Problem Solution: Riordan Manufacturing
Riordan Manufacturing is a successful organization looking to improve overall performance and position the company for future growth. The organization was initially founded in 1991 and has seen significant growth since its inception. Today Riordan Manufacturing is a global competitor in the plastics market with over 550 employees. Projected earnings exceed $46 million with a heavy focus in plastic beverage bottles, custom plastic parts, and plastic fan parts.
The following review will analyze various issues impacting the organizations operations. Identified issues will be used to determine business opportunities while connecting improvements to key human resource management concepts. Key stakeholders in the organization will be identified along with the establishment of strategic end-state goals that will help guide improvements at Riordan Manufacturing. Major gaps in Riordan Manufacturing’s process will be analyzed using a standard gap analysis approach with accompanied alternative solutions that have a long-term focus. An optimal solution will be identified along with an implementation plan with meaningful end-state goals that support the vision of the organization.
Situation Analysis
Issue and Opportunity Identification
Riordan Manufacturing has developed various processes and procedures to manage the business. The organization maintains a heavy focus on research and development with a strong sales force to help distribute the various products. Manufacturing plants are situated in Pontiac, Michigan; Albany, Georgia; and Hangzhou, China with the corporate headquarters in San Jose, California. With rapid growth and expansion Riordan Manufacturing has begun to experience issues that will impact organizational goals and strategic plans. The key issues affecting the organization center on employee motivation, employee compensation, and a deficient career development process. These issues left alone will drive serious problems within the organization; however Riordan Manufacturing can benefit by acknowledging these issues and leveraging the new opportunities to promote the organizations overall strategic objectives.
Employees at Riordan Manufacturing are experiencing low motivation to perform at high levels. Motivational issues are driven by a lack of leadership within the organization and a deficient human resource management system. In addition to these shortcomings upper management personnel tend to focus on personal agendas and the importance of one department in the organization rather than banding together towards a unified vision or goal for the organization.
Riordan Manufacturing has the opportunity to optimize the Human Resource Management system and correctly diagnose the issues relating to a lack of employee motivation. Utilization of the expectancy theory in relation to human resource systems provides the optimal correction path for Riordan Manufacturing. Dreher and Dougherty state that “managers can use expectancy concepts to diagnose HR problems and recommend solutions. The expectancy theory also assists managers in understanding how changes in HR practices could have side effects on other behaviors in a way that was not anticipated” (2001, p.40). In addition to diagnosing and correcting motivational issues use of the expectancy theory will provide the management team with methodical approach for identifying trends that may lead to future motivational problems.
Based on various measurements both employees and outside sources, namely the Human Capital Consulting firm, believe that financial compensation is below market values. Employees also do not have a firm understanding of how pay is connected to job performance. According to the 2003/2004 employee survey employees believe that pay is mainly connected to seniority.
In addition to standard compensation individual incentives are not properly tied to performance. Departments such as IT and R&D significantly support the sales force and see little to no return. The apparent lack of alignment for financial compensation and work performance is driving misconceptions and compounding the current motivational issues. Organizations must realize that employee perceptions need to be considered reality for the employees; therefore the gap in understanding between the employees and the organization should be identified and corrected.
Changes to financial compensation can be costly. According to the consultant from Human Capital Consulting the compensation and reward system should be completely redesigned. The overall cost of the compensation and reward system improvements are estimated to be $175,000. Since the organization has been experiencing declining sales an investment of this nature would represent high risk. Despite the cost Riordan Manufacturing has the opportunity to compete more effectively in the market and reduce the risk of losing employees to other organizations because of the financial compensation structure. The potential issues can be mitigated if the management team at Riordan Manufacturing considers the impact of external competitiveness. Management should consider the following effects on objectives:
(1) To ensure that the pay is sufficient to attract and retain employees— if employees do not perceive their pay as competitive in comparison to what other organizations are offering for similar work, they may be more likely to leave
(2) To control labor costs so that the organization’s prices of products or services can remain (Milkovich & Newman., 2004, p.18)
Although employee motivation and financial compensation are recognized as major issues for Riordan the organizations ability to build affinity and promote overall career development has been lacking. The issues can be attributed to the lack of Human Resource Management in the organizations strategic human capital management along with a failure by leadership to create a thriving culture that supports the organizations overall objectives. As the organization aligns and changes strategy it will be important to effectively train employees and ensure that employees are ready for the challenges ahead. Unfortunately motivation problems are plaguing the organization and may impact the strategic changes. Examples of the lack of culture and employee development are evident in the Research & Development and IT sections of the business. Each department significantly contributes to the success of the organization but receives little to no recognition; whether it is pay based or standard recognition.
Riordan Manufacturing has the opportunity to strengthen the culture and develop a comprehensive employee development system that supports the organizations vision and goals for the future. Additionally the organization has the opportunity to explore other avenues besides financial compensation to increase employee motivation and job satisfaction. Implementation of a career development system will not be enough to drive long-term improvements. Management at Riordan Manufacturing will need to focus on creating conditions that promote career development. Dreher and Dougherty discuss the importance of conditions for increasing motivation in that the “belief that effort will lead to success (e.g., success in training), and the belief that this success (e.g., acquiring new knowledge and skill) will lead to valued outcomes (e.g., increased chances for a promotion or more labor-market mobility)” ( 2001, p.130).
Stakeholder Perspectives/Ethical Dilemmas
Riordan Manufacturing will embark on a major change initiatives campaign with impacts on the entire organization. An event of this magnitude requires that all stakeholders are involved in the process and given the opportunity to discuss interests, rights and values. Maintaining an open-ended process with clear-cut communication will reduce the chances of stakeholders being left out of the process. Riordan Manufacturing appears to have 3 stakeholder categories: upper management: operations, upper management: human resources, and the employees. These stakeholders have the opportunity to benefit from a coordinated effort that focuses on long-term solutions consider personnel and business needs.
The interests of upper manager vary based on the portion of the business being represented. From a general leadership perspective the CEO wants to remain competitive and continue to grow the business while limiting costs. As the majority shareholder the CEO has the right to decide the future of the organization as well as how the company will utilize resources to meet strategic goals. The CEO values the employees and believes that the organization should provide a work environment that promotes creativity and steadfast focus on strategic objectives.
The operational executives consist of the CFO, COO, and Senior Vice President of R&D and the Vice President of Sales & Marketing. Each of these stakeholders has the right to express their opinions and strategic plans for the organization. Since each member of this group specializes in a different portion of the business the company benefits by the group members working together. These members have a high value for the organizations financial capital and do not want to commit resources without extensive research. Members of the operations team also value the human capital of the organization. These managers understand that without talent the organization will not be able to maintain innovation and market competitiveness.
The Director of Human Resources is interested in developing a comprehensive Human Resource management system that focuses on career development and places Human Resources in the strategic planning of the organization. The Director of Human Resources has the right to represent the concerns of the employees and has the obligation to ensure that human capital is managed appropriately. Values focus on the opinion of employees and ensuring that Human Resources have the necessary tools to service the employee base. Additionally the human resources team values a strong employee base that isn’t riddled with high turnover and excessive training.
Employees at Riordan Manufacturing have various interests. These interests include proper financial compensation, career development, effective communication, and support from management. The employee’s have the right to be compensated fairly and be recognized for their contributions to the organization. Additionally the employees have the right to be entrenched in the company’s culture instead of being part of loose knit teams that have little direction from their leadership. Employee values center on cooperation, dedication, and a challenging work environment.
On the surface the primary stakeholder groups tend to have many of the same interests; however further investigation identifies conflicting interests in the organization. The director of Human Resources believes that HR involvement in strategic initiatives should be increased to better align the organizational goals with human capital development. Employee surveys and an increasing number of complaints have alerted the Director of Human Resources. Unfortunately these issues have not been addressed by upper management. Initial discussions with Human Capital Consultants have led to the Chief Financial Officer removing HR from the consulting process. The CFO believes that HR doesn’t have the objectivity to identify the key issues plaguing the organization. HR believes that the issues have already been identified through employee surveys, complaints and feedback from other members of the operations team. The conflict between these two groups will potentially impact the effectiveness of the consultant’s findings and long-term strategic objectives.
Problem Statement
Riordan Manufacturing must work towards a better future for the organization and all of the relevant stakeholders. Devising a new strategic plan to improve motivation and reward systems represents a major step towards meeting the greater objective of success. Saying that the organization will take these steps is one thing; however the leadership of Riordan Manufacturing must present a greater vision for the company. Gaining acceptance of this vision from employees and the will drive change and meet the greater challenges ahead. The formulation of the following problem statement will serve this objective and create a greater sense of unity toward a common goal.
Riordan Manufacturing will work towards unifying the workforce to grow a new culture that supports a team based environment with a strong focus on the customer.
Through this problem statement the organization will focus on strengthening relations with its employees to help drive the company forward. Without any specifics many options are open to achieving this goal. The employees of Riordan Manufacturing represent the foundation of the company and will drive its success in the global market. Without unification of their human capital Riordan Manufacturing will face increasing challenges.
End-State Vision
Riordan Manufacturing has the capability of becoming the global leader in plastics. With innovative manufacturing techniques and a continued drive to re-think the plastic industry the organization can truly change the world. Riordan Manufacturing’s continued impact on the global plastics market will be driven by the organizations ability to refine and development human capital. To meet these challenges the organization should focus on the following end-state goals, which in turn will promote the human capital development needed for growth and sustainability.
1. Effectively measure employee motivation factors.
2. Establish career development plans and recognize key achievements within the organization.
3. Develop compensation plans that balance financial and personal needs.
Alternative Solutions
Riordan Manufacturing will need to consider various options to meet the key business objectives of driving high-performance teams with a major focus on customer relations. The organization will also need to weigh the needs of the employees and consider the long-term effects of incentive and reward systems. Without the proper reward system the organization could be ineffectively using financial resources and failing to drive key improvements in the environment. By following a strategic approach Riordan Manufacturing can evaluate alternative solutions and carefully choose the solution that will help the organization meet the end-state goals for the horizon plan.
To avoid tunnel-vision and expand the change opportunities for Riordan Manufacturing the organization will utilize a generic benchmarking approach to evaluate the methods used by other organizations. American Express and Nestle Inc. were chosen based on the organizations unique approach to reward systems and financial compensation. Recent employee satisfaction surveys and feedback from upper management have pointed out that financial rewards and base salaries are not inline with current market conditions. These issues directly threaten key areas at Riordan Manufacturing. The Information Technology and Research and Development departments drive innovation and technology management at Riordan Manufacturing. Without talented employees in these departments the organization’s creative capital can quickly disappear. Determining the proper compensation for the individual contributions of these employees represents a major challenge for the organization. Dreher and Dougherty highlight that a “key aspect of compensation management is deciding how to reward employees for their individual contributions in a way that best fits the unique circumstances of the firm” (2001, p. 97).
The financial services unit of American Express designed a highly effective compensation system that helped drive a consistent customer focus and generous compensation package. Most of the financial services industry focused on strict commission based salaries, American Express decided to create a triple-tiered platform that created different affiliations with the organization and paid financial advisors for not only but for other value added services. Besides improving the employees compensation package American Express decided to improve executive level compensation packages to turn the organization around. “The long-term program, known as the Portfolio Program, is a combination performance and phantom-stock plan for the company's top 300 executives. A three-year plan with overlapping cycles; it not only measures financial performance, but takes into consideration customer and employee satisfaction” (Gross & Pfau, 1994). According to top-levels at American Express the new incentive plan helped drive top-down performance improvement and turned the organization around.
Nestle Inc. took a different approach to reward systems. The organization implemented a total rewards system that empowered employees to manager their own benefits and rewards. The first step taken by Nestle Inc. was to design an online system that provided easy access to employees. “Besides being able to view their total remuneration on the You At Work-supplied online system, staff can access voluntary benefits, join the share plan and trade up to five days' holiday” (O’Donavan, 2005). Managers at Nestle Inc. believe that the new total reward system will help market the suite of rewards available to employees in addition to providing positive reinforcement when work-life balance comes off kilter.
Both Nestle Inc. and American Express determined that their financial incentive and reward systems were not up to par. Major changes were implemented to increase employee satisfaction and retain valuable human capital. Riordan Manufacturing is experiencing issues along the same lines as the benchmarked organizations. Without revamping the financial incentive and reward systems the organization stands to lose talented employees and fail to drive strategic changes. In addition to changes to the financial reward systems Riordan Manufacturing will need to consider solutions for improving overall employee motivation and satisfaction. Both the financial compensation and satisfaction issues can be addressed by creating a comprehensive reward system that takes into consideration the employee perspective and organizational objectives.
Analysis of Alternative Solutions
Riordan Manufacturing will need to focus on three main goals to implement the best alternative solution to the current human capital issues plaguing the organization. The first goal is to increase employee motivation and productivity. On a scale of 1 to 5 with 5 being the most important and 1 being the least important the first goal weighs in at a 4. Improving employee motivation has a high weighting based on the fact that motivation is needed to sustain changes in any business environment Dreher and Dougherty state “Once a modified practice becomes operational, the users need the knowledge, skill, and motivation required to sustain the improvement” (2001). The second goal is to provide incentives that are aligned with business objectives. Similar to goal number one, goal number two has a weighting of 4 based on the need to provide incentives that will drive business improvements and meet the needs of the employees. The third goal will improve employee morale and satisfaction through an increased employee relations presence. This particular goal has a weighting of three since morale and employee satisfaction is expected to improve if goals one and two are achieved; however goal number three will need to be focused on to consider other elements impacting the workforce.
After considering the alternative’s provided to Riordan Manufacturing the option to implement cross-functional teams with team based incentives receives the highest overall rating. Effectively implementing cross-functional teams will help drive improved education across organizational divisions and begin the development of an improved internal support structure to increase sales. In addition to increasing sales by becoming more orientated to customer needs other departments that do not directly impact sales can be compensated for their contributions.
Risk Assessment and Mitigation Techniques
Based on the evaluation of the various alternative solutions the option that focuses on developing cross-functional teams with team based incentives represents the best solution. Like any change there will be risk involved. Risk can be managed and mitigated to reduce the impacts on the organization. Two of the risks associated with this solution focus on employee cooperation and free-loading in the team based incentive environment. A lack of team cooperation represents a medium severity risk since many departments have been isolated for the majority of Riordan Manufacturing’s existence.
If the risk associated with team based cooperation isn’t properly mitigating projects may be delayed and the organizations objectives could be hindered. A lack of cooperation can also lead to free-loading in the team based environment. In this situation employees may not contribute equally to the team and still receive the same level of team based incentive or compensation once a project or task has been completed. Both risks discussed here can be mitigated by developing a standardized communication and training plan to educate employees about the decision to use cross-functional teams as well as the associated benefits. In addition teams will be required to set individual benchmarks and team based incentives will only be delegated to individuals that met their personal benchmarks as well as the overall team succeeding.
Optimal Solution
Riordan Manufacturing will need to completely reengineer the reward system and motivation tactics to align the workforce with the long-term organizational objectives. To accomplish the goal a multi-faceted approach should be taken. To begin the process the upper management team at Riordan Manufacturing should discuss the various alternative solutions available to the organization. The first solution offered by Human Capital Consultants solely focused on increasing employee compensation. Although the solution presented by the consulting firm would address immediate issues impacting the organization, long-term goals may be neglected and financial resources used incorrectly. Riordan should consider the recommendations made by the consulting firm, but not use the financial incentives as the sole solution.
The optimal solution for Riordan Manufacturing will focus on developing a comprehensive system that systematically identifies motivational issues and attacks the root causes. In addition to identifying and improving motivational issues the organization will implement a cross-functional team based strategy. Cross-functional teams will satisfy the support elements needed to improve the overall sales experience and provide team members from non-sales based departments with an opportunity to receive incentives tied to improved sales rates. Riordan Manufacturing will also focus efforts on creating a centralized benefits management system that doubles as a total reward system.
Motivational issues can be solved at any organization. The key to solving motivational issues is to identify the root cause and creating long-term solutions. Dreher and Dougherty state “expectancy theory directs us to determine employees’ current views or perceptions about the odds of achieving certain goals and relative preferences for different rewards or “outcomes” in their work” (2001). Riordan Manufacturing can benefit by identifying employee perceptions and linking positive outcomes to the employee’s perception. Once these tasks are accomplished management can begin to identify ways to increase the attractiveness of the likely outcome taken by the employee. If positive outcomes can become easily communicated to employees then motivation levels can begin to increase.
In addition to improving employee motivation Riordan Manufacturing should implement a comprehensive total reward system. The reward system will provide employees with the opportunity to manager their rewards as well as create a venue to market the various benefits associated with being a Riordan Manufacturing employee. An internal web based application will need to be designed by the Human Resource and Information Technology department. The system will focus automate benefit administration, cross-functional team goal management, and incentive based tracking systems. Employees will have the ability to review their benefits and make changes on their own time. In addition managers will be able to evaluate the progress and contributions made by cross-functional teams. Sales statistics will also be stored in the total reward system to measure sales performance.
Implementation Plan
Riordan Manufacturing will need to invest significant resources into meeting the optimal solutions set forth by upper management. The overall improvement plan will require resources from every division of the organization. By utilizing all departments in the reorganization the company’s motivation and reward system upper manager will promote the effectiveness of a team based alternatives from the top down. The implementation plan will focus on 5 main objectives. Total time to execute the five objectives will take upwards of one year from start date.
The first deliverable will be to design a systematic process which uses expectancy theory concepts to identify and evaluate motivational problems. Process design and implementation will be driven by the Director of Human Resources with a timeline of three to five months. The HR team will need to dedicate significant resources on educating managers on expectancy theory concepts and how to properly change motivational techniques within the organization. Ideally the IT team will create a web-based application to be used for educational and tracking purposes.
Deliverable number two will focus on increasing employee involvement in operational activities and help support the new focus on proactively correcting motivational problems. The Chief Operating Officer will coordinate quarterly employee round-table discussions throughout the various facilities. Facility and employee resources will need to be allocated to this initiative. The round-table discussions will act as a forum for employee participation and feedback during the major change initiatives at Riordan Manufacturing. The COO will have one month to implement this process.
Before implementation of the cross-functional teams the Vice President of Research and Development will design cross-functional teams organizational chart that map out the connection between the various departments within the organization. Employee feedback and manager participation will be required to document current processes and discuss the impact on each department with the migration to the team format. Delivery time for the organization chart will be one month.
The fourth deliverable will require the Chief Executive Officer and Chief Financial Officer to design and implement a team-based incentive plan. Once the cross-functional organizational chart is completed team contributions will be calculated and integrated into the current sales incentive plan. The new team-based incentive plan will be delivered within three to six months.
The final deliverable will require the most resources from an IT and HR perspective. Implementation of the total rewards system will integrate employee benefits and incentive tracking systems into a centralized location. IT will be responsible for dedicated a team of 5 IT specialists to the project with two HR representatives to ensure that the IT infrastructure remains inline with the total reward system design. The total rewards system will be expected to be delivered within six months to a year.
Evaluation of Results
Revamping the reward system and migrating to a team-based environment represents a major change for Riordan Manufacturing. Success will be measured via quantitative and qualitative measurements that support the end-state goals of the organization. The three end-state goals set forth by upper management are:
1. Effectively measure employee motivation factors
2. Establish career development plans and recognize key achievements within the organization
3. Develop compensation plans that balance financial and personal needs
Employee motivation factors represent a more subjective measurement. Employee perceptions are impacting by various factors and cannot be easily measured. To combat the challenges associated with this metric the HR team will measure the percentage of negative motivation factors in the environment. Motivational issues will be identified through employee feedback and surveys. The HR team will then utilize expectancy theory to determine the root cause of motivational issues and plot results in the internal HR website.
Once the total reward systems is in place Riordan Manufacturing will begin to shift its focus towards improving the organizations career development plan. The goal will be to establish career development plans and recognize key achievements within the organization. Since career development processes are not prevalent in the organization upper manager will need to track the performance of lower managers and ensure compliance to the new program. Managers that have employees reporting directly to them will be required to perform career development counseling sessions. Managers will then review adherence to expectation within the total rewards system implemented by the Director of Human Resources and CIO.
The final end-state goal to balance financial incentives and personal needs of the employees will measure employee satisfaction in relation to team-based incentive plans and self-managed total reward system. Once again the measurement is highly subjective and relies on the interpretation of employee feedback and surveys. Managers will need to thoroughly review results and work to find a balance between organizational objectives and employee needs.
Conclusion
Effectively managing the human capital resource at Riordan Manufacturing will position the organization for continued growth in the plastic’s industry. As the competition increases and the market grow globally Riordan Manufacturing will need to constantly re-evaluate the internal practices used to create innovative products. Innovative products do not come cheap and the organization will need to focus operational and financial resources on developing valuable human capital. The initial investment may be large, but the long-term payoff will be greater.
References
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