Your client is Duplox Copiers Canada Limited, a wholly owned…

Your client is Duplox Copiers Canada Limited, a wholly owned subsidiary of Duplox Copiers Incorporated, which is a large multinational firm based in the United States. Duplox Copiers Canada Limited (DCCL) is responsible for the sales, installation, and servicing of Duplox-brand copiers, but not their manufacturing, which is carried out in other countries. DCCL has about 1,200 employees, most of them located in branch offices across Canada.
The head office for Duplox Canada is located in Toronto. Chart 1 shows the organizational structure at head office. The executive committee consists of the CEO and the two vice presidents. The company has six departments: Marketing; Finance and Administration; Human Resources; Inventory Management; Technical Services; and Technical Training and Support.
Shana Friggstad, the President and Chief Executive Officer of Duplox Copiers Canada Limited, has requested your consulting services, and she is delighted that your team was assigned to her firm. DCCL is experiencing serious performance problems: employee turnover is up and morale is down; customer satisfaction is down and complaints are up; and, most importantly, revenue and profits are both down. President Friggstad knows that the compensation system used by a firm can contribute to all these problems, and since compensation is a major cost item (currently accounting for about 44 percent of the firm’s costs) she suspects that the firm’s compensation system may be implicated in these problems. But she can’t be sure without your help.
Because President Friggstad recognizes that compensation is just one of several important structural variables that must all fit together if effective organizational performance is to occur, you are authorized to suggest any changes to the managerial strategy and structure of the organization that are needed to make the new compensation system work. Your only limitation is that she wants no changes made to the company’s six-department structure, which she believes is the best way to organize. Beyond that, you have free rein to make recommendations about reward structure, job design, and the other structural dimensions.
Duplox Operations and Structure
DCCL earns revenues in three main ways. First, it earns through the margin on the sale of copiers. The U.S. parent company sets the prices that Duplox Canada must pay for the copiers but allows Duplox Canada to charge whatever price the market will bear. Second, DCCL is reimbursed by the parent company for work that is covered by the manufacturer’s warranty. This aspect of the business is not very profitable, since the parent company is not very generous in its reimbursement levels. Third, DCCL sells service contracts on the equipment that customers purchase. This is a very significant source of company revenues and is directly dependent on the quality of service provided.
A major problem in recent years is that the company’s technical service specialists (TSSs) appear to be experiencing a decline in their attitudes toward their work and the company, as indicated by both the firm’s annual attitude survey and the increased turnover, and there has been a sharp increase in customer complaints about machine breakdowns and the quality of service received. TSSs install new machines, provide scheduled maintenance at regular intervals, and provide emergency maintenance in case of breakdowns, malfunctions, or copy quality problems.
The performance of the technical service specialists is crucial to customer satisfaction with company products. Indeed, the Director of Marketing has been complaining bitterly that “poor performance of the service personnel is crippling the efforts of my sales force.” The Director of Technical Services bitterly resents this criticism, believing that his department deserves praise, not criticism, for its productivity improvement and cost cutting during the past two years—where the same number of machines are now being serviced by 20 percent fewer TSSs.
Duplox Canada employs about 550 technical service specialists located at about 25 branch offices across Canada. The operations of the company are divided into five geographical regions, each with about five branch offices. The Prairies (covering Alberta, Saskatchewan, and Manitoba) is one such region, with branch offices in Calgary (where the regional sales and service managers are located), Edmonton, Saskatoon, Regina, and Winnipeg. Charts 2 and 3 show the structure of the Technical Services Department and the structure of the Edmonton Branch, which is a typical branch office.
The Edmonton Branch has about 22 TSSs and is responsible for the northern half of Alberta. The branch is co-managed by the Branch Service Manager and the Branch Sales Manager. The Branch Sales Manager supervises approximately eight sales representatives, along with an Office Manager, who supervises two clerical staff. (Overall, Duplox employs about 200 sales reps across Canada.) The Branch Sales Manager reports to the Regional Sales Manager based in Calgary, who reports to the Director of Marketing in Toronto. Charts 4 and 5 illustrate reporting relationships in the Marketing Department.
The Branch Service Manager supervises a small parts warehouse at the branch (most parts are kept at the national warehouse in Toronto, to reduce inventory costs), a couple of service clerks, and four field service managers (FSMs), each of whom supervises five or six technical service specialists. Because of an increasing variety and complexity of machines, each FSM and the TSSs under them specialize in a particular category of machine. Each FSM handles the scheduling of service and installation of all machines in their category (for example, the model 1000 series, which includes a variety of smaller copiers).
When service calls come in from customers, they are received by a service clerk, who identifies the machine in question and directs the request to the appropriate FSM. Since many customers have two or more different models of equipment, one call may be directed to two or more different FSMs, each of whom would send out a TSS to deal with the model she or he is responsible for. Although this may not sound efficient, it does not happen very often, and the Director of Technical Services strongly believes that by increasing the speed of repairs and reducing training costs, the gains from specialization outweigh any inefficiencies from specialization. In fact, the average number of machines serviced by a TSS has increased by about 20 percent since this policy was instituted, and the number of TSSs has been reduced accordingly.
Branch hours are from 8:30 a.m. to 5:00 p.m., and all TSSs are expected to adhere to these hours (so Duplox can avoid paying overtime), except in emergency situations, which must be authorized by a field service manager. Since competition has been increasing in this tough market, and since company revenues and profitability levels have been slipping, expense budgets have been tightened in recent years, and the TSSs have been put under tighter control.
Minimum monthly, weekly, and daily productivity levels are strictly specified for each TSS, and there are strict quotas on repair expenses and travel expenses. Prior approval from an FSM is required for many actions even if they are within budget limitations. A TSS cannot order parts or tools needed for maintenance; all have to be ordered by the FSM, within strict dollar limits. Since there is often a delay in receiving the parts, in many cases the TSS who starts the job is not the TSS who finishes the job. Because of the large territory covered, the relatively high level of TSS turnover, and the unpredictability of emergency calls, an individual TSS seldom visits the same customer twice in a row.
When TSSs need technical advice from head office, where there are numerous technical support experts who specialize in various types of machines, they are required to call their FSM, who first attempts to solve the problem him- or herself before calling the Technical Support Department. (Chart 6 shows the structure of the Technical Training and Support Department.) One reason for the reluctance of the FSM to allow calls for technical support is that such calls are charged to the machine repair costs, on which field service managers are evaluated.
TSSs generally have little discretion over maintenance schedules and services; they are to be performed strictly according to schedule. However, in one area TSSs are not required to “go by the book.” In theory, all installations of new equipment have to meet company standards in terms of space, ventilation, and wiring. But in practice, TSSs are not allowed to refuse installations that do not meet company specifications, unless they would result in safety problems.
This is because the Director of Marketing, the Regional Sales Managers, the Branch Sales Managers, and the sales reps are mainly compensated based on volume of new installations, along with the volume of service contracts sold. (About 50 percent of the sales reps’ direct pay is based on volume of sales, and the remainder is base salary.) Sales reps are reluctant to tell customers that they should make expensive alterations to their facilities in order to install the machine because then they might lose the sale in this heavily competitive business. The executive committee has tacitly supported this practice, since they are evaluated by the parent firm on a combination of how many machines they sell and the profitability level of the Canadian operation.
Sales managers don’t seem to put much weight on the argument by the TSSs that improper installation can cause higher repair and service costs. This frustrates many TSSs, especially since they are frequently criticized by sales staff for performing “shoddy service, which causes more breakdowns and makes us look bad in the eyes of the customer.”
TSSs are paid a flat monthly salary plus overtime. Their performance is appraised once a year by the FSM, based mainly on how well they have adhered to productivity and expense standards. Merit raises are doled out by each FSM to one or two “deserving” TSSs each year. The Director of Technical Services, the Regional Sales Managers, the Branch Service Managers, and the FSMs are all paid on a salary plus bonus system. The bonus depends on whether TSS productivity met or exceeded standards in the past year, and whether repair and service expenses were below standard. These bonuses, if achieved, can double their earnings.
Compensation for the Director of Inventory Management and her two managers is based partly on minimizing inventory carrying charges (Chart 7 shows the structure of the Inventory Management Department). Compensation for the Director of Technical Training and Support is partly based on the level of cost recovery she can obtain from the Technical Services Department and partly on keeping the overall cost of her department down.
The Manager of Sales Training thinks that part of the sales problem is insufficient sales training for new sales reps. Compensation for the Manager of Sales Training is based partly on the extent of recovery of training costs because Branch Sales Managers are required to charge sales training costs against their sales revenues and “transfer” these amounts to the sales training function. The higher the transfers, the higher the bonus for the Manager of Sales Training, but the lower the bonus for the Branch Sales Manager.
Although employee benefits used to be good at Duplox, they have been whittled away in recent years in an attempt to cut costs as competition continues to intensify. (DCCL has a fixed benefits plan.) Right now, benefits are running at about 15 percent of total compensation, compared with the industry average of about 20 percent. Because turnover of TSSs has become a problem, total cash (direct) compensation for them remains above the industry averages. However, total cash compensation for the sales reps has dropped as sales (and therefore sales commissions) have dropped, and turnover among sales reps is becoming a serious problem.
Performance Results
Last year (2017), total revenues were $175,000,000, based on $90,000,000 of copier sales, $82,000,000 of service contracts, and $3,000,000 of warranty revenue. This produced a razor-thin profit of $4,000,000. The decline in profitability from the previous year would have been worse were it not for the cuts in compensation costs resulting from a reduced number of TSSs due to fewer sales and higher TSS productivity. The table below shows Duplox Canada’s revenues, expenses, and profits for the past two years.
Partial Listing of Duplox Job Descriptions
The following is a listing of some of the job descriptions currently used at Duplox Canada. While this list includes some of the most important jobs at Duplox, this list does not comprise all the different job descriptions used at Duplox. When designing and applying your job evaluation and pay-for-knowledge systems, this is the set of jobs you will apply them to.
Accountant (Finance and Administration Department)
Advertising and Product Promotion Specialist (Marketing Department)
Branch Inventory Clerk (Inventory Management Department)
Branch Sales Manager (Marketing Department)
Branch Service Manager (Technical Services Department)
Caretaker (Finance and Administration Department)
Compensation Clerk (Human Resources Department)
Compensation Manager (Human Resources Department)
Compensation Officer (Human Resources Department)
Director of Human Resources (Human Resources Department)
Director of Marketing (Marketing Department)
Director of Technical Services (Technical Services Department)
Director of Technical Training and Support (Technical Training and Support Department)
Field Service Manager (Technical Services Department)
Inventory Clerk (Inventory Management Department)
Manager of Branch Inventories (Inventory Management Department)
Regional Sales Manager (Marketing Department)
Sales Representative (Marketing Department)
Sales Training Specialist (Marketing Department)
Secretary (all departments)
Technical Service Specialist I – Model 1000 Series (Technical Services Department)
Technical Service Specialist I – Model 2000 Series (Technical Services Department)
Technical Service Specialist I – Model 3000 Series (Technical Services Department)
Technical Service Specialist I – Model 4000 Series (Technical Services Department)
Technical Service Specialist II – Model 1000 Series (Technical Services Department)
Technical Service Specialist II – Model 2000 Series (Technical Services Department)
Technical Service Specialist II – Model 3000 Series (Technical Services Department)
Technical Service Specialist II – Model 4000 Series (Technical Services Department)
Technical Service Specialist III – Model 1000 Series (Technical Services Department)
Technical Service Specialist III – Model 2000 Series (Technical Services Department)
Technical Service Specialist III – Model 3000 Series (Technical Services Department)
Technical Service Specialist III – Model 4000 Series (Technical Services Department)
Training/Support Specialist (Technical Training and Support Department)
QUESTION
Strategic and Structural Recommendations. Describe the proposed strategic and structural solutions that flow from your analysis in the previous section. Be specific in explaining what you would do. For example, if you think a different managerial strategy is required, exactly what would you do to implement that? If you think some jobs need redesign, which jobs should be changed and exactly how should they be changed? You also need to provide a new job description for any redesigned or combined jobs. If you think teams are needed, who would be the team members, and what would be their responsibilities?