Economic Terms a Managerial Decision

¶ … Economic Terms a Managerial Decision

Analysis of the managerial decision to hire new staff members

The local grocery store is faced with an increase in its demand and it is recommended that it invested in increasing its operational efficiency, rather than hiring new staff members. The conclusion has been reached with the analysis of ten factors, approached with the aid of grounded theory.

The business community is currently facing the most severe challenge in decades -- the internationalized economic crisis. The manifestation of the crisis has led to a multitude of problems at various levels of the business community. Several economic agents were forced to declare bankrupt, while others encountered serious challenges that forced them to restructure. The employees in the respective companies as such lost their jobs and eventually their life savings. With the amounting unemployment rate, more pressure was placed on the state budgets and the social and economic problems of the population spiraled.

While the scenario above was characteristic to the majority of the economic agents, there were also few companies which encountered a different situation. They thrived in times of economic difficulties and this was due to a combination between a strong managerial models and the ability to create and deliver consumer products and services which served the specific needs of a population in times of economic crisis.

Such was the case of our company, a local store selling foods products. In fact, such was the success of the company in these times of economic hurdle, that the audience manifested an increased demand in the company's products and services. At this stage, it is essential to identify how the organization should go about in serving the increasing need for products and services.

3. Definitions

At this level of the analysis, it is necessary to define three different aspects of the issue -- the nature of the company, the question addressed and the alternative solution. In this order of ideas, the following are noteworthy:

The business is that of retailing consumer goods -- mainly foods products -- at the lowest possible prices. This business model has been centered on the creation of partnerships with local foods producers, instead of imports. The strategy has appealed to the customers due to the fact that it provided them with cost effective products as their own revenues were decreasing; the products were fresh and reliable and also the store supported the development of the local community. In such a context, the demand for its products increased to a point at which the company is unable to serve it and has to decide on the best means to resolve the shortage.

In light of this defined situation, the question which is being posed is that of whether the company should hire permanent staffs to serve the new need, or whether it should hire temporary staffs to temporary address this increase in demand. The following pages will strive to generate a pertinent answer to this query.

The traditional expectation when demand increases is for an economic agent to hire more staffs in order to serve the increasing need. Still, at this stage an alternative solution is proposed -- that of focusing on internal processes of development in order to increase operational efficiency. An increased level of operational efficiency would ensure higher levels of operability and an increased ability to serve the growing demand, without a real need to hire more staffs.

4. Factors or costs

In the selection of the more adequate course of action, several forces have to be considered. These are, to one degree or another, important as they impact the final decision at specific levels. The lines below reveal these essential factors:

Salary costs which differ when permanent staffs and temporary staffs are hired

Selection and recruitment costs

Processes of selection and recruitment

Criteria required to be possessed by the employees to occupy the vacant positions

Company history with temporary staffs

Internal impact of hiring temporary or permanent staffs

External impact from hiring permanent or temporary staffs

The processes which would be involved in the efforts to increase operational efficiency, without hiring new staffs

The total financial cost with the investments in improving operational efficiency

The ability of the investment in operational efficiency to generate a positive return on investment.

The first seven factors are directly in relationship to the decision of hiring permanent or temporary staffs. The latter three factors however are linked more to the alternative solution of increasing operational efficiency and not hiring new employees.

5. Measurements

The section above has focused on the identification of ten of the most relevant factors to take into consideration in the attempts to resolving the initially posed question. Some of these forces are quantitative, such as financial costs, whereas others are qualitative, such as the impact on the organization. The quantitative factors are represented in numerical formats and they can as such be assessed in a more objective manner (Denzin and Lincoln, 2011). The qualitative factors cannot be assigned numbers and ranks of importance, but they are measured in more subjective and sensitive terms. The measurements of the qualitative factors are inexact and they cannot be extrapolated (Johnson and Christensen, 2010).

Still, in order to provide as objective an evaluation as possible, it is necessary to offer some input on the measurements of the ten factors. The table below reveals these measurements, with numeric representations for the quantitative factors, and explanations of measurements for the qualitative factors.

Factors

Nature of factor

Measurement

Value intervals

1.

Salary costs

Quantitative

United States dollars

Temporary staffs: $1,000 - $1,500 per month per employee

Permanent staffs: $1,500 - $,2500 per month per employee

2.

Selection and recruitment costs

Quantitative

United States dollars

$500 - $1,000

3.

Processes of recruitment and selection

Qualitative

- Sources of recruitment

- Impact on operational efficiency

4.

Employee skills

Qualitative

- Job description

5.

History with temporary staff

Qualitative

- Observations of past situations

6.

Internal impact of staff hiring

Qualitative

- Response of current employees

- Staff integration

- Temporary vs. permanent

7.

External impact

Qualitative

- Impact on the company's image

- Stakeholder perceptions

8.

Processes for operational efficiency

Qualitative

- Change management

9.

Cost with improving operational efficiency

Quantitative

United States dollars

$50,000 - $80,000

10.

Return on investment

Quantitative

Years

2 -- 5 years

6. Analysis

In order to formulate a final conclusion, it is necessary to conduct a more through analysis of the factors identified throughout the previous sections. In the analysis of these ten factors, use would be made of the grounded theory.

Grounded theory is based on the thorough observation of a research situation. The scope of the analysis is to understand the factors, how they interact and what is their importance to the selected phenomenon (Dick, 2005). Virtually, the scope is that of understanding the underlying mechanisms, understanding which subsequently supports the more adequate and suitable process of decision making.

This analytical method is selected as it applies to the specifics of the current question, integrating positive approaches of both the qualitative as well as the quantitative forces. The lines below focus on the analysis of the ten factors.

a) Salary costs

The costs with the labor force are tremendous drivers of organizational expenditures and they as such negatively impact overall organizational profitability. The scope of the store, as well as that of any other economic agent, is that of maximizing revenues while minimizing costs. The hiring of new staff members, be them temporary or permanent, would come to materialize in an increase in organizational expenditure, with the difference however that the costs with the temporary staff would be lower than the costs with the permanent staffs. This difference would be based on legal differences imposed on employers of the two categories of employees, as well as the company-decided salary and incentives offered to the two categories. From this standpoint then, the more adequate solution would be that of hiring temporary staffs. Still, with the alternative solution, the company would not encounter any additional costs with salaries as it would not hire new employees, but simply focus on improving its operational efficiency.

b) Selection and recruitment costs

The store integrates its own human resource department which would be in charge of the selection and recruitment processes, meaning as such that costs would be kept under control. Still, costs do exist as the HRM employees take time off from their other activities to complete the selection and recruitment tasks. Additionally, the company has to go outside the firm to appeal to prospective employees, and this generates additional expenditures with advertisements and other such operations. These costs are common for the hiring of both permanent as well as temporary staff, yet they are not present in the case of operational efficiency efforts.

c) Processes of selection and recruitment

There are numerous means in which the store would select and recruit its potential employees. It could for instance announce the job openings to the local employment agency and wait for candidates. In the case of the permanent staffs, it would however reach out to the more suitable candidates through media channels, as this is the general approach at the firm. Such processes are expensive and time consuming. In the case of the temporary staffs, the processes of selection and recruitment are less complex as they would revolve around referrals from current employees, who would recommend a teenage child, a friend or another acquaintance looking for a temporary job. Still, in the case of the third alternative, such problems and complexities would not be raised at all.

d) Employee skills

The general assumption when hiring temporary staffs is that they do not possess the skills and commitment of permanent employees. In such a context then, the company would have to hire permanent employees in order to best capitalize on their skills and knowledge, to invest it in and to ensure employee loyalty and performance. As the complexity of the job increases, the skill requirements also increase, further increasing the need for permanent staffs (Bragg, 2011). In a context in which the third alternative was to be selected, the need for highly skilled and committed staff members further increases.

e) History with temporary staffs

The company's history with temporary staff members has been a negative one as the temps selected were not performing at levels as high as the permanent staffs. They were often late and did the minimum work possible, only to get the paycheck. From this angle, it would be advisable to hire permanent staffs. Still, with efforts to increase operational efficiency, the company would altogether decrease its dependency on employees (Negandhi and Baliga, 1981).

f) Internal impact of hiring

If temporary workers are hired, the overall productivity is decreased and the morale of the permanent staffs decreases through comparison and more procrastination (Leopold and Harris, 2009). If permanent employees are hired, efforts have to be made towards their integration. If no hiring is made, the current team becomes stronger, more united and better consolidated.

g) External impact

In terms of both temporary as well as permanent staff hiring, the external community perceives the company as strong and financially stable. In other words, its image is improved in either case. If the store does not hire, its public image could be damaged or at least not suffer any improvements.

h) Processes of operational efficiency

The processes which would have to be completed to increase operational efficiency are complex, time consuming and expensive. They could for instance include the purchase and integration of new technologies which would improve inventory management. One such application could count the items sold and compare them with the items in the stock and alert directly the purveyor when the stock decreases so that they make a new delivery. The processes are complex and require more effort than hiring the staffs.