After its establishment in 1982, the Birmingham Furniture Company (BFC) expanded significantly, and achieved continuous growth in profits until 2009 when turnover reached a peak of £15,000. However, since then the company has encountered a number of setbacks. Staff have become increasingly dissatisfied and some have resigned. In addition, a new competitor has started operating nearby. It is likely that these difficulties have led to the fall in turnover, which reached only £12,000 per week in 2010. The purpose of this report is to analyse these problems, and suggest some practical solutions to enable the BFC to flourish again.
2. Analysis of Data
In order to raise profitability, the Vines need to improve company management, boost staff morale, and deal with the new competition.
2.1 management structure The BFC has expanded considerably since its establishment. However, it still retains the informal management structure of a small company, which is now inappropriate. As a consequence, management and staff responsibilities are poorly defined and the chain of command is not clear. An obvious example of this is the fact that Mr and Mrs Vine’s roles have become blurred, and staff never know who to approach when problems arise; this led to stock being ordered twice from the same supplier in 2008. In addition, Ms Clarke’s unpopular appointment as ‘unofficial’ supervisor is preventing her, as a relative newcomer, from being able to exercise effective authority over the workforce. Most importantly, the Vines are too busy to communicate with each other or their staff. As a result, they were unaware of the dissatisfaction and low morale of their employees.
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2.2 Employee Morale Two full time members of staff have recently resigned, and training their replacements is time consuming. The Vines believe this has contributed to the fall in turnover. However, a more serious problem, and probably the reason for these resignations, is the unfair commission system. Two staff and Ms Clarke have complained that only the cashier receives the commission, and not the sales assistant who oversees the whole sale. In addition, other tasks, such as deliveries, orders and pricing, do not attract commission, and therefore there is no incentive to do these. The result is an unhappy and uncooperative workforce.
2.3 Competition and Products Mr Vine is unconcerned about Big Deal Furniture, which has recently opened nearby. Fortunately, the BFC appeals to a different type of market, as it sells a wide range of top-quality furniture, including hand-made garden furniture. However, the latter is seasonal in demand, and it seems
likely, as suggested by Mrs Vine, that competition from Big Deal Furniture has affected sales of the indoor furniture.
3. Alternative Solutions It is suggested that the Vines consider the following solutions to address their difficulties.
3.1 Management Structure A formal management structure, with clearly defined roles and responsibilities needs to be introduced so that all staff know who to report to. In particular, it is essential for the Vines to clarify their own roles with immediate effect, with, for example, Mrs Vine taking charge of administration, and Mr Vine running operations and production.
In addition, supervisors must be appointed in a transparent manner. This will involve a formal recruitment procedure, including formulating a job description, advertising the position to all staff, short-listing, interviewing and finally appointing a suitable candidate. This will be time consuming and also incur costs, as middle managers need to be financially rewarded. However, an open and fair system is necessary in order to restore trust and create a cooperative, productive workforce.
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It is further suggested that the Vines and their supervisors have regular meetings, with each other and their staff, in order to communicate these changes, and discuss staff issues. These actions should clarify lines of communication, create more effective decision-making, raise staff morale, and improve company operations and efficiency.
3.2 Employee Morale The commission system which is causing so much dissatisfaction must be addressed. It should be discussed and agreed at a general meeting for managers and staff. The commission could be shared among the whole sales staff. However, this might be difficult to calculate, if staff do different tasks and work different hours. In addition this will still cause resentment among the non-sales staff.
Alternatively, the introduction of a profit sharing scheme might be considered. This would be applicable to all staff, proportional to the level of responsibility within the company and hours worked. An equitable and fair system such as this would give a real incentive to increase productivity and thereby lead to a rise in sales. Most importantly, it would motivate staff and create a more cooperative and contented workforce.
It is also recommended that staff should be offered training in sales and production, in order to maintain the BFC’s standards for high quality. The costs of this are likely to be balanced out by improved staff morale and the resulting increased productivity.
3.3 Competition and Products
At the moment it is not clear how much impact the budget furniture store is having on the BFC’s sales. However, it would be advisable to analyse future trends and opportunities for development to counter possible competition. A review of product lines and an assessment of their profitability need to be carried out. The BFC offers a different, more sophisticated product than the new discount store, and it seems sensible to continue to focus on different customers. It should therefore develop marketing and promotion campaigns to enhance its luxury brand, and retain and develop its customer base. It can also consider store and website refurbishment in line with its brand, special offers and loyalty cards. These proposals will incur costs, and should therefore be gradually established, once sales improve.
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In addition to the core products the BFC should also consider diversification into other lines and distribution channels. The current economic climate and increasing trends in e-commerce must be taken into account. Therefore, the company could explore the possibility of selling flat pack furniture, and increase its on line sales. This will decrease costs, while still maintaining the BFC’s reputation for superior quality.
4. Recommendations
4.1 Short-term There are some urgent actions which need to be taken immediately. To improve staff morale, and thereby increase sales, it is strongly recommended that a new management structure should be established, with clear roles for Mr and Mrs Vine. In addition a staff profit sharing scheme should be introduced. These measures will have minimal cost implications.
4.2 Long-term In the long term, the BFC should invest in strategies to promote its special brand, so as to combat competition. These include staff training, shop and website refurbishment, development of products, and on line marketing programmes. These involve substantial costs, and should therefore be established gradually, as sales increase. However, in order to survive and thrive in an increasingly fierce market, such investment and forward planning is essential.
