CM could not believe that his company, which had once had the reputation as an industry leader in a local niche furniture market with an exciting future, could be facing bankruptcy. He wondered how the company's financial position could have deteriorated in such a short time. His intuition told him that the situation was the direct result of 'people problems' in the Adelaide manufacturing plant and the Darwin office. As he waited to meet with his finance manager, CM reflected on the events of the last five months.

Background

HS Furniture Co., founded in Adelaide, had long been the industry leader in a local niche market, with innovative designs and manufacture of self-assembled, compact, reasonably priced, furniture. The company was successful because of both its ability to react quickly to market trends and its reliability in the delivery of high quality, reasonably priced products, which CM attributed to its hardworking employees. CM, owner manager of HS Furniture Co, had been in the furniture business all his life and knew what it took to meet his customer needs, and run a factory. Demand for HS's products was constant. CM believed that employees felt secure and had a harmonious working relationship with management. CM saw no need to develop a strategic plan or to introduce formal HR policies or practices, believing that they would make the company inflexible and unable to seize business opportunities as they arose. Functions such as finance, marketing and production were CM's priority. As a result, HS had no personnel or HR department. HR activities were undertaken by CM or a few trusted line managers, with all key decisions being made by CM. Although this sometimes resulted in unfair and contradictory decisions, CM believed it gave the company speed and flexibility. CM micro-managed all operational activities including relationships with key customers.

While there was no formal performance appraisal or performance management system, because of the smaller size of the business, CM believed he or his managers were in a position to provide continuous guidance to employees, and stress performance expectations, especially that all employees work hard. There was no other evidence of goal-setting for employees. CM tended to intervene after a problem occurred (e.g., poor customer service, problems with product design/quality etc) by taking the employee/s aside to discuss the issue/s, and provide remedial on the job training as he saw fit. He saw any further, formal training or career development as personal development and thus expenses that should be incurred by the employee. But he was 'paternalistic', treated his employees like family and placed great emphasis on loyalty. Company-sponsored familiar, social gatherings were frequent and as 'family members', all employees were expected to attend. Employee turnover was virtually non-existent.

In 2015, in order to take advantage of the company's strong local market position and to increase growth, CM decided to open a sales office in Darwin, NT. This required borrowing $550,000. Despite no skills inventory or any real awareness of the Darwin labour market, CM decided that the manager of the new Darwin office should be selected from existing (Adelaide) staff. He believed that someone with the right attitude and personality would be key to 'fit' and hiring the best candidate. Jane, a sales representative from Adelaide, was delighted when she was offered the job. In her late twenties, Jane had lived in Darwin with her parents during her high school years. Jane was ambitious, loyal had no dependants and was thus mobile. Despite not having any management experience, or indeed any work experience outside of her present job as a sales rep, Jane and CM both believed that she could comfortably manages sales and marketing, HR and accounting because she had studied these subjects in her business degree.

Having relocated to Darwin, Jane's first task was the recruitment and selection of staff for the Darwin office. HS had no written job descriptions or person specifications because CM regarded such things as bureaucratic nonsense. Despite no formal HR planning, Jane and CM decided that in order to effectively penetrate the competitive Darwin market, 11 employees were needed - seven sales representatives, a personal assistant, a receptionist, an accounts clerk and a sales clerk. Jane took a leaf out of CM's book and also sought applicants on the basis of attitude and personality, who were enthusiastic and ambitious, and preferably had a sales and marketing background or experience. Because of the weak labour market in Darwin, Jane found that she was able to hire university and VET graduates for all positions, despite having to pay higher salaries because of their formal qualifications. Jane was somewhat disappointed (and frustrated) when CM queried the level (and costs) of these staff, and insisted that payroll be administered by head office in Adelaide. Once hired, new employees were introduced to each other and then left by Jane to 'get on with the job'. Jane felt confident that employees would be able to handle their jobs, and that the Darwin office could maintain effective communication with head office via the company's intranet.

For the first six months the Darwin office seemed to be 'tracking nicely'. In fact a major company with a large distribution network had asked Jane to expand the business into into Indonesia via a joint venture. Additional international opportunities were also talked about, should the initial joint venture succeed. Jane saw this as a great opportunity to show off her managerial abilities to CM.

However, despite some early initial sales success in the Darwin market, the furniture styles that appealed to HS's Adelaide based customers failed to gain traction in Darwin. The competitive situation worsened with the recent introduction of rapid technological change that enabled the entry of competitors with more innovative, customised furniture designs at substantially lower prices than those offered by HS. In particular, the arrival of an aggressive, very large, European-based MNC that had more appealing computer assisted designs, and production technology that meant it could produce very similar furniture flat packs at substantially lower prices. At the same time, the joint venture proposal also fell through.

Tensions rose among the Darwin-based employees due to the introduction of Jane's unrealistic sales targets, the refusal by Adelaide-based head office to change designs or reduce prices, and the ongoing payroll problems caused by this role being performed by head office. As the pressures to improve performance increased, Jane became more aggressive and demanding, directing repeated and unreasonable comments and behaviour towards workers, while employees became passive, sullen and withdrawn.

With a substantial cost base in the Darwin office and few sales, CM began to angrily express his concerns to Jane. The firm's precarious financial position was made worse by a downturn in the local Northern Territory economy which meant severely reduced customer spending. Disappointed with the sales performance, Jane lost confidence in her employees and insisted that they constantly check in with her. Jobs that had given people responsibility, freedom to make decisions and use their initiative became routine as Jane assumed all decision making, with even minor matters having to be referred to her. Jane's heavy workload along with head office pressure caused her to become extremely quick-tempered. Staff morale plummeted as Jane's outbursts became more frequent. Her secretary and two sales representatives quit after Jane's anger exploded when she caught the sales clerk shopping on the Internet and fired her on the spot. When challenged by the employee, Jane shouted that an Internet policy was not needed as anyone with commonness would know that internet surfing/personal shopping during work hours was not allowed. Shortly afterwards, the company received a letter from a legal firm acting on behalf of the sales clerk demanding compensation for wrongful dismissal. Jane was further horrified when the incident was negatively reported in the local press.

By the end of the year, HS's Darwin office was in a dire financial position. Morale was at an all-time low, with employees openly discussing the future of the company and their likely termination benefits. In addition to the problems the company was experiencing in Darwin, the Adelaide operation had been affected by its first ever strike. Environmentalists had discovered that the timber used to make the furniture was taken from protected rainforests. They immediately joined with the trade union movement to make an example of HS. The slowdown in production meant that orders were being delivered late, causing several key customers to cancel their orders. CM felt betrayed by his workers, who he perceived to be 'family', and began to marginalise those at work who had been active in the strike. For example, by cutting their work hours and hence pay.

Although HS had been able to meet its first loan repayment, the second repayment was now overdue. Credit for advanced purchase of materials was withdrawn and the company's bank was applying pressure for all loans to be repaid.

CM became frantic. He now realised that the Darwin office was a mistake and that Jane lacked the management experience and know-how to successfully manage the expansion into Darwin. He reluctantly decided that for the parent company to survive he had to close the Darwin office. Although CM's knowledge of employment law tended to be minimal, he worried that the closure of the Darwin office could result in HS being faced with large claims for breach of contract regarding employment and leasehold arrangements. In particular, he worried about what he should do with Jane. Although no written employment contract existed, CM had verbally promised Jane that she could stay in Darwin for at least two years in order to justify her move to Darwin. He was also unsure of the terms and conditions of employment of the other staff in Darwin, although he thought that Jane had discussed these with candidates in the employment interview.

Instructions : Answer the following questions

1. Discuss the two strengths, weaknesses, opportunities and threats of the organization above by using the SWOT framework.(CLO 2)

                                                               

2. Identify and discuss issues related to human resource in the case. Support your answer with academic literature. (CLO 3)

                                                                

3. Discuss strategies to improve employee motivation in the case. Support your answer with academic literature. (CLO 2)

                                                                

4. Assess the current strategies of recruitment and selection, training, performance appraisal management and employment contracts at HS. Evaluate reliability and validity of their recruitment, selection and performance appraisal methods. Discuss the effectiveness of current HR practices. Please provide literature to support your answers. (CLO 3 & 4)

5. Assume you, as a HR consultant, had been employed in 2015 prior to CM's decision to open the Darwin office. As a HR consultant, what would you have done differently? Describe what changes and/or HR practices you would introduce. (CLO 3 & 4)