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- Read the article titled “Multilevel Readiness to Organizational Change: A Conceptual Approach”. Give your opinion on which two (2) means of diagnosing change are most relevant to today’s organizations. What is meant by the term “readiness”?
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Multilevel Readiness to Organizational
Change: A Conceptual Approach
MARIA VAKOLA
Athens University of Economics and Business, Greece
ABSTRACT One area of emerging research focuses on readiness to change, which has a strong
impact on many decisions in a change process such as planning, implementation, communication
and institutionalization. However, the term ‘readiness’ still creates confusion as it is presented in
a simplistic way. This conceptual article aims at increasing our understating of readiness impact
on change success by examining various levels of this concept, namely, micro-individual
readiness, meso-group readiness and macro-organizational readiness, and their dynamics. This
article ends with a discussion of how to create multilevel readiness to change for both planning
and implementing organizational change.
KEY WORDS: Individual readiness, group readiness, organizational readiness, organizational
change, multilevel readiness to change
Introduction
Organizational change is considered an integral part of organizational life.
However, there is evidence that up to 70% of all major change initiatives fail
(Cartwright & Schoenberg, 2006; Washington & Hacker, 2005). A number of
authors have observed that recipients’ reactions to change play a key role in its
potential success (Bartunek, Rousseau, Rudolph, & DePalma, 2006; Oreg,
Vakola, & Armenakis, 2011). In this context, recipients’ beliefs and perceptions
of their organization level of readiness have an impact on their acceptance and
adaptation to change (Armenakis & Bedeian, 1999; Armenakis, Bernerth, Pitts,
& Walker, 2007; Armenakis, Harris, & Mossholder, 1993). As a result, change
initiatives may not produce the intended results because recipients are simply
not ready (Armenakis, et al., 1993; By, 2007; Neves, 2009).
Journal of Change Management, 2013
Vol. 13, No. 1, 96 – 109, http://dx.doi.org/10.1080/14697017.2013.768436
Correspondence Address: Maria Vakola, Athens University of Economics and Business, 76 Patission str, Athens
104 34, Greece. Email: mvakola@aueb.gr
# 2013 Taylor & Francis
Although beliefs, attitudes and intentions are basically the filters through which
individuals decide whether there is a need for change or whether the organization
is capable of implemention, the concept of ‘individual readiness’ as a stand-alone
concept in an organizational context does not appear in the literature. The term
‘readiness’ is used to reflect three different concepts: individual readiness to
change such as confidence in one’s abilities (self-efficacy); perceived organizational
readiness to change, such as confidence in organizational ability to manage the
change; and the actual organizational readiness to change, which is the organiz-
ation’s ability to implement change. Thus, readiness to change is conceptualized
as a broad construct, reflecting a combination of a number of factors that indicate
the likelihood that someone will start or continue being engaged in behaviours
associated with change such as support and participation. For example, an employee
may be more likely to engage in change, if he or she feels ready and willing to
support change, has confidence in his/her ability to succeed in change, perceives
his/her organization as ready and capable of implementing the change, and per-
ceives his/her group or social environment as supportive of such initiative(s).
There are three issues of concern here. First, the literature does not differentiate
between individual and organizational readiness to change, which shows lack of
definitional and conceptual clarity and creates confusion for both research and
practice. Second, individuals are likely to resist organizational change that is
not supported by group norms and expectations (J.N. Cummings, 2004). Although
groups can have a powerful effect on members’ behaviour, beliefs and values,
group readiness to change is neglected in the literature. Third, neglecting the
dynamics between the various levels of readiness contributes to the development
of a partial approach to both theoretical and empirical work.
This article aims to look at readiness using a macro-, meso- and micro level of
analysis, distinguishing between individual readiness to change, group readiness to
change and organizational readiness to change. The macro level refers to an organ-
ization’s capability of implementing change, the meso level refers to a group’s
capacity and decision to support change, and the micro level refers to the individual’s
perception of change (Judge, Thoresen, Pucik, & Welbourne, 1999; Oreg, 2003;
Vakola & Nikolaou, 2005; Wanberg & Banas, 2000). Individual readiness to
change is a critical success factor because ‘organizations only change and act
through their members and even the most collective activities that take place in
organizations are the result of some amalgamation of the activities of individual
organizational members’ (George & Jones, 2001, p. 420). The aim here is to
examine readiness through a multilevel approach trying to define the various
levels and add clarity to their interrelationships and readiness dynamics. This
process is designed to assist change researchers and practitioners in realizing
various levels of readiness in a more holistic way, which will enable them to
design more effective change interventions.
Defining Readiness to Change
According to the work of Armenakis et al. (1993, p. 683), readiness is defined as
the ‘cognitive precursor to the behavior of either resistance to, or support for, a
change effort.’ Readiness is ‘a mindset that exists among employees during the
Multilevel Readiness to Organizational Change 97
implementation of organizational changes. It comprises beliefs, attitudes and
intentions of change target members regarding the need for and capability of
implementing organizational change’ (Armenakis & Fredenberger, 1997,
p.144). This is a widely used definition of readiness to change that does not,
however, differentiate between the three levels of readiness to change – micro-
level or individual readiness, meso-level or group readiness, and macro-level or
organizational readiness to change. The following aims at clarifying these three
levels.
Individual Readiness to Change
Organizational change cannot be effectively implemented without change recipi-
ents’ willingness to change themselves and support the suggested organizational
change programme/initiative. These changes cannot occur if employees are not
ready for it. In other words, individual or organizational change will be facilitated
by a high level of individual readiness to change, which is a malleable trait based
on psychological predispositions and is shaped by the organizational and change
context.
To explain the malleability of the self, social psychologists argued for an
integrationist approach to behaviour, which is based on the view that the self is
influenced by both personality and situational characteristics (Markus & Kunda,
1986). Markus and Kunda (1986) also explained that the malleability of the self
is dynamic, which means that a particular set of traits must be activated when
the person decides to take up a particular role in a situation. In the context of
organizational change, dispositional characteristics, such as openness to change,
self-esteem, self-efficacy, locus of control and positive affectivity, were found
to act as antecedents of positive attitudes to change (Oreg et al., 2011). These dis-
positional characteristics become accessible if they were activated before a change
event, evoked by a past experience (e.g. a past change programme) and if they
have been elicited by the social situation (e.g. the organizational context).
When made accessible, the characteristics are subsequently shaped by situational
characteristics, such as high or low trust, high or low organizational commitment,
opportunities to participate in the change planning and implementation and the
perceived impact of change (for a detailed analysis of the situational character-
istics found to have an impact on change recipients’ attitude formulation, please
see a review by Oreg et al., 2011).
Describing an individual as ready to change means that he/she exhibits a
proactive and positive attitude that can be translated into willingness to support
and confidence in succeeding in such an initiative. The readiness level may
then vary on the basis of the situational characteristics of the change event. To
illustrate, a change recipient may be willing to support change according to
what he/she perceives to be the balance between costs and benefits of maintaining
a behaviour and the costs and benefits of change. This preparation for action/
support depends on whether the perceived benefits of change outweigh the
anticipated risks for change. Individual readiness to change is based on the inter-
action of enduring predispositions and situationally induced responses, which are
affected by individual’s cognitive and affective processes. The outcome of this
98 M. Vakola
interaction will result in formatting supportive or non-supportive behaviour
toward change.
Is individual readiness to change different from resistance to change and posi-
tive or negative attitudes to change? Shein (1979, p. 144) argued that ‘. . .the
reason so many change efforts run into resistance or outright failure is usually
directly traceable to their not providing for an effective unfreezing process
before attempting a change induction.’ Following this argument, Armenakis
et al. (1993, p. 682) explained that ‘readiness for change may act to pre-empt
the likelihood of resistance to change, increasing the potential for change
efforts to be more effective.’ Based on these arguments, resistance and positive
or negative attitudes towards change is considered as an outcome variable of
high or low individual readi
ness to change.
Group Readiness to Change
Group readiness to change is based on collective perceptions and beliefs that: (1)
change is needed, (2) the organization has the ability to cope with change effec-
tively, (3) the group will benefit from change outcomes and (4) the group has
the capacity to cope with change requirements. Group readiness to change
needs to be analysed and discussed along with individual readiness and organiz-
ational readiness for two main reasons: first, following Coghlan’s (1994, p. 18)
argument, which states that ‘articles that focus on how individuals resist change
tend to be deficient or one sided in that they deal with individual in isolation
from the groups with which an individual may identify,’ Thus, individual readi-
ness to change has to be explored along with group readiness to change in the
future. Second, although there are some empirical evidence linking groups and
readiness to change (cf. Pond et al. 1984), there is no clear definition and analysis
of this concept.
On the contrary, groups and resistance to change have been analyzed in the lit-
erature. The work of King and Anderson (1995, p. 167), for example, identified
‘group cohesiveness, social norms, participation in decision-making and auton-
omy for self determination of actions’ as sources of group resistance. They also
identified similar ways in which teams function to resist change, which are
team solidarity, rejection of outsiders, conformity to norms, conflict and team
insight (King & Anderson, 1995, 2002). To overcome this resistance and
prepare teams for accepting organizational change, the change management litera-
ture offers many insights such as getting members directly involved in understand-
ing the need for change, engaging members in understanding their own situation,
creating ownership of the design and implementation phase, and involving
members in the decision-making process (J. N. Cummings, 2004).
Change Recipients’ Perceived
Organizational Readiness to Change
Although perceived organizational readiness to change is crucial because failure
to analyse readiness ‘can lead to abortive organization development effort’
(Beer, 1980, p. 80), little empirical research has focused on this construct (Arme-
nakis, et al., 1993; Eby, Adams, Russell, & Gaby, 2000). An employee’s
Multilevel Readiness to Organizational Change 99
perception of an organization’s readiness may influence their attitude toward
change (Eby et al., 2000). Research shows that positive attitudes to change are
found to be vital in achieving organizational goals and in succeeding in change
programmes (Gilmore & Barneyt, 1992; Iacovini, 1992; Oreg et al., 2011;
Vakola, Tsaousis, & Nikolaou, 2004). By contrast, negative attitudes to change
are associated with lower job satisfaction and organizational commitment
(Schweiger & Denisi, 1991). The perception of organizational readiness is seen
on a continuum ranging from viewing the organization as capable of successfully
undertaking change (high perceived organizational readiness to change) to realiz-
ing that the organization is not ready to be engaged in such an effort (low per-
ceived organizational readiness to change) (Eby et al., 2000).
Is There a Relationship Between Employee Perceived Organizational Readiness to
Change and Actual Organizational Readiness to Change?
An employee’s perception of readiness may be indicative of the organization’s
ability to successfully change (Armenakis et al., 1993). To illustrate, on an organ-
izational level, the organizational culture literature shows that culture, which
reflects a set of beliefs, expectations and shared values, guides the behaviour of
an organization (Hatch, 1993). On an individual level, the study by Schneider
and Bowen in the banking industry (1985) showed that employees’ perceptions
of their organization’s service climate correlate with customers’ perceptions of
the quality of service. Schneider and Bowen (1993) argued that employees’ posi-
tive perception of internal organizational climate reflects on their behaviour, and
as a result, customers report more positive service experience as a result of this
psychological and physical closeness that is involved in service encounter. Betten-
court and Brown (1997) argued that bank tellers perceiving fair pay rules were
likely to receive higher supervisor ratings for extra-role customer service beha-
viours. The argument here is that when employees perceive their organization
as ready to change, this will reflect on their behaviour, thus enabling their organ-
ization to actually implement changes.
Perceptions of organizational readiness to change may be affected by the state
of individual readiness to change. According to Eby et al. (2000, p. 425), ‘an indi-
vidual who perceives him or herself as adapting easily to change may be more per-
ceptive to organizational change efforts and be more likely to view an
organization’s readiness for change as favorable.’ Eby and colleagues continued
providing indirect evidence from Lau and Woodman (1995) who found that indi-
viduals who perceived themselves as having control over a changing situation
tended to have positive beliefs about change, in general, and about their reactions
to a specific type of change.
Organizational Readiness to Change
Organizational readiness to change is seen as similar to Lewin’s concept of
unfreezing (Armenakis et al., 1993). Following this rationale of phases, unfreez-
ing – moving – refreezing (Lewin, 1947), that organizations go through to success-
fully implement changes, the readiness phase involves realizing the need for
100 M. Vakola
change and securing mechanisms, such as communication or culture, that will
support change in the adoption and institutionalisation phases. To immediately
begin doing things in a different way and to use these ways on a permanent
basis may be a shock to the organization. Therefore, a state of readiness needs
to be established in order to ensure that the organization is indeed capable of
undertaking the proposed change successfully (R. A. Jones, Jimmieson, & Grif-
fiths, 2005). Organizational readiness refers to the existing mechanisms, processes
or policies that can encourage or disrupt change such as organizational structure,
culture, climate, leadership commitment, etc. For example, if an organization
wants to change its culture to a more customer-oriented one, a rigid and hierarch-
ical structure and poor communication will most likely hinder this process. These
two elements are signs of an organization low on readiness to change because such
initiatives will not be supported by existing mechanisms.
Exploring Readiness Dynamics
The Relationship Between Individual and
Group Readiness
Kozlowski and Klein (2000) suggested that a lower level individual-based
phenomenon, such as a dispositional characteristic or a psychological state,
emerges into a higher level phenomenon through composition, a linear combi-
nation similar to an additive effect, or compilation, which represents nonlinear
interactive combination similar to dominance. Group dynamics research suggests
that combinations of group member dispositional and other characteristics have
been conceptually associated with group processes and performance (Barry &
Stewart, 1997). For example, George (1990) found that individual characteristics
are associated with the level of positive or negative group affectivity and with the
overall emotional tone of group interaction. Haythorn (1953) also suggested that
groups function more effectively when all members are adaptable and accepting of
others. Teams that do not have disagreeable or introverted members were found to
be higher performing (Barrick, Stewart, Neubert, & Mount, 1998). These findings
indicate that individual phenomena aggregate to form collective phenomena.
Therefore, it can be hypothesized that
Proposition 1: Teams with greater proportion of members with high individual readi-
ness to change will report higher levels of group readiness to change.
The Impact of Group Readiness to Change on Individual Readiness to Change
Following the work of Kuhn and Corman (2003) who suggest not overlooking the
complex interactive forces that influence planned change, it is important to discuss
the impact of group readiness on individual readiness to change. Groups can have
powerful effects on members’ behaviours, beliefs and values, exerting pressure on
members to conform to norms, which govern group behaviour (J.N. Cummings
2004). Group norms are the ‘informal rules that groups adopt to regulate and regu-
larize group member’s behaviour’ (Hackman, 1976) and Bettenhausen and Mur-
nighan (1985) indicated that such norms are one of the least visible but most
Multilevel Readiness to Organizational Change 101
powerful forms of control over individual action and behaviour. For example,
individuals within a social network who claim to be open to new ideas and
accept changes can in fact act against any change if perceived as being a threat
to their existing relations (Macrı̀, Tagliaventi, & Bertolotti, 2002).
Feldman (1984) notes that norms develop in four ways: members carry over
past situations; team members and leaders make explicit statements; critical
events occur; and primacy effects make early patterns difficult to alter. Previous
experiences may influence individual predispositions, and statements are mani-
festations of such. Critical events and primacy effects suggest that initiatives
such as change can have an impact on groups’ level of readiness. Group readi-
ness to change forms as group members collectively acquire, store, manipulate
and exchange information about each other’s attitudes toward change and about
their task, context, process and past behaviour related to change. Through pro-
cesses of interaction, this information is combined, weighted and integrated to
form group readiness. The level of group readiness to change is shaped by
group norms, which have a strong impact on the promotion and adoption of
behaviours within an organizational change context. Therefore, in this concep-
tual framework, it is suggested that group norms will influence and sometimes
shape perceptions, beliefs and attitudes toward change if the individual strongly
identifies with the group. This view is supported by Jimmieson, White, and
Peach (2004) who suggested that perceptions of group norm predicted intentions
only for those employees who identified strongly with their reference group.
Hence, subjective norm, which reflects perceived social pressure to perform or
not perform the behaviour, and is one of the three independent determinants
of the theory of planned behaviour (Ajzen & Fishbein, 1980), should be particu-
larly relevant to both individual and group readiness to change. Therefore, it can
be hypothesized that
Proposition 2: The more favourable the subjective norm with respect to support of
change, the stronger the positive influence on change recipients’ individual readi-
ness to change.
The Relationship Among Organizational Readiness and Individual Readiness and
Group Readiness
Employees’ perceptions and beliefs about readiness may be indicative of the
organization’s ability to successfully change (Armenakis et al., 1993). Research
suggests that resistance is a social systemic phenomenon, which is maintained
by the background conversations of the organizations (Ford & Ford, 2009).
Beliefs and perceptions of organizational readiness to change may be affected
by the state of group readiness to change, which in turn is constantly being influ-
enced by the readiness of individual members. These interpersonal and social
dynamics within one’s work group may impact organizational readiness to
change (Armenakis et al., 1993).
Proposition 3: Organizational readiness to change will be positively influenced by a
high level of individual readiness to change.
102 M. Vakola
Proposition 4: Organizational readiness to change will be positively influenced by a
high level of group readiness to change.
Creating Multilevel Readiness to Organizational Change
Successful change is viewed as dependent on a certain degree of organizational
readiness to change (By, 2007; Madsen, Miller, & John, 2005; Peach, Jimmieson,
& White, 2005; By, 2007). As a result, any change programme may consider diag-
nosing the readiness level and introduce it by a series of steps to create and
enhance individual, group and organizational readiness to change. Rather than
creating readiness each time the organization attempts to implement change,
readiness could be perceived and ‘invested’ in as a constant state, which is con-
ceived as a core competency to cope with continuous changing external, as well
as internal, conditions. Up to now, readiness has been conceived as a pre-
change concern neglecting the need of maintaining readiness throughout the
change process and beyond.
Change readiness should be incorporated at macro, meso and micro levels.
Starting with the macro level, such readiness should be incorporated into the stra-
tegic plan because through the creation of constant change readiness, organiz-
ations gain flexibility and adaptability. Furthermore, it is important to build an
environment of trust, which has an impact on formulating positive attitudes
toward organizational change. At the meso level, high readiness facilitates
change implementation because, through the diagnostic stage, those responsible
for change can create a feasible change plan addressing the organization’s specific
needs. More specifically, at a meso level, change interventions could put emphasis
on creating and fostering favourable group norms through in-group identification.
On a micro level, readiness is a malleable trait and, therefore, can be identified and
developed through employee training and development programmes, in perform-
ance appraisals, and in change agent selection processes, to name a few.
Trust Building
When considering readiness to change, one should look at trust building as a way
of creating readiness and managing change. Trust is not a new concept and it is
found to be positively related with various work behaviours and organizational
results such as sharing of information and participation in task completion
(Mishra & Morrissey, 1990), superior levels of performance, and more positive
attitudes and actions (Dirks & Ferrin, 2001; G.R. Jones & George, 1998; Rous-
seau, Sitkin, Burt, & Camerer, 1998). More recently, trust was identified as the
factor that yielded the strongest relationship with change reactions (Oreg et al.,
2011; Stanley, Meyer, & Topolnytsky, 2005) as it was related with greater accep-
tance and willingness to cooperate towards achieving change (Coyle-Shapiro &
Morrow, 2003; Kiefer, 2005; Wanberg, Kanfer, & Banas, 2000). Organizations
are advised to foster perceptions of trust among employees by encouraging
open communication with emphasis on feedback, accurate information, adequate
explanation of decisions and open exchange of thoughts and ideas (Butler, 1991).
Multilevel Readiness to Organizational Change 103
Managers can consider involving employees in organizational processes,
such as decision-making or determination of work roles, as this is found to
positively influence the development of trust (Whitener, Brodt, Korsgaard, &
Werner, 1998).
Fostering Favourable Group Norms
There is evidence to suggests that change management interventions should foster
favourable group norms and strengthen in-group identification to develop stronger
intentions to support a specific change event (Jimmieson, White, & Zajdlewicz.,
2009; R.A. Jones et al., 2005). In combining with other theories of how to
develop group norms (Feldman, 1984), this finding suggests that it is important
to develop group norms supportive to change. For example, leaders or change
agents need to define the specific role and task expectations to individual group
members. Reducing uncertainty in a context of an imminent change will
support the development of favourable group norms. Also, the first behaviour
pattern that emerges in a group often sets group expectations (Feldman 1984).
If, in the early days of a change programme, speaking up is not encouraged and
organizational silence prevails, then the group will expect that this climate will
continue to exist. This expectation may have an impact on beliefs and intentions
to act. It has to be noted here that the impact of favourable group norms depends
on the strength of in-group identification.
Individual Readiness Profiles
One way of making change efforts more successful is the diagnosis and assess-
ment of individual readiness to change of those involved or affected by the
change. It would be useful for organizations which are undergoing change or
are interested in creating a high state of readiness to assess managers and
change agents for readiness to change. Assessing the dispositional aspect of
individual readiness contributes to creating profiles to select employees for
those positions and assignments that inherently entail changes, or employees
who will become responsible for change implementation in their roles as
change agents, managers and leaders.
Oreg et al. (2011), in their 60-year review of the relevant literature, have ident-
ified a number of dispositional characteristics that contribute to change recipients’
attitude formulation. This information can be used as the basis of assessment,
which will lead to individual readiness profiles. For example, locus of control,
which reflects individuals’ beliefs of their responsibility for their own fate, was
positively related with positive reactions to change (Holt, Armenakis, Feild, &
Harris, 2007; Lau & Woodman, 1995; Naswall, Sverke, & Hellgren, 2005).
Also, higher levels of self-efficacy were associated with increased change accep-
tance (Wanberg & Banas, 2000) and increased commitment to the change (Herold,
Fedor, & Caldwell, 2007). Other dispositional traits identified in this review were
the increased sense of control over the change, which was related with greater
acceptance (Wanberg & Banas, 2000), and positive affectivity was related to
coping with (Judge et al., 1999) and accepting change (Iverson, 1996).
104 M. Vakola
Furthermore, these profiles may be used to identify employees who could
benefit from a training programme in which coping with change strategies will
be the main focus. Training programmes and interventions can be designed and
tailored for individual employees in accordance to their profile. For example, pro-
grammes can include emotions management because managing emotions created
by change, such as excitement and enthusiasm as well as fear, anger and resent-
ment, is fast becoming a necessary tool for change leaders and is a required com-
petency to become a change agent (Vakola et al., 2004). Moreover, individual
profiles based on readiness assessments may support strategy formulation regard-
ing dealing with resistance to change. Employees who do not feel confident about
their ability to perform their job – especially after a change event – may be sup-
ported through adequate training and mentoring before developing symptoms of
resistance.
Diagnosing and Assessing Readiness to Change
Armenakis and Fredenberger (1997) suggested that readiness assessment should
be based on observing, interviewing and administering questionnaires. They con-
tinue by describing how this information can be obtained ‘. . .by asking broad
questions about organizational strengths and weaknesses and employee attitudes
and expectations, followed by more specific probing questions, change agents
can assess an organization’s readiness for change’ (Armenakis and Fredenberger,
1997, p. 144). Although the literature does not support the use of climate surveys
to diagnose readiness levels, practice confirms that external consultants or change
agents use climate surveys as readiness assessment tools. In a change context, a
climate survey is particularly useful because it assesses the current situation
showing the gap between, for example, the existing decision-making practices,
employee responsibilities and information systems, and the future ones that the
change aims at establishing. These results are critical because they show the
level of alignment between the existing and the desired state. Hence, defining
the change action plan. Although climate surveys can give realistic results
about the existing situation, readiness assessment methodology could be enhanced
by adding several scales aiming at measuring specific constructs such as trust,
related to readiness (e.g. L. L. Cummings & Bromiley, 1996). Furthermore,
administering questionnaires specifically designed and validated to measure readi-
ness (e.g. readiness scale developed by Holt et al., 2007) may also enhance the
methodology.
Limitations and Future Research
This conceptual article addresses the need for a multilevel approach to readiness
of change by exploring this concept at a macro, meso and micro level and identi-
fying some of the dynamics among these levels. However, empirical research
needs to take place to assess these concepts and their interrelationships. There
are some important concerns when considering readiness to change. First, it is
important to further clarify and empirically test the relationship between individ-
ual, group and organizational readiness to change and behaviour toward change.
Multilevel Readiness to Organizational Change 105
Second, research is required in order to shed light on and determine whether
individual readiness to change is a malleable trait. This article perceived individ-
ual readiness to change as a malleable trait, which is based on certain dispositional
characteristics, but is shaped and influenced by specific organizational and change
context. Longitudinal studies can clarify and identify which predispositions are
stable over time and which can be conceived as amenable to training.
Third, it is essential to examine the impact of individual, group and and organ-
izational readiness to change, answering critical questions such as: What is the
relationship between individual readiness to change and job performance? What
is the relationship between organizational readiness to change and organizational
effectiveness? Can a lack of readiness to change be added to the list of potential
failure factors in change implementation?
Conclusion
To sum up, in examining readiness to change, researchers and practitioners are
presented with a conceptual article that provides a structure for further understand-
ing the macro, meso and micro levels of readiness to change. Diagnosing, asses-
sing and creating individual readiness for change should be viewed as an integral
part of planning, implementing and evaluating organizational change. Moreover,
creating a multilevel readiness may be the answer to some important phenomena
such as resistance to change. Models and theories of change at a higher level must
be informed by an understanding and analysis of change at macro, meso and
micro-levels.
Acknowledgement
This work was supported by the Athens University of Economics and Business
(Program of Basic Research, PEVE 26/2009).
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Multilevel Readiness to Organizational Change 109
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9B13M09
4
CHARLES CHOCOLATES
Professor Charlene Zietsma wrote this case solely to provide material for class discussion. The author does not intend to illustrate
either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying
information to protect confidentiality.
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University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2013, Richard Ivey School of Business Foundation Version: 2014-11-17
In March, 2012, Steve Parkland started his new job as president of Charles Chocolates (Charles), a
privately held premium chocolate producer based in Portland, Maine. The board of directors had asked
him to double or triple the size of the company within 10 years. Each member of the board and the
management team had a different idea about what Charles needed to do. Parkland needed to devise a
strategy that would fit the company’s culture, and then gain the support of the board, the management
team and the employees.
THE PREMIUM CHOCOLATE MARKE
T
The U.S. market for chocolates was US$19.3 billion1 in 2011, and had been growing at about 6 per ce
n
t
annually. The premium chocolate market ($2.7 billion), which had higher margins, was growing at 10 per
cent annually, and imports of ethically produced cocoa grew by 156 per cent2 as aging baby boomers
emphasized quality and ethics in their purchases. Incumbents such as Hershey’s and Cadburys had
moved into the premium chocolate market through acquisitions or upmarket launches.
About one-quarter of annual chocolate sales typically occur in the eight weeks prior to Christmas.
Twenty per cent of “heavy users” account for more than half of these pre-Christmas sales. These heavy
users tend to be established families, middle aged childless couples and empty nesters with high income
s.
They purchase more high quality boxed chocolate than bars or lower quality chocolate.3
In line with social trends, demand was growing for organic chocolate and dark chocolate due to its heart-
healthy anti-oxidant properties. At the same time, however, large chocolate manufacturers wanted the
United States Food and Drug Administration to redefine the term “chocolate” to allow them to produce
cheaper versions (with less chocolate content) and still call it chocolate. Consumers and employees also
increasingly demanded corporate social responsibility. Chocolate companies were targeted because
1 All currency in U.S. dollars unless specified otherwise.
2 http://www.vreelandassociates.com/us-chocolate-sales-up-6-while-premium-jumps-10/, accessed August 14, 2013.
3 Company insider citing a presentation by Neilson at the Confectionary Manufacturer’s Association conference, 2007.
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forced labor and child labor was still sometimes used in cocoa bean production in West Africa.
Environmental concerns influenced packaging, procurement and operational decisions.
COMPETITORS
Chocolate competitors in the premium chocolate segment in the United States featured strong regional
brands and large international players. Godiva, backed by Nestle, had taken the business by storm with
glitzy packaging, high price points, and widespread distribution among gift retailers. Godiva’s quality
was not as high as Charles, but it obtained about 15 per cent higher price points for standard products on
the strength of its sleek and modern packaging, variations in chocolate molding and coloring, advertising
and distribution. Godiva’s high-end products sold for 200 per cent to 300 per cent of Charles prices.
Lindt, a large Swiss firm, sold mid-quality chocolate bars and truffles broadly in mass merchandisers,
drug and grocery retailers, and their pricing was about 90 per cent of Charles.
Strong regional players included Delice Chocolates and Cardon’s. Delice, based in Providence, Rhode
Island, had 32 retail stores, mostly in tourist and downtown locations in northeastern states, with four
stores in California. The company’s quality was high and it excelled at frequent flavour introductions.
Delice’s copper boxes could be customized at the store. Pricing was similar to Godiva. Cardon’s was a
120 year-old Boston firm with 50 locations nationally, nearly all in malls. Cardon’s was most successful
in New England. It had tried to launch in Chicago, but had not done well there. Cardon’s price point was
about 35 per cent lower than Charles, and it had moderate product quality level. Cardon’s did a strong
business in corporate gifts and group purchases, offering 20 per cent to 25 per cent discounts for high
volume orders.
Other premium chocolate companies included extremely high end custom chocolatiers, Belgian producers
that sold through American retailers or online and niche wholesalers of single varietal bean or organic
chocolates. Other companies commanded price premiums over their quality level because of their
distribution and/or store concept. For example, Dolce Via, which emphasized mall stores, and The Great
American Candy Company, which sold more candy than chocolate and used a franchise model, had
higher price points than Cardon’s but lesser quality.
CHARLES CHOCOLATES COMPANY HISTORY
Founded in 1885, Charles Chocolates was New England’s oldest chocolate company. For the last two
decades (during which time sales had grown by more than 900 per cent), the company had been owned by
a private group comprised principally of two financial executives, an art dealer, and a former owner of a
bus company. These four plus a past president of Charles comprised the board of directors. Charles’ head
office was located above its flagship store in Portland’s Old Port area, a tourist area known for its
cobblestone streets, 19th century buildings, and active nightlife.
Charles produced high-quality, hand-wrapped chocolates including its premier line, Portland Creams,
along with truffles, nuts and chews, almond bark, chocolate-covered ginger, caramels, brittles, and orange
peel in various assortments, bars, nutcorn and premium ice cream novelties. Charles chocolates were of
the highest quality, and the company had many loyal customers around the world. In 2009, the company
won a prestigious Superior Taste Award from Belgium’s Institute for Taste, which described the product
as “classy, refined and elegant,” and “top-of-the-range,” with “rich chocolate aromas.”
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PRODUCTION
Charles chocolates were made in a 24,000-square-foot factory owned by Charles on the outskirts of
Portland. There were 75 retail and 35 production employees, all non-unionized, and 20 employees in
management, administration and sales (see Exhibit 1). Production took place from 7 a.m. to 4 p.m. each
day. With so many different products, batch processing and hand packing were used, and set-up times
were a significant component of costs. Employees learned multiple job functions and enjoyed a variety of
work and tasks. There were no measures of productivity or efficiency in the plant, and thus no way of
telling on a day to day basis if the plant was doing a good job.
Demand forecasting was difficult due to the seasonality of sales, but product shelf life was long (up to a
year), and significant inventories were kept. Nevertheless, there were significant problems with out-of-
stocks each week. The Christmas season was particularly chaotic. The wholesale business required early
seasonal production, whereas the online and retail business required late production. Production planning
was complicated by data distortions arising from out-of-stocks and over stocks. When an item was
produced after being out of stock for a month, filling back orders would unnaturally spike sales, yet these
spikes would be used for production planning the following year. Similarly, when there was too much
stock, the retail stores would push or discount the items, creating distortions in the sales data, which
would be used for production planning the following year. Because out-of-stocks in the wholesale
channel created problems with customers, short supplies were diverted from the company’s own stores
and delivered to wholesalers. Furthermore, when a special order arrived in wholesale, it was not
uncommon for the plant to put production plans on hold to focus on the special order.
The company’s heritage, commitment to quality and strong family values were cherished by employees,
some of whom were third-generation Charles employees. New ideas were often resisted by employee
s
over fears that the company was compromising its values and heritage. Turnover was low, and wages
were competitive. Permanent employees were on a first-name basis with all of the senior leaders,
including the president.
BUSINESS LINES
Charles earned revenues in four major areas: retailing chocolate products through company-owned stores,
wholesaling, online/phone sales and sales from Sandwich Heaven, a well-known eatery in Portland,
which Charles had purchased in 2009.
Retail. Charles’ 11 wholly owned retail stores produced 50 per cent of sales. The stores’ theme was
heritage, and the flagship store had been designated a heritage site. Sales staff offered chocolate samples
to customers, and the aromas and images in the store contributed to an excellent retail experience. In
2005, Charles had won America’s Innovative Retailer of the Year award in the small business category.
Most stores were in tourist locations, such as Bar Harbor, and Boston’s Back Bay and Beacon Hill areas.
Most were leased, though the flagship store was owned. Stores were about 500 square feet in size, with
the exception of the Bar Harbor and cruise ship terminal locations, which were booths. Although other
retailers sold Charles Chocolates, they purchased the products wholesale through direct sales from
Charles. Exhibit 2 shows the store locations and their approximate annual sales. The two newest stores,
Back Bay and Beacon Hill in Boston, were showing steady sales growth in their first two years of
operations, but significantly shy of expectations. The Portland stores benefited from Charles iconic brand
image in Maine.
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Wholesale. Approximately 30 per cent of sales came from wholesale accounts in five categories: 1)
independent gift/souvenir shops, 2) large retail chains, 3) tourist retailers, such as duty-free stores, airport
or train station stores and hotel gift shops, 4) corporate accounts that purchased Charles products for gifts
for customers or employees and 5) specialty high-end food retailers. Some large accounts, including
department stores, gift chains and coffee chains, had been significant Charles customers, but had recently
changed their purchasing to focus either on their own products or on less expensive lines. A salaried
national sales manager based in Boston oversaw eight sales agents across the United States, and a salaried
rep located in Maine. Sales agents had exclusive rights to sell Charles products within their territory but
also carried non-competing giftware lines. Many had been with the company as long as the previous
president, who had established the wholesale division nearly two decades earlier, but contractually, they
could be terminated with 90 days’ notice. Marketing Vice-President Mary Bird said:
Some [reps] perform very well. They cite many challenges with our brand — niche market, high
prices, inadequate shelf life, old fashioned (“not glitzy or fashionable enough”) packaging, and an
unknown brand in many areas. Some reps have stronger lines and just carry Charles as an add-on.
The salaried rep in Maine receives constant requests for our products, as it is our “home turf” and
we do extensive advertising locally for our own stores. In Portland, some accounts will say they
are honored to carry Charles. In other parts of the United States, they have not heard of us and are
dismissive of the products and their price points as they do not understand the brand and the value
of the product. If the remote reps are not well trained, they just cannot present the brand
adequately and sell it.
Retailers typically marked items up by 100 per cent. Charles earned about half the gross margins on
wholesale sales as it did on retail and online sales and the company paid its sales agents approximately 10
per cent commission. There were 585 active wholesale customers in 2011. Of these, 221 purchased less
than $1,000 per year, and another 125 purchased between $1,000 and $2,000 per year. There had been
problems in the past with smaller accounts selling stock past its expiration date. Some wholesale
accounts ordered custom products, such as logo bars for special events. In the past, some regular
customers had ordered with too little lead time, so the plant typically kept some logo bars in inventory for
customers in anticipation of their orders.
Online and Phone. Charles’ online business generated four per cent of sales and its phone business
generated 6 per cent of sales. Sixty per cent of all orders were from regular customers. Average sales were
$138 by phone and $91 from the website. The proportion of people who shopped online in the United
States had grown considerably in the last decade, with about 59 per cent of respondents in a 2012 Neilsen
poll saying they prefer to shop online because of its convenience.4 Charles’ online business had not gone
up with the trends. Orders received by phone, mail or online were processed within three to four days,
then shipped via FedEx. Shipping was free for orders over $500. Orders went to the United States (60 per
cent), Canada (35 per cent) and 50 countries internationally (5 per cent). They were delivered to the far
North, sometimes via dogsled, to lighthouses on both coasts and to Antarctica. Online and phone orders
were given priority for inventory allocation, and stock would be transferred back to the factory from the
retail stores if necessary.
Sandwich Heaven. Ten per cent of sales came from Sandwich Heaven, which featured made-to-order
sandwiches, soups and salads, desserts (including Charles ice cream) and wine and beer. At lunch in the
summer, the lineup regularly extended out the door. Since Charles had purchased Sandwich Heaven, most
of the long term staff had turned over, and recruiting new employees was difficult in Portland’s tight labor
4 http://www.medialifemagazine.com/nielsen-59-percent-prefer-to-shop-online/, posted June 7, 2012.
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market. Sandwich Heaven had had to curtail its evening hours due to staff recruiting problems. Although
Sandwich Heaven had a liquor license, the volume of alcohol sold was very small.
MARKETING
Since Charles’ chocolates were fairly expensive, the company targeted affluent customers for themselves
or for gifts. Cruise ship visitor and other tourists visited the store then often became phone or online
customers. Locals were frequent and loyal purchasers. Local businesses also saw Charles as their
corporate gift of choice. According to Bird:
Our most loyal clients have an emotional connection to Charles. For example, they were in the
Portland store on a holiday, or it was a traditional gift in their family. Many then give Charles as a
gift and some of those recipients then become loyal customers. Other customers are affluent
people who want something unique. They see us as an obscure but classic gift. But how do you
reach these people to promote to them? They are scattered across the United States and of course
they are courted by every advertiser. We cannot make mistakes or disappoint them in any way. If
we do, we apologize and replace the product immediately — good old-fashioned service.
The Charles brand emphasized heritage, with traditional packaging, including pink or brown gingham-
wrapped squares, packed in a burgundy box or tins. Some tins featured old-fashioned scenes such as
English roses, cornucopias or floral arrangements, while others featured American art. Chocolate bars
came in a variety of packaging.
The brand had a very loyal following. Parkland described the brand perception:
When I first began investigating Charles, I asked everyone I knew what they thought of the brand.
Most people had never heard of it. Others said “Oooooh, Charles! That’s the best chocolate I’ve
ever had.” The retail experience is key in creating memories that lead to repeat sales. Through
store décor, sampling, aromas, taste and service, I think Charles delivers “chocolate orgasms” to
its customers.
The growth challenge would be to increase awareness without diluting the brand. The premium price
scared some consumers and wholesalers. Discounting, or making cheaper products to piggyback on the
brand, would risk brand integrity. The brand’s heritage image was an issue. As Charles’ loyal customers
aged, would younger buyers appreciate the traditional image? Bird cited brands such as Chanel and
Lancôme, which had developed classic images and refused to compromise, and brands such as Jaguar,
Cadillac, BMW and Volvo, which had developed a younger, sexier image while maintaining core design
elements to maintain brand integrity.
Charles advertised in tourist publications, seasonal print media and radio spots. Charles also donated
product extensively to charitable events. Direct mail and solid search engine rankings promoted the online
business. Charles’ website was kept basic to make it load easily. It had an ordering facility, a reminder
service that emailed customers about their upcoming special occasions and optimized search engine
placement. The website also had links to resellers, however, the sales agents had not been good about
providing links for their top accounts, as they did not seem to understand the value provided by such
links.
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FINANCIALS5
Charles was in a strong financial position. Although Charles had gone through a period of significant
growth just after the current shareholders acquired the company, growth had slowed considerably in the
past few years. In part, this decline had resulted from the slowdown in tourism since the financial crisis.
In fact, chocolate sales had declined since 2008, though the company’s revenues had grown slightly due
to the contributions of Sandwich Heaven. Margins remained strong, however, at about 50 per cent of sales
on average. Financial statements are shown in Exhibits 3 to 6.
LEADERSHIP
Jim Bell had been president of Charles from 1989 until 2012. When he announced his intention to retire
in 2010, the controlling shareholders (and board of directors) considered selling Charles. It was a healthy
company with significant assets, great cash flow and good margins. Yet the board felt that Charles had
significant potential to grow and sought a new leader (see Exhibit 7). In the two years during the search,
managers knew that Bell was retiring, and decisions were put off until a new leader could be found.
Steve Parkland was vice-president of operations for a meat processing company, in charge of six plants
and approximately 2,300 employees, when he saw the ad. Previously, Parkland had been president of a
seafood company and general manager of a meat processing subsidiary. His career had involved stints in
marketing and sales in addition to operations, and he had an MBA from Duke University. Parkland had an
empowering style and a strong commitment to values and integrity. Charles appealed to Parkland because
he enjoyed the strategy aspect of general management, and wanted to move to New England. He was
offered the job with the provision that he purchase a significant number of shares in the company each
year for the first three years.
The senior management team included three others. Mary Bird, vice-president of sales and marketing, a
Charles employee since 1999, managed the retail stores, developed marketing plans and oversaw the
online and wholesale businesses, Sandwich Heaven, and the ice cream business. She supervised the
wholesale sales manager, the retail operations manager, a communications manager, and the order desk
staff. The product development person and purchasing and sales planner reported indirectly to Bird,
though they worked more directly with Ray Wong. Bird worked long hours at the office and often helped
at Sandwich Heaven when staff didn’t show, or drove product to stores on the weekends when they were
short-shipped. Bird was a shareholder.
Ray Wong, vice-president of production, oversaw production at the factory. Wong earned a bachelor of
food science in 1983, and later took courses in material requirements planning, candy-making, ice-cream
making and management. He had worked in progressively responsible operations positions in a variety of
food and beverage companies prior to joining Charles in 1995. Wong did not own shares in the company.
Wong was especially interested in computer programming, and he had developed all of Charles internal
production planning systems himself.
Sven Amundsen, vice-president of finance and chief financial officer, had retired as chief financial officer
of a bus company in 1996, but joined Charles in 2002 at the urging of his former partner, who was on
Charles’ board. Previously, Amundsen had worked in financial management in manufacturing and retail
after articling as a chartered accountant with Price Waterhouse. Amundsen’s expertise was in
5 All financial figures in the case are disguised.
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reorganizations, acquisitions and dispositions. He maintained Charles books by hand, as he had never
learned accounting or spreadsheet software programs. Amundsen owned shares in the company.
Bird and Amundsen were a cohesive team, but conflict between Bird and Wong had escalated to the
board level during the past two years, as Bird sought to reduce out of stocks and launch new products,
while Wong sought to retain control of scheduling and production. Furthermore, because the wholesale
division was favored by the past president, the wholesale manager in Boston had regularly gone over
Bird’s head to have the president overturn her decisions.
GROWTH OPPORTUNITIES
During the recruitment process, Parkland had been probing the managers and board members to get their
perspectives on growth options. There was a dizzying array.
The idea of franchising Charles stores or Sandwich Heaven had been discussed but not truly investigated.
The online business also appeared exciting, with its low costs of sales, lack of intermediaries, and high
reorder rate. The corporate gift market also seemed promising. Offering discounts of 25 per cent to
corporate purchasers enabled Charles to still earn stronger margins than wholesale, without the costs of
retail. One board member said Charles approach to cruise ship traffic needed to be reconsidered as many
of the passengers were bypassing Charles’ location to visit attractions in other parts of town that were
promoting themselves aggressively on the ships.
There were many other possibilities. Should Charles open more stores in Boston? Or should Charles
extend its product line to take advantage of its strong brand awareness in Maine? Although ice cream had
not been the runaway success the company had hoped, its sales were still building. Another option might
be for Charles to concentrate its efforts outside of Maine. If tourists had stopped coming to Portland,
should Charles go to them? Should Charles increase its wholesale or retail penetration outside of New
England? Would the current sales agency structure be appropriate for increased wholesale penetration?
Should Charles consider an acquisition of another niche chocolate company or a joint venture with
another firm to increase its geographical reach? Were there opportunities to pair Charles chocolates with
other high end brands for mutual benefit?
Charles traditional brand image was also a concern: while it was treasured by loyal customers and
employees alike, it didn’t seem to play well outside of Portland. The packaging had been described as
homey or dowdy by some, yet others were adamant that it should not be changed. Parkland had spoken to
a brand image consultant that had won numerous awards in the wine industry. The consultant had
suggested that the only dangerous thing in today’s market was to play it safe – consumers loved edgy
brands. Should Charles throw off tradition and try to reinvent itself?
Of course, if sales were to be increased, Charles would need more internal capacity to produce products
and fill orders. Should more capacity be added in Portland, with its expensive real estate and significant
shipping costs to reach large markets, or should it be placed somewhere with lower costs and easier
access to markets?
As Parkland pondered all these options, he also knew that he had to take into consideration the culture of
the organization and the desires of the board of directors and owners. Would the current managers and
employees be willing and able to grow the organization? Would the board endorse a growth strategy that
would increase the risk profile of the company? And with all these options, what should Parkland do
first?
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Page 9 9B13M094
EXHIBIT 2: RETAIL STORES SALES IN FISCAL 2007 (ROUNDED TO NEAREST THOUSAND)
Store Date Acquired Approximate Annual Sales Contribution
Margin
Portland Old Port 1885 $2,775,000 45.3%
Sandwich Heaven 2009 $1,598,000 8.9%*
Factory Store 1990 $726,000 36.7%
Boston Beacon Hill Dec. 2010 $686,000 (11.5%)
Portsmouth 2000 $639,000 8.2%
Portland Arts District 1988 $517,000 22.86%
Portland Fore Street 2008 $401,000 29.1%
Boston Back Bay April 2011 $138,000 (22.3%)
Portland Cruise Ship Terminal 2005 $60,000 (Mostly ice cream) 15.5%
Bar Harbor downtown 2011 $42,000 (All ice cream; summer only) 18.2%
Bar Harbor Cruise Ship
Terminal
2010 $35,000 (All ice cream; summer only) 21.1%
*Reflects full costs of expenses to refurbish the store.
Source: Company files.
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EXHIBIT 3: CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
Year Ended
March 31 2011 2010
Sales $11,850,480 $11,991,558
Cost of sales
Amortization of property and equipment 135,385 108,759
Direct labour 1,545,794 1,677,247
Direct materials 1,770,603 2,745,995
Overhead 1,933,306 846,186
5,385,088 5,378,187
Gross profit 6,465,392 6,613,371
Interest income 664 1,610
6,466,056 6,614,981
Expenses
Interest on long term debt 91,465 86,943
Selling and administrative 5,221,520 5,007,145
5,312,985 5,094,088
Earnings before income taxes 1,153,071 1,520,893
Income taxes 261,989 451,567
Net earnings $891,082 $1,069,326
Retained earnings, beginning of year $4,748,611 4,381,155
Net earnings 891,081 1,069,326
Dividends – (701,870)
Retained earnings, end of year $ 5,639,692 $4,748,611
Source: Company files.
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EXHIBIT 4: SCHEDULE OF SELLING AND ADMINISTRATIVE EXPENSES
Year ended March 31 2011 2010
Selling Advertising & Promotion $489,345 $536,886
Bad debts 23,000 12,796
Credit card charges 125,198 125,544
Mail order 118,606 133,081
Office & Telephone 29,975 27,274
Postage and freight 483,003 476,724
Stores: Factory Store 112,885 122,897
Sandwich Heaven 572,495 323,995
Portland Fore Street 75,854 84,047
Cruise Ship Terminals 42,709 38,59
2
Dept. Store Boston (closed in 2006) 3,938 4,058
Dept. Store Portland (closed in 2006) 4,236 2,759
Bar Harbour downtown — 24,179
Portland Arts District 87,103 119,058
Portsmouth 168,157 182,939
Royalties 29,862 31,099
Salaries & benefits 812,269 715,325
Travel 68,364 46,830
Total 3,246,999 3,013,658
Less: postage and freight recoveries 343,116 369,823
2,903,883 2,638,260
Admin Amortization 196,970 135,267
Automotive 28,658 24,404
Bank charges and interest 22,533 20,882
Consulting 102,241 107,379
Foreign exchange -6,272
Insurance 80,704 78,777
Management fees 191,226 183,627
Office supplies and postage 134,159 118,582
Professional fees 42,872 67,952
Rent, property taxes and utilities 61,211 56,815
Repairs and maintenance 18,378 21,105
Stores: Sandwich Heaven 326,901 179,834
Portland Fore Street 26,559 28,159
Cruise Ship Terminals 22,038 26,927
Dept. Store Boston 10,082 18,251
Dept. Store Portland 32,123 37,939
Bar Harbor Downtown 14,647
Portland Arts District 49,849 45,002
Portsmouth 112,450 105,720
Salaries and benefits 810,049 1,030,336
Telecommunications 27,824 32,588
Travel and promotion 27,082 34,692
Total Admin Expenses $2,317,637 $2,368,885
TOTAL S, G & A Expenses $5,221,520 $5,007,145
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EXHIBIT 5: CONSOLIDATED BALANCE SHEET
March 31 2011 2010
Assets
Current
Cash $ 112,185 $ 750,948
Receivables 358,969 461,874
Inventories
Packaging materials 620,452 576,287
Raw materials 169,235 179,119
Work in progress 89,146 66,467
Manufactured finished goods 643,105 692,517
Finished goods for resale 21,878 36,241
1,543,816 1,550,631
Investments 103,136 76,822
Income taxes receivable 127,515 –
Prepaids 84,620 56,566
2,330,241 2,896,842
Property and equipment (see Note 1) 4,364,527 3,922,183
Intangible assets
Goodwill 916,999 916,999
Trademarks 783,596 783,596
Total Intangible Assets 1,700,595 1,700,595
TOTAL ASSETS $ 8,395,363 $ 8,519,620
Liabilities
Current
Bank indebtedness $ 186,929 $ 599,146
Payables and accruals 1,098,232 1,226,570
Income taxes payable – 127,845
Current portion of long term debt 419,971 373,405
1,705,132 2,326,966
Long term debt 1,017,679 1,411,184
TOTAL LIABILITIES 2,722,811 3,738,150
Shareholders’ Equity
Capital stock 32,860 32,860
Retained earnings 5,639,691 4,748,611
TOTAL EQUITY 5,672,551 4,781,471
TOTAL LIABILITIES & EQUITY $ 8,395,362 $ 8,519,62 1DO
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Page 14 9B13M094
EXHIBIT 6: CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31 2011 2010
Increase (decrease) in cash and cash equivalents
Operating
Net earnings $ 891,081 $ 1,069,326
Amortization 332,355 244,026
1,223,436 1,313,352
Change in non-cash oper. working capital (328,344) 350,045
895,092 1,663,397
Financing
(Repayments of) advances from LT debt (349,168) 661,806
Dividends paid – (701,870)
(349,168) (40,064)
Investing
Purchase of assets of Sandwich Heaven – (1,198,500)
Purchase of property and equipment (772,470) (419,307)
(772,470) (1,617,807)
Net (decrease) increase in cash and cash equivalents (226,546) 5,526
Cash and cash equivalents, beginning of year 151,802 146,276
Cash and cash equivalents, end of year
$ 74,744 $ 151,802
Comprised of:
Cash $ 112,185 $ 750,948
Bank indebtedness (186,929) (599,146)
$ 74,744 $ 151,802
Source: Company files.
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EXHIBIT 7: JOB AD
A unique company…….. a unique location……….. a unique opportunity.
Our client, one of New England’s oldest and respected confectionery companies, is seeking a
PRESIDENT to oversee the entire business on a day-to-day basis, and provide the vision and
guidance for long-term success and profitable growth.
Reporting to the Board of Directors, the President will:
� Deliver superior results and guide the organization to improve.
� Develop formal planning systems and ongoing personnel development.
� Oversee the development of business and marketing strategies to maintain market
leadership.
� Provide the necessary leadership to motivate and transform the organization to meet
growth expectations.
� Leads, protects and reinforces the positive corporate culture, and is the overseer of the
ethics and values in the organization.
An executive level compensation plan commensurate with the importance of this role is offered.
An opportunity that blends an executive level position with the lifestyle only Portland can
offer.
CANDIDATE PROFILE:
Given the high levels of autonomy and accountability, the President must display considerable
maturity and business experience.
From a personal perspective, the ideal candidate will be:
� A strong non-authoritative team builder.
� A highly motivated and results oriented self-starter.
� Extremely, customer, quality and safety oriented.
� People oriented with the innate ability to establish a high degree of credibility.
� Capable of providing objective insight in a non-confrontational manner.
The successful candidate will likely be or have been in one of the following positions in a
manufacturing environment:
� President or General Manager
� At a VP level in operations/finance/marketing looking to rise to the next level
While food manufacturing experience would be a clear asset, it is not a pre-requisite. DO
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