1. Thinking back to our discussion in the chapter section, Caveat Emptor—Be An Informed Consumer, evaluate whether the replacement of highly paid workers with lower-paid workers did or did not cause Circuit City to perform so poorly. How confident are you in your evaluation? Why?
Yes, definitely the replacement of highly paid workers with lower-paid-workers cause Circuit City to perform so poorly. The main reason behind is trying to copy the compensation strategy of its rival Best Buy, which was working in different business strategy.
I am pretty confident with my findings since its rivals strategy was for different business process. Best Buy had self-service stores where consumers directly look into what is needed. Here less experienced sales person are useful since they have to only guide the customers to the place where its goods were located rest its customers can do on their own with just basic guidelines. But in case of Circuit City, it had tradition of informing its customers about the new products availability where experienced employees were needed.
2. Do you believe that the compensation changes at Best Buy are a major reason for its current difficulties?
No, there is nothing to do with the change in compensation scheme with Best Buy.
They had learnt the change in current environment in electronics gadget and people's choice has changed. They wanted to open small outlets where it could sell only mobile phones rather than selling all the electronics items. It showed that mobile phones are frequently bought rather than other electronics goods. The online competitors like Amazon and the big physical giant like Walmart had made Best Buy to go through the current difficulties since these giants have been offering competition and heavy discounts on expensive gadgets like TV.
3. Why are Walmart, Sam’s Club, and Costco doing better than Best Buy (and Circuit City)? Do they have high pay?
Walmart, Sam's Club and Costco have been doing better than Best Buy due to its business strategy. They have been selling the products with higher discounted price. They have been using optimum sell strategy. They are trying to sell as much as possible with lesser margins on profit for each goods rather than making high profit from single goods and product. Also their compensation strategy to motivate its staff have been on high end. The more your staffs are motivated the more you make the sales. Relatively without using high pay staffs, other companies are doing better than Best Buy.
4. Are there larger problems in the competitive landscape for Best Buy that cannot be solved by compensation strategy changes alone? When customers look to buy electronics, what options do they have other than Best Buy and why would they choose these options over Best Buy? Where do customers “test drive” the product and where do they buy it? Can compensation changes address these challenges? Explain.
Best Buy has hired numerous staffs with lesser experience and lesser pay and also offering lesser compensation. Though the happiness index of Best Buy is better than most of its competitors, the stock it had in the store has been the problem. Its competitors are offering larger number of sales by offering discounts to its customers. Only compensating your staffs to make high sale is not only the solution, they had to change the way of doing business so that it satisfies customers need.
While shopping for electronics goods, Walmart and Amazon are other competitors to Best Buy. Since its rivals have been focusing on discounted price, customers are more attracted towards the rivals. It shows that making your staff interact with your customers to only gain happy customers cannot make business, you have to increase the number of sales at competitive pricing.
Customers test drive the products in the store or at home as Amazon provides home delivery service. The availability of mass product online and shopping time reduction has been offering of Amazon and highly discounted price of Walmart. SO customer rather choose either the time saving options or high discount priced products.
Compensation somewhat can motivate your staffs to drive the customers but compensation alone cannot increase the sale.
5. In 2011, American Airlines had labor costs of $7,053,000,000 and ASM of 154,321,000,000. If they are successful in cutting $1.25 billion per year, what would their labor cost/ASM be and would that be competitive with USAir? If you are interested, you may wish to do more reading about American’s plan to cut labor costs to learn more about how they propose to do that.
From 2011 to 2018 in between 7 years,
1.25 billion cut per year = 1.25 * 7 = 8.75 billion per year
Labor Cost in 2018 = 7.053 – 8.75 = -1.697 billion (In profit of 1.697 billion)
If American Airlines cuts its labor cost by 1.25 billion per year, they will be making big save from the labor cut.
Since the labor cost cut of American Airlines is higher than USAIR, they will surpass USAIR in terms of cost saving. The more operation cost in the organization the more profit is needed. If by cutting extra labor, the organization can benefit from then I suggest its good way to overcome bankruptcy. The competitor of American Airlines has similar customer satisfaction so cutting off operation cost will help it come out of bankruptcy.
6. What is your opinion on whether this change in compensation would significantly enhance American’s ability to compete in the airline industry? How does American’s position compare to that of Best Buy? Is having competitive labor costs of equal importance in the two industries? Explain.
Definitely the change in compensation plan will improve the overall performance of the company. The distributed compensation can now be used to motivate the current staffs so that they work harder to achieve the objectives. These changes will significantly help to improve the conditions and be competitive in the market.
There is similarity with the American Airlines and Best Buy, since both have been outraged by its competitors and has been forced to change the way of achieving organizational goals though they had different offerings to the customers but the tagline for both is customer service and satisfaction.
It's must to have the organization to look after employees pay structure, they need to have knowledge of its competitors offering pay to its staffs. The possibility of retaining your best employees will be with the organization and the turnover ratio will be low. The ultimate line of vision for the staff is to have the same organization goal. So being a happy and satisfied pay ratio, its less likely for the staffs not to work for the organization.
