Sun Fashion case analysis

SSunshine Fashion: Fraud, Theft and Misbehaviour among Employees (OCB and CPWB) What are the root causes – individual and contextual -- for the employee misbehaviour at Sunshine? At Sunshine Fashion, the main manifestations of employees’ misbehaviour are fraud and theft by branch managers at the local Chinese market. The root causes of these misbehaviours are both individual and contextual: Individual: - Weak sense of belonging and loyalty to Sunshine (high yearly turnover of branch managers of 20%): Branch managers use Sunshine stores to build personal relationships with department stores and to promote their own brands. - Need to get be better rewarded: theft is a symptom that managers are not well remunerated. Pocketing the difference between price tag, ongoing promotion and cash sales. - Involuntary rotation might not be good for the moral of the employees, lowering their loyalty and increasing their turnover Contextual: - Recruitment policies: o Managers are hired mostly on “relationships of mutual favour”, and not based on managerial ability or integrity. o Long term personal goals for these people are mainly to flourish their relationships, because that increases their personal value in that market. The goals of the company do not fit managers’ personal goals. - Organizational justice (OB, p. 256) was taken to extremes : o Uniform reward for branch managers did not take into account location and the standard of living of the particular branch/region. o Bonuses were determined to sole discretion of the general manager. The process and criteria were not transparent to branch managers. - Lack of vertical control: o Decentralization of local promotions, discounts and stock. o Inconsistent data entered manually into ERP system. o Nonexistent auditing structure to unravel fraudulent practices: the president of Sunshine has to personally visit department stores to ensure personal relationship. This should not be his main job occupation. - Lack of charismatic leadership: o Branch managers have no close relationship with their corporate superiors. o Performance evaluation is based on lowering theft percentage, not personal goals to achieve. Those factors result in poor perceived organizational support (OB, p. 110). This perception has a direct effect on employees’ engagement and organizational citizenship behavior towards the goals of the company. Branch employees are not fully committed to the organization (OB, p. 108) therefore the turnover is very high.

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To what degree might the counter-productive work behaviors of one employee at Sunshine affect the behavior of other workers? How might this contagion effect occur? Many deviant workplace behaviors can be traced to negative emotions (OB, p. 153) Negative emotions such as anger or envy bring elements of aggression of other employees, that is return get those negative emotions and propagate them to others. The main emotions that drive branch managers at Sunshine resulted in deviant behavior of greed and opportunism. The fraudulent practices that were implemented by those managers were observed by employees of lower level of responsibility. The fraudulent schemes were probably understood by all people involved (erroneous information entry into ERP, price tag changes, etc.) When employees observe that managers are only concerned about their own good, before the good of the company, they tend to behave in the same manner, because they don’t have to fear those managers. The group influence dictates the behavior on all levels at the branch offices (see Rotundo case “Group Influence”) In the case of Sunshine Fashion, where a very rapid production cycle of 20 days is in effect, negative escalation can take some serious impacts in an exponential manner. Coworkers who witnessed unpunished fraudulent behaviors can repeat them into the next production cycle, amplifying the effects of deviant behaviors and aggravating damages caused to the firm’s profits. Fraud and theft is probably at the greater level than the upper management believes.

How might Sunshine breed greater loyalty and citizenship among their workers? Branch managers are clearly the right people for performing their job, as described by person-job fit theory (OB, p. 182) Branch managers are relationships oriented people who understand very well Sunshine operations, especially the promotion policies. They know how to convince the upper management of local constraints and the necessity to implement individual approaches for every branch. They understand local culture, they know local customs and they know local department stores’ needs. The main problem is that they are working for their own benefit, using Sunshine’s resources and sometimes obviously stealing from the company. With a yearly turnover of 20%, their loyalty cannot be with Sunshine, which explains why they mostly work for themselves. The management must identify the negative emotions that drive branch managers. (OB, p.153) Are they simply driven by greed or the salaries paid are inappropriate? Are the salaries and overall benefits competitive in each local market? Do they have some personal problems? The organizational justice (OB, p. 256) is taken to extremes. Implementing the same reward through the company notwithstanding local market and standard of living, notwithstanding individual performance creates the feeling of inequity and does not encourage doing better than the average. Attempts to minimize sabotage appear to focus on treating employees fairly and honestly, by ensuring fairness.

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On the other hand, the lack of auditing structure makes branch offices fearless and unaccountable for their actions. As there is no possibility to reinforce corporate policies and to double check their application in branch offices, there is a very low risk for those who misbehave to get caught and punished. Also, the company must reconsider their approach to loyalty. The president of the company puts a certain effort to maintain loyalty of department stores, but it is not said at what extent he is putting effort to connect with his own employees. Charismatic leadership lowers the chances of CWB (see Rotundo Spector – Counter productive work behavior). Sunshine Fashion should do a comprehensive analysis to understand the factors of managers that misbehaved in the past. A sound meta-analysis of CWB antecedents (see OCB & CWB notes, pages 47-50) shows the following factors that can be applicable to Sunshine case: age, marital status, tenure, job satisfaction. Based on detailed analysis of internal situation at Sunshine, an internal structure to encourage loyalty should be put in place (see next question). To address that problem, the company must create a structure in which good working conditions and sound leadership are available to help reduce the motivation to commit fraudulent actions.

What kinds of actions might management take to address these problems? Should they intensify the punishments? Based on the readings, which actions do you believe will be most effective and why? Actions Revise hiring criteria: - Hire people with high conscientiousness (Big Five Personality model MBTI) (OB, p. 170) - Branch managers should demonstrate the following qualities: reliable, responsible, organized, dependable, persistent - Potential managers must demonstrate managerial abilities

On-job training: - Implement self-efficacy theory (OB, p.249) - Implement goal setting theory (OB, p.246): feedback, goal commitment, task characteristic, national culture

Effectiveness - Organizations have also increased their use of honesty or integrity tests to identify theftprone job candidates before hiring them. The use of these tests is inconclusive (see Rotundo – “Individual differences and CWB”) - The interviews and screening process must address management background. They must also demonstrate motivation to grow and learn on the job. Less attention show be paid to existing relationships for this new hiring strategy to work I think this is very effective strategy to hire people with potential and train them on the job. This strategy enforces personal achievement and gratefulness to the company. This is the basis for increased loyalty. This environment must be implemented on every level, not only for branch managers.

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Actions Create personal growth environment: - Work to help employees improve themselves and grow - Create growth opportunities - Implement job rotation (OB, p. 277) - Implement job sharing (OB, p. 281) - Establish wellness program to help employees dealing with difficult situations (OB, p. 639) Establish fair reward structure: - Decide what to pay (OB, p. 286) compare external equity. - Create a variable-pay structure, merit based on performance of clearly established goals. - Establish bonuses (OB, p. 289): - Establish profit sharing plans for key branch managers (OB, p. 290) Increase intrinsic motivation: - Establish employee recognition programs (OB, p. 293): manager of the month - Non coercive deadline feedback (OB, p.244) Implement auditing structure: - Involve employees in the creation of a theft policy - Appoint regular auditors - Plan audits on regular basis depending on promotions schedule / desired timing Implement punitive scheme: - Communicate the costs of stealing - Determine punitive scheme - Communicate throughout the company Automate ERP system: - Data collection should be automatic - If manual entries are unavoidable, create a verification level (see auditing) Implement electronic surveillance: - For tags replacements - For cash sales - For personal brand sales

Effectiveness To some extent, some elements of personal growth environment were implemented (job rotations) with limited results on loyalty. Sunshine should focus on some growth opportunities available to motivated personnel. If during local situation analysis, the root causes of theft are shown to be due to difficult situations of the employees, upgrading wellness program might be appropriate Sunshine makes impressive profits as compared to wages paid in branch offices, thus encouraging theft. Merit-based remuneration and profit-sharing plans will encourage profit maximization, because good managers will

Very effective: intrinsic motivation is the strongest motivation possible for a human being. The sales manager at Sunshine is not confident about the value of auditing. For this to work, auditing must be done on regular basis, especially when promotions are schedules. Auditors must represent corporate power. Even if the company must prioritize its focus on positive actions and messages, there must be consequences for misbehaviour in order to limit losses and stop the contagion effect. The focus should be on punishment of the undesirable behavior, not the person. Very effective, provides accurate information about stocks, retail inventory and pricing. The technology is mature enough to provide automated data collection. Electronic surveillance is increasingly used to stop or catch thieves. But for Sunshine Fashion it might be ineffective due to the impossibility to cover all the areas in high enough resolution to see price tags

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In what order should these actions be taken? -

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First, management has to revise its reward system to send out a message that good performance is fairly rewarded. Secondly, the company should implement a huge marketing campaign stressing out the damage done by theft and fraud. This campaign must highlight the punitive scheme and how it will be implemented. After that, the corporation must implement the auditing scheme and promote it through the company. Dedicated personnel must be hired, trained and given with the sufficient authority to perform their tasks. Without firing employees, for each branch manager that quit due to present high turnover, the new hiring criteria must be applied. People with managerial skills, potential to grow and good integrity must be selected to replace those who left. The new employees must receive on job training to continue improve operations. The new employees must also adhere to the company’ vision and mission statement. The management must ensure that the personal growth environment is in place to meet employees’ expectations and increase their loyalty. Intrinsic motivation must be closely followed by the upper management. In parallel with these actions, Sunshine must invest into upgrading its EPR system. The information must be accurate and unbiased at all times. This will provide to the upper management an historical perspective of real fraudulent actions that took place and that continue taking place despite all the taken actions. The business intelligence that will result from accurate data should be analysed by the management to adjust the auditing and punitive schemes on ongoing basis.

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