Table of Content

Chapter
1.0
2.0
3.0
4.0
5.0
6.0
7.0

1.0

Title

Page
2
2-5
5-24
25-29
29-30
30
31

Summary of the Case

Main Issues
SWOT Analysis
Solutions
Recommendations
Conclusion
References

Summary of the Case

Calveta was founded by Antonio Calveta and it was built on Antonios passion for food and
traditional family values. Calveta was a $2 billion, privately held firm that managed food
1

service operations for nearly 1,000 senior living facilities in the United States. The restaurant
began in 1966 as a neighborhood restaurant in Brooklyn, featuring old family recipes and
subsequently branched into second and third branch. Calveta was able gain access into the
senior market in 1972 through Antonios church parish who introduced a nursing home
manager that managed the Bushwick Senior Home. Calveta attracted the senior home folks as
they offer better food which is not only more nutritious but within their allocated food
budget. Services were offered with a higher-quality food in addition of a more personalized
service. Calveta employed 15,000 people which consist of 500 workers that worked in the
companys Brooklyn HQ. Staff operated all aspects of resident dining facilities including
menu development, meal preparation, service and implementation of special programs such
as themed dinners and family events. After Antonios retirement in 2007, succeeding 35 years
of leadership, Antonios eldest son, Frank was nominated as the CEO. Frank was entrusted by
his father to double up the companys revenue within 5 years.

2.0

Main Issues

Frank, as the new CEO was requested to double the companys revenues within five years, of
which 2 years have passed without any credible strategy adopted yet. He did not want to
disturb the special company culture or risk their reputation for quality food services on the
race to double the revenue. Now he finds it difficult to carry out his fathers directives. The
humanistic and emphatically pro-employee company culture should not be disturbed while
the growth strategy takes place. Currently, he is in a dilemma whether to expand beyond the
SLF market and he is worried if he could continue to maintain the quality level, for which
Calveta is renowned, in this process. In order to increase the revenue as promised to his
father, Frank has to consider growth strategies for his organization. He has a few strategies in
his mind and has to work on them to see which one brings the maximum benefit and fulfils

his needs aptly. The strategies that he has in mind are either to continue in the existing
situation itself or introduce it to the hospital segment. He also has thought of taking up Great
Southwest Dining Service (GSD) which was situated in Phoenix and bringing a change to the
organization structure as a whole.
i.

Continuing the existing business

The advantages of this strategy are as follows:
There is less risk as their running in the same status as before.
They would not be incurring any additional costs.
The reputation of the organization will not be lost.
The provision of customized service intertwined with the quality of food
remains constant and it will also not be affected.
The organization will be able to uphold its own culture which was being
followed traditionally.
The disadvantages of this strategy are:
Any kind of growth or introducing itself to new markets would be restricted in
choosing this strategy.
A very less chance of meeting the targets that are put across.

ii.

Spreading its business to hospital segment

The merits on choosing this option are mentioned below:
The hospital segment presented a more logical fit with Calvetas core
competencies
Hospital administrators might perceive Calvetas skills at cost control as a
means to containing expenses.
Trends toward the provision of fresher, more healthful menu offerings for both
patients and visitors would also work in Calvetas favour.
Customers from the hospital segment would accept Calveta Dining Services as
that of the residents of SLF without much hassle.
The demerits on choosing this option are mentioned below:
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 The culture of the company might not be maintained as it gets mixed with that
of the hospital demographic.
There are entry barriers in the financial point of view in this segment.
The organization cannot estimate or forecast its growth beforehand.
It could also affect the reputation that the company has been having for a long
iii.

time.
Acquiring GSD and restructuring the organization
The pros of the company on taking up this strategy are as follows:
There are more chances of reaching the targets and obtaining desired market
attraction in this strategy.
Its geographical coverage did not overlap with that of Calveta, which will
increases its market and also coverage.
GSD is presently in a good position, when the revenue generation is taken into
consideration.
Calveta would attain a great deal of customer potential as it was maintained by
GSD.
The organization hierarchy could be restructured so that it could accommodate
significant growth while preserving the companys core values.
The cons of the company on taking up this strategy are as follows:

They will have to face a huge risk.

GSD had labour problems and substantial turnover in their management ranks.
Spreading the company may reduce the quality of service.
They will have to bear heavy debts.
GSD was barely running in a profitable manner but it seemed to have a great
potential.

3.0

SWOT Analysis

By evaluating Calveta Dining service, many of the strengths write out as a result of the
Calvetas culture, which focuses on the high standard calibre food and customized services.
Basically, the high- superior food with more alimental enables the association get high ratings
from SLF residents and managers. Considering the health reasons of their customers, the

older people, Calveta admits fresh ingredients at a disgrace of monetary value, which creates
a vital advantage over competitors who impart canned ingredients. In addition, the
customized services and continuous innovations of Calveta satisfy the customers need by
building food service teams and a variety of menu offering in each facility. In addition,
Calveta allows their customers to pre- drift their menus and personalize service so that the
customers feel contented. The third strength is that the unique human resource culture with
the company motivates employees successfully by implementing pay-for-performance plan,
wide-ranging training program, and the career proficiency program and among others. The
employees are highly motivated by act of great opportunities to be promoted and receiving
generous benefits. Cost-control model helps Calveta indicate the contracts at a low price and
therefore provides a lower price to customers. This mode yields generous cost which
proceeds to deduce cost of food through deterring wastes. Calveta has a great disadvantage
on the organisational body structure caused by the instruction execution of career progression
programs, which encourages prevalent promotions and job positions. Even though the
program is an effective mode to motivate employees and achieve quick development, the
frequent change in management teams harms the service quality and efficiency as well as
increases the employees dissatisfactions on the stressful organizational structure. Also,
multiple management levels inward the organization keeps the managers apart from
customers and frustrates the efficiency of communication, which raises concerns on customer
care.
3.1 Strength
Family business

Stability: Family position typically determines who leads the business and as a result
there is usually longevity in leadership, which results in overall stability within the
organization.
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Commitment: Since the needs of the family are at stake, there is a greater sense of
commitment and accountability. This level of commitment is almost impossible to
generate in non-family firms. This long term commitment leads to additional benefits,
such as a better understanding of the industry, organization and job, stronger customer
relationships and more effective sales and marketing.

Flexibility: Family members are willing to wear several different hats and to take on
tasks outside of their formal jobs in order to ensure the success of the company.

Long-term Outlook: Nonfamily firms think about hitting goals this quarter, while
family firms think years, and sometimes decades, ahead. This patience and longterm perspective allows for good strategy and decision-making.

Decreased Cost: Unlike typical workers, family members working at family firms are
willing to contribute their own finances to ensure the longterm success of the
organization. This could mean contributing capital, or taking a pay cut. This
advantage comes in particularly handy during challenging times, such as during
economic downturns, where its necessary to tighten the belt or personally suffer in
order for the business to survive.

Employee Development
Uncover Employee potential: Calveta allows their employees to attend programs that
might help them spot the leaders of tomorrow within the current work force. Some
workers just need someone to believe in them, and by developing their skills, it will
show them that the company is investing in this belief.

Out with the old- Training the employees will give them the chance to understand the
latest developments and trends within the food & dining industry. Whether it is new

machinery or new social media tools, the world is constantly developing. If Calveta
helps their employees keep pace with these changes the company will definitely set it
apart from their competitors. Learning to use new tools and develop new strategies in
developing dining services will allow the staff to take on more challenging work and
even higher roles within the business.

Lifelong Learning: By developing the skills of their workforce through leadership

programs they breed within them a spirit of lifelong learning. Within the ever changing
world of technology and business there is always something to learn. Lifelong
Learning will encourage independent learning in the individuals to develop themselves
in a variety of subjects and fields; it will establish a love for learning and selfdevelopment.

Increased Productivity: It is only natural that leadership development and training

will lead to increased productivity. Not only will the staff be able to do more and
understand more, but they will have gained confidence within their tasks because their
skills are developed.

Understand the Expectations: Development and training programs will provide the
owner or manager of the company, with some insight into the expectations that the
employees might have. This way, Calveta can minimize their feeling of
disappointment and increase their loyalty by managing these expectations.

Revise vision and goals: Leadership Development programs and training

opportunities are also the perfect setting to remind the employees of the long term
goals that the company tries to achieve.

High revenue
Profit can be used to pay higher wages to owners and workers(though if firm has
monopsony power, the profit may not be shared equally amongst workers)

Profit can be used to invest in research & development to improve menu & dining
services. This investment can potentially benefit consumer.

Profit enables the firm to build up savings, which could help the company survive an
economic downturn which is susceptible to take over. If profit is low, shareholders
may be disappointed in the low level of dividends and willing to sell to a takeover bid.
Effective Cost Control Model
Lower Expenses: The chief benefit of cost controls is that they lower the company's
overall expenses. By limiting the amount of money employees can spend, the
company places a cap on how much money can go out the door. This allows the
company to keep more cash on hand, or to invest larger amounts of money in other
ways, such as in capital expenses or paying down debt.
Less Abuse: In addition, by placing limits on how much money employees are
allowed to spend, the company is taking steps to limit potential abuse by employees.
If an employee is given a strict limit as to how much he can spend on a particular
expense, he may be less likely to spend money on unapproved activities, as he will
not be able to meet his primary tasks.
Better Records: An ancillary benefit of cost control is that it facilitates accounting and
helps financial planning by setting a limit on a company's costs. By knowing how
much the company will be spending in a particular period, managers can better plan a

budget. In addition, once the money has been spent, it will be easier for accountants
and planners to determine how the money was spent.
Customer focus
A customer-centric focus helps throughout the marketing process, which includes
product research and development as well as promotional communication. A
customer-centric focus typically leads the company to maintain a closer contact with
core customers. Focus groups and other research methods are used to maintain
awareness of customer feedback on food, services and desires for improvements.
Tailoring menu and services to fit the strongest desires of the target market helps
Calveta establish a more marketable product concept. Strong familiarity with the
needs and desires of their customers helps them better promote Calveta brand's value
proposition. Effective research gives them a better understanding of what food &
service features and benefits are most valued, as well as which messaging strategies
and techniques will have the intended effect. Customized solutions that align well
with a particular customer's interests usually carry greater weight than more massmarketed food or services with little direct appeal.
Innovative
By being innovative, Calveta generally employ a large number of creative and
competent individuals who can not only introduce new menus, but also see it through
to completion. Calveta often employ large numbers of people who oversee all stages
of menu development and ensure the menu's success in the market through a process
of conceptualization, design and implementation that results in a finished menu that is
highly desirable to consumers. Calveta also have the advantage of experience on their
side. They typically get the process of menu development down to an exact science
9

that can repeat over and over again. Their ability to repeat this process with efficiency
generally sets them apart from other companies that try to create new menu &
services for the first time.
High Quality of Service
Quality customer service is the key element required for a successful business. In this
customer driven market, where competition is becoming stiffer day by day and critical
deadlines are rife, one cannot think of business growth without exceptional customer
service. Quality customer service can benefit Calvetas business in countless ways and
by observing the importance of customer service measures can be taken to provide
consumers with a positive experience as they tend to discuss it in their social network,
which leads to direct publicity and increased popularity of an organization.
Satisfied Shareholders: Satisfactory response from consumers means increased
sales, which ultimately leads to increased satisfaction of shareholders. They tend to
invest more in the organization, which can dramatically improve the ROI of Calvetas
business.
Successful Business Strategies: Encouraging consumers for feedback and comments
is an integral part of quality customer service. Following consumers feedback for
analyzing the strengths and weaknesses is probably the best way to understand the
expectations of consumers and adopt successful business strategies.

3.2 Weakness
Easy entry into market
The disadvantages:

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 No Scope for economies of scale because of the high number of firms.

Lack of supernormal profits may mean the investment of Research and Development
(R&D) is unlikely.
With perfect knowledge there is no incentive to develop new technology because of
the ability to share in reality it is more about theory rather than practical. This creates
extreme spectrum of market structure.
Internal Managerial Conflict
Conflict within the organization causes employees to become frustrated if they feel as if
theres no solution in sight, or if they feel that their opinions go unrecognized by other
employees. In this scenario there is contradicting opinion between the CEO, Frank & his
sister Jennifer who is the COO. Jennifer is convinced that preserving the company culture
& achieving such aggressive growth was conflicting objectives and she rather save the
culture than progress too rapidly into new business. Frank in the other hand is ready by all
mean to go against the companys culture to fulfill his fathers request
As a result, the company employees become stressed, which adversely affects their
professional and personal lives. In some instances, employees may avoid meetings to
prevent themselves from experiencing stress and stress-related symptoms.
Decrease in Productivity: When the organization spends much of its
time dealing with conflict, employees take time away from focusing on
the core goals they are tasked with achieving. Conflict causes
employees to focus less on the project at hand and more on gossiping
about conflict or venting about frustrations. As a result, organizations
can lose money, donors and access to essential resources.
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Employees Leave Organization: Organization employees who are

increasingly frustrated with the level of conflict within Calveta may
decide to end their tenure. This is especially detrimental when
employees are a part of the executive board or heads of committees.
Once employees begin to leave, the organization has to recruit new
employees and appoint acting board staff.
Misfit between core competencies & growth strategy
Core competencies of Calvetas are based on Antonios Way which is by offering
highest quality food & personalized service. Charges are made based on the budgets of
the SLF clients and the company. Calveta is constantly innovating and developing new
service features in the menu. In addition, Calveta is very concern on developing every
employee to his/ her potential. As whole, Calvetas aspiration is to profitably grow and
generate funds for future growth. Basically, its important for Calveta to keep high
standards with ongoing innovation strategy with no debt policy, with internal promotion
& staff training and employee satisfaction survey. However, the company struggles to
find growth strategies which fit core competencies well because it is pigeon holed, lacks
of infrastructure and cash management process is contrary to growth goals. Calveta
competency is focused on employee development thus hindering acquisition. Not only
that, competitors usually use contradicting business structure making the process more
difficult. Internal hiring managers are also regularly re-assigned. Due to expansion, core
values suffer and threats from competitors are also inevitable besides the fact that there is
a need for low cost services in the economic climate.

Excess Turnover

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Excessive turnover decreases the overall efficiency of the company and comes with a
high price tag. Each employee who resigns costs the company money. All of the money
invested into that employee through training, education and licensing walks out the door
with the employee. When they hire a replacement, the company spends money on those
same areas to prepare the new hire for the position. Calveta also pays to advertise the
vacancy and may incur costs for drug testing, physicals and moving expenses. The
company could pay 1/3 of the yearly salary of the new employee in costs.
High turnover rates cost the company time in addition to money. Managers or human
resources staff spends time conducting exit interviews, advertising the job, recruiting
candidates and interviewing. Supervisors and colleagues are often left to cover until a
new employee is hired and begins working. The new employee may take several months
to fully learn the job and achieve competency in the position. When the staff changes
frequently, the employees who stay have a difficult time building a positive team
dynamic. A group of employees learns to work well together, only to have one or more
members leave. This leaves the staff in limbo until a new employee starts. The personality
and work ethic of the new employee may vary significantly from the previous employee.
High turnover can hurt overall morale of employees.
Productivity: The overall productivity of the workplace tends to
decrease with high turnover. Since a new employee has a period of
adjustment, he/she won't complete tasks as quickly as the person
replaced. Group projects that rely on the new team member may slow
down, which affects experienced employees' productivity levels. The
loss of momentum when an employee resigns may also affect morale.
Little risk tolerance
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Risk tolerance is an important component in business. Calveta should

have a realistic understanding of its ability and willingness to stomach
large swings in the value of its business. Calvetas risk tolerance
generally is driven by its objectives and stakeholder expectations,
ranging from value protection (generally lower tolerance levels) to
value creation (generally higher tolerance levels). Tolerances are also
highly dependent on how well capitalized or financed the organization
is. It may be more averse to market fluctuations and greatly influenced
by legal and regulatory requirements. Operating within risk tolerances
provides the management greater assurance that the company
remains within its risk appetite, which, in turn, provides a higher
degree of comfort that, the company will achieve its objectives. Risk
tolerances will naturally develop from the companys overall risk
appetite, but they also need to be in line with their goals. Calveta
might define a very low tolerance for customer dissatisfaction, but
since they are attracting lots of high cost customers, then this policy
isnt in line with a discount business model. When risk tolerances are
aligned with both overall risk appetite and strategic goals, they will
both improve risk mitigation effectiveness and contribute to achieving
Calvetas strategic goals.
Inefficient internal communication
The majority of internal problems in the organization are directly related to poor internal
communication management. Not solving them in time ends up affecting other areas of
the organization and can result in bad feeling and weak relationships among the

14

employees. If the company does not communicate properly, discourse is lost and the
strategic lines become unclear. If there isnt good communication among employees, each
will understand things in their own way and the lack of a common discourse will confuse
the employees. If the employees feel that they are not informed about what is happening
and that their opinions and ideas dont matter, they will lose interest and passion for what
they do; and this will make them less productive.
3.3 Opportunity
Hospital Market
The sustainability movement has hit health care, as hospitals are making great
progress toward establishing healthier, more sustainable foodservice for patients and
their families. Many of these green efforts are influenced, at least in part, by the
Healthier Hospitals Initiative (HHI), a national campaign to improve environmental
health and sustainability in the health care sector. Healthier food is one of six
challenges that form the basis of the HHIs campaign, providing resources, insight,
and support any hospital or health system can adapt to develop sustainable
foodservice programs. Cleaning Services for Hospitals and SLFs can be potentially
run as an outside subsidiary.
Expansion into other regions
New Customers: A primary benefit of business expansion is the ability to attract and
retain new customers. When Calveta adds new menus to their portfolio or move into
new markets, they can bring in previously untapped customer markets. Reaching out
to these new customers with expansion is one thing, but capturing them for long-term
relationship building is primary. Growing a loyal customer base is the best way to
achieve stable and growing profits over time.
Economies of Scale: If Calveta expands their business they will spread the risks of
doing business and reduce the potential of one menu or one poor decision damaging
their business. Operating in multiple markets or in many areas also allows them to
15

spread the costs of doing business across more markets or customers. This makes the
costs of doing business less on a per-customer basis, which improves the potential to
profit by adding new customers.
Capital Requirements: A drawback of business expansion is that when the company
invests money and other resources to expand, it has less capital available for other
business transactions. This makes it especially important that they carefully weigh the
market potential of expansion before making the investment. Consider the potential
return on investment from each new market they could expand into before investing
their capital into a path of expansion.
Spread Too Thin: Another risk of business expansion is that they could spread the
company's resources and expertise too thin. Often, getting involved in too many
markets or products can cause the company to spread its abilities out to the point that
it does not perform well in any area. Business expansion only makes sense if the
company has adequate people and resources to cover the new area with expertise.
Market expansion can also occur when they identify new groups of target customers
in their current region. To begin identifying these potential markets, the company
should identify who is currently buying the service. When looking to expand into
different markets by generating new customers, it is important to thoroughly think
about what adding new benefits or features would mean to the company. Same-day
service seems like a great idea on the surface, but providing that service may be much
more difficult than it sounds. The company must logistically provide a same-day
service.
Aging population
Aging population of the Baby Boomers is increasing and by 2030 expected to be 70
million which equates to 20 % of the US population. Capacity rates of SLFs are up to
87.9%. This shows an increasing trend. Hence demand for dining services will
increase as well. According to Medicare & Medicaid Services, there were roughly
18,000 nursing homes in US in 2008.By percentage, 66% of the facilities are operated
16

for profit27% ,as for non- profit7 % were government owned and Out of these
facilities, 55 % were run by large chains. These SLF facilities clearly provide a vast
market for Calveta to acquire dining service business.
Recent health trends and concerns
Socially conscious consumers use their purchasing power to try and improve the
world around them. Their decisions are based on whether a product's positioning on
issues, such as the environment or method of production, aligns with their values,
perceptions or knowledge. They can act on their consciences in positive or negative
ways, either buying a product that meets their beliefs or boycotting a product or
company that doesn't meet their standards. Any While this demonstrates a definite
change in attitude, actual buying patterns in the marketplace indicate that the
percentage of consumers acting on their beliefs is smaller than what is reported,
generally keeping socially conscious products in niche categories.
Given the traction already gained in the marketplace, socially conscious consumption
will likely become more main stream over time. A number of integrated factors will
drive this trend forward: a growing volume of national and international legislation
regarding environmental and social standards; more companies enacting corporate
social responsibility policies as a way to differentiate themselves and their products;
greater public awareness of how purchase behavior links to social issues; and the
growing need for consumers to express their personal values through their buying
patterns. It is important to understand consumer behavior in a potential market to take
advantage of any opportunities based in this trend. Calveta which is interested in
being competitive in this market need to build trust with their customers by providing
reliable and relatable information about the health, social, and environmental benefits
of their products and services that can be verified by an independent source. Labeling
will continue to be the most apparent explanation of why a product's production

17

systems, footprint, packaging techniques, or ingredients are more socially responsible

than those of the competition. However, a variety of other marketing techniques,
particularly social media, will have to be used to promote both the product attributes
and the company's approach to corporate social responsibility to successfully attract
consumers interested in making purchases from this perspective.
3.4 Threat
New Entrants
When new companies enter the market, the variables that influence the performance
of the business will change and Calveta has to react to maintain their position. As the
market changes, they have to take into account the strengths of the new entrant when
forming a strategy to keep their customers. Typical barriers for a market entry are high
capital costs to establish facilities, customer loyalty resulting from special product
features, or economies of scale if existing competitors are large operations. If the
Calveta invests heavily to compete, they have to examine whether they have extensive
capital resources or whether the investment has stretched their capacity. If the
competitors introduce a product similar to Calveta, they have to react. If they are
smaller than Calveta, they will not have the same economies of scale and will not be
able to compete on price. When a new buyer enters a market, suppliers often can raise
prices because of higher demand. The new entrant needs the same materials and
components Calveta does to offer the same kinds of products in the market. If they
can lock in the supplier costs with long-term contracts while the suppliers charge the
new entrant higher prices, they can maintain their pricing structure and compete on
quality and unique features. If the suppliers raise prices, they can reduce inventory
and seek substitutes for the most expensive items. The entry of a new competitor in a
market tends to reduce the market prices. When there are more companies competing

18

for the same market share, customers choose those with lower pricing, and the general
price level goes down. If there is an inherent cost advantages because of factors such
as location, menu design or low labor costs, Calveta can compete on price. If no
competitor has inherent cost advantages, they can compete on price if the financial
resources are higher than those of some competitors.
Possible takeovers
Cons:

Goodwill, often paid in excess for the acquisition

Culture clashes within the two companies causes employees to be less-efficient or

despondent
Reduced competition and choice for consumers in oligopoly markets (Bad for
consumers, although this is good for the companies involved in the takeover)
Likelihood of job cuts

Cultural integration/conflict with new management

Hidden liabilities of target entity

The monetary cost to the company

Lack of motivation for employees in the company being bought.

Takeovers also tend to substitute debt for equity. In a sense, any government tax
policy of allowing for deduction of interest expenses but not of dividends has

19

essentially provided a substantial subsidy to takeovers. It can punish moreconservative or prudent management that do not allow their companies to leverage
themselves into a high-risk position. High leverage will lead to high profits if
circumstances go well, but can lead to catastrophic failure if circumstances do not go
favorably. This can create substantial negative externalities for employees, suppliers
and other stakeholders. Business takeover can have a positive or negative impact on
the labor force. A takeover that is friendly and planned has the potential to benefit the
existing workforce, while one that is initiated by creditors and is unexpected can have
a detrimental effect.
Strong Competition
Competition, according to the theory, causes companies to develop new products,
services and technologies, which would give consumers greater selection and better
products. The greater selection typically causes lower prices for the products,
compared to what the price would be if there was no competition (monopoly) or little
competition (oligopoly).
However, competition may also lead to wasted (duplicated) effort and to increased
costs (and prices) in some circumstances. For example, the intense competition for
new menu development & to offer unique & exceptional dining services may inspire
Calveta to make substantial investments for enhancement which some might not be
recouped, because only a fraction of the effort might become successful.
The negative effects on the business are the following:
Customers: In any market there are a limited number of customers that businesses are
competing for, so the more businesses there are the lesser the market share.
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Resources: Also limited in supply, resources like skilled employees, raw materials and
other resources that might be needed will become more expensive when there is more
competition. Calveta will have to compete to acquire those limited resources making
the resources more and more expensive.
There are many struggles that Calveta will face due to competition within business,
and it has negative effects. Competition can drastically harm Calveta through various
labour costs, production, and price factors. They have to face more and more
businesses and markets and have to worry about trying to beat out their competition.
Consequentially, this also affects Calvetas revenue stream. With all the competition
springing up, Calveta has to, at times; lower their prices just to strike a profit. This is
because sometimes, competition can be so competitive that it can damage the
economy and that particular society in a severe way. This is a potential risk of
harming both the business offering these incentives and its competitors. The risks
associated with the business that offers incentives include offering so much that they
wind-up losing money in the process.
Rising employment & ingredients cost
When the government imposes a higher minimum wage, employers face higher labor
costs and are forced to respond by decreasing other expenses. As these employers
cope with the increased costs of a mandated wage raise, they often respond by cutting
the jobs available to less-experienced and less-educated employees. Not only that
recent steep price increases of major crops (cereals, oilseeds) were triggered by a
combination of production remaining somewhat below trend and strong growth of
demand. A low and declining level of stocks has added to the price rise, as has
probably a significant increase in investments in agricultural derivative markets.
21

Increased ingredient prices will directly force Calveta to increase the food prices
which were eventually result in dissatisfaction among its customers. Hence, they
might resource for services from other dining services that suit their budget. Even
though Calveta doesnt resort to increase the food price, the company might need to
compromise on the quality or the quantity of the ingredients in the menu. Nonetheless,
this might also lead to customer being unhappy and frustrated with Calvetas food &
services. Rising commodity costs are threatening to destroy Calvetas opinion that
they were climbing out of the nations economic woes.
Economic downturn- recession
An economic decline in the United States is pretty much guaranteed to reduce the
income of the business sector. Lower growth leads to lower profits, therefore
dividends decline and shares become less attractive. If the US enters into recession,
firms will experience a decline in profitability. This is because there is a tendency for
price wars to develop in a recession. Low sales encourage firms to cut prices and
falling sales will lead to lower revenues.As sales revenues and profits decline, the
employers will cut back on hiring new employees, or freeze hiring entirely.
Expenditures for marketing and advertising may also be reduced. These cost-cutting
efforts will impact Calvetas business which provides goods and services .When the
company's stock falls and the dividends decline or stop, institutional investors who
hold that stock may sell and reinvest the proceeds into better-performing stocks. This
will further depress the company's stock price. The customers of the company that
owe it money may pay slowly, late, partially or not at all. Then, with reduced
revenues, Calveta will pay its own bills more slowly, late, or in smaller increments
than the original credit agreement required. Late or delinquent payments will reduce

22

the valuation of the corporation's debt, bonds and ability to obtain financing. The
company's ability to service its debt (pay interest on the money it has borrowed) may
also be impaired, eventuating in defaults on bonds and other debt, further damaging
the firm's credit rating and preventing further borrowing. Debt will have to be
restructured and/or refinanced, meaning new terms will have to be agreed upon by
creditors. If the company's debts cannot be serviced and cannot be repaid as agreed
upon in the lending contract, then bankruptcy may ensue. The company will then be
protected from its creditors as it undergoes reorganization, or it may go out of
business completely.
The business may cut employees, and more work will have to be done by fewer
people. Productivity per employee may increase, but morale may suffer as hours
become longer, work becomes harder, wage increases are stopped and fear of further
layoffs persists. As the recession increases in severity and length, management and
labour may meet and agree to mutual concessions, both to save the company and to
save jobs. The concessions may include wage reductions and reduced benefits.
Secondary aspects of the goods and services produced by the recession-impacted
company may also suffer. In an attempt to further cut costs to improve its bottom line,
the company may compromise the quality, and thus the desirability, of its products.
This may manifest itself in a variety of ways and is a common reaction of many big
businesses in a steep recession. As the effects of a recession ripple through the
economy, consumer confidence declines, perpetuating the recession as consumer
spending drops.

4.0 Solutions

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It is understood that Frank is liable to choose any one of the mentioned strategies, so
that Calveta is able to double its revenue by the end of the year 2011. Every strategy
has got its own pro and cons from which a decision had to be made. As all the options
have been analysed, it can be derived that the third alternative is comparatively worth
enough to be used rather than the others. Even though it has to bear huge risks, it
seemed to be having a great customer potential if it could retain its customer accounts.
The problems in taking up the other strategies are cleared out below:

If the company continues in the existing status, it would not earn much of revenue
as such which therefore would make it unable to cover the desired target of
doubling the revenue, even though it had less risk, no additional cost, reputation

and quality of service.

As they have had a previous experience of spreading their company into the
educational segment which turned out to be a failure, it would be better not to

expand them into the hospital segment. It also includes huge risks.
When GSD is taken into consideration, it produced annual revenue of $1.5 billion
and has a growth in revenue. Since it was barely profitable, indirect expenses and
administrative expenses were high in GSD. On using the cost-control system of
Calveta, they could increase their net profit. The calculations are given below as

follows:
Current Ratio = Current Assets/Current Liabilities = 0.993:1
Profit Margin Ratio = Net Income Sales = $65 million / $2021 million * 100 = 3.22%
Debt Equity Ratio = Total liabilities / Total Shareholders Equity =
$272 million / $181 million = 1.50:1
It is evident from the above that the companys ability to meet short term liabilities is
low as the required ratio for the current ratio is 2:1. The companys debt is more than
equity as the supposed ratio to be is 1:1. Its better to increase the share capital than
going for bank loan as the shareholders equity in the organization is low.

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From the case analysed, the third option is chosen wherein Calveta has to acquire
General Southwest Dining Services (GSD) as:
GSD does not generate revenue in a smooth or good manner for which they need

Calveta to join them so that they could use Calvetas cost-control system.
GSD has got geographical coverage which would enhance their strategy and it
could also use the core values of Calveta, so that they could increase the

reputation of the company as a whole.

It is also better to increase the share capital than going for a bank loan, because

the companys financial position is bad.

The employees of GSD have to be provided with training and they also have to
recruit few into the company and restructure the organization by shifting

managers from Calveta to GSD.

A new organizational structure has to be made that accommodate significant
growth while preserving the companys core values. It has to consider in dividing
the sales and operations functions completely, creating additional regions and

districts, and eliminating management levels.

Analysis
The United States Census Bureaus survey showed that only 25% of the total
SLFs in USA had contracted to food services, this survey alone shows that there
is a great potential for growth in the SLFs segment and therefore it would have
been meaningful for Frank to buy Great South West Dining but the eye popping
debt figures that came before him alone are sufficient to say that it would not be a
feasible solution and it would be much better decision for Frank to diversify
Calveta Dining Services by extending to other segments, like providing food
services to the hospitals. Few reasons why Frank should extend to other segments

are.
1. Frank considered moving into the Education Sector, and just because he failed
once it does not mean that he will not be successful in the same sector with better

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preparations to make potential clients believe that Calveta Dining can also cater to

the needs of a young generation.

2. The financial challenges of getting into the hospital segment were there but it

was always achievable.

3. The greatest positive to Calveta Dining Services was the working culture by

which they could prosper in any segment.

Interpretation
The interpretation that can be derived from the above analysis is that it would be
better for Frank to think about diversifying the business rather than acquiring
GSD. Even Frank knew that it was a huge risk to acquire GSD considering the
heavy debt the business would be in after the acquisition, besides Calveta Dining
would find it difficult to train GSD employees to the work culture of Calveta
Dining. Frank should not make this decision only with the purpose of meeting his
fathers goal because this may harm the firm in the long run. Frank had his own
problems organizational restructuring to do for Calveta Dining and in such a
circumstance if Frank acquired GSD then his problem would grow from bad to
worse because it would not be an easy task to change the entire work culture of
GSD within a short span of time, and apart from the debts of acquiring GSD Frank
would also need to generate funds for the training of the staff teaching them
Antonios way. The reason for a few customer dissatisfaction was in the
promotion from within concept of Calveta Dining Service, Calveta dining
promoted their front line employees to higher ranks if they showed outstanding
work skills and dedication which was motivating the employees, but it also meant
that they would be rotated from one place to another which displeased few of the
SLF residents, this could be easily resolved by hiking the salaries of outstanding
employees and still keep them motivated rather than promoting job rotations, and

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also a minor restructuring of Calveta Dinings organizational structure with

dedicated management representatives and area managers for a client.

Synthesis
If Frank were to come up with new strategies for growth only with the intention of
meeting his fathers goal, then in the long run it would harm the business.
Considering the dedicated staff and employees of Calveta Dining, it would be

better for Frank and the business to diversify rather than acquiring GSD
Conclusion
Frank should consider the reviews given by his sister and not make decisions
clouded by his ego and jeopardize the reputation of the company and the special
work culture of Calveta dining Service, Inc.

Analyses of GSD deal specifically cultural concerns:

1. The size of the company would almost double (75% of the current revenue from
$2 Billion to $3.5 Billion). With this size company, the current organizational
structure would be untenable (assuming GSD has a similar structure).
2. Company culture has already deteriorated: Calveta has grown so big that their
training program does not instil the basic goals (Antonios Way) in the new
trainees effectively. To highlight this, over the years, Calvetas President and
CEO met with every new employee. By 2009, with 1,000 management trainees
joining the company in just 12 months, this was no longer possible.
3. Frank already had a growing concern regarding the diversity of skills of area and
account managers. Recent college and business school graduates who entered the
business lacked the industry experience of counterparts who had worked their way
up through the ranks.
4. Jennifer also acknowledged it was becoming harder to find operations managers
who fully embraced Antonios Way.
5. GSD does not have great reputation and has had issues with labour and
management turnover.
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6. Career growth opportunities alienate customers.

7. Within Calveta there seems to be a power struggle between Frank and His sister
Jennifer.

5.0 Recommendations:
1. Combine SG&A and eliminate redundant positions. This would include combining
supply chain, customer service, accounting and IT. All SG&A savings would be
diverted to cultural training in Calvetas 5 basic goals (see step 4).
2. Hand over day-to-day operations of Calveta to Jennifer and have Frank take care of
the GSD operations.

Integrate and significantly reduce current combined

organizational structure by addressing GSDs high management turnover with an

influx of Calveta middle and senior leadership.
3. Use GSD as a growth platform for internal Calveta promotions. This will be a good
way to spread Calveta culture into GSDs operational environment. Bring over
qualified staff from Calveta into GSD operations as temporary (short term)
assignments to help spread the Calveta culture from within. Selected GSD staff is
likewise sent and trained in a Calveta operation, with the plan being that they
eventually return to GSD.
4. Create the concept of Calveta University to help train and integrate GSD employees
and help prevent the erosion to Calvetas culture.

This would include a robust

program centred on continuous improvement training such as a curriculum of: new

hire (3 days), 90-day orientation (1 day), and annual retreats (1 day). This can also
be used to train new hires for GSD and Calveta as well as future growth. Instil the
need for a Division President or above to meet the trainees as a way to replace the
CEO greeting of new employees, which is no longer feasible to maintain.

6.0 Conclusion

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Restructure the organizational structure in order to improve internal communication.

Pursue differentiation focus strategy. Build sustainable competitive advantage by
focusing on core values. Frank is trying to do what is best for his father and not his
business. It is for this reason that Calveta should stay within their niche and continue
to do what has made them successful to date as 75% of the market is still uncontracted.

7.0 References

Philip Kotler et al, Marketing management, An Asian Perspective, 6th edition.

Resources for your business-Putting the focus on your customer(2010)Retrieve

from:www.marketingdonut.co.uk

Employee Development(2012) Retrieve from:www.shrm.org

Employee Development(2012) Retrieve from:www.shrm.org

Four requirements for Effective Cost Control. Retrieved from www.work.chron.com

Business-Competition-The-Good-and-Bad-Effects-for-Businesses-Large-and-Small
(2012) Retrieve from: http://www.businessinsider.com/ikeas-reputation-has-taken-abeating-2013-3.

Consumers

and

Food

Price

Inflation-FDA(2013)

Retrieve

from:

https://www.fas.org/sgp/crs/misc/R40545.pdf

Rising Food Prices: Causes and Consequences-OECD (2012). Retrieve from:

http://www.oecd.org/trade/agricultural-trade/40847088.pdf

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