedicating his efforts to
growing the business organically. Plenty of opportunities were out there, and with the right focus, he felt that
he could win some of these key contracts. He remarked that he already had the best employees and as a
favored author of his wrote "if you have the right people on the bus . . . you can go anywhere." Considering the
maturity of the industry and the fact he wasn't exactly get-ting calls every day asking to buy his company,
maybe consolidation really wasn't the right way to go. He considered a few approaches to organic growth and
was unsure which might work best. Douglas wondered what kind of trends and product innovation DFF could
capitalize on to give the company a competitive edge. Due to health issues such as obesity, diabetes and high
cholesterol, more and more people were consciously choosing health and wellness as a lifestyle, and this
preference was beginning to be reflected in consumer diets. Privatization and public–private partnerships by
government and nonprofit organizations were also becoming standard practice; Douglas wondered how he
could capitalize on this new way of securing business. He could also work on improving margins by adopting a
low-cost strategy, lengthening trade payments and significantly lowering input costs. Douglas wondered
whether he could grow by focusing more heavily on his existing clients. Douglas knew that some key decisions
were necessary because, in this industry, you could choose to either innovate, consolidate (acquire or be
acquired) or be pushed out by stiff competition of the global players.
Financial Situation
As a private business, DFF had not previously been managed to impress outside investors or hit lofty share
targets but was run in the most effective manner for tax planning purposes and to meet the needs of
employees. In the most recent year, the company had generated more than $33 million in sales, profit of
$235,000 and almost $1.7 million in EBITDA. On the other hand the company has built up a substantial amount
of debt obligations. In 2008, Douglas agreed to buy out his retiring brother's shares of the company for $1
million.' The company's bank had tentatively agreed to provide the company with the financing required.
Douglas knew the organization had intrinsic value for him but not necessarily for the market. In talking with
various financial advisors, Douglas learned that the company needed to achieve roughly $5 million to $10
million EBITDA to successfully exit the business and position DFF as an attractive take-over target.
The Auto Decision: A major decision had to be made with respect to DFF's largest client—Canada Auto Corporation (CAC).
In 2004, DFF had received a phone call from CAC asking whether DFF would like to bid on the food services
contract for an assembly plant with 5,000 employees. If DFF won the contract, it would replace one of its
major competitors and heighten awareness of DFF in the automotive industry. Revenues from the contract
would take the form of a management fee. A management fee was utilized in businesses in which the client
wished to maintain a high degree of control and was willing to pay r for that control and have a company with
professional experience manage the food services division. Initially, DFF had declined the offer to bid as it
struggled with the management fee business model. Under the proposed contract, DFF would be provided
with minimal financial transparency and control, yet would be expected to run the cafeteria and food services
more efficiently. After lengthy negotiations with CAC, DFF decided to proceed with the RIP and subsequently
was awarded the contract. From 2004 to 2008, DFF continued to make minor improvements in food services
delivery and increasingly struggled with the conflict between the contract and DFF’s core values. For example,
cost cutting often trumped quality. Also, retaining and motivating staff was increasingly difficult, due to poor
labor relations conditions, which had a negative effect on DFF staff. The cafeteria tended to become the
dumping ground for employee complaints and harassment, evidenced by an increasing trend toward conflict
between members of the CAC unionized workforce and the cafeteria staff. Although the contract represented a
substantial portion of EBITDA (almost 20 per cent), Douglas continued to find the contract difficult because it
consumed much emotional and intellectual time. He felt he was always extinguishing small fires and was
beginning to lose sight of the larger picture. On the other hand, the contract brought significant value to CAC
and had transformed its dysfunctional food services operation into an effective, break-even operation by
improving hours of operation, lowering costs and doing its best to enhance the atmosphere of an industry in
dire straits. By 2009, management at DFF had become somewhat reliant on the strong cash flows from the CAC
contract, and many were shocked by Douglas's decision to review the agreement and discuss the merits of
declining to submit a RFP for renewal of the contract. Douglas had always felt uneasy about CAC's business
model and, looking ahead, he wondered whether these types of contracts were best suited for DFF's core
competencies. If the company did decide to walk away from the contract, how would he replace the cash flow?
In addition, Douglas was o s worried about the successor liability provisions of the provincial labor code. DFF
had inherited a unionized workforce when it took on the CAC contract and was worried about the liabilities it
might incur if CAC went bankrupt. It was no easy decision.
From Entrepreneur to Professional Manager
Lastly and of equal importance to the many decisions that had to be made was the daunting task of how to
transform the organization from an entrepreneurially oriented family business to a professionally managed
multimillion-dollar company. The industry and the business world were changing. Gone were the days of lack
of employment standards. Health regulations were increasingly important, business partnerships were no
longer solidified on a handshake and workplace safety was at the forefront of industry news. Douglas
remarked: In the past, relationships and verbal commitments were all you needed. In today's world clients will
call and say "clause 2.2 said you'll do this—you have 30 days to comply before the con-tract is terminated.
Competition was tough and needed to be matched by sound management processes and strong leadership, all
of which were deteriorating at DFF. Douglas knew he had his work cut out for him to transform the company
into a professional setting, and he understood that the transformation needed to start from the top. Although
the industry was changing, DFF had seen little, if any, meaningful change. The physical state of their building
had not changed in more than two decades, information systems were in place but utilization of such systems
was barely adequate. On the people side of the business, the employees were, in general, ensnared in a
culture that did not match the look and feel one would expect when dealing with a multimillion-dollar
organization. Excessive tolerance for risk, use of unprofessional communication, an absence of a dress code
policy and other "home grown employee habits" would be unheard of in most Canadian corporate settings.
Douglas noted: Our employees look up to the management team . . . we know what we're doing, but we also need to look like
we know what we're doing. I want to instill a sense of professionalism and passion in all of our people,
including management.
Douglas noticed employees were resistant to change. For example, he had recently asked a payroll
employee why he was filling out a report by hand instead of on the computer system. The employee remarked
"because that is how we have always done it in the past." DFF had frequently solicited the advice of one of the
largest accounting and advisory firms in Canada with respect to employee relation...

 


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