Gerald Mahoney, sales manager and sole full-time employee of the Oreck vacuum cleaner store of Red Hook (New York), was relaxing watching television in the back office. There were no customers in the store at the time and Gerald was tired of repairing vacuums. There always seemed to be a million machines to repair and the owner of the store, John Timmson, was never around to lend a hand. In fact, John would rather be out playing golf or hanging out with his girlfriend than dealing with his business. John never lent a hand with difficult customers, rarely repaired vacuums, was always ‘away’ when stock came in and Gerald needed assistance to stack inventory. John refused to complete warranty reports, and most importantly, never, ever cleaned the store. John never seemed to be around to do much of anything! As Gerry nestled himself into the big comfortable couch in the back office and slowly dozed off, he contemplated his 40 (forty) hour, five (5) day work week and the unfairness of the situation. His last fading moments of consciousness were focused on the fact that it just didn’t seem right that after four (4) months of employment at Red Hook that he (Gerry) did all of this work while John was out having a good time.
The Red Hook Oreck Store
The Paulson Group, Inc., a limited liability corporation, was the major shareholder of three retail Oreck stores located in Dutchess county, New York, in the towns of Poughkeepsie, Red Hook and Fishkill. Each of the stores were separately incorporated, with two of the stores, Fishkill and Red Hook, having minority ownership by the store managers (Poughkeepsie is solely owned by The Paulson Group, Inc.). Mr. Paulson was the sole shareholder of The Paulson Group and the owner of the franchise agreement with Oreck. Each store had one sales manager and one sales associate.
Mr. Paulson was a very demanding major shareholder and required that all of the co-owners work at least 60 hours per week and therein serve as role models for their sales associates and part-time employees. Mr. Paulson felt that the owners needed to become intimately involved with the business and that they should manage every nuance of the operation. This was acceptable to the minority owners since the owners wanted to learn the business and knew that only through time spent on-the-job could they obtain the knowledge and skills necessary to run their stores.
In early 2001, Marc and John bought out Jack Raymond’s interest in the Fishkill store since the revenues of the store averaged $17,000 a month, barely enough to break even. John then decided to swap his interests in the Fishkill store for Marc’s interests in the Red Hook store. This left Marc with sole ownership of both the Poughkeepsie and Fishkill stores while John retained sole possession of the Red Hook store.
John certainly wanted this deal since he always wanted to be “his own boss” and looked forward to finally having some spare time of his own. He believed it was time to reap some of the benefits of his hard work and effort which was not possible given his prior working arrangements with Mr. Paulson. John, however, understood that in order to have the leisure time that he so desired he would need a ‘second in command’ who could run the store in his absence. A deal was worked out between Marc and John where Gerald Mahoney, Sales Manager at the Poughkeepsie store, would be transferred to the Red Hook store and receive the same salary and benefits he was receiving from Mr. Paulson. His work week would continue to be six (6) days per week, sixty (60) hours per week on a salary plus commission basis.
This was quite amenable to Mr. Mahoney for two reasons: 1) he did not enjoy Mr. Paulson’s expectation that his sales force would use high pressure sales tactics, 2) his interpersonal relationship with Mr. Timmson was far stronger than his relationship with Mr. Paulson and he knew that Mr. Timmson might, upon request, shorten his hours creating a less demanding work schedule.
After working two (2) weeks in the store, Mr. Mahoney approached Mr. Timmson with a proposed change in his work and compensation package. Mr. Mahoney wanted to work only five (5) days per week, forty (40) hours per week, but was willing to take a fifteen percent (15%) cut in salary and lose his commission. This was acceptable to Mr. Timmson since he valued Mr. Mahoney’s work and wanted to keep him “happy” and this also allowed Mr. Timmson to cut his costs by increasing his use of part-time, less expensive employees.
Gerald Mahoney’s Transition to the Red Hook Store
The Early Days
“I love working at the Red Hook store” Mr. Mahoney commented to his friend and former sales associate, Stephen Hodgetts. Stephen had worked with Gerald in the old Mahopac store on weekends before Marc Paulson closed the store due to poor sales. It was Gerald’s second week on the job and he seemed to be really getting into his work.
“John is purposely never around so I can really run the store the way I like it. I can arrange the store in a manner I think is appealing, sell the way that I know customers would most like to be sold, not Mr. Paulson’s hard-nosed methods, and make the types of deals with customers that I know would bring in good money for the store yet does not take advantage of the customers. I don’t even have to push our used or refurbished models like you and I had to do in the Mahopac store. This is like a dream come true.”
Stephen Hodgetts knew Gerald very well and recognized that this ‘new deal’ sounded too good to be true. He didn’t want to burst Gerald’s bubble yet he also wanted to make sure that his friend was not going to have a let down after the ‘honeymoon’ was over. He tried to figure out a way to get Gerald to focus on both the pros and cons of his new job situation while not hurting his feelings.
“Heh Gerry, I know that John was a good guy to talk to and to compare notes with when I was working in the Mahopac store. He helped me out of a few binds when I had to work the store alone or you were too busy with other customers. However, my impression was that John just didn’t have the same killer instinct that Marc Paulson had — John would let a few sales go buy if he felt that the customer was being too pushy or demanding too much. In fact, I remember that you told me on several occasions how you or Marc had sold the same customer that John would not play ‘let’s make a deal’ with. What’s with that?”
“Listen Stephen”, quickly responded Gerald, “that was then and this is now. John’s the full owner of this store and there is no doubt in my mind that he is going to do whatever it takes to make this store a success. For instance, I have complete latitude to negotiate any sale I like, within the basic limits that Marc developed when we worked the Mahopac store. More importantly, since I’m the manager on duty, I really can assure the customer the type of quality service that you and I strived to provide customers when we worked together. John’s absence makes it easier for me to spend that extra time and effort pampering our customers and developing customer loyalty. I even ran an unadvertised in-store special that John thought was a great come on.”
“More importantly, he’s allowed me to go to a five (5) day, eight (8) hour per day work week. I’ve taken a cut in pay but I feel so much more energized when I come to work that all I want to do is sell and repair vacuums. With two days off, I can have a personal life and actually go out at night knowing I’ll have at least one day to recuperate and another to handle my everyday needs. As long as I continue to sell, what can go wrong with this deal?”
Stephen left the last statement of Gerald’s alone — it sounded like Gerald was not yet ready for a reality check. “And by the way Stephen”, Gerald said ending the conversation, “since I only need help on the weekends, if you ever wanted to come back to work with me again let me know because I have the authority to hire whomever I want to work with.”
The Honeymoon is Over
A month had past since Gerald’s conversation with Stephen and Gerald was starting to see what could go wrong. Gerald liked the store to be particularly neat and clean (a cleaning store should be spotless, Marc Paulson would say) and it seemed that on his days off John would let the store become disheveled. “Let me tell you Stephen”, Gerald commented, “this guy is a pig. He not only doesn’t clean the store at the end of the day, do the usual vacuuming and polishing that you and I always did in Mahopac, but he would leave his leftover food out on the back office table for the cockroaches and the mice. He doesn’t take out any of the trash (mostly vacuum cleaner boxes), doesn’t put away any of the day’s paperwork, mixes up the repaired and broken vacuums, and doesn’t even clean the work bench after he’s through with the few repairs he works on. Disgusting! And God forbid he should restock the shelves with inventory. Then I have to walk in the next day and spend at least an hour getting the store back together in one piece — I know now why Marc was so willing to get rid of John as a business partner.”
Stephen thought for a moment before he replied. “Let me get this straight. John, the owner of the store, doesn’t care how the store looks and doesn’t do the work that you expect him to do. Maybe I’m missing something here, but what’s the problem? If he doesn’t care how his business looks or what work does or doesn’t get done then why should you? You get paid a straight salary now, not a commission, so why are you so upset?”
It didn’t take Gerald more than a moment to reply to Stephen. “Listen Stephen, I’m a professional. I’ve sold Oreck’s for the last five years and I take pride in my work and pride in what I do. I give 150% to my job and look forward to coming to the store. I enjoy the challenge of selling and I like to interact with the public. You and I both know that retail selling is really putting on a performance for the customer — even the best actors will flop if the stage is not properly set. How can I do my job to the best of my ability if John leaves me all of this extra work? For instance, my rate of completing repairs is way down creating a backlog because of the extra time I have to spend cleaning the store. Customers are starting to complain and I don’t know what to tell them!”
Stephen could hear both the anger and frustration in Gerald’s voice. He really understood Gerald’s commitment to his job but realized that if Gerald just brooded over this problem it would fester. “Gerald, have you talked to John about this? Perhaps John really doesn’t understand what is going on in the store. I can’t imagine that John would be unsympathetic to your feelings and more importantly that he would not be unconcerned about the customers’ complaints.”
“I have tried, Stephen, I really have tried to tell him how I feel. He just tells me that it is my job to keep the store in tiptop shape and that if I have to come in early or stay late to get the job done, then so be it. He keeps telling me that I’m the manager of the store and that I should act like one — that I need to take responsibility for the store and its condition. That’s what he hired me for, he said, to worry about the store so that he doesn’t have to. But what about his responsibility as an owner? Where does my responsibility end and his begin?”
From the Frying Pan into the Fire
Two months had past since Stephan and Gerald last talked about the store and Gerald’s on-the-job performance plummeted. Store sales were off by twenty percent (20%) and repair work, which normally had a two week turnaround time, was backed up to over one month. The store started to look unkempt. Gerald would barely get into the store on time to open up in the morning and closed the store fifteen (15) minutes early. John started to come into the store more and more, not to help out, but to check to make sure that repair work was getting done and the store was getting cleaned. Gerald would sarcastically apologize to John for “cutting into his golf game” or “taking him away from something important” when he came into the store and would derisively tell John “not to strain himself” when John would play video games on the back office computer or lie down on the couch and watch television.
John, on the other hand, was indifferent to Gerald’s comments and would on rare occasion needle Gerald by saying that he could always go back and work for Marc Paulson. This would normally stymie Gerald’s rambunctious behavior and denote Gerald’s need to get back to work and stop being argumentative.
Customer complaints about Gerald were normally a rarity at best, but had now started to become commonplace. They were not only directed towards John, the owner, but several customers actually complained to Oreck, LLC (the main office). One loyal, repeat customer was so enraged by Gerald’s treatment that she demanded that John fire him or lose her business. A representative from Oreck LLC visited the store based upon a series of complaints and commented on Gerald’s negative demeanor and attitude. In fact, the representative suggested that Gerald looked so bedraggled that John should send him home to take a rest. John talked with Gerald several times about his on-the-job behavior and Gerald merely complained about his lack of help, his always feeling tired, and how overworked he was.
Back to Gerald’s Nap
Gerald was sleeping soundly when the front door buzzer sounded, indicating that a customer had entered the store. Gerald awoke abruptly, quickly checked his watch, and noticed that over two hours had elapsed since he laid down on the couch — boy that was a long nap, he thought. He quickly tried to straighten his clothes out while he rushed into the front office area to greet the customer. Standing in the middle of the store was Stephen Hodgetts, who was studiously looking at his watch.
“Well Stephen, what a pleasant surprise to see you. Wasn’t expecting you to pop in on me in the middle of the day.” The store looked like hell warmed over and Gerald looked as if he had just stepped out a dryer — obviously things were not going too well. Stephen cleared his throat and retorted “It looks like you weren’t expecting anyone at all. Do you know that I’ve been standing here over fifteen (15) minutes — most customers would have been in and out of the store by now and either would not have purchased anything and left in anger or would have ripped off the store for something. By the way, didn’t you usually keep a vacuum in the window as a display item?”
Gerald’s mouth dropped open as he realized that one of the top of the line vacuums (a model that retailed for nearly $800) was missing from the front window. He didn’t say anything to Stephen but he knew he would somehow have to break this to John, assuming John even noticed one of the vacuums was missing. He’d deal with the missing vacuum problem later, right now he wondered why Stephen was in the store in the middle of the day.
“So what brings you around here? Did John hire you to check up on me?” Gerald guffawed with a half-hearted laugh. Although Gerald said the last statement in a jovial tone, he was wondering if John would have sent in secret shoppers to do just that. Oreck, LLC also had been known to send in their own people to check up on under-performing stores.
“Well Gerald, we haven’t talked in awhile and I was wondering how things were going. The few times I had called you were either out sick, off, or I got the office answering machine. From the looks of the store and your own appearance, I would say that things were not in the best of shapes. I’m worried about you and I want you to know that I’m willing to help you out in the store if necessary.”
“Thanks for the offer Stephen but your help wouldn’t do any good. I’ve really lost interest in this job since John obviously doesn’t care about anything that goes on in the store. All John cares about is keeping customer complaints to a minimum so he has time to better his golf swing. I thought working for Marc Paulson was terrible, and it was, but at least Marc cared about the business and spent time in the store helping out. John cares about absolutely nothing when it comes to this business yet he expects me to. I’ve just gotten tired of carrying his business on my back!” Gerald looked like a beaten man, a man who had lost the will to work and Stephen knew that with this attitude his friend was heading for the unemployment line.
“Gerald, pay close attention. John is the owner of the store. He will run the store in any fashion he chooses. If he decides never to come into the store, then so be it. If he decides to open up a home for wayward mice in the back office, then that’s his problem. Your job is to do the best you can under the conditions that he creates. If you can’t perform in this work setting, then I suggest that you look for other employment.”
“You’re not fair Stephen. You’re asking me to keep my mouth shut and just do my job, no matter the adversity that John puts in my way, or to quit and look for a new job. What about John’s responsibility to me, his employee, doesn’t he owe me anything in terms of my loyalty to him and his business? I’ve busted my butt for this guy and yet he doesn’t have the decency to spend five minutes in his own business.”
“I’m not doing anything of the sort”, said Stephen. “What I’m asking you to do is to realize that John is the boss and he can do whatever he damn well pleases along as he doesn’t break the law. I’m also asking you to decide what you should do about it. Right now, all I see you doing is complaining and acting in a manner that you yourself would find totally reprehensible in another sales manager.”
The phone rang, breaking the tension between Gerald and Stephen. John was on the line and he told Gerald that he was coming in so he could “specifically talk about what has been going on in the store as of late.” Stephen left the store and wished Gerald the best, knowing that the worst (Stephen getting fired) might just happen.
John Timmson’s Store Visit
On his drive to the store John thought about the situation. John had talked with Gerald several times about the condition of the store and all that Gerald seemed to do was grumble about the lack of support John was giving him. Gerald was sounding more and more like a girlfriend or spouse than a manager and John was getting fed up with Gerald’s helpless ‘overworked underpaid’ routine.
“Unsupportive?” John thought to himself. “As he requested, I reduced his hours, gave him two (2) days off, and allowed him to run the store the best way he saw fit. I gave him a chance to really be a manager, not the dumb flunky that Marc Paulson regarded him as. And what did I get in return? A poorly run store, customer complaints, and reduced profits – so much for being Mr. Nice Guy.”
Firing Gerald was the easy solution but that would require John to give up his free time and lifestyle, at least until he could find and train a replacement. John, rather than Gerald, would have to show the new employee how to sell vacuums (as well as the rest of the inventory), stock and manage inventory, and repair vacuums; a task that might take at least two to three (2-3) month’s time. John made the deal with Marc Paulson for the sole interest in the Red Hook store so that Gerald would be available to run the store without John’s assistance. John was just not prepared to sacrifice his outside interests (his golf and his girlfriend) for this business and was upset with Gerald for not upholding his end of their working relationship.
Gerald had let him down and John needed to somehow let Gerald know that his behavior was unacceptable. Gerald just had to go but if John fired Gerald then John would be stuck in the store for a while. But what else could he do? Getting an additional employee to work during the week days was not cost effective — the business just did not generate enough income during the week to profitably handle even a second part-time employee’s salary for the three (3) days that would have to be covered when Gerald was working. (Gerald was off two of the days during the week and the store was only manned by part-time help on those days.)
His part-time employee did not want to work in the store full-time since working full-time would negatively impact the employee’s retirement package and move him into a higher tax bracket. Even if the money and benefits issues could be resolved, this employee was “semi-retired” and did not want to commit himself to a full-time job.
Sub-contracting out the repair work was also not cost-effective since many of the repairs were fairly simple and could be done by a salesperson during the week, when the store was not busy.
John did not have any good answers to the problem but hoped that he and Gerald might work out something. Otherwise John’s life would be ruined for the next three to four months.
John arrived at the store about an hour after Stephen had left. John noticed the untidiness of the store, the poor layout of the displays (“didn’t we always keep a vacuum in the front window?”, he reflected), and Gerald’s slovenly appearance. Repair work from the back office seemed to be ‘creeping’ closer to the front of the store (meaning there was an ever growing number of machines to repair) and the tool rack was in a total disarray. What a catastrophe! Gerald looked extremely nervous, like a cornered rabbit ready for the hunter to pull the trigger. He must have guessed at what was coming and was ‘resigning’ himself to his fate.
John became furious and highly frustrated with Gerald for not taking better care of the store but decided not to vent his anger. He was the boss and he was not going to let an employee get his goat, especially an employee who seemed short-lived at best. John also knew he had to do something in order to salvage his business, but what? John gathered himself for what was going to be a difficult discussion but a discussion that nonetheless had to occur.
- The location of the stores and the names of the parties involved in this case have been changed at the request of the store owners.
Please read the case and analyze it using the following:
- Provide a short summary fo the case – in a page or less tell me what are the pretinent facts of the case. What is (are) the critcal decision(s) that need to be made and by whom?
- Describe what you think are the symptoms (the effects or clues) and the problems(causes). What theory(ies) support your analyses? [around three pages – include references]
- What are the alternative solutions given the facts of the case and related theory? [around two to three pages – references]
- What option would you select and why? Expected outcomes? [around two pages]
- Other observations about the firm and or theory – conclusions reached [about a page]
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