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12: Apple Inc.: People and Design Create the Future

12: Apple Inc.: People and Design Create the Future

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retail Apple Store opened in 2001, and just over ten years and

322 stores later, they’re phenomenally profitable, earning an

estimated $5,000 per square foot, approximately five times

that of Best Buy.4

Beginning with the iMac and the iBook, its laptop cousin, Jobs

continually introduced a series of increasingly popular products

that captured the buying public’s imagination. Upon their release, the iPod, MacBook, Apple TV, iPhone, and iPad instantly

spawned imitators that mimicked the look of these products, but

they couldn’t duplicate Apple’s acute ability to integrate design

with usability. Once again, Apple became an industry innovator

by introducing certifiably attractive—and powerful—consumer

electronics products. Its recent successes have included growing

to command approximately 35% of operating profits in the computer market and 90% of the market share for computers priced

over $1,000.5 In the mobile handset market, Apple earned 52% of

profits in a recent quarter despite carrying only 4.2% of the global

handset market.6



Life After Steve?

Since he helped found Apple, Steve Jobs has been inextricably

linked to the company and its brand.7 And when Jobs passed

away in October 2011, there was great concern expressed over

Apple’s ability to stay on its creative course without Jobs at the

helm.

Although current CEO Tim Cook has not been credited with

the showmanship or visibility of Steve Jobs, he is best known

as the operations wizard who transformed Apple from within

by eliminating expensive internal production processes by outsourcing to contract manufacturers, cutting the time inventory

sat on Apple’s balance sheet from months to days, and utilizing Apple’s multi-billion-dollar cash reserve to purchase manufacturers’ entire supply of cutting-edge components for one

to two years into the future.8 Skeptics suggested that Apple

could fall into disarray if Jobs permanently left the company,

but since his August 2011 resignation, Apple released stunning

new versions of the iPhone, iPad, and Apple TV; issued notable

updates to several of its computer lines; and boosted its stock

value 44%.9



The iOS Era and Beyond

The iPad and iPhone continue to be huge growth engines for

Apple, respectively selling 32.1 million and 72.3 million units

in 2011, 334% and 88% over their 2010 numbers.10 By continuing to sell older phone models, Apple has expanded its lineup

to cover multiple price points, from a high-end $849 iPhone 4S

sold without a contract to the free-with-contract iPhone 3GS. The

iPhone 3GS, iPhone 4, and iPhone 4S were the top three bestselling phone handsets in the United States in 2011.11 Free yearly

updates to iOS, the iPhone and iPad operating system, help the

devices keep pace with the competition.

To mirror this yearly release cycle, Apple recently announced

that it would be moving to a similar yearly release cycle for OS

X, the operating system used by its line of Mac computers.12 Recent releases of OS X, including Lion and Mountain Lion, ported



features from the successful iOS platform to Macs. The most

prominent is iCloud, a new cloud computing service that seamlessly syncs email, notes, bookmarks, music, and other data

across multiple Apple devices, making it even more advantageous for people to buy their phone, tablet, and computer from

Apple.13

Apple also recently announced an initiative to revolutionize

the textbook industry: The latest version of its iBooks app brings

textbooks to the iPad, and Apple partnered with publishing companies like Pearson, McGraw-Hill, Houghton Mifflin Harcourt, and

DK Publishing to offer textbooks that would normally cost students $100 or more for $15 apiece. Apple also announced an

iBooks authoring tool to facilitate the creation of ebooks. Mac

users can download the app for free.14

So let’s look into the future. Though Tim Cook is a celebrated

operational leader, will he need to muster the charisma and personality of Steve Jobs to effectively lead Apple? If Jobs was the

driving force behind Apple’s successful comeback, how well can

the firm do without him? And how long can Apple continue to

sell iPad after iPad, iPhone after iPhone, without saturating their

respective markets?



Discussion Questions

1. Apple sells stylish and functional computers as well as

a variety of electronic devices, and it operates retail

stores. How does Apple’s organization culture help the

firm keep its creative edge in all these areas?

2. Stepping into his new role as CEO following the passing of one-of-a-kind visionary Steve Jobs, should Tim

Cook be pushing transformational change, incremental

change, or both?



Problem Solving

Apple has had to deal with Jobs’s death and the advancement of Tim Cook to the CEO position. Leadership succession issues like this are inevitable and the best firms will

be prepared and ready for them. If you were a member of

Apple’s board, what steps would you recommend the firm

be taking now to get ready for Cook’s eventual replacement? What practices should be put into place so that the

firm won’t suffer if he suddenly isn’t available? What criteria

should be on the table as the board discusses Apple’s

future leadership needs given current events and trends?



Further Research

Review what the analysts are presently saying about Apple.

Make a list of all of the praises and criticisms, organize

them by themes, and then put them in the priority order for

a change leadership agenda. What does Apple most have

to fear in its quest to maintain a sustainable competitive

advantage?



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Case Study 13



Two-Tier Wages

Same Job, Different Pay

Like many other American manufacturing and service industries,

the domestic auto manufacturers were hit particularly hard by the

Great Recession. Struggling to overcome rising material and pension

costs, the automakers felt they couldn’t compete with foreign carmakers unless they drastically cut their labor costs. The solution: Introduce a two-tier system where new workers earn significantly less than

existing workers doing the same job. Was this the right choice for the

Big Three? And how does it impact their employees?

In Ford, General Motors, and Chrysler manufacturing plants

across the country, thousands of newly hired workers are joining

the assembly lines. It’s a sign of both a rebounding economy and

the American auto industry’s methodical return from their economic struggles of the last decade.

But unlike their counterparts with a few years of service under

their belts, these new hires earn an hourly wage as low as $14,

nearly half that of their more experienced coworkers performing

precisely the same assembly tasks. In addition, the new hires’

auxiliary benefits—health insurance, paid time off, and retirement funding—don’t compare to those of experienced plant

workers.



A New Contract with Organized Labor

These differences are the result of two-tier contracts—arrangements in which labor unions permit corporations to hire new

workers at wages below those earned by existing unionized

employees who perform the same jobs. The compensation differences between the two tiers may be marked by lower wages,

slower progression toward raises, alternate health benefits, or

reduced or restructured pension plans. Employers may also invoke tier arrangements by creating new job classifications with

comparable responsibilities to existing jobs but with lower pay

and by expanding part-time positions with inherently lower

benefit levels.1

More commonly, unions may agree to concessionary contracts which include “tunnel” or “graduation” provisions; in

these cases, newer workers can eventually reach the higher wage

scales if they stay on the job long enough, which, in most cases,

is longer than existing workers would take to reach the same

compensation levels.2

Though two-tier contracts have existed in one form or another since the 1930s, they’re getting more attention than ever

now because they play an integral part in the Big Three automakers’ plans to return to profitability. And it’s easy to see why:

By the early 2000s, the Big Three were struggling to survive;

unlike foreign automakers with manufacturing plants in the

United States, American manufacturers had long paid unionized workers a comfortable salary and a healthy pension. And

with labor costs rising and sales in a slump, the Big Three felt

they had two choices—restructure labor costs to match wages

offered by Toyota and Honda or drastically cut production. In

separate talks with each of the Big Three, United Auto Workers (UAW) negotiators conceded to two-tier contracts in order



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Andreas Gebert/DPA/Zuma Press



to prevent further layoffs and protect the union’s presence in

domestic auto plants.



Putting a New Face on an Old Practice

Two-tier contracts drew national attention in the early 1980s after

the Airline Deregulation Act of 1978 prompted airlines to reconsider existing salary arrangements. American Airlines led the way,

successfully negotiating two-tier plans with the Transportation

Workers Union and airline pilots in 1983.3 A few years later, grocery unions in many states reluctantly agreed to two-tier wages

after a massive wave of grocery store consolidations closed 7,000

stores and cut 100,000 union jobs.4

In industries with high turnover, it may not take long for employers who implement two-tier contracts to see the benefits, as new

employees may quickly replace their higher-earning predecessors.

In addition, companies may offer buyouts to higher-tier workers to

speed the transition and increase the percentage of workers paid

at lower-tier wages. For example, following 2007 UAW negotiations, 19,000 workers at General Motors (GM) and 4,200 at Ford

took a buyout.5

In the past, two-tier contracts have been stop-gap measures

at best, since the diminished wages often disappeared once the

economy picked up again. Companies that put two-tier plans

into place often experienced higher turnover, lower morale,

and reduced productivity. And in some instances, unions have

been able to block two-tier contracts altogether, such as the

United Food and Commercial Workers (UFCW) union’s negotiations in the 2007 Southern California grocery workers’ contract.6



Tough Times for the Big Three

In 1993 talks with Ford, the UAW agreed temporarily to two-tier

wages. And four years later, it reluctantly accepted negotiations

including a permanent two-tier system for some workers—the

first permanent implementation among the Big Three’s workers.7

Though neither autoworkers nor automakers forgot this concession, further talk of two-tier plans subsided for the meantime.

Fast-forward to 2007. The U.S. economy is tumbling, and executives at each of the Big Three automakers claim that their companies must undergo substantial restructuring to get out of debt

and stay in business. Despite each company’s individual circumstances, a common contention is that the automakers must slash

labor costs and pension obligations in order to remain competitive with foreign automakers. The UAW fights to retain comfortable salaries and benefits for existing employees but concedes to

lowering wages for new workers to forestall further layoffs.



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In accordance with the U.S. government’s bailouts of Chrysler and GM, the UAW conceded that second-tier workers would

not be eligible for promotion to top-tier wages until 2015.

Ford, which did not undergo government-managed bankruptcy,

forged a UAW contract permitting it to fill 20% of its union jobs

with second-tier workers before any are eligible for top-tier

wages.8

Thus far, roughly 12% of Chrysler’s 23,000 union employees

earn second-tier wages,9 as will most of Ford’s 12,000 anticipated

new hires.10

“This is not going away,” said Kristin Dziczek, a labor analyst

at Ann Arbor’s Center for Automotive Research. “It has allowed

the Big Three to reduce labor costs without cutting the pay of

incumbent workers. Is it good for the health and competitiveness of the companies? Yes. And is that good for job security?

Yes.”11

That the Big Three are hiring assembly workers at lower wages

means that the automakers are on sufficiently stable ground to

hire new laborers in the first place, a vast improvement over their

financial straits in recent years. And so far, so good: Last year, the

Big Three saw their first increases in market share in decades.12

Chrysler’s yearly sales skyrocketed 26%; GM and Ford showed

positive gains of 13% and 11% respectively.13



In the agreement, Ford also committed to create 5,750 additional manufacturing jobs, for a total of 12,000 jobs it intends

to add by 2015. It also promised more than $6.2 billion for U.S.

factories.17



Will It Last?

For now, expect two-tier plans to be a fixture of the domestic

automakers for the visible future. Employment is up in Detroit and

throughout the auto manufacturing sector. Analysts classify these

new jobs as permanent, which is a positive sign for economists,

investors, and politicians eager for recent examples of economic

growth in a challenged market. And as Pat Walsh, manager at

Chrysler’s Jefferson North plant, pointed out, the advent of twotier wages has not hurt production. “Our quality numbers have

been very good,” he said. “And our data doesn’t show any differences per shift or per workstation.”18

But will workers buy into two-tier systems in the long term?

The Big Three will likely find that laborers will insist on opportunities for advancement. “If you know you’re going to get

to the top wage eventually, the system can work,” said Peter

Cappelli, a professor at the University of Pennsylvania’s Wharton School. “The big problem is when you think you’ll never

get there.”19



What About Workers?

The labor market’s reaction to the Big Three’s implementation of

two-tier wages has been predictably mixed. While no one relishes

the thought of earning 50% as much as the worker across the

aisle, “Everybody is appreciative of a job and glad to be working,” said Derrick Chatman, a recent hire at Chrysler’s Jefferson

North plant. Before coming on at Chrysler for $14.65 per hour,

Chatman was laid off from Home Depot, worked the odd construction job, and collected unemployment.14

While new hires may have mixed feelings about joining a labor

force with uneven pay for its workers, they may be encouraged

that some of their top-tier cohorts gladly extend a helping hand,

like Gary Wurtz. A line worker at GM’s Orion Township, MI, plant,

where 40% of his fellow workers receive lower-tier wages, Kurtz

offered, “In order to get those guys up, we’ll take a signing bonus

or profit sharing instead.”15

That said, two-tier plans still bear the potential to divide

workers across salary lines. As Gary Chaison, a professor of

industrial relations at Clark University, pointed out in a 2008

paper, “[Lower-tier workers] might even feel sufficiently aggrieved to someday negotiate away the benefits of retired

higher-tier workers. For example, a higher-tier autoworker observed: ‘After we retire, the next generation may ask, “Why

should we defend your pensions? You didn’t defend our pay

when we were young.”’”

Forty-one thousand UAW workers for Ford, the U.S. automaker least adversely affected by the economic slowdown,

gained notable benefits for their lower-tier employees in late

2011 negotiations, including some paid vacation and personal

time, paid bereavement and jury duty time, and co-pays for office visits.16 Lower-tier workers making $15.50 received a raise

to $19.28, bringing their salary in line with comparable GM

laborers. And in exchange for future pay raises, new lower-tier

workers will each receive a $6,000 signing bonus, $7,000 in

inflation protection payments, and $3,700 in profit sharing.



Discussion Questions

1. How does the Big Three’s decision to implement twotier wage plans align with the concept of comparable

worth? Explain your answer.

2. What are the implications of two-tier wage plans for human resource planning?



Problem Solving

Consider yourself to be a negotiator for the United Auto

Workers Union. What would be your “union” position on

the use of two-tier pay systems? In a collective bargaining

situation where you are at the table, what specific responses would you be prepared to make when a management

negotiator says not only that his or her firm wants to keep

the two-tier wages already in place for some workers, but

shift more new workers to them as they get hired in the future? What counter arguments to your positions would you

expect from the management side? Do you see any way to

forge a shared agreement in this situation?



Further Research

Imagine that you have been asked by General Motors

CEO Daniel Akerson to consult on improving morale and

retention in GM’s labor force. While GM will not be able

to offer workers higher wages in the near future, they are

open to examining other creative forms of compensation

and benefits. Draw up a plan which includes your specific

recommendations. Be as detailed as possible, and explain

your reasoning for each compensation or benefit adjustment you recommend.



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Case Study 14



Zappos

They Did It with Humor

Zappos.com customers are known for their fierce loyalty, and it’s easy

to see why. CEO Tony Hsieh has built a billion-dollar business providing

happiness to his customers, employees, and even fellow businesspeople

seeking to learn more about Zappos’ unique blend of humor, compassion, and high-quality customer service. How does Zappos do it?



Unusual Leader Faces

Unusual Circumstances

No stranger to high-pressure conversations, Zappos CEO Tony

Hsieh recently found himself discussing a very familiar topic under

unusual circumstances.

Hsieh was the featured guest on The Colbert Report, where

host Stephen Colbert was grilling Hsieh to learn the secrets of

Zappos’ phenomenal success and rabid customer loyalty. Hsieh

simply replied that it’s Zappos’ goal to deliver WOW in every

shoe or clothing box. When Colbert pressed him to explain,

Hsieh elaborated that among other tactics, loyal Zappos customers are sometimes treated to a complementary upgrade to

overnight shipping. “A lot of people order as late as midnight

Eastern, and the shoes show up on their doorstep eight hours

later,” he explained.

Seemingly speechless, Colbert peered over his glasses and

only said, “Wow.”1



From Startup to One of Fortune’s Best

Places to Work

The brainchild of Hsieh and founder Nick Swinmurn, Zappos.

com launched in 1999, selling only shoes complemented with the

unique premise to deliver happiness with every customer interaction. By 2001, gross sales had reached $8.6 million. That number nearly quadrupled to $32 million in 2002. A few years later,

Zappos caught the eye of Amazon’s Jeff Bezos. He liked what he

saw and spent $928 million to buy the firm for Amazon’s business

stable in 2009.

Today, the company is one of Fortune’s 15 Best Companies

to Work For and continues to earn more than $1 billion annually.

Zappos Fulfillment Centers currently stock more than three million shoes, handbags, clothing items, and accessories from over

1,130 brands.2



Zappos Grows, Amazon Buys In

Zappos sees a lot of potential in continuing to expand beyond

shoes. While footwear still constituted 80–85% of Zappos’ business last year, Hsieh wants Zappos’ clothing lineup to be an-



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Noah Berger/Bloomberg/Getty Images, Inc



other billion-dollar business, and he’s working hard to attain

that goal within the next three years. “Hopefully, ten years from

now, people won’t even realize that we started selling shoes,”

he said.3

Under Amazon, Zappos has maintained its focus on customer

service. For Hsieh, the Zappos brand is less about a particular

type of product and more about providing good customer service. He remarked that he could see the Zappos name on things

as large as airlines or hotels, as long as the service was up to

his exacting standards. “We could be in any industry that we can

differentiate ourselves through better customer service and better customer experience,” he said.4 This customer-first strategy is

working out in a big way for the company: At last count, over 75%

of its customers are repeat customers.5



Customers Get Special Handling

The blog search engine Land calls Zappos “the poster child for

how to connect with customers online.” It uses Facebook and

Twitter to connect with their customers, distributors, employees,

and other businesses.

The company’s relentless pursuit of the ultimate customer

experience is the stuff of legend. Zappos offers extremely fast

shipping at no cost and will cover the return shipping if you are

dissatisfied for any reason at any time.



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Hsieh, who was unsurprisingly named “The Smartest Dude in

Town” by business magazine Vegas Inc., feels employees have

to be free to be themselves. That means no-call times or scripts

for customer service representatives, regular costume parties, and

parades and decorations in each department. Customer service

reps are given a lot of leeway to make sure every customer is an

enthusiastic customer.



A Culture to Thrive In

Zappos’ past success comes down to the company’s culture and

the unusual amount of openness Hsieh encourages among employees, vendors, and other businesses. “If we get the culture

right,” he says, “most of the other stuff, like the brand and the

customer service will just happen. With most companies, as they

grow, the culture goes downhill. We want the culture to grow

stronger and stronger as we grow.”

Like other CEOs in it for the long haul, Hsieh is forecasting

Zappos’ success and the brand experience he intends to deliver

years into the future. “Many companies think only one quarter

ahead, or one year ahead,” he said. “We like to think about what

we want our brand and culture to be like ten or even twenty years

down the line. In general, with a ten- to twenty-year timeline versus a three- to five-year timeline, relationships are much more

important. What you do after taking someone’s money, such as

customer service, matters much more than what you do to get

their money, such as marketing.”6



A Culture to Share

In fact, Hsieh believes so strongly in the organizational culture

that encompasses Zappos’s desire to satisfy that he’s on a mission

to share it with anyone who will listen via tours of their headquarters, leadership retreats, and even two new books.

It comes together in a program called Zappos Insights. The

core experience is a tour of Zappos’s Las Vegas headquarters.

“Company Evangelists” lead groups of twenty around the cubicles, which often overflow with kitschy action figures and

brightly colored balloons, giving participants a glimpse of a

workplace that prizes individuality and fun as much as satisfied customers. Staffers blow horns and ring cowbells to greet

participants in the sixteen weekly tours, and each department

tries to offer a more outlandish welcome than the last. “The

original idea was to add a little fun,” Hsieh says, but it grew

into a friendly competition “as the next aisle said, ‘We can do

it better.’”7

The tours are free, but many visitors actually come for paid

one- and two-day seminars that immerse participants in the

Zappos culture. Want to learn how to recruit employees who are

committed to your company culture? You’ll get face time with

Zappos HR staff. Yearn to learn what keeps customers coming

back? Ask their Customer Loyalty Team. Hungry for a homecooked meal? The capstone of the two-day boot camp is dinner

at Tony Hsieh’s house, with ample time to talk customer service

with the CEO himself. Seminars range from $497 to $3,997.



“There are management consulting firms that charge really

high rates,” says Hsieh. “We wanted to come up with something

that’s accessible to almost any business.”8

Those who want to learn Zappos’ secrets without venturing

to Las Vegas have a few options. For $39 a month, you can subscribe to a members-only community that grants access to video

interviews and chats with Zappos management. Ask nicely, and

the company will send you a free copy of their Zappos Family

Culture Book, an annual compilation of every employee’s ideas

about Zappos’s mission and core values. Hsieh has his own tome,

too—Delivering Happiness.

They may be giving away hard-earned knowledge, but Zappos

definitely isn’t losing money on the Insights project—profits from

the seminars pay for the entire program, and Hsieh hopes it will

someday represent 10% of Zappos’ operating profit.

“There’s a huge open market,” says Robert Richman, coleader of Zappos Insights. “We were afraid that we’ve been

talking about this for free for so long. ‘Are people going to

be upset we are charging for it?’ Instead, the reaction is opposite.”9 Now that Zappos is part of Amazon, will it still prosper and

grow? Will the company continue to put customers first?



Discussion Questions

1. What traits of effective leadership does Tony Hsieh

demonstrate at Zappos? What aspects of his leadership

can you criticize, if any? Is his approach transferable to

other leaders and other organizations, or is it person

and situation specific?

2. Can you find examples of where House’s path-goal

theory of leadership can be confirmed or disconfirmed

in the Zappos setting? Explain your answer.



Problem Solving

Tony Hsieh is a big thinker and Zappos is clearly his baby.

But he’s also into philanthropy and community development activities that are taking up more of his time. And,

perhaps he’ll come up with other new business ideas as

well. As a leadership coach, what steps would you recommend that he take now to ensure that his leadership

approach and vision lives on at Zappos long after his departure? What can a strong and secure leader like him do

to ensure a positive leadership legacy in any situation?



Further Research

Compare and contrast the leadership style and characteristics of Tony Hsieh with those of his new boss at Amazon,

Jeff Bezos. How are the leadership styles of the two CEOs

alike? In what ways do they differ? For whom would you

rather work? Is one better than the other in its situation?



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Case Study 15



Panera Bread

Growing a Company with Personality

Panera Bread is in the business of satisfying customers. With freshbaked breads, gourmet soups, and efficient service, the franchise has

surpassed all expectations for success. But how did a startup food

company get so big, so fast? By watching and carefully timing market

trends.



French Roots, American Tastes

What’s so exciting about bread and soup? For some people, it

conjures up images of bland food that soothes an upset stomach.

Others think of the kind of simple gruel offered to jailed prisoners

in movies. But for Panera Bread, a company able to successfully

spot long-term trends in the food industry, artisan-style bread

served with deli sandwiches and soups is a combination proven

to please the hungry masses.

Despite its abundance of restaurants, Panera Bread is a relatively new company, known by that name only since 1997. Its

roots go back to 1981, when Louis Kane and Ron Shaich founded

Au Bon Pain Company Inc., which merged Kane’s three existing

Au Bon Pain stores with Shaich’s Cookie Jar store.

The chain of French-style bakeries offered baguettes, coffee,

and sandwiches served on either French bread or croissants. It

soon became the dominant operator in the bakery/café category

on the East Coast. To expand its domestic presence, Au Bon Pain

purchased the Saint Louis Bread Company, a Missouri-based chain

of about 20 bakery-cafés, in 1993. It renovated the Saint Louis

Bread Company stores, renamed them Panera Bread, and their

sales skyrocketed.



Birth of a Brand

Executives at Au Bon Pain invested heavily toward building the

new brand. In 1999, Panera Bread was spun off as a separate

company. Since then, the firm has sought to distinguish itself in

the soup-and-sandwich restaurant category. Its offerings have

grown to include not only a variety of soups and sandwiches,

but also soufflés, salads, panini, breakfast sandwiches, and a variety of pastries and sweets. Most of the menu offerings somehow pay homage to the company name and heritage—bread.

Panera takes great pride in noting that its loaves are handmade

and baked fresh daily. To conserve valuable real estate in the

retail outlets, as well as to reduce the necessary training for new

employees, many bread doughs are manufactured off-site at one

of the company’s 17 manufacturing plants. The dough is then delivered daily by trucks—driving as many as 9.7 million miles per

year—to the stores for shaping and baking.1 At this point, there



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© Tom Gannam/AP/Wide World Photos



are more than 1,500 Panera Bread bakery/cafés in 40 states and

Canada: Panera’s 801 franchise stores slightly outnumber its 740

company-owned outlets.2,3



Modern Tastes, Modern Trends

Panera’s success has come partly from its ability to predict longterm trends and orient the company toward innovation to fulfill

consumers’ desires. Its self-perception as a purveyor of artisan

bread well predated the current national trend (now rebounded

from the brief low-carb craze) for fresh bread and the explosion of

artisan bakeries throughout metropolitan America.

Consumers’ desire for organic and all-natural foods, once

thought to be a marginal market force, has become the norm.

Keenly positioning itself at the forefront of retail outlets supporting this trend, Panera recently introduced a children’s menu called

Panera Kids. Kids can choose from items such as peanut butter

and jelly, grilled cheese, and yogurt, and the all-natural and organic foods will please choosy parents.4

In addition, Panera proactively responded to unease in the

marketplace about the negative impact of trans fats on a healthy

diet by voluntarily removing trans fats from its menu. “Panera

recognized that trans fat was a growing concern to our customers and the medical community; therefore we made it a priority

to eliminate it from our menu,” said Tom Gumpel, vice-president

of bakery development for Panera Bread. Though reformulating

the menu incurred unexpected costs, all Panera menu items are

now free from trans fats, except for some small amounts that

occur naturally in dairy and meat products, as well as in some

condiments.5

According to Ron Shaich, former CEO and now executive

chairman of the board of Panera, “Real success never comes by

simply responding to the day-to-day pressures; in fact, most of

that is simply noise. The key to leading an organization is understanding the long-term trends at play and getting the organization ready to respond to it.”6



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And let’s not forget, we are a coffee nation. For customers who

just want to come in, grab a quick cup, and get out, Panera has

just the thing. In many stores, coffee customers can avoid the normal line and head straight for the cash register, where they can

pick up a cup, drop a small fee into a nearby can, and go directly

to the java station. Caffeine-crazed customers can avoid the maddening line during a morning rush and cut the wait for that first

steaming sip.



What Makes a Customer Stay?

Panera learned from mega-competitor Starbucks that offering

wireless Internet access can make customers linger after their

initial purchase, thus increasing the likelihood of a secondary

purchase. Now most of its stores offer customers free Wi-Fi access. According to spokesperson Julie Somers, the decision to

offer Wi-Fi began as a way to separate Panera from the competition and to exemplify the company’s welcoming atmosphere.

“We are the kind of environment where all customers are welcome to hang out,” Somers said. “They can get a quick bite or

a cup of coffee, read the paper or use a computer, and stay as

long as they like. And in the course of staying, people may have

a cappuccino and a pastry or a soup.” She went on to note that

the chief corporate benefit to offering Wi-Fi is that wireless customers tend to help fill out the slow time between main meal

segments.7

Executive Vice President Neal Yanofsky concurred. “We just

think it’s one more reason to come visit our cafés,” he said. And

wireless users’ tendency to linger is just fine with him. “It leads

to food purchases,” he concluded. And he’s right—the average

Panera store has an annualized unit volume of $2.3 million.8



Profits Rise Along with the Dough

All of Panera’s attention to the monitoring of trends has paid off

handsomely. Since Panera went public, the company’s stock has

grown thirteen-fold, creating more than $1 billion in shareholder

value. BusinessWeek recognized Panera as one of its “100 Hot

Growth Companies.” And Forbes named it #4 on its list of “Top

20 Franchises for the Buck.”

And even more recently, the Wall Street Journal recognized

the company as the top performer in the Restaurants and Bars

category for one-year returns (63% return), five-year returns (42%

return), and ten-year returns (32% return) to shareholders. In addition, a Sandleman & Associates survey of customer satisfaction

ranked Panera #2 among 120 other competitors last year; it had

held the top spot for the prior eight years.

Panera continued its rapid growth in the face of the recession:

In 2011, its company-owned stores saw a 4.9% increase in samestore sales, while franchise stores saw a 3.4% increase. These

numbers helped contribute to a record $1.8 billion in revenues for

the year—a 15% increase over 2010—and brought the company’s



market cap to just over $4 billion.9 As a result of these increased

sales and also new store openings, Panera hired about 25,000

new employees in 2010 and 2011.10



Sticking It Out

Through wise financial management, Panera Bread found itself

in the enviable position of having no debt, stable liabilities, and

$250 million in the bank.11 Taking advantage of a weak U.S.

real estate market, the company opened nearly 80 new stores

last year, having only closed six stores in the last three fiscal

years.12 With a debt-free balance sheet, the company plans to

better position itself for the end of the financial crisis. Panera

Bread has demonstrated that sticking to company ideals while

successfully forecasting, and then leading the response to longterm industry trends will please customers time and time again.

The low-carb craze didn’t faze Panera, but can this company

continue to navigate the changing dietary trends in today’s unstable market?



Discussion Questions

1. How might consumers’ perception of Panera’s menu

and atmosphere affect their dining experience and

tendencies to return as customers?

2. Describe how stereotypes about the fast-food industry

might positively and negatively impact Panera. Do you

think of Panera as a fast-food restaurant, or has the company managed to distinguish itself from this group?



Problem Solving

Can an entrepreneurial and leadership personality like

Ron Shaich’s be replaced? But how much of its success

comes directly from Shaich as a person? Is it possible for

his personal qualities to be ingrained in the corporate

culture to the extent they will continue after he departs? As

a consultant, what would you identify as the three or four

most important of Shaich’s personal qualities? What would

you suggest be done to firmly embed these qualities in the

Panera culture?



Further Research

Find data reporting on how Panera’s sales were affected

by the recent economic downturn. See if the effects were

different in various regions of the country. Does Panera

have special strengths that help it deal better than others with challenges such as those posed by a difficult

economy?



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Case Study 16



SAS

Success Starts on the Inside

Dr. Bruce Bedford is a learned man. He spent years pursuing collegiate and postgraduate education. After leaving school, he joined

Oberweis Dairy and is currently its vice president of marketing

analytics and consumer insight. He uses complex diagnostic tools

to study the intricacies of Oberweis’s business and suggest microadjustments that could have million-dollar outcomes.

Recently, he was tasked with a career-defining challenge: Stop

milk bottle fraud. It echoes an episode of Seinfeld where Kramer

and Newman hatched a scheme to take thousands of recyclable

bottles to Michigan to redeem them for a nickel more than in New

York. But bottle fraud cuts into dairy companies’ profits, and Dr.

Bedford is investigating it using high-tech software that combines

predictive modeling, data mining, and state-of-the-art visualization tools. Sounds like CSI ? It’s more like SAS.



Powerful Tools, Rapid Responses

Short for Statistical Analysis System, SAS (pronounced sass) is a

set of integrated software tools that help decision makers cope

with unwieldy amounts of unrelated data. “It is a very powerful

tool,” says Mu Hu, director of customer relationship management

for Golfsmith. “I can pretty much do anything with SAS.”1

At its core is Base SAS—a set of analyzing, reporting, and

data output tools that compile and present information stored

in tables or databases. Base SAS can interpret data from almost

any source—like spreadsheets, sales records, or annual reports—

so that non-programmers can make business decisions based on

that information.

Companies can couple base SAS with more than 200 specialized software tools intended for specific applications or industries.

Examples include tools for supply chain analysis, K–12 teacher

evaluation, and anti-money laundering.

SAS is the primary product of the SAS Institute, the selfdescribed “leader in business analytics software.” While SAS is its

primary product, the company has developed a peripheral business around supporting and training SAS users. Anthony J. Barr

wrote the first version of SAS in 1966, incorporating the SAS Institute in 1976 with co-contributors James Goodnight, John Sall, and

Jane T. Helwig. Since then, with Goodnight at the helm, it’s gained

an impressive roster of clients: 92 of the top 100 Fortune Global

500 companies, more than 45,000 businesses, universities, and

government agencies, with customers in 121 different countries.2



A New Way of Making Old Decisions

To understand the success of SAS, you must first grasp the concept of business analytics. According to Michael J. Beller and Alan

Barnett, business analytics is the “continuous iterative exploration

and investigation of past business performance to gain insight

and drive business planning.” It chiefly focuses on “developing



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Charly Kurz/laif/Redux Pictures



new insights and understanding of business performance based

on data and statistical methods.”3

Business analytics help an organization’s leaders and researchers understand why something is happening, what might happen

next, what will happen if trends continue, and what the optimum

result or decision might be.4

This focused measurement of business data has been employed since the late 19th century. But since the widespread implementation of business computing systems that began in the

late 1960s, organizations have been collecting exponentially more

data and have sought to analyze it to more effectively model business possibilities. This lead to the advent of computer-based decision support systems like SAS, as well as other tools like enterprise

resource planning (ERP) systems and data warehouses.



For Every Problem, a Solution

SAS brings an organization’s decision makers the data they need

to solve a problem in the absence of sufficient expertise or information. For example, Mu Hu and Golfsmith used SAS to shrink

data merging costs by 50% and reduce time spent preparing

marketing campaign results by 70%. Using other data gleaned

from SAS, they increased their direct mail response rates from

10% to 60%.5

Business leaders often need to interpret separate sets of information to effectively forecast market conditions or gain greater

organizational insight. “We had a lot of islands of data without

any sort of enterprise information view of the college,” says Dr.

Jim Riha, chief information technology officer for Oklahoma City

Community College (OCCC), noting his desire for “a more consistent and improved view of the organization.”

Using SAS, Riha can “bring additional insight to the right people at the right time, while changing the focus from arguing about

data to having a better understanding of the issues and making

more informed decisions.”6

And too often, leaders don’t get to choose when they must

make a key business decision, and they need the right data in

order to act quickly. “We need to maintain rapid access to our

global data to make informed decisions, and it has to be done

cost-effectively,” says John Wise, senior director of Informatics

at drug developer Daiichi Sankyo. “We want to spend money on

drug development, not IT.”7



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Stu Harvey, executive director of planning and research at

OCCC, concurs. “The real value comes when you are empowering people with data to make efficient, effective decisions earlier.”8

SAS also makes it easier for business leaders and analysts to

share critical information without the need to extensively reformat data—its Office Analytics tools make it easy to repurpose

reports, graphs, and spreadsheets directly into Microsoft Office

programs like Excel and PowerPoint without massive copy-andpaste sessions.

“We work with a lot of data and need to analyze it quickly

and effectively,” said Mike Swinson, vice president of analytics,

research and development at TrueCar, an online car pricing and

forecasting service. “With SAS Office Analytics, we’re able to

compile data from multiple sources and get it in front of the

right people in less than an hour—a task that once took nine

hours.”9



Making the Complex Simple(r)

While leadership may come naturally to some managers, predictive analytics and data mining often do not. And though the

SAS Institute takes great pains to make its tools user-friendly for

non-programmers, it recognizes that SAS administrators and endusers alike need help from time to time.

Beyond the knowledge base and documentation you expect

to find behind any major program, SAS Institute goes to great

lengths to provide a constant stream of support for its users. Employees write more than 600 SAS blogs, many focused on tips,

tricks, and shortcuts.10 The SAS web site is chock full of useful

sample queries, webinars, and articles with titles like, “Jedi SAS

Tricks” and “The Bayes Theorem, Explained to an Above-Average

Squirrel,” and the company also maintains active Facebook,

Google1, and Twitter presences



Inspiring Loyalty

Though competitors like Cognos, Oracle, and SAP are trying to

catch up to SAS by rapidly gobbling up smaller business intelligence companies, SAS still leads the pack. And most of its success derives from its extremely dedicated staff. Number three on

Fortune Magazine‘s 2012 list of Companies to Work For, SAS attracts and keeps brainpower through such perks as private offices

for every employee and a 35-hour work week.11 The company

snatches up thousands of undeveloped acres near its North Carolina headquarters, which it sells to employees at a steep discount

so they’ll establish roots nearby. And the corporate campus is a

small town unto itself—it boasts a state-of-the art nursery school,

health center, and even private junior and senior high schools.

Mark Moorman, senior director in the Advanced Analytics Lab

at SAS, summarizes the strategy as, “We’re willing to take care

of you if you’re willing to take care of us.” It must be working:

Employee turnover is less than 4% per year, compared with 15%

turnover at typical U.S. software houses.12

Customers are equally enamored with the company. In fact,

95% of companies renew their annual lease of SAS software.

That’s likely because CEO Jim Goodnight lets customers tell

him where the company should go next. Users rave about SAS’s



technical support representatives, who are required to record every product improvement users suggest. These suggestions are

sorted, ranked, and sent to customers via the annual SASware

Ballot. The results are analyzed (doubtlessly using SAS), and the

top ten results are nearly always put into action. “It’s an amazingly effective business practice, listening to your customers,”

says Goodnight.13

And it’s a successful practice, too: SAS recently posted

record-breaking 2011 global revenue of $2.725 billion, marking the company’s thirty-sixth profitable year. “Innovation is

what has kept SAS growing for the past thirty-six years,” Goodnight said. “We can’t succeed without innovation, new products, ideas and services. Loyal, creative, healthy employees are

innovative.”14



Discussion Questions

1. In what ways is the work environment at SAS consistent or inconsistent with the implications of Maslow’s

hierarchy of needs theory, Alderfer’s ERG theory, and

Herzberg’s two-factor theory?

2. If Goodnight’s approach to leadership is evaluated from

the perspectives of Vroom’s expectancy theory and

Locke’s goal-setting theory, where is he on track and

where is he in danger of going off track when it comes

to employee motivation?



Problem Solving

As a compensation consultant you’ve been called in to

review how SAS pays its employees and the benefits it

offers them. You’ve heard in some employee interviews

that they are attracted to other employers because of the

high salaries available. They still like SAS benefits and the

working climate, but the fact is that the higher pay available elsewhere is looking increasingly hard to say “no” to.

What do motivation theories say about the implications of

pay for turnover, engagement, and motivation? How do

you suggest this problem with external pay opportunities

be dealt with at SAS? Is this a case where time will take its

course and those who leave will depart for good reason,

while those who stay will continue to be motivated to work

hard by the current system?



Further Research

What’s the latest on SAS? How is the company doing in

its industry? How is Goodnight faring as CEO? Are the

employees still as motivated and happy as they appear in

this case? Have any changes been made in compensation,

benefits, or work practices at SAS? Are any planned? In

short, can SAS still be held up as a motivational role model

for other employers to follow, or is it starting to show some

rough edges?



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Case Study 17



Auto Racing

When the Driver Takes a Back Seat

When you think of auto racing, do you think of teamwork? Watch any

televised race, and the better majority of the camera time is dedicated to the drivers and their cars. But in each of the three major

forms of auto racing, the driver is simply one member of a larger team

that works together to achieve maximum performance. And when

the driver wins, the team wins as well.

In the world of competitive auto racing, the drivers are the

sports’ rock stars. They’re courted by sponsors, adored by

fans, and portrayed as the subject of interview upon interview

by the racing press. And while it goes without saying that drivers are absolutely essential to earning a trophy, racing enthusiasts, teammates, and especially drivers will tell you that they

can’t win the race by themselves—it takes a successful team

to win a race.

Furthermore, while the driver is the most visible member of

the team and certainly the one responsible for guiding the car,

he’s not always calling the shots. The most successful teams rely

on multiple sets of eyes to assess track conditions and identify

opportunities to advance that drivers themselves can’t see from

the cockpit.

Ray Evernham, crew chief and team manager for Hendrick Motorsports’ DuPont car, describes teamwork this way: “We’re all

spark plugs. If one doesn’t fire just right, we can’t win the race. So

no matter whether you are the guy that’s doing the fabricating or

changing tires on Sundays and that’s the only job responsibility

you have, if you don’t do your job then we’re not going to win.

And no one is more or less important than you.”1

While three of the major forms of professional auto racing—

NASCAR, Formula One, and rally car racing—each utilize different vehicles, rules, and team structures, teamwork is the common

denominator among them.

What are the qualities of successful racing teams? Let’s take

a look.



NASCAR

NASCAR is the most widely known and watched racing sport in

the United States, and the popularity and success of Jeff Gordon

has more than a little to do with that. Gordon has the most wins

in NASCAR’s modern era, has the third-most all-time wins, and

has become a spokesperson for the importance of teamwork in

NASCAR racing.2,3

“My job to communicate is probably the most important

thing,” Gordon has said. “Because I’ve got to send a message

from the race car and the race track back to the team so that they

can make the proper adjustments.”

NASCAR has come a long way since its origins in the late 1940s

in racing stock cars purchased directly from auto dealerships. Today’s NASCAR vehicles are custom fabricated from the ground

up, though their thin metal bodies are molded in the shape of

popular American sedans to reflect the sport’s heritage. And



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while most fans would be quick to point out the driver, manager,

and pit crew as racing team members, shop mechanics, parts fabricators, and even aerodynamics experts are just as essential to a

team’s performance.

In his analysis of successful NASCAR teams, Robert Williamson

notes that an essential characteristic is a team’s sense of ownership for all actions—“We won the race, we hit the wall, we had

a tire problem, we missed the setup for the track, we nailed that

pit stop,” rather than noting the success or shortcoming of an

individual.4

It’s impossible for a car to complete a NASCAR race without

multiple visits to the pit, and these pit stops are often the best

example of teamwork in the sport. Pit crew members practice routine maintenance tasks like tire changes and refueling until they

can execute them with lightning speed and the utmost precision.

Aside from the skill and muscle memory of the pit crew members,

other teammates contribute by modifying parts and equipment

so they can be changed out in less time. In Sprint Cup racing,

NASCAR’s highest designation, pit stops that would take a single

Jiffy Lube mechanic twenty minutes or more to complete happen

in less than twenty seconds.5

Two-time Sprint Cup winner Jimmie Johnson cites the importance of cohesive teamwork even before a car is assembled and

tested on the track. “If you really get inside each other’s heads, as

the car is developed, you’re looking to split hairs,” Johnson said. “If

you really know each other then, you know what each other is looking for, you’ve built that foundation and belief on the teammates

[and] the engineers, you can split those hairs and get it right.”6



Formula One

Formula One drivers, team members, and fans have one quality

that sets them above all other racing participants: the need for

speed. Formula One vehicles are the fastest circuit racing cars in

the world, screaming down the track at top speeds as high as 225

miles per hour.

But there’s another buzzword that equally defines Formula

One racing: performance. Because of the high speeds racers

achieve and the intense G-forces drivers and cars are subjected

to, ensuring that Formula One cars perform efficiently and successfully throughout a race is literally a life-and-death matter.

The term formula refers to a strict set of regulations teams

must abide by when building their cars in order to keep the races

competitive. Unlike in other racing sports, Formula One teams

have been required to build their own chassis since 1981, so al-



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though teams procure specialized engines from specific manufacturers, they are primarily responsible for building their cars from

the ground up.

Each formula has its own set of rules that eligible cars must

meet (Formula One being the highest and fastest of these designations), the idea being that these limitations will produce

cars that are roughly equivalent in performance. Of course, that

won’t always be the case, as teams work furiously to seek out

every last bit of efficiency and performance while adhering to

sport guidelines.7 Team members often lean heavily on aerodynamics, racing suspensions, and tires to achieve maximum

performance.

The McLaren team is one of the most successful Formula One

teams, and engineering director Paddy Lowe understands the behind-the-scenes dynamics that helps great racing teams succeed.

Speaking on the challenge of incorporating a new component

into an existing car, he noted, “There weren’t actually that many

issues, but we kept experiencing a variety of failures with our new

exhaust system. We’d come into the circuit each morning thinking

we’d fixed the problems of the previous day, only to be met with

a fresh series of trials the next day. Those days were very difficult

for the team.

“You have to factor in the skill of the team to work together in

a very short period of time to push in a completely different direction; to understand all the different issues. The reliability, the performance, the skills of the team, all the tools they’ve created over

the years—they all came through to our profit. In those instances,

there’s not a big discussion about who’s going to do what; there

are very few instructions. Everybody moves seamlessly. They know

what they’ve got to do.”8

BMW Motorsport Director Mario Theissen put it simply:

“Teamwork is the key to success,” he said. “Of course the basis is formed by a competitive technical package, but without a

well-integrated, highly motivated team, even the best car will not

achieve prolonged success.”9



Rally Car Racing

Whereas NASCAR and Formula One racers speed around a

paved track, rally car racing frequently heads off the circuit and

into territory that would make Dale Earnhardt step on the brakes:

Finnish rallies feature long, treacherous stretches of ice and snow.

The famed French Méditerranée-le Cap ran 10,000 miles from the

Mediterranean to South Africa. And the reputed Baja 1000 Rally

ran the length of the Baja California peninsula, largely over deserts without a road in sight.

In rally car racing, drivers race against the clock instead of each

other. Races generally consist of several stages that the driver

must compete as quickly as possible, and the winning driver completes all stages in the least amount of time.10

You could argue that of all racing sports, rally drivers are

the most reliant on teamwork to win. Unlike other forms of circuit racing, not only is the driver not racing on a fixed track,

but he does not get to see the course before the race begins.

Instead, he is wholly reliant on a teammate, the navigator, for

information on upcoming terrain. Part coach and part copilot,

the navigator relies on page notes (detailed information on the

sharpness of turns and the steepness of gradients) to keep the

driver on course from his place in the car’s passenger seat.11



Turkish driver Burcu Çetinkaya had already made a name for

herself as a successful snowboarder before she decided to take

up rally car racing at the age of twenty-four. “I grew up with cars,”

she said. “After visiting my first rally when I was twelve, I made up

my mind to be a rally driver.”12

“The thing that hooked me about rally driving was working

together with a team for a common goal with nature working

against you,” she said. “I love cars, first of all—I grew up with

them and I love every part of them. And I love competition. I have

been competing all my life. In a rally, these things come together:

nature, competition, teamwork and cars.”13



You Can’t Have One Without the Other

Though they may receive the lion’s share of the notoriety and

adulation, racing drivers are only one member of a larger team,

wherein every team member’s performance contributes to the

team’s success. The best drivers don’t let the fame go to their

heads. As Jeff Gordon—who knows a thing or two about success—put it, “The only way I can do my job correctly is to be

totally clear in my mind and have 100% confidence in every person’s job that went into this team so that they can have 100%

confidence in what I’m doing as a driver.”14



Discussion Questions

1. What types of formal and informal groups would you

expect to find in a racing team? What roles could each

play in helping the team toward a winning season?

2. Racing teams and their leaders have to make lots of

decisions—from the pressures of race day to the

routines of everyday team management. When and in

what situations would you see them making decisions

by authority rule, minority rule, majority rule, consensus, or unanimity? Are all of these decision approaches

acceptable at some times and situations, or are some

unacceptable at any time? Defend your answer.



Problem Solving

Assume you have been retained as a teambuilding consultant by a famous and successful racing team whose performance fell bad! during the prior season. Design a series of

teambuilding activities you will lead the team in performing

to strengthen their trust in each other and improve their

individual and collective efforts.



Further Research

Choose a racing team of interest to you. Research the

team, its personnel, and its performance in the most recent

racing season. Try to answer this question: What accounts

for this team’s success or lack of success—driver talent,

technology, teamwork, or all three? Can you find lessons in

the racing team that might apply to teams and organizations in any setting? If so, list at least three that you believe

are valuable and transferable insights.



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