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MBA 530 - Riordan Manufacturing - Problem Solution Paper

SCENARIO: RIORDAN MANUFACTURING
COMPANY OVERVIEW

Employee motivation is an issue that does not discriminate. Organizations of all sizes wrestle with it, and those who don't are at a disadvantage, faced with lower job satisfaction and increased turnover. In the past ten years, several factors have developed that further complicate the issue. Organizational strategy factors, such as desire to increase innovation, recognize the value of teamwork, and reach new customers with new products have come into play. But simple things like how to equally reward and motivate employees with different needs also deserve consideration.

The latter is particularly true in manufacturing companies -- especially high-tech ones -- with a broad range of employees with myriad motivational needs. A typical manufacturing firm employs manual laborers, skilled trades, administrators, professionals, technical employees, sales and managerial staff. Usually, these workers represent multiple educational backgrounds, generations, ethnicities and family situations. How well the organization addresses these differences can mean the difference between an energized, productive workforce and a lethargic, non-productive one.

Riordan Manufacturing is a global plastics producer employing 550 people with projected annual earnings of $46 million. The company is wholly owned by Riordan Industries, a Fortune 1000 enterprise with revenues in excess of $1 billion. Production is divided among three plants: plastic beverage containers in Albany, Georgia; custom plastic parts in Pontiac, Michigan; and plastic fan parts in Hangzhou, China. Research and Development is conducted at corporate headquarters in San Jose, California. Riordan's major customers are automotive parts manufacturers, aircraft manufacturers, the Department of Defense, beverage makers and bottlers, and appliance manufacturers.

Recently, Riordan made several strategic changes in the way it manufactures and markets its products. Declining sales and uneven profits over the past two years not only forced the company to change its sales processes, but prompted them to adopt a customer-relationship management (CRM) system. Customers are now serviced primarily by sales teams rather than single salespeople, with each team focusing on a particular customer segment. Teams typically include a sales person, product engineering specialist and customer service rep. The hope is that the team approach will improve sales.

From a manufacturing perspective, Riordan has implemented a Six Sigma quality approach and is ISO9000 certified. Some work has been redirected to a new manufacturing facility in China, and plants have been restructured into self-directed work teams. Unfortunately, as changes have been implemented, employee retention numbers have declined. The company recently conducted an annual employee survey, which showed a decrease in overall job satisfaction, particularly in the areas of compensation and benefits.

Riordan's employees comprise three major demographic groups. Baby boomers make up the bulk of the managerial and about half of the manufacturing staff; GenXers make up the majority of the professional staff, as well as some of the manufacturing staff; and the GenY contingent are the newest hires, found primarily in manufacturing, engineering and IT. These three groups have radically different perspectives on rewards and motivation, valuing everything from interesting work to bigger paychecks.

Recent performance data identified about 25 percent of the employees as high achievers, a large group of mid-tier performers and a small group of people who are not performing well at all. Unfortunately, the current reward system is barely based on performance, instead recognizing cost-of-living increases, seniority and position. Faced with declining morale and work ethic, Riordan managers have been pressuring the CEO to "do something" about the rewards system.

Sales management wants an improved commission structure that recognizes the new teamwork philosophy, while salespeople fear their bonuses could be at risk if they depend on team, and not individual, performance. Other managers are concerned that, with or without incentives, their employee base salaries are too low to retain good people and are urging the CEO to increase pay levels. Engineering and IT managers are particularly concerned that several employees with proprietary information may leave the organization for greener pastures. Research and Development says that their employees who work on long-term projects would be best served by incentives that reward continued focus. They also want their contributions to the sales process to be recognized and acknowledged.

The CEO knows that something must be done, and he's considering his options: Completely overhaul the reward system, use piecemeal solutions to address the most critical issue or find new motivation strategies. Costs, of course, have to be carefully weighed against any benefits, especially because some of the company's key customers are extremely price sensitive.

THE PLAYERS

Michael Riordan: Riordan Manufacturing's 60-year-old founder, President, Chief Executive and with 80 percent of the company's stock, primary shareholder. Michael firmly believes that the company takes good care of its employees and that employee loyalty would go a long way toward solving the company's motivation problems. He is also increasingly concerned about the value of his investment as he nears retirement age.

Kenneth Collins: Riordan's Senior Vice President of Research and Development. Michael's former college roommate, Kenneth has been with Riordan since the very beginning. A brilliant technician, Kenneth has led R&D to develop several innovative products, and is now very worried that he might lose key researchers because of inadequate compensation. Kenneth gets along well with the sales group, but is not well-liked by the manufacturing team.

Hugh McCauley: Riordan's Chief Operating Officer. After a long career in the automotive industry, Hugh came to Riordan six years ago. As an engineer, he believes that most motivation issues are the result of poorly designed processes. Rather than focusing on compensation, he believes the organization should improve job design.

Charles Lacy: Riordan's Vice President of Sales & Marketing. Charles has been with Riordan for 10 years, but just one in his current position. He is credited with the changes in the sales process, including team sales, and is a strong advocate for compensating employees based on team performance.

Maria Trinh: Riordan's Chief Information Officer. Maria is the newest senior employee, having joined Riordan just two years ago. She is very concerned about losing key staff members because of inadequate compensation, particularly because they are in the midst of a major system redesign. To prevent this, she would like to see compensation levels adjusted for IT professionals.

Yvonne McMillan: Riordan's Director of Human Resources. In the 10 years she's been at Riordan, Yvonne has been unable to secure HR a more active and strategic role in the organization. Frustrated by her lack of success, Yvonne often complains that she's treated as nothing more than a personnel manager. She conducts the annual employee survey, but has never seen any changes implemented because of the survey results, and doubts very much she ever will.

Dale Edgel: Riordan's Chief Financial Officer. Before coming to Riordan five years ago, Dale held various tax and general management positions in manufacturing and pharmaceutical organizations. Dale oversees all HR activities at Riordan, and believes that the current compensation systems are adequate.

Barbara Masterson: Human Capital Consulting's Senior Consultant. Riordan retained Barbara to review the current compensation system and suggest changes. Barbara has experience working with several high-tech organizations, and has used that -- as well as the employee survey results -- as the basis for her recommendations.

MAY 10, 2005

To: Dale Edgel
From: Charles Lacy
Re: New Sales Incentive Plan
Confidential

Dale,

We need to revamp the sales incentive system as soon as possible. With the new strategy to create customer-focused teams, we can't continue to pay sales people on an individual basis. Can we get someone going on this right away?

Charles

MAY 15, 2005

To: Dale Edgel
From: Kenneth Collins
Re: Employee Turnover
Confidential

Dale,

I'm really concerned about the turnover levels in R&D. Over the past three months, I've lost three key people, and it looks like I could easily lose more if the increasing number of complaints about compensation and decreased satisfaction are any indication. In exit interviews, I'm hearing that they're not being challenged, that they can make a lot more money elsewhere, and that our incentives are weak. We need to watch out; the headhunters are circling...

My biggest concern is that we have three major product introductions coming up next year. If I lose the key engineers on these projects, we'll have a tough time meeting those introduction deadlines. We need to create an incentive plan for key engineers that is tied to completing these projects and introducing the new products on time. How soon can we make this happen?

Kenneth

MAY 22, 2005

To: Dale Edgel
From: Maria Trinh
Re: Employee Turnover
Confidential

Dale,

Over the past several weeks, I've been reviewing salary surveys. If you can trust what I've found on-line, we are seriously underpaying our key programmers. With several major redesign projects in the works, I think you'll agree that we can't afford to lose our key programmers now. From what I've seen, the rest of the organization is paid competitively, but we're off in this area by about 15 percent average. Can we fix this and if so, how soon?

Maria

JUNE 1, 2005

MEMO TO: Michael Riordan
FROM: Dale Edgel
Re: Employee Survey Results
Confidential

Michael,

As you know, we recently completed the annual employee satisfaction survey. I've attached a summary detailing the key findings, as well as the scores on each of the questions asked. My initial reaction to these survey results is extreme concern; these trends aren't something we can ignore.

Even without this, I've been getting a lot of pressure from Kenneth to do something about the morale in R&D, as he's afraid he's going to lose some critical people at a time when he can least afford to lose them (as if there's ever a good time to lose good people). Charles has been fretting about the switch to customer-focused teams and how that affects individual incentive programs. Maria has lost three people in the past 12 months and tells me that our entire information infrastructure is at risk if something doesn't change. I've attached e-mails from each of them that should fill in some of the blanks.

What makes this even more alarming is that, historically, our employee turnover rates have been below the industry average. In the past 12 months, even though we're still doing better than the industry as a whole, our turnover rates are up (as you can see in the attached retention report). I just don't want this to be the beginning of a trend that could really hurt our success.

Because I don't feel we should waste any time, I took the liberty of having Yvonne prepare an analysis of employee complaints over the past 12 months. It shows a disturbing increase in complaints in a number of key areas.

Michael, I really think we need to pull the leadership team together to discuss these trends and decide what to do. Let's talk at your earliest convenience. Until then, please review the 2003/2004 Employee Satisfaction Survey, Turnover Report, and the Summary of Employee Complaints compiled by Yvonne McMillan. This information is available under the Reports and Communications tabs in Riordan's Intranet by clicking on Human Resources.

Thanks,
Dale

June 7, 2005

MEMO TO: Leadership Team
FROM: Michael Riordan
Re: Minutes of Meeting
Confidential

Thank you all for attending today's meetings. Just so I know we're all on the same page, I had my assistant prepare a summary of key points that came up throughout our discussion. If you feel you've been misinterpreted, please e-mail me.
 Charles does not believe we have much time. Sales are continuing to decline, as they have for the past two years, and the switch to customer-focused teams is proceeding slowly. He would like us to consider revamping the sales incentive system.
 Kenneth would like to add incentives for R&D staff, with focus on both new product introductions and sales. His rationale is that R&D staff are now expected to support the customer sales teams, so they should earn incentives when those sales are completed.
 Maria believes that IT staff is underpaid relative to the competition and suggests adjusting salary ranges for IT as soon as possible.
 Hugh is concerned about doing anything differently with compensation, as income before tax continues to drop as a percentage of sales.
 Dale believes that job satisfaction issues are more complex than just compensation and benefits and doesn't believe creating new incentives or adjusting pay rates will solve the underlying problems.

After considering all of your input, I find myself unwilling to move forward with changes in the compensation system at this time. Instead, I've asked Dale to hire an HR consultant to help us analyze the issues raised in the employee survey. We will not take further action until we have the results of that analysis.

I expect each of you to cooperate fully in this project. Time is short. Let's move quickly.

Michael

JUNE 7, 2005

To: Dale Edgel
From: Hugh McCauley

Dale,

Please move quickly to find a consultant to help us on these job satisfaction issues. I know Yvonne is competent, but I don't think she's objective about this project. I've talked with Michael and we have allocated $50,000 for the study. Let me know if you need more information.

Hugh

JUNE 7, 2005

To: Hugh McCauley
From: Dale Edgel

I'm on it, Hugh. Yvonne has already identified three possible firms and I'm interviewing them tomorrow. I should have a recommendation for you by the end of the week, and I will keep your comments (re: Yvonne) in mind.

By the way, I'm concerned that Charles and Kenneth are too sure that throwing more money at the employees will solve all our problems. I don't think it's that simple. I wouldn't be surprised to see that we need more changes in leadership, employee development and job design. I'd like your support and help in preparing everyone for this possibility.

Dale

JUNE 8, 2005

To: Charles Lacy
From: Kenneth Collins

Charles,

We need to keep pushing this incentive issue. I know my staff really wants to support the sales team, but I'm concerned that they'll become even more discouraged if they continue to see all the rewards going to the sales folks, even though they're contributing a lot to the sale. I need your support on this.

Kenneth

JUNE 8, 2005

To: Yvonne McMillan
From: Maria Trinh

Yvonne,

Can you please conduct a salary survey for me on the following IT positions: Network administrator, programmer/analyst, and database analyst? I need more data to show Hugh in order to convince him that we need to adjust salary ranges.

Thanks,
Maria

JUNE 9, 2005

To: Dale Edgel
From: Yvonne McMillan

Dale,

I've got meetings set up for tomorrow with each of the three consultant finalists. As I understand it, the scope of the work is to further define the issues identified in the employee survey and to recommend potential solutions. Is there anything else I should prepare for the meeting?

Yvonne

JUNE 9, 2005

To: Dale Edgel
From: Kenneth Collins

Dale,

I'd like to sit in on the consultant interviews. I want to make sure the firm hired understands the importance of R&D to the company. What time and where are the meetings?

Kenneth

JUNE 9, 2005

To: Kenneth Collins
From: Dale Edgel

Kenneth,

I don't really think that's a very good idea. Let's keep things neutral for now and not try to influence the outcome.

Dale

JUNE 9, 2005

To: Yvonne McMillan
From: Dale Edgel

Yvonne,

Thanks for setting up the meetings. See you there. Oh, don't forget to order the coffee and danish!

Dale

JUNE 11, 2005

To: Yvonne McMillan
From: Dale Edgel

Yvonne,

I was really disappointed in the position you took in the consultant interviews yesterday. The idea is to have the consultant identify the problems we're having, not spell them out as if we already know what they are. Because in case you aren't clear on this, we don't. I'm sorry to have to say this, but I don't think you have the objectivity necessary to lead this project, and I'll let Michael know that I'm taking over, but will bring you in as necessary.

Dale

JUNE 14, 2005

MEMO TO: Michael Riordan
CC: Hugh McCauley
FROM: Dale Edgel
Re: Consultant Hired
Confidential

Michael,

I'd like Human Capital Consulting from Santa Clara to conduct the analysis we discussed. One of the firm's principals, Barbara Masterson, has agreed to lead the study. The analysis objectives are: 1) Identify the underlying issues that are leading to decreased employee satisfaction and 2) Recommend potential courses of action to address those issues.

I don't believe that Yvonne has the objectivity needed for this project, so I've asked Barbara to report directly to me. Make no mistake: I think Yvonne should be able to handle this, but right now, I don't have time to deal with that issue.

What kind of communication do we want to send out to the organization?

Dale

INTERVIEW NOTES: Barbara Masterson
JUNE, 21, 2005: Interview with Kenneth Collins

 Collins is clearly very concerned about key researchers, afraid they'll leave for higher salaries. When pressed, he couldn't name anyone who has left for a higher salary, and couldn't identify specific individuals who might leave. States it's more of a "gut feeling" than actual data.
 Also concerned that the new requirement for R&D folks to support sales teams is pulling them away from the longer-term R&D projects. Cites concerns that incentives aren't strong enough to keep people focused on long-term projects that don't have immediate results.
 Thinks that Maria is overstating the problem with IT professionals. States that in his experience, these people are being paid just fine, but that they are not being recognized for the contributions they make.

JUNE 21, 2005: Interview with Hugh McCauley

 Thinks that the issues facing the company have little to do with compensation. Wants to see more attention on redesigning jobs to make them more interesting. Says that worked well in the auto industry and there's no reason it shouldn't work here.
 Very opinionated.
 Is concerned that everyone seems to be focused on issues at headquarters (sales, R&D, IT) without looking at the issues in Pontiac and Albany. Things are actually worse there, especially in terms of turnover and complaints. Would like to make sure this isn't overlooked in the overall study.
 Thinks Riordan should take lessons from automotive industry; there's much to learn. (Likes to talk about his background before he came to Riordan.)
 Doesn't really know if Yvonne is the right person for HR and would like my assessment on her capabilities (on the Q.T.)

JUNE, 22 2005: Interview with Charles Lacy

 Shared changes happening in sales force, particularly as they relate to moving towards team-based sales. Is concerned that the sales force doesn't "get it," and isn't sure what to do about that.
 Knows that his desire to modify the incentive system is not supported, but believes it's the only way to get the point across that there is on turning back on this strategy.

JUNE 22, 2005: Interview with Maria Trinh
 Thinks the entire future of the company revolves around the information infrastructure. Seems quite myopic about this.
 Compares her IT staff to other companies where IT is the strategic focus, and may not understand the "staff" nature of the role at Riordan Manufacturing.
 Would like to put stock options in place like other high-tech companies have done (Note to self: Are stock options a possibility for this company?).
 Very concerned that she is going to lose some of her best employees because they believe they are underpaid. Named three people who have confided they've been approached by headhunters in the past two months. Has been able to talk them into staying, but is concerned that this shows a trend.

JUNE 23, 2005: Interview with Michael Riordan
 This guy is sharp, understands the issues facing the company pretty clearly.
 Believes the company is "good to employees" and is concerned that they are no longer as loyal as they used to be.
 Thinks that the new generation is just ungrateful and doesn't realize how good they have it. May be a bit unrealistic????

JUNE 25, 2005: Interview with Yvonne McMillan

 Doesn't seem to be as concerned about employee morale as she is about HR's role in the company.
 Believes she should report to Riordan directly and thinks most of the problems in the company are a result of HR being relegated to finance.
 Says Dale doesn't appreciate the value of HR.
 Also says there are many HR systems that are not supportive of where the leadership team claims it wants to go.
Examples:
*No relocation money available for internal transfers
*No employee development money available unless directly related to current job
*No succession planning in place
*Most managerial hires come from outside the company
*Job grievance process is cumbersome
*Training is sporadic
*Incentive plans reward individuals, but not teams
 Believes she has little influence, thinks it is a gender issue as she and Maria are the only two executive level women. According to her, the executive team doesn't take either one of them seriously.
 Thinks that the entire system needs to be overhauled and is hoping I can help to make that point.

July 9, 2005
Presentation from Human Capital to Riordan
Consultant Report - Power Point Presentation - Employee Satisfaction Audit.ppt
1) Agenda
? Study Objectives
? Process
? Findings
? Leadership Team Findings
? Focus Groups
? Survey Analysis
? Findings
? Benchmark Study
? Recommendations 2) Study Objectives
? Identify issues leading to employee dissatisfaction at Riordan Manufacturing
? Recommend possible courses of action
3) Process
? Leadership team interviews
? Focus groups
? Two in San Jose
? Two in Pontiac
? One in Albany (smaller work force)
? Analysis of employee survey comments
4) Findings
? Reward system is seriously flawed
? HR systems in general are inadequate

5) Leadership Team Findings
? Lack of agreement about primary issues
? Primarily focused on changing reward systems
? Need for consistency across functions
6) Focus Groups?What's Working?
? Majority of employees believe the overall package is "good"
? Vacation package is fair
? Supervisors treat people well
? Good culture for innovation
? Many long-term employees 7) Focus Groups?What's Not Working?
? Pay is tied to seniority more than performance
? Performance reviews don't always happen
? Few opportunities for training or advancement
? Managers play favorites
? No clear understanding of how pay works
? Not enough recognition of good performance
? Promotions (when they happen) are based on politics
? Newcomers are paid more than internal promotions?it's better to leave and come back
? Rewards are not connected to company strategy
? System is secretive
? Pay seems to be below market in some cases
8) Focus Groups?What People Want
? Feel valued
? Career information and opportunities
? Effective coaching and feedback
? Know how to contribute
? Development opportunities
9) Survey Analysis
? Employees are less satisfied in most areas
? Critical areas
? Overall job satisfaction (25% decline)
? Working conditions (29% decline)
? Personal opportunity (25% decline)
? Compensation/benefits (26% decline)
? Employee comments shed some light
10) Survey Analysis?Employee Comments
? Representative Comments
? "There's no place for me to go here. I am actively looking for another job because I can't get promoted here."
? "I can make a lot more money elsewhere?and I would be more appreciated."
? "This company requires all of me. There's nothing left for my family."
? "No one seems to care about my career development. I haven't had the opportunity to go to a workshop in two years."
? "I am actively looking for another job where the opportunity for advancement is better defined."
? "There is little recognition for great performance or an extra effort. I know I can get a raise just keeping my head low and following company rules."

11) Benchmark Study?14 High-Tech Firms
? Creative use of job design to retain key employees
? Rewards are specifically tailored to individual performance
? Extensive career development programs, mentoring programs in place
? Most have formal succession plans
? Most offer flexible working hours and telecommuting options to employees
? Most offer child care and elder care benefits
? More than half offer on-site personal services
? Most have generous tuition reimbursement programs
? Many offer stock options or grants to key employees
12) Recommendations
? Additional research would be useful
? Redesign reward process
? Not a piecemeal approach
? Should be a complete overhaul
? Review other HR systems
Act quickly

JULY 9, 2005

Dale Edgel
Riordan Manufacturing
One Riordan Plaza
San Jose, CA 95112

Dear Dale,

We are pleased to submit a proposal to redesign Riordan Manufacturing's compensation and reward system. As you requested, we've divided this proposal into several sections. We strongly believe that it is best to implement all of the recommendations we make; however, we recognize you may have reasons for choosing not to do everything at once. As such, we have presented our recommendations in what we believe is priority order.

1. Conduct a salary survey for all company positions that will determine current market positioning. Adjust salary grades based upon results.
a. Time frame: 3 months
b. Investment: $25,000
c. Outcome: Clearly defined salary grades that will position Riordan Manufacturing competitively in the marketplace
d. Company Resources: 50% time commitment for Terri Carranza. 25% time commitment for Yvonne McMillan
2. Develop incentive systems for Sales and R&D based upon change in corporate sales strategy.
a. Time frame: 6 months
b. Investment: $50,000
c. Outcome: Recommendations for incentive plan, communications and education strategy for implementation, measurement system.
d. Company Resources: 50% time commitment for Yvonne McMillan, 10% time commitment from Charles Lacy. Access to directors of sales for each line of business. Access to sales representatives for focus group purposes.
3. Develop performance appraisal process to ensure clearer alignment between business strategy and employee rewards.
a. Time frame: 12 months
b. Investment: $100,000
c. Outcome: Aligned performance system that supports business strategy and clearly identifies performance expectations.
d. Company resources: 25% time commitment for Yvonne McMillan, other HR support as identified by Riordan.

We look forward to the opportunity to partner with Riordan in the redesign of its reward system.

Sincerely,
Barbara Masterson
Barbara Masterson, Principal
Human Capital Consulting

July 9, 2005

MEMO TO: Leadership Team
FROM: Michael Riordan
RE: Minutes of Meeting
CONFIDENTIAL

I'm glad you were able to hear the presentation from Barbara Masterson of Human Capital Consulting, and I thank you for your thoughtful discussion of the pros and cons of hiring her firm. My assistant has prepared this summary of our meeting:

Advantages of moving forward
 Shows employees we listened to their feedback and are committed to improvement.
 Potential to align rewards and strategy more effectively.
 Improves competitive position in San Jose market.

Disadvantages of moving forward
 Cost: We are in the middle of a sales slump. Is this the right time to incur these kinds of costs? What are the benefits?
 Doesn't address other areas identified in the employee survey, such as job design.
 Requires almost full-time attention from key HR staff. Is this the best use of their time?
 Does not address retention issues in Pontiac and Albany.
 Could disrupt employee attention and create additional morale issues.

Certainly, there are other advantages and disadvantages. I am asking each of you to consider Barbara's recommendations over the weekend. We will meet again on Monday afternoon with an eye toward making a decision about whether -- and how -- to proceed.

Michael

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