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W14003

GENERAL MILLS CANADA: BUILDING A CULTURE OF INNOVATION

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(A)

Ken Mark wrote this case under the supervision of Professor J. Robert Mitchell solely to provide material for class discussion. The
authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised
certain names and other identifying information to protect confidentiality.

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This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
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Copyright © 2014, Richard Ivey School of Business Foundation Version: 2015-05-01

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“I believe that enabling our employees to become more innovative will boost our performance over the
next few years,” stated David P. Homer, president of General Mills Canada, a packaged food firm
headquartered in Mississauga, Ontario. It was September 20, 2010, and Homer was preparing for a senior
management meeting to review the company’s plans for 2011 and beyond. In preparation, he was meeting
with Brad Taylor who moved to the Mississauga office in the summer of 2010 to be General Mills
Canada’s vice-president of Human Resources.
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For four years straight, General Mills Canada had won the coveted Eagle Award, which was a prize given
out by General Mills, Inc., General Mills Canada’s parent company, to divisions with outstanding results.
Against the backdrop of a global recession, fierce competition and complex customer dynamics, Homer
could see that there was a chance that General Mills Canada’s streak of outperformance would come under
pressure in 2011. “There is a risk that General Mills Canada’s growth rate has plateaued,” added Homer.

“We’re not performing at the level I think we’re capable of,” he continued. “I remember being in the same
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situation in Australia, where we had strong competitors and a retail market where two customers controlled
80 per cent of the market. We learned the hard way that we need to have strong brands. We lived and
breathed on whether we were innovative. And innovation is more than just new products.”

Homer was aware of Taylor’s background in the General Mills Innovation and Technology division in
Minneapolis and his experience implementing change programs. He had asked Taylor to assist him in
strengthening the culture of innovation in General Mills Canada. “We need to look at everything we do in a
different light; we need to augment our analytical rigour with judgment and instinct,” said Homer to
Taylor. “We need a stronger culture of innovation and we need it soon. How do we make that happen in
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our company?”

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GENERAL MILLS CANADA

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Founded in 1928, General Mills, Inc. was a global manufacturer and marketer of branded consumer foods
sold through retail stores and a supplier of branded and unbranded food products to the foodservice and
commercial baking industries. It had operations in more than 100 countries and was headquartered in
Minneapolis, Minnesota. General Mills Canada’s sales were generated, principally, through grocery and

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mass merchandiser outlets, including food retailers such as Loblaw Companies Ltd., Wal-Mart, Sobeys
and Safeway. Exhibit 1 provides a short overview of each of these grocery retailers. General Mills
Canada’s sales exceeded $600 million 1 in 2009 and, after years of strong growth, appeared to be slowing.
The company had 550 employees in total, many of whom worked out of its Mississauga head office.

General Mills Canada’s food brands were manufactured or packaged in Canada and the United States, and
inventory was shipped and warehoused in Canada to meet sales forecasts. General Mills Canada carried a

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broad range of products including ready-to-eat cereals; shelf stable and frozen vegetables; dry dinners;
refrigerated and frozen dough products; dessert and baking mixes; frozen pizza snacks; and grain, fruit and
savoury snacks. 2

These products, which included brands such as Cheerios cereals, Nature Valley granola bars, Green Giant
canned vegetables and Old El Paso taco shells and seasonings, generally sold for between $2 to $6 per
item. Each of these products was in mature categories and faced several competitive brands managed by
multinational food companies such as McCain Foods and Pepsico. The market for breakfast cereals was
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typical of the food categories in which General Mills Canada competed. 3

The Canadian Market for Breakfast Cereals

At retail, breakfast cereals were worth US$1.3 billion in 2009, and the market had been stable since 2005.
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In this period the market was growing slowly, Kellogg had nearly 45 per cent of the market followed by
General Mills with just under 25 per cent and Quaker and Post both at under 10 per cent of the market. The
leading firms marketed their products extensively, relying on mass media marketing such as sponsorship
promotions (e.g. Cheerios with the Olympics), television commercials, print advertising and online
marketing.

In the breakfast cereals market, supermarkets and hypermarkets, such as Wal-Mart’s Supercenter food and
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general merchandise formats, accounted for 72.4 per cent of the market, with independent retailers
accounting for 20.3 per cent. 4 One of retailers’ key concerns was maximizing sales per square foot, and it
was not uncommon for the top five retailers to continually request price and promotional concessions from
food manufacturers. To ensure that they retained valuable shelf space in key accounts, brand managers of
cereal products developed promotional events to feature groups of complementary brands, offered
discounts via coupons and introduced variants (larger sizes, for example) in an effort to bring product
“news” to the category. It usually took a breakthrough idea to dramatically boost market share.
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1
All funds in Canadian dollars unless specified otherwise.
2
General Mills, Inc., 10-k Filing 2010, p. 3.
3
All brands and company names mentioned are registered trademarks of their owners.
4
Datamonitor, “Breakfast Cereals in Canada,” June 2010, pp. 14, 34.
www.datamonitor.com/store/Product/canada_breakfast_cereals?productid=MLIP1143-0003; accessed December 15, 2013.

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For example, in the early-2000s, General Mills Canada changed the way it looked at its Cheerios cereal
brand. The Cheerios team was trying to ward off a price war when it came across the opportunity to
improve the value proposition for consumers.

Recognizing that it had access to extensive shelf space, the team began looking at each box of Cheerios as
an advertising vehicle on which advertising could be “sold.” Cheerios began partnering with companies

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interested in reaching out directly to a broader audience — with video game manufacturers, for example,
who were eager to have consumers sample their games. In this case, General Mills Canada would receive a
CD worth $4 to be co-packaged along with a box of $3 cereal, in effect raising the value to the consumer
from $3 to $7. The innovative re-think of the cereal brand’s value to others enabled General Mills Canada
to increase Cheerios’ market share dramatically. This success was copied by competitors, and within a
year, PepsiCo and Kellogg were running their own promotions as well.

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HOMER AND GENERAL MILLS CANADA

Homer was promoted to senior vice-president and president, General Mills Canada, in 2006. He had been
managing director of Australasia, responsible for the company’s operations in Australia and New Zealand,
including the manufacturing, distribution and sales of Old El Paso Mexican foods, Latina and Frescarini
fresh pasta products, Betty Crocker dessert mixes and van den Bergh’s frozen dough products. While
directing Australasia, he led the acquisition of distribution rights for Patak’s Indian foods and Croissant
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King, a local producer of frozen dough products for institutional use. 5

At the time of Homer’s arrival in Canada, the organization was generating single-digit sales growth on
average, outpacing the categories in which it competed. General Mills Canada had a similar culture to its
parent company in the U.S. Midwest: it was a conservative organization with a collegial atmosphere where
consensus and support were essential to moving projects ahead. Given the number of issues that could arise
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from manufacturing, storing and shipping millions of small packages to thousands of retail points of sale,
General Mills Canada had developed a detail-oriented culture where programs were not launched until all
issues had been worked out.

The senior leadership team of General Mills Canada consisted of Homer and seven vice-presidents in the
following departments: Marketing, Finance, Sales, Trade Marketing, Human Resources, Consumer
Insights and Supply Chain. One of Homer’s first tasks was to review General Mills Canada’s value chain.
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At that time, the company was a well-performing organization, and Homer was looking for ways to build
on its strength. Homer stated:

The previous General Mills Canada president doubled the size of the company and had so much
familiarity with the brands that she was able to run the new company as she had the old. I was not
able to do that, being unfamiliar with things, so I needed our people to fill the void. Unfortunately,
what we found was that our collaborative culture made it so that everyone owned everything and
nobody owned anything.
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For example, we had supply issues for Old El Paso — we did not have enough product to meet
retail demand. In the old days, someone in supply chain might have said, “But we produced to
forecast, it’s not our fault.” My team helped shift the thinking to the point where they eventually

5
www.generalmills.com/Company/Leadership/David_P_Homer.aspx, accessed December 15, 2013.

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said, “We own this and we’re going to fix it.” This was an epiphany for people. That was an
important part, getting people to know they need to “own” issues that affect the firm.

But the changes were not only focused on logistics: Homer and his team worked with marketing and sales
— the rest of the organization — to improve forecasts, primarily through additional analytical rigour. The
results were positive: General Mills Canada became more responsive to retailers’ needs and stock-outs

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became less of an issue. General Mills Canada improved its overall efficiency, and managers became
attuned to a culture in which detail, especially numbers that drove sales or inventory, was of utmost
importance. A General Mills Canada manager summarized, succinctly: “Homer brought in discipline and
structure and swung us into a position where we are very well run.” In 2010, Homer looked back on the
results with satisfaction and thought about ways to build upon their results.

Another General Mills Canada manager explained: “We have people who can scrutinize an idea from

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several angles and find fault with it. But we’re less good at finding five good ways to improve it, once
we’ve ripped it apart.” Homer stated:

We have senior leaders who are very familiar with the numbers and fairly detail oriented.
Sometimes, however, the numbers are not what we need, despite what people might think. We
need the ideas, and the analytics inform the ideas. People are looking at the numbers to get the big
ideas, but the spreadsheets will not give you the ideas. People are trying to have the analytics
define where the opportunities are, but while the numbers might inform, they do not replace
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intuition. What I worry about the most is what is asked for by the senior level.

Homer was aware that his senior leadership team’s renewed focus on discipline and rigour, over the last
four years, had changed the way General Mills Canada’s management processes worked. There were
changes in how meetings were managed, how executives communicated with each other and the choice of
language used in conversations. Up to this point, innovation had been defined as “ideas that work” (with
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the emphasis on the that work part of the definition). One manager stated: “We might have an idea, but if it
does not have extensive consumer validation or research, meaning that there is no quantitative backup to it,
that’s not good enough. It’s not good enough to feel that it’s a good idea. We need to get to the point where
things are proven before we can back it.”

Following meetings with senior leaders, the marketing team would go back, discuss the feedback, then
return with the same idea and hedge their bets. The marketing team’s takeaway from the meeting with
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senior leaders would be that failure was not an option, any risk would be borne personally and their own
careers would be at stake. “We’re relentlessly results focused,” explained a manager. “We cannot get
promoted unless we have three to four years of consistent results behind us. When we are promoted from
one marketing position to another, our managers will be asking, ‘Did he hit his plan or not?’”

THE FOCUS ON INNOVATION

Over the past few months, there had been an internal discussion of what innovation meant. Innovation was
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already one of General Mills Canada’s four “Fundamental Leadership Expectations,” the others being
“Energizing and Developing People,” “Delivering Outstanding Results” and “Ethics and Integrity.” Some
managers believed innovation was about developing new products or was the exclusive domain of the
marketing department. One disagreed, saying that innovation was about “changes that we can do to things
that can make us better.” Others thought that innovation was developed by a “few creative people, and the
rest of us don’t have anything to do with it.” One manager believed that a company’s culture was either

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innovative, such as the IDEO labs in San Francisco or Google, or it was not innovative. “Do we have time
to be innovative and not just profit driven?,” asked one manager. Another noted that innovation was
something that was being asked of employees on top of what they were already expected to do:

To me, innovation is something that is the flavour of the day. I see our new recruits and we talk to
them about innovation, but I can see in their eyes that all they want to do is get back to their data

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analysis, which takes a lot of time. If we’re expected to learn more about innovation, to be
innovative, will our current workload change? I don’t think so. We’d be expected to deliver our
regular results, our data-intensive answers, and, on top of that, we’d be asked for innovative ideas
to grow the business.

One manager noted that General Mills Canada had a “deck culture,” meaning that managers spent a lot of
time honing their PowerPoint presentations weeks ahead of when they would have to present them. “We’re

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great at death-by-PowerPoint,” he joked. Homer agreed with the assertion that a risk-averse culture was not
in General Mills Canada’s best interest. He added:

If we work in a risk-averse culture, it stifles the ability to try something big. It’s not even just the
big ideas because we might be missing out on the little ideas that, in aggregate, help you make
your numbers. I understand that there is a perception there are both personal [career] and enterprise
risks involved. But even I have had a couple of major failures at General Mills. I don’t know if
failure hardens people, but it should; I survived. My judgment was good, but it just did not work
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out. That has been okay, it has not limited my progression.

Even if he was to explicitly announce changes that focused more on ideas and passion, Homer wondered
whether the message would be well-received by the organization. There would be, he imagined, a fair bit
of inertia and, to put it plainly, disbelief that expectations would be changing. Each individual’s job
encompassed a fair range of activities and required a full day’s work and attention. There was a certain
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level of reassurance in the way the teams were physically organized — marketing in one location,
operations in another, finance in yet another and so forth. Even if individuals left the organization, their
replacements were seated in the same area, reducing confusion for managers used to having to connect
with up to two dozen people on a daily basis as part of their job. This combination of organizational and
physical structure — office location, meeting rooms — had evolved over two decades.

If expectations were to change, there would be a significant amount of confusion, which had the potential
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to have a negative effect on performance. They might think, ‘I used to be rewarded for being buttoned up,
so I’m not sure what do to with this new focus on ideas and passion’. Homer suggested: “Changing the
company takes time, and it has to be done very deliberately. Maybe we already have bold innovators in the
company and we need to recognize their potential.”

Homer looked out at the rows of high-walled cubicles, behind which was the conference room where the
senior management meeting was to be held. With regard to building awareness of innovation and its
benefits, he wanted Taylor to provide feedback and suggestions to the senior leadership team about what
General Mills Canada should do in the next few months. “What are some of the things we can do to make
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innovation part of General Mills Canada’s culture?” Homer asked Taylor. “What processes and tools
would you recommend and why? What would a rollout plan look like? In short, what do we do next?”

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EXHIBIT 1: DESCRIPTION OF GROCERY RETAILERS IN 2009

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Grocery Retailer Description
Loblaw Companies Canada’s largest food distributor operated a total of 1,442 corporate, franchised
and affiliated food and general merchandise stores. Store banners included
Loblaws, Provigo, Valu-Mart, Zehrs, Atlantic Superstore, Dominion, The Real

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Canadian Superstore, Atlantic SaveEasy, Fortinos and other brands. In 2009,
Loblaw Companies had net earnings of $656 million from revenues of $30.7
billion.

Wal-Mart Wal-Mart was a general merchandise and food retailer based in Arkansas. Wal-
Mart Canada had 300 general merchandise and food stores in Canada and was
known to be an aggressive price discounter.

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Sobeys Inc. Sobeys had 1,300 corporate and franchised grocery stores in Canada under
store banners such as Sobeys, IGA, Foodland, Price Chopper and Thrifty
Foods. In 2009, Sobeys had net earnings of $266 million from revenues of $15
billion.

Safeway U.S.-based Safeway was the second largest supermarket chain in North
America, and Canada Safeway, its Canadian subsidiary, operated 200 Safeway
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grocery stores in Canada, mostly in Western Canada.

Sources: www.weston.ca/en/gwl_ar09e/index.html; www.newswire.ca/en/story/617223/loblaw-companies-limited-reports-

2009-fourth-quarter-and-fiscal-year-ended-january-2-2010-results-1; walmartcanada.ca/Pages/History/168/170/170;
www.empireco.ca; www.safeway.ca/community/history.html, accessed December 7, 2013.
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