Executive Summary
In 2011 two Asian firms entered the Canadian market in 2011. An Asian competitor made a major sales push by slashing prices in late 2011, cutting dramatically into Alliston’s sales in 2012. This move caused Alliston to lay-off 50 employees their largest layoff in company history. Alliston introduces new products to its line to counter the Asian firm but employees had no interest in working on the new products and preferred the old products to work on. Alliston in late 2012 in an effort to increase efficiency persuaded the union to accept an incentive program in exchange for job security. An individual performance pay plan was implemented with no detailed records to set standards.
Standards were based on the estimates of supervisors based on a failed year; this shows that the compensation strategies and practices directly affected the company’s production quality. Supervisors can’t receive the incentive bonus and are making less money than their subordinates causing more pressure on them. Customers are complaining about product price and quality, Alliston’s sales revenue continues to fall. Due to high wastage of raw materials and supplies, labour costs are up and costs per unit are at an all-time high. The other concern is the quality of the products as defective units reach an all-time high.
Recommendation
The base salary of the employees should have been based on external market data. The incentive program should have been focused on aligning the reward system to the company goals. The employees should be measured on overall performance on different tasks with minimal performance targets. This will help motivate employees and will not compromise with the quality of the products. Supervisors and managers should receive compensation with a long term equity incentives (stock), offered after 2 years employment. The compensation mix strategy should have been used.
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External Environment:
The environment was stable and simple before the two Asian companies entered into the Canadian market in 2011. Alliston was the only company which was selling its medical instruments in the Canadian market at very competitive rates there were a few American and European companies, which were no threat to Alliston due to the high prices of their products. When the two Asian firms entered the market Alliston’s faced tough competition, because the Asian firms were able to price their products lower thanks to lower labour costs and were able to sell their products with attractive prices. However, initially buyers held back because they were concerned about potential quality problems, buyers wondered if the quality of the product is up to the standards from these new firms.
So, for a while, it seemed like Allistons customers were going to be loyal buyers especially hospitals and clinics, even though they themselves were under pressure to cut costs due to budget cuts in 2011. In late 2011 an Asian competitor made a major sales push by slashing prices, and dramatically cut into Allistons sales in 2012 and created an a unstable and complex environment for Alliston Instruments. To counter this bold move, Alliston introduced new products that needed new equipment and extensive employee training to run these new equipment’s causing more strain for the company.
Corporate Strategy:
The corporate strategies Alliston are currently using are the analyzer business strategy that combines both the prospector business strategy and the defender business strategy that was developed by Miles and Snow. This strategy entails identifying and exploiting new products or service opportunities at a relatively early stage- not long after the prospectors- while also maintaining a firm base of traditional products or services. Alliston could not balance stability and flexibility, due to the dynamic environment. This had a major impact on the quality of the products, as everybody wanted to work on the easier old products and did not like working on new products that took more time to complete. Some of the new products sold well but didn’t make any money due to higher production costs.
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Alliston then introduced an incentive plan in an agreement with the union management for exchange in job security. The individual performance pay bonus system was implemented in addition to normal pay employees received a fixed sum for each piece produced over the 2012 levels. Pay at the firm was already above average, and the benefit package, which increases with seniority, is very good, with a compensation package of 25 percent of total compensation. Comparable alternative employment opportunities in the area are quite scarce.
Employees did not receive bonuses for unsatisfactory quality pieces, however there are no set standards for quality, and each supervisory seems to set different standards. This causes the union production workers to make more money than supervisors. Alliston also used a long-linked technology that divides the total tasks into many small sequential steps, with each step performed by different employees, such as on an automobile assembly line.
Managerial Strategy:
Alliston was using the classical strategy as the environment was stable and using the Thompson’s typology of technology a long-linked technology that divides the total task into many sequential steps, with each step performed by a different employee, such as on an automobile assembly line. Since the Asian firms especially the firm that made a major sales push in late 2011, created an unstable and complex environment for Alliston.
Recommendation:
Allison should have incorporated the Human relations managerial strategy this approach is similar to the classically approach in terms of job design but is a “proactive management of the employees of a company or organization. Strategic human resource management includes typical human resource components such as hiring, discipline, and payroll, and also involves working with employees in a collaborative manner to boost retention, improve the quality of the work experience, and maximize the mutual benefit of employment for both the employee and the employer”. Alliston should have also used the Woodward’s typology of technology which is limited mainly to manufacturing firms. The type Alliston should have used is a mass/large batch technology which produces large amounts of a single item in a standardized way, and is analogous to the long-linked technology.
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Current Compensation Strategy Weaknesses:
The first issue is that each supervisor set their own standards because the company failed to keep detailed records to set standards. There were different tasks in the production area, and many workers raised issues that standard for some tasks were set too high and had no chance earning a bonus or incentive on those tasks. This caused an unequal consideration of certain tasks that took more time to complete. The other issue with the compensation system was it caused the quality of the units to go down because everybody wanted to earn the bonus incentive they cared less about the quality with standards based on a failed year by supervisors. The compensation system also caused conflicts with the workers nobody wanted to do the poor paying tasks that made it impossible to earn a bonus which disrupted production. The compensation failed to consider the supervisors because they were not eligible to the any incentive program and their subordinates were making more money. This incentive program did not align with the company goals and objectives.
Recommendation:
I recommend using the compensation mix strategy, this would allowed them substantial portion of compensation to be allocated to short-term incentives and long-term equity incentive, i.e., percentage of pay allocated between base pay and short-term incentive and long-term equity incentive pay. The base salary of the employees should have based on external market data, internal equity value individual performance and the success of the company. Employees should be measured on the different tasks and based on the time-constrain it takes to produce each individual piece with minimum performance targets in place. This will also help the Alliston to meet their minimum threshold financial performance target and the companies can payout the short term incentive plans to their employees.
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In the terms of a long term equity incentive, the company can also compensate their employees in the form of stock options. Supervisors and managers will get compensate by long term equity incentive for their target performance. When company hires a new supervisor or a manager, at the time of hiring the stock option should be granted to them after 2 years of service to the company from start date, also the company should offer annually stock option awards to their supervisors or managers. This method should help Alliston get back on track and make a comeback in the market; employees should be more motivated to reach their goals and the company’s goals with teamwork and equal job objectives.
