IB Business Management HL 2.7 Industrial and Employee Relations Question Bank

Taxi-M (TM)


Taxi-M (TM) operates 2500 taxis in a developing country. All drivers are full-time employees and have a professional taxi license. Although not compulsory, TM regularly conducts safety inspections of the taxis. Though safe, most of TM's taxis are old and TM charges high prices. Many customers complain.
However, a multinational company, R E, with offices around the world, has started to offer a mobile application (app) called Best-Taxi (BT). Using their mobile phones, passengers can use B T to book and pay for a car journey. Any car owner can offer journeys through BT. For security reasons, the B T app registers passengers' and drivers' personal details.
TM's sales are falling and profits are down. A number of TM's drivers are becoming demotivated. Facing lower incomes, poor management and rumours of redundancies, many loyal drivers have left to offer taxi services using their own cars and the B T app. Some of these drivers are earning considerably higher wages than before.
The situation for TM appeared critical. However, local media have reported a higher rate of road accidents by B T drivers than licensed taxi drivers. Several of its drivers have assaulted and robbed customers. In response, TM's management decided to downsize and differentiate itself from B T by positioning its service as a high-price, high-quality traditional taxi service. TM will:
- sell older cars and lease new luxury cars
- develop a unique selling point/proposition (USP) emphasizing comfort and safety.
Customers can book taxis by telephone and by stopping them in the street. TM's target market will be business people, higher income families and passengers concerned about safety.

Define the term redundancy.

A component of the cost to customers is delivery costs, which are based primarily upon weight and distance to delivery location. Given the cost of delivery, RDM can generally offer competitive pricing in a 700-kilometre radius of Lobjanec. This 700-kilometre range means RDM can be price competitive in crucially important Germany but less so in such potentially lucrative markets as Scandinavia, the Netherlands, Belgium, France and northern Italy. To continue to grow and access these potentially lucrative markets, the chief financial officer has proposed that RDM build an additional production facility elsewhere in Europe, which would extend RDM’s market area. Given that the entire order/manufacture/delivery process could still be performed in Lobjanec, this new facility would require limited staff and most of the work will be done by robots. Before considering the expansion proposal, Jan knows that RDM’s marketing strategy must be addressed. RDM has no marketing strategy but rather a series of practices that have evolved since the Radeki de Dovnic family regained control of RDM in 1990. RDM has an outdated name, a weak brand identity, no relevant vision or mission statement and no written operations management strategy or human resources plan. The company makes good products at competitive prices and is responsive to customers’ needs. As a result, the company enjoys healthy profits for now. RDM’s relationship with stakeholders was profoundly changed by the move to automation. In the 1970s, RDM employed roughly 500 workers, making it the largest single employer in Lobjanec. In 2019, the business employs 117 people, only a small number of whom are involved in manufacturing. Further, most of those involved in manufacturing are not skilled manual labourers but highly trained engineers and computer experts who manage the automated process. Their attitudes, aspirations and motivations differ significantly from the workers who survived the Second World War and had worked under the Communist regime. With this reduction in, and transformation of, RDM’s labour force, the company no longer has the level of local influence that it formerly had.

If RDM builds a new production facility in Europe, an immediate consequence will be an increase in capacity. At current levels of output this would lead to a reduction in capacity utilization. The current output of RDM's factory is 20000 units a year, with a productive capacity of 21000 units a year before the new facility is built. If the new production facility is built, the greater capacity for the whole business will, at current levels of output, result in the capacity utilization falling to 50 % until production at the new facility starts.

Xi, the marketing manager, suggests that this increased capacity provides the opportunity for market development to be achieved by entering the United States (US) market.

The US market has similarities with Europe, with an aging population and low birth rate. Demand for customized healthcare devices is high. However, the healthcare system in the US is very different, with a much greater role for private sector healthcare compared to Europe, where much of the healthcare is state funded. In the US, 18 % of gross domestic product (GDP) is spent on healthcare compared with an average of 11 % in Europe. Advertising spend in the US is very high for the typical healthcare equipment business, which uses TV and the internet to reach individuals, whereas in Europe healthcare equipment businesses typically negotiate with government organizations. Average incomes in the US are higher than in Europe. Competition in the US is very high, although some major healthcare equipment businesses dominate the market. Industrial/ employee relations in the US are generally more decentralized than in Europe, with a lower level of unionization.

To assess the best way to enter the US market, some senior managers may have to move to the US and Xi may need to recruit some new staff in the US with specialized knowledge of US laws and regulations, as well as some additional marketing employees. Xi is aware that industrial/ employee relations are different in the US.

Existing staff will have to get used to new ways of working and are concerned about having to work with new staff in the US.

Describe one industrial/employee relations method used by employers.

When appointed manager, Martin had to address a long-term problem: the fact that over the years, the competitive position of The Imperial as Mombasa's premier seaside hotel had slowly deteriorated. New luxurious hotels were opening in the vicinity; with their spas, themed restaurants and fast WiFi Internet access, they offered better facilities and better services than The Imperial. They had a modern, high-tech feel; in comparison, the colonial charm of The Imperial looked old-fashioned. Its market share was shrinking. Because GP's interest in The Imperial was solely for profits, Martin was only given a limited budget each year for improvements and renovation. The long-term trend for The Imperial was worrying: there was a steady decline in room bookings, at a time when ironically tourism in Kenya was doing rather well. The number of tourists travelling to Kenya was increasing annually, and other hotels were experiencing a general trend of increasing, not decreasing, occupancy rates (Appendix 1). Martin read statistics from the Kenya National Bureau of Statistics and other sources of secondary market data. He conducted a marketing audit, constructed a position map and realized that The Imperial could attract new types of traveller interested in safaris or in cultural tourism. Besides his long-term marketing challenges, Martin had found that managing the working capital sometimes proved difficult in the short term, especially because of the seasonality of hotel operations. The Imperial occasionally had problems to follow its month-by-month budget. Now that he was manager, and not just Head of Reception, Martin had to design and implement strategies for dealing with those liquidity problems. His accountant recommended that The Imperial use separate profit centres for the hotel itself, for the restaurant and for the special events services. Non-revenue producing departments, such as housekeeping, would be established as separate cost centres. Martin also had to organize the preparation of final accounts for GP (profit and loss accounts, balance sheets) as he was accountable to $GP$ for the financial performance of The Imperial. A particular challenge came from the Catering Department overseeing the restaurant. The Head of Catering struggled both to manage the actual stock and to make the appropriate calculations of closing stock values. Martin also had a problem of human resources: how to improve his working relationship with Susan Chapman, the Head of Housekeeping. Susan's grandfather, Craig Chapman, had travelled to Kenya from Liverpool (UK) in the early 20th century to open and operate an orphanage near Nairobi. Unlike Roger Williams, who was already wealthy before he left England and went to Kenya to make even more money, Craig Chapman had a humanitarian motivation. When Kenya became independent, Craig stayed and continued to work for other non-profit organizations. His whole family lived in Kenya; his grand-daughter only left the country to study Hotel Management in the UK. In 2002, she came back and began working at The Imperial. The problem between Susan and Martin began when he was appointed as manager. Susan, too, had applied for the position. When she was not selected, Susan was very angry. Even three years later, she could not get over her feeling that she had been discriminated against.

Martin and Susan had similarities: they were the same age, had similar university educations, and neither fitted perfectly well in Kenyan society. They had, however, an important difference: their leadership style. Susan, though efficient, hard-working and committed, was very task-oriented.

She liked bureaucracy, formal accountability, and a clear chain of command. She had a scientific approach to decision-making. Her staff found her cold, official and impersonal. Martin, on the other hand, had a much more laissez-faire style. He believed in empowerment and delegation. Though he felt anxious when he saw there were minor problems that he knew he could fix quickly, he was always careful to let supervisors resolve problems. He was also warm, friendly and outgoing. Susan liked The Imperial very much; however, she still resented the fact that Martin had been appointed manager instead of her. As a result, she wanted others to think that GP had made a mistake in selecting Martin instead of her. She focused harder than ever on her job. She demanded more of the employees and was intolerant of even minor mistakes. The hotel, she was determined, should always be absolutely spotless and shining. However, as she became more demanding, the employees perceived her as too autocratic. They began to complain amongst themselves. The networks of informal communication amongst the employees enabled gossip and messages to move quickly through the hotel, such as stories and anecdotes of Susan acting overly autocratic.

Fearing that the situation would soon become a major problem, Martin suggested that she should soften her leadership style. However, in every appraisal meeting, she resisted any discussion about how she managed staff. Martin did not want to dismiss her; he highly regarded her as a valuable member of staff, whose role in the Housekeeping Department was essential. A French travel journalist who had recently stayed at The Imperial had written an article praising the high quality of its housekeeping: "We reach here the top of the highest international standards", he wrote, "in terms of benchmarking, The Imperial is très magnifique". Martin fully appreciated the professional importance of Susan. However he believed that, professionally, she needed leadership training. In November 2013, a particular situation brought these tensions to the surface. One employee in the Housekeeping Department, Guthoni, was frequently calling in sick and did not come to work. Rather than enquiring about the reason, Susan dismissed Guthoni for repeated absenteeism.

What Susan did not know is that Guthoni had been diagnosed with a terminal illness and required frequent medical treatment. Upon news of her dismissal, the other employees were outraged.

They decided to go on strike in December, one of the busiest months of the year for The Imperial. When Martin heard of the planned strike, he was very worried. If it occurred in December, The Imperial would not be able to reach its annual target profits. He started negotiations with employee representatives. He realized that the collective action was giving the employees a sense of solidarity that they previously never displayed. He also noticed that many other frustrations were coming out into the open - and he ironically saw the threat of strike action as empowering for the employees. They seemed to be taking responsibility for the operations of the hotel to a far greater degree than before. Martin wanted to channel their frustrations toward constructive ends.

He believed that The Imperial would emerge stronger from the conflict. He knew that he needed the full commitment and support of all the employees because big changes were on the horizon.

Equally important, he had to address the long-term external issues facing The Imperial because of changes in the external environment. Strategic decisions were necessary. He considered three options for The Imperial. Option 1: Make the case to GP that The Imperial needs to close for a whole year to allow for mass renovations in order to upgrade the hotel and reposition it to its former place as the premier hotel in Mombasa. Martin had recently travelled to Dubai and Muscat to see the most luxurious hotels in these regions. He understood that The Imperial had reached the decline phase of its product life cycle and needed rejuvenation. He believed that it was possible, although this would require substantial investment: - in the physical condition of the hotel almost to rebuild it entirely - in its marketing in order to relaunch it, maybe even with a new brand name. The new hotel would attract the same customer types, but the product would be much improved.

It would also need an improved workforce to match its new vision. Martin sketched out two possible approaches for a Human Resources Strategic Plan (Appendix 3). Option 2: Change the nature of the hotel by transforming all the rooms into self-contained apartments with small kitchens. The target market for these apartments would be business travellers staying at least one week. The marketing audit had revealed that: - there is an increasing demand for such apartments - very few hotels in Mombasa offer such apartments - the market is still small - the market has high growth potential. The revenue from these apartments would almost match the revenue from the current hotel operations; it would be more stable, with fewer seasonal fluctuations; both fixed costs and variable costs for cleaning and maintenance would be much lower. The apartments would be serviced once a week, rather than daily. According to Martin's workforce planning, this option could reduce the housekeeping staff by $70 \%$. Option 3: Form a strategic alliance with the famous safari tour company KenSafar. Together they would offer a two-week package tour. Customers would arrive in Mombasa, spend three nights at The Imperial, go on a seven-day safari tour, and then return to The Imperial for four more nights.

This would allow tourists to go on a safari, first getting adjusted to the time zone and climate and later rest for four days before returning home. The owner and manager of KenSafar was Kamau Onyango, a spontaneous, dynamic and charismatic Kenyan who had many networks and contacts, and intuitively knew market trends, even without market research. Kamau insisted that if the strategic alliance were to go ahead The Imperial would have to: - make some improvements to the appearance of the hotel - pay Kensafar a $20 \%$ commission for all hotel guests staying at The Imperial and booking through KenSafar - undertake a marketing audit. Which option was best? Martin was unsure...

Appendix 2: Excerpt from The Constitution of Kenya, 2010 Equality and freedom from discrimination. 27. (1) Every person is equal before the law and has the right to equal protection and equal benefit of the law. (2) Equality includes the full and equal enjoyment of all rights and fundamental freedoms. (3) Women and men have the right to equal treatment, including the right to equal opportunities in political, economic, cultural and social spheres. (4) The State shall not discriminate directly or indirectly against any person on any ground, including race, sex, pregnancy, marital status, health status, ethnic or social origin, colour, age, disability, religion, conscience, belief, culture, dress, language or birth. (5) A person shall not discriminate directly or indirectly against another person on any of the grounds specified or contemplated in clause (4).

Evaluate two alternative approaches to resolve the conflict surrounding Guthoni's dismissal.
Additional information
There is no additional information in this paper for Sections A and B.