The Business of Highseas UK - Case Study Example

Rewarding Highseas: Part Introduction Highseas UK started as a publishing company which produced amagazine for the shipping industry and has now diversified into several different industries related with the shipping business. With this growth and the addition of new employees across several different departments, the human resource management function of the company has suffered tremendously creating morale issues, retention problems and difficulties in reward management. A full analysis of the situation is required before recommendations can be made for improvements in the system. The Current System The current situation at the company represents a small to medium sized company since it has fifty-six employees split into four departments within the company. At the very top of the company there are two managing directors who govern the overall operations of the business. These directors have not taken a direct approach to managing individual departments since the expansion of the company because their focus is on strategy and control. This gives the other directors who handle other departments a lot of leeway in how they manage their staff and there seems to be no consistent policy across the company in terms of how company wide appraisals and rewards are to be managed. The company is focusing on their core competency and on their profit centres to a very high extent. However, the company does not seem to focus on the human aspects of working with people and managing their human capital. By putting the HR management function as a subset of the administration function with only one person to deal with company wide issues, it seems that the company has made a grave oversight. Not having a specific HR department and not creating company wide policies for the management of rewards has created different territories within the company where individuals leave their own mark on how they work and how they function as managers within the company. The Departments For example, the sales department follows a policy of rewarding employees based on performance and with bonuses for creating additional sales opportunities for the company. A basic salary is given to them which is at par with the average salary for the events department but this is augmented with bonuses and commission. At the same time, the department is flexible in terms of how many hours a salesperson needs to be in the office. There is strong camaraderie in the department with working lunches and a livelier environment. In fact, the comparison between the sales department and the events department is made quite clear by the term used by the sales personnel who consider the events department to be the library where everything is quiet. Of course the environment in both departments certainly takes its cues from the person who is managing the department and controlling how everyone else works within the same section. The leadership and management methods used in the events department certainly needs improvement because the environment is turning into a toxic one. With a closed and controlling system of management, the events department comes across as being overworked and underpaid. Their contribution to the company seems to be completely without recognition in terms of money or in terms of appreciation for what they do for the company. While the sales department may be a direct profit centre, it must be understood that the events department can also be seen as a profit centre because it creates the events which the company can sell to others. Micro-management and the pressure to perform on the events department is certainly taking its toll since employee turnover, de-motivation and signs of being overworked are certainly present. The silver lining is certainly present in the shape of the publishing department where the situation is quite positive. The credit for the situation can be given to the Publishing Director who has experience in managing the workers who are within the department. The pay structure appears to be at par or better than the industry averages and the atmosphere of the department is professional as well as supportive. However, even in this department improvements can be made because the company as a whole has provided little opportunities for growth and development in terms of individuals climbing the corporate ladder. Overall, while the company is running along, there are some troubling signs which could point towards disasters coming in the future. To avoid this and to prevent some departments from losing their current performance levels, it is necessary for the company as well as the individuals leading the company to change their attitudes towards certain things. These include the management of human resources, the training given to employees and most importantly the reward management system for those individuals who perform above and beyond the call of duty. Suggestions for Improvements There are three key areas in which the company can have improvements to better itself and create a more positive environment for the workers. The first area which needs development is a rewards management system which should be based on performance and individual input towards the goals of the company. The second is the creation of a positive environment where individuals are valued as being the biggest contributors towards the mission of the company and finally the provision of training for those who need it most. Reward Management Hard work should always be rewarded. This adage is the simple philosophy behind the process by which many companies and businesses reward their employees and workers. There are theories which have been given by experts and real world processes which have been implemented in many companies. The relationship between the two is seldom obvious but connections can always be seen to exist between the two. Highseas, as a company, has to understand that the idea of improving performance for the individuals is inalienably linked to the rewards which people getting for improved performance. GE certainly understands this since it is one of the most admired and respected companies in the world. General Electric which has had an exceptional track record when it comes to recruiting, keeping and working with talented HR assets. Many experts have given glowing tributes to the innovative ways performance management takes place at GE. Even though the company has been in existence for more than a century and has often been the top ten of Fortune Magazine’s list of most admired companies (Demos, 2006). From 1998-2002 it retained the No. 1 spot and in 2006, it took the top honours in both the global list and the American list (Fisher, 2006). While the company is huge and employs thousands of individuals around the world, the business practices it engages in can be applied to all enterprises regardless of size (Schmitt, 2001). Highseas should link the rewards given to the employees directly to the mission of the company. Jack Welch was the CEO of GE for a long time and he reports on his own company that “Every decision or initiative was linked to the mission. We publicly rewarded people who drove the mission and let go of people who couldn’t deal with it for whatever reason (Welch, 2005, Pg. 16).” Highseas should also use a two pronged approach of rewarding and doing the utmost to keep the best talent within the company and letting go of those who do not perform to a certain level (Grote, 2002). The CEO of Ogilvy & Mather, Shelly Lazarus has been on the GE board for the past five years. She says that the process of rewarding employees begins as soon as the recruitment process is started. Even being offered a position at GE is a cause for celebration for a person since GE develops leaders who are groomed to take up positions at the head of the company. The reward system is based on a strict meritocracy and only gives benefits, perks and bonuses to those who deliver above and beyond what is required (Demos, 2006). With such a method, the company could go above the risk of rewards being given to friends within the same department and those who show top performance would be the ones who get what is due to them (Grote, 2002). The rewards themselves should be made public so that members of the company know who they need to emulate in order to be successful, this could also inspire people to stay on with the company so they can get the rewards they see others getting (Morris & Colvin, 2006). Welch (2005) agrees that the idea of public rewards and bonuses can be dangerous but also says that everyone seems to know what everyone else got anyways. The idea of rewards being based on the overall merit of an employee is not a new one but GE applies this idea to the letter. Their review and evaluation process ensures that no person gets rewarded for mediocre performance and every star in the company if given the attention s/he deserves. At the same time, GE has the policy of removing the bottom 10% of its employees every year (Grote, 2002). Welch (2005) wrote very clearly about differentiation and rewarding employees when he said: “When people differentiation is real, the top 20 percent of employees are showered with bonuses, stock options, praise, love, training, and a variety of rewards to their pocketbooks and souls. There can be no mistaking the stars at a company that differentiates. They are the best and are treated that way” (Welch, 2005, Pg. 41). Looking at Mr. Welch’s words for rewarding those who are the stars of the company shows us clearly that GE’s policy is to reward these persons with money in terms of bonuses, participation in the company in terms of stocks, love and appreciation which further motivates the people. The management at Highseas must understand that rewarding employees by money or other means is considered a part of the critical functions performed by a manger at any level in the company (Armstrong, 1999). The rewards given to the stars are not limited to money (even though that is a big factor for motivation) other influences like appreciation and training can also serve as rewards for many of the same people who feel undervalued by their employees. The Many Faces of Training Training is such an essential component of the management functions of a company that it was part of the recommendations made for scientific management by Fredrick Winslow (Kanigel, 1997). Even though his ideas of scientific management were for application with steel mill workers decades ago, those ideas can still be appreciated since they are very likely to help workers in a business such as Highseas. Training can be seen as an unnecessary cost by those who do not believe that individuals should be trained by a company but in fact should have the skills and abilities which allow them to function as productive members of an organisation from day one (Smith & Hayton, 1999). This certainly seems to be the case at Highseas since the company negotiates salaries based on the skills the individual comes with and does not allow for the learning capacity of a person at the time they develop their skill set. The company must realize that with training they can intrinsically increases the level of productivity within the company and reward their personnel by showing them that the company is willing to invest time and money in them. A worker who is able to produce more and give better quality output after a few training sessions is certainly more valuable to a company than someone who simply knows how to get by with their present skills (Smith & Hayton, 1999). That person may not need micromanagement and as s/he spends more time with the company s/he would be more likely to be considered for promotions and higher positions within the company. Admittedly, investing in people is a risk which comes with providing training to individuals but as the management at Highseas knows, the basic point of all business is to take calculated risks. The Environment The business environment at the company can find a happy medium from the one used in the publishing department which is professional and supporting and the same should be replicated in other departments of the company. Even the culture in the sales department seems to be much better than the one followed in the events department since it seems that the people in the events department are being given a toxic environment which they are voting against by leaving the company. However, if the company had to select one environment to follow between the sales and the publishing department, the sales department culture would be the one recommendation. This is because modern companies often take the lead in having abnormal cultures as exemplified by Apple which was the first company in the 1970s to redefine what a ‘cool’ corporate culture should be. Unlike the older companies, Apple was flat instead of being hierarchical and was mostly casual rather than formal in terms of attire and work timings. Executives could walk about the company campus in short sleeved shirts. Even today, anyone wearing a suit is looked at with surprise even though Apple has been a long time member of the Fortune 500 (Hertzfeld, 1982). Burlingham (2003) argues that the culture of a company can go a long way towards making the company act like a small business or act like a large bureaucratic organization. Small business being the better of the two since that is what a modern MNE is recommended to act like. Welch (2005) correctly recommends that the modern company should not have a bureaucratic system because it leads to inefficiencies when it comes to decision making and the empowerment of employees. Burlingham (2003) gives a detailed review of the culture at Zingerman’s Community of Businesses which includes everything from the hippie sandals and casual clothes worn by the CEO to the financial figures of the company showing a huge profit and more than ten million pounds in sales. Conclusion There are many things which need to be changed at the company but the reward management system seems to be the most important aspect that is hurting the company as a whole. Similarly, the environment in the events department and the lack of training in other departments also needs to be addressed. It seems that all of these problems can be settled if the company decides to invest in a few positions to create a human resource department which can govern how these things are to be managed within the company. Rewarding Highseas: Part 2 The policies for rewarding and appraising employees at Highseas should be based on the theory of differentiation between employees. The basic idea in this method is to split employees within a department into three segments as category A, B and C employees in which forced ranking is used to figure out which employees are performing better than others. This method of ranking employees is not only used by GE by also other global companies such as Microsoft, Cisco, HP, Sun, Capital One, PepsiCo and Intel amongst many others. Sun exactly mirrors GE’s system to discriminate employees by saying that 20% are superior, 70% are “Sun Standard” and 10% are underperforming. On average a quarter of all the companies in the Fortune 500 list have established this practice of division as a reward management standard (Grote, 2002). For Highseas, the process of establishing who must be rewarded is a rather delicate question and could create a huge debate for the senior management when it comes to appraisals. However, there is no easy way to handle this except linking the performance of the individual to the category they are placed in. For example, a salesperson who gets more clients than any others in the company is easily better than the one which does not. In the cases where employees are performing to more or less equal standards, a further examination must be made to force a ranking between them. The same can be done for the quality of output in the publications department or the event management department. Once the employees have been setup into groups, the following actions should be considered. Action Taken A B C Employees are Evaluated and placed Top 20% of the company Middle 70% of the employees Bottom 10% of employees Short term strategy Rewarded and awarded Motivated and trained to come to higher standards Warned and motivated Long term strategy Considered for and given leadership positions Moved within the company or within departments to find best fit Removed from service It must be made clear that all of the management’s attention is not to be given to the top 20% or the bottom 10% of the pile. In fact Welch (2005) declares the middle 70% to be the most valued asset for the company since they are the ones who do the majority of the work. With enough training and attention, this group could produce many stars at a future date. Schmitt (2001) has commented on the differentiation based rewards and evaluation plan and called it the closest it comes to rewards in the real world. Certain rewards can also be made public as in the case of employee recognition and appreciation awards. By making it public, the information can be used as a motivational factor and it lets all employees see which persons are the stars of their divisions and who are facing the risk of being let go. Therefore, as recommended by Boxall and Purcell (2003) GE is using rewards as a tool for strategic management as well as motivation. Kerr (1996) goes as far as to say that we instinctively know how to motivate others and we do it continually when we deal with anyone who provides us with a service. Knowing the basic theory of needs such as the hierarchy system for needs which works behind motivation is not important according to him. He uses the example of children and says: “When it comes to our jobs, though, we tend to get distracted by a blizzard of ideas with jargony names, offered by high-priced consultants. Does your daughter want to ride her bike with her new friend? If you tell her she can, but only after she cleans her room, youve just put into place an "operationally defined, cost-neutral, performance-contingent reward system." (Kerr, 1996, Pg 94) With this the in mind, the bonuses and rewards for employees at Highseas can be made components of the salary as well as the benefits package as shown in the following table: Pay Component Example Use for company mission Base Salary Hourly or yearly salary given to employees Attracting and retaining the bench strength of the company Allowances/Benefits Daycare services, discounts on company products or products from company allies. Giving additional benefits to a captured market Short-term incentives Long weekends for event management team who stay over one weekend to help with the event. Improvement of employee motivation and cooperation between employees Long term incentive Stock options for a broad range of employees Sense of ownership and pride for the employees along with financial benefits Most importantly, the process of differentiation for appraisals and selecting the individuals which have to be rewarded is not a one way street. The employees also differentiate between employers and if a department is seen to be suffering from heavy turnover and a lack of output, the management can also be asked to change or to update their management methods. This can be done with training for that individual or even rotation into another department within the company. As the department heads review the performance of their employees, the performance of the department can also be reviewed by the managing directors even if it means they have to take a deeper interest in the operation of Highseas. Differentiation and rewards is also a tool for removing those who are not fit for the work environment or need to be let go in order to bring fresh blood into the company. Welch (2005) has summarized the differentiation process of rewarding performers and punishing underperformers by saying: When all is said and done, differ­entiation is just resource allocation, which is what good leaders do and, in fact, is one of the chief jobs they are paid to do. A company has only so much money and managerial time. Winning leaders invest where the payback is the highest. They cut their losses everywhere else. (Welch, 2005, Pg. 38) It seems that this is the only realistic way to manage rewards within a company that wishes to keep the best HR given to it and remove those who have been recruited as a mistake or those who are not a good culture match for the same company. Works Cited Armstrong, M. 1999. A Handbook of Human Resource Management Practice, Kogan Page. Boxall P. and Purcell J. 2003. Strategy and Human Resource Management, Palgrave & Macmillan. Demos, T. 2006. The World’s Most Admired Companies. Fortune. 153(4): 72. Fisher, A. 2006. America’s most admired companies. Fortune. 153(4): 65-76. Grote, D. 2002. Forced Ranking: Behind the Scenes. Across the Board. 39(6): 40-46 Kerr, S. 1996. Risky business: The new pay game. Fortune. 134(2): 94-97. Morris, B. and Colvin, G. The GE Mystique. Fortune. 153(4): 98-104. Schmitt, J. 2001. Welch has a lesson, even for small shops. Contractor Magazine. 48(10): 16. Welch, Jack. 2005. Winning. HarperCollins: New York. Kanigel, R. 1997. The One Best Way. Viking. Smith, A. and Hayton, G. 1999. ‘What drives enterprise training?’, International Journal of Human Resource Management, vol. 10, no. 2, pp. 251-272. Hertzfeld, A. 1982. ‘Gobble, Gobble, Gobble’, folklore.org, [Online] Available at: http://www.folklore.org/StoryView.py?project=Macintosh&story=Gobble_Gobble_Gobble.txt&topic=Management&sortOrder=Sort%20by%20Date&detail=medium Burlingham, B. 2003. The Coolest Small Company in America, Inc,. vol. 25, no. 1, p. 64-72. Read More