Operations Management Case Studies
Operations Management Case Studies
This report focuses on the case studies of the Levi Jeans workers and the California Auto Club reengineering customer service.
It looks at operations management as a source for gaining a competitive advantage and overcoming potential problems experienced within and organisation or workplace.
The questions to be reviewed are as follows:
Jeans Therapy – Levi’s factory worker are assigned to teams, and morale takes a hit:
1. What went wrong with Levi’s move to teams in their plants?;
2. What could Levi’s have done differently to avert the problems?;
3. Devise a team incentive plan that you think might work; and
4. Do you think the need to move jeans production offshore was inevitable? Could Levi’s have done anything to avert the problem of increasing labour costs?
A California Auto Club reengineering customer service:
1. Discuss the customer service process at CSAA and discuss the different phases of the reengineering effort;
2. What tools from the operations consulting tool kit were applied here? Which other ones would be of value here? Explain; and
3. Discuss process enablers’ role developing the new design.
2. What went wrong with Levi’s move to teams in their plants?
In order to respond to both change and complexity, most organisations are turning to new, more adaptive ways of doing their work, such as flatter organisational structures, more team orientated environments and greater support from technology.
2.1 Scientific management
It is fair to say that pre-introduction of the new teamwork system, Levi’s had in place the ideals of scientific management.
Around the turn of the Twentieth Century, Frederick Winslow Taylor had developed a set of ideas designed to get employees in manufacturing industries to produce more output. Taylor’s objective was to attain high productivity by eliminating inefficient motions in human labour. Hence he divided work process into the smallest elements or motions based on ‘time and motion studies’, separated intellectual and manual work, searched for the ‘first class’ employee, who would then be trained and specialised on specific tasks, and provided them with good tools and paid elevated incentives for their high-quality performance.
Taylor and his disciples cited the search for efficiency, ‘one best way’ to do a job, as justification for such changes. Because scientific management consultants claimed they understood the “natural laws” of human behaviour and endurance, they argued that the implementation of scientific management would benefit both workers and society at-large. Nevertheless, skilled workers and their unions often vociferously protested these changes because such practices made their work monotonous and also trespassed upon what they perceived as their traditional prerogative to manage their own time on the job.
2.2 Implementation of teams
In 1992, Levi’s abandoned its old piecework system, under which a worker repeatedly performed a single, specialised task and was paid according to the total amount of work he or she completed. The new system would adopt groups of 10 to 35 to share tasks in the hope of higher organisational performance being gained from empowered individuals working together to contribute the best of their knowledge, skills and capabilities.
While it was thought the new ‘teamwork’ system would be more humane, safe and profitable, the negative affect it had on employees and managers ultimately led to the closing down of the U.S. plants. The new system managed to cause conflict amongst employees, damaged morale and triggered corrosive infighting. Furthermore, many employees complained of shrinking pay packets and increasing workloads.
What also could have contributed to the breakdown of the system could have included; individual opinions, were employees can face the struggle between competition over cooperation; establishing responsibilities, employees not assessing each others expectations and connecting them with goals; and misunderstanding, while it was essential for a team to have good communication skills, non-communication promotes confusion.
3. What could Levi’s have done differently to avert the problems?
In 1993 Levi’s hired a consulting firm to analyse the problems, concluding the company should start from scratch and include all parties in redesign of pay structures and work processes. In hindsight, it is simple to say that Levi’s should not have phased out the old system as it seemed to be working. Having said this, with the introduction of the new system, there could have been greater emphasis placed on getting it right. What could Levi’s had done better?
According to Keogh (2003), motivation is one of the most loaded nouns in the English language. It has an intrinsic negative, as well as positive, connotation and its trigger is different for each individual. In a corporate context, well-motivated employees can enhance a company. Those with poor motivation can generate serious workplace problems.
3.1 Abraham Maslow’s hierarchy of needs
In the late 1960’s, Abraham Maslow developed a hierarchical theory of human needs. He set up a hierarchical theory of needs in which all the basic needs are at the bottom, and the needs concerned with man’s highest potential are at the top. The hierarchic theory is often represented as a pyramid, with the larger, lower levels representing the lower needs, and the upper point representing the need for self-actualisation. Each level of the pyramid is dependent on the previous level. For example, a person does not feel the second need until the demands of the first have been satisfied.
Employees in any organisation, let alone Levi’s, need rewards. Working long hours and spending much time away from their families takes its toll and rewarding employees represents an end to the means. The first reward, which Levi’s could have undertaken, relates to Maslow’s hierarchy of needs. That is, employees feel rewarded with a high amount of self-esteem and a feeling of accomplishment for a job well done. This also ties in with self-actualisation as the employees have endured the many hardships in an industry notorious for low wages and lousy working conditions. Both of these needs are part of Maslow’s higher order need because they encompass more than just basic survival.
3.2 Frederick Herzberg motivator-hygiene theory
In the late 1950s, Frederick Herzberg, considered by many to be a pioneer in motivation theory, interviewed a group of employees to find out what made them satisfied and dissatisfied on the job. Based on his findings, Herzberg constructed a two-dimensional paradigm of factors affecting people’s attitudes about work. He concluded that such factors as company policy, supervision, interpersonal relations, working conditions, and salary are hygiene factors rather than motivators.
According to the theory, the absence of hygiene factors can create job dissatisfaction, but their presence does not motivate or create satisfaction. In contrast, he determined from the data that the motivators were elements that enriched a person’s job; he found five factors in particular that were strong determiners of job satisfaction: achievement, recognition, the work itself, responsibility, and advancement. These motivators (satisfiers) were associated with long-term positive effects in job performance while the hygiene factors (dissatisfiers) consistently produced only short-term changes in job attitudes and performance, which quickly fell back to its previous level.
If Levi’s took on the theories of Herzberg, whether in the old or new system, employees more than likely would have embraced change. From the outset, management, could have ensured employees were happy in their environment, by providing incentives, such as, bonus pay to highlight all of their hard work. As a result, the employees feel they have a sense of job security.
4. Devise a team incentive plan that you think might work.
An incentive is something that tends to stimulate or spur individual or group action.
Incentives (money, treats, certificates, extra privileges, etc.) are external ways of motivating group work. They can be used selectively to build a sense of internal motivation within the group. This is accomplished through another behaviour modification principal paired association (Tracey, 1999).
Incentives make group members “feel good”, and these rewards follow a major accomplishment, then sooner or later the accomplishment itself will lead to a very positive feeling. This, in a nutshell, is the longer term justification for selectively using external incentives.
In the case of Levi’s in is of my opinion that the need for affiliation is a basic motivator of work groups. Belonging to a special group, should have been highlighted, and having the time and resources to hang out with that group is very motivating and engaging, rather than monotonous work. Consequently, providing team incentives that allow group members the opportunity to mix is a very effective strategy in motivating group work (Andrews, 1999). Either incorporating the gain sharing or lump-sum bonuses and individual bonuses would suffice to help morale and productivity. Refer to appendix A.
5. Do you think the need to move jeans production offshore was inevitable? Could Levi’s have done anything to avert the problem of increasing labour costs?
By early 1997, the writing was on the wall for Levi’s as their flagship men’s denim jean had fallen to 26% of the market share from a high of 48% in 1990.
In contemporary business, world companies need to be innovate in order to survive. Innovation is strongly advocated and treasured throughout the whole process of production. But scientific management hardly pays any attention to innovation. Instead, it focuses on dividing the job into small tasks, increasing the volume of output and then speeding up the rate of output. Was innovation for Levi’s to produce their product in foreign plants?
Globalisation – is the movement of goods, services and money capital or investment across international boundaries and in this way becomes a predominately economic phenomenon sweeping the world. Throughout which, what were formerly national companies become international conglomerates. Hence, countries are no longer seen as independent and closed sovereign states, but as part of one big economy.
Primarily this shift in thinking is driven by corporate America’s insatiable appetite to open new frontiers in emerging countries, and claim a monopoly on the source and distribution of products. All of which in short is because they are searching for more profit at a lower cost. Globalisation is also heavily backed by international consumerism, which is seen as the dominant ‘religion’ of the era, which means that the fruits of this global production are rapidly sought after and indeed hungrily consumed.
Initially this flood of products into the local markets of major economies causes prices to decrease. Whilst this lower cost to consumers contributes to a higher standard of living, it is short lived. Globalisation also brings the world closer to a central economy.
In their endless search for greater profits they turn to the less wealthy, such as many of the Asian countries, i.e. Thailand, Taiwan and Vietnam. A large number of the poorer (or developing) countries now have rapidly rising employment rates . This is mainly due to the fact that with a lower standard of living in these countries people are prepared to work for significantly less, and still produce the same product.
5.2 Averting increasing labour costs
It is inevitable that in any organisation of Levi’s magnitude experiencing a drop in market share, that downsizing be a result because of it.
Nowadays, markets have become far more global and dynamic, and the business environment turns more and more complicated and competitive. Employers and employees are faced with plenty of new opportunities and challenges. Also, manufacturing and information technology is getting more sophisticated speedily.
To avert increasing labour costs, Levi’s did introduce more employee involvement, thus creating an environment in which people have an impact on decisions and actions that affect their jobs. This could have been a stayer, if not for the toffee- nosed managers. In a team-oriented environment, employees contribute to the overall success of the organisation, working with fellow members to produce results. This may have cut out some mangers, thus reducing escalating costs of consulting firms.
However, whilst it’s true that the implementation of self-managing practices in the work place has achieved significant progress in terms of motivation, we must remember that there are always two sides to every story, and bottom line is that many of the U.S. plant were not performing and many workers felt held back.
6. Discuss the customer service process at CSAA and discuss the different phases of the reengineering effort.
CSAA were seeking ways in which to make operations better and more efficient. Gregory A. Smith, vice president and general manager of insurance operations, himself said that “it was obvious that the old ways of doing business wouldn’t work in the future, and that we needed to make some fundamental changes.” How was CSAA going to implement change to their outdated customer service strategy?
6.1 Pre reengineering effort
Before the implementation of the reengineering effort CSAA had seemed like a trusted member of the family to its many members. But under its own admission, and for a need to improve operations, the business process at CSAA needed to go under the microscope.
At the time of the old regime, the processes undertaken would not have differed much to many of the large corporations around the world. Addressing customers over the phone, whenever customers needed to rent a car, booking airline tickets, making insurance claims or just general enquiries seemed to be the norm.
How they went about this though, as we look at it now, gave the impression of archaic times. With regard to how all claims, bookings, renewals and so on were made, by putting pen to paper, often service consultants needed liberation from a paper-intensive and error-prone work environment.
Another problem faced by CSAA was that whenever members phoned in and made an enquiry, many of the consultants would refer their problems to other consultants until there was a resolution. Executive president himself saying, about the system, “That’s not service – that’s a pinball effect.
According to Cole (2001, p.307) ” Customer service is one of the most direct tools we have for building loyalty, attracting repeat business, generating word-of-mouth business and boosting profits. It might be full of paradoxes, but customer service can make or break your organisation.”
6.2 Principles of reengineering
It would be unprofessional of CSAA to think that all of their problems would disappear without careful thinking and planning. In order for their reengineering efforts to succeed, they needed follow the principles of reengineering initiated by the management expert Michael Hammer. Refer to appendix B.
6.2.1 A reengineered job
After much deliberation, CSAA devised a new system designed for better customer service centring around a new position called “members service consultant. CSAA felt it was time and as Cole (2001, p.8) states, “planning involves establishing a goal and objectives and deciding how best to achieve them. What needs to be accomplished? By when? What needs to be done to make it happen? Who is best equipped to do it? As the old saying goes ‘if you fail to plan, you plan to fail.’ Things don’t happen by themselves: wee need to plan them carefully. After all, a goal without an action plan is just a wish.”
Supporting the service consultant would be a new information system that links data that currently reside in three separate systems. This technology will enable a service consultant to most members on the spot (Chase, Jacobs & Acquilano 2004).
6.2.2 Three quickies
The new system heralded huge savings for both members and CSAA. Average turnaround time for processing new business applications was reduced from six days to three days; and the proportion of new auto policies that had to be ‘reworked’ dropped from 50% to 16%.
6.2.3 A comprehensive survey
A widespread survey was carried out by four employee teams, to focus on issues encountered by CSAA members and employees. Questions ranged from services, products and previous experiences for members and what you would do if you were president of CSAA for a day, to employees.
One of the subjects consistently brought up, by members and employees, was that of how a visiting member would have to go from window to window to tie up different enquiries.
6.2.4 Get Crazy
For the member service consultant to work, cross-training for employees on a range of CSAA services was crucial. The new computer system would require a good understanding by employees in order to intertwine all the vital information at CSAA together and make it readily available to those who accessed it.
Employees would also have a say on how the system was designed, developed and also tested a prototype that would support the new service consultant. By this they would simulate everyday situation to help modify or identify any foreseeable problems. To further make employees comfortable with the transition to the new system workshops, meetings, posters, newsletter and videotapes were provided.
6.2.5 Sell with scenario
On-line prompts, on-screens prompts and what-if scenarios will replace the tedious paperwork and thumbtack memos. John Clark, a regional claims manager, says of the new system, “we’re trying to create a learning environment for the future, for all levels of employees from clerical to management” (Chase, Jacobs & Acquilano 2004 p.343).
6.2.6 One-stop shop
Now members have the luxury of getting complete service with just one stop.
7. What tools from the operations consulting tool kit were applied here? Which other ones would be of value here? Explain.
7.1 Problem definition
First on the agenda for CSAA to get their new system up and going would be that of problem definition.
7.1.1 Issue trees
Initially, CSSA had identified a problem with their customer service. By embarking on a long-term reengineering effort, business processes were put under the microscope. For this to work, a plan had to be put into place to target problems and figure out possible solutions. By structuring the process into different phases specifies a direction CSAA can take
7.1.2 Customer surveys
Chase, Jacobs & Acquilano (2004) suggest that OM consultants frequently observe customer surveys such as to determine customer loyalty. In the case of CSAA a widespread survey was conducted.
7.1.3 Employee surveys
These can involve questions on employee satisfaction or as CSAA developed, a question posing what you would do if you were president for a day.
7.2 Data gathering
With the goals of CSAA to improve customer service, speeding up turnaround times is high on the agenda. To have something to aim for, gathering existing information, such as, processing new business applications and the cost of baseline expenses will serve to improve or reduce these fundamentals.
7.3 Data analysis and solution development
To rid CSAA of its old working environment, it had to introduce the new computer information system.
7.3.1 Computer simulation
For employees to grow accustomed to the new system, CSAA had to cross-train employees to help them understand the computer simulation. Although not as sophisticated as much of the software available, employees had to become familiar with the new package.
7.4 Stakeholder analysis
Coming under the heading of cost impact and payoff analysis, CSAA’s most important stakeholder would be its members and employees. In endeavouring to put into operation a new system, the importance of considering the interest of all its stakeholders is central.
Chase, Jacobs & Acquilano (2004) indicate that creating a new process and sustaining the improvement requires more than creative application of information technology. In order for implementation of reengineering to be successful any organisation, let alone, CSAA has to follow three important guidelines. Refer to appendix B.
7.5.1 Responsibility charts
Having workshops, meetings, posters, newsletters and videotapes issued to all employees would help ensure that each task is being covered by the employees.
7.5.2 Project management techniques
The reengineering effort is now being carried forward by five interdisciplinary teams whose focus includes workforce retraining, reward and pefromacne management and information technology (Chase, Jacobs & Acquilano 2004).
7.6 Which other ones would be of value?
After observing the operations consulting tool kit, refer to appendix C, it suggests that CSAA took up on at least one aspect of the five categories. Issue trees, customer and employee services for problem definition; data gathering; computer simulation for data analysis and solution development; stakeholder analysis for cost impact and payoff analysis; and both responsibility charts and project management techniques for implementation.
8. Discuss process enablers’ role developing the new design.
A number of bridges have to be crossed to help develop the new design. The major one of these being information technology.
8.1 Information technology
Information technology (IT) is considered the major enabler for spanning processes over functional and organisational boundaries and supporting process driven organisations. However, the point is not to use IT as an improver for existing activities, as which it often has been conceived, but as enabler for the CSAA.
Some of the ways that IT can change the business process at CSAA include: process automation and speed; virtual presence and distance collaboration becomes possible; mobility; allows information to be shared differently; and increases interactivity and allows instant feedback. IT, when used appropriately, can enhance business processes.
CSAA chose three employees from field officers for intensive training to help with the design and development of the new system.
For CSAA it would have been important to select the most appropriate candidates based on the agreed job descriptions and person specifications that have been created over time. This knowledge can be transferred to other employees and the playing out of simulated scenarios would pose not problems. The selection process needs to be handled with care to avoid costs of failure to select the right candidate or legal problems arising down the track.
8.3 Additional information
Constant monitoring form senior management and additional information, such as, workshops, meetings, posters, newsletters and videotapes enable a smooth transition for other employees.
It seemed as though Levi’s decision to promote teamwork only frustrated employees, especially those with superior skills. The common grounding on working in teams is that businesses who have employees working together to reach a common goal are more likely to succeed than the ones that do not. Sadly this was not the case with Levi’s.
Psychologically, people desire recognition, need to feel a part of a team, and want to do a good job. But people, after all, are only human. Long-term personal goals often fall prey to daily or weekly frustrations. With Levi’s, employees may have found it hard to meld personal goals with the organisation’s long-term or even short-term goals. This may have contributed to workers being absent or inexperienced and led to increased workloads on other Some people may have trouble sculpting individual performance goals at all. As Powers (2000), describes, in all cases, excitement, interest and performance can suffer.
In the case of CSAA, management needs to consider the importance of customer service in a primarily service organisations. Successful organisations, irrespective of nature or size, have one thing in common – the loyalty of their customers. Organisations that spend time, effort and money on anticipating and fulfilling customers’ needs and requirements will undoubtedly reap the benefits from loyal customers by enhancing customer satisfaction. However management should not put all its efforts in keeping customer satisfaction, as this will be generated by the overall service concept that the company provide to the customer. Certainly the customer has to be in employees’ mind all the time reminding them that they are there because there is a customer who is willing to pay.