Case Analysis of “The Best Laid Incentive Plans” Essay

Background Summary The Best Laid Incentive Plan is a case analysis depicting organizational behavior and performance appraisal management. Rainbarrel Products is a loosely ran consumer durables manufacturer. Within the last ten years, Rainbarrel Products has shown difficulties rebounding from a sluggish economy. The CEO, Keith Randall, once described as â€Å"aspiring† and â€Å"innovative†, has allowed the company to fall victim to a downward economy due to the recent lax in leadership. In addition, Rainbarrel is not adjusting to the decrease in consumer spending in comparison to their competitors; however, this is the least of the company’s problems. In efforts to save Rainbarrel from continuous distress, Randall hires Hiram Phillips as the Chief Financial Officer (CFO) and Chief Administrative Officer (CAO). Hiram generates changes in the company which yields great numerical results. Hiram’s strategy includes cost cutting the budget, reduction in staff as evidenced by cos t reduction in labor, restructured sales incentives, changes in customer service procedures, and changes in the shipping process. Phillips is very proud of his success and is eager for the Corporate Executive Council (CEC) to hear his progress. Sally Hamilton and Frank Ormondy, consultants with Felding & Company are solicited by Phillips to perform baseline metrics to be tracked and  monitored in a year’s timeframe. The consultant’s findings are revealed and everything seems to lean in Hiram’s favor; however, after the meeting, the tide turns. Randall approaches Phillips regarding unsolicited information from other members of the council pertaining to the metrics Hiram has in place. Phillip makes overwhelming changes to the current organization’s systems, procedures, and processes resulting in negative feedback from Rainbarrels employees and customers. Even though the consultant’s reports give Phillips glowing results, Hiram is unaware of the damage he is causing at Rainbarrel. Problem Statement: The main problem identified in the case is the flaws in the performance management systems. Rainbarrel needs to make a dramatic change to its performance management system. The system is one-sided and not aligned with the company’s performance culture and strategic objectives. According to Kastalli, Neely, and Van Looy, (2013), â€Å"increasingly, manufacturing firms are turning to services as a new way of creating and capturing value. Despite its potential benefits, many new product-service providers struggle to deploy service activities effectively, not least because they fail to reflect the presence of service activities in their performance management systems† (p. 100). The CEO has lost sight of other key components of the company which is impacting Rainbarrel from being a successful enterprise. This fact alone questions whether or not the current leadership should be at the helm of Rainbarrel Products. Assumptions: Kerr states (2003) â€Å"the metrics program of Hiram focuses on the intermediary steps and assumes that such enhancements will make a positive impact on the bottom line† (p.31). The assumptions that highlight the main issues include the following: Hiram Phillips knew how to work within Rainbarrel’s budget. The employees are motivated by monetary means. Rainbarrel’s shipping process and customer service department are the only factors which stymies productivity. Email is the preferred vehicle of communication at Rainbarrel. Performance management is not required to align with the performance appraisal and incentive plans at Rainbarrel Hiram assumes the â€Å"fat and happy† company will be†lean and mean† within a year.  Positive results are masked by dissatisfied customers, unhappy employees, and decreased productivity unbeknownst to Hiram. Analysis: This case analysis highlights the importance of assessing, reviewing, implementing, and evaluating processes in regards to performance measurement and management systems. Wouters suggest (2009), â€Å"the importance of performance measurement systems (PMS) has been widely acknowledged. This importance pertains to all functional areas. At the same time, PMS may serve different purposes in an organization: performance measurement systems help to formulate, communicate and implement strategy throughout the organization; they are used to control and influence behavior in the organization and guide the strategic planning process† (p. 68). The aanalysis will start with a glimpse into the issues at Rainbarrel Products. These problems are preventing Rainbarrel from â€Å"picking up the pieces† of its financial and organizational crisis and moving towards a more stable and profitable footing strategically. In addition, the attitude of leadership and inability of the top senior level managers to meet organizational and individual goals resonates throughout the case study. The issues in this case are: Poor system of supervision and control on the shipping and customer service operations No structured budget process Lack of motivation and enthusiasm among employees Inadequate communication between leadership, human resources, and employees Inadequate performance appraisals and incentive plans Among the changes are incentives to answer customers’ calls quickly because the employees would now be monitored, as well as the shipment of products on time. If this does not occur, employees will be held accountable and suffer the consequences. The goal of management is conflicting with the goals of the Rainbarrel employees. Hiram Phillips drafts a rule which indicates the products should not be labeled as shipped until it was out of Rainbarrel’s doors. This is in total contrast to shipping the products from the main warehouse to a location across the street. Rainbarrel likes to emphasize customer service in its values and mission statement, but no reliable metric had been used to track what constituted â€Å"on time† and what constituted â€Å"shipped† (Kerr, 2003, p. 30). Not only are there  problems internally at Rainbarrel but on the outside as well. Longtime and loyal customer, Brenton Brothers, expresses their unhappiness of not receiving shipmen ts on-time or at their request. â€Å"In some cases I’ve been told to take a late date or otherwise forgo the purchase. That becomes the promise date but not the date I asked for,† stated by the buyer Annie, (Kerr, 2003, p. 33). Recorded evidence shows several shipment requests placed by Brenton Brothers indicate the promised shipments had left the Rainbarrel property: however, upon further investigation the shipments were found â€Å"sitting on a railroad siding across from Rainbarrel† (Kerr, 2003, p. 33). In addition, when Brenton Brothers sends e-mails to Rainbarrel’s customer service department they are experiencing late responses to questions and inquires from the call center employees. This problem is one affecting many areas of shipment and customer service. Jaaron & Backhouse (2011), state â€Å"Call centres embraced by a manufacturing organization play a major role in this endeavour as they are the main channel of contact between organizations and their customers† (p. 614). Burgers, Ruyter, Keen, & Streukens (2000) along with Meyer, Allen, and Topolnytsky (1998) indicate, â€Å"in order for organizations to achieve competitive advantage through their employees. â€Å"It is most important to equip them with high levels of affective commitment due to its fundamental links with extra role behaviour in the organization† (p. 48). There is no current protocol in place to monitor the call center for quality assurance purposes. With little or no motivation, there is no way to prove the duties are even performed on a daily basis. At this point, the employees are holding on to the only incentive they have, and that’s the salary wages paid to them now. With â€Å"Fire†em at the elm, nothing is guaranteed whether it means happy customers or not. Liu and Chang (2009) report, â€Å"interviewees were asked about how front-line employees are measured and rewarded. They have commented that the measurement of front-line employees in the call centre is done on the basis of how good they are in matching the company’s principles of serving the customer through employees’ appraisals in the call centre. The number of value-adding calls is counted against the non-value-adding calls to form the basis for measuring and evaluating employees work in general. The front-line employees in the call centre are rewarded by getting feedback and recognition on their work† (p. 619). Frezatti (2009) explains â€Å"the  budget contains the priorities and direction of the organization for a period and provides an opportunity to evaluate the entity’s performance, its internal areas and its managers.† [†¦] It is considered one of the pillars of management and a fundamental tool for accountability that exists in the organization† (p. 135). Hiram’s extreme budget cuts to make Rainbarrel ‘lean and mean†, is his only method of streamlining processes as it relates to performance management. Rainbarrel’s inadequate budget is the common denominator resulting in Hiram’s plan of budget cuts, imposing across the board workforce reduction up to 10 %, implementing the ‘wall of shame’ monitoring tool for underachieving customer care representatives and an unreliable metric regarding on time shipping. Budgets serve as a financial tool for companies, as well as a performance evaluator. Without a solid budgeting process, companies are taking a hopeful attempt to plan for expenses and sales. Hiram Phillips knows the budget is fat and happy now; however, he has not indicated any budgetary goals for the future of Rainbarrel, only short term solutions. Hiram’s metrics look good on paper, but the bottom line is his current budget metrics is displeasing to Rainbarrel’s employees and customers. According to Stern, (2013) â€Å"in theory, budgets tell you where you stand financially, and where you might be heading. In the budget process, the goals can be both individual and team, and behavioral problems may arise if the goal is too high (unattainable), if it is too easy (too vague) or if it generates conflicts between the company and the employees’ goals (goal conflict)† (p. 20) .The non existing budget structure at Rainbarrel influences production; for example, the Innovation ‘X’ project is on hold due to the fact it is not in the budget for the fiscal year, Thus, Rainbarrel is missing out on potential revenue. According to Gostick and Elton (2009), â€Å"A few misguided managers believe that 100 percent of motivation should be internally driven and that recognition is used only to motivate â€Å". Organizational behavior is emphasized on the employees’ behavior and how they perceive themselves in the organization. The impact of employee morale and lack of enthusiasm is vital for the growth of the organization. The current culture at Rainbarrel consists of lack of enthusiasm and motivation partly due to no incentive rewards programs, lack of communication between employees and leadership, and largely to layoffs. Daniel H. Pink’s Drive: the Surprising Truth about  What Motivates Us illustrates what motivates people, especially in a working environment. Pink theorizes motivation arises from reward and punishment of employees. Pink (2009) believes â€Å"human beings aren’t much different from horses – that the way to get us moving in the right direction is by d angling a crunchier carrot or wielding a sharper stick†(p. 10). The metrics, Hiram has in place, which include, reduction in labor cost, the â€Å"wall of shame†, and the change in sales commissions to employees is causing dedicated and loyal employees to become unengaged capital. The paucity of communication at Rainbarrel impacts the company as a whole. The lack of communication between Randall and Phillips causes a trickle down effect between Phillips and the workforce. Phillips does not respond wisely in communicating the changes at Rainbarrel. The case analysis, The Best Laid Incentive Plans, illustrates several examples of poor communication. Hiram does not communicate the performance metrics he plans to implement. For instance, the email policy indicates the time limit on email responses. Employees are penalized if they do not open and respond to email notification from the company. Email should not be the main method of communicating pertinent information to employees of organizations. In order to have effective performance management, there should be communication between leadership and its workforce; therefore, goals and expectations are communicated and understood of both parties. More recently, a 2008 study performed by the Pew Internet & American Life Project revealed that 72% of all full-time employees have an email account that they use for work, and 37% of those workers â€Å"check them constantly† (Madden & Jones, 2008). The CFO is hired to improve Rainbarrel’s organizational and individual performance metrics which are causing the company to fall against main competitors and industry standards. The current change initiatives show a win-win for Hiram and Rainbarrel but failed efforts for the employees. According to Barber and Strack, (2009) â€Å"today’s performance measures and management practices don’t reflect the particular economics of people-driven businesses† (p. 81). Howard does not realize problems occur in his current performance metrics. The reduction in labor cost results in unmotivated staff; streamlining of service calls by two minutes produces frustrated workers and unhappy customers, restructuring the commission sales impacts the productivity of the sales people, and Hiram’s inept ability to  operate the service and shipping department creates a weak performance management system. Smith and Mazin (2013) report , â€Å"the entire organization benefits from a system that aligns performance to company-wide goals, provides a structured format for measuring results and giving feedback, and establishes a record for each employee that can be used for individual development, to inform future supervisors, and to make sound employment decisions† (p. 49). Recommendations: During Hiram’s interview, his main goal is to do what is right in regards to Rainbarrel Products; thus, the performance metrics instituted by Phillips results in cost saving efforts but morally bankrupts the company. Examining the metrics listed in the case analysis, there are recommendations Rainbarrel should implement in order to align Hiram’s strategies and the overall wellbeing of the employees and the company. The first, Hiram should reexamine the current metrics. Without budgetary guidelines, Hiram makes cost reductions based on a sluggish economy. Hiram is not comparing prior fiscal year data to current year data. Hiram is simply basing his metrics on slumping product sales and numbers. Implementing budget structure as a tool will eliminate assumptions Hiram has of the overall performance of Rainbarrel. Packer and Teeters (2012) indicate that â€Å"the budget had grown beyond a financial tool. It is above all managerial tool; in essence, it is the best tool for making sure that key resources, especially financial resource are assigned to priorities and to results. It is a tool that enables the manager to know when to review and revise plans, either because results are different from expectation or due to environmental conditions, economic conditions, market conditions or technologies change, which no longer correspond to the assumptions of the budget† (p. 467). I would also, recommend Hiram conduct monthly budget audits for the first 5 years of implantation. Ijiri (2008) â€Å"The main purpose of budget audits is to make sure that budgeting processes are carried out as specified by budgeting principles and procedures† (p.665). The monthly audits will allow Rainbarrel to adjust the budget on an as needed basis. labor), which are the most significant expenses and the primary variable cost that audit firms incur. According to Ettredge, Bedard, and Johnston (2009) â€Å"Our study finds that asymmetric ratcheting occurs during the budgeting process (p. 15). Audit  firm management successively removes budget surpluses to a greater extent than they provide incremental budgeted hours following budget shortfalls, thus maintaining budgetary control on a continuing basis. Engagement teams also respond asymmetrically, decreasing reported hours following budget surpluses to a lesser extent than they increase reported hours following budget shortfalls† (p. 15). Referencing Bertazzi (2008), â€Å"One of the most common problems is the one in which both transportation and inventory costs are taken into account. The aim is to determine shipping policies that allow the minimization of the sum of these two costs† (p. 750). It is revealed the shipping of products promised is not occurring according to the â€Å"on-time’ ghost policy Hiram has mandated. I propose Rainbarrel implement a shipping policy. The policy should include the shipping date, which includes the shipping turn around time. Also, the policy should indicate refun ds of shipping and handling fees if the delivery is not made as promised. In the Brenton Brothers’ case, the good and services purchased from Rainbarrel are not delivered as promised. The service management is very loose in regards to the customer service representatives at Rainbarrel. There are complaints of long hold times, no return phone calls from employees and the customers are being rushed off the phone. A study conducted done by (Schalk and Van Rijckevorsel, 2007 😉 illustrates â€Å"customer service representatives (CSRs) in a call center in India are given more autonomy in the production market† (p. 77). According to Schalk and Van Rijckevorsel (2007) â€Å"Autonomy refers therefore to the ability of the worker to take over production by integrating personal work skills that could overcome the failures of the production system. The CSRs’ work requires a certain degree of autonomy. In fact, they highlight that the work organization in call centers is articulated around the standardization of the production process and the customer orientation† (p.3). Layoffs due to the economic crisis, the ‘wall of shame’, unfair s ales commissions, and limited incentives are causing low employee moral and motivation. In order to regain the respect and trust of employees, Rainbarrel’s leadership needs to decide on how to motivate its people. I suggest Rainbarrel motivate through leadership. Tebeian, (2012) notes, â€Å"The leadership style has s a direct, positive and statistically significant effect on the subordinates’ motivation† (p.1094). The leadership is definitely an influence of Rainbarrel’s culture and  strategic market sustainability. In their article published in the Havard Business Review, 2008, Nitin Nohria, Boris Groysberg and Linda Lee-eling researched an employee motivation model and incorporated Maslow’s hierarchy of needs. The model includes four drives: leadership style, motivating the team, performance, and job satisfaction. The results of the study shows needs identified by Nitin Nohria, Boris Groysberg and Linda Lee-eling are â€Å"interconnected at the brain level, and the level of fulfillment of each of them directly influences emotions , therefore behaviour as well† (p. 1094). In order for employees to support the organizations, communication is imperative. (Dolphin, 2005), â€Å"Internal communication is communication between the organization’s leaders and one of its key publics: the employees† (p. 185). I recommend Rainbarrel schedule face to face meetings, such as monthly department meetings or team huddles with front line managers, employees, and stakeholders. In the case analysis, email is the preferred route of communication; however, important information is being misconstrued. Chong (2007), studying Singapore Airlines, found that focusing on face-to-face dialogue between management and staff helped the airline deliver its brand promise to its customers through its employees (p.203). Another recommendation to improve communication at Rainbarrel is initiate written communication via the company’s intranet site. The implementation of a company intranet site will convey important information regarding the company’s strategy, policy changes, and forecasted issues. A secure intranet site is ideal to broadcast convey information to the company employees. Borden adds (2010), â€Å"the company’s intranet must be organic and ever-changing, ready to embrace and depl oy new communication technologies that facilitate information sharing across the company† (p.44). According to Barber and Strack (2005), â€Å"when people are your most important resource, some standard performance measures and management practices become ill suited to their tasks† (p. 81). The current performance metrics and incentives at Rainbarrel have impacted negatively on employees. The performance management and measurement system should meet the needs of employees and Rainbarrel. I propose the CEO implement performance appraisals and fair incentive awards. Bacal (2004) points out â€Å"Performance appraisals enable employers and employees to define, communicate, and review expectations, goals, and progress in achieving strategic objectives. The  purpose is to improve the way employees contribute to an organization’s goals and job performance. Appraisals are also intended to sustain, improve, and help an employee† (p. 21). Dunlap (2010)† Distinguish and reward your top performers in a manner that is fair—not equal, but perceived as fair and justified† (p. 10).