Cornell University Johnson at Cornell University


Getting a bigger piece of the pie

Helping the world's largest pizza maker develop its own leaders

By Linda Myers

Composite of a Schwan Food Company Track and a pizza pie

The Schwan Food Company has come a long way since its humble beginnings in 1952, when it was just a guy named Marvin Schwan in a truck delivering ice cream made at his family's dairy in Marshall, Minnesota.

Today the company's headquarters are still in Marshall and its home delivery division still brings Schwan products, including ice cream, directly to customers' doors in its distinctive Inca Gold® trucks with the swan logo on them. But now there are three other divisions, which sell to mega-stores like Target and Wal-Mart, supermarkets, schools, and hospitals. Indeed, Schwan has become the world's largest maker of frozen pizza and egg rolls, not to mention the source for Mrs. Smith's® pies, Red Baron® frozen pizzas, and Asian Sensations™ appetizers. About 22,000 people work for the company in the United States, Canada, and Europe, and its frozen foods are sold in more than 50 countries.

Leaders of the privately held Schwan company recognized the need for change in 1999, when they hired Lenny Pippin as the first CEO who was not from within the company. Pippin, who gained his executive expertise at other privately held companies and his industry savvy at Kraft Foods, soon found
Schwan Food Company logo
that finding and training talented people to help the company adapt and thrive in the swift competitive waters of 21st century commerce was Schwan's biggest challenge.

Although Marshall has been named one of the best towns to live in, its rural location, three hours west of Minneapolis by car, added to the problem of attracting top talent in a tight labor market.

In 2002, Michael Hostetler, director of executive education at the Johnson School, got a call from Schwan headquarters asking for more details about the school's customized programs for midsized companies.

Raquelle Lacey-Nelson, MBA '03, Schwan Food Co.
"A customized program, such as the one the Johnson School has been conducting for Schwan, is particularly beneficial because the curriculum comes alive through real-life examples right from the field."
Raquelle Lacey-Nelson, MBA '03, Schwan Food Co.
"One of our competitive advantages is we're willing to do the hard work to create a unique program design based on the customer's objectives, which appealed to the senior executives at Schwan," says Hostetler, who flew to Marshall to meet with Pippin's talent management team of senior executives. Over the course of several days, and subsequent meetings, they drew up a blueprint for Johnson School faculty, in tandem with the company, to develop a specialized curriculum for a select cohort of about 36 midlevel managers with high leadership potential, chosen by the Schwan team.

Different cohorts now enter the program each year, taking part in intensive, week-long sessions several times a year in Marshall, at Cornell, and elsewhere. The courses have covered such subjects as managing change, corporate strategy, negotiations, finance, and marketing, among others.

"A customized program, such as the one the Johnson School has been conducting for Schwan, is particularly beneficial because the curriculum comes alive through real-life examples right from the field," says Raquelle Lacey-Nelson, who earned her MBA at the Johnson School in 2003. She turned down other job offers, choosing Schwan after graduation because of the prospect of joining the firm's select group of high-potential managers. She is now a sales director, managing the Target account for Schwan's Consumer Brands North America.

Beta Mannix, the Anne Whitney Olin Professor of Management at the Johnson School and a Schwan program faculty member, says: "Schwan has been a fascinating company to work with. What they are trying to bring about is a cultural shift, getting people to share more information, communicate differently, and push decision making to a lower level in the organization, even at the risk of more internal criticism."

The first classes she offered were on cultural change, including a session the company requested on the need for more networking between its four divisions.

"It was brilliant of Schwan to be aware of that need," Mannix says. "In a simulation exercise we did, one group understood the big picture and decided to split up the resources to produce a high outcome for the firm. But other groups only understood the benefit to their divisions."

Mannix recalls that, during her networking class, senior executive vice president and chief operating officer John Beadle, who, with Lenny Pippin, had been observing the discussion from the back of the room, spoke up at the CEO's urging. "He said: "We know that there's difficulty communicating across the silos of departments, especially if your department's bonus is based on how high the grain is in your silo. But a short-term sacrifice can be better for everyone in the long term.' It was an "Aha' moment. We talked about it for about an hour and a half afterward."

One way to motivate change within a company that's always done things a certain way, says Mannix, is to create dissatisfaction with business as usual, along with a sense of urgency about the risk of failure if the company fails to challenge the status quo. "The senior executives, the ones steering the boat, need to communicate a clear and shared vision of where the company needs to be in ten years, how it's is going to get there, and sell that vision to middle and upper-middle managers," she says.

But change can be threatening, especially in a historically family-owned business, noted Mannix, who asked the managers in her sessions: "What are the barriers around change? Why is it so hard? Why might people resist? What would make change easier?"

She found that some of them were worried that they wouldn't be competent enough to do the new jobs, particularly if these involved more technical knowledge or new managerial skills or working with others in new, "virtual" ways.

"They feared that they'd be overwhelmed by additional duties and new, challenging responsibilities," says Mannix, who reassured them: "That's why we're working on learning new skills in these classes."

One of the most popular and effective features of the Johnson School program for Schwan's high-potential managers has been a business simulation model adapted specifically for Schwan by Jerome Hass, the James B. Rubin Professor of Finance at the Johnson School, using his Cornell Management Game.

"I'm a strong believer in simulations as teaching tools," says Hass. "They take time but participants vividly recall the experience years later."

He describes his simulation as "a four-dimensional chess game, where you are running a firm facing challenges – such as stagnant sales and deteriorated product quality – in a competitive marketplace, with only limited resources and your wits to draw on."

Four or five teams of three people play against each other. "All are trying to turn their companies around, all interacting in the same marketplace with the same customers, who have to be prompted to buy your product," says Hass. "The objective is to maximize shareholder wealth through dividends and increasing stock price. To achieve that, the teams have to develop a strategy, then execute it over the course of play. A good strategy requires an understanding of the markets as well as the interaction between marketing, operations, and finance." Players can focus on strategy and interactions instead of getting bogged down with calculations, says Hass, because the teams are provided spreadsheet software that instantly translates their tentative marketing, operations, and finance decisions and related estimates of sales into projected operating and financial statements. "They use the software to help predict how changes in decisions such as prices, scheduling overtime production, and borrowing will affect the firm's profitability, cash position, and other key determinants of its credit rating and stock price," he explains. Team decisions are then combined using a program developed by Hass to produce competitive results.

Interestingly, Hass never tells his teams what the actual products are. "If I did, they'd have preconceived notions about marketing them. Instead, I want them to figure out what's going on in the marketplace, force them to use market-based information to ascertain what drives the demand for their products," he says. "To create value, a company needs to understand its markets – what drives demand and where there are opportunities – to exploit strategic advantages. You can get that information by studying the market, including how competitors behave and how customers respond."

"I did the financial simulation exercise in 2005, and I still draw on it day-to-day, how your actions interrelate with your competitors' in the marketplace," says Brian Rademacher, vice president for strategic planning and development for Schwan's home delivery division. "You're constantly readjusting to your competitor's actions, understanding the subtleties and adjusting and readjusting tactics that get you there."

Brian Rademacher
"I did the financial simulation exercise in 2005, and I still draw on it day-to-day, how your actions interrelate with your competitors' in the marketplace."
Brian Rademacher, Schwan Food Co.
Today, to compete for what Rademacher calls "share of stomach" with casual-dining restaurants and take-out food service, the division offers among its 400 products a sub-brand called Live Smart™ featuring healthier, more nutritious offerings such as pizza with whole wheat crust.

Craig Pellerin, chief financial and operations officer, procurement and fleet management, says: "The business simulation really pulled our group together. Being able to have rich debate within your team, try out strategies, and roll them out without losing real money was great. Often in business we get too involved in our own mindset. The simulation brought to light the importance of understanding what the competitive set is doing."

In other sessions, Hass put together special case studies relevant to the Schwan Food Company, assigned them to small teams of participants, and asked them to present their conclusions and recommendations to a panel of hypothetical decision makers, played by several senior Schwan executives.

"The case competitions were extremely valuable," says Vicky Schwartz, vice president, supply chain, with Schwan's Consumer Brands. "The sessions were set up so time was limited and analysis and decisions had to be made quickly. That allowed us to test out our ideas under realistic work conditions but in a safe environment."

"The finance case competition was a highlight," says Jill Haan, vice president and corporate treasurer of Schwan's Shared Services. "The behind-the-scenes analysis and discussions before strategic investments were made were especially interesting to me, as was the chance for people without finance backgrounds to learn from their knowledgeable colleagues on the cross-functional teams."

Johnson School associate professor of marketing Douglas Stayman, who taught sessions on marketing strategy and customer relationship management, commented on the wide range of issues discussed by his group of Schwan managers. "With customized programs you sometimes don't get as much variety of participants, but with Schwan the problems are so different across divisions [that the] different business lines made it interesting in terms of teaching."

Among the questions his group looked at were whether specific home promotions of products were working and, therefore, were worth the investment, and where was the best place to put advertising dollars. "The Schwan brand Freschetta® isn't as big as the company's Red Baron® brand, so if you put dollars behind it you're not going to get the same kind of bump as you would from Red Baron," he cautioned them.

"The Cornell faculty have been one of the best things about this program," says Pellerin. "They have gone out of their way to make it enlightening, educational, and fun."

"So often in our day-to-day work we get so focused on our business that we lose sight of other possible solutions outside of our walls," says Schwartz.
Professor Jerome Hass
"To create value, a company needs to understand its markets - what drives demand and where there are opportunities - to exploit strategic advantages. You can get that information by studying the market, including how competitors behave and how customers respond."
Professor Jerome Hass
"The classroom sessions provided insight into the world outside of the Schwan Food Company, both the successes and failures."

"It's an exciting program," says Rademacher. "My background is finance. I have my CPA. Classes in sales, marketing, and strategic planning have given me a different perspective."

"Overall I think it's the best customized program I've taught in," says Hass, who praised the high quality of the participants. "Schwan managers who took part in the program were very informed about the future of the company and knowledgeable about their areas," Stayman adds, "and senior executives from marketing sat in on some of the sessions I taught, showing real commitment to the program."

That involvement of higher-ups is essential to the success of customized executive education programs, says Hostetler. "Many researchers have studied successful and unsuccessful organizational transformations over the last 15 years. Most agree that the organization's senior leadership–the CEO and the top team–has a critical role to play. Leaders are responsible for creating the culture and values that support a learning focus."

But Stayman offers another predictor of success–what he and fellow faculty learned from the managers at Schwan headquarters after the lessons they gave were over.

"They took us to their kitchens and had us develop desserts," he confesses. "Then we got to eat them. My team did an exploding volcano flambé out of sponge cake, ice cream, whipped topping, and liqueur."How did it measure up? "It didn't flambé as much as we wanted it to, but I think ours was the highest-proof dessert of the bunch," he says, grinning.