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DENNY’S: A GRAND SLAM
SUCCESS STORY
After settling a highly public $54 million class-action lawsuit, the Denny’s restaurant chain made a
miraculous turnaround. How did it do it? What programs did it put in place to effect such rapid
change in such a large organization? Ray Hood-Phillips, chief diversity officer, outlined the steps
Denny’s took to transform the embattled company into a model for inclusion. The key, she said,
was taking “a holistic approach to diversity” making both cultural and structural changes.
Then the company looked at its structure—its “people systems,” as Hood-Phillips calls
them: the way Denny’s hired, fired, developed, and promoted people. After analyzing their
policies, Denny’s realized they had unwittingly created a systemwide diversity vacuum. “Most
corporations have barriers in place and they don’t even know it,” Hood-Phillips said.
In Denny’s case, they found that their recruiting practices were partly to blame. Denny’s
Hood-Phillips employed many of these same tactics during her tenure at Burger King. For
instance, Burger King used to recruit students from the top ten schools in the country. On the
surface, this sounded like a good plan. But these schools have very low minority representation,
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diversity, and no incentive for managers to hire diverse candidates. So the company instituted a
process that evaluated ten core competencies, one of which was valuing and managing diversity. In
addition, the company tied 25 percent of senior management’s bonuses to the number of women
and minorities in their divisions. As a result, approximately 50 percent of Advantica’s 46,000
employees are minorities, and not just in entry-level positions; a full 32 percent of its supervisory
positions are held by minorities. The icing on the cake? Fortune magazine has named Advantica
the “Best Company in America for Minorities” two years in a row.
Denny’s was very aggressive in its franchise sales division as well, where the company had
succeeded in recruiting only one African-American franchisee in 1993. Merit increases of franchise
sales managers were tied to their ability to recruit and retain minority franchisees. In 2002, the
number of African-American franchisees has jumped to sixty-four. And minorities now own
roughly 42 percent of the company’s franchised restaurants.
In addition, Denny’s did not relegate diversity issues to the sole realm of human resources.
Diversity shares the stage equally with other divisions of the company, and sufficient resources are
dedicated to diversity issues and interests to maintain the positive momentum gained in the last
several years. For instance, Advantica has pledged to donate $1 million a year to human rights or
civil rights organizations. This year, the company will contribute to the National Civil Rights
Museum in Memphis through its Reignite the Dream Campaign. For every Denny’s Grand Slam
breakfast sold, Denny’s will donate $1 to the Reignite the Dream Fund. Started in January, the
company had already raised more than $400,000 toward its $1 million goal.
permission of International Franchising Association.
Questions:
1. What are the key points to Denny’s turnaround with regard to diversity?
2. What lessons can other companies learn from Denny’s experience?
3. What is the likely impact of diversity on the company’s performance?
Solution:
This case shows how Denny’s used a class action lawsuit as impetus for a large–scale change project
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1. Turnaround for Denny’s diversity strategy has two major points: one is removing the barriers
to diversity and the other is rewarding management for hiring minorities. Removing the
barriers to diversity means that Denny’s had to look at where they were recruiting their
2. Denny’s experience teaches companies that it is possible to come up from last place to first. After
the lawsuit, the problem Denny’s had became obvious to them. With sufficient attention they
3. Not only does a more diverse company indirectly improve performance through greater public
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CONTINENTAL AIRLINES:
ONE COMPANY’S FLIGHT TO SUCCESS
In the last decade, Continental Airlines has had a spotty track record. The airline twice filed for
bankruptcy, realized diminished performance culminating in a $613 million loss in 1994, and was
ranked dead last in industry indicators such as on-time performance among the major carriers.
During these years, employees at Continental had undergone several series of layoffs and withstood
both wage cuts and delayed wage increases in an effort to slash Continental’s costs. The result of
these efforts was a demoralized workforce and a corporate reputation that put Continental near the
top of Fortune’s list of “least admired” companies.
Despite this history, things have taken a positive turn for the airline in recent years. Since
the arrival of Gordon Bethune, Continental’s new CEO, the company appears to have made a 180–
Compared with their listless efforts in the past, workers at Continental are now operating at
a productivity level that is quite impressive. But what is the cause of this turnaround? Granted, the
airline industry as a whole has realized greater profitability in recent years, but Continental’s
feverish change of course has occurred for other reasons as well.
One of the first actions that Bethune took was to refocus the company and streamline
operations at Continental. Once in charge of the struggling airline, Bethune eliminated more than
7,000 jobs, dismissed fifty vice presidents and replaced them with twenty new managers, and
outsourced much of the carrier’s maintenance work. The thrust of this reorientation embodied
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277
To demonstrate to the employees that he was serious about their involvement in the
company’s success, Bethune also changed performance appraisal practices. He ordered
departments to focus on specific targets that were important to customer service rather than on
To build on these achievements, Bethune continues to devise new ways to motivate the
workers at Continental. For example, in July of 1996, to acknowledge perfect attendance by
employees, seven workers were drawn from a list of thousands to receive new sport utility vehicles
at the company’s expense.
Since Bethune’s arrival in 1994, employees are paying more attention to their work and
there has been a sharp improvement in morale. By focusing on the workers and rewarding them for
displaying the behaviors and actions necessary to the company’s success, Bethune is guiding the
Questions:
1. If you were the manager of a distressed organization, what specific steps would you take to
turn the organization around?
2. What are the primary causes for the sudden change in employee morale at Continental
Airlines?
3. What actions would you take, if any, to ensure that Continental continues its improved
performance over the next decade?
4. Explain how different employee contribution techniques (e.g., teams, job enrichment, etc.)
could serve to continually improve Continental’s performance.
Solution:
This case highlights the strategic role that human resource practices can play in helping a distressed
1. Several tactics may be taken to turn around a distressed organization. One tactic is to create a
sense of urgency for the need to change. In this case, Continental Airlines’ continual performance
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2. There are two primary causes for the changes in morale at Continental Airlines, although stu–
dents may detect others. When George Bethune arrived at Continental Airlines, he provided a
3. In contrast to turning a company around, this question is designed to encourage students to
4. The section entitled Job Design in Chapter 4 will assist students to answer this question. As noted
in the text, relying on upward communication systems, empowering employees, adhering to
WRONGFUL DISCHARGE OR
SIMPLY “POOR PERFORMANCE”?
Angelo LaRossa experienced a very successful four years as western sales representative for
Majestic Sound Systems, a national manufacturer and distributor of high-quality car audio systems
and components. In December 1997, Angelo, at age forty-one, had been hired away from Magnum
Stereo, Inc., a competitor of Majestic. At Magnum Stereo, Angelo had acquired a track record as a
top salesperson based on his high sales goals and performance. His reputation was one of a hard
driver capable of making a difficult sale.
Since joining Majestic Sound Systems, Angelo had helped boost the sluggish sales of the
western region from $2.7 million in 1998 to more than $5.1 million in 2002. He continually
received awards as the top salesperson at Majestic’s annual recognition dinners.
Angelo worked hard and was not averse to living well and spending his large commission
would receive 5 percent of the outstanding stock with complete voting rights. (As Angelo testified
in court later, when Carson asked for the investment, it was not so much a request as a requirement.
When questioned on this point by his lawyer, Angelo stated that Carson’s remarks were: “If I don’t
get the $50,000, your career at Majestic could be affected.”) Angelo agreed to consider the
investment opportunity, but after some lengthy investigations and evaluation he declined the offer.
(Angelo’s attorney had two of Majestic’s former sales representatives testify that they also were
suddenly fired after refusing to invest in Carson’s side company.)
In the fifth year of Angelo’s employment with Majestic, his sales success and commissions
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alleged wrongful discharge, denial of due process, and infliction of “unnecessary” distress. He
sought a settlement of $1.75 million plus payment of attorney fees and other related court costs.
The settlement was based on an average of Angelo’s yearly salary and performance bonuses during
his period of employment.
During the trial, Janet Sell, Majestic’s attorney, argued strongly the following points: (1)
currently working overseas and, therefore, was unable to testify.
Questions:
1. Comment on the employment–at–will principle from both the employer’s and the employee’s
perspective.
2. Which side, Majestic or Angelo, stands a better chance to prevail in this case? Explain your
position fully.
3. How could Majestic prevent litigation of this type from occurring in the future? Explain fully.
Solution:
1. Chapter 13 in the textbook provides a complete discussion of the employment-at-will concept,
including wrongful discharge issues. Under the employment–at-will principle, employers believe
2. This question can provide lively debate among students. Select students to present the case of
Angelo and Majestic before the entire class. It is generally believed that Angelo will prevail in
3. Termination decisions must be based entirely upon job-related performance criteria. Employers
must not retaliate against employees when they do not comply with the personal desires of