Although a variety of issues have been highlighted in the situation analysis, the subsequent proposals will clearly outline that by having a new mission statement in place and having the organizational structure aligned with the mission, as well as having congruent control systems, all of the AHC’s current issues can be resolved. The AHC should adopt the following mission statement, which is both derived from Jim’s current mission statement and the AHC’s new improved commitment to excellence:
The AHC will be your Complete Lifestyle and Wellness Centre by providing a wide range of quality products and services, outstanding facilities and effective personal guidance to help you live a healthy lifestyle by enhancing your physical, mental, and social well-being.
The mission statement is clearly focused on its members’ well being, and the ability of the AHC to deliver quality products and services to enhance all aspects of members’ lives. Thus, everything that the AHC does should be focused on this mission and each employee and member should be able to identify the AHC’s purpose. It is imperative than, that all subsequent initiatives proposed be linked to this mission, as the lack of goal congruency amongst the current strategies and control systems are the root cause of recently emerging issues. It is important to note that a variety of factors were analyzed to assess the involvement of management and staff in creating and implementing such initiatives. It is assumed that the AHC does operate in an arguably stable environment and Jim does have access to a variety of industry information and training. Because there has been 100% staff turnover in the last year, the various strategies and initiatives should be facilitated top – down through the organization, as the information is obviously held at the top of the organization for the health and spa units. The restaurant and bar unit could potentially have more management involvement, due to Jim’s limited experience in this industry.
The next initiative that must be addressed involves the organizational structure of the AHC. Although, there are three distinct services available, synergies have not been maximized. Currently, there are three managers for the various units. On examining the cost structures of each unit, it was calculated that payroll makes up over 50% of costs in the health club, and 64% of costs in the day spa. (Exhibit 2) As well, there are also a variety of issues that have arisen due to commissions and incentives, the reporting structure of the customer service representatives and overall employee job satisfaction. By having one manager responsible for both the health club and spa, it will not only reduce payroll costs, it will foster a holistic team approach. The appointed manager would as a result be responsible for all the duties involved in both positions. The customer service representatives would also take a more involved role in coordinating the various schedules and appointments, be it for massage therapy, the nutritionist, personal training, etc. Each service provider, be it personal trainer, massage therapist, etc. would also play a more active role in enriching the relationship with their specific clients. This could be facilitated through routine contact and even special promotional incentives. By having the employees in these units work together, under one compensation or incentive plan, that is not solely focused on each functional duty, but also on the AHS’s profitability as a whole, it will not only reduce this internal discontent, it will ensure all employees will work cooperatively to maximize customer service and customer retention. This in turn will increase revenue per member, the AHC’s profitability, and every employee’s bonus.
Due to the multiple services provided in the health club for example, whether it is personal training, nutritionists, class instructors, etc. The AHC should also examine its human resource policies and practices and assess if it can employee more qualified individuals, or provide further training for current employees that would facilitate employees performing a variety of the services offered by the AHC. For example, a personal trainer could also be trained to teach classes or vice versa. Depending on the credentials required employee training could be facilitated in a relatively short period of time. This will improve synergies among the various services by reducing costs, reducing idle time, and it will also allow employees a wider range of responsibilities, which would increase job satisfaction. Such practices could also be examined in the day spa and restaurant units. Another issue that could be addressed when employees are hired is to have them sign a contract, which prohibits them from opening up their own business, for a year after their employment has ceased with the AHC. This would detract employees from leaving and taking valuable members with them.
In analyzing the management structure of the restaurant and bar, it is important to note that some consideration was given as to whether this particular industry fit into the AHC’s mission. Although, it certainly provides complimentary services to both the health club and the spa, and one could also make the argument of its social benefits, you could conversely argue that the health club and spa provide social benefits in themselves. It is also important to note that Jim has limited experience in operating a restaurant and bar, which can have distinct industry related problems, which he subsequently may not be equipped to manage effectively. Because a variety of products and services offered at the restaurant are marketed and sold at the health club and spa, it certainly adds value to the AHC’s members, and if selling the restaurant and bar is a viable option, such services would have to be examined to ensure members were not negatively affected.
The synergies between the restaurant and bar and the health club and spa are also not that apparent, as they are currently very much stand alone operations. Unfortunately, the decision whether to dispose of the restaurant and bar might not necessarily be the most viable decision, as it was the only unit that was profitable. (Exhibit 2) Another complication that arises is the fact that the AHC borrowed a million dollars, of which a quarter of it consists of a forgivable grant with the expectations of the AHC creating 25 new full time positions, which cannot be filled with the health club and spa alone. As well, there may be contingencies on the loans, which may not allow for such a drastic sale. As such, the only viable option for the time being may be to ensure the restaurant and bar continues to be profitable, and to have it cater specifically to the positive lifestyle the AHC is strategically committed to, by offering a healthy menu, unique services, and a sociable welcoming environment.
In order for the restaurant and bar to be more aligned with the AHC strategy, it is important to address a variety of initiatives that could be taken by the AHC to provide additional value to members and better align the restaurant operations with the mission. The first strategy could involve the nutritionist working directly with the restaurant to develop a special menu catering to various members’ needs. This would certainly add value to the AHC’s members and would be a great compliment to the nutritionist services, as it would allow the clients an opportunity to dine out, while still maintaining a healthy lifestyle. The second initiative that could be taken by both the nutritionist and the restaurant cooks would be to offer cooking classes that again would promote a healthy lifestyle, and provide an excellent social activity. The third initiative could have class instructors coordinate activities with the bar, in which dancing lessons could be offered and incorporated into members exercise programs. Finally, the fourth initiative could be to have the restaurant and bar marketed as a great community gathering center, in which the AHC could be marketed as an integral part of the community and its citizen’s healthy lifestyles.
It is not apparent whether the current operational structure of the restaurant and bar would facilitate synergies with the health club and spa; however, the restaurant’s operational structure should be examined in greater detail to ensure it is operating as effectively and efficiently as possible and that if there are any cost savings that can be facilitated through synergies with the other units, these should be explored. The restaurant and bar’s management would certainly have to play a more active role in dealing with any issues that arose, as such, special efforts should be made to ensure the management positions are filled with qualified individuals that can share their knowledge and expertise with Jim on an ongoing basis.
In establishing an effective control system for the AHC, it is important to determine what the objectives of the organization and management are. Because the AHC is operating in a more stable environment and Jim Cormier with the assistance of his managers will be dictating and setting the performance standards, a diagnostic control system is appropriate. This system will be a feedback system that will monitor organizational outcomes and correct any deviations from budgeted or preset standards. Jim and his management team will establish various profit plans and budgets (monthly and yearly) for the various units, which will all be aligned with the overall strategy and mission. Such profit plans will include specific targets for both revenue and costs in a variety of the services offered. For example, for personal training, the standards could be to have 80 % of new members use their complementary sessions and than have a conversion percentage standard of 30% that would continue to use the personal trainers services during their membership. Standards could be both internally developed and by using industry benchmarks available through IHRSA. By having such standards, profit plans and budgets for each service could than be calculated to ensure all services were profitable and continued to provide members. The compensation or incentives for the various employees would also be linked to the profitability of the AHC as a whole. This would ensure for example, that the personal trainers had an extra incentive to encourage their clients to use the spa or visit the restaurant. Transfer cost prices should also be established or negotiated between units, as each unit will continue to be monitored as a profit center, thus accurate financial information is crucial to make informed decisions. Although internal control issues do not appear to be a problem, company policies and procedures should be examined to ensure, it does not become a problem, especially with the high staff turnover.
In discussing the control systems and their profit plans and budgets, what is crucial to remember is that each activity performed by the AHC’s employees must be strategically aligned with the mission. As such, the management measurement or control systems that will be implemented will evaluate the various services in ways, which promote the objectives or goals. The critical performance variables or measurements can be based on a balanced scorecard approach in which each service can be evaluated on such things as profitability, resources employed, customer satisfaction, cleanliness, speed, quality, employee development and training, etc. By evaluating these measurements on a regular basis, management will be able to assess not only what needs improvement, but also what services it’s providing effectively. These critical performance variables will be established for each service to ensure that; a) its aligned with the strategy, b) measuring the right information, c) each service is providing value to the customers, and d) it is profitable.
Issues regarding the various compensation and incentive plans must also be addressed, as there clearly are problems with the perceived pay equity of employees. A new less complex incentive plan should be established for the health a club and spa were three pay bands are established. The first band would encompass non professionals such as the customer service representatives or the child supervisors, the second band would involve the professionals, be it the personal trainers, massage therapists, etc. and the third band would consist of management. The first levels would be compensated at a flat hourly rate plus a percentage of the AHC’s profitability. The second level would be compensated a flat rate as well, but would have incentives for new and repeat customers, as well as a percentage of the AHC’s profitability. Finally, management would be compensated a flat hourly rate plus a percentage of the AHC’s profitability as well. In dealing with issues regarding commissions of products being sold, they would be pooled and would be distributed to everyone as part of the yearly profitability bonus. Such incentives would also encourage employees to take a long term approach to their employment. Because the restaurant and bar employees would have different industry standards, their compensation schemes would remain the same, however, they too would have a yearly bonus contingent on the AHC’s profitability.
The new strategy should be communicated to staff immediately, and the various proposals should be implemented as quickly as possible. To establish the key performance variables, budgets and profit plans will be both time consuming and an ongoing process. Monthly progress meetings could perhaps be scheduled more regularly to discuss the implementation of the initiatives and to address any concerns in a timelier manner.
Exhibit 1 - SWOT Analysis
Strengths
- Jim Cormier – experienced, educated, involved “wore many hats”
- Revenues, memberships, assets, profitability increased
- Employees have clearly defined responsibilities, duties and policy handbook
- AHC has access to industry specific training videos and guides (IHRSA)
- Compensated employees fairly – motivating (intrinsic job rewards)
- Competitive advantage – complete lifestyle and wellness center
Weaknesses
- Mission statement and strategy not aligned with recent expansion
- $1,000,000 liability (loan, forgivable grant, leasehold improvements)
- Management structure not aligned to with strategy, nor is it effective and efficient
- Transfer costs between units not clearly defined, especially if each unit is being evaluated as a profit center
- Staff increased rapidly 5 – 40 (100 % staff turnover within one year)
- Day Spa has limiting factors – room availability
- Compensation structures complex and has created tension (commission allocations)
- Cash flow issues
- Health Club and Day Spa are currently not profitable (Exhibit 2)
- Limited experience in the restaurant industry
Opportunities
- Landscape of the Canadian health, fitness, and recreation industry was changing rapidly – Industry reports available to identify trends and opportunities
- Increase revenue per member through complete lifestyle and wellness centre
- Membership sales increased each year, which can be a positive service indicator
- Re-structure and re-align strategy with organizational structures, evaluation methods, etc… to ensure goal congruence throughout whole organization
- Ability for synergies between units (economies of scope & economies of scale)
- Due to holistic approach – allowed for AHC to have competitive advantage
Threats
- Landscape of the Canadian health, fitness, and recreation industry was changing rapidly – sophisticated market
- Employees leaving AHC and starting own businesses, with the possibility of also taking AHC members
- Due to multiple business units, AHC now has significantly more competitors, even though AHC has all inclusive approach, stand along businesses will still have an impact on AHC’s profits
- Competitive advantages easily duplicated
Exhibit 2 – Net Income Analysis
