BUS 503 Case & SLP

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STUDY OF A LARGE OFFICE SUPPLY RETAIL ORGANIZATION: HOW GOOD COMPANIES SLOWLY GO OUT OF BUSINESS

Jessica Butt

School of Business and Public Administration University of the District of Columbia

Washington DC, USA [email protected]

Sergey Ivanov, Ph.D. School of Business and Public Administration

University of the District of Columbia Washington DC, USA

[email protected]

Abstract

This study demonstrates the importance of long-term planning though innovation. The organization for this article is a large business in the United States, an office supply retailer. The authors evaluate the company based on the organizational theories devel- oped by W. Edwards Deming. The researchers find that XYZ, Inc. uses short-term planning that leads to loss of customers. The authors recommend long-term planning through innovation of new products and services. Focus and implementation of this new policy would lead to company success. Key Words: Innovation, Short/Long-term Planning, W. Edwards Deming, Leadership

Introduction

Evaluation of XYZ, Inc. is based on one of the author’s working experi- ence and knowledge of the company’s culture, structure, focus, and operations, as well as, surveys with current em- ployees. The authors apply organiza- tional theories developed by W. Ed- wards Deming (1992, 1993) to break down how XYZ, Inc. is currently plan- ning for its future. The authors evalu-

ate the best practices to approach plan- ning and organizational development for XYZ, Inc.’s survival as a company in the long-term.

One of the authors was employed by XYZ, Inc. from 2009 through 2013, and held positions from entry-level, to supervisory, to management roles. The author worked in four different stores in two different regions. During this time, the researcher worked under four

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different Regional Managers, three dif- ferent District Managers, four different General Managers, and ten different Assistant Managers.

The researcher had detailed con-

versations with many employees re- garding the company, and has been able to discern company goals from others through their daily actions and communications. The author also had a lengthy and detailed conversation with the (now former) President of North American Operations. The researcher also met the current CEO on two occa- sions, whom she surveyed briefly. The author, additionally, obtained this year’s company demographic and ranking information from a current XYZ, Inc. Assistant Manager.

Company Overview

XYZ, Inc. is a Fortune 500 com- pany with around 1600 stores and 44,000 employees. The founder of the company realized that office supplies were only mail order and often not available in stores. He structured XYZ, Inc. to continue the mail order business, but established stores where business customers could come and buy the products that they needed immediately.

The President of North American

Operations has four Division Managers answering to her. They have thirteen Regional Managers with eighty-five districts divided among them. Each store has a General Manager and one to two Assistant Managers depending on the sales volume of that store.

What XYZ, Inc. Does Well

XYZ, Inc. has a good set of core competencies that gives it a com- petitive advantage. First, XYZ, Inc. has a large network of reginal warehouses. It is able to keep its stores stocked at optimum levels with just-in-time in- ventory management. It has low out of stock numbers and usually is able to fill the out of stock item within two days. Most of the time the just-in-time plan works out and the items are re- ceived just as the last item is purchased. The General Manager of the store is able to adjust the inventory on hand levels to keep popular items in stock.

Second, XYZ, Inc.’ website car- ries a wide variety of goods for various types of companies and customers in- cluding industrial cleaning supplies, medical supplies, office supplies, elec- tronics and home goods. This has made XYZ, Inc. competitive in the e- commerce space.

Finally, stores have been trimmed

down to smaller locations that are more efficiently stocked. The stores themselves are in peak areas for the customer base ensuring optimum ac- cess for local business customers.

While XYZ, Inc. has some strong

core competencies, there is room for improvement. This paper focuses on three problem areas: short-term plan- ning and a reactionary environment, performance based pay and incentives, and customer retention through service innovation.

Where XYZ, Inc. Needs Improvement Short-Term Planning and a Reaction-

ary Environment

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In my time at XYZ, Inc., it be- came very apparent that the company focuses on short-term goals and reac- tionary efforts to external business changes. I have seen through my vari- ous conversations with current em- ployees that nothing has changed in this respect.

The company focuses on sales for

this week, or month, or quarter. It fo- cuses on product pushes that change at least once a year. There are even prod- uct of the month and product of the week pushes for the cashiers at the reg- ister. The focus on boosting these sales to bring in a few extra margin dollars does nothing for the company in the long-term. In fact, it hurts the com- pany’s reputation as customers find that they are being force fed inferior products by pushy sales people.

Another major issue in short- term thinking for the company is its constant reactions to external business environment changes. There is con- stantly a new focus based on a change in perceived business customer wants. So, paper and ink are the future! Sell paper and ink, it will keep the com- pany going! Then in a year, paper and ink are the past, we cannot use it to keep the company going! The future is in PDA’s, we must push the Black- berry – it is the future of the company. Now, it is cell phones are the future, we must push cell phones!

In each one of these changes, money is wasted in remodeling to fo- cus on the newest product or service only to remodel the same section again a few months later. How will the com- pany survive if it keeps thinking so short-term that it can only react to out-

side changes after they have already happened and when the customer has already started to move on to the next new thing? It cannot.

XYZ, Inc. needs to stop thinking

short-term and reacting to outside changes. It needs to ask itself what the next new thing is in business supplies or technology. There needs to be a cul- ture of innovation of new products and services for the business customers.

XYZ, Inc. should be the one to

create the next new product or service. XYZ, Inc. needs to create an R&D de- partment, and its employees should be involved. There should be an atmos- phere that encourages new ideas for products and services with a way to easily submit them. This is the best way that the company could continue for many more years. If it does not do this, it may go out of business.

Performance Based Pay and Incentives

XYZ, Inc. focuses too much effort on ranking regions, districts, stores, and employees in order to rank from best to worst to decide who gets re- warded and who gets punished. The company has lost sight of what this really means and results. When the whole company is ranked in this man- ner, then the entire organization com- petes against itself, and the organiza- tion loses (Deming, 1992, 1993), (Ivanov, 2011, 2012, 2013, 2014, 2015).

Giving bonuses only to the high- est performing employees, and some- times only to management regardless of the fact that the non-managers were the ones who drove the results, fosters

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an environment of jealously and exclu- sion. Employees should not have the idea that they are only working to achieve bonuses for their managers. In this system, the employees are left de- moralized and none of the systems components, from stores to workers, feel that they can work together or trust one another, a necessary ingredient for organizational success (Ivanov, 2015).

This system is set up for a total failure of the company by its very na- ture. If there are top performers, then there must be bottom performers. Ranking them causes systemic failure. The top performers are rewarded with more hours and more money for im- provement, while the bottom perform- ers are punished by taking away their hours and their maintenance budgets.

The bottom performers then get worse, and the top performers get bet- ter. The top and bottom performers won’t work with one another lest the bottom performers bring the top ones down. The bottom performers then get fired, and that is expected to fix the system. But, the middle performers then suddenly become the bottom per- formers, the high performers are no longer adequate, and only the very top performers are now doing well.

The cycle continues. So, if the bottom continues to fired, the top per- formers just keep becoming the bottom performers, and eventually get fired too. Everyone loses from the employee to the customer to the company itself.

The Deming solution is to throw out the ranking system and the pay incentives behind it (1992, 1993). Instead, implement a profit sharing

percentage that is the same for every- one, and would be paid to everyone. If there is no profit, then nobody should be getting extra pay because the com- pany is not succeeding. With the rank- ing system removed, the internal com- petitive environment would disappear, and most employees would see each other as equally capable and willing to collaborate.

The regions, districts, stores, and employees will then be able to work together as a whole towards the com- pany’s profit objectives. They would naturally want to lift each other up as together they could achieve the goals. Employee morale would be boosted, customer service would improve, and the entire company would see the benefits of a team environment with a focus on meeting goals and objectives.

Customer Retention through Service Innovation

XYZ, Inc. has had a declining customer count based on the store visit numbers. This data was provided by current employees during the study’s survey.

This is the same a problem when I worked there as well. This shows a continued year over year trouble in customer acquisition. This problem is caused by short-term planning and em- phasis on temporary fixes rather than long-term innovative solutions.

There are always temporary gim- micks being used to try to get new cus- tomers in the door. There are rebates, loss leaders, rewards programs, item of the month/week pushes, and other common retail tricks to try to get new

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customers. The problem is that those customers only come for the deal, and do not continue to shop after the deals are over. The gimmicky environment also hurts the company’s reputation and drives away current customers.

Another issue is the culture of pushy sales that sacrifices good service to gain extra margin dollars. For ex- ample, when a customer buys a com- puter from XYZ, Inc., the sales push is to get them to pay for extended service contracts and even to charge them to turn it on and make sure it is set up properly.

If a customer comes in with a product that has a technical issue, for example, a calculator that needs ink, the current push is to charge them to diagnose and fix the item. Associates, with manager’s approval and encour- agement, are patting themselves on the back because they got a tech support sale from a customer who just needed an ink roll changed in their calculator, or a customer who just needed help figuring out how to configure their desktop icons. Although this brings short-term profits, it is a sure way to lose a customer forever.

The solution is simple: plan for the long-term by investing in innova- tions in products and services, Dem- ing’s constancy of purpose (1992, 1993). Start with a total innovative service solution that other retailers are not doing. An example of a new and innovative service idea would be to stand by products you sell. Imagine how many people would become loyal XYZ, Inc. customers if they knew that XYZ, Inc. would offer technical sup-

port services to them as long as they purchased the product there.

New customers would always be trying XYZ, Inc. because they would hear about how great the service for the products is. They would leave their current suppliers and switch to XYZ, Inc. for the customer service support. This would continue to bring in new customers and retain current customers for longer.

This is not the only new service idea available and there are details to be worked out, but this is why the company needs to invest in research and development, a responsibility of management. The only way to fix the customer count is to innovate a new service or a new product. With long- term planning and investment in new products and services, there would be short-term losses, but long-term lon- gevity for the company.

Conclusion XYZ, Inc. lacks constancy of purpose. It does not think what it could do today to keep the company in busi- ness in the long-run, to keep the people who work for it employed, or how to create more jobs in the areas in which it operates.

It has a culture of short-term planning that only allows it to react, poorly, to the outside environment. It relies too heavily on performance based pay that stifles its employees’ morale, and causes internal conflict and competition, resulting in the whole company underperforming.

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This corporate culture negatively impacts the customers so that the cur- rent customers are leaving faster than new customers and coming. The new customers that try XYZ, Inc. become as disillusioned with XYZ, Inc. as the old customers due to sales and service gimmicks that hurt the company’s reputation. The company cannot sus- tain itself with continued short-term planning-tricks.

XYZ, Inc. needs to invest in in-

novation. Innovation of new products and services is the only way in which new customers could be obtained and current customers retained. XYZ, Inc. should invest in research and develop- ment, and solicit its entire current workforce for ideas. To do that effec- tively, the internal culture at XYZ, Inc.

needs to change from short-term quick fixes to long-term planning.

To fix the internal competition

and employee morale, XYZ, Inc. needs to remove bonuses and implement a profit sharing system. This would help the employees and stores see that they need to work together to achieve total company goals.

When the employees are no

longer competing with one another, a free flow of ideas might occur. The new company culture and product and service innovations would drive sales and customer traffic. XYZ, Inc. would only be able to survive in the long-term if it stops its current short-term man- agement, and instead invests in inno- vating new products and services.

References

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