Build your IB Business Management SL Human Resource Management foundation through questions on people, organization, motivation and workplace change.
Accord's Enrich brand is built around natural ingredients, ethical objectives, corporate social responsibility and customer loyalty, but sales have been below forecasts. New customers are confused about whether Enrich is fruit juice or an energy drink, think its health benefits are exaggerated and consider it too expensive. Enrich averages $3.00 per bottle compared with $2.20 for similar MNC products. The MNCs have stronger brands, larger promotional budgets and economies of scale. Aran favours expanding production to reduce unit costs, while Kayla is concerned about research, positioning and the brand. Kayla's snack-bar proposal uses Enrich flavours and recipes and would require $100000 investment with forecast net returns of $80000 for four years. The healthy snack-bar market is highly competitive, dominated by large companies with substantial advertising budgets, but it is growing by an estimated 34% per year and small businesses have entered successfully on a small scale.
Aran and Kayla decided to launch Detox using batch production. It has now been on the market for six months. Detox is showing strong growth, although sales for the first six months were less than a quarter of Kayla's target of 160000 bottles for the first year. The price of Detox is per bottle. The cost of goods sold is and the operating costs before interest and tax are per year.
Enrich sales have not grown much and Aran is very disappointed. Customers, mainly athletes, do not use the product frequently and it is difficult to find new customers. However, research into customer perceptions indicates a very strong brand, resulting largely from Accord's corporate social responsibility (CSR) and strong customer loyalty.
Aran does not like the way the business is organized by product and wants to change it so that it is organized by function instead.
Following the success of Detox, Kayla wants to produce a range of snack bars based on Enrich 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 the proposal would involve an investment of , with forecast net returns of for four years. Aran thinks that the money could be better spent on marketing Enrich drinks.
With reference to Accord, explain one advantage and one disadvantage of an organizational structure based on product.
SGS
SGS operates a worldwide delivery business. SGS's aim is to deliver all packages on time, at low prices, anywhere in the world. Its Chief Executive Officer (CEO) Jean-Paul Lominé is known even by customers as an autocratic leader. Twice a year he sets prices and targets for costs and customer satisfaction.
S G S has three main competitors, Company A, B and C.
Primary market research revealed that customers value delivery on time, but many would pay higher prices for a more environmentally friendly service. It also showed that customers did not know whether SGS followed socially responsible "green" (environmentally friendly) practices. Customers also believed that the company's current autocratic leadership style did not fit with "green" practices.
Jean-Paul decided to change his leadership style from autocratic to situational*. He wrote a new aim for S G S : to make it the world's greenest delivery company. He ordered the Operations Department to recommend possible strategies. The Operations Department suggested two:
- purchase new, energy-efficient airplanes
- adopt new software to set fuel-saving air routes.
The Finance Department calculated that purchasing new airplanes would be a significant cost resulting in higher prices to customers. Tactically SGS would purchase a new airplane each time an existing airplane required significant expenditure to keep it flying. Adopting new software would require major computer upgrades, but the cost of the investment would be quickly recovered from fuel savings. The Marketing Director reported to Jean-Paul that if customers did not realize that SGS was now more environmentally friendly, they might think that it had only increased prices. Jean-Paul, however, refused to listen to the Marketing Director.
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* situational: style of leadership that is also called situation leadership
}
Explain one disadvantage of Jean-Paul changing to a situational leadership style.
AFA’s growth created diseconomies of scale, declining gross and net profit margins, management unhappiness and concerns about recruitment. Sam and Finn disagreed about fringe payments, a worker cooperative and a possible takeover. The potential international retailer could provide fresh capital, online presence and intangible assets, but might not retain employees or managers and could threaten AFA’s fair-trade mission and stakeholder relationships. The existing financial data and takeover details in this question’s root must remain available to the user.
AFA was at a critical point. Sam and Finn had not fully resolved their disagreements. They seemed to be constantly arguing but Sam could also see that new issues were emerging. At their most recent meeting in early 2018, Finn provided the following financial information to illustrate the declining trend in gross profit margin.
Table 1: Selected financial information for A F A
In addition, the recruitment of new staff was becoming a problem, as the wages that A F A offered were much lower than fair trade competitors. In a meeting between Sam and Finn, they argued over the best way to financially reward and motivate newly recruited workers, given the lower wages paid by A F A.
Finn argued for a reward system based on fringe payments (perks), as this was being offered by AFA's main competitors, the supermarkets. Sam countered that AFA should form a cooperative involving all physical stores. He argued that creating a worker cooperative could give all members a sense of community and fulfillment and motivate them so that all members of the cooperative would benefit. There would also be additional stakeholder benefits. Finn argued that a worker cooperative was too difficult to organize and operate and would not solve the problem of recruiting staff.
In the meantime, A F A was continuing to attract a good deal of publicity. Sam had appeared on a national television show about young, innovative entrepreneurs. After the television show ended, one very large international retailer with a strong online presence contacted Sam about the possibility of a takeover. Sam initially refused, but as the details of the takeover became clear he started to seriously consider the opportunity. By selling the business Sam would have enough fresh capital to start new, innovative businesses and make some of his other visions and ideas into reality. In addition to the corporate social responsibility (CSR) AFA was generating, the takeover would give AFA access to other intangible assets. However, the international retailer had indicated that it could not guarantee keeping all existing and newly recruited employees and managers. Finn and Kim were both very worried that Sam would even contemplate the takeover, which they felt was an act of betrayal to all the stakeholders of AFA.
Explain one benefit and one cost to AFA of using fringe payments (perks) to financially reward staff.
Martin and Susan were internal stakeholders with a conflict over Martin’s appointment, Susan’s resentment, her task-oriented and increasingly autocratic management, and Martin’s laissez-faire style, empowerment and delegation. The Imperial’s fixed costs could include the salaries of hotel staff, fixed electricity or internet charges, local property taxes and contracted promotional costs; under Option 2, fixed costs and variable cleaning and maintenance costs would be lower because apartments would be serviced weekly rather than rooms daily. Martin considered three Ansoff choices: Option 1 would renovate and relaunch the existing hotel for similar customers, Option 2 would transform rooms into apartments for business travellers, and Option 3 would form a strategic alliance with KenSafar to reach package-tour customers. Empowerment could give employees authority, responsibility and autonomy, increasing job satisfaction and motivation and encouraging better productivity. Susan was efficient, hard-working and committed but bureaucratic, formal, cold and autocratic; Martin was warm, friendly and laissez-faire, allowing supervisors to resolve problems. Martin’s leadership could support empowerment, while Susan’s task focus could protect housekeeping standards but damage morale.
Explain how being empowered by Martin Kimathi can positively affect the job satisfaction, motivation and productivity of the employees at The Imperial.
Evaluate the effectiveness of Susan Chapman's and Martin Kimathi's leadership styles, and their implications for The Imperial.