Question: Read the The Makey Case.
The Makey Case
M. K. Makey is a privately held outdoor apparel specialty catalog and retail store founded in 1910 by Michael Kenneth Makey, an outdoor enthusiast and entrepreneur. Makey sold his first 100 pairs of flannel-lined work pants by mail order with a 100 percent satisfaction guarantee. When 90 pairs were returned defective, he kept his promise and made the refunds. Makey borrowed $300 from his sister to perfect the design and went on to become a clothing consultant for the military during World War II, and the president and founder of a retail giant.
Makey, Inc.'s library includes about 10 specialty catalogs offering products in categories such as children's clothing, fly-fishing, outerwear, sportswear, housewares, footwear, camping and hiking gear, and the lined work pants upon which the company was built. Makey also operates about a dozen retail stores and some 15 factory outlets throughout the United States. In addition, it sells online through English- and Japanese-language websites.
Makey's annual sales grew from $620 million in 1990 to $2.9 billion in 2014. In 2015, Makey paid a 10 percent company-wide bonus.
More than 17,000 people worked for the company during the 2014 holiday season, and in 2014 the company reported 80 percent of sales coming from Internet and catalog sales. The company continues to evolve into a multi-channel sales giant through mail order, telephone, Internet, and in-store sales.
The Brand
K. Makey, Inc. has always been a marketing professionals' dream of turning a brand into an institution. Strategists, marketing specialists, and other business professionals (including the competition) have tried to duplicate the company's achievements with varying degrees of success. A brand is built on perceptions about quality, service, and status created by using a particular product or working with a specific company. A brand can be built using marketing techniques such as visual imagery, wording that identifies what the organization does, and advertising campaigns targeted to a desired demographic. Strong brand identity can build a relationship with the consumer. In M. K. Makey's case, this is a relationship with the great outdoors. The company operates on the belief that the brand should reflect Makey's values, not just the products it sells. This case examines how Makey built the brand by using employees as the critical channel through which to accomplish strategic directives.
When Samuel Wright, grandson of Michael Makey, assumed the presidency of the company in 1964, he sent a message to employees defining their stakeholders-those to whom M. K. Makey was ultimately accountable in a values-driven business. M. K. Makey stakeholders were its customers, employees, vendors, communities, and the natural environment.
In addition to a strong customer focus, the company sought to solidify the brand through social responsibility. Social responsibility is a business concept driven by the principles of ethically sound practices, awareness of the business imprint on the environment, and improvement of the quality of life of the company's employees and the communities in which it operates. Social responsibility at M. K. Makey is divided into four categories:
The Environment
With company products geared for outdoor use, Makey focuses its philanthropic efforts on preserving the environment. Examples include green building, charitable giving, and employee participation in preservation activities.
Paper Procurement
Makey is committed to sustainable, responsible paper procurement, an important consideration because the company mails more than 200 million catalogs each year. It uses recycled fiber, and suppliers are required to have programs in place to support sustainable management of natural resources.
Labor Rights
When the company decided to move some operations offshore, it made a commitment to labor rights, including human rights monitoring. In fact, the company terminated at least three offshore vendor relationships that did not meet its human rights standards. Included in Makey's Vendor Code of Conduct are standards for safety, non-discriminatory practices, and fair compensation and benefits. This code of conduct includes processes for auditing and investigating complaints.
Charitable Giving
Charitable giving at Makey is based on Wright's concept of the stakeholder and the company's heritage in the outdoors. The company has donated more than $5 million toward environmental conservation efforts to groups like The National Park Foundation. It sponsored the Peace Climb up Mt. Everest, during which more than three tons of trash was collected. In addition, quality of life of the Makey employee and customer is reflected in the company's charitable giving efforts to groups such as the United Way.
The Problem
The company spent the 1970s and 1980s developing the brand into an American institution. Makey operated on the premise that profits are an outcome of strong customer service. Profits, therefore, were a byproduct rather than a corporate focus. Growth was strong, particularly in mail order. In 1995, five years after Wright's son P. J. Wright took over as president, however, sales were stagnating, productivity was declining, and the mailing list was not growing. It was the worst year for Makey in a decade. Sales growth improved in 1997 when the company expanded into the Japanese market. In 2000, Makey launched its e-commerce website. There was significant upper-management turnover, though, and P. J. Wright believed that because of the rapidly changing external environment, the company had lost direction. In 2005, sales flattened again, and then the company reported a decline in sales. It was the first time the board of directors voted to not award annual bonuses to employees.
The Case at Makey
Makey launched a strategic review. The nearly 100-year-old company had been through decades of change, yet its core business model had consistently provided excellent growth and profit. This was no longer the case by the 2000s when the competitive landscape reflected a more technically savvy and cost-conscious customer and global employee market. The need to reorganize became obvious to P. J. Wright.
The strategic review process began in 2008 and included analyses of both strategic and operational processes, including brand identity, target markets, and operational competencies (employees). HR was one of the strategic business units (SBUs) developed as an outcome of the review process. The SBUs were part of a decentralization process in which each unit had responsibility for its profit and loss and was held accountable to a balanced scorecard approach in performance metrics. This designation for the HR department allowed it to develop operational tasks such as compensation and benefits into a strategic process with measurable outcomes-for example, linking pay to performance, and increasing employee job satisfaction. In addition, total rewards were used as strategic solutions to many of the issues identified in the review process, including global outsourcing, multi-channel marketing initiatives, employee recognition, and the redefining of the brand.
Multi-channel marketing was another outcome of Makey's strategic review. Multi-channel marketing is the ability to offer customers more than one way to purchase a product. The company decided to expand their brick-and-mortar stores and capitalize on the opportunity presented by the Internet. According to Wright, Internet retail sales doubled each year since 2006.
A weakness identified in the strategic review was that the company's financial and human resources were geared to grow the catalog business but not retail expansion or Internet sales. The diversification initiative took staffing to another level. For example, the decentralization of the management team to other locations required concentrated efforts by the company to infuse the non-corporate facilities with Makey's values. The development of new jobs required thorough market research, including a comprehensive job analysis process. The lack of technical skills such as data processing threatened to topple the organization if it didn't acquire the staff with the required knowledge, skills, and abilities to perform in a highly competitive market at an organization that was accustomed to setting the standards for quality.
Developing job descriptions and conducting salary surveys allowed the company to develop a comprehensive compensation and benefits framework to manage this period of rapid growth and diversification.
As a result of the strategic review process, total rewards at Makey became a core business practice critical to the accomplishment of organizational goals. Traditional benefits offered at Makey include performance-based bonuses and cafeteria-style health care. Non-traditional benefits include store discounts, on-site fitness programs and the use of company-owned outdoor gear such as tents and canoes.
The company continues the tradition of outdoor adventure days and trips as a way to connect employees with the Makey values-the love of the outdoors. Michael Makey himself believed in profit-sharing with employees long before it became a strategic compensation practice. Back in the days when pay was 18 cents an hour, paid in brown envelopes of cash, Makey surprised employees with bonuses calculated as a percentage of profits; Makey employees were paid when the company performed. These practices reflect the Makey philosophy that the employees' passion for the company and its products will translate to the customer. As far as Makey was concerned, the company had an obligation to stakeholders, and it began with employee satisfaction. According to Wright, stakeholders invested their patronage, careers, finances, social services, and outdoor values in the enterprise. They trust Makey to tell the truth, to sell quality products, to guarantee satisfaction, to pay fair wages and provide opportunities for growth, to secure their investment, to participate in society, and to sustain our natural environment. They trust Makey to grow. They trust Makey to go the extra mile.
Global outsourcing of operations brought intense scrutiny to the function of compensation and benefits. This resulted in Wright's leading the challenge for fair wages at the company's global subsidiaries and vendors and, in some cases, firing those who failed to comply. In addition, global benefits were markedly different from U.S. benefits because they were infused with cultural purpose. For example, among Japan's official holidays are Respect for the Aged Day, a Cultural Day, the Emperor's Birthday and Physical Fitness Day. In addition, although Japan's retirement system was similar to that of the United States (a combination of Social Security and employer-sponsored plans), Japanese employees typically collect one lump-sum severance payment at the time of retirement based on years of service. Commuter costs and housing subsidies are also common fringe employment benefits in Japan.
Did the 2008 strategic review work? Were employees rewarded for their continued excellence, loyalty, and dedication to the corporate objectives? Let's look at Makey's 2014 Year in Review press release:
For the 2014 fiscal year ending February 1, 2015, Makey reported record annual net sales of $2.9 billion. The company also announced that its board of directors approved a cash award of 10% of annual pay to eligible employees, a payout of approximately $35.5 million. An additional $10.8 million will be allocated to the pension plan, keeping the plan fully funded."It's a well-deserved bonus," said Makey's board chairman. "This was a year in which we made excellent progress on a variety of strategic initiatives important to the future of our business. We are pleased to be in the position of rewarding Makey employees for their achievements." "We had a strong start and strong finish to the fall and winter selling season," added P. J. Wright. "Although unseasonably warm weather had an impact on sales, our business performed very well, and the product line continues to hit the right mark with our customers. I am very proud of all that we accomplished in 2014 through our employees' hard work and dedication. It was an exciting year with a lot of energy and growth, including the opening of four additional stores, launching $100 million in investments, and making further progress on the international side of our business.
Source: Adapted from SHRM educational documents, 2014
Case Assignment
Address the following questions in a well-integrated analysis:
- Analyze how Makey uses its own products or services to enhance the total compensation for its employees. Is this a common practice in other organizations? Give real-life examples (employers by name). In your educated opinion do you think this is a good idea? Why or why not?
- Identify the company's internal weaknesses, and from a total rewards perspective evaluate the company's response to these weaknesses.
- Make recommendations regarding an expansion of the benefits programs offered at the company that would further align HR with the accomplishment of organizational goals and values. Justify any recommendations with outside sources.