Human resources strategy and implementation at Office Depot

Office Depot is a retailer of office supplies, operating in 53 countries around the world, but with a primary focus on the American market. The company is relatively young, having been founded in 1986 in Fort Lauderdale (OfficeDepot.com, 2011). The company competes as a "category killer" in office supplies, with a focus on a cost leadership business model (QuickMBA, 2010) that relies on high volumes and low margins for success. The company's success in general relates to its ability to execute this business model and to the broader macroeconomic conditions. It has approximately 40,000 worldwide employees. Most of these are low-level retail workers. At the managerial level, it is critical for Office Depot to have a high level of competency, because the managers are responsible for the effective implementation of the company's broad strategy.

This paper will focus on the role that human resources plays in the success (or lack thereof) at Office Depot. Special attention will be paid to the role that the line workers and the managers play in implementing strategy; on different methods of attraction, retention and compensation are utilized by Office Depot and on the company's total compensation system. An assessment will be made as to whether or not Office Depot should become unionized, and the company's policies overall will be evaluated, in particular against the degree to which they support its broad corporate objectives.

Environmental Analysis

According to the Office Depot website (2011), the company sees itself as "a global supplier of office products and services." The company operates as a cost leader, using its economies of scale and scope both to generate competitive advantage. The size of the stores attracts customers, and this delivers economies of scale in purchasing to the company. In turn, the company can use these economies of scale to offer lower prices to consumers, making it a more attractive option as a result.

Internally, the organizational structure is broken down along both functional and geographic lines. The divisions are North American Retail, North American Business Solutions, and International The international operations are primarily retail. In North America, the retail division consists of wholly-owned stores, meaning that the staff work for Office Depot. However, the company keeps many of the store staff on contract as a matter of policy. In part, this allows the company to maintain flexibility. Office Depot is vulnerable to changes in the business cycle. For example, in the past few years, the struggling U.S. economy has had a significant impact on the revenues and profits at Office Depot. The company's revenues were $15.5 billion in 2007 and profits were $394 million. Revenues declined in the subsequent years and the company began taking on steep losses (MSN Moneycentral, 2011). This highlights the need for Office Depot to maintain a degree of flexibility with respect to the sale of its in-store sales force.

The company's human resources structure is based along five units: Corporate, stores, supply chain, business solutions and international. Each of these divisions is responsible for individual hiring. Workers at the store level are typically hired at the store level, however with all positions there is some degree of coordination with head office. Many elements of hiring, therefore, are centralized at the company's Florida head office. Most other human resources policies are also determined and implemented centrally.

Personnel Needs

The focus of this section will be on the North American retail division, which covers retail operations in the United States and Canada. There are five main roles in the retail division: customer service specialist, department manager, assistant store manager, store manager and district manager. These positions are critical to the company because North American retail contributed $4.962 billion in sales to the company in the 2010 fiscal year, accounting for 42.6% of total company revenues (2010 Annual Report).

The company determines its needs based on two factors. The first factor is the number of stores -- these positions other than customer service specialist are all determined by the number of stores. The latter position -- customer service -- is determined more by expected demand. Expected demand is evaluated at the corporate level, where hours available are determined. This is based on a combination of past performance and the economic outlook. For the most part, it appears that past performance is a more important determinant in the budgeting of the key CSS role, as indicated perhaps by the fact that the company's cost structure did not make a downward adjustment in line with revenues -- management might have been unable or unwilling to make a downward adjustment in staffing levels based on the expectation of weak economic performance.

Training

Having well-trained employees is essential to success. Well-trained employees at the CSS level deliver the customer service that can win or lose customers, and they can increase sales if they are skilled at the sales function or are knowledgeable about the company's products. Well-trained managers are critical because they must ensure that the in-store experience continues to be attractive for consumers. There are other options for consumers for low-cost office supplies, so it is essential that the in-store experience is optimized. In addition, merchandising plays a key role in crucial metrics such as same-store sales and fixed asset turnover. How much a store sells per square foot or per opening hour is dependent in part on the abilities of the store management, and in turn the regional managers.

The textbook notes that there are many different types of training -- skills training, retraining, cross-functional training, team training, creativity training, literacy training, diversity training, crisis training, and ethics training. Office Depot generally only provides skills training to employees at the CSS level, but provides more extensive training to its managers, including ethics, crisis and team training. At the lower level, the company has dual objectives. It wants to bring new employees up to competency as quickly as possible, and this requires a certain amount of training. However, with high turnover levels, this training must be conducted at as low a cost as possible. For managers, the training is more extensive because managers have typically already demonstrated that they intend to build a career at Office Depot, and therefore the turnover at that level is much lower than at the CSS level.

At Office Depot, it is assumed that CSS level employees generally have a skill deficit. While many have other experience in the workforce, there are few requirements to be hired at this level and therefore it is assumed that employees will need to be trained in Office Depot service standards. The company does not, however, deliver extensive skills training at this level. As a result, it falls short of what the textbook prescribes. The text makes the point that skills training should include materials, job aids, external sources of information and performance support systems. Most of these are in short supply at Office Depot, leaving many employees with inadequate training. The department manager, assistant manager or store manager then becomes responsible for the skill gap of the employee. This puts the company at a disadvantage.

At higher levels of the organization, there is the Office Depot Career Network. This system provides some training for managerial level employees in the North America Retail and other divisions. . The career network falls short of the extensive leadership and systems training that other companies have, but it provides a basic level of supplementary training to the organization's better candidates. That said, there remains a lack of emphasis at Office Depot on ethics training, on team training and crisis training, even when these subjects are touched upon. There is significant anecdotal evidence that Office Depot salespeople use unethical tactics, in contravention of the company's Code of Ethics. This points to a lack of emphasis on certain forms of training that the textbook highlighted as important.

Overall, it is reasonable to conclude that Office Depot does not support its staff with adequate training. On issues like ethics, the issue is probably a lack of training to ensure employees reach a certain standard within a reasonable time frame. With other training issues, the problem is that the standards might be set quite low. The minimal training that is provided might be sufficient to reach minimal standards, but might not be enough to support the company's sales goals.

Tuition Reimbursement

One area of training that is worthy of focus is external training. Many companies provide funding of some form to encourage employees to further their education outside of the company. The theory is that this will result in a more highly-educated workforce and it is assumed that such a workforce will also be more competent. For companies that hire inexperienced or younger workers, tuition reimbursement is a means of improving the workforce based on the employees that the company is able to hire. For the most part, tuition reimbursement is capped at a certain level every year, and often the courses taken must relate to the job, like Spanish lessons for a sales clerk in an area with a large Hispanic population (Heathfield, 2011). A study by Pema and Mehay (2009) showed that "the tuition program reduces employee turnover and enhances productivity," providing evidence to support the value of having a tuition reimbursement system at a company that faces high turnover issues and has a case based on the state of the economy for improving its productivity.

Office Depot does not have a strong tuition reimbursement program. The company offers what is called a 'flexible spending account', which can be used on any number of different things, but there is no dedicated tuition benefit (OfficeDepotJobs.com, 2011). At managerial levels, some benefit might be provided but that information was not publicly available. Sources are unreliable and give mixed answers to the question.

Total Compensation

The textbook notes that there are three components of total compensation: base compensation, pay incentives, and indirect compensation. The latter is typically understood to be largely comprised of benefits. For most firms, total compensation is a critical cost. With 40,000 employees, most at the store level, the same can be said for Office Depot. For contract employees, like many CSS level employees, base compensation is the primary element in the total compensation package. Service staff are not given incentives. Contract workers receive few benefits. As the company employs a cost leadership strategy, its total compensation package is relatively low for these workers. It may not be adequate to attract the best workers to the company, given how many competitors there seeking candidates from the same pool.

At the managerial level, the company offers much more in terms of indirect compensation. Features of its total compensation plan for full-time and managerial level employees include various forms of insurance, retirement savings plan, matching gifts, store discounts, disability, paid holidays, medical/dental and for some employees (depending on position) a stock purchase plan. Some positions also offer incentives in the form of performance bonuses.

The textbook argues that a total compensation system should be equitable both internally and externally. It appears that this is the case, and it needs to be or the company would not be able to retain its managerial talent. The plan is elitist, however, in that it confers many more benefits to those employees who reach full-time or managerial levels. Office Depot relies on the labor market model, rather than distributive justice, and seeks to be competitive with other firms in the industry. It is no more or less transparent about its compensation than other firms. It is reasonable to conclude that for the most part, Office Depot's total compensation system is in line with industry norms. For workers at the bottom, the elitism inherent in the system may be a disincentive to work for the company, but for the company it wants to maintain flexibility with respect to lower-level workers.

Performance Appraisal Policies

At Office Depot, managers are appraised on the performance of their store or division. The company makes use of quantitative data in order to analyze this performance. There are also performance benchmarks, and these can also help to determine if a manager warrants a performance bonus. The company does not, however, have an especially strong performance appraisal system. The sharp decline in operating results in FY 2009 and FY 2010 indicate that Office Depot has a poor level of control over employee performance. These performances could also indicate that while managers may be motivated, they are limited in their ability to market the company or otherwise insulate it from the business cycle. There is no evidence to indicate that performance appraisal is a strong suit of Office Depot, but there is also no evidence to indicate that the company performs especially poorly in this regard. It appears to be a middle-of-the-road company and in that respect performance appraisal does not factor much into the company's success or lack thereof.

Unionization

The Office Depot, there is no justification for unionization. Organized labor has nothing to offer the company, as its workers do not have much in the way of skills and unionization would therefore increase the company's costs without adding anything in return. From the perspective of the workers at the CSS level, unionization would be beneficial financially. However, it may result in the company closing stores, and relations with employees becoming toxic. The textbook points out that employees join unions for a number of reasons, including to gain influence over management, to improve pay and working conditions and because they see unionization as a means of solving these problems. Most lower-level employees are not particularly engaged in the company anyway, so there is little incentive to unionize even though it would offer them benefits. Office Depot has been accused by unions of anti-union activities, however, as a means of discouraging employees from being enticed by organized labor (Daley, n.d.). There have not, however, been active union drives at Office Depot. The company is expected to resist any that occur.

Work Life Balance

Office Depot has very basic work-life balance policies. Its employees typically receive some form of family medical leave benefit, personal sick time, STD and LTD, and flexible work arrangements in some circumstances. There are a few other minor benefits. These policies are roughly in line with other firms in the industry, but are not considered cutting edge. These techniques are helpful, in particular for the attraction and retention of female managerial talent (Espana, 2011), and the company has enjoyed some success. However, offering programs typical of the industry does not give Office Depot any specific competitive advantage.

Evaluation and Recommendation

Overall, Office Depot's human resources policies are fairly average for the industry. Its compensation package is ordinary, as are its recruitment and selection policies. The company works with a cost leadership model and this perhaps makes it more challenging for the company to spend to attract and retain top talent. This showed in the recession when the company struggled mightily to adjust to the economic conditions -- it just was not good enough to find ways to avoid a slump. Perhaps the most effective policy at Office Depot is with respect to hiring internal candidates into leadership positions. This gives the company access to female and minority candidates who are capable of taking on these roles but in other companies might not have been given the opportunity. For Office Depot, this represents a competitive advantage in selection that it enjoys. Perhaps the least effective policy that the company has is its package of training policies. Training is relatively minimal, and is not augmented by tuition reimbursement or other supplemental training. This leaves the company with a workforce that is not oriented towards improvement, and may lack some fundamental skills needed to help the company excel, particularly in difficult times.

There are three recommendations for Office Depot. The first is to improve the recruitment mechanism. For entry level workers, a passive recruitment mechanism is going to bring too much flotsam and jetsam into the organization, and not enough true talent. It is important that the company, which relies in internal promotion to fill managerial roles, attracts and retains as much entry-level talent as possible. The second recommendation for Office Depot is to improve its training. The benefits are self-evident: improved merchandising capability yields improvements in same store sales, as does enhanced salesmanship skills. Better managerial talent is not only able to implement the company's systems more effective but can contribute to improving the systems. The third recommendation is that performance appraisal at the managerial level be improved and tied more closely to the incentive pay. This will provide a direct incentive for managers to cut costs when sales begin to slump, instead of waiting two years for head office to mandate improved efficiency. These three recommendations, if implemented, will address some of the critical problems that have caused Office Depot to have a loss in the past few years.

Works Cited:

Daley, P. (no date). Office Depot union quarantine. IBEW 1613. Retrieved November 20, 2011 from http://www.ibew1613.org/library/quarantine.html

Espana, D. (2011). Office Depot GC honored for recruiting women, minorities. Law.com Retrieved November 20, 2011 from http://www.law.com/jsp/article.jsp?id=1202484644929&slreturn=1

Heathfield, S. (2011). Tuition assistance. About.com. Retrieved November 20, 2011 from http://humanresources.about.com/od/glossaryt/g/tuition.htm

MSN Moneycentral: Office Depot. (2011). Retrieved November 20, 2011 from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=odp

Office Depot 2010 Annual Report. In possession of the author

Office Depot.com (2011). Investor relations. Retrieved November 20, 2011 from http://investor.officedepot.com/phoenix.zhtml?c=94746&p=irol-faq

OfficeDepotJobs.com (2011). Retrieved November 20, 2011 from http://www.officedepot.jobs

Pema, E. & Mehay, S. (2009). The effect of employer-sponsored general education on turnover and productivity: New evidence from military tuition assistance. Graduate School of Business and Public Policy, Naval Postgraduate School. Retrieved November 20, 2011 from http://scholar.googleusercontent.com/scholar?q=cache:z_fnWumN5agJ:scholar.google.com/+tuition+assistance&hl=en&as_sdt=0,32&as_ylo=2005

QuickMBA (2010). Porter's generic strategies. QuickMBA.com. Retrieved November 20, 2011 from http://www.quickmba.com/strategy/generic.shtml