The company in question is a large utility business based in a wealthy provincial region in your country. It owns and operates a major utility network of importance to households and firms and conducts research and development of wider industry consequence. It has some 4000 employees in three divisions.

Five years ago, the company’s CEO and directors decided to make what they felt were some overdue changes to their employee relations. They reviewed the company’s collective employment agreement which at that time covered 85% of the workforce (the rest were managerial and technical staff employed on individual salaries). They knew that operations management in the company felt they were locked into too many restrictions on staff deployment and that a significant proportion of the staff were abusing the overtime provisions in the collective agreement to maximise their income. Staff were very well paid for working past standard shift hours and for emergency ‘call-outs’.

Some of the directors had heard of the success of another large company which had recently created an all-salaried workforce employed on an annualised hours basis (‘annual hours contracting’) after a change management process (the details of which they did not have). This meant that management could allocate working hours based on peak demands and overtime would be drastically reduced, if not eliminated. The company had achieved increased productivity and greater flexibility, the sort of benefits they wanted for their company. A decision was therefore made to seek annualisation with the unionised workforce as soon as possible.

The HR Director fully supported the new policy and was authorised to commence collective negotiations with a management claim for removal of all restrictive employment conditions in exchange for annualisation. He began by talking with the full-time trade union officials in the union’s regional office, people with whom he felt he had a good association. They explained that there were some cases of this and that, while the union had no policy on it, they knew this sort of thing was popular in Germany and France and could work to the advantage of the workers.

Negotiations, however, while nominally led by full-time union official, were really in the hands of workplace union delegates, seasoned trade union activists with a sceptical attitude not only to management but also towards their own trade union leaders. Despite assurances that people would not earn less when the detail was worked out, and would benefit from reduced working hours, the idea of annualisation did not go down well. The delegates were immediately suspicious of the motives of the company’s directors, who were seen as more concerned with short-term profits than with the long-term health of the industry or with the interests of the workforce. They were not prepared to give up what they considered to be hard-fought conditions in their collective employment agreement. Annualisation was clearly a direct challenge to the control over work norms that they had built up over the years. The present system suited workers who did not want to change their standard working times (often for family reasons) and also suited those who wanted to maximise their pay through ‘milking’ the overtime. It reflected a delicate balance of interests within the union membership.

The negotiations dragged on and, as the labour market started to pick up, the company backed off. The negotiations concluded with a 2% pay increase and no change to employment conditions.

The HR Director tried again as negotiations opened the following year to get the union to agree to annualisation but workforce opposition remained very strong. The labour market was now quite buoyant and union delegates knew that service quality in the firm was vulnerable to disruption. They signalled their intention to fight, a message that was treated as bluff by the senior management team.

The full force of the feeling did not find its way back up the corporate tree until a two-day strike eventuated in protest against the company’s stance. At a board-level crisis meeting, the directors reaffirmed their commitment to their industrial strategy because the CEO told them he saw it as a confidence issue. One or two directors, however, were getting annoyed about the negative publicity resulting from the company’s ‘front-page industrial relations.’ Finally, the collective agreement was settled for a 24-month period with annual pay increases of 4% and 3.5% respectively and no significant changes to employment conditions.

The next year, a three-year review of business performance offered the directors the opportunity to debate all aspects of the company’s performance. While profitable, return on investment (ROI) had declined from 11.75% per annum three years previously to 9% currently. As a result of the trend in these figures, three vocal directors argued that there ought to be a comprehensive review of operations and employee relations strategy. The CEO, supported behind the scenes by the HR Director, managed to argue this was not necessary, but copped a lot of criticism. He resigned later in the year among speculation of the ‘Did he jump or was he pushed?’ kind. The HR Director followed shortly after.

Under a new CEO and HR Director, the next collective agreement was quickly settled at the ‘going rate’. It was comfortably ratified by union members because of the fact that the company quickly indicated it would pay the going rate and would not be pursuing any moves towards annualisation.

The new management decided to avoid confrontation in collective bargaining but explained in a private meeting with union delegates that they would commission an efficiency study outside the bargaining process to look at staffing levels. The union officials decided to adopt a ‘wait-and-see’ approach because they were prepared to trust the new management a little more than the previous management team which they felt had challenged union legitimacy and tried to avoid sharing information.

The efficiency study was done by a consultancy firm with some credibility with trade unions as well as with management. The firm used analysis of company performance data as well as their database of relevant, industry-based benchmarks. As a result of their recommendations, the CEO and the board of directors decided to offer a redundancy programme which would remove up to 10% of the staff. They followed the law on consultation in redundancy very carefully and the union was consulted well in advance. While not openly accepting the company’s justification, the union delegates were satisfied with the redundancy compensation offered (which was up with the very best at the time) and with the fact that the scheme was voluntary (but subject to management agreement in each individual case). In the end, the quota was reached quite quickly through the voluntary process.

The redundancy programme has helped reduce the cost structure but the board still sees the company as lagging behind industry productivity benchmarks and is convinced that this will inevitably make the company vulnerable to investor and, indeed, consumer pressure. The pathway to improvement is seen to lie through employee relations. You are asked as an independent consultant to conduct a review of the company’s employee relations strategies of the last few years and recommend the way forward.

The questions

1. a) Using Walton, Cutcher-Gershenfeld and McKersie’s strategic negotiations framework (Table 6.2) in Chapter 6 of the Boxall and Purcell text, how would you describe the old management’s strategy?
b) Examining the factors identified in the table, how would you rate the choice of this strategy? What most likely accounted for the poor performance of the strategy?

2. Using the Walton, Cutcher-Gershenfeld and McKersie framework (above), how would you describe and rate the company’s new employee relations posture once the old CEO left?

3. Using the framework of voice systems and management style in Figure 6.4, found in Chapter 6 of the Boxall and Purcell text, what style would you recommend for this company going forward and why? You should assume that the labour market will remain buoyant and that poor service performance will hurt the company’s reputation. As part of your answer, make sure you explain carefully how the company should implement your recommended style because so much of success in this area depends on the ‘how’ of any strategy.

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