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CHANGING THE HR FUNCTION AT BELLA’S: A CASE STUDY

Bobby Medlin, USC Upstate

CASE DESCRIPTION

The primary subject matter of this case concerns analyzing and evaluating a decision a small business must make concerning the management/administration of its human resource function. The case depicts a general manager’s concern that individual performance as well as organizational performance/effectiveness of a small business is beginning to suffer due to the human resource management demands that have become part of her position’s role in the firm. This case has a difficulty level of four. It is designed to be taught in one class hour and is expected to take approximately three hours of student preparation time.

CASE SYNOPSIS

Students are provided with a management scenario describing a general manager’s request to the owner of a small business to change the HR management function within the firm. This change would involve either A. hiring a full time HR professional who would become part of the management team, B. outsourcing the entire HR function to another organization, or C. outsourcing selected portions of the HR function while keeping select areas inside the organization. Students are asked to review the scenario, evaluate each alternative, and make a recommendation to the owner of the firm. Within the evaluation of alternatives, students are also instructed to develop a job description and a job specification to support the recruiting/selection process that will occur if option A. is chosen; to offer a step by step process that should be followed if option B. is chosen; to identify and support areas that should/shouldn’t be outsourced if option C. is chosen. In addition, students are asked to evaluate any additional alternatives that would address the issue. Finally, students must make and support recommendations to the management of this organization. HR outsourcing statistics to supplement the class discussion is provided as an Appendix.

INSTRUCTORS’ NOTES

Recommendation for a General Teaching Approach

This case was specifically designed and has been successfully used to reinforce the idea that small businesses often grow to the point in which professional HR management is necessary for

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organizational effectiveness. The case requires students to explore and evaluate a number of alternatives available to a small business to enable this to occur. A general instruction approach includes a discussion of change associated with growth, the potential impact of the decision on HR outcomes, the need for updated job descriptions and job specifications, the advantages and disadvantages of outsourcing, and a thorough analysis of a number of provided alternatives. A brief general description of outsourcing to supplement the class discussion is provided as an Appendix.

Discussion and review should take approximately two in-class hours. The case instructs students to thoroughly analyze and evaluate three specific alternatives that are provided in the case. It also asks students to consider other potential alternatives beyond the ones listed. Individual instructors may require each student to submit a written report or he/she may prefer to require teams of students to make informal presentations of their analysis. Reports should be graded primarily for content with specific attention being paid to students’ ability to thoroughly examine alternatives to solve the problems/issues as presented in the case. If instructors decide to make the case a team presentation assignment, grading could also include an oral communication skills and/or a teamwork component. A general in-class discussion of the case is recommended after assignments are submitted or presented. The instructor may choose to highlight specific items from the case that offer significant concerns or challenges and ask students to identify the actions to address these items.

INSTRUCTIONS TO STUDENTS

Address each of the following:

1. Thoroughly evaluate each alternative provided. Develop a job description/job specification for the new position as part of the evaluation of option A. For option B., include a discussion of how generally accepted advantages and disadvantages of outsourcing might apply to this firm. For option C., be certain to identify areas of HR that you feel should/should not be outsourced. Also, for each alternative, address any implementation concerns as well as specifics regarding how each might impact the performance outcomes that Lynne feels are declining.

Option A., hiring an HR professional:

Students should address the costs/benefits\advantages/disadvantages of hiring a full time HR professional. Anticipated performance improvements should also be explored. Implementation issues will probably be primarily related to the recruitment and selection of the new HR professional.

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Job descriptions/job specifications will vary among students; however, it is important to recognize that duties, responsibilities, and essential job functions are aligned with the needs of the organization. The job description provided below should be comparable to what students develop:

JOB DESCRIPTION POSITION TITLE: Human Resources Manager POSITION SUMMARY: Performs Human Resources-related duties at the professional level;

may carry out responsibilities in some or all of the following areas: recruitment and selection, employee relations, training, orientation, employment, compensation, performance management, and equal employment and equity programs.

DUTIES AND RESPONSIBILITIES/ ESSENTIAL FUNCTIONS:

1. Administers various human resources plans and procedures for all company personnel; assists in development and implementation of personnel policies and procedures; prepares and maintains employee handbook and policies and procedures manual.

2. Participates in developing department goals, objectives, and systems.

3. Administers compensation program; monitors performance evaluation program and revises as necessary.

4. Performs benefits administration to include claims resolution, change reporting, approving invoices for payment, and communicating benefit information to employees.

5. Develops and maintains affirmative action program; files EEO-1 report annually; maintains other records, reports, and logs to conform to EEO regulations.

6. Conducts recruitment and selection effort (including screening and interviewing) for all exempt and nonexempt personnel and temporary employees; conducts new-employee orientations; writes and places advertisements.

7. Handles employee relations counseling, outplacement counseling, and exit interviewing.

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8. Participates in administrative staff meetings and attends other meetings and seminars. Maintains company organization charts and employee directory.

9. Assists in evaluation of reports, decisions, and results of department in relation to established goals. Recommends new approaches, policies, and procedures to effect continual improvements in efficiency of department and services performed.

10. Maintains compliance with federal and state regulations concerning employment.

11. Performs other related duties as required and assigned. KNOWLEDGE AND SKILLS:

1. Considerable knowledge of principles and practices of human resource administration, effective oral and written communication skills, excellent interpersonal skills.

2. Must have the ability to make recommendation to effective resolve problems or issues, by using judgment that is in consistent with standards, practices, policies, procedures, regulation or government law. 3. Ability to organize and prioritize work.

EDUCATION AND WORK EXPERIENCE: 1. A bachelor's degree and one (1) to two (2) years of Human

Resources experience 2. Professional in Human Resources (PHR) certification

preferred.

Option B., outsourcing the entire HR function:

Students should evaluation the cost/benefits\advantages/disadvantages of outsourcing. Cost savings, access to expertise, and employee morale will be three areas mentioned by students as advantages. Loss of management control will be prevalent among the disadvantages. The evaluations should identify specifically which ones would be most applicable to Bella’s. Also, the analyses need to address how outsourcing will impact the outcome issues identified by Lynne Gibson.

Students should identify steps that must be taken once the decision to outsource has been made. Though specific processes will vary, they should include the following areas:

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‚ Identifying and selecting vendors ‚ Negotiating contracts ‚ Planning and managing transition ‚ Managing and evaluating the contract ‚ Managing the renegotiation and the end of the contract

The instructor should orchestrate a discussion of the potential dangers within each of these areas.

Option C., outsourcing selected areas of the HR function:

Students should identify which areas of the HR function would lend themselves to outsourcing opportunities for Bella’s and why. Factors to consider would include expertise inside the organization, confidentiality concerns, acceptance issues among employees, financial cost/benefits, etc. Payroll and benefits are two areas that will be mentioned often as outsourcing possibilities.

2. Are there additional options that Lynne and Illa should consider? Are they more attractive than the ones under consideration?

Responses to this question will vary significantly among students. Decentralizing the operation to give greater HR decision-making authority/responsibility to store managers will probably be mentioned by many. Restructuring the company will also be suggested by students as well. All options should be thoroughly evaluated by students.

3. What would be your recommendation(s) to Lynne and Illa?

Students should choose among A., B., and C. alternatives; support should be provided for each recommendation.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

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Managerial Finance Vol. 36 No. 6, 2010 pp. 534-546 # Emerald Group Publishing Limited 0307-4358 DOI 10.1108/03074351011043017

Economic impact of marketing alliances on shareholders’ wealth

Foo-Nin Ho and Allan D. Shocker Department of Marketing, College of Business, San Francisco State University,

San Francisco, California, USA, and

Yewmun Yip Department of Finance, Beacom School of Business,

University of South Dakota, Vermillion, South Dakota, USA

Abstract

Purpose – The purpose of this paper is to examine whether marketing alliances create value for shareholders, and whether the results are robust across different business cycles. Design/methodology/approach – Using standard event study methodology, abnormal returns (AR) were computed for 402 firms which formed marketing alliances in a 12-month period covering three business time periods, namely bull, bear and post 9/11 periods. ANOVA and regression analyses were performed on cumulative abnormal returns (CAR). Findings – Significant and positive AR were found on announcement day for firms forming marketing alliances. When the sample is segmented by market capitalization, small cap firms were found to stand to benefit the most, particularly when partnering with a large firm. During the bear market period, marketing alliances tend to benefit small cap firms and firms with low profitability, whereas during the bull market period, marketing alliances benefit firms with low asset utilization. Research limitations/implications – Results are limited by the accuracy of the models used to measure AR. Practical implications – The results seem to suggest that smaller partners tend to benefit more from marketing alliance, and the effect changes with business cycle. Originality/value – The paper analyses how the benefits of forming a marketing alliance are shared between partnering firms and how the different phases of business cycle influence the distribution of benefits.

Keywords Marketing, Strategic alliances, Shareholder value analysis, Business cycles

Paper type Research paper

1. Introduction By definition, a strategic alliance is a formal cooperative agreement between firms designed to pursue a set of agreed upon goals so as to achieve competitive advantages for both partners. Strategic alliances in general involve either collaborative effort (non- equity) or joint venture (equity). In a joint venture alliance, both partners share equity control in a new organizational entity. In a collaborative alliance, neither partner has any equity stake since no new entity is created, and the goal is to pool and leverage on each other’s resources to achieve a common goal. Within non-equity alliances, they can be further classified by two dimensions (Chan et al., 1997):

(1) horizontal vs non-horizontal; and

(2) technical vs non-technical.

Horizontal alliances involve partners in the same three-digit SIC class while non- horizontal alliances are between firms from unrelated industries. Technical alliances involve the transfer or pooling of technological knowledge between the partners (e.g. licensing agreements, and research and development agreements) while non-technical alliances involve marketing and distribution agreements. An example of marketing

The current issue and full text archive of this journal is available at www.emeraldinsight.com/0307-4358.htm

Impact of marketing

alliances

535

alliance is the common practice by airlines to engage in marketing alliances to promote their frequent flyer programs such as the formation of star alliance. In times of tight budgets, an underinvestment in marketing and brands may have a long-term adverse impact on the firm. Swaminathan and Moorman (2009) find that by pooling resources together in a marketing alliance with another firm can increase the value of the partnering firms, particularly for marketing alliances in high-tech software industry.

Zagnoli (1987) find that non-equity alliances account for over 50 per cent of all strategic alliances, and other researchers find that non-equity alliances offer more advantages than equity joint ventures. For example, Jensen and Meckling (1991) argue that non-equity alliances provide an organizational mechanism that aligns decision authority with decision knowledge, and that benefits and costs resulting from the decisions accrue fully to the decision maker, i.e. decisions are delegated to a level closer to the requisite knowledge. Another advantage is the organizational flexibility of such alliances where new links can be formed or current links disbanded in response to market demands. On the other hand, there are costs associated with these ‘‘symbiotic’’ alliances – those that relate to searching out reliable partners, designing contracts and other bonding mechanisms that discourage opportunism, and monitoring the behaviour of alliance partners (Chan et al., 1997; Klein et al., 1978). In such situations, companies have to balance between preserving key proprietary knowledge to maintain their competitive advantage and insuring that partners will see a need to pool their resources. This conjecture is supported by the findings of Luo et al. (2007) in that firms must carefully balance between competition and cooperation when working with their rivals in a cooperative alliance. Conversely, Harrigan (1984) notes that most strategic alliances usually involve technology or knowledge that companies know they cannot protect adequately or control.

Over the years, various scholars have studied strategic alliances. For example, researchers have looked at the theoretical and conceptual foundations, motives for, and framework of strategic alliances (Varadarajan and Cunningham, 1995); economic outcome of strategic alliances (Chan et al., 1997); choice between equity and non-equity modes of alliance (Pisano, 1989); the management and structuring of alliances (Parkhe, 1993). Marketing scholars have also looked at strategic alliances such as intra- organizational cooperation between marketing and other functional areas or other business units (Ruekert and Walker, 1987) and inter-organizational relationships between firms (Adler, 1966; Swaminathan and Moorman, 2009; Luo et al., 2007). Some researchers have also identified the importance of marketing alliances in the overall realm of strategic alliances. Varadarajan and Cunningham (1995) view marketing activities as critical factors in the success of strategic alliances especially in a rapidly changing business and market environments. Other researchers have also echoed this sentiment in recognizing the importance of integrating marketing in strategic alliances (Webster, 1992; Day, 1992).

2. Economic value of strategic marketing alliances Das et al. (1998) and Chan et al. (1997) have found that while strategic alliances create value for their shareholders especially when there is sharing of technological know- how, but that is not necessary true for marketing alliances. For technological alliances involving firms in the same industry, Chan et al. (1997) report a significant positive returns, and whereas for marketing alliances, a significant positive return is observed only when the partners are from unrelated industries. In their study on marketing alliances by high-tech software firms, Swaminathan and Moorman (2009) also find a

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significant positive return for both partnering firms. On the other hand, Das et al. (1998) do not find a significant return to shareholders for the formation of marketing alliances.

Das et al. (1998) find that although investors view alliances formed by more profitable firms as detrimental to their value, marketing alliances are viewed as more detrimental than technological alliances. On the hand, Chan et al. (1997) report that firms entering into strategic alliances tend to outperform their industry counterparts in the period prior to the formation of the alliances, and therefore, they argue that the formation of an alliance is not in response to poor performance. Larger firms, especially in technological alliances, depend critically on their smaller partners for resources (e.g. technological know-how). This asymmetric dependence enhances the bargaining power of the smaller partners. This conjecture is supported by the empirical evidence provided by Das et al. (1998) in that the market reaction to smaller firms’ alliances is greater than the reaction to larger firms’ alliances. This effect is more prominent for technological alliances, where smaller partners earn significantly higher returns than their larger partners. However, there are no discernible differences in the returns earned by the small and large partners in marketing alliances. Chan et al. (1997) also report similar findings in that smaller partners tend to benefit the most from forming a strategic alliance, but their larger counter

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