Details

CASE STUDY WEEK 8 on PHG (People’s home gadgets)

Question:

People’s Home Gadgets (PHG) is a relatively young company that competes in the consumer electronics and appliances industry (TVs, computers, kitchen appliances, etc.). It has quite a large selection of items, and the range of the products PHG carries spans the price spectrum of very low cost to very high end. For example, some of the company’s kitchen ovens cost just under $400, while others cost well over $4,000. The company also has low-end affordable televisions under $400, as well as very pricy large plasma televisions that cost over $6,000. Throughout the price range, PHG strives to be a low-cost leader for the quality of the product. Compared to its competition, PHG offers a very competitive, if not the lowest, price. In addition to the cost focus, PHG prides itself on providing exceptional one-on-one customer service. In fact, the name of the company–People’s Home Gadgets–is intended to reflect both the strategy and the philosophy of the organization. With a focus on costs and customer service, the name reflects the company’s concern with the financial burdens customers face as well as the vast amounts of information that customers must process when making purchasing decisions.

The name PHG also refers to the company’s philosophy for managing customer service representatives: The company cares about its employees’ long-term well-being and success. Most customer service representatives who work at PHG are typically hired through personal referrals of current employees, or occasionally an advertisement will be placed in the newspaper when more than one opening exists. Each month, customer service representatives receive product training to explore the new products they will be selling to ensure that they are knowledgeable and can respond to customer questions. To motivate them to sell, they are rewarded on a commission-based pay plan. What is interesting about this particular incentive plan is that the customer service representatives have some discretion regarding the final price of the products. Most products have a standard markup of 10% to 25%, of which the employee gets a portion. While many of the products sell for the list price, sophisticated buyers and repeat customers are often able to negotiate lower prices for their products. The challenge with this plan is that the company has a reputation for low costs, and customer service representatives who are not willing to negotiate the sales price are viewed as going against this objective. By lowering the prices, however, they are cutting into their own take-home pay.

Up to this point, the company has done fairly well, and it now has six stores on the East Coast between Philadelphia and New York. With a focus on low costs and customer service, the company has been able to sustain reasonable growth–it just opened two new stores–and a modest level of customer satisfaction among its consumers. At the same time, however, while the customer service representatives seem to be fairly happy and work hard, their turnover is around 70% per year. This turnover obviously involves costs associated with constantly hiring new employees, and it also has a negative impact on customer loyalty and the level of experience of the customer service representatives.

As the company has grown, Lukas Phillips, president of PHG, has realized that he doesn’t have the time or expertise to attend to all the issues related to policies for managing people. Recognizing that it is time to hire a full-time director of HR, Lukas has decided to hire Paula Hillman. Paula has seven years of experience in HR in a manufacturing facility located nearby. Although Paula’s experience is in manufacturing, Lukas was encouraged by her enthusiasm for creating a fun and effective workplace. During the course of their discussions, Lukas told Paula that his main goal for her in her new job is to design an HR system that reduces the turnover among customer service representatives, encourages them to work hard toward the company’s competitive advantage of low costs and high customer service, and adheres to his principles of taking care of employees.

Answer the following questions by applying the concepts learned in Chapter 14. Also, conduct literature reviews on the subject of discussion and use to support your case study answers:

1. Provide advice to Paula regarding the nature of the HR system she should recommend for the customer service representatives at the six stores.
2. Identify a key strategic performance driver for this organization.
3. How do the customer service representatives contribute to the strategic performance driver you identified?
4. Design an HR system to realize the strategic performance driver you identified. Be certain to explain how you would (a) design the work environment, (b) manage employee competencies, and (c) manage employee attitudes and behaviors.