In 2008, when the subprime crisis hit the world economy, Dennis de Wet was working in the Isle of Man
for a property syndication company that enabled investors to pool their money together for a slice of real
estate. It was a catalyst for his decision to leave the corporate world. “You spend eight to 10 hours a day
working, so it would be a bonus if you actually like what you are doing,” he says.
Born in Namibia, he had studied financial analysis at Stellenbosch University in South Africa before starting
his career as a financial controller for the property company that later seconded him to the Isle of Man. “I
realised if I stayed in corporate 10 or 20 more years, even as the CEO of the company, I would still be quite miserable. I am a dreamer, a visionary. I like new things and following ideas. I met people who woke up in
the morning and loved what they were doing, and I was envious of that.”
He listed the things he was passionate about: surfing, Grand Prix, wine, food and coffee and looked at each
industry to see if he could spot a viable business opportunity.Returning to his home country – in particular,
the town of Swakopmund – was always on the cards for De Wet and his young family. While still in the Isle
of Man, he started researching specialty coffee roasting as a possible future venture. At the time, the industry
was just taking off in neighbouring South Africa but had not yet found a foothold in Namibia.
Trying to find roasters in South Africa who could share insights was tough. “It was such a closed industry.
Even if I explained I was planning to do this in Namibia, they still thought I would be competition,” he
remembers. He eventually found one roaster in Cape Town who was happy to talk to him and 12 years down
the line, they have become good friends.
In 2010, the family moved to Namibia. De Wet trained himself on an espresso machine to hone his barista
skills and would take coffee imported from his South African contact into restaurants to gauge interest. In
the following April, he decided to take the plunge and ordered his roasting machine from the US. To cover
the costs, he took a loan from his father. He also started the process of registering the company and the
brand, Slowtown Coffee Roasters. In the six months it took for the equipment to arrive, De Wet hit the streets
to find the perfect location, but landlords weren’t keen on providing him with prime rental space. “They
could not grasp the concept of a coffee roastery,” he says.
Fortunately, a friend called to say their engineering company had some space available. “The co-tenant had
moved out and his boss was happy for me to take the gap as long as he could drink some of the coffee and
play his guitar in the shop,” De Wet laughs. In October 2011, Slowtown opened its first shop in a central and
popular spot in Swakopmund. Today, the company has a chain of six retail outlets: the original venue and at
the roastery in Swakopmund, one in Walvis Bay and three in the capital, Windhoek. It roasts four tonnes of
beans and sells 30,000 cups of coffee a month.

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Building a brand and expanding slowly
The growth was “slow and steady”, according to De Wet. “I paid back the loan from my father a year later,
on his terms. Since then, it has always been a bootstrapping business. We have been approached by venture
capitalists and possible equity partners, but I am happy we did it this way. It keeps us nimble and resilient.
Whatever money we’ve made has gone back into the business.”
In the first year, Slowtown had only one table in the shop, bought at an auction. Initially, the company sold
around 15 cups of coffee a day. “It was a scrappy start. What was great, though, is the same customers came
back daily. We focused on the quality of the coffee and built a base of loyal customers.” De Wet has always
sourced the coffee beans through the same coffee broker – based in Johannesburg, South Africa – with a
proven track record of working directly with the specialty coffee farmers or co-ops. It simplifies logistics; “I
order my coffee once a month and it arrives within three days,” he says.
A little over a year after opening the first shop, the small team took their coffee to the annual Tourism Expo
in Windhoek. It was the only company in the country roasting specialty coffee. Slowtown made more money
in those three days than it made in a normal month, recalls De Wet. “For us, this was a big branding drive
and created awareness of our product in Windhoek, where the spending power was.”
The developer of The Grove shopping mall in Windhoek approached De Wet in 2013 to rent space. He was
reluctant but finally agreed to take the smallest unit of 26m2. “I thought nothing ventured, nothing gained,
and we opened. The response was unexpected,” he says. It proved so popular, the company soon opened a
second outlet in the mall. At about the same time, Slowtown opened at another location in the CBD of
Windhoek. This was followed by a shop in the harbour town of Walvis Bay, a small factory outlet at its
roastery in Swakopmund and, finally, one in Maerua Mall, also in Windhoek.
Tapping into wholesale
Wholesale orders have been a crucial income stream for the business, with the company receiving many of
these orders from people who had visited the retail shops. One of the most successful retailers in the country,
SuperSpar in Maerua Mall, requested to stock Slowtown coffee in the first year after opening. “For a long

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time, that one retailer made up almost 90% of our wholesale sales. Today, our income is probably split
equally between our own stores and wholesale.”
Slowtown offers a consultancy service to its wholesale clients to set up coffee stations in their offices, lodges
or hotels. The company assists in sourcing the equipment, with the set-up and workflow of the coffee station,
and provides the roasted beans and barista training. De Wet explains that the Slowtown branded coffee
shops have always been the brand-building vehicle for the business. “Wholesale is easier money. There are
so many things that could go wrong with those 30,000 cups of coffee we serve each month; however, those
coffees are what builds our brand every day.”
Merchandise, cross-border online sales and growth
De Wet’s approach to the business was always clear: the quality of the product and the strength of the brand
should drive sales. “I’ve never been the type of person who would call people up to try and convince them
to purchase our coffee,” he reveals. His strategy seems to have worked. The company is now adding
Slowtown merchandise such as caps and T-shirts thanks to demand from its loyal supporters. It is also geared
for growth; two years ago, a new roasting unit was added that pushed its roasting capacity to 25 tonnes a
month. “It is one thing to roast 25 tonnes but it is a whole different story to sell that in a small country like
Namibia. We have to start looking cross-border for growth,” explains De Wet.
He believes South Africa could be the next frontier and that it would be a soft landing as he has experience
after living and working in the Western Cape. However, opening another retail coffee shop is not necessarily
on the cards. “Online interests me, it could open the doors to South Africa. If we have a good platform and
offer our product online, it means we could test cross-border sales without bankrupting ourselves if it doesn’t
work.”South Africa is not the end of the horizon. De Wet has a handful of connections in Germany and, when
the time is right, he sees no reason why Slowtown should not expand into the European market. “I have
confidence in the product and the brand,” he says.

Q. Strategic management for small and medium enterprise can be categorised into three modes.
Discuss into which category the case study can be placed into.

Read the case and answer the questions that follow.

How do you sell money? This is a fundamental challenge for retail banks, and Richard Kovacevich had a solution. He saw banks as stores, bankers as salespeople, and financial instruments as consumer products. Much like a deli worker asks if you’d like to upsize that combo or add dessert to your order, a banker should encourage you to add a credit card, savings account, or loan to your portfolio. Kovacevich called it “cross-selling,” and he based it on the fact that customers with several accounts are much more profitable to a bank than customers with a single account. How many accounts should a customer have? Eight, according to the “Going for Gr-Eight” initiative he launched as CEO of Norwest in 1997. Why eight? Because, Kovacevich said, “It rhymes with GREAT!”¹

SALES PRACTICES AT WELLS FARGO

Norwest merged with Wells Fargo in 1998; the bank retained the Wells Fargo name, and Kovacevich took the helm as president and CEO. He saw revenue growth as the bank’s most important goal and cross-selling as the way to achieve it.² Bankers could earn between $500 and $2,000 in quarterly bonuses for hitting sales targets, and district managers could increase their annual compensation by up to $20,000. According to former Wells Fargo worker Scott Trainor, “If you could sell, you had a job.”³

The strong sales culture transformed Wells Fargo’s bottom line, as evidenced by a 67% increase in the bank’s stock from 2006 to 2015.⁴ Unfortunately, the culture had a dark side. Steven Schrodt, who worked at a Wells Fargo branch in Lincoln, Nebraska, before resigning due to severe sales pressure in 2012, remembers managers encouraging those who hadn’t reached sales goals to open accounts for their family members and friends. Other former employees describe searching for potential customers at retirement homes and local bus stops.⁵

Bankers who grew tired of asking friends, family, and strangers for business adopted more covert tactics. One former Wells Fargo employee recalls the day he discovered a high-performing co-worker’s secret formula. A customer had applied for a home equity loan and somehow also ended up with a $20,000 personal line of credit. “So then I realized how he was doing all his loans, because he was basically tagging on other loan products in the same application so they wouldn’t really notice when they signed the documents.”⁶

Problems started to emerge in 2009. At this point, Richard Kovacevich was gone, John Stumpf was president and CEO, and Kovacevich’s sales culture was deeply embedded. To investigate potential problems in retail sales practices (RSPs) in the bank’s branches, Wells Fargo established an internal task force in 2012. The task force concluded that the unethical behavior was due to a small set of “rogue” individual branch workers.⁷ Wells Fargo subsequently fired more than 5,000 “rogue” bankers between 2013 and 2016.⁸

WELLS FARGO ADMITS TO FRAUD: BLAMES PROBLEM ON WORKERS, NOT CULTURE

In September 2016, the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the Los Angeles City Attorney publicly fined Wells Fargo $185 million for opening millions of bank accounts without customers’ knowledge. ⁹ The bank openly admitted to the fraud, but executives noted that Wells Fargo had official policies in place in their Sales Quality Manual requiring customers’ consent “for each specific solution or service” and expressly prohibiting bankers from opening multiple accounts to increase incentive compensation.¹⁰ In an interview with The Wall Street Journal, CEO Stumpf maintained “there was no incentive to do bad things” adding “the 1% that did it wrong, who we fired, terminated, in no way reflects our culture nor reflects the great work the other vast majority of the people do.”¹¹ Former workers tell a different story.

Former employees who worked at Wells Fargo between 2004 and 2011 told NPR the fraud was pervasive and that managers were heavily involved. One former banker recalled sitting at a conference table with her managers in a windowless, locked room and receiving a “formal warning” to sign. Her managers told her that bankers who didn’t meet sales goals were not team players, and poor team members would be fired and forced to carry the mark on their permanent records.¹² Employees who played by the rules and reported their concerns were fired from their jobs within weeks of reporting for things like “excessive tardiness.”¹³

ANOTHER SCANDAL

Stumpf resigned from Wells Fargo in October 2016, and Timothy Sloan took over as CEO. Sloan immediately discontinued labeling branches “stores” and overhauled the bank’s incentive compensation plan, shifting the focus to customer satisfaction and drastically reducing the emphasis on sales goals. He restructured the organization to fully centralize the bank’s risk and HR functions, consolidating “much of the vast risk-control bureaucracy into a new office of eth ics, oversight, and integrity, accountable to the board’s risk committee.”¹⁴ In spite of Sloan’s efforts, another scandal was brewing.

Earlier in 2016, executives at Wells Fargo had realized that hundreds of thousands of car loan customers had been charged for unnecessary auto insurance.¹⁵ An internal report revealed that the costs of the gratuitous insurance resulted in auto loan defaults for more than 270,000 customers and the repossession of approximately 25,000 vehicles.¹⁶ Federal probes into the insurance debacle shed light on yet another slew of internal issues with compliance, controls, and board oversight of operations at Wells Fargo.¹⁷ In a report released in October 2017, OCC regulators slammed managers at Wells Fargo Dealer Services (the bank’s auto loan unit) for ignoring customer complaints, failing to monitor contractors, and general laziness in responding to problems that had been unfolding since at least 2015.¹⁸

In July 2017, Wells Fargo publicly admitted it became aware of the auto insurance scandal a year prior. Interestingly, when the Senate Banking Committee asked, as part of the September 2016 hearings related to RSP fraud, if executives were “confident that this type of fraudulent activity does not exist” in other areas, the bank insisted problems were limited to individual employees in the community banking division.¹⁹ Senator Sherrod Brown has since alleged that Wells Fargo “pure and simple lied to this committee—and lied to the public” in failing to disclose the auto insurance problems during the 2016 hearings.²⁰ Sloan has maintained there are fundamental differences between the RSP and auto insurance scandals, with only the former being fueled by sales incentives.²¹

AFTERMATH

In February 2018 the Federal Reserve capped Wells Fargo’s growth and stated that the bank would not be allowed to accumulate any more assets until the Fed believed the bank had turned itself around.²² Two months later, the CFPB handed down a record $1 billion fine related, in part, to the auto insurance scandal.²³ By early 2020 Wells Fargo agreed to a settlement with the DOJ, including a $3 billion fine related to the creation of three million fraudulent accounts between 2002 and 2016. The DOJ agreed to withhold criminal charges, provided that the bank continued to cooperate in investigations and comply with all relevant laws for three more years. As part of the settlement, Wells Fargo admitted to two criminal violations—identity theft and creating false bank records.²⁴

By early 2020 the OCC had also fined eight of the bank’s former executives a total of $59 million. Stumpf’s $17.5 million portion of the total was the largest penalty the OCC had ever imposed on an individual. In addition, Stumpf received a lifetime ban from the banking industry.²⁵

NEW LEADERSHIP, NEW STRUCTURE

The year 2019 brought a change in leadership when Sloan stepped down from his role as CEO. “It has become apparent to me that our ability to successfully move Wells Fargo forward from here will benefit from a new CEO and fresh perspectives,” he said.²⁶ Charles Scharf, the former CEO of Visa and Bank of New York Mellon, took over as CEO, and he quickly announced a plan to radically restructure the bank as part of his effort to implement changes. Scharf’s reorganization split the bank’s structure into five lines of business, with each line overseen by its own CEO, and each CEO reporting directly to Scharf. He said, “These changes create the right structure to build our businesses over the long term and increase our ability to successfully execute on our top priority, which is the risk, regulatory and control work. I am confident that this organizational model and our strengthened risk and control foundation will bring greater focus and accountability to the company.”²⁷

Testifying before the House Financial Services Committee in March 2020, Scharf said, “I want to give you my personal assurance that we will do the work necessary to put Wells Fargo on sound footing with our customers, employees, regulators, shareholders, and the communities we serve,” adding, “What we have done to date is not enough, and we will continue to drive progress.”²⁸

Based on the competing values framework, Wells Fargo’s strong sales-based environment between 2006 to 2015 portrays a ________ culture.

• clan

• market

• competitive

• hierarchy

• adhocracy

Based on the case, before Scharf took over at Wells Fargo, decision making at the bank was more

• hollow.

• decentralized.

• centralized.

• functional.

• horizontal

Based on what you’ve learned about the flow of organizational culture, all of the following contributed to problematic group and social processes at Wells Fargo, except

• organizational structure.

• work attitudes and behaviors.

• corporate strategy.

• organizational culture.

• human resource practices.

Which of the following is not a way for Scharf to inspire change at Wells Fargo?

• stock price

• formal statements

• slogans and sayings

• organizational goals and performance criteria

• organizational structure

Assume that as part of Scharf’s reorganization of Wells Fargo many managers now report to both functional and divisional supervisors. What type of organizational structure does this portray?

• hollow

• matrix

• modular

• virtual

• horizontal