Purpose of the case:
1. To provide an opportunity to apply performance management interventions, specifically a reward systems change
2. To diagnose and apply design criteria to a reward systems intervention
3. To design a change management process
Overview of the case:
In an effort to stem declining service department revenues and low customer satisfaction index (CSI) ratings, Bob Deshane, the Service Director of Sharpe BMW had devised a new plan that changes the way service technicians are compensated.
The plan calls for a bonus to be paid to service technicians when they perform a repair job that is covered by manufacturer’s warranty.
Because warranty jobs pay a technician less than repair jobs paid for by the customer, Deshane hopes that the bonus plan will motivate technicians to perform warranty jobs well so that the dealership’s CSI ratings will go up.
The task of implementing the bonus plan falls to Tom Dunn, the newly appointed Service Manager. Dunn has to come up with a detailed plan to implement this organizational change.
The case’s setting – a small automobile dealership – provides both familiarity as well as empathy, with the task faced by Tom Dunn.
There are two primary purposes here.
First, has the new reward system been designed in an appropriate manner and does the new process make sense?
Second, what are the intricacies of the task faced by a manager who has to implement a change in his department?
Purpose of the case: Try to come up with a plan of implementation that describes the specific steps that Dunn should take to ensure that Deshane’s plan is successfully implemented.
Discussion Questions:
§ What do you see as the pros and cons of the proposed bonus plan?
§ Based on the information in the case, prepare an implementation plan for Dunne to follow.
1. Diagnose the Current Reward System
Before delving into these important questions, it’s worth putting the case situation into a planned change process context. Specifically, how did Dunne find himself in this situation and does that raise concerns?
Issue: “What diagnostic efforts have taken place and what have they indicated?”
The case provides a variety of information about the current reward system as well as a few pieces of information about how the diagnosis (albeit informal) was conducted.
The current reward system exists in a larger performance management system context.
In particular the current system of warranty pay and customer pay is closely tied to the customer satisfaction index (CSI) system.
We can borrow and adapt the criteria for an effective performance appraisal system as well as the criteria for an effective reward system to assess the alignment of these two processes.
A. What are the pros and cons of the current CSI system?
The CSI system can be assessed as follows:
§ Timeliness – the CSI system scores well on timeliness as scores are reported to the dealership monthly.
§ Accuracy – The accuracy of the CSI scores can be challenged. They are composed of survey responses. Only one of eight questions relates to technician behaviors and a four (out of five) results in a score of 80%. A customer bringing their car in for a warranty repair, in the best case, cannot be a happy customer and so the likelihood of rating the overall service experience as “perfect” (5 out of 5) cannot be high no matter how good the technician performs.
§ Acceptance – There is little acceptance of the CSI system as a valid measure. Under the current system, employees are not rewarded at all for CSI performance, so there’s little chance they would accept being governed by it.
§ Understanding – There is little data in the case about the extent to which technicians understand the CSI scores. The managers understand the system very well and their own description of it strongly support they both understand and accept it.
§ Focus on critical control points – As with the acceptance criteria, the technicians have no reason to care about the CSI score. Managers, on the other hand, recognize the importance of this score on a variety of dimensions. CSI would seem to be an important element of dealer performance.
§ Economic Feasibility – Again, there is little data here. The CSI scores are collected by an outside vendor and no information about the cost of collecting the data is available.
Overall, the CSI system does not have a lot of motivating potential as a performance feedback system, especially for the technicians.
A. What are the pros/cons of the current reward system?
The current pay system can be assessed as follows:
§ Available – here the question is whether rewards are available. Under the old system, the answer is that there are no additional rewards or recognition available beyond the current hourly pay rates. Not to be ignored, however, is the real threat that qualified technicians are scarce in supply and there are lots of opportunities for them in other service businesses.
§ Timeliness – although no specific information is available, it is probably fair to assume that under the current system, technicians are paid on a bi-weekly basis. Timeliness of the reward is therefore moderate.
§ Performance contingency – is there any connection between good repair work and pay. The answer here is no. Technicians under the current system are simply paid by the type of work they perform (customer pay vs. warranty pay).
§ Durability – A bi-weekly paycheck reward is not durable. The value of the reward is gone almost as soon as it is received (if not before).
§ Equity – The system appears to be fair in terms of both internal and external equity.
§ Visibility – The current system lacks any visibility. On the other hand, it is probably reasonable to assume that an informal system within the service department exists.
Technicians probably know who gets what work and whether or not somebody is getting a higher proportion of customer vs. warranty pay work.
Overall, the current pay system is probably average in its motivating potential. The weakest points are availability and performance contingency.
The alignment between the two systems is not good.
In essence, the information system measures the employee behavior that is not being rewarded but for which senior managers are being recognized. It’s no wonder the management at Sharpe BMW have chosen the reward system as the key lever for change. It is unlikely that they would be able to change BMW’s corporate system.
In terms of the diagnostic process, the case leaves the strong impression that the diagnosis was carried out almost entirely by Bob DeShane.
As a result, we can predict that the technicians will likely be suspicious and demonstrate at least some resistance to the implementation of the new reward system. The senior technician’s comments in the case are indicative of such resistance.
2. Implementing the new reward system
Given the pros and cons of the current performance management system and the way the diagnostic steps were conducted, we can turn to the question of implementation.
A. Dunn’s role in implementation
As a service manager in an automobile dealership, Tom Dunn is a middle manager.
For Dunn, upper management wants high CSI ratings, while his employees are looking to be equitably compensated for their skills.
Dunn’s job is to find a middle ground, to get technicians to understand the need for a pay change plan (or the importance of correctly implementing Bob Deshane’s plan) and, at the same time, insure that the new plan achieves management’s goal of higher CSI ratings. Dunn is the change implementor whose has to balance the needs of the change strategists as well as the expectations of the change recipients (the technicians).
A. Implementation Design
There are two ways of thinking about the development of an implementation plan. In the first case, Dunn can perform a “force-field analysis” and create a change strategy based on that analysis. Alternatively, he can follow a change management plan.
Dunn can lower the resisting forces by:
1) explaining the reason for the change,
2) making the link between effort and increased pay clearer,
and 3) offer that a little extra money is better than none (since warranty pay work is not likely to go away).
The relationship between performance and pay is going to be difficult.
The new system introduces an additional criterion – CSI ratings – that affects a technician’s pay (in the form of a bonus), and that rating is not under their control. As a result, it’s likely that technicians would resist.
Important: Here, technicians can control effort and performance (a repair job done correctly), but since their reward (or at least the bonus part of it) depends upon how customers perceive their service to be (as reflected in CSI ratings), technicians may feel they do not have complete control all the way.
In a hypothetical situation, what if the customer had a particularly bad day prior to coming to the dealership? It is likely that this precondition affects how the customer responds on the CSI survey and the survey responses may reflect more than just how they felt about the service received.
In addition, customer expectations for those with a new vehicle are very high. If I buy a new BMW (and paid a steep price for it), my belief is that nothing should go wrong, at least initially. When I bring it in to a dealership for warranty repairs, I am very likely to be upset because this belief has been challenged!! Since the technician does not have control over this precondition, he may feel that even a job well done is not equitably rewarded (in the form of a bonus).
Finally, the size of the increase could be a problem as well. The bonus amounts to 2-3% of pay and even Deshane admits that the amount is not substantial. According to the data provided in the case, the most a technician could make in bonuses is a little under $10 per week. If the technicians do not perceive the value of the rewards highly, then the bonus plan cannot be expected to motivate them to change their behavior.
On the forces for change side of the equation, the dealership appears to fully support the proposed pay system. Since it has had the “blessing” of the owner, Dunn can feel reassured that the forces driving the change are quite strong. The dealership does need to maintain its good standing with BMW. It also has to respond to the competitive market for BMW vehicle's service in its market area. It makes sense, then, to attempt to improve its CSI ratings.
Overall then, the new pay system is “better” in design than the old one. But how much better? There is more money “available” than before, but not much. The system is more “performance contingent” but the technicians could do great work without a corresponding “perfect” rating. Unfortunately, there has been no change in the characteristics of the CSI information system and that doesn’t help the situation.
Managing Change
§ Motivating Change – how will Dunn address resistance? What’s in it for the technicians?
§ Creating a Vision – what is the future state of the service department and how can it be made compelling to others
§ Developing Political Support – Dunn seems to be in good shape here
§ Managing the Transition –What’s the first step? Who should Dunn meet with and what should he say? What are the other key activities and how should they be sequenced?
§ Sustaining Momentum – how could Dunn institutionalize the change once it is in place?
Once Dunn has understood the context of the change through a force field analysis, he has to craft an implementation plan. He may have to decide if he is going to do a pilot implementation (involving, say one technician) or a full fledged implementation involving all technicians. He then has to come up with an effective way to communicate this plan to his technicians.
Technicians have to clearly understand the rationale for the change, what they have to do to get the bonus, what kind of changed behaviors are expected of them, etc. It may make sense for Dunn to make up actual numbers and show how a technician can increase his current wages by improving his CSI scores.
Any plan of implementation that Dunn uses should emphasize these two key elements
a. Communication: Dunn has to explain the new plan fully in a way that the technicians can understand its impact on them. He has to begin by explaining what motivated the organization to adopt the bonus system and the results that the organization expects once the plan is implemented. He has to stress the benefits (albeit small) that would accrue to the technicians from the plan. He also has to be specific in explaining what is expected of them, i.e. greater attention to warranty jobs. Dunn has to understand that clear communication is vital to the success of the implementation.
b. Monitoring and feedback: Once the bonus plan is set in motion, Dunn has to monitor it to see its effect and provide feedback to the technicians. It may motivate the technicians if Dunn can publicize success stories (in the form of improved CSI scores) as well as the bonuses that some technicians have got because of more attention to warranty work.
Despite the pay system’s marginally better design, implementing this change may not really help the company in the long run. The key is to maintain CSI scores at a level acceptable to top management and to BMW.
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