Question

You are the Cookie division controller for Auntie M’s Baked Goods Company. Auntie M recently introduced a new chocolate chip cookie brand called Full of Chips, which has more than twice as many chips as any other brand on the market. The brand has quickly become a huge market success, largely because of the number of chips in each cookie. As a result of the brand’s success, the product manager who launched the Full of Chips brand has been promoted to division vice president. A new product manager, Brandon, has been brought in to replace the promoted manager.

At Auntie M’s, product managers are evaluated on both the sales and profit margin of the products they manage. During his first week on the job, Brandon notices that the Full of Chips cookie uses a lot of chips, which increases the cost of the cookie. To improve the product’s profitability, Brandon plans to reduce the amount of chips per cookie by 10%. He believes that a 10% reduction in chips will not adversely affect sales, but will reduce cost and, hence, help him improve the profit margin. Brandon is focused on profit margins, because he knows that if he is able to increase the profitability of the Full of Chips brand, he will be in line for a big promotion.

To confirm this plan, Brandon has enlisted you to help evaluate it. After reviewing the cost of production reports segmented by cookie brand, you notice that there has been a continual drop in the materials costs for the Full of Chips brand since its launch. On further investigation, you discover that chip costs have declined because the previous product manager continually reduced the number of chips in each cookie. Both you and Brandon report to the division vice president, who was the original product manager for the Full of Chips brand who was responsible for reducing the chip count in prior periods.

1. Is this an ethical strategy for Brandon to pursue? What are the potential implications of this strategy?

2. What options might you, as the controller, consider taking in response to Brandon’s plan?

Answer 1

Answer :

1.

This case comes from a real story. In the real story, the first reduction in chips had no impact on market demand. The manager was promoted, and the next manager attempted the same strategy—reduce chips by 10%. Again, it worked. The next manager did the same thing. All of a sudden, the market demand for the cookie dropped. A threshold was reached, the cookie was no longer “full of chips,” and it began to lose market share. The reduced chip cookie was nothing like the original recipe. The cookie’s integrity was slowly eroded until it did not live up to its brand name “Full of Chips.” Because the brand erosion occurred slowly over a period of many years, senior management did not notice the product change until the threshold was reached.

2.

There are several options that you, as the controller, have:

A.

Do nothing. This is a safe strategy. It would be highly unlikely that failing to reveal this information to anybody would ever be discovered or “pinned” on you. Unfortunately, this is one of those situations where silence has very little penalty, yet speaking up entails some risk. However, silence may not be the best option. Silence may allow the product quality erosion to continue, which could be harmful to the company.

B.

Talk to Brandon. This is also a reasonably safe strategy and probably the best start. For example, you may discover that the reduction in chips was approved by the vice president or that there was a market study that revealed that the market thought the cookie had too many chips. This kind of information could be discovered very easily and without any risk through a personal conversation with Brandon.

C.

Talk to the vice president. You could also go right over Brandon’s head to the vice president. This strategy might label you as “not a team player,” so some caution is in order here. You might get Brandon in trouble, or you may get yourself in some trouble. This is probably not the best first move. It is within Brandon’s authority to make the chip decision, so you are, in a sense, second guessing Brandon when you go to the vice president. You could be accused of being out of your expertise. After all, what do you know about chips and the marketplace?

Probably the best move is to talk to Brandon. If you discover that Brandon is acting independently, with his primary motivation being to improve the “bottom line,” then you may need to talk to the vice president. This is a delicate situation. You would need to make your case that the reduction in chips strikes you as a short-term decision that may have short-term benefits but may result in long-term consequences. Again, Brandon has the prerogative to make the chip decision; so, in a sense, you are second-guessing Brandon. Your objections should be done lightly and with care.