t is readily apparent that Duplox Copiers has been using a classical managerial strategy in previous years and that their solution to the problems they are facing is to become even more classical. They have fragmented jobs in order to make it easier to train new technical service specialists (TSS) and to replace TSSs who quit. They have tightened controls on TSS behaviour and expenditures. In so doing, they have increased TSS productivity dramatically and have succeeded in keeping expenses down. But this has come at a big costdissatisfied customers and dissatisfied TSSs, as well as a dysfunctional organizational culture in which dysfunctional behaviour and conflict flourish. Interestingly, while managers benefit financially for the productivity increases and the cost reductions through their compensation systems, none of this flows to the TSSs, who are responsible for creating the productivity increases and cost reductions. Overall, it appears that the technical service specialistswho are key to customer satisfaction with the company and its productshave borne the brunt of the firms declining competitive position. Their jobs have become unattractive in many ways, and the firm has been forced to increase their extrinsic rewards (mainly pay) to make up for their diminished intrinsic rewards. Lets take a look at whats happened to the job characteristics of technical service specialists in recent years. Skill variety has been reduced, since they are now dealing with only one type of machine. Task identity has been reduced, since it is often not possible to complete the repairs on a machine due to lack of parts, and often another TSS will finish the job when the parts come in. As for task significance, the implication from top management and other departments, such as sales, is that they are not doing an important job, and they are clearly playing second fiddle to the sales department, who belittle their abilities and their tasks. Their job autonomy is very low, since they are monitored closely, have to check to get parts, have strict cost guidelines, and are even overruled when it comes to proper installation. They do get feedback, but it is mainly negative, as they take blame from all sides when a problem occurs. This is a classic situation for stress, where individuals are held responsible for situations over which they have very little control. One of the key problems in this organization is the reward structure, which is causing conflicting goals between key units in the firm, especially sales and service. Because the pay of sales people is strongly related to volume of sales, they tend to focus on selling new machines, based on the idea that if they sell a new machine, they will also make money from the service contract that usually goes along with each sale. They are not prepared to risk a sale just to ensure proper installation, and top management seems to back them up on this. On the other hand, service managers are rewarded on reducing service costs as much as possible by increasing the number of machines serviced by a TSS, keeping service times low, and minimizing parts inventory. Because of charge-backs against their budgets, they are even reluctant to call in help or advice from the training and support unit. Of course, all of these things work against one another and against customer satisfaction. The companys rigid policy on charge-backs also greatly reduces the inclination for sales managers to invest in training for their sales personnel, since the cost is then deducted from their sales results. This doesnt help either. So what managerial strategy does this situation call for? Until now, the firm appears to have focused only on task behaviour, with little or no focus on membership behaviour or citizenship behaviour. Since the TSSs work on their own, the firm has created a complex set of external management controls to monitor task behaviour. Given the need for thinking behaviour in diagnosing and dealing with equipment failures effectively, and the need to deal with customers in a satisfactory way, there is a need for all three types of behaviourtask, membership, and citizenship. This, of course, suggests a high-involvement managerial strategy. Lets look at the contextual variables more systematically. The environment has become less stable, with more competitors, and also more complex, as products grow ever more complex and diverse. The competitive strategy that the firm has implicitly been using is the defender, where they try to excel in a fairly narrow domain, or low- cost strategy, as they try to compete by reducing costs. Parts of their technology are routine, such as routine servicing, while other parts are engineering, where specified procedures are used to address breakdowns and quality problems. For the sales part of the operation, the technology is mediating. The products dealt with are things, in terms of servicing the machines. The size of the organization is medium to large. Skills required of the workforce are moderate to high, as are the economic circumstances. As can be seen, these contextual variables are somewhat mixed, and they dont all call for the high-involvement strategy. Indeed, an argument could be made for the human relations strategy. However, the key deciding factor is the fact that most employees, both sales and service, work independently without supervision, and we need them to exercise self-control. So this calls for the high-involvement strategy. Once students come to this realization, then the general outline for the organization structure that they need will flow from Compensation Notebook 2.1. Of course, students need to flesh these out by applying them specifically to Duplox. However, before they work on specific recommendations, students need to apply the behavioural framework to provide more insights on the causes of the problems at Duplox and to point them toward possible solutions. I dont expect them to apply all the behavioural concepts in Chapter 3, but I do expect them to show application of the behavioural framework by using some of the concepts appropriate to this case. I've already mentioned some relevant concepts from Chapter 3, such as job characteristics and intrinsic motivation. Another example is reward issues. Reward problems include reward dissatisfaction and the production of desired behaviour with undesirable consequences. Most of the causes of reward dissatisfaction are evident, including relative deprivation and a la lack of organizational justice. To keep the TSSs, base pay has been increased, which produces continuance commitment at best. In this firm, there is no evidence of affective commitment. Expectancy theory can be used to show that TSSs have a low expectancy of meeting the standards to obtain merit awards, and possibly low instrumentality even if they do, since the number of merit awards is strictly limited. The expectancy of the sales staff is diminishing as well, since customer dissatisfaction is increasingly making sales difficult. For the move to a high-involvement style, quite a few changes need to be made. TSS jobs need to be broadened; coordination needs to become more horizontal; communication needs to improve; and decision making needs to be pushed down the hierarchy, with more reliance on self-control. One key structural feature could be the use of teams of technical service specialists, with each team assigned to a specific set of customers, probably designated on a geographic basis (For example, one team might handle all the servicing needs for southwest Edmonton.) Within each team would be TSSs who collectively have the skills to install and service all machines in their territory. These teams would be virtual in the sense that members still work individually, or possibly in pairs for training purposes, but would communicate electronically and through regular face-to-face meetings. Each team would designate one member to serve as the coordinator, but it would be useful to have this role rotate over time. But to make this work requires a very different reward and compensation strategy from what is now in place. Some type of group performance pay plan would be useful for each team, probably some type of goal sharing, which would incorporate a variety of group performance and customer satisfaction goals. A key part of this would be a pay-for-knowledge system for TSSs. A three-by-four skill grid can be developed, with the four model series across the horizontal axis and the three levels of skills (i.e., Levels I, II, and III) along the vertical axis. To tie TSSs into organization goals, they should also be included in profit sharing and employee stock plans. For managers, the dysfunctional system of individual incentives that work at cross- purposes throughout the firm should be eliminated, and all managers should be rewarded on their contribution to a common goal, most likely profitability. Charge- back systems that create a disincentive to use training and support services should be eliminated. For sales staff, the use of individual incentives should be scaled back, and those that are used should be based on more than simply sales volume, such as profitability of sales and customer satisfaction. Indeed, a customer satisfaction element should be included in the performance pay of all employees, whether or not they are sales staff or managers. A profit-sharing plan should be introduced but needs to be tied to the performance of Duplox Canada, not Duplox Incorporated. Although employee stock plans would normally be desirable, the fact that Duplox Canada is a wholly owned subsidiary of Duplox Incorporated diminishes their value because the performance of Duplox Canada will have only a small impact on the share price of Duplox Incorporated. The issue of what to do with indirect pay is a bit problematic. At 15 percent of total compensation, it is running considerably below the industry average of 20 percent. But is this a good time to be bringing this up to industry standards? It may help with recruiting and retention to some extent, but it primarily serves to create continuance commitment at a time when affective commitment is required. It might be better to either wait to bring this up, or to discover the highest priority of employees and put some limited extra funds there. The best way to proceed might be to move toward some type of flexible benefits plan, which would automatically show employee preferences. The key outcome of the strategy formulation process is a set of compensation strategy templates. One template is needed for each employee group that differs in its compensation strategy. This means that at least two templates are required: one for the pay-for-knowledge group and one for the job evaluation (JE) group. However, the job evaluation group needs to be segmented, because the same compensation strategy will not fit all the employee groups in it. Four JE groups would probably make sense: sales staff, professional staff, administrative/support staff, and the managerial staff. When filling out the compensation strategy templates, I dont usually require the students to provide a detailed breakdown of the individual items under indirect pay, since this chapter will not have been covered by the end of Phase I, but students should give some indication of the items they might include. Also, while the compensation strategy template calls for the specification of the types of performance pay to be used, the fleshing out of the performance pay plans will not be done until Phase III, along with the indirect pay plan. I have included a sample of a compensation strategy template for the pay-for- knowledge group (the technical service specialists), as well as a grading sheet that I provide for feedback (found in the last section of this notes package). I also give a blank copy of the grading sheet to students during the phase orientation, talking specifically about what I expect in each section. Feel free to adjust the grading sheet to suit your emphasis. Compensation Strategy Template Jobs Covered: Technical Service Specialists Total Compensation Level: Match? OR Lead? 5% OR Lag? % Compensation Component 1. Base Pay a. Job Evaluation b. Market Pricing c. Pay for Knowledge 2. Performance Pay a. Individual Performance Pay 1. Piece Rates il. Commissions iii. Merit Bonuses iv. Special Incentives b. Group Performance Pay i. Gain Sharing it. Goal Sharing iii. Other Group Pay c. Organization Performance Pay 1. Profit Sharing it. Stock Plan i. Other Organization Pay 3. Indirect Pay I. Mandatory Ben. Mandatory Benefits il. Pension Plan iii. Health & Life Insurance iv. Paid Time Off v. Employee Services vi. Other Benefits Projected Proportion of Total Compensation