Evaluate how motivation and demotivation decisions affect employee behaviour, costs, performance and organizational outcomes in IB Business Management HL cases.
Davidson Studios Ltd. (DS)
Davidson Studios Ltd. (DS) is a private limited company created in 2018 and equally owned by two sisters, Emma and Laura Davidson. Both recent graduates, they design and produce fantasy board games, which are sold to local retailers.
Emma specializes in game design and Laura is the operations manager. The design of a new game takes 12 months. DS's first board game was a success and enabled DS to rent workspace and hire employees. The second game, Held Captive, was a massive commercial success.
DS had to move to larger premises and recruit more design, marketing and production staff. DS's organizational culture empowers employees to solve problems and gives them the opportunity to manage tasks. Employees also enjoy modern office spaces, generous breaks and competitive salaries. Quality circles and job rotation are common. Labour turnover is low and employee morale is high.
As production increased, however, DS ran into problems. With more employees to pay and invoices due, D S had almost run out of working capital (see Table 4).
Table 4: Selected financial ratios for DS
Two options are being considered to avoid further liquidity problems and continue DS's rapid expansion:
- Option 1: Accept an offer from Big Game Industries (BGI), the market leader, to purchase 51 % of DS's shares. BGI would keep the DS brand and install a chief executive officer (CEO). Emma and Laura would have reduced roles in DS.
- Option 2: Accept an offer from a venture capitalist to purchase 35 % of shares. This would provide a cash injection sufficient for the next 12 months.
Using Herzberg's motivation theory, explain two reasons for DS's high employee morale.
He knew that he could increase the scale of his business operations with the UWP Mission without any additional marketing. This would also allow for significant economies of scale, but the logistics would be more complex. He would have to drive and collect produce using dangerous remote unpaved roads outside the protection of the UWP Mission. These remote communities might perceive Kos as collaborating with the UWP troops. He would also have to dedicate all his time to his business and would no longer be able to work in the officers' dining hall. Although that job did not pay particularly well, it was in a safe environment and provided a regular source of income.
To collect larger quantities of produce in remote areas, Kos would need to purchase a large lorry (truck). He discussed potential sources of finance with his bank. The bank manager indicated as a condition for the granting of a loan that the bank would require the lorry as collateral. Secondly, the poor quality of the roads meant that the lorry would lose value quickly.
Kos prepared a business plan and compiled information comparing his current income to his forecast income if he increased his scale of operation (Appendix 5). The income comparison showed that the expansion of his business would be very profitable - as long as the UWP Mission remained in Loyka. However, even after a number of conversations with Colonel Donovan, Kos was still unsure how long the UWP Mission would remain in Loyka.
Consequently Kos drew up three possible options for his produce distribution business:
- Option 1: No change. Keep the same scale of operation and stay working at the UWP Mission.
- Option 2: Increase the scale of operation of his business. Sell more produce to the UWP Mission and to the university or hospital. Kos would need to leave his job at the officers' dining hall and lose his regular source of income.
- Option 3: Maximize the scale of operation. Supply produce not only to the UWP Mission and to the university or hospital, but also to retailers in Beral. In Beral there is no city-wide wholesaler for the produce that Kos distributes. Becoming a wholesaler would require setting up and managing supply chains, employing staff, increasing working capital and adopting a new business structure.
As part of his evaluation of Option 3, Kos Palouk consulted Sami Taibi, who owned and operated a medium-sized grocery store. Sami said that Beral had no reliable produce suppliers and there was a business opportunity if someone could make reliability their unique selling point (USP). However, the deterioration of the situation outside of the U W P-protected area was making reliable purchase and distribution of produce difficult (Item 1).
To ensure reliability, Kos would require a loan of \$ 42000 to:
- Purchase two lorries (2 at \$ 15000=\$ 30000 ). Because of the poor quality of the roads, the lorries would require frequent maintenance. One lorry could still deliver produce while the other was being maintained.
- Increase working capital (\$12000) for higher stock levels.
Unfortunately, the bank will loan Kos a maximum of \$ 30000, as they do not wish to loan funds for working capital as well as for the purchase of the lorries (Item 2).
Kos had an idea. He proposed to Sami that they merge his grocery store with Kos' wholesale produce business. The combined operation would be organized as a private limited company and Kos proposed a 50-50 share ownership. It would also have the following advantages:
- It would have two revenue streams: wholesale (from Kos' operations) and retail (from Sami's grocery store).
- The grocery store would acquire produce at wholesale prices.
- The combined operation would always guarantee supply to the grocery store before other customers.
However Sami was reluctant to give up 50 % ownership of his grocery store for an unproven operation. Sami made a different proposal: Kos would merge his wholesale operation into Sami's grocery store in exchange for 25 % of the shares of the new private limited company. The merger would also result in a new contract and management structure (Items 3 and 4).
Using Vroom's expectancy theory of motivation, or any other motivation theories, examine Sami Taibi's proposal.
Kayla and Aran decided that Kayla should manage marketing and finance, and Aran manage the operations and supply chain. They chose not to create a human resource department because Accord had a small workforce. Aran already had the overseas supplier contacts but would need additional suppliers of fruit and vegetables. He would also need to find space to prepare and store the energy drinks. Aran thought that if Enrich was successful, they might need to find a small factory. This factory would use job/customized production. Aran knew the price of the Enrich range was significantly more expensive than those charged by the large MNCs, which supplied an ever-increasing range of energy drinks, fruit drinks and other beverages. Enrich’s drinks averaged $3.00 per bottle, compared with a typical price of $2.20 for similar drinks from MNCs. These MNCs, such as ABC, were large and experienced in the beverage market and had significant branding advantages, economies of scale and wider promotional reach. Enrich was restricted to below-the-line promotional methods, which Kayla thought the most cost effective. Kayla’s secondary market research indicated that many of the competing energy drinks produced by MNCs were being sold to teenagers, contrary to government policies and agreements with retailers such as supermarkets. Kayla became convinced that Enrich could create a USP as the only locally produced, caffeine-free, all-natural energy drink. Enrich would be sold only through affiliated sports and leisure clubs. The additional health benefits and cost savings experienced by their customers would strengthen their USP and brand value. Aran saw things differently. He thought that treating Enrich as a niche product would narrow the possible market segments. He favoured a mass-market approach. Aran considered Enrich a significant product innovation. If Accord waited to launch the brand as a mass-market product, they would be missing out on potentially high profits. Becoming impatient, he argued that they should borrow immediately for revenue and capital expenditures to finance increased production. They would soon need more skilled employees to manage the equipment. After three months of operation without a decision, sales of Enrich were satisfactory but below forecasts. Aran and Kayla were both working very long hours. Feedback from their friends and fellow athletes was positive, yet new customers contacting Accord through social media said they were confused about whether Enrich was a fruit juice or an energy drink. They also claimed that the health benefits of Enrich were exaggerated and the drink was too expensive. After some further investigations into suitable premises and production equipment to support the future growth of Enrich, Kayla and Aran found an affordable abandoned confectionery production plant that would increase the production capacity. Some of the older confectionery-making equipment would need to be replaced. Kayla carried out some further market research to see if the additional capacity could be used for another drink that would complement Enrich. These drinks could form part of the lifestyle brand that Aran had envisaged. Her investigations led her to discuss with Aran the idea of a drink based on green tea, called Detox, which could allow athletes to relax after a hard training day. However, Kayla argued that unless they introduced this new product, Enrich would struggle to be economically sustainable.
Problems are continuing with Enrich drinks. Aran is becoming increasingly frustrated with the lack of growth of sales. He always wants to succeed and is driven by the need to get tasks completed. The Enrich part of his life is not a success. He blames the workforce. The workforce does not share his vision. Employees are mainly part-time workers and parents who value jobs that enable them to fit work around school hours. As Aran has become more autocratic in his leadership style, labour turnover has increased. Last month, from a workforce of twelve, one retired and two left for what they called "better jobs".
There are also increasing problems with the quality of Enrich drinks, as batches of Enrich are rejected by the quality control department. Elsie, the manager of the production department, blamed suppliers, saying that Aran had damaged business relations with them due to his impatience. Elsie also blamed Aran for poor stock management. She has proposed total quality management (TQM) as a solution to these problems.
Detox
Accord decided to start the production and marketing of Detox, the green tea drink that helps athletes to relax. Detox proved to be very successful. Encouraged by the success and boosted cash inflow, Kayla is considering producing a range of snack bars based on Enrich and Detox flavours and recipes. Accord would use the Enrich brand name for the snack bars. The market for healthy snack bars is very competitive and dominated by a few large companies who spend large amounts of money on advertising. The market is growing rapidly - some market researchers estimate by 34 % per annum. There are many examples of small businesses entering the market successfully on a small scale. Kayla estimates that the proposal would involve an investment of $ 100000, with forecast net returns of $ 80000 for four years. Aran thinks that the money could be better spent on marketing Enrich drinks.
Define the term labour turnover.