Tweeter Home Entertainment Group - Research Paper Example

Tweeter Home Entertainment Group Introduction All companies today have a strategy, which they use to achieve their goals. This might be a simple strategy or a complex one, depending on the nature of the company. Nonetheless, both small and big companies have strategies, whether these are unstructured, formal, or informal. As long as these have strategies, they are capable of moving forward. In strategic planning, it is of essence that a company invests in the empowerment of its employees, especially the senior most employees, including managers, who are the responsible driving forces behind the achievement of company goals and objectives (Cole, 2003). Empowerment comes in different forms, including financial and non-financial incentives for employees, among others. This essay focuses on store managers, and how empowering them can lead to effectiveness in their jobs. Using a case study of Tweeter Home Entertainment Group, I will be able to establish in this essay, the effects of incentive-based programs on the ability of store managers to increase sales and the general performance in the retail company. The Case Study Description DeHoratius Nicole and Raman Ananth conducted this case study on Tweeter Home Entertainment Group in the year 2007. These authors mainly focused on the influence store managers have on the sales of this company, with regard to incentive programs provided by the company to these managers. Tweeter Home Entertainment Group was a company located in New England. This was a retail company with various stores. Tweeter Home Entertainment Group specialized in the sale of different electronic products. These included audio electronic products, video electronic products, as well as electronic accessories such as camcorders. Most customers of this company were the high-income earners in society, who were well-educated and prioritized quality of products (DeHoratius & Raman, 2007). The store managers in this company played an integral role. These were mainly tasked with ensuring that the company sales increase, and the shrinkage level reduces. The store managers therefore, employed various tactics in ensuring that they achieved this. These included consumer education and product promotion, as well as monitoring of financial issues and deviant consumer behaviors such as shoplifting in the company in order to keep an eye on shrinkage. Generally, store managers in this company were charged with many tasks, which required dedication and motivation for effective performance (DeHoratius & Raman, 2007). Nonetheless, Tweeter Home Entertainment Group realized the importance of employee motivation, and therefore, provided different incentives to the store managers for their efforts. Store managers in Tweeter were allowed a low penalty on shrinkage, and rewarded differently for the sales they made, depending on their total sales. Previously, the penalty of store managers on shrinkage was high. In addition, the reward on total sales made was lower. However, when the management changed this reward system to include low penalty on shrinkage and increased rewards on total sales, the company experienced growth, as the company gained 4.2 percent of sales (DeHoratius & Raman, 2007). The previous incentive program was known as the BMS plan, while the latter incentive program was known as the tweeter plan. This clearly indicates that an incentive program that results in higher returns for a store manager will consequently result in an increased retail performance. On the other hand, low incentive plans lead to inhibited growth or negative growth for a company (Lauby, 2005). Case Analysis As noted earlier, a good company will have different strategies, which aim at helping it achieve its goals and objectives. Strategies vary in a company to influence different spheres in the company. A company that lacks strategy is as good as having no direction, and is unlikely to achieve its goals and objectives (Cole, 2003). The first observation about Tweeter Home Entertainment Group is that, this was a visionary company, as it had different strategies, which helped it move forward. Specifically, Tweeter Home Entertainment Group had strategized on employee motivation as a way of increasing the productivity of company. By developing different incentive programs for the store managers, this company wanted to ensure that these employees were motivated enough to work harder, as these were among the most influential employees in the company, considering the roles, they played in the company (Lauby, 2005). Tweeter Home Entertainment Group was a company that believed in expansion, and therefore, acquired a considerable number of other retail stores. For instance, in 1996, this company acquired Bryn Mawr Stereo (BMS). Then it acquired the South Advice and United Audio Center and Douglas TV stores in the years 2001 and 2000 respectively. During the housing market period in the US, which had experienced a great boom, Tweeter Home Entertainment Group became influential, because of its various acquisitions, which had enlarged it (DeHoratius & Raman, 2007). After acquiring new retail companies, the mainstream Tweeter Home Entertainment Group had to figure out how to realign the strategies of the new acquisitions to rhyme with those of this company, and its goals and objectives. When Tweeter Home Entertainment Group acquired the BMS, according to this case study, it had to change this company’s strategy, with regard to employee motivation. This change of strategy was therefore, experienced in the changes effected in the incentive programs of this company, which were aimed at the store managers. The previous strategy was named BMS incentive plan, and then this was transformed to the Tweeter incentive plan. These two incentive plans had the same structure, but different approaches. Nonetheless, both performed their role in the company, although their effectiveness varied largely (DeHoratius & Raman, 2007). In both BMS and Tweeter, the store managers were offered compensation, which was based on their performance and work output. This was through the two different incentive plans. In both plans, the compensation drew largely from shrinkage and sales output of the store managers. This strategy boosts the motivation of store managers, so that they perform even better in their roles, as these are core to the productivity of the company (Latham, 2006). Before the acquisition of BMS by Tweeter, its incentive plan for store managers considered both shrinkage and sales by the store managers. Store managers were offered bonuses for sales ranging between 0.2 and 5 percent, which had exceeded company targets. On the other hand, each dollar shrinkage resulted in one dollar penalty for the store managers. This strategy was therefore, aimed at minimizing shrinkage in the stores, since the penalty for shrinkage was high, and this raised different concerns about shrinkage in the company (DeHoratius & Raman, 2007). In the new incentive plan, otherwise known as the Tweeter plan, less attention was focused on shrinkage, but on sales. The sales rewarded for went as high as 20 percent, compared to the 5 percent in the BMS plan. Shrinkage penalty was $20 for $100 shrinkage, compared to the $1 for $1 in the BMS incentive plan. Therefore, comparing these two incentive plans, the Tweeter incentive plan was more sensible, even though it also had a number of flaws. A major flaw was the fact that the Tweeter incentive plan was not continuous, but would last for a specific period. Nonetheless, when Tweeter Home Entertainment Group changed the incentive plan from BMS to Tweeter, there were various changes that were experienced in the performance of the company. These showed that the Tweeter strategy was more effective, compared to the BMS strategy. This change in incentive plan had led to a 4.2 percent increase in sales of the company (DeHoratius & Raman, 2007). Although the Tweeter incentive plan was more effective than the BMS plan, this still did not address all the needs of the company appropriately. This plan lowered the shrinkage penalty for store managers and increased their sales compensation, compared to the BMS plan, which increased the shrinkage penalty and lowered sales compensation. Therefore, the new Tweeter plan resulted in increased sales for the company, which was good, and increased shrinkage, which was detrimental to the company. This shows that the store managers in the new plan put more efforts in sales, and less efforts in shrinkage, as they took advantage of the low shrinkage penalty. Therefore, although this incentive plan was effective as compared to the BMS plan, it failed to meet the needs of the company fully, as it led to high shrinkage in the company. Nonetheless, it is better for a company to have a strategy, regardless of how flawed it is, as the company can improve on it with time (David, 2009). There were different types of competitive forces, which Tweeter Home Entertainment Group faced. Great competition was from similar retail companies that specialized in similar products. The competition was mainly based on the market segment of Tweeter Home Entertainment Group and its competitors. While Tweeter targeted the affluent class in society, most of its competitors targeted the middle income-earners. Therefore, there had to be a difference in product pricing, as well as product quality between Tweeter and its competitors. While its competitors had to sell products at a lower price to the average income-earners, Tweeter had to maintain its prices high, considering the high quality of its products. It is therefore, eminent that the competitors of Tweeter Home Entertainment Group made more sales, considering their market segment and product pricing. In order to compete favorably in the market, Tweeter employed the strategy of diversification to beat competition. It achieved this through acquiring various retail companies, and expanding to different areas in the country. By diversifying, Tweeter was in a better position to reach the wealthy people in the new regions, which it had not covered previously, thus increasing overall company sales. Another strategy the company used to compete favorably and make more sales as its competitors was through the Tweeter incentive plan. As seen, this plan increased the motivation of store managers by compensating them based on their performance. After using this strategy, the company registered an increase of up to 4.2 percent in sales. Therefore, this was instrumental in helping the company increase its sales levels to compete with those of its competitors. This proves that diversification and employee motivation are good strategies to counter competitors forces, since these strategies increase company productivity (Daft & Marcic, 2010). By adopting the new strategies in management, the company was being proactive. When taking over the ownership of a different company, the management changes. Therefore, it is important that the new management adopt new strategies, since the old strategies of the company might not be effective when the company is under new management (Daft & Marcic, 2010). Therefore, Tweeter adopted a new incentive plan after acquiring the BMS so that this could be in alignment with the overall company goals, objectives, and practice. This would help the company meet the challenges in the market, especially from its competitors, as far as sale of products is concerned. While the previous incentive plan focused on shrinkage, the new management had to change this plan to focus more on sales, since the company needed more sales in order to beat its competitors in the market. This in turn was effective, as more sales were realized. Recommendations Tweeter Home Entertainment Group did well in developing an incentive plan for its store managers, who largely influence company productivity. The Tweeter plan employed turned out to be more effective than the previously employed BMS plan. Although this was effective, it maintained high shrinkage, and therefore, did not realize maximum profits for the company. Therefore, if Tweeter would develop its strategies differently in the future, this would have led to better results, as far as company productivity is concerned. First, the company’s incentive plan to its store managers was contractual. This means that after a period of time, the incentive plan is withdrawn, until at a later stipulated period. For a company interested in high productivity, this is not an appropriate approach in strategizing. Therefore, I would recommend that Tweeter should have embraced employee motivation as a continuous strategy, over time. This is because, for motivation of store managers to be effective, the incentive plan ought to have been promoted on a month-to-month basis. This way, the sales will remain high throughout. A major factor behind this is that the work output of store managers depends on the amount of benefits attached to it. Therefore, a continuous motivation results in a continuous productivity for the company. Since store managers influence shrinkage, sales, and volume, the management should ensure that compensation in all these three areas is appropriate. Concerning shrinkage, the Tweeter incentive plan increased shrinkage in the company, because of its low penalties in the area. This was challenging for the company, as previously, high shrinkage penalty had resulted in low sales. Since it is inappropriate to place both shrinkage and sales at the same level, this company ought to have maintained the shrinkage penalty, but developed other strategies of ensuring that the level of shrinkage in the company drops. I recommend that competitions between store managers would have been employed. Since the Tweeter plan made store managers focus more on sales, they all registered high shrinkage, which if exceeds a certain limit, becomes detrimental to the company. The company could therefore, aim at rewarding the individual store managers, who registered low levels of shrinkage in their performance. Doing this would motivate other store managers to equally focus on shrinkage and lower it. This would generally lead to a balance between sales and shrinkage, thus improved company productivity. There would therefore be low shrinkage and high sales, which is healthy for the company, as opposed to high shrinkage and high sales. Conclusion For the good performance of any company, strategic management is a prerequisite. If a company formulates a strategy, this might turn out to be a competitive advantage for the company. However, the employees involved must be motivated, since these are the vehicles of change of the company. Therefore, company managers have no choice but to develop strategies for their companies, in order to change. The Tweeter Home Entertainment Group was forced to employ a strategy in its management, which would ensure change and increased productivity in the company. This strategy involved employees, and considered their motivation. This incentive plan for store managers resulted in increased sales for the company. However, the company ought to have ensured that this incentive plan was continuous, and not limited to a specific timeframe. References Cole, G. (2003). Strategic Management. London: Cengage Learning. Daft, R. & Marcic, D. (2010). Understanding Management. New York: Cengage Learning. David, F. (2009). Strategic Management Concepts and Cases. New Jersey: Prentice Hall. Retrieved from http://buduson.files.wordpress.com/2012/02/strategic-management.pdf DeHoratius, N. & Raman, A. (2007). Store Manager Incentive Design and Retail Performance: An Explanatory Investigation. Manufacturing & Service Operations Management 9(4), pp. 518–534. Latham, G. (2006). Work Motivation: History, Theory, Research, and Practice. London: SAGE. Lauby, S. (2005). Motivating Employees. New York: American Society for Training and Development. Read More