HCM Model Adopted by the Container Store - Case Study Example

THE CONTAINER STORE'S CUSTOMER SERVICE: RECRUITMENT AND TRAINING AS COMPETITIVE ADVANTAGE Executive Summary Now-a-days retail industry is a very profitable sector and many players are competing for the major share of the market. Products related to storage of materials for organization and household purpose had also grown up into a profitable business segment within the retail industry. The Container Store is one of the players in this storage related products. This store has created a niche in the retail segment and still operating the business with profitability. For the last two decade they had achieved 20% growth annually, whereas similar types of organization had failed to continue their business. According to the higher management of the Container Store their success is due to the unique recruitment and training policy of the organization. It also spends 18% of the sales revenue on their employees. The performance review system for employees of the organization is also unique in nature. This paper will enable us to appraise the contribution of Human Resource Management in the organizational development, strengthening the employee-employer bond and increase in productivity within the organization. It will also enable us to know the importance of human resource management in an organization. This paper will impart knowledge about the dynamic nature of the HRM and how it helps to increase productivity within an organization. This paper will mostly deal with relevant industrial facts and analysis revolving around the mentioned case. It will help us to understand and evaluate whether the HCM model adopted by the Human Resource Management is best fit for the Container Store outlets or not. Moreover, this paper will also help to analyze the problems of a manager during the performance evaluation of the employees in the best practice model of HRM. Human Resource Management in an organization T The current corporate and business culture has been marked by “The elimination of many middle-management positions, the vertical and horizontal compression of job assignments, and self managed work teams draws attention to ‘strong’ leadership and corporate culture, and the critical role of HRM.” (Bratton & Gold, 2000, p.56) In simpler words, HRM is a process of managing the employees of an organization. It is also an innovative process of managing the workplace. It includes organizational, personnel administration, manpower and industrial management. It is a complex interlinked process between activities which are considerably affected by external factors like legal, economic, political, geographical, social, technological and global environment. The HR activities are managed, designed and changed in respect to these earlier mentioned different external factors. The important HR activities comprises of Strategic HRM, equal employment opportunity, staffing, talent management and development, total rewards, risk management and worker protection, as well as employee and labor relationship. Through these activities HRM plays its part and helps to give a competitive edge to the organization by properly managing the workforce as well as the workplace. Organizational strategies are mostly based on the areas of strength of the organization. So, core competency is a unique capability of organization which helps to create differentiation and high value from its rivals. Value creation is also a very important thing which is now being performed by the HRM. This helps to give a competitive edge to the firm over its competitors and also helps to focus on the firm’s core competencies (Han, n.d., p.3). Several roles fulfilled by HR Department are administrative, operational and employee advocate, as well as the strategic role. High degree of alteration in role is also noted in the process of HRM. Now-a-days HRM is divided into traditional HRM and Strategic HRM. This new form SHRM creates a value generation to the organization. Between the two different processes HRM and SHRM, it is evident that in traditional HRM administrative role constituted of 50%, where as operational role and strategic role constituted of 30% and 20% respectively. Whereas in SHRM, the main stress is on the strategic role which constitutes of 60%, operational role of 30% and administrative role a mere 10%. These new changes in HR roles also contributed vastly in mergers and acquisitions, structural changes and staffing needs. It also helps in anticipation of retirement of employees and workforce expansion and helps in compensation, incentives and appraisal of employees and creating value for the organization. With all these new roles and activities HRM is going through an ever evolving dynamic process which is helping the organization to grow and outplay their competitors. (Jackson & Mathis, 2007, 4-14; Ivancevich, 2008, pp. 5-13; Dessler & Varkkey, 2009, pp.2-6) Human resource management is a dynamic and unique way of employment management which enables to achieve competitive edge through strategic use of the sincere and able workforce. It is mainly achieved through an integrated system of different techniques, namely cultural, structural and personnel. Culture management is a key element of HRM which enables to gain consensus, flexibility and commitment within the employees of the organization. This gain in consensus, flexibility and commitment also helps to increase the efficiency of the employees and it encourages the employees to give extra effort for the organization. New HR practices suggested by Walton states that a change in labour management strategy by better control on the work force for higher commitment in work will help to increase productivity for an organization. This mutual benefitting spirit enables both the company and the employees to grow. Guest suggests incorporation of commitment within the employees is a vital objective of HRM. It is because committed employees are more satisfied, more industrious and more flexible to perform more productively for the organization. (Ryan, n.d., p.1) The importance of commitment in new HRM practices is now well acknowledged and the terms like HCM or high commitment management and HCP or high commitment practices are actively functional for a culture change and incorporate commitment within the employees of the organization. HCM is a form of management which generally self motivates the employees for greater commitment in their work without external pressures from the organization (Yew, n.d., pp.2-3). As mentioned by Purcell & Wright (2007, p.594) “high-involvement management is most strongly associated with organizational outcomes. It is related to financial performance, labor productivity and labor retention as well as to change in labor productivity when variable pay is used in conjunction with it. In addition, where it is practiced, equal-opportunity management is associated with financial performance and, in the private sector only, the level of productivity.” This type of management works on the base of high level of trust between the employees and the employers. According to Woods, the practices which can be referred as HCP are: Training of the employees and incorporating commitment within the employees. Functional flexibility of the employees. Providing career ladders for growth of employee. Greater job responsibility. Job security of the employees. New pay systems Emphasis on the management of quality. Stressing on team building and team work. (Ryan, n.d., p.2) Best practice also suggests different programs for culture change which helps in improving the efficiency, productivity and quality in every task of the employees. It is achieved through making changes in business functions by benchmarking the best performances to motivate the employees to surpass it in future. “Delayering and work redesign based on semi-autonomous teams and multi-skilling; increasing communication and participation in planning and problem solving; developing customer focus” are also some programs to employ the best practice model in an organization (Ryan, n.d., p.2). Developing innovative HR policies which aims to establish career paths for the employees is also a part of the best practice model. Moreover, it also provides significant training to develop a skillful and committed workforce. (Ryan, n.d., p.2) It also helps in continuous improvement of the work groups through different techniques to compete successfully in this era of globalised product market. In this way, the managers also get support from these HCM programs to improve the productivity of the employees. In real life practice also many leading companies follow best practice model. For an example, Infosys Technologies one of the leading firm in global software manufacturing industry also follows best practice model. They recruit the candidates through a very tough selection process. After the selection process they conduct intensive training program for a period of 14 week. It is also necessary for all the employees of Infosys Technologies to go through training programs each year. Moreover, some of the selected employees of the firm are also sent for training in the Infosys Leadership Institute. These candidates take over higher positions with greater work responsibilities for the organization in future (Human Resource Management - Best Practices in Infosys Technologies, n.d.) So, in this era of business best practice model is being applied by every successful firm to sustain the fiery competition from their rivals. (Ivancevich, 2008, pp. 5-13; Strong, 2000, pp.59-61, Beer & Foote, 2009, pp.9-16) Role of HRM in the firm Container Store The role of HRM for the organization Container Store is noteworthy for their successful business. Here we will try to evaluate the management strategies regarding the procurement, training and controlling of their workforce and how this strategies are helping them to achieve success. If we minutely observe the details given for this case study it will be evident that Container Store has many competitors like Organized Living and other mass merchants. Some of the competitors of Container Store ran out of business whereas some of the mass merchants are doing business in this sector with a little success. Container Store is still performing the business with high profitability. Their success is evident when we observe the profitability of the organization which has increased by 20% annually; for the last two decades. The management of the store suggests this growth in business is due to their niche strategy. They had created this niche through superior quality product and good understanding and knowledge about the customer needs. They also stresses on their main objective that is to satisfy the customer by providing them more space and time for better living. Furthermore, in the Company Store there are different product segments of office, kitchen, closet, laundry etc. Each of these segments showcases particular products related to the specific segment. All these facts show this store needs salesperson for different product segments and they should also be well-informed about the products as well as the need of the customers. In this situation the HRM of the company comes into function for proper procurement, utilization and training of the work force to manage the work place. The organization Container Store follows a very strict policy during their recruitment process. They are so conscious about recruiting suitable person that they do not mind if a position remains vacant for a period of 2 months. The management of the firm also does not advertise for recruitment of candidates. They depend on the internal sources for recruitment of new candidates. The recruitment process for the candidates is also very tough and strenuous. The process involves telephonic rounds, group interviews and another two to three interviews of three to four hours duration. The management also awards $200 for each successful recruit referred by the employee. This enables them to hire people having same ideals with the management and the current workforce of the organization. Apart from the internal sources of recruitment they also engage in interactions with the customers. It enables them to know about the interest of the customer to join the organization as an employee. They also recruit part-time employees and call them as prime timers. The prime timers are also treated equally like any other employee of the organization. Container Store is also flexible with the idea of giving freedom of choice to an employee to select their own work domain. As the organization do not issue any notice about internal openings, the promotions are generally skill and performance oriented through recommendation of managers. This organization employs full time trainers in each of its outlets and they are known as super sales trainers. These trainers are dedicated to train the employees. Annually, the full-time employee gets a training period of 235 hours where as the part-timers gets training period of 100 hours. Moreover, the full-timers annually get 160 hour of training after first year of their tenure in the organization. Generally, the first week of the employee is based on orientation programs conducted by other employees and managers. They are also trained on the different aspects of inventory control, space planning and visual sales. Additional training is also provided to the employees those who are chosen for promotion to take up greater responsibilities for the organization. Container Store management believes this kind of training helps in building loyalty within the employees of the organization. Moreover, it helps to increase commitment of the employee for the organization to ensure more productivity. This training period also helps an employee to feel more secure and a respected person within the organization. After these types of training the employees also gain much confidence in selling. It also helps the employees to do the job better and increases the productivity per employee for the company. This type of training also helps the employee to identify and satisfy the customer needs. It also helps to teach the employees critical thinking skills. This training also enabled the organization to reap long term benefits in terms of profitability as well as to decrease the employee turnover rate. This decline in employee turnover rate helps the organization to enjoy the service of a longer tested batch of loyal employees. Furthermore, this will also translate into lessening of the cost of training. Here the cost component has been considered both in value (money) terms and in terms of valuable working hours that it would be spent in training. A little investigation will also reveal that the experts those are involved in delivering training to the new batch of employees will also attract a higher cost in terms of both previously mentioned cost components. (Bohlander, & Snell, 2009, pp.93-94) The training in Container Stores also lays emphasis on teamwork. The management suggests it is not sufficient for an employee to become a top performer. According to the training a top performing employee must also help other employees to perform better and communicate how one can achieve better performance. In this firm the management structure is also relatively flat and the senior level employees are addressed by names and the employees care for each other in the company. It is very surprising but true that the management keep the employees informed about the financial information of the company. The employees are also kept well informed about the profits, sales figures and revenue of the firm. The management also discusses all these information and the strategic plans of growth and expansion with the employees regularly through daily huddles. Through this activity the management provides information as well as acts to strengthen the team and help to build skill within the employees. (case study) Most important components of best practice model are: Security of the employees. Selective hiring and complicated selection process during recruitment. Extensive training, learning and development programs for employees. Employee involvement, information sharing and worker voice. Self-managed teams and working with the team. High compensation on the base of performance. Reduction of status differentials and harmonization between the employees. (High commitment HRM and Performance, n.d., p.73; Bayo-Moriones, A. & J. M Cerio, 2002, 175-179) All these components are in function within the HRM of the Container Stores outlet. This clearly suggests the management stresses on employee satisfaction for performing better in their business. A critical analysis of their position with respect to the retail industry will also help us to evaluate the firm’s success or failure due to implementation of the best practice methods. According to the information available from the case reference, it is clearly evident that the firm is going through a profitable phase with 20% annual increment in profit though the price of their products are comparatively higher than their competitors. So, this clearly indicates other than their products the customers must be attracted toward the store due to some special reason which is without any doubt the personalized service provided by their employees. This personalized service is the main contributor for their success in this business. It is only possible when the salespersons of the outlets are well accustomed with all the products and their utility. Another important factor for the salesperson is the individual’s ability to recognize the needs of the customer. The US retail industry is the second largest industry in terms of employees which is about 11.6% of the nation’s employment. The most important issue in US retail industry is the employee turnover rate which is about 90%. However, considering an average; regarding employee turnover rate as a benchmark for each firm involved, might be a foolish assumption. A striking example might be “Starbucks had one of the lowest employee turnover rates in the industry—just 70%, compared with fast-food industry averages as high as 300%.” (Zeithamal, 2008, p.688) The major grounds cited by the employees for such a high turnover rate are the lack of training and growth opportunities within the retail industry. The expenditure related with the employees is also meager in US retail industry which is about 3-4% of the revenues and the average training period offered by the management is only 7 hours. This in return does not attract talent in the retailing industry and the employee satisfaction in this sector is also very low. This situation of the retail industry was not unknown to the management of the Container Sores and they acted proactively to eliminate this problem within their organization. This problem was eliminated by the high commitment practice model. As mentioned earlier, the organization is very much concerned about each and every recruit, and the training and development of their employees. They also spend 18% of their sales revenue on their employees which is highest in the retail industry. The performance review system of the organization is also very unique. This enabled them to create a talent pool as well as incorporate confidence, loyalty and commitment within the employees for the organization. This helped to generate satisfaction within the employees and ensures greater productivity. It is observed that, many retail organizations in US like Wal-Mart and Home Depot discriminated against women employees in context of compensation, promotion and training. In one such instance, the women employees of Home Depot filed a law suit and the firm had to pay penalty of $104 million in 1997 to its 25000 women employees. Whereas, a significant feature is to be noted in the Container Store that is 62% of the employees are women and the management relies on their capabilities. The management also stresses on recruiting women candidates as they believe female executives are very good team players. As mentioned earlier, the Container Store also provides an extensive training and development program for each and every employee irrespective of full-timers and part-timers. Their main objective is to train them to be a better salesperson and serve the customers well to satisfy their needs. If we observe the statistics it will be evident that the objective of satisfying the customers by offering quality service and products had been achieved by the organization. The statistical figure shows that in late eighties the average dollar per customer earning was as low as $20 but in the year of 2001 it became $50 and the employee turnover rate of the company was also very low just 10%. This clearly suggests though the high commitment management practices are long term oriented strategy but it brought enormous success to the organization. These achievements made the management so enthusiastic that they now consider learning as a dynamic process for achieving greater success. (From the reference of the case study) Table-1 Source: Reference of the case study p.4 From table-1, it is clearly evident that the sales revenue has increased annually with increment in the number of employees within the organization. But the thing which is not evident in this table is the time and money spent on the procurement, training and development of each candidate. But this table surely reflects the fact that the employees recruited were talented and helped in achieving higher sales figure. This increased profitability of the firm and show that the strategy of best practice in the organization is helping them to reap greater profits. So, this supports the fact HCM model is working wonderfully for Container Store. Table-2 Source: Reference of the case study p.5 From table-2, it is clearly evident that The Container Store has been voted as the best employer twice, that too for consecutive years as Fortune’s best companies. It has been also awarded with the ‘Workforce magazine Optimas Award 2001’ and ‘Dallas Business Journal’s Best Places to Work’ awards. This simply reflects that the management is very much aware about the employee needs, growth and their satisfaction level when they are working for the organization. These awards and the table too reflect the employees’ attitude toward the organization and show the harmony between the employer and the employee. This also acted as a catalyst for the success of the organization by lowering down the turnover rate. This achievement is also attained due to the high commitment management practices adopted by the HRM of the organization. All these analysis produces the same conclusion that is the best practice programs adopted by the HRM of the Container Store organization helped the company to grow and achieve huge success. Some problems faced by the managers in best practice model From the earlier parts of the paper we have come across about all the benefits of the high commitment management model. We have also observed how this model works to encourage the employees to perform better and achieve greater productivity for the organization. Though this strategic plan of HCM is very effective, now we will discuss about the negativities of this model and how it can create displeasure within the employees. As the Container Store follows HCM model in HRM, the management level of the company is relatively flat. It is the consequence due to their main focus of developing talented employees rather than organizational hierarchy. Though this is a very effective method for increasing productivity of the company, a talented candidate may also think there is no visible career path in this organization. The compensation of the employees is also based on the performance. Due to their unique performance review system it may happen that a sales clerk or a salesperson may get higher compensation than a manager. Citing this situation, employee displeasure or discontent may creep in within the managerial levels of the organization. This kind of HRM practice also encourages sharing financial information and future plans with the employees. These types of information are very sensitive and crucial so it may lead to unnecessary risk by revealing them. Moreover, this revelation may also help the rivals to counter the organization’s marketing strategies. Another problem that can brew is during the time of promotion, as the promotions are performance oriented and they are given to employees through recommendation of managers. As, no prior internal notice for openings are served within the organization for promotion it may cause discontent within a group. The expenditure of the organization is also too high on the employees than their industry rivals. This high expenditure is also eroding the profit margin of the organization. These are the few factors in which the managers get into problem in this type of strategic plan in the HRM. Though these negativities caused no hindrance in the smooth flow of the HRM process in The Container Store but it is better to keep tab on these issues to balance the situation. So, the HRM of the Container Stores should keep an eye on the employee discontent issue in context of the promotions and the higher pay of sales clerks than the managers. If required, the management must review the managers pay structure. Another issue which should be controlled is the disclosure of strategic information about the future business plan of the organization to the employees. Conclusion From the critical analysis of the statistical data and the retail industry details about the HRM practices in this paper shows that HCM model adopted by the Container Store is best suited for them. This HCM model enabled the organization to achieve enormous success in this era of fiery competition. This model helped the management to involve the employees and encourage them for better productivity through different training and development programs. This model also incorporated loyalty and trust with the employees for the organization. It also enhanced the commitment level of the workforce for betterment of the organization. It also helped to ensure better compensation for the employees and helped to reduce the employee turnover rate. Though in this practice there are some technical glitches about the promotion and unnecessary risk of disclosure of strategic information, it can be accepted that this dynamic model is best fit for the Container Store organization and it will also help to bring success in future for the organization. So, the higher management must support this kind of HRM model with a keen eye on the problem issues which can be very easily resolved. References 1. 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