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The Center for Hospitality ResearchHospitality Leadership Through Learning
021992 - 2012
th
ANNIVERSARY
Cornell Hospitality ReportVol. 12 No.
All CHR reports are available for free download, but may not be reposted, reproduced, or distributed without the express permission of the publisher.
by J. Bruce Tracey, Ph.D., and Brendan Blood
7, April 2012
The Ithaca Beer Company: A Case Study of the Application of
the McKinsey 7-S Framework
Advisory Board
The Robert A. and Jan M. Beck Center at Cornell UniversityBack cover photo by permission of The Cornellian and Jeff Wang.
Cornell Hospitality Reports, Vol. 12, No. 7 (April 2012)
© 2012 Cornell University. This report may not be reproduced or distributed without the express permission of the publisher.
Cornell Hospitality Report is produced for the benefit of the hospitality industry by The Center for Hospitality Research at Cornell University
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4 TheCenterforHospitalityResearch•CornellUniversity
ExECuTivE SuMMary
byJ.BruceTraceyandBrendanBlood
TheIthacaBeerCompany:
An analysis of the Ithaca Beer Company demonstrates how the McKinsey-developed 7-Smodelcanbeused toassessacompany’scompetitiveandstrategicposition.Themodelitselfproposesthatthefollowingsevenkeypointsshouldbeinalignment:strategy,structure,systems,staff,skills,style,andsharedvalues,thelastofwhichiscentraltotheothersix
elements.RelativelysmallbythestandardsoftheU.S.brewingindustry,IthacaBeerCompany(IBC)isacraftbeerbrewerwithagraduallyexpandingregionaldistribution.Basedoninterviewsandotheranalysis,fourofthesevenfactorsinthe7-Smodelclearlyarealignedandcriticalforthiscompany’ssuccess.Theyarestrategy,staff,skills,andsharedvalues.Briefly,IBC’sstrategyisoneofcommunityinvolvementandcarefulattentiontodistributors,retailers,andcustomers.Itsrelativelysmallstaffisenthusiasticabouttheproduct,hasstrongskills,andworkscollaboratively.AlthoughtheotherthreeSfactorsdonotseemtobesocriticalatthemoment,theymaycomeintoplayasIBCcontinuestogrowandexpand.Thus,whilethe7-Sanalysisisusefulinhighlightingacompany’sstrengthsandchallenges,a contingencyapproachmaybe themostappropriate,withcertain factorsbeingmore salient thanothersatanyparticulartime.
A Case Study of the Application of the McKinsey 7-S Framework
CornellHospitalityReport•April2012•www.chr.cornell.edu 5
abouT ThE auThorS
J. bruce Tracey, Ph.D., is associate professor of management at the Cornell School of Hotel Administration and is editor of the Cornell Hospitality Quarterly (jbt6@cornell.edu). He has conducted research on a wide range of strategic and operational-level HR topics, including the impact of training initiatives on firm performance, employee turnover, employment law and leadership. He has presented his work at numerous regional, national and international conferences, and his research has been published in diverse outlets such as the Journal of Applied Psychology, the Cornell Hospitality Quarterly, and the University of Pennsylvania Journal of Labor and Employment Law. His recent sponsors for research and consulting include Four Seasons, Hilton, ClubCorp and Uno Chicago Grill, and he has been cited in the New York Times, USA Today, and the Orlando Sentinel, among other popular press outlets.
A graduate of the Cornell University School of Hotel Administration, brendan blood is a systems integration consulting analyst at Accenture Education based in New York City (brendan.blood@accenture.com).
6 TheCenterforHospitalityResearch•CornellUniversity
CornEll hoSpiTaliTy rEporT
Aclearunderstandingofafirm’scompetitivepositionisessentialforfacilitatinggrowthandachievinghigh levelsofperformance.Suchclarity isparticularly important forfirms that are competing in emerging industry segments where the environmentaldynamicsaretypicallyquiteturbulentandambiguous.Oneframeworkthathasbeen
widelyusedtoassessafirm’scompetitivepositionistheMcKinsey7-Sframework.Thepremiseofthismodel isthattheseven“S”factorscontainedinthemodelmustbealignedsothatacompanymayeffectively cope with the myriad of competitive forces that affect performance.1 Despite its wideapplication in the three decades since its introduction, no research has established the relativeimportanceofthesevenfactorsinthe7-Sframework.Sowhilethismodelmayhavesubstantialutilityfordiagnosticpurposes, it lacksprescriptiveguidanceforunderstandingprioritiesandactionstepsthat may be necessary for sustaining and enhancing firm performance in highly competitiveenvironments.
1T..J.PetersandR.H.Waterman,In Search of Excellence: Lessons from Americas Best Run Companies(NewYork:Harper&Row1982);andR.H.Water-man,T.J.Peters,andJ.R.Phillips,“StructureIsNotOrganization,”Business Horizons,June1980,pp.14-26.
TheIthacaBeerCompany:
byJ.BruceTraceyandBrendanBlood
A Case Study of the Application of the McKinsey 7-S Framework
CornellHospitalityReport•April2012•www.chr.cornell.edu 7
Thatsaid,themodelprovidesaframeworkthatallowsastructuredanalysisofacompany’scompetitiveposition.Inthispaperwedemonstratea7-SanalysisbypresentingtheresultsfromacasestudyoftheIthacaBeerCompany(IBC),whichexaminestherelativeimportanceofthe7-Sfactors.IBCiscompetingwithinanew,growing,andincreasinglychallengingsegmentofthehospitalitysector,thecraftbeerindustry.Wechallengethefocusonalignmentofthe7-Sfac-tors,anddemonstrateamulti-levelmodelthataccountsforthedifferentialimpactandimportanceofthevarious7-Sfac-tors.Bydoingso,weofferamoredetailedexplanationofhowthe7-Sframeworkcanbeusedtobetterunderstandafirm’scompetitiveposition,anddemonstratehowthisframeworkcanbeappliedtoimprovedecisionmakingeffectivenessandefficiency—and,indeed,offeraprescriptiveanalysis.
Webeginbypresentinganoverviewandcriticalanalysisofthe7-Sframework,followedbyadiscussionoftheprimarycompetitivechallengeswithinthecraftbrewingsegment.Next,usingthe7-Smodeltoanalyzethecompetitiveposi-tionoftheIthacaBeerCompany,wediscusstherolesandrelevanceofeachfactor.Theresultsdemonstratesupportforaconclusionthatfourofthe7-Sfactorsarealignedandger-manetoIBC’scompetitiveposition.Weconcludebyofferingacontingencyexplanationofthe7-Smodelthatcanbeappliedandvalidatedinotherhospitalitycontextsandsegments.
The7-SFrameworkThe7-Sframeworkisadiagnosticmodelthatattemptstoidentifythefactorsthatarenecessaryforeffectivestrategyexecution.Aswesaidabove,themodelispredicatedontheprinciplethatthesevenfactorsareinter-relatedandmustbealignedtoenhanceandoptimizeorganizationalperformance.2Exhibit1presentsagraphicalrepresenta-tionofthemodel.
Threeofthefactors—strategy,structure,andsystems—areknownashardSs.Strategyreflectstheplannedorintendedactionsofthefirmforrespondingandadaptingtothecompetitiveinfluencesintheexternalenvironment.Structurerepresentsthecoordinationmechanismsofthefirmandisdefinedbythedivisionoftasksandlabor,aswellasthehierarchyofpowerandreportingrelationships.Systemsarethemechanismsusedtomanageorganization-alprocessesandprocedures,suchasfinancialplanningandinternalcontrols,staffingandperformancemanagement,andinformationtechnology.
Theremainingfourfactors,calledthesoftSs,arestaff,skills,style,andsharedvalues.Staffdescribestheindividu-alswhoperformtheworkofthefirm—theirbackgrounds,
2M.E.Porter,“WhatIsStrategy?,”Harvard Business Review,November-December1996,pp.61-78.
Exhibit 1
The 7-S framework
8 TheCenterforHospitalityResearch•CornellUniversity
experiences,andcapabilities.Skillsreflectwhattheorganiza-tiondoesbest—thecollectivecompetenciesthatareutilizedtomanageorganizationalsystems,processes,technology,andcustomers.Stylerepresentsthecultureofthefirmandischaracterizedbycollectivelyheldassumptions,values,andnormativebehaviors.Thesharedvaluesfactor,whichisatthecenterpointofthemodel,reflectsthesuperordinategoalsofthefirmandprovidesemployeeswithasenseofpurpose.
Asnotedabove,the7-Smodeliswidelyusedinpracticeandconsideredtoprovidearobustapproachforexaminingorganizationalalignment.3Strangely,despitethelengthoftimesincethemodelwasintroduced,littleevidencesup-portstheutilityandveracityoftheframework,althoughafewstudieshaveexaminedthecontentvalidityofthemodel.Forexample,somescholarshavearguedthatthemodelomitsconsiderationofvariablesthatshouldbeincluded,suchasstrategicexecution,whichreflectstheprimaryoutcomeofthealignmentamongtheother7-Sfactors.4However,mostscholarsandpractitionershaveapparentlyassumedthemodel’svalidityandsimplyutilizeditasaguidetoinquiry.5
Althoughwequestionthepremisethatallsevenfactorsmaybeequallyrelevant,weadopttheframeworkforthefollowingreasons.Theefficacyofthe7-Smodelhasbeensupportedindirectlybyresearchfindingsacrossseveralaca-demicdisciplines.Forexample,studiespublishedintheeco-nomicandstrategicmanagementliteratures,includingsomethathavefocusedonthehospitalityindustry,haveshownthatthealignmentamongthethreehardSshasasignificantinfluenceonfirmcompetitiveness.6Inaddition,thereisevidenceinthehumanresources,organizationalbehavior,andpsychologyliteraturesregardingtheintegrativerequire-mentsamongthesoftSsforpromotingfirmperformance.Forexample,thereisfairlystrongandconsistentevidencethatthealignmentofkeypolicies,practices,andprocedures
3R.S.Kaplan,“HowtheBalancedScorecardComplementstheMcKinsey7-SModel,”Strategy & Leadership,Vol.33(2005),pp.41-46.4J.M.Higgins,“TheEight“S’s”ofSuccessfulStrategyExecution,”Journal of Change Management,Vol.5(2005),pp.3-15.5Forexample,see:P.Guenzi,L.M.DeLuca,andG.Troilo,“Organization-alDriversofSalespeople’sCustomerOrientationandSellingOrientation,”Journal of Personal Selling & Sales Management,Vol.31(2011),pp.269-285;R.A.D’Aveni,“CopingwithHypercompetition:UtilizingtheNew7-SFramework,”Academy of Management Executive,Vol.3(1995),pp.45-60;andI.BarcalyandM.Benson,“NewProductDevelopment:TheoryintoPractice,”Leadership & Organization Development Journal,Vol.11(1990),pp.24-32.6C.A.Enz,“Commentary:CompetitiveDynamicsandCreatingSustain-ableAdvantage,”inThe Cornell Hotel School of Hotel Administration Handbook of Applied Hospitality Strategy,ed.C.A.Enz(ThousandOaks,CA:SagePublications,2010),pp.297-305.
withinafirm’shumanresourcesfunction—fromstaffingtocompensation—islinkedtofirmperformance.7
Giventhatthe7-Smodeldoesnotspecifythecontin-genciesthatmaydictatetherelativeimportanceofthevari-ous7-Sfactors,wewantedtoseewhichofthefactorsmightbemostsalientforarelativelynewcompany.Toaddressthisgapandprovideinsightsregardingtheuseandutilityofthe7-Sframework,weusedthemodeltoexaminetheorgani-zationalalignmentandcompetitivepositionoftheIthacaBeerCompany,arelativelynewandsuccessfulcompanythatiscompeting,aswesaid,inagrowingandincreasinglychallengingsegmentofthehospitalityindustry.Basedonthisanalysis,weidentifytheprimary7-Sfactorsthatap-peartobecriticalformanagingIBC’scurrentcompetitivechallengesandsustaininglonger-termgrowth,andinturn,mayhaveapplicabilitytosimilarfirmsoperatinginsimilarenvironments.
TheCompetitiveContextTobeclassifiedasacraftbreweryintheUnitedStates,thebrewerymustbesmall,independent,andtraditional.Asde-finedbytheU.S.BrewersAssociation,“small”indicatesthatthebreweryproduceslessthansix-millionbarrelsperyear;
“independent”meansthatlessthan25percentofthebreweryisownedorcontrolledbyanalcoholicbeverageindustrymemberthatisnotacraftbrewer;and“traditional”meansthatthebrewerhaseitheranall-maltflagship(thebeerwhichrepresentsthegreatestvolumeamongthebrewer’sbrands)orhasatleast50percentofitsvolumeineitherallmaltorinbeerswhichuseadjunctstoenhanceratherthanlightenflavor.
Thecraftbrewingindustryisfurthersegmentedintofourseparatemarkets:brewpubs,microbreweries,regionalcraftbreweries,andcontractbrewingcompanies.Defini-tionsofeachmarketareasfollows:• Brewpubs:Arestaurant–brewerythatsells25percent
ormoreofitsbeeronsite.Thebeerisbrewedprimar-ilyforsaleandconsumptionintheadjacentrestaurantorbar.Whereallowedbylaw,brewpubsoftensellbeertogoordistributetooff-premisesaccounts.Brewpubswhoseoff-sitebeersalesgrowtoexceed75percentoftotalsalesarere-categorizedasmicrobreweries.
• Microbrewery:abrewerythatproduceslessthan15,000barrelsofbeerperyearandsells75percentormoreofitsbeeroff-site.
• RegionalBrewery:Abrewerywithannualbeerproduc-tionbetween15,000and6,000,000barrels.
7J.B.Tracey,S.A.Way,andM.J.Tews,“HRintheHospitalityIndustry:StrategicFrameworksandPriorities,”inHandbook of Hospitality Human Resources Management,ed.D.V.Tesone(Oxford,UK:Elsevier,2008),pp.3-22.
CornellHospitalityReport•April2012•www.chr.cornell.edu 9
• RegionalCraftBrewery:Anindependentregionalbrewerywhichhaseitheranall-maltflagshiporhasatleast50percentofitsvolumeineitherall-maltbeersorinbeerswhichuseadjunctstoenhanceratherthanlightenflavor.
• ContractBrewingCompany:Abusinessthathiresanothercompanytoproduceitsbeer.Thecontractbrewingcompanyhandlesmarketing,sales,anddistri-butionofitsbeer,whilegenerallyleavingthebrewingandpackagingtoitsproducer-brewery.
ThecraftbrewingsegmentreflectsarelativelysmallbutgrowingpartoftheU.S.beerindustry,whichisotherwisehighlyconcentrated.Twocompanies,Anheuser-BuschIn-Bev(ABInBev)andMillerCoors,accountedfor80percentoftheindustry’s2010sales(estimatedatbetween$60and$97billiondependingonthesource).8Aboutone-thirdoftheremaining20percentoftotalsales,or7.6percentoftotalsales,isgeneratedbycraftbrewingoperations.9
Thenumberofcraftbrewerieshasgrownfromfewerthan100in1985to1,753in2010.10Theexpansionofthecraftbrewingsegmentwasstimulatedin1979whenPresidentJimmyCartersignedabillintolawpermittingthehomebrewingofsmallamountsofbeer.Inthe1980s,entre-preneursopenedhundredsofmicrobreweriestocreateanddistributetheirproducts.Thesebreweriesattemptedtocom-petebasedonthecharacteristicsandqualityoftheirproductratherthanonpriceandmarketing.AmongthebrewerieslaunchedinthisperiodisTheBostonBeerCompany,whichhasgrownsubstantiallywithitsflagshipSamuelAdamsBostonLager.OwnerJimKochisconsideredapioneerinthecraftbrewingindustry.
KeyChallengesThesuccessofBostonBeerCompanynotwithstanding,enteringthebeerbrewinganddistributionbusinessisnotforthefaintofheart,duetothemajorcompanies’strengthinmarketing,distribution,andshelfspace,aswellastheirpricingpower.
MarkETing
Themarketingpowerofthemajorbreweriesrepresentsoneofthemostsignificantchallengesforthecraftbrewingsegment.11ABInBevandMillerCoorsadvertisementsare
8See:2010 Beer Handbook(Norwalk,CT:TheBeverageInformationGroup,2010);andwww.reuters.com/article/2011/05/04/us-abinbev-idUSTRE7430VY20110504.9www.bizjournals.com/milwaukee/news/2011/03/22/craft-beer-sales-jump-by-12-percent.html.10www.brewersassociation.org/pages/business-tools/craft-brewing-statistics/facts.11T.Goldammer,The Brewer’s Handbook(Centreville,VA:ApexPublish-ers,2008).
ubiquitous,andthesecompaniesgainattentionbysponsor-ingawiderangeofevents,includingMajorLeagueBaseballgamesandevenpresidentialdebates.12ThemarketingbudgetsofABInBevandMillerCoorsexceedthevalueofmostcraftbreweries.Asjustoneexampleofthismarketingstrength,in2010,ABInBevspentmorethan$1billiontomakeBudLighttheofficialsponsorofNFLforsixyears.13
DiSTribuTion
Anotherkeychallengeforcraftbreweriesisaccesstodistributionchannels,whicharedominatedbythemajorcompanies.14Althoughdistributorsare,byfederallaw,separatecompaniesfromthebrewers,manyhaveexclusivityagreements.Underthecurrentsystemtheproducersmustselltheirproducttodistributors,whoselltheirproducttoretailers,whothenselltoconsumers.Asthecraftseg-mentcontinuestogrow,thirty-onestateshaverevisedthesepost-Prohibitionlawstopermitsmallbreweriestodistributedirectlytoretailers.However,theNationalBeerWholesalersAssociation(NBWA),whichrepresentsmorethan2,850beerdistributorsintheU.S.,isitselfapowerfulforceinregulatorypoliticsandhastakenaratheraggressivestanceinstrength-eningthethree-tierdistributionsystem.
Withmanydistributorsnotavailableduetoexclusivityagreements,thespaceinremainingdistributors’trucksisatapremium.Inlargepart,theproductscarriedondistributiontrucksdependonwhichproductstheretailerschoosetosell.Soasmallbrewerthatdoesn’thaveaccesstothelarge-scaledistributionchannelsmustgodoor-to-doortoencouragedistributorstocarryitsproduct.Evenso,themajorplayershavesomanybrandsthattheirproductstakeupmuchofthespaceoneventhenonexclusivedistributiontrucks.Sowithalimitednumberofdistributiontrucksoperatingineachregion,craftbrewersmustbattlefortheremainingspaceleftonthesetrucksinordertogettheirproducttotheconsumer.
ShElf SpaCE
Justasbrewersmustfightforspaceinatruck,sotheymustfightforretailers’shelfspace.Ifacraftbrewerydoesmanagetogetitsproductpickedupbythedistributors,thenextchallengeisgettingandkeepingtheirproductontheshelvesatretailoutlets.Thelargebrewershaveastronginfluenceonhowtheirproductsareplacedatretailoutlets,thus,givingtheirproductsthebestvisibilityandpromotingsales.Fortu-nately,someretailersunderstandcraftbeer’spopularityandreserveasectionofthestoreforthesebeers.Unfortunately,aswedescribenext,someofthatspacealsoisoccupiedbythemajorplayers.
12www.allbusiness.com/government/elections-politics-campaigns-elec-tions/6370921-1.html.13sports.espn.go.com/nfl/news/story?id=5162445.14Goldammer,op.cit.
10 TheCenterforHospitalityResearch•CornellUniversity
and(b)comparedtheextentofagreementregardingthenatureandimportanceofthethemes.Inter-rateragreementexceeded90percent;remainingdiscrepancieswereresolvedthroughconsensus-baseddiscussion.
Secondarysourcesofdataincludedweb-andprint-basedinformationandcollateral.15Thefindingsofthesecondaryresearchandbenchmarkingcomplementthein-terviewresultsbyofferingadditionalinsightsregardingthenatureandimportanceofthe7-Sfactors,anddemonstratethedifferentialrelevanceofthevarious“hard”and“soft”characteristicsforthiscompany.
AProfileoftheIthacaBeerCompanyDanMitchellfoundedtheIthacaBeerCompanyin1998withtheintentionoffillinganemptynicheinthecraftbrewingsegmentoftheFingerLakesregionandupstateNewYork.MitchellsetouttocapitalizeontheattractiveIthacamarketwhichhasarelativelystableeconomy,favorslocalproducts,hasahighnumberofrestaurantspercapita,andconsumesalargepercentageofbeercomparedtootherregionalmarkets.16
Tominimizestartupcosts,IBCinitiallyoutsourcedtheproductionofitsbeer.Mitchell’sinitialmarketinganddistributioneffortsgarneredastrongregionalcustomerbase,ashesoldhisbeersoneaccountatatimethroughouttheIthacamarket.Assalesgraduallyincreased,Mitchellobtainedthenecessaryresourcestopurchasehisownbrew-ingequipment.Currently,IBCproductsarecarriedbyover
15See:T.R.HinkinandJ.B.Tracey,“WhatMakesItSoGreat?:AnAnaly-sisofHumanResourcesPracticesamongFortune’sBestCompaniestoWorkFor,”Cornell Hospitality Quarterly,Vol.51(2010),pp.158-170.16www.visitithaca.com/visitor-info/the-ithaca-experience.html.
DirECT ThrEaT froM MaJor playErS anD nEw EnTranTS
Therecentsuccessandcontinuinggrowthofthecraftbrew-ingsegmenthascaughttheattentionofthemajorplayers,whohavethemselveslaunchedproductstocapitalizeonthegrowingcraftsegmentandalsotocapturethebusinessofconsumersseekingdifferenttastingbeer.Inresponsetoconsumers’desiretotrynewanddifferentbrews,themajorplayersdevelopedoracquiredbrandsthataredisguisedascraftbeers.WildHopLager,anorganicbeerthatissoldundertheGreenValleyBrewingCompanylabel,isownedentirelybyABInBevalthoughthatnamecannotbefoundonthelabel.Likewise,thesuccessfulBlueMoonbrandisownedbyMillerCoors.
Withthatbackground,let’sdiscussIBC’scompeti-tivepositionusingthe7-Sframeworktodeterminewhichfactorsmaybemostcriticalforthecompanytoachieveitsobjectives.
ResearchMethodsTwoprimarysourcesofdataweregatheredandanalyzedforthiscasestudy—first-personinterviewsandsecond-arysources.Wealsoconductedabenchmarkingassess-ment.Weconductedsemi-structuredinterviewswithDanMitchell,founderandownerofIBC,andvariousIBCstaffmembersduringthespringof2011.Questionsfocusedoneachofthe7-Sfactors.Examplesinclude,“HowwouldyoudescribeIBC’scurrentbusinessstrategy?”;“HowwouldyoucharacterizethecultureatIBC?”;and“Whataresomeofthethingsthatyou,asacompany,doverywell?”Responseswerereviewedandinterpretedusinganindependentcod-ingprocedureinwhichwe:(a)assignedcontentthemestointerviewresponsesassociatedwitheachofthe7-Sfactors;
with both label design and beer names, ithaca beer Company evokes the relaxed vibe of its home town, as well as the rolling terrain of the finger lakes. for example, “CascaZilla” is a play on Cascadilla, the name of a local stream that plunges through a gorge to Cayuga lake.
CornellHospitalityReport•April2012•www.chr.cornell.edu 11
ticipateinvariousspecialeventsthatfeaturebeer,Mitchellhasdevelopedthenecessaryrelationshipsthatarecriticalforgettinghisproducttoawidearrayofretailoutlets.
IBCalsosupportsitsbrand-developmentstrategybyconnectingdirectlywithconsumers.Forexample,IBCisfea-turedattheBrewmaster’sDinner,whichisheldintheNewYorkWineandCulinaryCenterlocatedinCanandaigua,alittleoveranhourfromIthaca,aswellasaBeerandSpiritsDinneratCraftbarinNewYorkCity.Inaddition,IBC’stast-ingroomandbrewerytoursprovideadirectandongoingmeansforlearningaboutcustomerpreferencesthathelpMitchellandhisteamdevelopnewproducts.19
Finally,IBCreinforcesitsstrategyandhasgrownitsbrandbysupportingawiderangeoflocalcharitiesandnon-profitorganizations.Thisincludesin-kinddonationsthathelpraisemoneyfororganizationssuchastheCancerResourceCenteroftheFingerLakesandLoavesandFishes,whichisasoupkitchenthatoffersmealstoneedyindividu-alsintheIthacacommunity,andinvolvementintheIthacaPractitionersofAlemaking,alocalhomebrewersassociation.Thecommitmenttofocus“onopportunitiesthatbringourbrewery,employees,andcharitiestogether”20isakeyele-mentofIBC’sstrategyandplaysacriticalroleinenhancingitsvisibilityandreach.
Staff,Skills,andSharedValuesTheotherthree“Ss,”intheformofIBC’sstaff,theirskills,andsharedvaluesrepresentanotherreasonforthecom-pany’ssuccess.Asyouwillseeinthefollowingdiscussion,itisdifficulttoseparatethesethreefactors,whichseemtobetightlyaligned.Mitchell’scurrentteamoffourteenfull-timeemployeesisdiverse,buteachpossessesastrongbaseofjob-relatedexperienceandfunctionalknowledge,andallhaveagenuinepassionforcraftbeer.
Needlesstosay,thebrewersplayakeyroleinIBC’ssuc-cess.IBChasthreebrewersonitsstaff,with“Chief ”O’Neilservingasthebrewmaster.O’Neiljoinedthecompanyin2002afterspendingnearlyadecadelearninghowtomakebeerataward-winningbreweriesinCalifornia.O’Neil’sexpertiseandefficacyisevidencedbynumerousawardsthatIBChasreceived,includingagoldmedalin2010atthepres-tigiousGreatAmericanBeerFestivalforBrute,anAmerican-stylesourale.
Giventhedifficultcompetitiveenvironmentandthepushforcommunityinvolvement,IBC’ssuccessalsorestsonitssalesandmarketingemployees.Thesalesmanager,MarcSchulz,cametoIBCwithfifteenyearsofexperienceinthebrewingindustry.PriortoIBC,SchulzworkedattheBostonBeerCompanyandtheLakePlacidPub.Healsohas
19See:J.L.Heskett,W.E.Sasser,Jr.,andL.A.Schlesinger,The Service Profit Chain (NewYork:TheFreePress,1997).20www.ithacabeer.com/outreach.php.
thirtydistributorsandsoldthroughoutmanynortheasternstates(Connecticut,Massachusetts,NewJersey,NewYork,Pennsylvania,andRhodeIsland),aswellasOhio.
AmongIBC’sdiversebrewsarepaleales,lagersofvari-ousflavors,seasonalbeers,andsomedarkerbeers.SeveralofIBC’sbrewshavewonawardsfortheirquality,includingthelightandspicyCascaZilla–RedAle,FlowerPowerIPA,Excelsior!Brute,andExcelsior!alpHalpHa.In2008,IBCwasvotedthebestcraftbreweryinNewYorkState.17
Goingforward,IBCintendstoexpanditsproductioncapacitytoexpandthroughoutNewYorkandintootherneighboringstates.Simultaneouslythecompanyplanstomaintainastrongfocusoncommunityinvolvementanditscasual,funworkenvironment.However,eachofthechal-lengesdescribedaboveposessubstantivethreatstoIBC’scurrentoperationsandfutureplans.Inouranalysisofthe7-Sfactors,wesawfourasbeingparticularlyapplicable.ThoseareoneofthehardSs—strategy—andthreeofthesoftSs—staff,skills,andsharedvalues.Let’slookateachinturn.
StrategyMitchellstartedIBCwiththeaspirationofdevelopingaconceptthatreflectedthe“SpiritoftheFingerLakes,”asthecompanyslogangoes.Basedonthisideal,Mitchellstateshisprimarybusinessobjectiveasfollows:“tobrewdeliciousbeersforthepurposeofmakinglifemoreenjoyable.Westrivetomakethiscompanybetterandbuildourbrandnameandgoodreputationamongourcustomers.”18Tosup-portthisgoal,Mitchellhasadoptedamulti-facetedbusinessstrategythatfocusesondifferentiationthroughcommunityoutreach,withaspecialemphasisonphilanthropy,anddirectbusiness-to-consumersalesandmarketing.
Asweindicated,communityoutreachandinvolvementisafundamentalandsignificantpartofIBC’sstrategy.ThisfocusenhancesIBC’slocalvisibilityandprovidesMitchellandhisteamwithsignificantbusinessintelligence.Forexample,IBCisakeysponsorforseverallocalandregionalevents,includingtheIthacaBrewFest,whichdrawsmorethan3,000peopleforbeertastings,entertainment,andeducationalprograms.Inaddition,brewmasterJeff“Chief ”O’Neilisaregularguestspeakeratbeerandfoodeventsthroughouttheregion.TheseeffortsandrelatedactivitiesarecentraltopromotingIBCanditsproducts,andprovideaprimarybasisforaddressingthesignificantmarketingchallengesdescribedabove.Moreover,theemphasisoncommunityinvolvementprovidesanimportantmeansforacquiringinformationaboutcompetitors’productsandindustrytrends.Sincemanyofthedistributorsalsopar-
17www.ithacabeer.com/awards.php.18www.ithacabeer.com/index2.php.
12 TheCenterforHospitalityResearch•CornellUniversity
substantiveexperienceasarestaurateur,andisaCertifiedCiceroneBeerServer,aformaldesignationthatisawardedtoindividualswhoareprovenexpertsinselecting,acquir-ing,andservingawiderangeofbeers.Schulz’sexperienceandknowledgeareinstrumentalindevelopingandcultivat-ingrelationshipsIBC’sdistributornetworkandensuringthatIBC’sproductsmeetthevaryingdemandsofitsdiversecustomerbase.Inaddition,hemaintainsacloseeyeonallofthemajorretailoutlets—primarilysupermarketsandconveniencestores—toensurethatIBC’sproductsarehighlyvisibleandinabundantsupply.Schulznoted,“Beerdrink-ershavemorechoicestodaythanever,soit’scriticaltoworkcloselywithallofourretailstorestomakesurewe’retopofmind.”
Asheadofthemarketingfunction,AllisonGraffinisresponsibleforplanningevents,publicrelations,andadvertising.Facebook(andothersocialmedia)isessentialtothiseffortbecauseIBCcanpromoteeventsandannouncenewproductreleasesonitsFacebookpage,anditisalsoakeysourceofcustomerfeedback.GraffinalsomanagesIBC’sBrewer’sBlog,whichpromotesothercraftbreweriesintheregion,aswellasIBC’sbrews.
Aparticularstrengthisthewaythestaffcollaboratestofulfilltheirresponsibilitiesandcreateasuccessfuloperation.Thesharedvalue,orsuperordinategoal,atIBC—“makingyoursimplemomentsworthwhile”21—isfosteredbyasingularbeliefthatpeoplearethemostimportantassettothecompany’ssuccess.Assuch,allemployeesareinvolvedintheday-to-daydecisionsthataffectIBC’soperations,aswellasbigger-pictureissuessuchasproductdevelopmentandpromotionalcampaigns.Moreover,everyoneisacraftbeerenthusiastand“bringsazestforlifetoIthacaBeer.”22Thus,astrongconsensushasdevelopedaboutthecompany’sidentity,whichdrivesindividualbehaviorinaconsistentandhighlyproductivemanner.AsMitchellstated,“Mostofall,IwanttocontinuetowakeupeverymorningandenjoywhatIdo,andhopemyemployeescandothesame.”
Insum,IBC’scommunity-oriented,brand-focusedgrowthstrategyandpeople-firstapproachtooperationalmanagementappeartobetheprimarydriversofIBC’ssuc-cessandkeystoachievingthecompany’slonger-termgoals.Inaddition,eachofthesefactorsareclearlyconnectedandaligned,whichisconsistentwiththecentralpremiseofthe7-Smodel.However,whileIBC’sstrategy,staff,skills,andsharedvaluesrepresentthemostimportantprioritiesforcopingwiththefirm’scompetitiveenvironment,theremain-ingthree7-SfactorsprovideanothertierofsupportforIBC’scontinuedsuccess.
21www.ithacabeer.com/index2.php.22www.ithacabeer.com/about.php.
Style,Systems,andStructureStyleisthemanifestationofIBC’ssharedvaluesthataresupportedbytheintenselyinteractiveworksettingdescribedabove.Inaddition,Mitchell’sopenandengagingleadershipisinstrumentalinpromotingconsensusaboutIBC’smis-sionandhascreatedacultureofcontinuouslearningandimprovement.Forexample,asthebrewerslearnmoreabouttheircraft,theysharewhattheyhavelearnedwiththesalesandmarketingstaff,whichenablesthatgrouptoworkmoreeffectivelywiththedistributorsandretailersandtolearnaboutcustomers’evolvingneedsanddemands.ThesalesandmarketingstaffthenrelaythefeedbacktheyreceivefromthedistributorsandretailerssothatthebrewerscanfurtherdevelopIBC’sproducts.ThisongoingexchangeofinformationprovidesIBCwithcriticalbusinessintelligenceandhelpsthestaffadapttothecompetitivedynamicsinatimelymanner.
MostofthesystemsthatIBChasimplementedtosup-portitsoverarchingstrategyandhelpmaintainanefficient,coordinatedworksettingarefairlyinformal.Forexample,IBChasadopteda“culture-first”approachtotheirstaff-ingprocedures.Theprocessisnotbasedonstructuredinterviewingproceduresorteststomakehiringdecisions.Instead,Mitchellputsapremiumonspendingsubstantialtimewithindividualstodeterminewhethertheypossessanauthenticpassionforcraftbeerandasincereinterestinworkingforacommunity-focusedcompany.Forexample,MikeBenzwasafrequenton-sitecustomerandaregionallyknownbeerenthusiast.Therelationshipsthatwerecre-atedduringMike’sstorevisitsweretheprimarybasisthatMitchellandhisteamusedtohirehimasthetastingroommanager,akeycustomer-facingrolethatisimportantinmaintainingandgrowingIBC’sbrand.
However,whenitcomestothebrewingprocess,IBChasdevelopedseveralformalproceduresthatensuretheydevelopthehighestqualityproducts.Forexample,IBCadherestoastrict90-daybottle-to-salestandard.Tocomplywiththisstandard,thebrewersmustdeterminehowmuchofeachtypeofbeertheyshouldproduce.Todosoinatime-lyandcosteffectivemanner,thesalesstaffmonitorsweeklysalesfigurestodeterminehowwellthevariousIBCproductsaresellingineachmarket.Thesalesstaffthencoordinateswiththebrewers,distributors,andretailerstomaintainanappropriatesupply—neithertoolargenortoosmall.Thisprocessrequiresahighlyorchestratedeffort,andtheproce-duresthathavebeenadoptedintheforecasting,production,anddistributionprocessareconsistentwithcontemporaryqualityassuranceprogramsthatincludeprocessmappingandproductionandsalesforecasting.23
23See:J.M.JuranandA.B.Godfrey,Juran’s Quality Handbook,5thEdi-tion(NewYork:McGraw-HillProfessional,1998).
CornellHospitalityReport•April2012•www.chr.cornell.edu 13
IBC’sstructureisareflectionoftheirsystems.Whilethecompanyisorganizedintosixdepartments—administra-tion,brewing,packaging,sales,marketing,andretail—thesedivisionsarefarfromstrictinlightofIBC’scollaborativeapproach.Moreover,thefirm’scollaborativeworksettingischaracterizedbyintensivecommunicationandongoingprofessionaldevelopment,whichensuresthateveryonemaintainsanunwaveringfocusonIBC’smission.Thesmallnumberoffull-timeemployeesmeansthatIBCcanrespondquicklytocompetitivechanges,andfixedcostsarelowsothatprofitabilitycanbeachievedatarelativelylowlevelofsales.
AContingencyApproachtoforthe7-SModelOuranalysisofthecompetitiveconditionsinthecraftbrewindustryandIBC’scurrentpositionsuggestthatthealign-mentamongstrategy,staff,skills,andsharedvaluesarethetopprioritiesforthecompany,althoughtheotherthree7-Sfactorsareclearlyrelevant.The7-Smodelimpliesthatef-fectiveperformanceandalignmentamongallofthefactorsarerequiredformaintainingastrongcompetitiveposition.Thiscasestudydoesnotdiminishthatproposition,butitisevidentthatthefourof7-SfactorsthatwehighlightedaremoreimportanttoIBC’ssuccessthantheotherthree.
Thisanalysisarguesforacontingencyperspectivewhenutilizingthe7-Sframework.Inthiscase,IBC’sstrategyisthemostimportantprerequisiteforsuccesssinceitprovidesafoundationforallotherorganizationalfunctions—andotherstudieshavecometosimilarconclusions.24Beyondstrategy,thecompetitivenatureofthecraftbrewsegmentandIBC’scurrentpositionsuggeststhatthe7-Sfactorsthatarelinkedtohumancapital—staff,skills,andsharedvalues—areintertwinedandcriticalinsustainingperformanceandenhancingfuturegrowth.Thisfindingisconsistentwithhumanresourcesmanagementresearchregardingtherolesandimportanceofhigh-performanceworksystems,25par-ticularthosethathavedemonstratedthepositiveimpactofemployeeinvolvement.26
24See:Enz,op.cit.;M.P.Joshi,R.Kathuria,andS.J.Porth,AlignmentofStrategicPrioritiesandPerformance:AnIntegrationofOperationsandStrategicManagementPerspectives,”Journal of Operations Manage-ment,Vol.21(2003),pp.353-369;R.Kathuria,M.P.Joshi,andS.J.Porth,OrganizationalAlignmentandPerformance:Past,Present,andFuture,”Management Decision,Vol.45(2007),pp.503-517.25See:B.E.BeckerandM.A.Huselid,“HighPerformanceWorkSystemsandFirmPerformance:ASynthesisofResearchandManagerialImplica-tions,”inResearch in Personnel and Human Resources Management,ed.G.R.Ferris(Stamford,CT:JAIPress,1998),pp.16,53-101;Traceyet al., op.cit.;andS.E.Way,“HighPerformanceWorkSystemsandIntermediateIndicatorsofFirmPerformancewithintheU.S.SmallBusinessSector,”Journal of Management,Vol.28(2002),pp.765-785.26HinkinandTracey,op.cit.;andS.J.WoodsandT.D.Wall,“WorkEnrichmentandEmployeeVoiceinHumanResourceManagement-Per-formanceStudies,”International Journal of Human Resource Management,(2007).Vol.18(2007),pp.1335-1372.
Ouranalysisisasnapshot,notatimeseries.Thus,itmaywellbethatasthecompetitiveconditionschange,at-tentiontotheotherthree7-Sfactors—style,systems,andstructure—mayberequiredforIBC.IfIBCcontinuestoexpand,itmayneedtoincreasethestaffsize,whichmightmakeitdifficulttomaintainitsintenselyconnectedworkenvironment.Assuch,itmaybeimportanttofocusonIBC’ssystems(e.g.,distribution)orstructure(e.g.,salesterritories)toenhancecoordination,andmaintainoperationaleffi-ciencyandquality.
ConclusionAllfirmsfaceamultitudeofenvironmentalchallenges.Assuch,theneedtoestablishprioritiesiscriticalforcreatingandsustainingastrongcompetitiveposition.Ouranalysishasfoundthatthe7-Sframeworkprovidesanexcellentstartingpointforanalyzingtherequirementsforacom-pany’ssuccessandgrowth.However,giveneachcompany’sdistinctiveposition,acontingencyapproachmaybeap-propriateto7-Sanalysis,asitwasclearfromthiscasestudythatsomefactorsaremoreimportantthanothers.WehopethatourassessmentprovidessomeinsightsandguidanceformakingchoicesanddevelopingactionplansforfirmslikeIBCthatarecompetinginemergingmarketssimilartothecraftbrewindustry.n
with its “partly Sunny” seasonal brew, ibC refers to a hoped-for but sometimes elusive weather forecast.
14 TheCenterforHospitalityResearch•CornellUniversity
Celebrating 20 Years of Hospitality Research
021992 - 2012
th
ANNIVERSARY
Download our free research at:
www.chr.cornell.edu489 Statler Hall · Ithaca, NY 14853
hosp_research@cornell.edu · 607-255-9780
Friends4Hoteliers.com • Berkshire Healthcare • Center for Advanced Retail
Technology • Cleverdis • Complete Seating • Cruise Industry News • DK Shifflet & Associates • ehotelier.com • EyeforTravel • Gerencia de Hoteles & Restaurantes • Global Hospitality Resources • Hospitality Financial and Technology Professionals (HFTP) • hospitalityInside.com • hospitalitynet.
org • Hospitality Technology Magazine • HotelExecutive.com • International CHRIE • International Hotel Conference • International Society of Hospitality Consultants (ISHC) • iPerceptions • JDA Software Group, Inc. • J.D. Power and Associates • The Lodging Conference • Lodging Hospitality • Lodging
Magazine • LRA Worldwide, Inc. • Milestone Internet Marketing • MindFolio • Mindshare Technologies • PhoCusWright Inc. • PKF Hospitality Research • Questex Hospitality Group • Resort and Recreation Magazine • The Resort
Trades • RestaurantEdge.com • Shibata Publishing Co. • Synovate • UniFocus • Vantage Strategy • WageWatch, Inc. • The Wall Street Journal • WIWIH.COM
Senior PartnersASAE Foundation, Carlson Hotels, Hilton Worldwide,
National Restaurant Association, SAS, STR, and Taj Hotels Resorts and Palaces
PartnersDavis & Gilbert LLP, Deloitte & Touche USA LLP, Denihan
Hospitality Group, eCornell & Executive Education, Expedia, Inc., Forbes Travel Guide, Four Seasons Hotels and Resorts, Fox Rothschild LLP, French Quarter Holdings, Inc., HVS, Hyatt Hotels
Corporation, InterContinental Hotels Group, Jumeirah Group, LRP Publications, Maritz, Marriott International, Inc., Marsh’s Hospitality
Practice, McDonald’s USA, newBrandAnalytics, priceline.com, PricewaterhouseCoopers, Proskauer, ReviewPro, Sabre Hospitality Solutions, Sathguru Management Consultants (P) Ltd., Schneider
Electric, Thayer Lodging Group, Thompson Hotels, Travelport, WATG and Wyndham Hotel Group
CornellHospitalityReport•April2012•www.chr.cornell.edu 15
Cornell Center for Hospitality Research
Publication Indexwww.chr.cornell.eduCornell Hospitality Quarterlyhttp://cqx.sagepub.com/
2012 ReportsVol.12No.6StrategicRevenueManagementandtheRoleofCompetitivePriceShifting,byCathyA.Enz,Ph.D.,LindaCanina,Ph.D.,andBreffniNoone,Ph.D.
Vol.12No.5EmergingMarketingChannelsinHospitality:AGlobalStudyofInternet-EnabledFlashSalesandPrivateSales,byGabrielePiccoli,Ph.D.,andChekitanDev,Ph.D.
Vol.12No.4TheEffectofCorporateCultureandStrategicOrientationonFinancialPerformance:AnAnalysisofSouthKoreanUpscaleandLuxuryHotels,byHyunJeong“Spring”Han,Ph.D.,andRohitVerma,Ph.D.
Vol.12No.3TheRoleofMulti-RestaurantReservationSitesinRestaurantDistributionManagement,bySherylE.KimesandKatherineKies
Vol.12No.2Compendium2012
Vol.12No.12011AnnualReport
2012 ToolsVol.3No.1ManagingaHotel’sReputation:JointheConversation,byAmyNewman,JudiBrownell,Ph.D.andBillCarroll,Ph.D.
2012 ProceedingsVol.4No.1TheHospitalityIndustryConfrontstheGlobalChallengeofSustainability,byEricRicaurte
2012 Industry PerspectivesVol.2No.2EngagingCustomers:BuildingtheLEGOBrandandCultureOneBrickataTime,byConnyKalcher
Vol.2No.1TheIntegrityDividend:HowExcellentHospitalityLeadershipDrivesBottom-LineResults,byTonySimons,Ph.D.
2011 ReportsVol.11No.22EnvironmentalManagementCertificationandPerformanceintheHospitalityIndustry:AComparativeAnalysisofISO14001HotelsinSpain,byMaría-del-ValSegarra-Oña,Ph.D.,ÁngelPeiró-Signes,Ph.D.,andRohitVerma,Ph.D.
Vol.11No.21AComparisonofthePerformanceofIndependentandFranchiseHotels:TheFirstTwoYearsofOperation,byCathyA.Enz,Ph.D.,andLindaCanina,Ph.D.
Vol.11No.20RestaurantDailyDeals:Customers’ResponsestoSocialCouponing,bySherylE.Kimes,Ph.D.,andUtpalDholakia,Ph.D.
Vol.11No.19ToGrouponorNottoGroupon:ATourOperator'sDilemma,byChekitanDev,Ph.D.,LauraWinterFalk,Ph.D.,andLaureMougeotStroock
Vol.11No.18NetworkExploitationCapability:MappingtheElectronicMaturityofHospitalityEnterprises,byGabrielePiccoli,Ph.D.,BillCarroll,Ph.D.,andLarryHall
Vol.11No.17TheCurrentStateofOnlineFoodOrderingintheU.S.RestaurantIndustry,bySherylE.Kimes,Ph.D.
Vol.11No.16UnscramblingthePuzzlingMatterofOnlineConsumerRatings:AnExploratoryAnalysis,byPradeepRacherla,Ph.D.,DanielConnolly,Ph.D.,andNatasaChristodoulidou,Ph.D.
Vol.11No.15DesigningaSelf-healingServiceSystem:AnIntegrativeModel,byRobertFord,Ph.D.,andMichaelSturman,Ph.D.
Vol.11No.14ReversingtheGreenBacklash:WhyLargeHospitalityCompaniesShouldWelcomeCrediblyGreenCompetitors,byMichaelGiebelhausen,Ph.D.,andHaeEunHelenChun,Ph.D.
Vol.11No.13DevelopingaSustainabilityMeasurementFrameworkforHotels:TowardanIndustry-wideReportingStructure,byEricRicaurte
Vol.11No.12CreatingValueforWomenBusinessTravelers:FocusingonEmotionalOutcomes,byJudiBrownell,Ph.D.
Vol.11No.11CustomerLoyalty:ANewLookattheBenefitsofImprovingSegmentationEffortswithRewardsPrograms,byClayVoorhees,Ph.D.,MichaelMcCall,Ph.D.,andRogerCalantone,Ph.D.
Vol.11No.10CustomerPerceptionsofElectronicFoodOrdering,bySherylE.Kimes,Ph.D.
Vol.11No.92011TravelIndustryBenchmarking:StatusofSeniorDestinationandLodgingMarketingExecutives,byRohitVerma,Ph.D.,andKenMcGill
Vol11No8Search,OTAs,andOnlineBooking:AnExpandedAnalysisoftheBillboardEffect,byChrisAndersonPh.D.
Celebrating 20 Years of Hospitality Research
021992 - 2012
th
ANNIVERSARY
Download our free research at:
www.chr.cornell.edu489 Statler Hall · Ithaca, NY 14853
hosp_research@cornell.edu · 607-255-9780
Friends4Hoteliers.com • Berkshire Healthcare • Center for Advanced Retail
Technology • Cleverdis • Complete Seating • Cruise Industry News • DK Shifflet & Associates • ehotelier.com • EyeforTravel • Gerencia de Hoteles & Restaurantes • Global Hospitality Resources • Hospitality Financial and Technology Professionals (HFTP) • hospitalityInside.com • hospitalitynet.
org • Hospitality Technology Magazine • HotelExecutive.com • International CHRIE • International Hotel Conference • International Society of Hospitality Consultants (ISHC) • iPerceptions • JDA Software Group, Inc. • J.D. Power and Associates • The Lodging Conference • Lodging Hospitality • Lodging
Magazine • LRA Worldwide, Inc. • Milestone Internet Marketing • MindFolio • Mindshare Technologies • PhoCusWright Inc. • PKF Hospitality Research • Questex Hospitality Group • Resort and Recreation Magazine • The Resort
Trades • RestaurantEdge.com • Shibata Publishing Co. • Synovate • UniFocus • Vantage Strategy • WageWatch, Inc. • The Wall Street Journal • WIWIH.COM
Senior PartnersASAE Foundation, Carlson Hotels, Hilton Worldwide,
National Restaurant Association, SAS, STR, and Taj Hotels Resorts and Palaces
PartnersDavis & Gilbert LLP, Deloitte & Touche USA LLP, Denihan
Hospitality Group, eCornell & Executive Education, Expedia, Inc., Forbes Travel Guide, Four Seasons Hotels and Resorts, Fox Rothschild LLP, French Quarter Holdings, Inc., HVS, Hyatt Hotels
Corporation, InterContinental Hotels Group, Jumeirah Group, LRP Publications, Maritz, Marriott International, Inc., Marsh’s Hospitality
Practice, McDonald’s USA, newBrandAnalytics, priceline.com, PricewaterhouseCoopers, Proskauer, ReviewPro, Sabre Hospitality Solutions, Sathguru Management Consultants (P) Ltd., Schneider
Electric, Thayer Lodging Group, Thompson Hotels, Travelport, WATG and Wyndham Hotel Group