Odwalla crisis management case study

1. Introduction .......................................................................................... 2
2. Types of crisis ...................................................................................... 3
3. Social media and crisis management .................................................. 4
4. Odwalla crisis management case study ............................................... 5
4.1 Odwalla brief History ............................................................... 5
4.2 Odwalla corporate crisis .......................................................... 6
4.3 So What did the company do? ................................................ 7
4.4 Fixing the Problem .................................................................. 9
4.5 Cost and benefit ...................................................................... 9
5. Conclusions ....................................................................................... 10
References ............................................................................................ 12

1. Introduction
According to the Institute for Crisis Management crisis is:
... A significant business disruption which stimulates extensive new media
coverage. This can result in public scrutiny which can affect the organisations normal
operations and also could have political, legal, financial and governmental impact on
the business.
In Simpler words: crisis is a major unpredictable event that threatens to harm
an operation, reputation or the legal or financial status of an organisation.
There are three most common elements of crisis:


a threat to the organisation;


the element of surprise;


a short decision time.
Crisis management can be defined as a, "Holistic management process that
identifies potential impacts that threaten an organization and provides a framework
for building resilience, with the capability for an effective response that safeguards
the interests of its key stakeholders, reputation, brand, and value-creating activitiesas well as effectively restoring operational capabilities."Essentially, it is the process
by which an organization deals with a major event that threatens to harm the
organization, its stakeholders, or the general public.
Due to the unpredictability of global events, organizations must be able to
cope with the potential for drastic changes to the way they conduct business. Crisis
management often requires decisions to be made within a short time frame, and
often after an event has already taken place.
The study of crisis management originated with the large scale industrial and
environmental disasters in the 1980s.
In order to reduce uncertainty in the event of a crisis, organizations often
create a crisis management plan.
In contrast to risk management, which involves assessing potential threats
and finding the best ways to avoid those threats, crisis management involves dealing
with threats before, during, and after they have occurred. An oil company for
example, may have a plan in place to deal with the possibility of an oil spill, but if
such a disaster actually occurs, the magnitude of the spill, the backlash of public
opinion and the cost of cleanup can vary greatly and may exceed expectations.It is a
discipline within the broader context of management consisting of skills and
techniques required to identify, assess, understand, and cope with a serious
situation, especially from the moment it first occurs to the point that recovery
procedures start.
Crisis management consists of different aspects including:


methods used to respond to both the reality and perception of crises;


establishing metrics to define what scenarios constitute a crisis and
should consequently trigger the necessary response mechanisms;


communication that occurs within the response phase of emergency
management scenarios.
Crisis management methods of a business or an organization are called Crisis
Management Plan. Crisis management is occasionally referred to as incident
management, although several industry specialists such as Peter Power argue that
the term crisis management is more accurate.
A crisis mindset requires the ability to think of the worst-case scenario while
simultaneously suggesting numerous solutions. Trial and error is an accepted
2

discipline, as the first line of defense might not work. It is necessary to maintain a list
of contingency plans and to be always on alert. Organizations and individuals should
always be prepared with a rapid response plan to emergencies which would require
analysis, drills and exercises.
The credibility and reputation of organizations is heavily influenced by the
perception of their responses during crisis situations. The organization and
communication involved in responding to a crisis in a timely fashion makes for a
challenge in businesses. There must be open and consistent communication
throughout the hierarchy to contribute to a successful crisis communication process.
The related terms emergency management and business continuity
management focus respectively on the prompt but short lived "first aid" type of
response (e.g. putting the fire out) and the longer term recovery and restoration
phases (e.g. moving operations to another site). Crisis is also a facet of risk
management, although it is probably untrue to say that Crisis Management
represents a failure of Risk Management since it will never be possible to totally
mitigate the chances of catastrophes occurring.

2. Types of crisis
During the crisis management process, it is important to identify types of crises
in that different crises necessitate the use of different crisis management strategies.
Potential crises are enormous, but crises can be clustered.
Lerbinger categorized eight types of crises


Natural disaster


Technological crises


Confrontation


Malevolence


Organizational Misdeeds


Workplace Violence


Rumours


Terrorist attacks/man-made disasters
Natural crises
Natural crises, typically natural disasters considered as 'acts of God,' are such
environmental phenomena as earthquakes, volcanic eruptions, tornadoes and
hurricanes, floods, landslides, tsunamis, storms, and droughts that threaten life,
property, and the environment itself.
Example: 2004 Indian Ocean earthquake (Tsunami)
Technological crises
Technological crises are caused by human application of science and
technology. Technological accidents inevitably occur when technology becomes
complex and coupled and something goes wrong in the system as a whole
(Technological breakdowns). Some technological crises occur when human error
causes disruptions (Human breakdowns). People tend to assign blame for a
technological disaster because technology is subject to human manipulation whereas
they do not hold anyone responsible for natural disaster. When an accident creates
significant environmental damage, the crisis is categorized as megadamage.
Samples include software failures, industrial accidents, and oil spills.
Examples: Chernobyl Disaster 1986 nuclear reactor accident; Exxon Oil Spill
the biggest human cause environmental disaster that happened at sea 1989

Confrontation crisis
Confrontation crisis occur when discontented individuals and/or groups fight
businesses, government, and various interest groups to win acceptance of their
demands and expectations. The common type of confrontation crisis is boycotts, and
other types are picketing, sit-ins, ultimatums to those in authority, blockade or
occupation of buildings, and resisting or disobeying police.
Example: Rainbow/PUSHs (People United to Serve Humanity) boycott of Nike
Crisis of malevolence
An organization faces a crisis of malevolence when opponents or miscreant
individuals use criminal means or other extreme tactics for the purpose of expressing
hostility or anger toward, or seeking gain from, a company, country, or economic
system, perhaps with the aim of destabilizing or destroying it. Sample crisis include
product tampering, kidnapping, malicious rumors,terrorism, and espionage.
Example: 1982 Chicago Tylenol murders
Crises of organizational misdeeds
Crises occur when management takes actions it knows will harm or place
stakeholders at risk for harm without adequate precautions. Lerbinger specified three
different types of crises of organizational misdeeds: crises of skewed management
values, crises of deception, and crises of management misconduct.
Crises of skewed management values
Crises of skewed management values are caused when managers
favor short-term economic gain and neglect broader social values and
stakeholders other than investors. This state of lopsided values is rooted in the
classical business creed that focuses on the interests of stockholders and
tends to disregard the interests of its other stakeholders such as customers,
employees, and the community
Crisis of deception
Crisis of deception occur when management conceals or misrepresents
information about itself and its products in its dealing with consumers and
others.
Example: Dow Cornings silicone-gel breast implant
Crises of management misconduct
Some crises are caused not only by skewed values and deception but
deliberate amorality and illegality.
Workplace violence
Crises occur when an employee or former employee commits violence against
other employees on organizational grounds.
Example: DuPonts Lycra
Rumors
False information about an organization or its products creates crises hurting
the organizations reputation. Sample is linking the organization to radical groups or
stories that their products are contaminated.
Example: Procter & Gamble's Logo controversy

3. Social media and crisis management

Social media has accelerated the speed that information about a crisis can
spread. The viral affect of social networks such as Twitter means that stakeholders
can break news faster than traditional media - making managing a crisis harder. This
can be mitigated by having the right training and policy in place as well as the right
4

social media monitoring tools to detect signs of a crisis breaking. Social media also
gives crisis management teams access to real-time information about how a crisis is
impacting stakeholder sentiment and the issues that are of most concern to them.
The crisis management mantra of Lanny Davis, former counsellor to Bill Clinton is to
Tell it Early, Tell it All, Tell it Yourself. A strategy employed at the Clinton White
House 1996 1998, to any breaking.
Organisations should have a planned approach to releasing information to the
media in the event of a crisis. A media reaction plan should include a company media
representative as part of the Crisis Management Team (CMT). Since there is always
a degree of unpredictability during a crisis, it is best that all CMT members
understand how to deal with the media and be prepared to do so, should they be
thrust into such a situation.
In 2010 Procter & Gamble Co called reports that its new Pampers with Dry
Max caused rashes and other skin irritations "completely false" as it aimed to contain
a public relations threat to its biggest diaper innovation in 25 years. A Facebook
group called "Pampers bring back the OLD CRUISERS/SWADDLERS" rose to over
4,500 members. Pampers denied the allegation and stated that only two complaints
had been received for every one million diapers sold. Pampers quickly reached out to
people expressing their concerns via social media, Pampers even held a summit with
four influential mommy bloggers, to help dispel the rumour. Pampers acted quickly
and decisively to an emerging crisis, before competitors and critics alike could fuel
the fire further.
There is no truth. There is only perception.

4. Odwalla crisis management case study

Companies can spend years creating a good reputation only to have it
destroyed in a matter of days due to a badly handled issue or crisis.
Issues management looks to resolve potential conflicts before they become
crises. But no organisation, no matter how well organised, can be prepared for every
eventuality, and if a crisis does occur then fast and effective communication is
essential. Due to the nature of modern information technology many issues and
crises can have a global impact, adding to the level of complexity as they then need
to be managed across different geographies, cultures and timelines.
4.1 Odwalla brief History
Odwalla is a juice company with a healthy vision. It was created by Greg
Steltenpohl, Gerry Percy and Bonnie Bassett a few decades ago. Steltenpohl was a
jazz musician and only wanted to make enough money to finance his musical career,
so he began selling his juice to local restaurants, making the juice with a $200 juicer.
During the 1980s, Odwalla began to extend its market and expanded its own
distribution and production capabilities by purchasing other juice companys. In 1983
Odwalla introduced carrots to their market and moved into a larger production facility,
and by 1993 Odwalla went public and offered to sell 1 million shares of common
stock at an initial price of $6,375/share. The proceeds from the IPO were used to
construct a 65,000 square foot production facility in Dinuba, California. Odwalla was
becoming the largest producer of fresh fruit, and vegetable-based beverages in the
western United States.

Perhaps the most essential part of their business model was their claim that
their juice was fresh from the fruit and without the pasteurization process that was
used by other juice producers. In fact, Odwalla was one of the pioneers of a wider
movement in the United States favoring more organic food consumption. Odwallas
founders held the belief that pasteurization, the process of heating the juice to a
certain temperature for purposes of killing any bacteria that had developed during
growing, picking, or processing, affected the taste of the juice and was unnecessary.
Instead, Odwalla used an acid-based rinsing process to kill bacteria. Producing fresh
organic fruit juice as a central component of its business model, Odwalla developed a
loyal following of consumers that desired the freshest juice possible and its sales
grew exponentially. By the mid-1990s, Odwalla was selling nearly $90 million worth
of juice per year.
By the fall of 1996 their sales were $59 million, an increase of 40% from the
previous fiscal year. Odwalla used its market niche of fresh, minimally processed
juice and juice-based beverages to bring them to the top. A gallon jug of juice
would cost the consumer around $5.00; this was consistently purchased because of
the companys total commitment to make a fresh product that was not pasteurized,
which was uncommon in the juice industry. The company was growing with annual
sales approaching $90m. The company had established a strong brand with
enormous customer loyalty.
Odwallas founders were at the forefront of the corporate social responsibility
movement that can be traced to the mid-1980s. Indeed, as one of their founders was
fond of saying, they embraced a Zen-like philosophy in all of their dealings, where
community was an important factor in the equation. The company employed a soil to
soul metaphor to describe its commitment to using fresh organic fruit (soil) to nurture
the body whole (soul) of its consumer. Odwallas reputation as a socially
responsible, growth-oriented company flourished as they received awards from
Business Ethics magazine in 1995 for Outstanding Corporate Environmentalism and
from Inc. magazine in 1996 as Employer of the Year.
4.2 Odwalla corporate crisis
In early October 1996, an outbreak of E. coli struck several West Coast states,
including California and Washington, and reached into western Canada as well. E.
coli is a potentially deadly bacterium that develops as a result of contamination of
food products or processing.

E. Coli is a microscopic rod shaped organism that is common in the human

intestinal tract, it is actually beneficial because it suppresses harmful bacteria and
synthesizes vitamins. Unfortunately, there is a small strain that can cause illness; this
strain is called E. Coli 157:H7. When it is in the intestine it produces toxins that attack
the lining of your gut. Its symptoms consist of: abdominal pain and cramps, diarrhea,
fever, and bloody stools. E. Coli can also cause heart and kidney failure, that is why
this form of E. Coli is deadly to small children, the elderly and those with weak
immune systems. E. Coli can be contracted through different ways, for example bad
meat, fecal contamination and by humans who can contaminate the food by not
washing their hands properly.

Even though Odwallas juice was not pasteurized, they used precautionary
methods to choose their fruit. They did not accept ground apples, only tree picked
apples to avoid contamination. They had inspectors check each bushel of apples and
reject the ones that had any form of ground contamination. In Dinuba, they
thoroughly washed the apples with sanitizing solution using phosphoric acid and
scrubbed each one with swirling brushes.
On the evening of October 30, 1996, Washington health officials contacted
Odwalla, informing them that a link had been discovered between E. coli 0157:H7
and the consumption of Odwalla fresh apple and carrot juice.
4.3 So What did the company do?
Although there was no demonstrable link at this point, twenty minutes after
receiving the news, Odwalla held a press conference to announce a recall of all
products containing unpasteurized apple juice. It also shut down its production facility
and carefully analyzed every point in the process.
The recall amounted to 70 percent of its product line and affected more than
4,600 retail establishments in seven states and British Columbia, in just 48 hours.
This recall cost Odwalla close to 6.5 million dollars, but was completed in two days.
Immediately after the recall, Odwalla was widely praised by the media and
commentators for its handling of the crisis. The company decided that, despite
mounting financial pressures from lawsuits and fines, no employees would be laid off
and that they would continue to donate to community charities.
Within 24 hours, Odwalla discussed the issue with the FDA and Washington
state health officials.
On October 31, Odwalla hired Edelman Public Relations/San Francisco to
manage their crisis communications.

Odwalla expanded its voluntary recall on November 1 to include carrot and

vegetable juice products, which brought the total to 13 juices. They also offered
refunds to anyone who bought the juice, as well as offering to pay medical costs for
anyone who fell ill from drinking Odwalla juice.
On November 3, the company executives defended their sanitation process in
Seattle newspapers. Odwalla launched a second website and used two 800-numbers
(previously created for customers and suppliers, respectively), to offer alternative
sources for recall information.
What Odwalla did not do was try to avoid the liability of the situation. In
interviews, the company expressed sympathy for all those affected and promised
they would pay all the medical bills for anyone who was sick as long as they could
prove it was from the companys juice. The actions that were taken by Odwalla were
simple, they explained and re-explained that the company was doing all it could and
would not rest until this issue was resolved.
The biggest reason that Odwalla was successful was that they had great
internal communications: Williamson conducted regular company-wide conference
calls on a daily basis, giving employees the chance to ask questions and get the
latest information. This was so popular among the employees, that the quarterly
meetings survived the crisis and are still being used today.
Odwallas corporate crisis took a tragic turn when in November 1996, Anna
Grace Gimmestad, a 16-month-old from Evans, Colorado became so sick after
drinking Odwalla apple juice that within two weeks, her kidneys gave out, part of her
brain became clogged with dead blood cells, and her heart faltered, resulting in her
death on November 8. On the day of her death, Odwalla issued a press release
offering condolences to Anna's family. Another same-day press release indicated that
no E. coli bacteria were found at Odwalla's Dinuba plant.
As many as 60 other consumers were hospitalized with E. coli related
illnesses in a period of just one month. At the height of the outbreak, government
investigators confirmed that the Odwalla products were in fact the source of the E.
coli contamination. Odwalla implemented a media strategy including daily statements
to the press, internal conference calls where managers were informed of updates,
and setting up a Web site to disseminate information. Odwalla publicly promised to
pay for all medical expenses of injured consumers and developed through the help of
consultants, effective thermal processes that would not harm the products' flavors
when production resumed.
Even though it was only 1996 and the internet was in its beginning stages as
a powerhouse of info, Odwalla took full advantage of the web to give both the media
and consumers instantaneous access to recall information. The company's crisisrelated site went live within 48 hours of the crisis, and within the first 48 hours of its
existence, the site generated 19,000 hits.
The Odwalla site was well received and appreciated by the media because of
the links to other sites of interest that it prominently displayed, such as the Food and
Drug Administration and the Centers for Disease Control and Prevention.
Crisis sites are not only of interest to reporters, but are also beneficial to
stakeholders such as vendors, customers, employees, and the entire investment
community.
Odwalla's rapid action and constant communication are the likely reasons that
an America Online independent survey found 96 percent of the respondents said
they approved of the way the crisis was handled and 86% said they would continue
to buy its products.
8

The public largely believed Odwallas explanations because its reputation for
social responsibility was iron-clad in its consumers minds. Even the parents of the
child whose E. coli -related death had ignited the crisis were quoted as saying that
they didnt blame the company for her death and that Odwalla had done everything
they could have under the circumstances.
4.4 Fixing the Problem
The next step was to tackle the problem of contamination. The company
switched from unpasteurised juice to a process called "flash pasteurization" which
would guarantee that E-coli had been destroyed without compromising flavor.
After the fallout from the E. coli crisis, Odwalla invested heavily in quality
assurance technology and eventually became an innovator of a flashpasteurization process that killed all bacteria, but kept the fresh taste and quality of
the juice intact. Just two years after the crisis began, the readers of San Francisco
Magazine voted Odwalla Best Brand.
It was widely accepted that un-pasteurized juice had the best flavor. This is
what had originally given Odwalla their competitive advantage. The company, in an
effort to satisfy everyone, introduced a "flash pasteurization" method which would kill
dangerous bacteria while still maintaining a better flavored juice
The flash method affects taste less than traditional pasteurization, which
would entail heating the juice for a much longer period. Williamson said the company
has added several measures designed to enhance safety at its state-of-the-art
plant. Among other steps, Odwalla will spray apples with a neutral detergent and a
chlorine rinse. Fruit will be carted into the facility from outside delivery areas in
special plastic bins. No other bins from growers, packing houses or otherwise will be
allowed inside the plant.
After the outbreak, many experts described the flash pasteurization method
as the most comprehensive quality control and safety system in the fresh juice
industry. On December 5, Odwalla apple juice was placed back on the shelves.
Williamson's statement on how the company initiated their new approach was
enlightening. He expressed how before this event they had no crisis-management
procedure in place, so instead of panicking, they followed their corporate vision
statement and core values of honesty, integrity, and sustainability. And throughout
the entire ordeal, the number one concern was for the safety and well-being of the
people who purchased Odwallas products.
4.5 Cost and benefit
Odwalla is still feeling the effects of the crisis, but its financial picture is
improving. Its products are still on the shelves, customers are coming back, and
stock prices are up, so the companys future looks positive.
Odwallas brand name was decimated by the crisis. Immediately after the
outbreak, Odwallas stock price dropped 34 percent and sales of its juice products fell
90 percent in one month. The outbreak triggered numerous investigations by federal
and state authorities. Customers filed negligence lawsuits claiming that Odwalla had
known that the acid-rinse method was ineffective and that scientific studies had
shown that the method was effective in killing bacteria that caused E. coli only 8
percent of the time. After it had been shown that pasteurization was a widely used
practice in the industry (although not required by federal or state laws) and that
9

Odwalla management had ignored its own head of quality assurances warning about
potential contamination sources in the factory, the Food and Drug Administration
levied a $1.5 million fine, the largest in the agencys history at that time.
A portion of the fine, in the sum of $250,000.00, was donated to the food
safety research centers of the University of Maryland and Pennsylvania State
University, and Safe Tables Our Priority (STOP). Odwalla also had to serve five
years of court-supervised probation and implement a Hazard Analysis and Critical
Control Points (HACCP) plan.
The company did survive, but its stock price, which was $28.75 a share before
the crisis, was slowly recovering from a 52-week low of $9.25 a share.
Between 1997 and 1999, during the outbreak, they lost $15.9 million, and
earned $3.7 million in 2000.

5. Conclusions
Odwalla tackled the crisis head on with open and honest intentions. The recall
strategy that was implemented hinged on four objectives:


constant internal communication;


personalized customer service;


fast and effective response;


responsibility.
That is admitting when wrong.
When the state of Washington Environmental Health Services notified the
CEO of Odwalla, Stephen Williamson, of a possible epidemiological link between
several cases of E. Coli 0157:H7 and their apple juice, Williamson had a choice at
that time to either ignore the problem until there was an official confirmation, which
did not come until November 5, 1996, or voluntarily instigate a recall of the tainted
products. His choice to order the recall immediately launched their survival strategy.
Williamson completed this recall within 48 hours of the terrible news. This recall
strategy was not legally necessary. However, it was the ethical and responsible thing
to do.
Odwalla on the other hand gave consumers the feeling that there was a
community of ordinary people within the company, who were devastated at the fact
that they had created a situation that ended in a loss of life.
Odwalla admitted that the crisis was due to their neglect of pasteurization and
moved quickly to ensure the safety of their products available to their consumers.
The flash-pasteurization introduced to Odwallas manufacturing process would
guarantee that E. coli had been destroyed and that the flavor of the juice would not
be that altered. As of December 5, 1996, all shelved Odwalla products contain the
label flash-pasteurized.
According to interviews with former Odwalla managers, in the weeks before
the outbreak, Odwalla began relaxing its standards of blemished fruit acceptance. In
these accounts, production managers brushed aside warnings from a young
company inspector that a batch of apples was too rotten to use some were highly
decayed and one had a worm in it without taking special precautions against
contaminants.
In April of 1998, Odwalla negotiated a plea deal with federal prosecutors in
which it would admit to food-safety violations. On May 27, 1998 Odwalla agreed to a
multimillion dollar settlement to resolve claims by five families whose children were
sickened by the outbreak. The amount of the settlement and the details of the
10

resolution were not disclosed, but the total amount that the five families received was
said to have been between $12 million and $15 million.
As part of the consent decree, Odwalla implemented an HACCP (Hazard
Analysis & Critical Control Points) plan, which includes the following provisions:


maintaining sanitary conditions to avoid food contamination;


a written sanitation control program run by a qualified manager;


a comprehensive employee training program in areas such as proper
food handling and personal hygiene.
For all the good choices that Odwalla made, they made one very bad one.
Odwalla did not take into account the livelihood of all their stakeholders for the long
term when they developed their crisis response, because sixty Odwalla employees
were laid off in the aftermath. Although consumers were compensated as a result of
the crisis, little was done to support Odwallas employees during the crisis recovery.
Corporations pay lots of money for drills during which they place their
employees in pressured and simulated situations to test their crisis management
plans.
But crisis in its nature is something that occurs unexpectedly and perhaps it is
easy to say how a crisis should have been handled after it is over. I'm sure, however,
that people who find themselves in such unpredictble situations don't feel the same
way when they are in the middle of it.
It can be said without any doubt that the characteristics of good crisis
management are:


Fast and active communications


Ability to admit mistakes


Full appreciation of the needs of all stakeholders


Clear recovery strategy


Consistent corporate messages
This case is an example of how a company can embrace a crisis and use it as
an opportunity to start an industry-wide change, which is a similar result to the
Tylenol case.

11

References
http://netasbitsandpieces.blogspot.ro/2010/02/case-study-crisismanagement-of-cadbury.html
http://www.investopedia.com/terms/c/crisis-management.asp
http://en.wikipedia.org/wiki/Crisis_management
Lerbinger, O. The crisis manager: Facing risk and responsibility, Mahwah,
NJ: Erlbaum, 1997
http://www.carmasol.com/cs-issues-crisis-management.html
http://issuu.com/steelhenge/docs/socialmedia_crisis?mode=
window&backgroundColor=%23222222
Lewis, Adam - "How to manage a social media crisis"
Fischer, Robert. P., Halibozek, Edward., Green, Gion Introduction to
Security. 8th Edition, 2008
Coombs, W. T. Ongoing crisis communication: Planning, managing, and
responding, Thousand Oaks, CA: Sage, 1999
http://www.beknowledge.com/wpcontent/uploads/2011/01/cfcd2Case%20Study%20-%20Odwalla%20juice.pdf
http://highered.mcgrawhill.com/sites/dl/free/0073377694/868035/mel77694_case1_656_658.pdf
http://preducationuk.blogspot.ro/2011/01/example-of-succesful-crisismanagement.html
http://www.studymode.com/essays/Odwalla-Case-Study-1473544.html
http://digitalcommons.calpoly.edu/cgi/viewcontent.cgi?article=1045&context
=joursp

12