Muffler Magic*
Muffler Magic is a fast-growing chain of 25 automobile service
centers in Nevada. Originally started 20 years ago as a muffler
repair shop by Ronald Brown, the chain expanded rapidly to new
locations, and as it did so Muffler Magic also expanded the
services it provided, from muffler replacement to oil changes,
brake jobs, and engine repair. Today, one can bring an automobile
to a Muffler Magic shop for basically any type of service, from
tires to mufflers to engine repair.
Auto service is a tough business. The shop owner is basically
dependent upon the quality of the service people he or she hires
and retains, and the most qualified mechanics find it easy to pick
up and leave for a job paying a bit more at a competitor down the
road. It’s also a business in which productivity is very important.
The single largest expense is usually the cost of labor. Auto
service dealers generally don’t just make up the prices that they
charge customers for various repairs; instead, they charge based on
standardized industry rates for jobs like changing spark plugs or
repairing a leaky radiator. Therefore, if someone brings a car in
for a new alternator and the standard number of hours for changing
the alternator is an hour, but it takes the mechanic 2 hours, the
service center’s owner may end up making less profit on the
transaction. Quality is a persistent problem as well. For example,
“rework” has recently been a problem at Muffler Magic. A customer
recently brought her car to a Muffler Magic to have the car’s brake
pads replaced, which the service center did for her. Unfortunately,
when she left she drove only about two blocks before she discovered
that she had no brake power at all. It was simply fortuitous that
she was going so slowly she was able to stop her car by slowly
rolling up against a parking bumper. It subsequently turned out
that the mechanic who replaced the brake pads had failed to
properly tighten a fitting on the hydraulic brake tubes and the
brake fluid had run out, leaving the car with no braking power. In
a similar problem the month before that, a ( different) mechanic
replaced a fan belt, but forgot to refill the radiator with fluid;
that customer’s car overheated before he got four blocks away, and
Muffler Magic had to replace the whole engine. Of course problems
like these not only diminish the profitability of the company’s
profits, but, repeated many times over, have the potential for
ruining Muffler Magic’s word-of-mouth reputation.
Organizationally, Muffler Magic employs about 300 people, and Ron
runs his company with eight managers, including himself as
president, a controller, a purchasing director, a marketing
director, and the human resource manager. He also has three
regional managers to whom the eight or nine service center managers
in each area of Nevada report. Over the past 2 years, as the
company has opened new service centers, company-wide profits have
diminished rather than increased. In part, these diminishing
profits probably reflect the fact that Ron Brown has found it
increasingly difficult to manage his growing operation (“Your reach
is exceeding your grasp” is how Ron’s wife puts it).
The company has only the most basic HR systems in place. It uses an
application form that the human resource manager modified from one
that he downloaded from the Web, and the standard employee status
change request forms, sign-on forms, I-9 forms, and so on that it
purchased from a human resource management supply house. Training
is entirely on-the-job. Muffler Magic expects the experienced
technicians that it hires to come to the job fully trained; to that
end, the service center managers generally ask candidates for these
jobs basic behavioral questions that hopefully provide a window
into these applicants’ skills. However, most of the other
technicians hired to do jobs like rotating tires, fixing brake
pads, and replacing mufflers are untrained and inexperienced. They
are to be trained by either the service center manager or by more
experienced technicians, on-the-job.
Ron Brown faces several HR-type problems. One, as he says, is that
he faces the “tyranny of the immediate” when it comes to hiring
employees. Although it’s fine to say that he should be carefully
screening each employee and checking their references and work
ethic, from a practical point of view, with 25 centers to run, the
centers’ managers usually just hire anyone who seems to be
breathing, as long as they can answer some basic interview
questions about auto repair, such as, “What do you think the
problem is if a 2001 Camry is overheating, and what would you do
about it?”
Employee safety is also a problem. An automobile service center may
not be the most dangerous type of workplace, but it is potentially
dangerous. Employees are dealing with sharp tools, greasy floors,
greasy tools, extremely hot temperatures (for instance, on mufflers
and engines), and fast-moving engine parts including fan blades.
There are some basic things that a service manager can do to ensure
more safety, such as insisting that all oil spills be cleaned up
immediately. However, from a practical point of view, there are a
few ways to get around many of the problems—such as when the
technician must check out an engine while it is running. With
Muffler Magic’s profits going down instead of up, Brown’s human
resource manager has taken the position that the main problem is
financial. As he says, “You get what you pay for” when it comes to
employees, and if you compensate technicians better then your
competitors do, then you get better technicians, ones who do their
jobs better and stay longer with the company— and then profits will
rise. So, the HR manager scheduled a meeting between himself, Ron
Brown, and a professor of business who teaches compensation
management at a local university. The HR manager has asked this
professor to spend about a week looking at each of the service
centers, analyzing the situation, and coming up with a compensation
plan that will address Muffler Magic’s quality and productivity
problems. At this meeting, the professor makes three basic
recommendations for changing the company’s compensation policies.
Number one, she says that she has found that Muffler Magic suffers
from what she calls “presenteeism”—in other words, employees drag
themselves into work even when they’re sick, because the company
does not pay them if they are out; the company offers no sick days.
In just a few days the professor couldn’t properly quantify how
much Muffler Magic is losing to presenteeism. However, from what
she could see at each shop, there are typically one or two
technicians working with various maladies like the cold or flu, and
it seemed to her that each of these people was probably really only
working about half of the time (although they were getting paid for
the whole day). So, for 25 service centers per week, Muffler Magic
could well be losing 125 or 130 personnel days per week of work.
The professor suggests that Muffler Magic start allowing everyone
to take 3 paid sick days per year, a reasonable suggestion.
However, as Ron Brown points out, “Right now, we’re only losing
about half a day’s pay for each employee who comes in and who works
unproductively; with your suggestion, won’t we lose the whole day?”
The professor says she’ll ponder that one.
Second, the professor recommends putting the technicians on a
skill-for-pay plan. Basically, she suggests the following. Give
each technician a letter grade (A through E) based upon that
technician’s particular skill level and abilities. An “A”
technician is a team leader and needs to show that he or she has
excellent diagnostic troubleshooting skills, and the ability to
supervise and direct other technicians. At the other extreme, an
“E” technician would typically be a new apprentice with little
technical training. The other technicians fall in between those two
levels, based on their individual skills and abilities.
In the professor’s system, the “A” technician or team leader would
assign and supervise all work done within his or her area but
generally not do any mechanical repairs himself or herself. The
team leader does the diagnostic troubleshooting, supervises and
trains the other technicians, and test drives the car before it
goes back to the customer. Under this plan, every technician
receives a guaranteed hourly wage within a certain range, for
instance:
A tech = $25–$30 an hour
B tech = $20–$25 an hour
C tech = $15–$20 an hour
D tech = $10–$15 an hour
E tech = $8–$10 an hour
Third, to directly address the productivity issue, the professor
recommends that each service manager calculate each
technician-team’s productivity at the end of each day and at the
end of each week. She suggests posting the running productivity
total conspicuously for daily viewing. Then, the technicians as a
group get weekly cash bonuses based upon their productivity. To
calculate productivity, the professor recommends dividing the total
labor hours billed by the total labor hours paid to technicians, in
other words, total labor hours billed divided by total hours paid
to technicians.
Having done some homework, the professor says that the national
average for labor productivity is currently about 60%, and that
only the best-run service centers achieve 85% or greater. By her
rough calculations, Muffler Magic was attaining about industry
average (about 60%—in other words, they were billing for only about
60 hours for each 100 hours that they actually had to pay
technicians to do the jobs). (Of course, this was not entirely the
technicians’ fault. Technicians get time off for breaks and for
lunch, and if a particular service center simply didn’t have enough
business on a particular day or during a particular week, then
several technicians may well sit around idly waiting for the next
car to come in.) The professor recommends setting a labor
efficiency goal of 80% and posting each team’s daily productivity
results in the workplace to provide them with additional feedback.
She recommends that if at the end of a week the team is able to
boost its productivity ratio from the current 60% to 80%, then that
team would get an additional 10% weekly pay bonus. After that, for
every 5% boost of increased productivity above 80%, technicians
would receive an additional 5% weekly bonus. So, if a technician’s
normal weekly pay is $400, that employee would receive an extra $40
at the end of the week when his team moves from 60% productivity to
80% productivity.
After the meeting, Ron Brown thanked the professor for her
recommendations and told her he would think about it and get back
to her. After the meeting, on the drive home, Ron was pondering
what to do. He had to decide whether to institute the professor’s
sick leave policy, and whether to implement the professor’s
incentive and compensation plan. Before implementing anything,
however, he wanted to make sure he understood the context in which
he was making his decision. For example, did Muffler Magic really
have an incentive pay problem, or were the problems more broad?
Furthermore, how, if at all, would the professor’s incentive plan
impact the quality of the work that the teams were doing? And
should the company really start paying for sick days? Ron Brown had
a lot to think about.
Develop a 10-question structured interview form Ron Brown’s service
center managers can use to interview experienced technicians.
Structured Interview Form to assess the skillset of experienced technicians:
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