Krispy Kreme

Krispy Kreme is a relatively small doughnut seller. It has only 292 stores while Dunkin Donuts
has 3,600 outlets in the United States. In spite of its size, Krispy Kreme has been described by
many as “the hottest brand in America.” The company’s success in an environment that is not
conducive to food operations succeeding is due to a mix of “shrewdness, original thinking, and
entrepreneurship.” The company originated in Winston-Salem, North Carolina, where it still
operates a plant that fills a 50-pound bag with doughnut mix every seven seconds. It recently
opened a new plant in Effingham, Illinois, that fills a bag every three seconds. This second plant
allows the company to reduce costs while increasing its output. The company began in the mid-
1930s when Vernon Rudolph bought a secret recipe for yeast doughnuts from a French pastry
cook. Rudolph ran the company until his death in 1973 when he died without naming a
successor. His death caused the company problems for the next decade.

1. Refer to Krispy Kreme. The building of the Effingham plant increased the __________ of the
Krispy Kreme operation.
a. effectiveness d. efficiency
b. synergy e. empathy
c. advocacy
2. Refer to Krispy Kreme. Which management function had Rudolph not performed at the time of
his death?
a. planning d. leading
b. marketing e. organizing
c. controlling
3. Refer to Krispy Kreme. As the CEO of Krispy Kreme, Rudolph would have been responsible
for:
a. developing employees’ commitment to the company
b. creating a positive organizational culture
c. monitoring the business’s environment
d. creating a context for change
e. doing all of these things
4. Refer to Krispy Kreme. As the entrepreneur who founded the company, Rudolph had a(n)
______ role.
a. managerial d. interpersonal
b. informational e. organizational
c. decisional
5. Refer to Krispy Kreme. To be successful, managers need four skills. The fact that Rudolph was
a skilled baker when he purchased the secret doughnut recipe indicates he had __________ skills.
a. technical d. human
b. interpersonal e. motivational
c. conceptual

Nortel
When people use the Internet or make calls on their cell phones, the companies providing the
Internet and cell phone service are probably using products made by Nortel Networks. With its
products used everywhere in the world, Nortel should be performing well. At least that’s what
Mike Zafirovski thought before he became Nortel’s new CEO and began working to turn around
the financially struggling company. He had hoped that his 25 years at GE, where he ran five of its
key businesses, and his five years as the president and chief operating officer at Motorola would
have prepared him to be Nortel’s new CEO. But he underestimated the pressures and
expectations, as well as the magnitude of problems that were now his responsibility. The most
serious problem occurred six months after he became CEO. After the previous management team
overreported earnings to trigger corporate bonuses, Nortel had supposedly solved the company’s
financial-reporting problems. But now, for the third year in a row, Nortel had incorrectly
overestimated its profits and had to report, yet again, that it had earned substantially less than first
reported. This time the problem wasn’t fraud, but poor accounting controls. To no one’s surprise,
Wall Street hammered Nortel’s stock price. Soon after, shareholders who had seen the value of
Nortel stock lose $30 billion brought two class-action lawsuits against the company, seeking $9
billion in damages. The lawsuits, if successful, would put Nortel out of business. The mounting
problems had demoralizing effects within the company; the percentage of employees highly
satisfied with their jobs dropped from 51 percent before to 40 percent after. With Nortel needing
to get better fast, Zafirovski started by dealing with the large problems that demanded immediate
action. First, the company publicly admitted the accounting errors and released new financial
statements. It severed its relationship with the accounting firm which had audited its books for
more than a decade. Then Mike invited the attorneys from the lawsuits to work directly with him
and a small team of Nortel managers by using a court-appointed mediator to work toward a
settlement. Zafirovski apologized for Nortel’s errors, saying, “We let you down.” He asked them
to “not kill the company,” because in doing so, “you would receive absolutely nothing.” His
apology worked. By the next morning, Nortel had agreed to partially compensate shareholders for
their losses by paying $2.4 billion in cash and stock. The shareholders involved in the lawsuit
accepted the settlement, which allowed Nortel to stay in business. But, to pay the settlement,
Zafirovski had to address his second large problem. Nortel, the only unprofitable company in its
industry, was running out of cash. Mike’s job as CEO was to persuade skeptical financial
companies to lend Nortel $2 billion to keep the company afloat. So he traveled to seven cities in
one week to try to convince them that Nortel was worth the risk, even though Nortel hadn’t had
positive cash flows for more than six years. Said Zafirovski, “I could see the skepticism on their
faces. It was pretty tough.” He obtained the $2 billion in loans, but only after agreeing to pay a
high interest rate of 10.75 percent. With billions in losses, improving efficiency was one of
Zafirovski’s most important goals. To decrease costs by $1.5 billion, he slashed bureaucracy,
reducing the number of management layers from ten to seven, cut administrative expenses,
reduced spending on research and development, and slashed the overall number of parts used in
its products. And, while it was difficult to do, cutting retirement pensions and health care costs
saved Nortel $100 million a year. At the time this was written, things had begun to improve for
Nortel. Customers, for example, reported a dramatic 20 percent increase in satisfaction over a six-
month period. That coincided with a 17 percent increase in sales and Nortel’s first quarterly profit
in years. But, Zafirovski knows that a complete turnaround will take time, most likely three to
five years. After a year in the job, what did Zafirovski have to say about his transition as a new
CEO? “I have been stretched beyond what I thought I was capable of. It's difficult to have an
appreciation for all these pressures and expectations unless you've experienced them before.”

1. Refer to Nortel. Which traditional management function will be the key in ensuring that Nortel
reduces wastes, decreases costs, and still operates efficiently?
a. organizing d. motivating
b. leading e. controlling
c. goal setting
2. Refer to Nortel. As CEO of Nortel, Zafirovski:
a. is responsible for developing employees' commitment to the company's performance
b. monitors and manages the performance of subunits and individual managers who report to
them
c. is responsible for setting objectives consistent with organizational goals
d. teaches employees how to do their job more efficiently
e. coordinates and links groups, departments, and divisions within a company
3. Refer to Nortel. What specific role did CEO Zafirovski assume when he told the board of
directors that
it was necessary to restate Nortel's earnings for the third year in a row?
a. figurehead d. resource allocator
b. monitor e. spokesperson
c. disseminator
4. Refer to Nortel. What specific decisional role did CEO Zafirovski assume when he convinced
skeptical financial companies to loan Nortel $2 billion?
a. decisional d. liaison
b. conceptual e. negotiator
c. interpersonal
5. Refer to Nortel. What skills did CEO Zafirovski primarily use to convince financial institutions
to loan Nortel money even though the company had yet to show a profit?
a. decisional d. informational
b. conceptual e. motivational
c. interpersonal

ESSAY

1. Compare and contrast the managerial roles of liaison, spokesperson, and negotiator. Explain
both the similarities that link these roles behaviorally, and the differences that are used by
Mintzberg to differentiate them.

2. Compare and contrast the relative importance of the four characteristics that companies look
for in managers as they rise through the management hierarchy. That is, describe the similarities
and differences in these characteristics among lower, middle, and upper-level managers, and
explain the reasons for the differences.