Five years ago Ken Williams gave up his job as a primary school teacher and founded the Play Smart Toys Company. It was clear to him at the time that there was a gap in the market for toys that challenged the thinking of children. As a teacher he had developed a number of games and puzzles for his students, and other teachers and parents wanted to use his ideas. With the help of a small management team, Ken developed a line of specialty toys that made a big impact on the market. Now Play Smart Toys has a large production site in Melbourne that employs over 100 staff with a product line that is sold in five specialty stores in Melbourne, Sydney, and Canberra as well as a steady line of sales in most of the major department stores. The products are also being sold in Singapore and Hong Kong and Ken hopes to break into the Chinese market in the next twelve months.

The growth of the company has been quite remarkable. At first the company employed about 20 staff, but as demand increased the business went from a small operation to a much larger concern, employing a permanent production staff. This group is supported by permanent staff working in support roles such as logistics, product design, personnel, sales and accounting, and finance.

Despite steady sales figures, profits during 2013 and into the first part of 2014 were down. At the time the accountant, Tom Boxall, explained to Ken that profit was falling because costs were increasing. The cost management figures showed increasing scrap and wastage rates and rising labour costs. Along with these cost increases there were further issues that were of a concern to Ken. First there were efficiency problems with the production staff: at times staff were hanging around not doing anything, yet at other times when the number of orders increased, people were stressed and working flat out. Variations in orders were the results of seasonal swings in toy demand associated with peak periods such as Christmas and Easter. Second, despite a record of good staff loyalty the company was having problems with staff retention. This was particularly an issue with the skilled staff on the floor but several key product design people had also left along with an IT specialist who had only been with the company for six months. The number of workplace accidents was also on the rise and Sandra, one of the machine operators, had approached the personnel officer, Jill Williams, to suggest that some of the workers failed to take enough care around the machinery. She also pointed out that at times the increasing cohort of workers from ethnic backgrounds felt uncomfortable with the way that existing staff spoke to them. Sandra suggested that if the issue was not dealt with appropriately the company could have a number of harassment cases to deal with.

By mid-2014 Ken had become so worried about declining performance and the staffing problems that he employed a consultant to find out what was going on. In September Ken met with the consultant, John Smith, and at the time John explained that most of the problems seem to be connected with the very quick growth of the company and, as is often the case with companies that grow at an accelerated rate, the HRM approach had not kept up with the expansion. With respect to workforce planning for example Play Smart Toys had not really planned its workforce around peak demand periods. Furthermore, whether Ken realised it or not, the workforce that he had in place was probably quite different from the workforce that he had had five years ago. John also observed that there was discontent within the skilled workforce who felt that they were not receiving enough professional development. This was exacerbated by the fact that all of the senior positions were taken up by the existing management group, and other employees could not see a career path for themselves in the organisation. John submitted his final report in late October 2014. Ken briefly read through the executive summary, and basically John seemed to be pushing for 'a more strategic approach to HRM'.

In 2015 sales began to fall and the economic situation really started to hit Play Smart Toys. During this time Tom Boxall reminded Ken that one of the major cost blowouts in 2014 had been associated with labour, and really if the company was going to survive it was going to have to cut its labour force - basically the company was going to have to downsize until conditions improved. Ken realised the practicality of this suggestion but was still concerned about the impact of such a message, especially in view of the comments that had been made by John Smith in late 2014. Ken decided to invite John Smith to come along to the next management meeting to discuss the company response to the downturn and provide some insights based on John's investigation from the previous year.

Ken rang John Smith to ask him if he would attend the management meeting, and John was pleased to be involved. Ken explained that Play Smart Toys were looking at downsizing the workforce, and John agreed that this was a reasonable and necessary response. John also made the observation, however, that in light of the staff problems from last year any downsizing approaches would have to be handled extremely carefully. John commented, 'Prior to the most recent downturn you already had problems with the workforce. The lack of an effective HRM approach that kept up with your expansion was becoming a major problem. You really needed at that time to look at your workflows and how your jobs were designed. You were also losing important staff. Now if you inform staff that they are going to lose their jobs, existing problems might be made worse. When I come to see you next week we need to re-think how you are managing some key HRM issues.'

As he rang off, Ken wondered whether getting John Smith involved was actually going to be a good idea - it might just complicate matters. He thought to himself that people either wanted to work for the company or they didn't. If they weren't happy at Play Smart Toys they would have to find work elsewhere - at least if they went, it would get rid of some of the labour cost problems.

Questions

1 What are the HRM problems and issues facing Play Smart Toys?

2 What sort of HRM approaches do you think need to be taken to ensure on-going strategic competitive advantage?