Question 1: To what extent is Christine Williamson making an effective contribution to the strategic management of HRM at the company? (800 words)
Question 2: What advice would you give to Christine Williamson on introducing a system of line manager led employee team briefing at the company. (800 words)
Case Study Assignment
JOHN CRANE FLEXIBOX
A case by Lesley Mitchell, Heriot Watt University, Edinburgh.
John Crane Flexibox is a world leader in the field of the manufacturing of mechanical seals and power transmission technology for rotating equipment. The organisation came into being as a result of a corporate take-over: in the summer of 1998 EIS Plc, the parent company of Flexibox were taken over by TI Group Plc. TI Group now has four divisions, one of which is the John Crane division. The mission of the new organisation is to be the best in their chosen market, in terms of market share, quality and reputation. This case concerns the effects of the changes on staff at the company.
The new division has a turnover of approximately £600 million, and a market share of 38%, making it by far the largest mechanical seal company in the world, given that the next largest company, Flowserve, has a market share of only 14%.The organisational structure of John Crane Flexibox in the UK can be seen in Appendix 1. The organisation is product team based, with support teams in the traditional departmental roles. A worldwide network of local service operations (‘Flexiservice’) exists to assist with commissioning, reconditioning and stock management.
Trade union activity and involvement are low and the company possesses its own elected staff committee, in which inter alia communication over corporate plans and performance and consultation over key HR policy issues tales place. Attempts have been made in the past to strengthen communications with staff through line manager led briefings, but these have been largely unsuccessful due to resistance by middle managers and their unwillingness to implement the system effectively. The main function of the human resource department is to monitor and control the various personnel activities which are performed in conjunction with the various organisational departments such as recruitment, selection and training. The activities of the human resource department are mainly pragmatic and opportunistic, and tend to reflect the current state of the mechanical seal industry. Although the department is labelled as human resources and Christine Williamson, the HR manager, holds a position on the board of directors, she believes that the department still performs primarily a `personnel’ function, with a limited strategic perspective. Williamson has worked hard to promote the reputation of her department in the organization, setting up new arrangements for liaising with line management through regular meetings and improved internal publicity for the work they do. And her department has been praised for its prescient work in anticipating changes in employment law, particularly the recent Working Time Regulations.
The performance of Flexibox in the period leading up to the takeover can be seen below.
By 1998 Flexibox division’s turnover had grown to £20 million, and Flexibox Limited in the UK turnover had grown substantially. However, there had been a very recent trend of declining sales which ultimately affected the profit margins of the newly merged organisation. The merger of John Crane and Flexibox resulted in a major overlap due to the similar nature of the product portfolios of the companies. Accordingly, it was decided that a major exercise to reduce the overlap and improve efficiency was required.
Why downsize?
The effects of downsizing at John Crane Flexibox were dramatic – 106 employees were directly affected and the view among senior management was that there was a strong possibility of more reductions in the near future.
As a result of the takeover of EIS Group by TI Group, John Crane and Flexibox were catering for the same market, manufacturing identical products and adopting similar methods of sales, service and research so there was an evident overlap in certain business areas. Subsequently, some of the sales and service centres had to be merged in order to reduce waste. For example, whereas there were originally two sales centres in Aberdeen, there was now only to be one and the manufacturing sites at Cumbernauld and Bellshill joined together. Overall, 86 employees have lost their jobs as a result of this overlap. Yet here there were opportunities for re-deployment to other areas of the organisation: 72 Flexibox employees were transferred to John Crane sales and service departments, and 14 more were transferred to other “global functions” within the original John Crane Group.
More problematic were the business trends of the mechanical seal industry. Indeed, UK market orders were 12.5% (£1.5 million) behind budget in July 1998. Thus, the underlying trend in orders and poor forecasts in the industry, which subsequently resulted in the company reporting an operating loss and lead to the elimination of 20 employees from operating areas and the shop floor. The primary objective of the downsizing process was the permanent reduction in fixed costs, in order to improve profitability and efficiency. The estimate was that, on average, an employee would cost the organisation £25,000 per year in wages, National Insurance, pensions, expenses and other associated costs. The organisation recognised that there would be certain costs involved in the downsizing process, but that these were considered “insignificant” at top level compared to the savings which would be achieved.
Alternative measures
Before resorting to downsizing, John Crane Flexibox attempted to reduce costs in other areas of the organisation. The policy statement of the new management teams was to use downsizing as a last resort, to “eliminate all unnecessary costs and expenses before looking at headcount”. To determine which cost areas could be reduced the top team evaluated which variable costs could be eliminated or minimised. During this process, costs such as overtime and travel expenses as well as “discretionary spending” such as adverts and catalogues were all reduced to the lowest possible rate. The introduction of such measures did, to some extent, reduce the organisation’s cost base. However, by October 1998 it became clear that, in order to achieve the desired level of cost reduction, there would need to be a reduction in headcount.
Selection procedure
Downsizing affected the entire organisation in that redundancy and redeployment occurred at various levels. David Mitchell, the Managing Director of John Crane Flexibox was ultimately forced to decide which areas and staff would be affected However, it is important to note that the decisions regarding downsizing were not just made by the Managing Director: a meeting of the Board of Directors was held and employee representatives were invited to give their opinions. It was decided that certain areas of the business such as maintenance and vehicle hire should be outsourced to specialists due to the fact that retaining the job internally led to substantially high overheads. Furthermore, it was discovered that many of the employees could be redeployed to other areas of the organisation, thus reducing the level of redundancies. Nevertheless, it was still necessary to make a number redundant from certain functional and operational areas, as well as from the shop floor.
In mid-November, the management team made a formal announcement to the relevant areas of the workforce that, despite efforts to avoid it, redundancies would now be necessary. Initially, the management team sought applicants for voluntary redundancy, which included those who wished to take early retirement. In total, 8 employees took this option, thereby reducing the required employee reduction. Subsequently, the team leaders of the employees who were going to be evaluated were asked to inform their team that assessment procedures would commence as soon as possible. Relevant line managers were briefed on the particular technique of appraisal to be used. During the assessment procedure assessors evaluated all the relevant staff, giving each employee a score which was largely based on a qualitative assessment. Eight criteria were used to determine which employees would be selected for redundancy: quality of work, performance, skills and experience, versatility, service, attendance, timekeeping, and discipline. Assessment was to be in accordance with the high standards of impartiality required of managers by the performance appraisal system.
Subsequently, the employees with the lowest scores were informed that they were at risk of receiving the company and were advised to attend a meeting to discuss the situation. At the meetings, the employee, the line / team manager and a representative from the human resource department were required to be present. The purpose was to inform the employee of the current situation regarding employment. A full explanation was given of the decreasing profits and the efforts to reduce the cost base. The basis of the selection was also discussed. Selected employees were allowed to see a summary of the scores of the rest of the employees within their unit of selection (department, teams or functions ), thus giving them the opportuntity to assess why they had been chosen for redundancy.
Communication
In general, the entire organisation has been made aware of the current financial position, via the weekly communication bulletin (the “Mail”), team meetings and the consultative committee. Top management took the view that lower level employees would understand that low orders would inevitably lead to low sales which would ultimately lead to job loss.
Throughout the entire process, team leaders were expected to be positive with their employees and explain the current market position, giving details of all the action which had been taken in the attempt to increase orders and / or reduce costs. Furthermore, the top management team held regular team briefings in order to explain the situation regarding cost reductions. Staff representatives were kept informed as the areas which would be affected by downsizing were determined. As Christine Williamson put it, staff would be more liable to accept that downsizing and redundancies were necessary:
“if they know exactly what is going on……..if employees do not know what the situation is, they will fill in the blanks themselves”
Support for Victims and Survivors
John Crane Flexibox attempted to reduce the `pain’ of redundancy by providing emotional support to those affected: offering to listen to their concerns and providing advice on matters such as unemployment benefits, pensions, job hunting and redundancy payments. Members of the personnel department were trained to perform counseling roles.It was recognised that once redundancies occur, in the aftermath there could be role confusion and overwork. As a result, the work roles of the affected departments were re-evaluated and the performance management system reviewed to clarify each employee’s job responsibilities and roles within the organisation.
Using the Personal Development Review (PDR) as a guideline, the top management team examined the previous roles of an employee and compared this to what was now required of them. This was done in the form of an action plan – a document which set out the methods by which employees could improve their performance to match the new needs of the organisation. After the redundancies occurred , the survivors attended an interim appraisal in which they were able to raise any concerns they had regarding their action plans, highlighting other areas which they felt were necessary.
Management thus believe that downsizing at John Crane Flexibox had been necessary to achieve cost savings in order to improve efficiency and competitiveness. Despite the fact that other methods were adopted in the attempt to avoid downsizing, the view was that this was an inevitable outcome once sufficient cost reductions were not achieved. Many employees at John Crane Flexibox have been affected by downsizing: whether this has been redundancy, redeployment or a change in work roles. Yet senior management believed that they had followed a systematic process of downsizing, adopting various ‘best practice’ measures to counteract the negative consequences.
APPENDIX ONE – ORGANISATIONAL STRUCTURE OF JOHN CRANE FLEXIBOX (UK)
The above diagram shows the organisational structure of John Crane Flexibox in the UK. The structure, defined by academics as a “functional structure”, is based around the primary tasks that have to be carried out: human resources, finance, operations (production), sales and service (Johnson and Scholes, 1997). The operations, sales and services areas are all team¬based and are created around the organisation’s product range. It can be argued that structuring a newly created organisation in this way is beneficial for a variety of reasons. First of all, the top management team decided to separate the new organisation into product based teams based around sales, service and production due to the fact that it has created a clear definition of responsibilities, minimizing confusion over the specific function of each team, department and director. Furthermore, a functional structure also ensures that the managing director has regular contact and communication with all functions, allowing them to closely monitor and control all areas of the organisation.
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