The Australian Tobacco Company (Malaysia) is one of the biggest tobacco companies in Malaysia. It maintains a good reputation and is a well-established organisation in the industry. It is a subsidiary of the Australian Food and Tobacco Company.
In this line of consumer products the market is competitive and sensitive. Bad positioning, inappropriate price strategies or unsuitable launching times can lead to the complete failure of a brand that may have cost millions of dollars to develop. A wrong strategy can lead to a boycott of the company’s product.
The company has built a reputation as an innovator: it successfully introduced filter-tipped cigarettes and king-size length cigarettes (85mm), and initiated promotional activities in sports. Recently, the company launched the international-length cigarette (100mm) on the Malaysian market, for smokers who prefer a longer smoke per cigarette, and a mild cigarette for people who are health conscious.
Keeping up with the market
Holding only 30% of market share, Australian Tobacco faces tough competition from the Malaysian Tobacco Company, which holds 55% of the market.
Marketing emphasis has always been on distribution of brands, packaging, sales, strategic initiative, display of stock at points of sale, and consumer response.
The market is a fast-changing one, management has realised the need for young, active and adaptable personnel to represent the company. The target market consists of existing smokers of all ages and potential smokers, mainly teenagers. Management has given the option to older sales personnel who have been with the company for more than 10 years to retire early with retirement benefits. For the first time, graduates are being recruited for management positions. Vacancies in certain job categories are also being advertised internally to offer opportunities for staff to be promoted from within.
Chits and perks
The company offers a competitive salary for sales staff and attractive fringe benefits. A company car, the maintenance of which is paid for by the company, is the most attractive fringe benefit for sales staff, especially the sales representatives. Individual expense claims, overtime and travelling expenses can often be twice as much as the basic salary. Sales staff look forward to receiving expense-statement vouchers more than they do getting their basic pay.
Newly recruited sales representatives are schooled in the knowledge of company products, competitive products and the market, as well as in motivation. However, the real training is on the job. From time to time, senior staff are recalled for management training. Also, each sales person is given an opportunity to attend a two-week endurance and willpower maintenance course at the Outward Bound School in Lumut, Perak in Malaysia.
The Penang area office, which is the headquarters for Penang Island, Wellesly Province, the state of Kedah and the state of Perlis, is under the control of Mr Pah, area district sales manager (ADSM). He receives his instructions from Mr Allan (marketing manager), from the headquarters in Kuala Lumpur.
Under Mr Pah are five supervisors, each controlling one or two distributors. There are 15 sales representatives, known as distribution personnel, under the supervisors and Mr Pah. Each of the distribution staff is responsible for sales, promotion and distribution in an allocated area.
The product group manager (PGM), who reports to the managing director, plans the main strategies and sales promotions for the individual brands. The three big premium brands, with taskforce product groups in each main area that report to the PGM, are the Pieter Diemens, Rathmins International 100 and Denhall product groups. The task-force group consists of a team leader and three or four subordinates, who may be product representatives, temporary personnel or promotional sales people. They report directly to their product manager and also to the ADSM of the individual area. The product team’s responsibility is solely for promoting the brand in the area of coverage.
Monthly meetings are held in Penang for all personnel (taskforce and distribution) and are chaired by Mr Pah. Sales figures, distribution figures and promotional events are reviewed and future activities announced. Between these meetings, communications are conducted by telephone, memos or through supervisors.
Who pays when costs are cut?
Due to the pressures to maintain profile and increase profit, the company has introduced a policy to cut costs relating to the expenses of sales representatives vehicle maintenance and by limiting expense claims for overtime and travel. To the promotional product representatives this policy means a significant loss of income. The distribution representatives feel that the new policy will further affect their already poor expense allowances. The overall effect has been a drastic loss of motivation in the lower levels of the marketing force.
Dissatisfaction with the reward system is growing in the distribution and promotion section. With equal basic pay, the product group representatives earn much more in expense claims, as they have more travel claims compared with the distribution personnel. But distribution personnel always have more work and responsibility in their area. Furthermore, the efforts of individuals or groups are not recognised as contributing to overall sales. As the market demand is high, sales representatives cannot see a direct relationship between their efforts and total sales, on which incentives are based. Sales are perceived to depend on market trends such as festive seasons, consumers financial positions (for example, the paddy harvesting season, the price of rubber) and competitors activities.
Because the brands taskforce takes instructions from the ADSM of the particular area and from the PGM, it is exposed to conflicting instructions: the ADSM and PGM have different priorities. The ADSM may emphasise distribution achievements, and the PGM wants time and effort spent on brand exposure and image. Thus, the product team is in the fraught situation of being responsible to two superiors.
Lack of uniformity and frequent changes of policy have led to many difficulties for the sales force. Information flow from headquarters to supervisors and sales representatives is slow. This has been a source of great frustration. A state of confusion often exists when old information is still in circulation and new information or policies are released that contradict it.
There is a high turnover of sales staff, especially sales representatives. These representatives seem to go to companies that offer better pay and better prospects for promotion. Many personnel find the work boring after a certain time, as they feel they have learnt everything about the job. The taskforce perceives its daily activities as just selling the products; and distribution personnel perceive their work as just distributing them. Prospects for promotion seem limited. Many supervisors are in their 40s, and the company has recruited trainee graduates for junior management posts. A director of Australian Food and Tobacco, who was on a visit to Malaysia, noted this problem of sales staff turnover and asked questions about it. Mr Allan’s answer was that there was nothing to worry about because the company car was a sufficient benefit to recruit and retain good sales personnel and that only the “dead wood” was leaving.
- How can the conflict involving the promotional task force group be eased?
- How can information flow be improved?
- Is Mr Allan accurate in his statement to the Australian Food and Tobacco director concerning the reasons for staff turnover?
- How can the company reduce the turnover among sales staff?
Thanks to Stanley Petzall of the School of Management at Deakin University for permission to use this case study, which comes from his publication on management case studies.
Chris Parkinson has been in the field of generalist human resources for the past 10 years. His roles have included recruitment, IR and training and development in the manufacturing industry. Parkinson has recently moved to Melbourne to take up the position of human resource development manager for Lockwood Security Products, and he is a member of the Australian Human Resource Institute.
Communication, communication, communication
When speaking in the context of the real-estate market we all know what is meant by “location, location, location”. Similarly, in the management sphere we all should be referring to “communication, communication, communication”. Employees of The Australian Tobacco Company need to have a clear focus, specific goals and objectives, a purpose and knowledge that their contribution adds value to the company. Management needs to be communicating, talking, expressing, verbalising, explaining, advising, defining, and clarifying with its employees on a regular basis, in one-on-one and team/department sessions.
When interdepartmental “taskforces” or “project teams” are formed in organisations, two of the main prerequisites for their success are: maintaining a clear focus, and ensuring that there is minimal interference from conflicting communication channels. Conflicts between ADSMs and PGMs are not an uncommon occurrence. The result usually is as it is here that the taskforce gets caught on the horns of a dilemma, being answerable to two different managers with two distinct agendas. A way of resolving this dilemma is to have all management levels to which the taskforce members report agree beforehand on a set of objectives.
One way of improving communication would be to introduce a monthly “team briefing” session with all employees in the company. Management could use such a forum to communicate the need for cutting expenses, to advise staff of reviewed company policies and to air many other matters. It could also serve as a channel through which employees could advise management of their issues and have their questions answered.
I don’t think the statement that Mr Allan made regarding the level of staff turnover is correct. A company-maintained car is not a sufficiently substantial enticement to recruit and retain good sales personnel. These employees need to feel that they are making a valuable contribution and that opportunities exist for them to advance through the company. Those already in the organisation may perceive the recruitment of young graduates as a threat to their career paths. The current employees need to be given an opportunity to apply for graduate positions, regardless of their ages. These employees also need to have formal individual career paths, focused on performance.
Performance management systems
If the management were to ensure that all employees were subject an effective “performance management system”, the bad feeling over unequal rewards for work performed and responsibility held would be largely resolved. Such a system would need to include a component of rewards for the achievement of set objectives and accountabilities.
The management, through continual support and coaching, and continual and consistent communication, needs to make it clear to sales representatives and distribution employees that the opportunities for lateral movement exist, and to encourage them to set themselves high yet obtainable goals.
Gerard Cassidy has been in the electrical industry for the past seven years. He has held various positions in Japanese and Netherlands-based companies. He is now the Queensland sales manager of Akai, the consumer products division of Semi Tech Global.
Akai Queensland has a turnover of about $20 million through a wide and varied retail base across the state. In this role Cassidy runs the branch as a profit centre and manages six full-time staff.
A question of structure
The Australian Tobacco Company (Malaysia) has many problems internal and external. Confusion starts from the top; it is as simple as that. Local management needs to understand three things: the product, the market and the staff.
From the outline given in this brief case study it seems that many of the Australian Tobacco Company’s supervisors are more concerned with empire building than with working towards a common goal. It would be instructive to see the company’s structure chart.
Mr Allan, the marketing manager, needs to spend time in the field with his various distributors and representatives to see what they do and how they plan and forecast their business. Also, he needs to review the position of Mr Pah and evaluate how successful he is at motivating staff.
Mr Pah needs to form budgets and sales rates so that successes and failures can be monitored. A sales team without strong guidelines will become self-destructive and non-profitable.
Any conflict in the promotional task-force group can be resolved over time through two-way communication. All staff need training, career paths and a fair reward for a job well done. The company could consider publicly acknowledging staff who have been in the company for three, five and 10 years. It could also consider attaching six-monthly evaluation reports to future benefits for all staff. This would contribute to creating a climate of motivation for staff , who would receive recognition, reward and feedback.
Information needs to flow in a feedback loop. It may work well to flatten out the structure of the company and to introduce much better reports for all staff, management and sales teams alike. It would also be useful, if it does not already exist, to set up an informal human resources department to assist with initiating correct lines of communication. Each member of staff needs to complete weekly reports and an account planner that states replies from each level in the company.
Mr Allan’s explanation of why there is a high turnover of staff is, to say the least, dated and ill informed. In the first place, the rapid turnover of staff does not allow “dead wood” to form. I believe Mr Allan needs to travel out of Kuala Lumpur and find out first-hand what his customer and staff requirements are.
It is often useful to look at your opposition to evaluate their strengths and weakness and see which of their strengths you can emulate and which of their weaknesses you can exploit to your benefit.
A holistic process
If all members of staff are involved in the process of changing the structure and development of the company, they will then take ownership of their roles.
The company needs to review quickly its process of evaluating the market and its staff. This will take some time, because the company culture is going to need a thorough overhaul. And, to make the necessary changes, the company may need to look for a new chief executive and management team.