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The Best-Laid Incentive Plans
There are a few areas of concern that the Rainbarrel Products Corporation is facing. These areas consist of: lack of discipline, lack of a structured training regimen, and a way to get Rainbarrel back in trim.
The strategic issues are a result of not identifying where the problems are and what can be done to solve them. With the use of the SWOT analysis we will be able to analyze the internal and external problems faced by Rainbarrel Products. Such as: Could the threats in the external environment be too much of a challenge for Rainbarrel? Can Rainbarrel's strengths get the corporation back in trim? Does Rainbarrel's weaknesses have room for improvements and will the customer be able to recognize these improvements? Can Rainbarrel's strengths open any opportunities? During this analysis, Rainbarrel Products will be examined using the SWOT analysis and formulated using the Contemporary Approach to Strategic Control to determine modifications needed for Rainbarrel's strategies, objectives, and goals.
Our analysis will begin with a look into the threats of Rainbarrel Products, a diversified consumer durables manufacturer (Kerr, 2003, pg. 613). Rainbarrel Products has shown difficulties coming back from a slumping economy. A study of the company had shown a recent lax in management could be the reason why Rainbarrel Products have had a slower adjustment to consumer decline than their competitors. To bring Rainbarrel out of hardship the company hired Hiram Phillips as the CFO and Chief Administrative Officer of Rainbarrel Products.
After Hiram Phillips evaluated the company he developed a Performance Management System that would enhance business performance for Rainbarrel Products.
One year after the Performance Management System was put into action, Rainbarrel Products showed incredible results. Strengths of these results were reduction in labor costs, costs reduction on commission sales to employees, and clarifying job agendas to each area of sales showed incredible changes. There was evidence of lower costs as a result of higher productivity and improved customer service quality, as well as an increase in the number of on-time shipments being shipped (Kerr, 2003, pg.614). The reason these strengths were showing up was because employees were realizing what their mission was to customer service. Rainbarrel liked to emphasize customer service in its values and mission statement, but no reliable metric had been used to track what constituted “on time” and what constituted “shipped” (Kerr, 2003, pg. 614).
How do employees know what the companies' vision and mission statement is if the statements are not clear? To have a clear vision and mission statement there needs to be strategic objectives. For objectives to be meaningful they must be: (Dess, Lumpkin, & Eisner, 2007, pg. 34).
- Measurable. Employees are aware of monitoring to measure product fulfillment.
- Specific. Shipments are to be made when promised and checked off as shipped once left company property.
- Appropriate. Emphasis importance of vision and mission goals and objectives.
- Realistic. Set common goals each employee will be capable of achieving.
- Timely. Each department needs a time frame for accomplishing their products in a timely manner.
During a quarterly meeting, Hiram Phillips' attention was drawn to information that showed weaknesses in his Performance Management System. In Rainbarrel's R&D department there was an unprecedented level of negativity coming from complaints people had scribbled on their surveys (Kerr, 2003, pg. 615). One survey was quoted as
saying, “We're now highly focused on who's getting the most patents, who's getting the most copyrights, who's submitting the most grant proposals…But are we more creative” (Kerr, 2003, pg. 615). How is a company supposed to maintain competitive advantage if its employees are not striving for quality creativity?
Rainbarrel Products had a great opportunity to show improvement in their product line but there was a lack in the budget accessing. ‘Innovation X' project showed some great-unexpected results that were not believed to happen in the fiscal year. “ They're all saying this is the best thing since sliced bread, a generational leap on the product line, but they're getting no uptake” (Kerr, 2003, pg. 615). The ‘Innovation X' project could have been the opportunity Rainbarrel needed to jump back on track. Rainbarrel's weakness here is not having a realistic budget system for such opportunities.
Not only are there problems internally, but also externally. Longtime customer, Brenton Brothers, expressed their unhappiness of not receiving shipments on-time or at their request. “In some cases I've been told to take a late date or otherwise forgo the purchase. That becomes the promise date but not the date I asked for,” stated by the buyer Annie, (Kerr, 2003, pg. 616). Some of Brenton Brothers' shipments, that were recorded to have left Rainbarrel property, were found sitting on a railroad siding across from Rainbarrel (Kerr, 2003, pg. 616). When Brenton Brothers' sent e-mails to Rainbarrel's customer service department they found it difficult to receive an answer in a timely fashion. This problem was one affecting many areas of shipment and customer service.
What opportunity is available for Rainbarrel Products to make corrections in their corporation? Opportunity advancement for Rainbarrel would be to bring in an external source to design a knowledge management system. Information technology can often help employers cope with turnover by saving some tacit knowledge that the firm would otherwise lose (Dess, Lumpkin, &Eisner, 2007, pg. 149). This system will provide the sales organization access to information on client history and accounts. Employee's left after cuts or retirements will be able to understand what that employee was in charge of doing and how it was done. With different software data, Rainbarrel can monitor and evaluate customer service, shipping departments, and product manufacturing.
Having key motivation incentives for employees to use the system should also be considered. For example, Rainbarrel can offer point rewards for extra bonuses, stock investments, vacation rewards, or other incentives for employees who use the knowledge management system at every opportunity. Strong results of improvements in Rainbarrel's company should be visible when using the knowledge management system and also areas of competitive advantage can be maintained.
After evaluation of Rainbarrel Products and the Performance Management System, I believe the SWOT analysis and the Contemporary Approach to Strategic Control can offer great insight into the company's problems and future monitoring. The purpose to using the SWOT analysis is to identify key internal and external factors important to achieving the objective. Using the SWOT analysis I was able to identify the strengths of the Performance Management System, find and offer ideas for weaknesses brought to attention from the system, identify opportunities that can benefit the company's future, and turn threats into a competitive advantage for Rainbarrel. A company identifies each factor and looks at what weaknesses can become strengths in the company and what threats can be turned around to become opportunities for growth in competitive advantage.
In order to improve Rainbarrel's Performance Management System, they need to address a Contemporary Approach to Strategic Control. In this approach they will need to address strategy formulation, control, and implementation along with informational control [primarily concern with whether or not organization is “doing the right things] and behavioral control [is the organization “doing things right”] (Dess, Lumpkin, &Eisner, 2007, pg. 320).
First, a company needs to analyze its strategy formulation. In the contemporary approach, information control is used in analyzing the formulation of the company. By following up on these two key issues Rainbarrel will show more control when environmental changes occur. Two key issues are: (Dess, Lumpkin, & Eisner, 2007, pg. 321).
- Managers must scan and monitor the external environment.
- Conditions can change in the internal environment.
Rainbarrel's information control can be sought through what the book calls “double-loop” learning. With “double-loop” learning, an organization's assumptions, premises, goals, and strategies are continuously monitored, tested, and reviewed (Dess, Lumpkin, & Eisner, 2007, pg. 321). By Rainbarrel continuously monitoring they can see improvements with on-time shipments, an increase in satisfied customer response, and external threats will be identified earlier.
To analyze the formulation of a company one can use Economies of scope. Economies of scope can enable a firm to benefit from cost savings through leveraging core competencies and sharing of activities. Leveraging core competencies can improve Rainbarrel's understanding of the steps needed to take when looking at strengths of competitors and deciding to diversify products or services. Core competencies collective learning in organizations reflects-how to coordinate diverse production skills, integrate multiple streams of technologies, and market and merchandise diverse products and services (Dess, Lumpkin, & Eisner, 2007, pg. 202).
Leveraging core competencies has three criteria that can enable a firm to convey skillfulness and knowledge throughout the firms units. Requirements to meet these three criteria are: (Dess, Lumpkin, & Eisner, 2007, pg. 203).
- The core competence must enhance competitive advantage(s) by creating superior customer value.
- Different businesses in the corporation must be similar in at least one important way related to the core competence.
- The core competencies must be difficult for competitors to imitate or find substitutes for.
Corporations can also achieve synergy by sharing tangible and value-creating activities across their business units. Sharing activities also provides two primary payoffs: cost savings and revenue enhancements (Dess, Lumpkin, & Eisner, 2007, pg 204). Sharing activities can help employees strive for quality creativity together instead of against each other and also sharing of delays and updates automatically from the shipping departments with the customer service department can increase customer value. The cost savings for sharing activities come from many sources, including elimination of jobs, facilities, and related expenses that are no longer needed when functions are consolidated, or from economies of scale in purchasing (Dess, Lumpkin, & Eisner, 2007, pg. 204).
When sharing activities there are costs involved that benefits must outweigh. One cost is the advanced coordination required to manage a shared activity. Another cost is the need to compromise the design or performance of an activity so that it can be shared (Dess, Lumpkin, & Eisner, 2007, pg. 204). For example, giving one person a job that normally would be done by two people or separate units within the firm. A firm must carefully examine the activities so not to reduce any competitive advantage when going about sharing activities in the company.
Another example would be the use of a knowledge management system at Rainbarrel Products would offer ways for a person to view how each business unit is operating by just doing a search through the system. Also a person could look up information accessing it without having to involve other people. Therefore, the knowledge management system would show evidence of costs savings from having activities imputed into this knowledge system for sharing among different business units.
Second, a company needs to have a strategic control system. With the use of the contemporary control system Rainbarrel Products strategic uncertainties can be monitored at all times. The contemporary control systems must have these four characteristics to be effective: (Dess, Lumpkin, & Eisner, 2007, pg. 321).
- Constant focus on information that helps managers identify having potential strategic importance.
- Managers at all levels must review information on a regular basis.
- Data and information from control systems are to be interpreted and discussed in face-to-face meetings with superiors, subordinates, and peers.
- Contemporary control system is a key catalyst for an ongoing debate about underlying data, assumptions, and action plans.
Third, a company needs to focus on the implementation strategy. The contemporary approach to this uses the behavioral control. To implement behavioral control there are three key control “levers”: culture, rewards, and boundaries (Dess, Lumpkin, & Eisner, 2007, pg. 322). Rainbarrel Products can enhance their company's culture by having top leaders in the organization demonstrate their commitment to Rainbarrel's vision, mission statement, and the values that the leaders share with their employees. The reward leverage at Rainbarrel's can be sought through the competitive position at the company and the knowledge management system Rainbarrel could design. The competitive position allows the employees to compete for rewards but must maintain a level of quality productivity during their process. For the knowledge management system the rewards can be based on points determining how regularly an employee uses the system.
Finally, the boundaries leverage of behavioral control can be sustained through goals and objectives. The implementation of boundaries for Rainbarrel Products can be easily achieved with a contemporary approach. Boundaries and constraints can serve many useful purposes for organizations if they do the following: (Dess, Lumpkin, & Eisner, 2007, pg. 326).
- Focus priorities on achieving customer satisfaction and on-time shipment deliveries.
- Provide clear understanding of the companies goals for customer service, product development, and shipping.
- Improvement of employee job description allow employee to be efficient and effective on the job.
- Set rules on proper way to respond to customer calls, e-mails, problems, and services.
The overall Contemporary Approach to Strategic Control can help a company to stay alert to their external and internal environments. This constant alert will offer continual monitoring of goals, objectives, and strategies. A company that can respond effectively and efficiently to all goals and objectives in the strategic environment will discover improvements in how a company approaches issues in times of concern. The use of the SWOT analysis and the Contemporary Approach at Rainbarrel Products should give them a plan of action to work at improving the Performance Management System, that has shown great improvements already, and importance of continuous monitoring of external and internal environments.
Dess, G. Gregory, Lumpkin, G.T., & Eisner, B. Alan (2007). Strategic Management 3e.
Dess, G. Gregory, Lumpkin, G.T., & Eisner, B. Alan (2007). Strategic Management 3e. Chapter 9 2007. 2 Oct. 2007<http//www.mhhe.com/dess3e>.
Kerr, Steve (2003). The Best-Laid Incentive Plans. Harvard Business School Publishing Corporation, 613-616.