Organisational Behaviour

Organisational Behaviour

Individual Case Study Assignment 2012/2013

David Orton PLC

You are required to take on the role of a management consultant and prepare a report for the management of David Orton PLC to highlight the problems and issues faced by the organisation.

This report must help the company to understand the many areas of organisational behaviour theory and practice that could help solve the problems within the company.
Your report should include:

• The likely concerns and current motivational state of Costwise employees and what may have led to this situation

• What perceptions the staff at Costwise are likely to have of employees at Orton and what attitudes are they likely to hold towards Orton employees.

• What management should do to overcome organisational behaviour problems encountered and ensure that staff morale does not deteriorate.
Conclusions and Recommendations should be part of the report and you may include appendices to support the discussion and analysis.

Additionally, the report should include a reference section and the Harvard referencing system should be used throughout.
Ensure that you address the following module learning outcomes:
1. Demonstrate an understanding of and explain key concepts referred to in the outline syllabus, with particular reference to the study of individual behaviour.
2. Effectively communicate concepts, theories and evidence relevant to the outline syllabus in writing.
3. Critically evaluate concepts and evidence relating to the outline module syllabus.

You should draw on relevant theory from the module and apply this to the case study in particular focussing upon:

Personalities, perceptions, attitudes, motivation, morale and communication.

Word count: 2500 +/- 10% This assignment is weighted at 50% of the overall module mark.
Submission: via Turnitin in Unilearn
Deadline: Friday 7th December 2012 by 23.59hrs

Criteria

Your work will be assessed on the basis of the following criteria:

Relevance- Your work should show that you understand the case study and that you can use relevant aspects of the case to support the discussion. You should avoid repeating at length from the case study and description should be avoided, instead critically evaluating the theory and its application to the case.

Evidence – Your discussion should be supported by a wide variety of academic materials textbooks, journal articles and reliable websites all of which should be accurately referenced.

Presentation and structure – Your answer should be structured using a report format with the Harvard referencing system used throughout.

Your assignment will graded accordingly to the following criteria:
A 90-100

Outstanding I A comprehensive piece of work, well evidenced and supported with accurate referencing throughout. All content is relevant and all aspects of the question are addressed
A 80-89 I A high quality piece of work though one or two additional considerations could potentially be enhanced to strengthen the answer. Accurate referencing and a substantial body of evidence used to support the answer.
A 70-79 I An excellent answer, well evidenced and referenced. One or two minor areas may have been omitted though this does not detract from the overall quality of the argument.
B+
B
B- 67 – 69
Above Average II(i) A good answer that displays a good familiarity with the available literature. Comprehension of all the issues involved and contains evidence of independent criticism and analysis. Free from errors and all relevant points discussed.
C+
C
C- 57 – 59
54 – 56
50 – 53

Average II(ii) A middle range answer that shows familiarity with the available literature. Comprehension of all the issues involved and contains evidence of independent criticism and analysis. Free from errors and all relevant points discussed.
D+
D
D- 47 – 49
44 – 46
40 – 43

Satisfactory III A poor answer which, whilst demonstrating an understanding of the basic issues involved (and hence deserves a pass) is deficient in terms of material covered, level of comprehension etc. Insufficiently researched and, perhaps, major errors and omissions.
R 37 – 39
34 – 36
30 – 33
Refer A refer answer, which demonstrates a lack of depth in terms of comprehension and knowledge of the subject matter.
F 20-29
Fail Little or no understanding of the subject matter and, probably, a minimum degree of effort.
F 10-19 Fail Minimal relevant content within the answer and complete lack of evidence to support. The work is poorly presented
F 0-9 Fail Virtually no relevant content and inadequate presentation. This grade could be given due to non-submission.
Introduction to the case.

In early 2004, the Orton Group, a major British food retailer, set out to acquire one of its major rivals by making a public offer for the shares of Costwise, another large supermarket group. This immediately prompted a number of counter-bids from other large retailing groups and it was not until mid-2005 that the Orton Group and Costwise merged under the banner of David Orton plc.

Although the senior management of Costwise was favourably disposed towards Orton’s bid, they recognised that it could take some time before the two companies would be able to merge physically. To a large extent this was because when the takeover bid was launched, the Competition Commission (CC) had expressed reservations about a merger between two retailing groups who were already very large in their own rights. For instance, if allowed to go ahead as a simple takeover, it might well result in a near-monopoly position in certain geographical areas. For this reason it was thought likely that the CC might insist on the new group divesting itself of a number of retail outlets before permission to merge be granted. The CC could not be specific at this stage about whether this requirement would be imposed nor was it able to state which stores it would wish the new group to dispose of; that is, whether it would wish them to be drawn from Orton’s sites, Costwise’s stores or a mixture of both. Indeed the only information about which the Costwise management group had any inkling in this area had emerged from earlier, informal discussions between Orton and Costwise.

Unlike other large food retailers, Orton had chosen not to move into the smaller, ‘convenience store’ sector, which was likely to mean that its primary interest in acquiring Costwise premises was its desire to expand in the larger (25,000 sq ft and above) sector. This would fit well with its focus on ‘superstores’. Thus, it if had any choice in the matter it would probably opt to divest itself of Costwise’s smaller ‘compact’ stores, probably by selling them as going concerns to rival supermarket chains. Until the eventual size and structure of the merged group was identified, management and staff at both companies would probably feel that a degree of uncertainty had been introduced into their futures, and this was felt to be particularly the case for staff at Costwise, which would be likely to wind-up as the junior partner in the combined organisation. As such there could be significant problems in maintaining the morale of staff in the interim period.

In retailing, staff attitudes can have important effects on the performance of an organisation. Thus, in the interest of remaining an attractive merger partner, the senior management of Costwise decided to hold a meeting to review the strengths and weaknesses of the firm as revealed by staff feelings. The following are summary notes that were taken at the meeting.

Current Situation
The meeting opened with the chairman summarising the present situation to those present. They were asked to note that until the Competitive Commission had completed deliberations, the size and structure of the combined organisation was still very much a matter of conjecture. As such, although this was likely to be a piece of information about which everybody wanted an answer, at this stage no definitive answer could be given.

Current Trading Performance
The chairman noted that it was nice to be able to report that this was holding up surprisingly well, considering the amount of uncertainty and ambiguity in the firm.

Employee Morale
He then asked the Human Resource Manager whether the organisation was experiencing a higher than usual level of staff turnover. The manager’s answer to this was ‘surprisingly not’. To expand on this the HRM manager noted that pay levels at Costwise had traditionally not been high, and at the present any consideration of a general organisation-wide increase was being held in abeyance, pending further discussions about the merger. Nevertheless, he noted that while in the past there have been a pretty constant tendency for staff at all levels to complain about pay, this seemed to have subsided recently: perhaps because people had more important things to think about. Another thing that seems to have occurred was what he tempted to call an increased sense of loyalty to the firm, although, on reflection, it could probably be better described as a heightened spirit of camaraderie among employees. Here he noted that evidence from prior employee opinion surveys had always tended to show that staff had a strong sense of loyalty to each other and, even with the moaning about pay that had occurred in the past, to some extent he had always suspected that staff stayed out of loyalty to their colleagues. In summary, therefore, although he regarded it as possible that morale problems might eventually occur, and it could be dangerous to assume that things will never get worse, at the moment there were no obvious problems.
Discussion then turned to positive steps that could be taken to try to ensure that staff attitudes remain positive.
Developments from early 2005
By mid -2005 it was becoming clear to Orton’s senior managers that the takeover of Costwise had given rise to a number of irritating problems, one of which had its roots in the firm’s prior history. In the past, the Orton group had largely grown organically and its enlargement was financed from retained profits. Thus growth, which involved opening new larger stores, essentially involved applying its tried trusted strategy to do ‘more of the same’. This had the strength of allowing the company to enlarge its geographic spread beyond the north of England and the Midlands, but at the same time leaving its strategic approach towards retailing unchanged. It was unashamedly proud of its northern roots, thus its strategy consisted of delivering an efficient, cost-effective service that was predominantly focused on groceries and home wares (with fewer electronics, clothing and furnishings) at lower retail prices than its competitors. In the recent past it had focussed on doing this from larger stores, where a higher than average turnover per square foot of floor-space could be obtained.

However, when Orton acquired the Costwise group, which in terms of turnover was more than twice the size of Orton; it found itself with a portfolio of sites that varied considerably in size and product range and with a variety of different approaches to retailing. While this enabled it to acquire a presence in other areas of the UK, notably the home countries, the south-west and Scotland, this was its first incursion into a takeover situation, which gave rise for a need to integrate the more diverse Costwise stores.

In preparation for the merger, Orton had become deeply engaged in an exercise to re-brand itself with the public. This involved considerable expenditure on advertising and a complete refurbishment and facelift of all its portfolio of property. When details of the takeover were finalised in mid-2005 (including details of the 50 stores to be divested in accordance with ruling from the CC), Costwise stores were added to this programme and by late 2006 the Costwise fascia disappeared from large stores in Great Britain. This left Orton with approximately 370 stores bearing its own name. Since then, however, the group has continued to sell or close stores that were not covered by the original CC ruling. These were stores that it felt did not fit with its new image and in total 254 stores were scheduled for sell-off in this way by late 2006; mainly smaller, ‘compact’ stores, which were sold to competitors
Turnover and profit situation
Problematically, since the re-branding/refurbishment exercise started, Orton has struggled to hold onto its turnover. To some extent this was because its stores were being remodelled or refurbished at the rate of three or four per week and by early 2006 the group had issued no less than five profits warnings; although by later in the year in released figures that suggested that it had finally turned the corner. The warning was also made necessary by the divesting of stores to conform with the CC ruling, the effect of which was to reduce its turnover by £1 billion, with £80m less profits. Set against this however, it is due to obtain income from the sale of parts of its property portfolio. Nevertheless, Orton finds itself in a position where it desperately needs to boost turnover and this has become critical to the success of the merger. There appeared to be confusion among ex-Costwise customers on the image of the organisation, many of whom seemed to be deserting the stores in droves when they are re-branded as Orton. The stores are seen as too cramped and congested, the aisles are too narrow, and customers were unable to locate what they want to purchase and it all seems to reflect a policy of ‘pile it high and sell it cheap’. It is not known whether this trend will continue but it is not helped by the statement of the somewhat charismatic and forthright chairman of Orton that he puts these criticism down to southern snobbery and that as far as he is concerned “he does not know (or particularly care) what a middle class shopper is”.

Management of the stores
Be this as it may, there seems to be a possibility that it is less associated with the type of customer who now shops at converted (from Costwise to Orton) stores, than the different approaches to people management traditionally used in Costwise and Orton. In Costwise, store managers at a local level had the authority to plan their own local strategies; for example, to stock certain items, vary prices according to local competitive pressures and even recruit additional staff. This gave a strong element of decentralised control, which recognised the needs of different localities. With Orton, however, all these things were strictly controlled from the centre. There was a high degree of uniformity across all stores, who sold the same range of products at the same prices, regardless of location. This strategy had worked very well in the past but was probably less well suited to the diverse locations of former Costwise stores. While product policy has now been loosened slightly, pricing is still controlled from the centre at Ortons and store managers have nothing like the flexibility enjoyed by Costwise Managers.
Orton Group Management Structure
Across the period in which Costwise stores were being integrated into the Orton group, a number of significant changes in management structure took place, some of which had far-reaching effects on the company. Difficulties were encountered in the early stages of the integration exercise where the price Orton had to pay for Costwise had been seriously underestimated. In addition, the pace of upgrading stores had moved far more slowly than had been intended, and price cutting and discounting in an attempt at wooing former Costwise customers into shopping at re-branded Orton stores had also added to costs. Thus the Costwise sites were not turning out to be anywhere near as profitably as had been hoped.

Serious doubts were beginning to circulate in the financial press about whether the takeover of Costwise would ever be the success that had been promised. For this reason there was a great deal of personal criticism of the Chairman of the Orton group, who had been the prime mover in the takeover of Costwise. As noted earlier, Mr Orton was a dynamic and charismatic character, albeit somewhat forthright in his opinions. He was at this time in his mid 70’s and had inherited control on the company in the 1950s on the death of his father. Since then he had been the driving force in building up the firm to its present size the final stage of which had been the takeover of Costwise. Although the Orton group was a public limited company, he had virtually run the firm single-handed for more than 40 years and the only other directors were wither family members (his two sons) or long-serving employees. His management style was such that he and he alone made all the major decisions and the firm was run in a way that has been likened to a medieval fiefdom.

Thus when the criticisms surfaced, there were strong attempts to make him the scapegoat for what was then beginning to look like a takeover that might not work out. A small number of powerful institutional investors attempted to force him to stand down from the chairman’s role and this was narrowly avoided however they managed to change his status from executive chairman to non-executive status. A Chief Executive Officer was appointed and shortly after this a number of other senior executives were appointed to strengthen the senior management team.
Developments in 2008
Further changes took place in 2008 when it was announced that Mr Orton would step down and replaced. Soon after there were also changes lower down in the management hierarchy and stores were grouped together into six areas of the UK:

Scotland 53 stores North England 71 stores
Midlands 74 stores South East 76 stores
South West 53 stores South Central 61 stores

In addition, and to reflect the wide geographic spread of the group, a number of regional distribution centres were closed an others opened. In addition the reporting lines for subsidiaries and franchising arrangements were reviewed. New headquarters were opened in Yorkshire and the head office of Costwise was closed and sold off. The management structure after these changes, in the words of one of the institutional investors is ‘one that is now more typical of a modern, well managed company, and has equipped itself well to compete in the new millennium by shedding it’s outdated and ageing image.

There also appeared to be signs of some recovery of turnover however the senior management team noted a need to be increasingly vigilant in the future, with a strict adherence to cost targets and a tighter financial regime started to take hold in the company. This was a particularly unpleasant surprise to many of the ex-Costwise employees who from the very start of the merger process had been aware that they were paid somewhat less than Orton’s staff and had hoped to see their pay levels rise at least to parity.

Additionally staff also point to a number of initiatives in which the company seems willing to ‘level down’ in order to harmonise the conditions of staff and Costwise but never to ‘level up’. Moreover, ex-Costwise staff have noted how quickly they have been taken for granted by the management of the company for instance by rarely being briefed about even major changes. For example there had been a rumour that the Orton group had been approached about yet another takeover which provoked near panic reactions in staff who had only recently come to terms with the takeover by Orton. Despite the fact that this news was reported widely in the financial press, it was simply denied by management. What was worse, no sooner had this rumour subsided than another one surfaced; this time linking Orton with Woolworth’s in a takeover deal.

Ex-Costwise staff openly express the opinion that they are little more than second class citizens in the new company for example with the new headquarters, despite the closure and sell off of the old HQ, of the 1,800 who were to lose their jobs, only 200 were to be transferred to Yorkshire.

Another sign in the eyes of the ex-Costwise staff that they were not being looked after was when there was the decision to pay retention bonuses to all staff during the period up to the official takeover. However when redundancies were made, the consultation process for these redundancies was poorly handled and when redundancy payments were received, these failed to acknowledge retention bonuses. Staff morale appeared to be at an all time low, opinions expressed covered everything from poor communication to autocratic styles of management leaving the workforce feeling highly disgruntled. It was also discovered (via an internal memorandum) that the company had actually reached a decision some three months earlier about which depots were to be closed.
Adapted from Rollinson, D. Organisational Behaviour and Analysis 4th Edition Prentice Hall: London

 
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