As a largest nation-wide auto glass company maintaining the largest market share, Safelite faced what was called ‘glass ceiling’ in productivity. Low productivity as well as traditionally high turnover rate were a crucial issue, especially accompanying with high installation demand, if Safelite could not find an effective way to address this surplus installation demand brought in largely by the strategy of creating partnership with insurance companies and partly by its growth strategy leading to rapid expansion between 1987 and 1989.
The advent of PPP (Performance Payment Plan) was under such circumstances. Management expected that this payment incentive could motivate their employees, here specifically referring to technicians and managers of lower volume stores. Shifting from inflexible wage rate to piece rate could be an uncertain venture. While there exists a possibility that PPP would remarkably increase productivity and at the same time keep the turnover rate at an acceptable level, PPP could also result in losing a lot of installers and make Safelite lose a large amount of customers.
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Is it worthwhile to institute PPP and take the risk of losing business? Our opinion is yes. This essay’s structure is as following: first, answering the four questions associated with Safelite case one after one; second, presenting our standpoint and our assumptions and evidence to support our conclusion while answering these four questions; finally, giving Safelite specific approaches about how to implement PPP in a more realistic and less risky way. 1. What are the pros and cons of switching from wage rates to piece rate pay? What are the likely consequences of a switch from wage to piece rates for turnover, recruitment, productivity? (Here I make some changes to the question 4,because I think there are some overlaps between question 1 and 4,and answers to them can be putted together, expect for ‘product quality’ which will appear in question 4) Considering all determinants affecting low productivity of technicians, we would only find one factor technicians themselves could control, their commitment to the work. And this is the only part of productivity metric PPP could dictate.
That is to say, other factors, such as cooperative support from other segment of the organization (that is DCC, CSRs, warehouse drivers, staffs at the manufacturing plant), seasonal fluctuation (demand is at its peak during spring and summer, while at its trough in fall and winter), and also customer coordination (‘if customer was for some reason not at the stated location when technician arrived’) are all the external determinants technicians could not control no matter how many efforts they put in, or how they are motivated by the tempting returns rates PPP promised.
Although the cons of PPP are obvious and explicitly expressed and the pros of PPP are somewhat ambiguous and invisible, the advantages of PPP undoubtedly cannot be ignored and can generate profound impacts on the long-term productivity of Safelite. Auto glass industry traditionally has high turnover rate. Most auto glass companies’ remedies for seasonal fluctuation of demand are simply and crudely laying off their employees and rehiring them again when market rebound in spring and summer.
So, it is not difficult to understand why technicians were easily lured away by other companies offering them only a fraction more than they currently received. Because the labor market are so unstable and there are no guarantee existed, technicians must earn as much as possible during spring and summer to offset their expenditure of fall and winter when they had no work and income. How to break the phenomenon of ‘buck and a truck’? Think about it, if any company takes the risk of changing its compensation and employment system, it will be in the long run the champion in the industry.
Loyalty of employee is an invisible and a precise assent of a company and it in the long term makes employees have confidence in that company, and make full commitment to their job, consequently make that company more competitive and profitable. It is especially true in service industries like auto glass, where any company’s productivity is highly hinged on the employees’ productivity. Therefore, PPP although at the beginning would cut a substantial number of employees as a result of involvement of store management in this payment program (“we want them to think,’ if I hire another tech, I’ll have less to install myself. ”), it finally would result in lower turnover rate and higher loyalty among its workforce. 2. Is Safelite a good candidate for switching from wage rates to piece rates? To answer this question, we should first retrospect Safelite’s history to find its organizational structure, relate them to the current condition Safelite confronted, and then analyzing its eligibility as a good candidate. Safelite was the first and only company in its industry to carry on the strategy of becoming a national auto glass company by the way of expansion. It was also one of the first companies to make use of advantages of insurance industry’s outsourcing tactics.
Taking the role of a third-party administrator of claims, Safeite constructed mutually beneficial partnership with 17 of the top 20 national insurance companies by 1993-on the one hand, lessening the burden costs of insurance companies; on the other hand, bringing in more insurance units for Safeite itself. The focuses on one market other than individual stores highly centralized Safeite’s resources, eliminating inefficiency resulting from unnecessary over-competition between stores in the nearby areas when stores only focuses on their own profitability instead of the whole company’s benefits.
Meanwhile, this centralization strategy makes the resources allocation among the whole company more efficiently and makes the service delivered to customers more timely. The only problem here that affects the productivity of technicians, despite it is out the control of technicians but it is in the charge of management is corporation between workers from different functional section of this centralized system. So in this aspect, uncoordinated problem can be resolved relying on the managerial capability of managers.
And there remains only one obstacle illustrated in answers to question one, the external factors- variable seasonal demand. However, seasonal factor not only influence Safeite, it also takes effects on other auto glasses. We can make its implication decline to a minimal by doing the suggestions presented in the latter advertisement section of this essay. In a word, Safeite is a well-organized enterprise, compared with other immature formation of ‘mom-and-pop’ repair shops.
Its operations are also well – designed and concentrated to the extent which resources within the company can be exploited efficiently. 3. Should there be a guaranteed wage? If so, how should it be set? If there should exist some kind of guaranteed wages as a warranty to technicians to ensure that their living standard would not be dropped down on account of PPP, is should be applied during fall and winter corresponding to the seasonal changes of economic conditions embodied in auto glass industry. Guaranteed wages should not be utilized in the other two seasons of the year when demand is in its peak.
In this high point of demand curve, PPP can exercise considerable influence on motivating performance of technicians. Yet the absence of guaranteed wage in the through season is not acceptable and reasonable. Another alternative here probably is that in the initial stages of administrating PPP, guaranteed wages exist as a buffer to reduces the shock of 30% reduction on wage rate, but as technicians gradually accept and readily consent to PPP, guaranteed wage can be omitted all together as long as motivation of technicians will not be undermined and morale will not be shaken. . What are the likely consequences of a switch from wage to piece rates for product quality? Although as the case tell us, the over emphasize on expanding the total numbers of stores made many stores are far from the available access of customers (‘You’ve got to have a seeing eye-dog, a compass, a flashlight, and sometimes a parachute to find a glass store. ’), this kind of overlooking quality will not happen in the occasion of executing PPP.
The reason is that PPP is in and of itself not alienated from quality emphasis. The indivisible attribute of PPP with quality is determined by the nature of the glass installation work. Because the quality of the glass installation can be examined just before the completed delivery of the work, otherwise this work cannot be supposed as completed and will not be counted in the total quantity of installation used in PPP to calculate compensation. Recipe for Safeite
An assured assertion of introducing PPP and at the same time makes as little as possible adverse impacts on productivity, turnover rate, and morale of employees lies in the assumption that Safeite will overcome of the initial pain of changing payment structure, therefore it could achieve high productivity level and maintain turnover rate lower than average level of the industry. This assumption can be self-explanatory. Our recommendation for Safeite is that it first introduce PPP to only one market (only a regional market) and convey its effectiveness and positive significance for rewards and compensation to that regional market’s workers.
To do this, like a test model to testify the correctness of basic assumption of PPP and the overall employee reaction to it. If the result of the example would justify the administration of PPP, then Safeite management will be able to take the next step: apply the successful experience of implementing PPP in a smaller range of market to a larger range of market with the similar customer bases and similar external environmental factors taking effects on the usefulness of PPP.
This approach would be a more realistically less risky adoption of PPP, with as possible as less negative possible effect and result of this action. Moreover, the strengths of this approach are bountiful. Along with less risky cost, which is the huge benefit of adopting PPP in a limited scale, because Safeite can fully take advantage of its existing organization tracking system consist of geographical divisions of regional markets, it can save expenditures incurred by PPP.
Information transferred more quickly within different segments of one market, so the awarding level requiring technicians to make efforts to achieve can only be realistic and reasonable, otherwise without other supports technicians themselves cannot expect to work more efficiently if they are presumable not lazy than they try very hard currently. Nonetheless, other supports may seem as an adverse effect of PPP, after all ‘not everything that keeps a technician from being productive is in their control’.
It seems more sophisticated when adding other factors other than technician’s efforts itself to consider the effects of PPP. And it is because of this sophistication accompanying with adoption of PPP that makes the test model approach more critical and necessary. In other words, Safeite can benefits from PPP, and the optimum way it can most efficiently achieve them is to adopt the test model approach.