Safelite

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Group 5 - Case Write-Up # 2

Background
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. 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...
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