02 Jul MANAGEMENT IN PRACTICE 1100 7DAY
Scenario
Booth & Ellis plc (“B&E”) is a UK listed company that operates a pub and restaurant chain under the “Booth & Ellis” brand. Established in the 1970s, B&E has developed a reputation for good quality, low cost food and drink plus cheerful service. The company currently owns 800 pubs throughout the UK.
The company has made steady but unremarkable profits for the past few years. Its nearest competitors, by contrast, have made much greater profits. The situation is concerning some of B&Es shareholders. B&Es lower levels of profitability put it at a competitive disadvantage: over the long term it will have less money to invest in new technology, pub refurbishments or advertising etc. Further, the dividends paid by B&E are significantly less than those paid by their competitors.
The shareholders believe that B&Es relative lack of profitability is due to its having the highest staff costs in the industry. B&E pays its staff what it regards as a living wage. However, its competitors pay the legally required minimum wage, which is considerably less than this. Further, some of B&Es pubs are over-staffed.
B&E has a diverse workforce of both full- and part-time employees. Its staff are, on average, older than the industry average. B&E does employ a significant number of young students who typically stay for 2-3 years but many more B&E employees are in their 50s or 60s and have worked for the company for many years. The company also has a higher number of working mothers than the industry average. B&E have an excellent reputation for its treatment of staff. Staff satisfaction is high and staff turnover is much lower than industry average.
B&E have just appointed a new CEO and her first priority is to reduce staff costs. She has identified three possible options as set out below. You should assume that all of these options are legal.
Option 1: Introduce zero hour contracts for all existing and future staff below pub manager level. Staff on zero hour contracts will be on call; managers will notify them of the hours they are required to work for each week one week in advance. This will ensure that pubs are not over-staffed in quiet periods whilst still ensuring there is sufficient staff to cover busy periods. Staff are only paid for the time they work. This option should result in the biggest reduction in staff costs.
Option 2: Identify over-staffed pubs and carry out a programme of redundancies. Offer the minimum redundancy package required by law. Introduce a pay freeze on wages until B&Es wages are in line with its competitors, i.e. minimum wage. This option should result in a significant reduction in staff costs but less than that achieved by option one.
Option 3: Decrease staff numbers through natural wastage, i.e. not replacing staff who leave voluntarily. Since B&E has low staff turnover, it will take some years before B&E sees significant cost savings from natural wastage.
This question paper consists
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