Apply IB Business Management HL 2.4.6 financial rewards to case-based questions, evaluating commission, employee share ownership, motivation, costs and demotivation.
Creative Bleu (CB)
Creative Bleu (CB) is an Australian media private limited company which has produced many innovative television (TV) commercials. Jennifer Joyce, the Chief Executive Officer (CEO), set up the company with three college friends. CB now employs 24 people.
The organizational culture is technological, collaborative, innovative and task-orientated. Flexible project teams of four are created and rotated to generate new and creative ideas. On occasions, decisions are made intuitively. All employees have equal input into the decision-making process. CB has an employee share-ownership scheme, and profits are shared among all of the shareholders. Jennifer has a democratic leadership style. Staff turnover at CB has been very low.
CB has received a substantial contract to produce a TV commercial. The commercial will be for a new product. The commercial will also help CB gain entry into a new international market: South Korea. The long-term financial benefits for CB could be significant, but Jennifer is worried that CB will use all its working capital on this operation. Moreover, CB does not have a Korean speaker amongst its staff.
Jennifer and the staff see the production of the TV commercial as an opportunity for CB to enter a new market and grow. Jennifer has two strategic options for CB:
- grow internally by producing the TV commercial in Australia. CB would finance the whole operation and employ additional staff: translators, local Korean actors, and technical support staff.
- form a joint venture with a Korean media company. CB would share the costs of the operation with them. The TV commercial would be produced in Seoul, South Korea. Given the size of the operation, CB would relocate one of their teams to Seoul.
Explain two benefits and one cost to CB of using an employee share-ownership scheme.
A share-ownership scheme at CB is likely to be seen as a financial incentive as well as gratitude and trust of employees from management. Better performance of CB employees will likely result in more profit and hence more dividends, as well as potential for capital gain if the price of shares increases due to a sound organizational performance. Hence, a clear stake for the employees in the company, creates greater likelihood for the employees to be motivated, creative, fit the organizational culture, and contribute to a better performance of CB. There is evidence in the stimulus that the employees are creative, loyal and as a result, CB has been awarded a substantial contract.
An employee share-ownership scheme will enhance the current culture and complement the democratic leadership style of Jennifer. The financial and other rewards from share ownership create the much needed self-motivated and creative employees.
There is evidence in the stimulus that this is indeed the case at CB with three of Jennifer's college friends still at the company. Higher staff retention / low staff turnover reduce costs of recruitment for CB, enhances its reputation, which will further reduce the costs of future recruitment due to its reputation.
Profit sharing via share ownership might be also perceived as fair by employees further increasing motivation. If profit is not made, CB's management may not be obliged to provide extra financial incentive. Such a decision is unlikely to create resentment among the employees.
Accept any other relevant and applicable argument.
However,
Jennifer wants CB to grow and expand even internationally. The possible cost to CB is that as the company grows and more employees are added, each individual share-ownership reward is potentially diluted. This situation may cause some resentment between current employees. The former may feel that it is unfair that the latter may receive the same share-ownership reward.
More shareholders will prolong the strategic decision-making process and with more people some disagreements are likely to emerge, which may reduce the current flexibility and responsiveness of the creative teams.
If the share-ownership scheme is related to CB's share price and this falls, then morale within CB could decrease. Employees' motivation may be negatively affected.
Accept any other relevant and applicable issue.
Application should extend beyond just stating the issue to be credited.
Mark as 4+2.
Award [1 mark] for identifying each appropriate benefit for CB of using an employee share-ownership scheme up to a maximum of [2 marks] and [1 mark] for an appropriate explanation of each benefit with relevant application to CB up to a maximum of [2 marks].
[4 marks] in total for two benefits.
Award [1 mark] for identifying one appropriate cost for CB of using an employee share-ownership scheme and award an additional [1 mark] for an appropriate explanation of the cost with relevant application to CB up to a maximum of [2 marks].