Page 651 - Business Principles and Management

C HAPTER 23 A SSESSMENT

CASE 23-2: What Can We Cut?
The executive team of the Drindel Corporation was facing a crisis. Inter-
national competition was putting tremendous pressure on the company.
Several longtime competitors in the United States had already either been
purchased by foreign companies or had moved most of their production
operations to other countries to take advantage of lower wage rates and
production costs. Drindel had operated in the United States for more than
80 years. Managers wanted to keep their U.S. operations and continue to
provide jobs for their current employees. However, they also knew they
had to find ways to reduce costs to be able to remain competitive and
profitable. They had already cut all the costs they could in production
and operations and now were turning to a major cost area—personnel.
Drindel had always prided itself on paying competitive wages and offer-
ing a comprehensive set of benefits, including insurance, vacations, em-
ployee assistance programs, and ongoing training. As a result, Drindel
employees were very loyal and the company had one of the lowest turnover
rates in the industry. However, the cost of wages, benefits, and human
resources services was the one remaining area that Drindel executives felt
they had to examine carefully. These were the choices they considered:
a. Ask all employees, including managers, to take a 10 percent reduction
in wages and salaries to bring those costs near the industry average.
b. Ask employees to pay the full cost of health insurance. Currently
the company paid 80 percent and employees 20 percent. The
total monthly cost of health insurance through the company was
lower than what employees would have to pay if they purchased
it individually.
c. Give each employee $200 per month to spend on any benefits they
chose. That would reduce the company’s cost of benefits by nearly
half and allow employees to pick those most important to them.
If employees chose no benefits, they would be paid the $200.
d. Reduce the size and cost of the human resources department by
eliminating all employee assistance programs and the personnel
who provided them and by cutting the amount of training by
50 percent.

THINK CRITICALLY
1. Why do you believe Drindel executives were attempting to protect
their company by cutting personnel costs rather than choosing their
competitors’ strategy—moving operations to another country?
2. Evaluate each of the choices in terms of its possible effect on the
company and its immediate and long-term cost savings.
3. If you were a Drindel employee, which option would you choose?
Why? If you were an executive, which choice would be best for the
company? Why?

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