ADED Support Services, Inc. (ADED) is a business with $542 million in annual revenues. It sells customer support services to manufacturers of durable consumer goods. So, for example, Whirlpool might contract with ADED to provide phone and online customer support services to those who buy its dishwashers.

Strategy

ADED competes as a cost-leader for contracts; this means (1) ADED’s prices are less than or match rivals’ prices, (2) the quality of its services is comparable to rivals’, and (3) its cost structure must be significantly less than rivals’ costs to create superior performance.

Staffing

ADED’s business model includes a workforce consisting of the following:

Job TitlePositionsFTPT

Technology Engineers 580%20%

Technology Specialists 30078%22%

Customer Service Representatives6,10063%37%

Customer Service Managers5591%9%

Sales and Marketing3090%10%

Administrative, Corporate, Support, and other 5095%5%

For the last three years, ADED operated with an average of 5,673 customer service representatives, which consisted of 3,574 full-timers. All other job titles were fully staffed.

Over the last quarter, ADED withdrew from four of the five contracts it was asked to bid on because its shortage of customer service representatives limited its capacity. The lost business was, and is, detrimental to ADED’s financial performance.

Customer Service Representatives

ADED’s job description for customer service represented included the following:

Customer service representatives answer product and service questions; suggesting information about other products and services. In addition, customer service representative process orders, prepare correspondences, and fulfill various other customer needs to ensure customer satisfaction.

Requires a high school diploma or equivalent and 0-3 years of experience in the field or in a related area. Follows instructions and pre-established guidelines to perform job functions. Works under immediate supervision of Customer Service Manager.

Employment and compensation survey data for customer service representatives indicate an average annual wage of $34,187 with an additional 36.4% in benefits. In addition, the average employment for a customer service representative was 4.2 years.

For ADED, customer service representatives average $30,377 in annual wages and 3.04 years of service. The overwhelming majority of customer services representatives started at ADED with no relevant experience and their average age at hire was 27.6 years.

Human Resources Management

ADED made filling its vacant customer service representative positions a priority. To facilitate this need, ADED’s CEO directed the human resources department to propose a new benefits program along with a 4% increase in wages for all FT customer service representatives. The compensation manager assembled the following table, which compares current average wages and benefits for full-time customer service representatives against three options.

Customer Service Representative - FT

Current

Option 1

Option 2

Option 3

Employer Costs

Wages

$30,377

$31,592

$31,592

$31,592

Medical Coverage

$4,752

$5,586

$4,752

$4,446

Dental Coverage

$250

Vision Coverage

$250

Health Savings Account

$200

$300

$750

Retirement (Defined Contribution)

$1,624

$1,689

$2,491

$970

Paid Time Off

$2,103

$2,187

$2,066

$2,430

Group Life Insurance

$94

$193

$193

$98

Group Disability Insurance

$167

$269

$237

$174

Health Club / Fitness Reimbursement

$240

$360

Tuition Reimbursement

$1,000

$750

$1,500

Benefit Notes

Medical Coverage Deductible

$1,000

$500

$1,000

$1,500

Medical Coverage Premium Co-pay1

$528

$294

$1,128

$234

Dental Coverage Maximum Benefit

$275

Vision Coverage Maximum Benefit

$275

Paid Time Off Days

18

18

17

20

Group Life Insurance Payout

$30,377

$63,184

$63,184

$31,592

Group Disability Insurance Payout

$16,707

$26,853

$23,694

$20,535

1 “Medical Coverage Premium Co-Pay” represents the amount employees pays for health insurance coverage through paycheck deductions. Currently, health insurance costs $5,280 per year per FT employee; ADED pays $4,752 and the employee pays $528.

Based on the above, respond to the following:

1. Can ADED afford the three options? To answer this question, calculate the productive value of labor for ADED and compare it against the total compensation and benefits for each option. What other information do you need to confirm the conclusion you draw from your calculations?

2. Which option is best suited to filling ADED’s vacant customer service representative positions? Explain by applying known relationships between benefits and employee attraction, retention, and satisfaction. Also confirm that the option you recommend is consistent with ADED’s cost-leadership strategy.

3. Assume ADED chose the option you recommended and filled all FT customer service representative positions. How much new revenue would ADED have to contract annually to justify the expansion? Show and explain your calculations.

4. Regarding customer service representatives, what is ADED’s CEO ignoring in her/his focus on modifying wages and benefits? Explain why this oversight matters.

Answer rating: 100% (QA)

1 The productive value of labor for AD ED is 5 42 million The total compensation and benefits for op... View the full answer