Saturday, June 6, 2015
Below is a fictionalized case study that presents dilemma faced in real organizations. And written by me is the recommended solution to the problem. This has been published in Business Manager Magazine June 2015 edition.
Natco Car Limited is a popular company in the passenger car segment of the automobile industry. It has a significant market share. It offers five popular brands of cars to its customers. The major philosophy of this company is "customer satisfaction through employee satisfaction". It strongly believes in the HR principle of "happy employees are productive employees': This company offers one of the best and most friendly environments for the employees to grow in their organizational and personal lives.
It has many novel incentive schemes and attractive fringe benefit schemes to attract and retain the best talents. This company's incentives and fringe benefits package alone accounted for nearly 7.6 per cent of its cost of production. In fact, the excellent cordiality in labour-management relations and the high employee productivity coupled with high product quality were viewed by the company as an outcome of this generous incentive and benefits schemes.
However, recent developments in the economy and the industry in particular suddenly made the company vulnerable in the market. These developments are (i) recessionary conditions gripping the economy, (ii) the entry of low-cost budget cars in the market, and (iii) its high health-care cost due to die recent spurt in the reimbursement requests for medical and hospital expenses. Recessionary trends led to a free fall of the prices in the market and automobile goods, being a luxury item, were obviously the worst affected. Besides, the introduction of low-cost cars by the competitors compelled the company to think seriously about cost-cutting measures. To add to its woes, in the recent past, the company received an unusually high number of medical reimbursement bills as more and more employees reported major health problems. This apparently pushed up the HR cost and caused anxiety in the company about the deteriorating conditions of the general health of the employees. As a combined effect of all these developments, the company began to lose its price advantage fast and its market share began to shrink gradually.
The top management of the company insisted on reviewing its HR cost in order to withdraw some of the benefits offered to its employees. Understandably, the fringe benefits, particularly the health-care benefits, received top priority for cost reduction after the reviews. The management was now determined to impose stiff restrictions on the reimbursement of medical bills, thereby making it virtually impossible for the employees to get ant medical benefits.
However, the HR department was ranged against such moves. It insisted on continuing with the health-care schemes, perhaps with some minor modifications. Interestingly, it came up with an alternative proposal which suggested that the employees must be educated continuously and made aware about the health problems affecting them. It also proposed periodic medical tests at the factory premises to diagnose their health problems at an early stage. This preventive approach, the HR people believed, could help the employees attend to their health problems at the right time and avoid major health crisis and the resultant huge medical bills for the organization. The HR department emphasized that any drastic measures, like the withdrawal of health benefits, could discourage the employees, thereby jeopardizing the employee retention strategies of the organization. The suggestions of the HR department were forwarded to the top management and its response was awaited.
Questions for discussions and solutions
1) How do you assess the situation of Natco Car Limited from HR perspective?
Natco Car Limited was a market leader in the passenger car segment of the automobile industry offering five popular car brands to it's customers. The company offered a congenial growth environment for it's employees. It believed that if it's employees were happy, then it's customers would be happier as well. The HR culture of Natco Limited was people - oriented. Keeping in line with it's HR philosophy, the company designed numerous employee retention strategies like incentive schemes and fringe benefit schemes that ultimately resulted in excellent labour-management relations, high employee productivity and high product quality.
However with the passage of time, changing economic & industry scenario, Natco Car Limited began facing business challenges. They were mainly related to recession, entry of low-cost budget cars offered by competition and internal rising costs like those of medical reimbursement claim by employees. All of these made Natco Car Limited begin to lose its competitiveness and it's market share began to shrink gradually.
In view of this shrinking market position, Top management of Natco Car Limited decided to review some of the employee benefit schemes offered to it's employees, notably the health care benefits was on their topmost agenda point for cost reduction. The HR department opposed the move fearing that it may discourage the employees, demotivate them and thus jeopardize their employee retention strategies. HR department came up with an alternative solution of educating employees continuously about the health problems affecting them. HR Department also proposed preventive measures like periodic medical tests within the factory premises to diagnose employee health problems at early stage. The objective behind this was that the employees would be able to attend to their health problems at right time and avoid major health crisis later on which would also result in savings of huge medical bills for the organization.
Drastic reduction in employee benefit measures was not the right move, hence the alternative solution offered by the HR Department seemed to be a step in the right direction keeping in line with Natco Car Limited's HR philosophy. This move of education and training could offer a cost-effective method for employee development. The employees need to be valued and this can only happen when a company is committed to their engagement, satisfaction, development, and well-being like having practices tailored to meet their home life needs. The company has already an established internal partnership i.e. labor-management cooperation. This may also be jeopardised if there were any such anti-employee move.
2) What will be the likely response of the top management to the suggestions made by the HR department?
The top management of Natco Car Limited has to take note of the fact that by dropping financial support like imposing stiff restrictions on the reimbursement of medical bills, thereby making it virtually impossible for the employees to get any medical benefits can cost the business by way of decreasing employee loyalty which can thereby lead to lower productivity and higher absenteeism. Research has indicated that one of the of contributors to employee engagement is the extent to which the company is concerned for and supports employee health, safety and well-being.
Top Management though welcoming the alternative solution proposed by the HR Department, would like to weigh the pros and cons of it before signing it off as a policy measure. It will definitely look at the cost implications if the new proposal were to be implemented and the resultant benefits (direct/indirect) arising out of it and also in terms of money saved as a result of the new policy.
Top Management definitely would not want to be seen themselves in the eyes of their employees as someone who is not sensitive to employee's needs and only looks at how much profit business has made and how much money has been saved.
Employees will perform better when they understand the logic and rationale behind a move. Hence the top management must tell the employees what's coming, how they will be affected, and what's expected of them. If not communicated effectively, they will be inviting the rumor mill to fill in the blank spaces by default. Communication of any cost-cutting initiative needs to be handled carefully.
3) If you were in charge of the HR department, what would your suggestions be to solve the problems of the company?
a) Issues and concerns related to employee health and safety be used to design the work environment. Design proactive processes with health & safety factors identified by people directly involved in the work. Track its status and progress. Start having processes in place to optimize working conditions and eliminate adverse conditions. A safe, healthful work environment contributes to better process management, higher performance, and productivity, with fewer errors and rework.
b) Root causes for health & safety problems are sytematically identified and eliminated. Corrective actions are communicated (shared) widely to help prevent the problem in other parts of the company.
c) Natco Car Limited could also look at keeping this cost reduction measure as interim till such time it overcomes it's business challenges and retains it's market leadership position. This will surely help in restoring employee confidence and strengthen their engagement with the company.
d) Motivate people to be more responsible for their health.