BUSI 640: Consulting Practice - Case Study for a Zero Wage Increase - SWOT Analysis - PESTEL Analysis - Business Assignment Help

Assignment Task:

Introduction:

House, Hearth & Home is a large hardware, furniture and building company with more than 100 employees. Its owner Mark is facing a tough issue about how to manage the upcoming payroll review process. The global economic downturn has had a major negative impact on almost all industries. In the economic downturn, the home improvement industry is also difficult to survive. This is because the economic growth of the industry is largely dependent on the disposable income of the household. These external threats have narrowed the growth space of revenue and profit. More seriously, the profit margin has even stagnated in several areas. On the other hand, in the past two consecutive years, each employee has received almost the same salary, which has led to the impatience of employees to financial progress. Symptoms of impaired corporate culture are gradually emerging. For example, many employees had low work motivation, and employee theft problems occur frequently. These problems forced Mark to timely find out the effective approaches of employee motivation and compensation management to change the current situation.

Situation Analysis:

Despite the decline in sales of House, Heart & Home, the quality of the company is maintained by some key employees of the company. To some extent, these excellent employees and managers are intangible resources that could add value to the firm. Obviously, among key employees such as Aaron of the Finance Department and Kyle of the workshop, innovation, a sense of responsibility and a positive working attitude still exist in the corporate culture. These positive factors are also driving the company's operating system and allowing the company to weather the storm.

However, a company with more than a hundred employees can not be maintained by only a few excellent employees, but by the efforts of all employees to achieve profit growth. Surprisingly, however, most of the employees performed very badly. Not only that, managers sometimes even allow them to do some incorrect behaviours, such as job absence. Also, there is a lack of communication between managers and employees. Although Mark was dissatisfied with the employee's slack behaviour, he did not show this emotion to them and did not give them any feedback. Moreover, some staff made up their zero increased wages in an unethical way, such as stealing store items.

In addition, as far as management is concerned, it is imperative to consider any available source of funding that increases wages to encourage employees who have lost or have not been motivated. However, the rise in salary is a tricky financial issue for the House, Heart & Home. To this end, Aaron put forward some creative ideas to address this issue. Mark could either choose to retain assets or invest in new assets. For instance, because of its low efficiency, Mark can consider cutting advertising expenses, then save money to purchase new security systems or repair old buildings. Mark can also use it to pay off part of the debt or increase the salary for all employees and management. But the dilemma is that these hard-won funds may be more worthy of the firm's future strategic development.

Problem Statement:
The top priority for House, Hearth & Home is whether the owner should raise wages for employees in 2011. If so, how to develop an effective compensation distribution plan?

SWOT Analysis:

Internal Factors:

Strengths:

• An amount of self- motivated employees and managers
• The company provides high-quality products
• Company is at opportunistic state due to the options of saving the assets and/or investing in new assets
• The owner has a personable, straightforward and close connection with the management 
• Company has successfully managed to survive through the economic downturn

Weaknesses:

• Sales have shrunk and profit margins have narrowed
• Staff lack the motivation to perform tasks with excellent customer service
• The owner lacks communication between staff and management
• The owner has a lack of management control of the firm's corporate culture
• Lose competitive advantages in terms of compensation

PEST Analysis:
Economic:

Threats:

• Competing companies are trying to regain market share after the economic recession
• The global economic recession that affects business around the world 

Social:

Opportunity:

• Firms can research and implement employee incentive approaches

Technological:

Opportunity:

• New technology available to install security systems

Porter’s Five Forces:

The Threat of New Entrants - Medium:

Although House, Hearth & Home has a strong brand identity and its high-quality products, it is losing customer loyalty due to the slack in work and poor customer service. At the same time, because of the global economic downturn, whether for House, Hearth & Home or other new entrants, is difficult to obtain sufficient funds.

The Bargaining Power of Buyers - Medium:

In general, products purchased by the Home improvement Industry are standard or indistinguishable. This means that House, Hearth & Home's competitors can easily find substitute suppliers. Moreover, the conversion cost is relatively low for the buyer, which indicates that the buyer's bargaining power is medium.

The Bargaining Power of Suppliers- Medium:

The products offered by the suppliers are non-differentiated, which means the company can look for other suppliers. This shows that the supplier's bargaining power is not high.

The Threat of Substitute Products and Services - Low:

Substitute products may limit the potential benefits of the industry. However, since House, Heart & Home has its high-quality products, it is not easy to get the threat of substitute products.

The Intensity of Rivalry among Competitors in an Industry - High:

Due to the global economic downturn, the slow growth of the industry allowed the company to focus on market share to increase sales and create more profits. But non-differentiated products cannot gain a competitive advantage for House, Hearth & Home. Also, the high fixed costs put more pressure on the company's production capacity.

Alternatives:

Alternative 1:

The first alternative Mark could consider is to raise the salary of all employees by 3% with progress improvement savings. This decision will allow the company to pay a higher salary for more than 100 employees in all departments of the company. The benefit of this alternative is that it can effectively improve the overall morale, work enthusiasm and confidence level within the organization. The lack of motivation in the firm will also ease, resulting in improved employee performance. More importantly, in the current global economic downturn, this strategy can help the firm's employees to be trusted and offer reassurance to the staff so that they would feel a sense of security to the job and enable the company to improve its performance.

However, the downside of this decision is that employees who have performed poorly within the company will continue to receive the rise in wage after this transition, and may also contribute to the inertia of these employees. This is likely to exacerbate the disharmony of employees within the company. Because high-performance employees or employees with good skills feel unfair. If their wages are the same as other staff, they may choose to quit. Another disadvantage is that the opportunity cost of raising the overall employee's salary by 3% is high (MacMillan, 2018). This is because the funds can be invested in other assets, such as the security system.

Alternative 2:

The second alternative that Mark can consider is to decide to only raise a salary for employees who truly perform well. The company may regard these employees as “minority”, since these savvy, efficient, and motivated employees are few in the organization, which may include Aaron, Wesley, and Kyle. The benefit of this strategic initiative is that these rewarded employees will continue to perform well in their functional areas and bring more benefits to the organization. Secondly, the link between wage growth and performance will promote the development of corporate culture. This may also motivate employees who are currently underperforming to realize the importance of a positive work attitude and work hard. In addition, this alternative is conducive to the intelligent allocation of company resources and expenditures, so that the company has additional funds to improve other aspects of the firm.

However, rewarding only these excellent minority can have negative consequences, especially other staff feel unfair and dissatisfied. If Mark only raises a salary for three of the more than 100 employees, this may result in a lack of justice for the organization.

Alternative 3:

The last alternative that Mark can consider is House, Hearth, & Home will keep all staff’s wages at the current rate. At the same time, the company will create a hybrid reward mechanism as a means of positive reinforcement. This decision can not only retain the "life-blood" employees but also stimulate the enthusiasm of other employees. This mixed reward system has a "fixed" base. On this basis, each member of the team can get a basic minimum wage (Cropanzano et al, 2007). Meanwhile, the organization rewards each employee based on their performance, so that these outstanding staff can earn extra compensation (Milkovich et al, 2002). This decision will allow employees like Aaron, Simon, Kyle and others to maintain a balance between how much effort they put to the firm and how much rewards they receive from the firm, thus satisfying them. The method of assigning performance bonuses will help the company to restore the staff's sense of value and enjoyment from their work and give them real autonomy.

Recommendation:
Compared to the other two options, alternative 3 is more feasible for House, Hearth & Home to deal with the financial problems and employee theft problems. The mixed reward system allows the firm to balance the different considerations through mixing equality and equity, not only to save the company’s limited funds but also motivate individuals and maintain team cohesion. Also, currently, an increasing number of firms are adopting this sort of hybrid pay system to give employees a sense of enjoyment and value in the workplace. 

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