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Sharpe BMW

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 smanagement 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 manufacturers 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 dealerships 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 cases 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 Deshanes 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, its 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?

B. 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 theres 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. Its 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 BMWs 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
technicians 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. Dunns 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.

Dunns 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 Deshanes plan) and, at the
same time, insure that the new plan achieves managements 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.

Force-field analysis

Forces For Change Forces Resisting

Declining CSI Technicians current way of New


scores Current thinking about pay Reward
Reward System
Managers System Understanding of the need for
opportunity for increased change
bonuses
New system doesnt increase
pay that much

Link between effort and CSI


score not clear

Relationship between
performance and pay not under control
of technician

The potential increase is not


worth the effort

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
technicians pay (in the form of a bonus), and that rating is not under their control. As a
result, its 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 doesnt help the situation.

Managing Change

Motivating Change how will Dunn address resistance? Whats 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 Whats 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 systems 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.