Traditionally a vertically integrated brewing company, Whitbread (WB) had to face a new market situation in 1992. Anti-monopoly regulations limited the company’s opportunities to profit from economies of scale and further growth opportunities in the beer industry. As a consequence, WB proactively started to diversify and grow a leisure division that was successfully headed by Dean Thomas, who was appointed CEO in 1997. At that time, it seemed clear to outsiders that the beer business would not be profitable in the long-run. However, Thomas adhered to WB’s legacy and tried to close a huge deal to acquire new pubs.
Only after the deal had failed, which triggered a severe company crisis (WB’s stock price crashed, Thomas’ reputation and credibility were harmed due to his failure to clearly communicate and explain his strategy internally and externally), he realized that an overall strategic change was necessary. Consequently, he sold the beer business in 2000 and focused solely on the leisure business. The key challenge was to transform the operations-focused single business suffering from “institutionalized underperformance” into a high-performance and brand-led multi-business company.
In a first step, Thomas unfreezed the organization and restructured it to a decentralized federalization. He significantly reduced the headquarter staff and eliminated duplicated positions, but he missed to strategically define and clearly communicate the role and added value of the headquarters as well as the employees’ responsibilities. The new structure increased the autonomy of the divisions and its managers, which created latitude for opportunistic behavior.
This was further aggravated by the fact that the divisional heads did not have to team up on strategic issues and individually reported to the CEO and CFO. Thomas, who was known as being collaborative and consensus-oriented, neglected to form a top management team that worked together jointly and whose members identified not only with its division but with the overall group. Furthermore, he did not hold his managers accountable for their actions and avoided conflicts by not enforcing his strategic plans against their wills.
He neither intervened nor did he draw any personnel consequences when the managing directors of two divisions refused to cooperate and he also failed to cope with the well-known problems of the restaurant division and didn’t push its manager to take necessary steps for restructuring the unit. Although Thomas succeeded to effectively change WB’s portfolio of business, he did not succeed to develop and communicate a clear strategic vision for the whole group and each divisions operated more or less independently without achieving any synergies.
In 2001, Thomas realized that he had underestimated the power of a strong and unifying group vision and initiated the “Strategic Fitness Process” (SFP), which was intended to engage both management and employees in the necessary organizational and cultural change. However, he deviated from the SFP process suggested by external consultants and eliminated essential steps, which would have forced the management team to collectively discuss the strategic intent of the company and to jointly develop an action plan.
This can be interpreted as perceptual barrier of Thomas, because he did not realize that it wasn’t only him who had to drive the change, it was also his managers and employees. Especially the latter were very passionate, but at the same time disappointed by the missing strategic direction and leadership skills. Subsuming, it can be stated that Thomas succeeded to initiate the change process of WB in a brand-led organization and had the courage to start the radical SFP process despite having to face questions concerning his leadership skills.
However, he took too much time, did not incorporate for change barriers such as cultural, emotional and environmental blocks so that in 2004, WB still suffered from numerous internal problems: e. g. professional brand positioning and consumer research measures weren’t implemented and the organization had not been rebuild, yet, to complement its inside-out with a market-oriented outside-in perspective. The failure to anchor this brand perspective in the corporate culture and the attitudes and behaviors of the staff cannot only be ascribed to a missing vision, but also to the lack of skills and performance-based incentive and reward systems.
WB’s change process was triggered by a company crisis and affected the overall company so that the top-management, foremost the CEO, has direct responsibility for its success. Thomas’ successor will be faced with a series of challenges. He should be aware of the various socio-psychological barriers to change and develop strategies to circumvent them in order to transform and freeze WB in a truly brand-led firm. As a start, he should analyze the effectiveness of the change process, needs for changes in HR and rganization and determine specific objectives for both the group, divisions and top managers. Unlike Thomas, he should act in a transparent way and communicate his vision and strategic direction very clearly both to employees and to stakeholders such as media and investors. In a next step, he should critically reflect the existing but still very unspecific “11 Point Plan” and deviate concrete measures – not only for the middle- and long-run, but also for the short-run, in order to achieve short-term wins that motivate the staff and thereby facilitate the transition process.
An important social and institutional barrier to change is WB’s “culture of niceness” that fosters the institutionalized underperformance and inhibits people from discussing the unvarnished truth. Circumventing this barrier should be prioritized by actively promoting a feedback culture and by rewarding the best improvements/innovations from individuals and by using best practices of divisions on a corporate level – e. g. the successful balanced score card of Pizza Hut, which rewards behaviors that are aligned with corporate strategy.
Changes due to company crisis typically entail top management resistance. Hence, a top priority should be to evaluate and train but also to replace existing managers if they don’t comply with the overall vision and/or do not have enough potential in terms of required key competences. High potentials willing to act as change agents within their divisions need to be motivated and should be teamed up and given resources and responsibility for the change. The prevailing mistrust between the divisions is a political barrier that inhibits collaboration, economies of scale and synergies.
Team building measures, periodic team meetings and clear responsibilities can help to create a positive corporate feeling. Combined with financial incentives they can foster synergies. Key to WB’s success is professional brand management, which requires to think from a customer’s perspective and to closely monitor market and competitors’ actions. To overcome individual barriers of missing skills it’s quintessential to extensively and continuously train existing employees that show potential and to additionally hire highly-skilled personnel.