Question

CASE #1: Vêtements Ltée

By Steven L. McShane, Curtin University (Australia) and University of Victoria (Canada)

Vêtements Ltée is a chain of men’s retail clothing stores located throughout the province of Quebec, Canada. Two years ago, the company introduced new incentive systems for both store managers and sales employees. Store managers receive a salary with annual merit increases based on store sales above targeted goals, store appearance, store inventory management, customer complaints, and several other performance measures. Some of this information (e.g., store appearance) is gathered during visits by senior management, whereas other information is based on company records (e.g., sales volume).

Sales employees are paid a fixed salary plus a commission based on the percentage of sales credited to that employee over the pay period. The commission represents about 30 percent of a typical paycheck and is intended to encourage employees to actively serve customers and to increase sales volume. Returned merchandise is deducted from commissions, so sales employees are discouraged from selling products that customers do not really want.

Soon after the new incentive systems were introduced, senior management began to receive complaints from store managers regarding the performance of their sales staff. They observed that sales employees tended to stand near the store entrance waiting to “tag” customers as their own. Occasionally, sales staff would argue over “ownership” of the customer. Managers were concerned that this aggressive behavior intimidated some customers. It also tended to leave some parts of the store unattended by staff.

Many managers were also concerned about inventory duties. Previously, sales staff would share responsibility for restocking inventory and completing inventory reorder forms. Under the new compensation system, however, few employees were willing to do these essential tasks. On several occasions, stores have faced stock shortages because merchandise was not stocked or reorder forms were not completed in a timely manner. Potential sales have suffered from empty shelves when plenty of merchandise was available in the back storeroom or at the warehouse. The company’s new automatic inventory system could reduce some of these problems, but employees must still stock shelves and assist in other aspects of inventory management.

Store managers have tried to correct the inventory problem by assigning employees to inventory duty, but this has created resentment among the employees selected. Other managers have threatened sales staff with dismissals if they do not do their share of inventory management. This strategy has been somewhat effective when the manager is in the store, but staff members sneak back onto the floor when the manager is away. It has also hurt staff morale, particularly relations with the store manager.

To reduce the tendency of sales staff to hoard customers at the store entrance, some managers have assigned employees to specific areas of the store. This has also created some resentment among employees stationed in areas with less traffic or lower-priced merchandise. Some staff have openly complained of lower paychecks because they have been placed in a slow area of the store or have been given more than their share of inventory duties.

© 1995 Steven L. McShane

Question:

Any proposed solutions should have theoretical support (see #3 above). Also discuss Pros and Cons of each solution.

Answer 1

• There must be role clarity of employees. This would include allotting job responsibilities to employees on basis of their skill and capabilities. Few employees are good sales men, while some may be good at systematic work such as inventory management or book keeping. Accordingly, their KPIs (i.e. Key Performance Indicators) and KRAs (i.e. Key Result Areas) must be defined. The advantage of this solution would be achieving "Right person for the job" and avoiding creating jobs to suit all in general. This will help the company achieve it's organizational goals by tapping each and every resource carefully. On the other hand, the negative aspect would be, the employees would focus on their own areas, i.e. their respective duties and not substitute in absence of another employee.
• Adequate training must be given to all employees. This will ensure proper, in -detailed understanding about the performance management system. Employees can be made aware of the changes and the significance of the new system. Also, this will act as a medium for two-way communication, facilitating the employees to resolve their confusions and understand the process better.
• Inventory management system. JIT( Just-in-time) or Kanban system can be used to improve inventory management. Kanban system is a signalling system which initiates the procurement or replenishment process. On the other hand, JIT system ensures availability of raw material at the exact time of requirement. Thereby optimizing inventory related costs and reducing wastes from the processes. This calls for a well-planned, systematic approach including skilled managers to define and determine the process and information flow strategically.