prefontaine's sample case analysis

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Prefontaines, Inc.:

A Case Study and Analysis

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Table of Contents

Table of Contents .................................................................................................................2ENVIRONMENT ............................................................................................................ 6COMPETITION .............................................................................................................. 7

Minardi .................................................................................................................................8

Sauber .................................................................................................................................. 8Lola ...................................................................................................................................... 8Williams ...............................................................................................................................9Ferrari Town ........................................................................................................................ 9Mail Order ............................................................................................................................9Department Stores ................................................................................................................9Foot care specialists ............................................................................................................. 9Mail Order ..........................................................................................................................10

REGULATIONS ............................................................................................................10RESOURCES ................................................................................................................10STRATEGY/MISSION .................................................................................................11

KEY PEOPLE ................................................................................................................12Fred Prefontaine .................................................................................................................12Fern Prefontaine .................................................................................................................13Buzz Aldrin ........................................................................................................................ 13Michael Collins .................................................................................................................. 14John Young ........................................................................................................................14Ed White ............................................................................................................................14Deke Slayton ...................................................................................................................... 15Robert Crippen ...................................................................................................................15

FORMAL ORGANIZATION ARRANGEMENTS ......................................................15STRUCTURE ................................................................................................................ 15PHYSICAL LAYOUT ...................................................................................................16RULES/POLICIES ........................................................................................................16RECRUITMENT/SELECTION .................................................................................... 18REWARD SYSTEMS ................................................................................................... 19

Managers: Managers receive a flat salary plus a commission based on the followingformula: 2% of the increase in revenue from the same month last year. When a managertakes a job he is typically paid around $30,000, and makes another $5000 in commission.Some managers have been paid $35,000 and received $15,000 in commission, but that israre. ...................................................................................................................................21Assistant Managers: Assistant managers do not make significantly more in wages thansalespeople. Typically, they make $12/hour plus commission. The problem is that theyhave less time to sell, and their spiff totals often plunge to the point where they are paidless to be assistant manager than to be a salesperson. This is frustrating to many, andshould be addressed. The advantage to being an assistant manager is that managers arealways hired from their ranks. However, because of the low turnover, promotions arerare. Year-end bonuses are usually $250.......................................................................... 22

GOAL SETTING/MANAGEMENT BY OBJECTIVE ................................................ 22EVALUATION SYSTEMS ..........................................................................................23TRAINING AND DEVELOPMENT ............................................................................ 23

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TASKS/TECHNOLOGY ..............................................................................................24Newman Markoff stores ................................................................................................... 25Inventory control ................................................................................................................25

JOB CHARACTERISTICS MODEL ............................................................................26VARIETY ......................................................................................................................26

IDENTITY ......................................................................................................................... 27SIGNIFICANCE ............................................................................................................27AUTONOMY ................................................................................................................ 27FEEDBACK ..................................................................................................................28INTRINSIC MOTIVATION ......................................................................................... 28INTERNAL WORK MOTIVATION ............................................................................28

MEANINGFULNESS ....................................................................................................... 28RESPONSIBILITY .......................................................................................................29KNOWLEDGE OF RESULTS ......................................................................................29INFORMAL ORGANIZATION ................................................................................... 29WORK GROUP PROPERTIES ....................................................................................30

NORMS/SANCTIONS/STATUS HIERARCHY .........................................................30OUTPUTS ......................................................................................................................31PERFORMANCE .......................................................................................................... 33STRENGTHS ................................................................................................................34

THE GOAL OF THE COMPANY IS KNOWN AND AGREED UPON ........................34THE CORPORATE CULTURE IS ONE OF EXCELLENCE .........................................34MARGINS ARE VERY HIGH AND NOT UNDER PRESSURE ...................................34FRED PREFONTAINE IS A CHARISMATIC AND RESPECTED LEADER ............. .34STORE MANAGERS GENERALLY PROVIDE STEADY LEADERSHIP ..................34SALESPEOPLE ARE VERY TALENTED ......................................................................35GOOD BUYING ...............................................................................................................35GOOD RELATIONSHIPS WITH SUPPLIERS ............................................................... 35THE BUSINESS IS OPEN TO SOME NEW IDEAS ......................................................35THE COMPANY HAS MADE NEWMAN MARKOFF A PARTNER ..........................35LOYAL CUSTOMERS ..................................................................................................... 35GOOD LOCATIONS ........................................................................................................ 35LIQUIDITY AND RESOURCES ..................................................................................... 36WEAKNESSES .................................................................................................................36FERN PREFONTAINE ..................................................................................................... 36SUCCESSION ISSUES .....................................................................................................36POOR UTILIZATION OF INFORMATION TECHNOLOGY .......................................36A LACK OF FEEDBACK FROM FRED IS DEBILITATING ....................................... 37A LACK OF MARKETING .............................................................................................37NO PLAN EXISTS TO CONTINUOUSLY TRAIN MANAGERS ................................ 37LEVELS OF COMPENSATION ARE NOT HIGH ........................................................ 38THE HIGH MARGINS REDUCE URGENCY OF THE TASK ......................................38FINDING GOOD EMPLOYEES IS DIFFICULT ............................................................ 38THE NEWMAN MARKOFF STORES ARE HEAVILY DEPENDENT ON NEWMANMARKOFF ........................................................................................................................ 38

INCONGRUENCES ......................................................................................................39

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THE SALES COMMISSION SYSTEM CAN BE MISUSED ......................................... 39PROGNOSIS ................................................................................................................. 39RECOMMENDATIONS ............................................................................................... 40SHORT-TERM ACTION PLAN ..................................................................................40LONG TERM ACTION PLAN .....................................................................................41

SHORT TERM RECOMMENDATIONS .....................................................................41LONG-TERM RECOMMENDATIONS ...................................................................... 44Congruence Analysis .....................................................................................................47References ......................................................................................................................54

Prefontaine, Inc. is the parent organization that owns and operates four Prestores in Boston and three affiliated Newman Markoff stores. Pre is a boutique sellingprimarily to runners. While shoes account for 75% of sales, clothing and accessories aresignificant contributors as well. The Newman Markoff chain of shoe stores sellsexclusively Pre shoes and clothing, at a 90% to 10% ratio, respectively. The Pre chain iswholly owned by a husband and wife team, Fred and Fern Prefontaine. They founded the

first Pre in 1977 in Boston.

HISTORY OF THE ORGANIZATION

Like his famous cousin, Steven Prefontaine, Freds entire life was centered onrunning. He did not go to college, had no work experience other than the US Army, andwas not able to make a living from running. Lacking options, he decided to do what heloved, and looked for a way to make money using the expertise he had gained from yearsof running.

The year was 1975, and the running boom sparked by Frank Shorters win in the1972 Olympic Marathon in Munich was in full swing. In five years, the Boston Marathonhad gone from a casual affair drawing a couple hundred participants to an internationalgathering with 5,000 entrants. Thousands of people all along the Eastern seaboard weretaking up running, but there was very little in the way of retail expertise to serve thisgrowing community.

In a situation that might cause most people to sit back and complain, Prefontainesaw opportunity. Using the money he borrowed from numerous sources, Prefontainebought the cheapest van he could find, filled it with the three or four models of runningshoes available at the time and set out to make some money.

On weekends, Fred and Fern drove the van to every road race in the area, parkedit near the finish line, put out two chairs, and sold shoes. During the week, they went tohigh school track meets and cross-country races and sold shoes at steep discounts tostudent-athletes. Business was shockingly good, since there was no competition. Ferrari,Newman, and Basics Jaguar were the only companies who made running shoes, andalmost no retail outlets carried them. And no store had any expertise selling the product.

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The years selling out of the van became the founding myth of the company, andanyone associated with them was held in great esteem. The principles of the companywere forged in those times, and they have not changed. Fred believes that runners need tobuy shoes from other runners. He believes in staying close to the sport. He believes in ascrappy, do anything philosophy of business. He sponsors several races on Cape Cod.

Most of all, he still believes he is selling to friends, and if a friend has a problem with apair of shoes, he can bring them back, no questions asked. Remember, Fred saw the samepeople every weekend at races, and learned to stand behind his product.

The running community was small in 1975, and Fred became a well-known figurenot only for his retail efforts, but also for his win of the Boston Marathon several yearsearlier. Business kept growing, and the Prefontaines added a few employees so two orthree vans could go to different races. Finally, in 1978, Fred and Fern decided thatbusiness was good enough to open a permanent location.

They found an empty storefront in downtown Boston, and opened the first Pre.

The store was not an immediate hit, but business grew steadily through the late 1970sinto the 1980s. During that decade, the business expanded into a chain of several stores,headquartered near the Prefontaines home in Quincy, Massachusetts. While most storeswere successful, those stores did not turn a profit and were closed. The Prefontaines werenever tempted to pull up the drawbridge and retreat; they always bounced back fromfailure.

In the 1980s, the Prefontaines pulled off a coup that is worth mentioning becauseit shows the importance of the chain to Boston runners and the business smarts of FredPrefontaine. The Boston Runners Club, which puts on the Boston Marathon and boasts amembership of approximately 25,000 today, needed a new place. They were perenniallycash-strapped, yet they felt a location near Boston Common was necessary in order toserve runners. Property near the park is, of course, enormously expensive. Fred learned ofthe Clubs plight, and agreed to help them find a good lease, provided they moved into alocation on Newbury Street, not two blocks from a Pre. It was agreed to, and to this day,the Club sends many beginning runners to Pre to get fitted correctly.

Pre grew steadily through the early and mid 1990s, guided by the principles laidout during the van years. In 1994, Fred was approached by the shoe manufacturer,Newman, to reserve a corner of Pre stores for Newman shoes and clothes. ThePrefontaines did not like that idea, so they suggested opening a freestanding Newmanstore. This came to be in 1995, and opened the latest chapter in the companys history.The store, called Newman Markoff, was an enormous success, and after three years, itsrevenue outstripped that of the busiest Pre. A second Newman Markoff store opened in1999, and the third recently opened in 2001.

In 2001, the chain finds itself at another crossroads. While competitive runninghas never been more popular, the athletic shoe business has been losing speed. While allstores are profitable, revenue growth at Pre stores has slowed. On the other hand, theNewman Markoff stores have proved to be more popular than anyone thought, and it is

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there that most growth for the company is thought to come from. However, with threestores in Boston and four in neighboring communities, the market may be nearingsaturation. If growth at the Newman Markoff stores slows, the Prefontaines may have tofind another growth engine.

The problem of the Prefontaines age is also posing itself. Fred is in his early60s, and has a bad back. At some point he will want to retire, and it is not clear if he willsell to an outsider or to someone within the organization. A final problem rests in thePrefontaines ability to manage their empire. They still view the business as a familyenterprise, but the higher and higher number of locations limits their presence. Delegatingsome control over the business will be necessary if the number is to grow any higher.

ENVIRONMENT

Prefontaine, Inc. is in the business of retail sporting equipment geared to runners.The store also has a limited selection of shoes for tennis, cross training, walking,

basketball and hiking. The company also carries runners apparel and accessories such aswatches and heart rate monitors for running and other sports.

While Boston is a high-risk place for retail due to the high rents and competition,it can offer high returns to a successful business. Boston is particularly well suited toretail for several reasons. The population density of the city is among the highest in thedeveloped world, ensuring high foot-traffic. The wealth of city residents is extremelyhigh, which translates into a lot of shopping dollars. Due to the lack of personal cars andthe fact that you have to carry home everything you buy, people generally patronizestores in their neighborhoods and do not seek out stores in other parts of town. Bostonitesare also famously competitive; if they learn of an innovation in running shoes, they needto be the first ones to own it. They are accustomed to paying high prices, and doing somakes them feel as if they got their moneys worth. They are more than willing to pay forexpertise, because many of them are among the worlds most educated people. Above all,Bostonites want to know that someone is in charge and that everything will be ok. Ahigh-end, full-service store assures them of exactly that environment.

Retail sporting goods companies generally go in two directions: full-service ordiscount. Discount stores try to make up in volume what they lose in margin whilecutting service to the minimum. Discounts range from 10% to 30% off suggested retail.Full-price stores generally charge suggested retail price and offer far more services, suchas a trained staff, more selective buyers, and a liberal return policy. Prefontaine, Inc. isdecidedly on the full-service side of the industry.

There are many ways to succeed in sporting goods but only a few ways to fail.Discounters generally do not last long in Boston, because the high rents do not give muchof a cushion, and Bostoners are very picky. With so much competition, there is rarely areason to go back to a store in which you have had a bad experience; there is alwaysanother discount store.

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To succeed, a store must establish a customer base and tend to it carefully.Bostoners tend to find a store they like and keep going back to it until they find a reasonnot to. Prefontaine, Incs mission has always been not so much to make new customers,but to keep the ones it already has.

Discounters, on the other hand, are dependent on making new customers, and theymust pay for better locations and advertising in order to find them. Their fixed costs arehigher because of the advertising, so in a downturn they will suffer. By offering lowprices, they are unlikely to create loyal customers, since those customers will shopelsewhere if they find a lower price, and there is always a lower price. So then thecompany must find new customers, and the cycle begins again.

The problems facing a full-price store like Pre are very different. The store runs100% margins, and many customers know that they can get the very same shoe down thestreet for 30% less. Pre must give a strong and clear reason for them to shop there, andkeep at it at every contact with the customer. All it takes is one bad encounter to lose a

good customer.

While this is not the place to spell out Pres strategy in full, it is important tounderstand that the company is under constant price competition, but it manages toprosper because it offers better service than other stores.

Even after prospering for 25 years, Pre is still the only running boutique in thecity. While Pre, department stores, discounters, Minardi and Sauber do compete for thesame customers, Pre has no direct competition in the full-price, full service runningspecific space. The environment is brutally competitive in the mass market, but as far astargeting runners directly, Pre has no competition.

COMPETITION

As we spelled out in the Environment section, Boston sporting goods retail isdivided into two worlds: discount and full-price. We will consider them independently,because they offer different challenges to the company.

FULL-PRICE STORES

Jordan

This large, independent sporting goods emporium is Pres most directcompetition. Located in South Boston, Jordan is a veteran of the sporting goods wars, andgenerally does a good job in the running category. They offer a selection equal to Pre,and at comparable prices. They do not discount much if at all, and can offer good serviceif you go during a slow time.

Jordan has several advantages over Pre. They spend a lot of money on marketing,taking out large ads in theBoston Herald, while Pre does almost no advertising at all.

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Many beginning runners will not have heard of Pre, but most active people in Bostonknow of Jordan, because of its advertising and the fact that they have been around fordecades.

Jordan also has the advantage of selling more than just running equipment. Many

of their sales are made by customers visiting the store to buy a tennis racquet or skis, andwho remember that their running shoes are worn out, so they pick up a pair. Of course,this works against Jordan as well, since they necessarily lack Pre focus.

The larger store has more drawbacks than benefits, however. Its large size makesrunning just another part of the business rather than its raison detre. The level of serviceat Jordan is spotty; there are some star salespeople, but as likely as not, customers facethe same level of ignorance as at the discounters. Furthermore, the store is far toocrowded on the weekends to get good service. Customers are forced to chase downsalespeople and make them get a pair of shoes for them. Pre has none of these faults.

Minardi

The main attractions of Minardi are its marketing, that it has the latest shoes, andits ubiquity. The company is part of a national chain, and millions are spent onadvertising. The ads convey a sense of expertise, but it mostly illusory; the salespeopleare only one cut above the discounters.

Minardi does have the newest products, however, and they get a lot of businessfor that reason alone. The latest shoes from Ferrari tend to sell out, and Pres limited cloutwith Ferrari ensures limited delivery. Minardi, on the other hand, can generally getwhatever it wants in whatever quantity it wants because of its mammoth size. Pre losesmany customers who want the latest shoe styles to Minardi.

Sauber

A Minardi clone in almost every way. Everything that is said about Minardi alsogoes for Sauber.

Lola

Lola serves as a sporting goods supermarket, carrying everything from lacrosseballs to swim fins. Like Minardi, they generally carry fashionable shoes rather than thebest performing ones, and have an unskilled sales staff. They do have a pricingadvantage; the store has frequent sales that customers have been trained to wait for. Thechain buys a lot of advertising, meant to appeal to the mass market.

The store poses little competition to Pre, since runners generally dont find theselection of running shoes there to be nearly as good. However, on the low end of athleticshoes meant for everyday use, Lola does well. Their service is generally poor.

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Williams

Williams is a better-funded and larger Lola. It is a national big box store that hasone location in Boston. They have a huge selection of sporting goods, but only a smallrunning section. Only beginners or those attracted by the stores frequent sales will shop

there. Neither group is Pres customer.

Ferrari Town

In the running shoe business, Ferrari is the 800-pound gorilla. Since the 1980s,Ferrari has had the highest market share in the business, and they currently hold about45% of the running shoe market. More than that, they consistently bring out the latest,most desirable, highest price shoes on the market. Ferrari is the core product in mostsporting goods stores.

Ferrari Town, a company store in Boston, opened in 1990. As much a store as a

museum and showpiece for the company, Ferrari Town has a strong pull on loyal Ferraricustomers. Pre loses some customers to Ferrari Town, but probably not too many, since itis located inconveniently and is not known for its service.

Mail Order

When a customer knows exactly what kind of shoe or clothing he wants, there areonly two reasons to come to Pre: convenience and returnability. More likely, he will go tothe discounters or purchase it by mail order. Contrary to conventional wisdom, mail orderis not usually any cheaper than full retail, especially now that Boston has eliminated itssales tax. It is not clear how much business is lost to mail order firms, but most think it issubstantial. Pres great advantage is that when customers buy via mail order, they cannottry on shoes before they make the purchase. Return policies are generally very liberal formail order, which takes away a Pre advantage.

Department Stores

The influence of department stores has been waning in recent years. Whilerunning shoes used to be widely available at department stores, this is not as true anymore. Porsche still has a large following among recreational walkers, suburbanites andthe elderly, but those groups are not Pres constituency so little damage is done.

Foot care specialists

Pres and the Newman Markoff Stores do a substantial amount of business withpeople who have foot problems. These customers generally cannot go to discountersbecause they need extra service to get fitted correctly. In Boston, Cosworth is a strongcompetitor to Pre and Newman Markoff. Cosworth offers largely the same level ofservice, and they offer a wider selection of walking shoes. It is hard to quantify the

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damage done by this store, but it is substantial and Pre/Newman Markoff always has toface the fact that if they are not treated right, many customers will move to Cosworth.DISCOUNTERS

Ubiquitous in Boston are mom and pop shops selling athletic shoes at bargain-basement prices. It is an easy business to get into, and if a family is willing to toleratelong hours and low margins, it can be a moneymaker.

These stores sell primarily to two groups: people who are interested in fashionrather than function, and those who do not require high levels of service. Generally thesestores have no SMEs and do not accept returns. They do not compete for the samecustomer as Pre/Newman Markoff. Their only effect on the business is that they lowerthe street price of shoes, and Pre/Newman Markoff has a policy of matching any storesprices. Because the customer has to bring in evidence of the lower price, Pre/NewmanMarkoff generally only has to match 5 or 6 prices per week.

Mail Order

Some mail order companies sell at steep discounts. Some serious runners, whoneed a new pair every two or three months and know what they need, shop via thischannel. For the 99% of runners who buy shoes every six months or so, this is not aviable option.

REGULATIONS

Pre is obliged to follow a myriad of business regulations, including:

Collecting payroll taxes

Collecting social security tax

Collecting unemployment insurance

Collecting sales tax

Paying into the workers compensation fund

Paying Medicare premiums

Abiding by work safety regulations

Making sure employees are legally able to work

Paying corporate income tax

Following laws for its profit-sharing plan

Administering its health plan

RESOURCES

The family-business nature of Pre is both the reason for its success and holds thepotential for its downfall. The strategic management team is made up of two people: Fredand Fern Prefontaine. They do not consult others on important decisions, and ofteninform employees of a future store opening well after construction has begun. While the

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pair has made good decisions so far, they have not tapped the potential of employees. Thecompany is limited by the imagination and soundness of the pairs decision making, butat the same time, the companys greatest resource is the charisma and decision making ofFred Prefontaine. Many feel the company will disintegrate after his retirement.

The company appears to be able to raise as much cash as it needs. The companyhas been around for 25 years and has established a close relationship with its bank. Itshigh and steady cash flow ensures liquidity. It has no problems with credit with suppliers,and in fact has built extraordinarily good relations with most shoe manufacturers. Manycompanies ask Fred for advice on what the customers want in running shoes.

A potential problem for the company is finding good employees. The chain hasalways prospered by finding over-qualified managers willing to be paid less than heycould earn elsewhere in order to work in the running business and have flexibleschedules. In boom times, these people are more difficult to find. Runnings decline hasalso made finding new talent harder. There are simply fewer serious runners who want to

live the life in a running store. The result is that some stores have non-runners asmanagers and many non-running salespeople. This goes directly against the mission ofthe company, as spelled out below, of runners selling shoes to other runners.

That said, the amount of knowledge and experience built up in the company isformidable. Most managers have been with the company for more than seven years,which ensures a high level of expertise. Fred understands the problem, and has institutedmany training programs to make sure everyone knows enough about running to be a goodsalesman.

STRATEGY/MISSION

A primary reason for the success of Pre Management is that it has been able to setout its strategy out very clearly, create policies in support of the strategy, and gain buy-infrom everyone in the organization.

As we have seen, the corporate ethos was set in the days of selling out of the van.The stores are places where runners can buy shoes from other highly trained runners, whoknow the issues and are able to guide them through the purchasing process while givingrunning tips. It is hard to overestimate the importance of this aspect of the storesmission.

The mission of Pre is spelled out in the return policy: satisfaction guaranteed. Ifanyone buys a pair of shoes in the store and does not like them for any reason, he canreturn them for a refund or exchange, no questions asked, even if he wore them for amonth. The companys goal is to make lifetime customers. If a few $150 pairs of runningshoes have to be thrown away, management is willing to do it, in the hope of winning aloyal customer. The point is that the business is committed to customer satisfaction, evenif it has to take a temporary loss to gain it.

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The marketing strategy follows the commandment to make money off of loyalcustomers, not new customers. The company advertises very little, and only in running-specific publications, like the Boston Road Runners Club magazine, and Track and FieldNews. The store does not want to go mass-market; it would prefer to grow slowly andcontrolled and maintain its links to its long-term customer base.

The store uses price reductions in a limited manner. Members of the Boston RoadRunners Club receive 10% off shoes, as do competitive high school runners. At the endof a shoes production, it will often go on sale to move out the inventory. Every winter,Fred buys deeply discounted boots and sells them for 20-40% off suggested retail. EveryFebruary, the store puts its winter clothing on sale at 20-40% off suggested retail.Keeping with the overall strategy of the company, the sales are not meant to draw in newcustomers. They are used to get rid of merchandise that would take too long to sell at fullprice.

KEY PEOPLE

Fred Prefontaine

While Fred and his wife, Fern founded the company together, Fred is by far themost important person in the organization. He leads by charisma, unwavering dedicationto the mission of the company, and as a subject matter expert. Most people in thecompany like him very much, and while there is always much complaining about him, itis usually in the manner of people complaining fondly about a loved ones eccentricities.

Fred is an example of a particular kind of American success story. He grew uplower middle class in Quincy, Massachusetts, in a small and close family. His tightfamily experience has made him extremely family conscious, and he is particularly fondof employees with children. This has not caused a problem, since only a few employeeshave families of their own.

Not a good student (Fred would always say that he was the smartest kid in thedumbest class), Fred found success in track and field. He was one of the fastest runners inWorcester in high school (his family moved to Worcester when he was around 12), and inhis early twenties won the Boston Marathon, placed highly in New York, and competedin the Olympic Trials.

Fred s success as a runner gives him a tremendous amount of credibility. He doesnot always talk about his past, but all employees know Freds racing history and often tellcustomers about it. Hearing that Fred won the Boston Marathon is inspirational to theemployees, most of whom run competitively but nowhere near the level of Fred at hispeak. The customers also like to associate with a winner and a recognizable name.

After high school, Fred joined the U.S. Army, and continued to train. In theArmy, Fred learned much of the male bonding skills that serve him well in his business.Fred stayed in Army until he finished his enlistment.

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Fred plays a role in the business that is hard to overestimate. He has built thecompany around his view of what a retail store should do. He instills in his employees thesense that indeed the customer is always right and that employees have it in their powerto satisfy every customer; the trick is to figure out how. To him, a good salesperson is

more important than a good manager in terms of the long-term success of the company.

Fred s greatest strength is the example he sets as a salesman. He is the bestsalesman in the business, and is good at teaching his people how to sell. Freds ability totrain and inspire the sales staff is essentially why the stores do well, and the business canbe best understood as a group of talented salespeople.

While Fred is universally liked and admired, his management skills have someweaknesses. He is a believer in the If you dont hear from me youre doing fine schoolof feedback. Managers often are not sure if they are doing a good job, and are alwaystroubled by the unclear role in decision making played by Fern Prefontaine, Fred s wife.

Fern Prefontaine

Fern also grew up middle class in Quincy, and married Fred when she was around

20. The couple had three children immediately, and until the first Pre opened, her timewas spent being a full-time mother and supporter of Freds running career.

Fern is in charge of the clothing side of the business, which representsapproximately 25% of sales. She is the apparel buyer and merchandiser for the entirechain, and has a large but hard to determine role in human relations and financialdecisions.

While her skills as a buyer are respected, Fern is not liked by some employees.She has very high standards for how the store looks, which includes having all the clothesperfectly displayed all the time and all racks completely dust-free, and is not good atgiving feedback. She does not offer positive feedback, and does not shoot the breeze withemployees, so the only contact employees have with her is when she is criticizing them.In addition, she is a terrible salesperson, and in a company culture that canonizes goodsalesmanship, she loses respect for her weakness. In fact, her presence is consideredcounter-productive to good salesmanship; instead of selling, a high-performingsalesperson could easily find herself refolding shirts for three hours on a busy Saturday ifFern is in the store.

Buzz Aldrin

Buzz has been with the company for seven years, moving up the ranks from salesto managing the Boylston Street Newman Markoff store. Buzz is probably the strongestof the managers in terms of inventory control and general operations, but less strong interms of charisma and human resources.

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His store has the highest sales of any in the chain, and is also the most dependenton a quality inventory. For this reason, more of his time is spent working on inventorythan other managers. All consider him to be a subject matter expert; he has a wide andaccurate knowledge of running and walking. His sales skills are satisfactory and he is

able to teach salesmanship fairly well. Besides the inventory, his largest contribution is asense of high standards by which the store must live.

Buzzs weaknesses are in the personal relationships he has with others in thebusiness. More than other managers, he keeps to himself and is not considered friendly.This hurts the business, because he could serve as a crucial link between Pre andNewman Markoff. Some in his store do not like him personally; although they wouldagree that Buzzs skills let them make more money in commission.

Michael Collins

Michael has been with the company for 11 years, and manages the busy North-End Pre store. Michael is considered the old salt of the company. As the manager withthe longest tenure, he has seen everything, and has maintained a high level of respectthroughout. He has no enemies, everyone likes him, and is frequently consulted by othermanagers for advice. He has the best relationship with Fern of all the managers.

Michaels weakness is that he is considered a bit lax. He does not strictly enforcecompany policy, and therefore his store is a bit shabby and the salespeople could besharper. The flip side is that morale is always good at his store due to the high volume,his steady hand and a relaxed environment.

John Young

John has managed the East End Pre for five years. Not a runner, John comes tothe position from other retail positions. He is considered to be a competent, friendly butnot particularly sharp manager. His stores business has been declining for several years,and is now the third busiest after being the busiest for years. His non-runner status hasmade him an outsider, and he has not presented any other skill to become an SME.

Ed White

Not a runner, Ed has managed to find a niche in the company by his collegialityand salesmanship. He is a good talker, and knows an enormous amount about sports ingeneral. He is an excellent salesman, and even with managerial responsibilities, he sells alot of shoes. His weakness is in organizational skills. He is not interested in inventorycontrol; he has sales in his blood. His Newman Markoff store does well because of itsesprit de corps among the employees, but it could do better with more organization. Ed isalso the most tech-savvy employee; he runs the web site and often fields IT questionsfrom other managers. This is not as great a help as it might be in some companies; thecomputer system is fairly simple for everyone to use.

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Deke Slayton

Dekes official job is accountant, but he also serves as a buffer between the storesand Fern. If there is a financial matter that a manager needs to discuss, he would go to

Deke rather than Fern under almost any circumstance. Deke is a universally well-likedSME who always gives answers. Fern implicitly approves of Dekes position as her defacto stand-in. Deke has been with the company 20 years and knows the issuesintimately. He is one of the irreplaceable players.

Robert Crippen

Robert is manager of the third Newman Markoff store. He has been with thecompany for 5 years and is respected for his quiet competence. He has not earned muchrespect from his stores sales, since they have been weaker than expected. More a steadyworker than star performer, he is not considered an expert and is rarely asked for advice.

FORMAL ORGANIZATION ARRANGEMENTS

STRUCTURE

Prefontaines Inc. is the parent corporation, under which are two divisions: thefour Pres and three Newman Markoff stores. The president of the corporation is FernPrefontaine, and the vice president is Fred Prefontaine. The titles are formalities; inreality Fred runs day-to-day operations and Fern controls the finances.

All strategic and financial decision-making are in the hands of Fred and Fern.They alone decide on budgets and are aware of the profitability of each store.

Each store has a manager who is responsible for day-to-day operations of thestores. The manager is not a line position; he has no information on profits or cost. Theresponsibilities of the manager are to:

Maximize revenue

Hire, train and fire salespeople

Keep the physical plant in a good state of repair

Handle all customer service issues

Advise Fred and Fern of goings on at the store

Keep the store clean Write work schedules

Maintain the inventory

Be a subject matter expert

Close out the register and count the money

Each store has one or two assistant managers, depending on the volume of business. Theresponsibilities of the assistant manager are to do all of the tasks done by the manager

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when the manager is out of the store. There is little formal distinction between managerand assistant manager in the stores. The assistant is expected to be as capable as themanager in all aspects of store operations. For this reason, it is extremely rare for anoutsider to be brought in as a manager. In almost every case, an assistant manager ispromoted.

There is no position below assistant manager other than salesperson. The numberof salespeople varies seasonally and according to the needs of each store. The range isfrom 5 to 12.

PHYSICAL LAYOUT

Floor plans of all stores are not available. The layout of the busiest store, theBoylston Street Newman Markoff store, is appended. The typical store has a selling floorapproximately 40 feet by 20 feet with a stockroom attached. Each store is divided intotwo sections: clothes and shoes. The shoe section has benches on which customers sit and

movable stools for employees. The shoes are on display shelves on a wall behind thebenches, organized by category. For example, all the running shoes are together andseparate from the walking shoes, which are also together. The clothes section is made upof freestanding clothes racks divided into a mens section and a womens section. Withinthe gender division, clothes from each company are hung together in color-coordinatedsets. For example, a red singlet will be hung with a matching red pair of shorts. The shoeand clothes stockroom are grouped in a manner mirroring the sales floor. There is noseparate employee area in the stores; usually employees claim squatters rights on acorner and set up a table and chairs.

RULES/POLICIES

Upon hiring, employees are given a handbook and asked to sign a form signifyingthat they read and understand it. The book details all store policies from vacation time tothe health plan to reasons for dismissal.

The opening hours for each store vary slightly, however they are always close tothe following:

Monday: 10-7

Tuesday: 10-7

Wednesday: 10-7

Thursday: 10-9

Friday: 10-7

Saturday: 10-6

Sunday: 12-5

Employees report to work either 30 or 60 minutes before the scheduled opening in orderto clean and prepare the store for business.

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The company has a uniform: At Pre employees wear a blue polo shirt with thecompany logo and either blue jeans or khakis. At Newman Markoff employees wear ablack polo shirt with the Newman Markoff insignia and khaki pants. All employees mustwear footwear sold in the store. The dress code is strictly enforced; anyone without clean,ironed and appropriate clothes is sent home. Men must be clean-shaven and have

combed hair; women must be tidy.

The employees must follow some rules in the selling process. A selling systemcalled ANPOCS is legislated in the system, as is a rule that if a salesman feels he is indanger of losing a sale, he must ask another salesperson to assist or take over the sale.ANPOCS is an acronym for:

Approach the customer

Needs (determine the customers)

Present the product

Overcome objections

Close the sale Suggest other items

The system is meant to teach salespeople how to sell properly, and will be dealt with inthe training section below.

Another rule is that if a customer asks for a different size, the salesperson mustget it without saying a word, even if he thinks it is a mistake. Salespeople must askcustomers if they would like to take a test run outside the store. They must measurechildrens feet, if requested or not, and give young children a balloon. Employees muststand when a customer is in the store, and if a customer says he would like to purchase a

particular pair of shoes, no matter how inappropriate, a salesperson must never arguewith him in any way.

The floors must be kept dust-free, and the clothes must be straightened up on acontinual basis. The stereo must be on to one of four approved radio stations, and thetelevision must be playing a pre-recorded race such as the Boston Marathon. As perBoston law, the sidewalk must be kept clean.

The return policy is famously short: Satisfaction Guaranteed. The stores will takeback any shoe, provided a customer can prove it was purchased there, and receive arefund or exchange. Salespeople are instructed to accept returns with a smile and a

positive attitude. The reason for the rule is to make customers extremely loyal. While thestores do have a very high return rate, the gained loyalty of the customers more thanmakes up for the cost.

Because shoplifting is a problem in Boston, rules have been put into place to helpfight theft. If suspicious characters come into the store, they must be followed carefully.No more than two suspicious high school children are allowed in the store at one time.

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Salespeople are instructed not to chase shoplifters out the door. Managers are not allowedto be in the store alone; someone must wait with them while he closes the store.

Lateness is officially not tolerated, but in reality is common. While the companydoes not offer paid sick days, if an employee comes to work and says that he is sick, he

may go home and get paid for the rest of the day. After a year, employees are entitled totwo weeks paid vacation. After six months employees may go on the health plan. After ayears service, contributions begin to be made to a gainsharing profit sharing plan.

There are rules around the use of spiffs, or commission. Under no circumstance isa salesperson allowed to present an inappropriate shoe to a customer just because it iscurrently a commission shoe. Managers look out for this sort of thing, and have preventedit from being a problem.

Discipline is rare in the stores. Salespeople generally are only fired for absences,theft or insubordination, all of which are rare. One manager counted firing only 5 people

in his five years. In the case of incompetence, the employee generally is pushed out byrefused raises and poor scheduling.

Two managers have been fired in seven years. One was terminated for allegedfinancial improprieties and the other for arguing too much with Fred. Three have quit,usually for better jobs.

RECRUITMENT/SELECTION

While technically managers must clear each new hire with Fred, in practice Fredrarely says no. Stores are perennially short of quality salespeople, and if a promisingcandidate applies for a job he is almost always made an offer.

Hiring is almost exclusively walk-ins. On rare occasion, when a serious employeeshortage crops up, the company will place an ad in theBoston Herald, but that is rare.Current employees are constantly asked to refer potential employees, and in times ofshortage a bounty is offered.

Each store keeps a file of resumes of hirable candidates, and when a store needs tohire someone, the manager calls around asking for candidates. The system generallyworks well, although a central clearinghouse for all resumes would be more efficient.

There are several difficulties in finding employees for the stores. First, findingrunners is extremely difficult, and in fact the majority of salespeople in the stores do notrun. This lowers the quality of sales in the stores. Second, good salespeople willing towork at retail wages are rare. Third, finding women to hire is very difficult, yet criticallyimportant. For these reasons, the stores put enormous importance on training andmaintaining the corporate culture.

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The positive outcome of the problem is that management has a great need to keepcurrent employees happy so they do not quit. In fact, turnover is very low at the stores,compared to most retail businesses. The Boylston Street Newman Markoff store lost onlytwo employees out of 15 in a recent year, a remarkable figure. This is generally attributedto quality of life issues such as schedule flexibility, a good work environment, the pride

that comes from learning how to be a good salesman, decent money available from acommission system, and the opportunity to work in the running business.

Putting hiring into one persons hands can cause problems. Once in a while amanager proves to have poor judgment in the hiring process, and puts poor employees onthe payroll. This is a problem, because firing is generally only done for serious rulesinfractions. Poor employees can stick around for years, frustrating all involved. No goodsolution has been implemented for this problem.

Selection criteria vary among managers, but the following are representative:

Good appearance Runner

Well-spoken/use of proper English

Obvious intelligence

Sales experience

Friendliness

Willing to work weekends

REWARD SYSTEMS

All full-time employees are eligible for benefits after being with the company for six

months:

Free health plan

Paid tuition to become a pedorthist

After one year, employees are eligible for:

Profit-sharing plan, paid into a retirement plan

Two weeks paid vacation per year worked

Salespeople: Salespeople have two sources of compensation: wages and commission,called spiffs. New hires come in at $7-$8 per hour, depending on experience, and top outat $10 per hour after around three years. Raises are negotiated on a person-by-personbasis, and entirely on the employees request. Managers are instructed not to raise wagesuntil an employee asks. After an employee asks for a raise, the manager brings up thematter with Fred, who then runs it by Fern. While the raise is usually approved, theprocess usually takes two months to work its way through the system, which is too longand causes frustration.

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Frequently, a good employee will never ask for a raise, out of timidity or thebelief that the company will do the right thing and give him a raise when he deserves it.Of course, that raise will never come on its own, and the good employee gets more andmore disenchanted. Cognitive dissonance sets in, and the unpleasant sensation makes theemployee unhappy.

It is unlikely that many employees leave for this reason, because totalcompensation is comparable to other retail stores. However, the resentment seemsunnecessary, so to resolve the problem, we recommend a regular evaluation scheduleinvolving wage adjustment if warranted. The goal should be to inform employees exactlywhere they stand and tell them what they need to do in order to get a raise. The arbitrarynature of wages must be reduced. The goal should be to reduce the negative aspects ofthe equity theory (bad feelings toward other workers and a sense of being wronged), andkeep the good ones. Managers should be able to say with surety that Yes, she is paidmore than you. But if you do this and this and that, you will be paid the same.

The second part of salespeoples compensation is so-called spiffs. There are twokinds of spiffs: those earned for multiple sales, and those earned for selling particularmodels. Multiple sales are always a spiff because the company profits highly when withjust a few more minutes of sales time, a salesperson can sell a second pair. The secondform of commission is earning money on designated shoe models. This type of spiffintroduces ethical gray areas into the mix. The store takes its responsibility to thecustomer very seriously, and this kind of spiff can influence a salesperson to sell aninappropriate shoe.

There can be several reasons for a model to be put on spiff. The most common isthat the warehouse is overstocked in a particular model and needs to move it out.Sometimes a manager feels that a shoe should be selling more, and with a littleencouragement, salespeople could satisfy a lot of customers with it. The most expensiveshoes are also usually on spiff, to give salespeople an incentive to present the moreexpensive models. Usually not on spiff are shoes which are inappropriate to manyrunners, such as lightweight trainers meant for 110-pound Kenyans.

Spiffs are a good way to encourage salespeople to perform. Salespeople in everystore are highly competitive about how much they make in spiffs, and since they areposted on a board for everyone to see, good-natured competition normally ensues. In abusy store, a poor salesperson will make around $100 in spiffs each month, while the bestregularly make over $300/month. The system is also a good way for managers to quantifywho are the producers.

The system does have problems, however. Salespeople are asked to list spiffs onthe board themselves, without approval from a manager. In the past, some employeeshave cheated the system, by putting up fake sales, and they have been fired. To preventfraud, managers are supposed to go through the receipts at the end of the month and makesure each sale was real. This can take two hours, and is dreaded by the managers for itstedium and implicit distrust of the workers. Often the check is not made.

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The spiff system has a further ambiguity. The double sale spiff is only valid if thesecond sale is the idea of the salesperson. If a customer walks into the store and says, Iwould like two pairs of the Ferrari 333SP, size 12, that is not supposed to be a spiff. Thejudgment on this is left up to the salespeople, since there is no way for a manager to

verify. The more honest salespeople resent the less honest ones, who will get paid forspiffs that should not have been taken.

Periodically Fred and Fern poll the salespeople and managers if they want thesystem reengineered. The answer is always no, because there is a widespread belief thatany other system would reduce payouts. Other stores typically have a flat commissionsystem, i.e. sell a pair of shoes, no matter which shoes, and you get a dollar. Whilethese systems are easier to enforce and have no gray areas, they do not reward theingenuity of salespeople, and they do not allow management to target particular models.

Sometimes the spiff totals get very high for a store, averaging $300 per

salesperson, or sometimes a particular salesperson will have a good month and make$600 or more. Fred has often said that he measures spiff totals by one yardstick: relativestrength. He does not mind large payouts, as long as the better salespeople make moremoney than the weaker people. Managers take this to mean that large payouts are not aproblem in the eyes of Fred and Fern.

Salespeople do not receive a year-end bonus, although they are usually given a$100 gift certificate to the store.

Managers: Managers receive a flat salary plus a commission based on the followingformula: 2% of the increase in revenue from the same month last year. When amanager takes a job he is typically paid around $30,000, and makes another $5000 incommission. Some managers have been paid $35,000 and received $15,000 incommission, but that is rare.

The salary and commission are low compared to other retail companies, but thereis a lifestyle trade-off. Most store managers in other chains work far more hours than Premanagers, and always have to work the weekend. Pre managers are asked to work only40 hours and they are allowed to work alternating weekends. They can also write theirown schedule, often allowing themselves to fit in a training schedule or other interest.Finally, managerial jobs are not line positions; they have no responsibility to cut costs orwrite budgets. This takes a great deal of work off the table and allows the manager tofocus on sales, which is the fun part of retailing.

Also attractive is the sense of proprietorship about their stores that managers feel.Fred encourages them to feel as if the store was their own, and the commission systemencourages the sense.

Thus, while the dollar figure of compensation is low, managers gain in otherways. The system must work, because managerial turnover is extremely low. It is rare for

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a manager to leave or be fired; the average tenure is around seven years, which is high forBoston retail.

Managers may receive spiffs as well, but their time on the sales floor is limited,and few managers make more than $50/month with spiffs. They do receive a year-end

bonus, usually around $500.

Assistant Managers: Assistant managers do not make significantly more in wages thansalespeople. Typically, they make $12/hour plus commission. The problem is thatthey have less time to sell, and their spiff totals often plunge to the point where theyare paid less to be assistant manager than to be a salesperson. This is frustrating tomany, and should be addressed. The advantage to being an assistant manager is thatmanagers are always hired from their ranks. However, because of the low turnover,promotions are rare. Year-end bonuses are usually $250.

The role of the assistant manager needs to be clarified and compensated better.

The position is often a dead-end and the company loses some good people frustrated bythe position. In then end, many become de-facto salespeople to make more money, anddo not learn how to be a manager. This can only be fixed with more money and clarifiedjob descriptions.

GOAL SETTING/MANAGEMENT BY OBJECTIVE

Managements stated goal for the company is to satisfy the customer by whatevermeans necessary. Very little talk is devoted to cost containment or other issues; thecorporate belief is that if it does a good job satisfying the customer, everything else willtake care of itself.

The company reinforces this objective in many ways. Primarily, Fred Prefontainesets an example by encouraging employees to stay focused on the customer. In clinicsand in private conversation he makes it clear that an employee will not be criticized if heacts to satisfy the customer.

All store policies are judged by the litmus test of whether or not it improvescustomer satisfaction. The radio station played, sales techniques and even how oftenemployees sweep the sidewalk are all responses to this mandate.

There is a downside to the companys tunnel vision. No one in the companyexcept Fred, Fern, and Deke are privy to cost issues. Neither Fred nor Fern wantsmanagers to actively cut costs in any way other than not hiring an unneeded newsalesperson. The commission system is based only on revenue, not profitability. Theresult is that the stores have no imperative to try to keep inventories in line or keep hoursdown. The absence of involving managers in cost issues also distances them from thebusiness and is more than a small bit alienating. If managers had line positions, theywould feel more proprietary over their stores and work harder.

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Other management objectives are to help salespeople become talented salespeopleand subject matter experts. Fred and the managers have clinics on both selling skills andrunning injuries to keep employees up to date. The company pays tuition for anyemployee to become a certified pedorthist after a series of podiatric classes. Managers areinstructed to work in a kaizen style constant improvement pattern, always trying to

improve these areas, if only by a small amount. The result is a trained sales force thattakes great pride in its skills. A side benefit is that employees who are not goodsalespeople become aware of the fact early, and either leave or find other duties in thestore, like inventory or cleaning. The management-led esprit de corps in sales is one ofthe companys most valuable assets.

Management also tries to impart Fred Prefontaines entrepreneurial spirit into thestores and employees. Fred encourages employees to try to think outside of the box andcome up with new ideas to bring in sales. He often says that he will only be upset with amanager if he does not try something. While many ideas dont work, some do, andemployees feel like they have freedom.

EVALUATION SYSTEMS

The business does not have an organized review and evaluation system. The onlytime employees get feedback is after one asks for a raise, and the manager must presentthe case to Fred. Managers normally do not receive feedback from Fred unless they dosomething wrong or ask for a raise. While there is no rule against managers starting anevaluation system, it would go against the corporate culture, and has never been done.Given the lack of official evaluations, the commission board takes on great importance asa measurer of employee performance. An employee-led discussion of his contributioninvariably begins with You know I always make a lot in spiffs...

TRAINING AND DEVELOPMENT

It should not be surprising that the company takes an active and effective role intraining employees, given the centrality of its mission to satisfy the customer. Uponhiring, a new employee is given a list of the shoes and is told to learn their prices, namesand which sizes each come in. After two days she is tested on the knowledge, andtechnically will be let go if she does not show effort. This rarely happens, as the task isnot so difficult.

From there, it is up to individual managers to get a new employee up to speedquickly. The training pattern is particular to each store and dependent on thecharacteristics of the employees in each. Often an experienced salesperson will becomethe de facto trainer. In any case, the new employee is talked to for a few days about theissues involving running shoes until the manager feels she is capable of selling.Employees are also taught sales skills. Most managers ask hires to watch a video spellingout the ANPOCS sales method. The manager is also responsible for explaining thecompany history, ethos and rules. There is also a handbook that goes into the nuts andbolts of company policy.

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The manager typically monitors a new hires first few days of sales to make sureshe is good enough to set loose on the customers. After a week or two of selling, somemanagers give a written test to new hires on running injuries, store policy and productknowledge. Often the manager will give the employee the test a week in advance to use

as a study aid. Since the goal is to gain a specific body of knowledge, having the testitself is the best way to learn. The testing program is not a system-wide program. It is upto each manager to write and give a test.

The big test for a new hire is his first day in the store when Fred Prefontainecomes in to observe. Most new hires are terrified of Freds large personality and hecriticizes most for poor sales skills. To veterans, Fred s performance seems calculated toput the fear of God into a new hire to get him to work harder at sales skills, and it seemsto work. Most veteran employees have a story of being criticized by Fred in their firstweek.

After the initial training, the company continues to develop employees. Twice ayear, clinics with required attendance are put on to review all aspects of shoe selling.Usually Fred goes over the latest research on preventing and treating injuries, and talksabout the new product line. Sometimes a podiatrist affiliated with the store gives a talk onsports medicine, and once in while a representative from a shoe company will be giventen minutes to promote his brand.

Beyond formal training, managers make sure salespeople understand the issuesand are able to explain them correctly to customers. When a new shoe comes into thestore, usually all gather around it and talk about what kind of customer it would benefitmost. Half of the employees are runners, and runners talk about shoes the way brokerstalk about stocks.

As we have learned, the company will pay tuition for any employee who wishesto become a certified pedorthist. While not many have chosen to do so, there is alwaysone in every store. In addition, a podiatrist works in the Boylston Street NewmanMarkoff store once a week to personally fit customers. Having a podiatrist in the store isused as a selling point, and encourages other podiatrists to send patients to the store forshoes. It also helps salespeople learn, by listening to the doctor sell.

TASKS/TECHNOLOGY

The company has different IT systems for the two divisions.

Pre stores

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Each store has a PC with original DOS-based software that is used as a cashregister. At the end of the day the computer prints a list of all products sold, used the nextday to restock the racks of clothes with merchandise from the in-store stockroom. The listis also sent via modem to the warehouse in Needham, Massachusetts There it is used tofill boxes with the same items sold, which are delivered back to the store on Monday,

Wednesday and Friday via company delivery truck. The system works for clothes andaccessories as well as shoes.

Newman Markoff stores

Each store has two computers: a PC used as a cash register with the same originalDOS-based software, and one used to send orders to the Newman Markoff warehouses inMassachusetts and California via a web-based ordering system.

The cash register PC works the same way as in the Pre stores, but the other PC isdifferent and more complicated. By special arrangement with corporate Newman

Markoff, the Newman Markoff store works on a just-in-time inventory basis. Everynight, a list of sales is sent to corporate Newman Markoff headquarters in Massachusetts,where it is filled by Newman Markoff workers and shipped via UPS to arrive around aweek after it was sold. It is up to the manager to decide on inventory levels and to prodNewman Markoff to find sold-out shoes to send. The system is heavily dependent on theinventory skills of the managers, and this causes problems, which will be dealt with in theanalysis section below. The system works only for shoes. Clothes are ordered from theNeedham warehouse only.

Also exclusive to the Newman Markoff stores is permission to return any unsoldshoes to corporate Newman Markoff. It is hard to overestimate the value of this service,because it eliminates the need to mark down merchandise to sell it. Having thisopportunity is virtually unheard of in the business and is key to the profitability of thecompany. The company must preserve this advantage.

A word about the cash-register program used in all stores: It was written in themid 1980s and while it is adequate and reliable, it does not take advantage of moderntechnology. The only report it can generate is a crude list of how many pairs of eachmodel were sold. It does not perform any inventory control tasks, and it is not capable oftracking customer information for use in database marketing. Considering that the centralmission of the business is to stay close to the customer, a more sophisticated registersystem would probably pay for itself quickly. When asked about such a system, Fred saysthat the system isnt broken, so it doesnt need to be fixed.

Inventory control

Both sets of stores use a paper and pencil inventory system. Each store has a listof shoes and clothes it should have in the store. Usually on Tuesday, someone in the store normally the assistant manager does a visual inventory of the shoes in the store andmarks on the sheet what shoes the store is missing. The list is faxed to the main

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warehouse and an attempt is made to fill it. The same system works for clothes, exceptthat salespeople fan out and do the clothes. The clothes inventory is probably the mostcomplaint-producing work in the store. It is considered boring, repetitive and it takesworkers off the sales floor, which is where they make their money. It is also oftenconducted quite inaccurately. For example, the worker might not be careful to check each

and every pair of red Ferrari shorts in stock. We recommend changing the inventorysystem, as we will see in the recommendations section below.

The main warehouse primarily uses a futures system to order inventory, which isstandard in the industry. A representative from each shoe company visits FredPrefontaine with a bag full of shoes and a sheaf of order forms. Fred must decide whichshoes to order, in what quantity and size dispersion and when he would like them toarrive. The task is very difficult because it relies on Fred s intuition of what shoes will bepopular and which wont. While he gets it right most of the time, inevitably he issometimes wrong, and a shortage or surplus appears. When a surplus occurs, a spiff isoften put on the shoe to move it out, reducing margins. While the futures system is

inevitable in this business, we recommend systematizing it in order to give Fred hard datato supplement his intuition.

JOB CHARACTERISTICS MODEL

VARIETY

Salespeople: While on paper, sales jobs seem repetitive, in practice they are endlesslyvaried. While many customers fall into rough categories, and have the same needs, everyday salespeople must face a new problem, one that has never come up before. The heartof the problem is that there are dozens of bones in the feet, and no two feet are the same.When you add in the variability of mood, bank account, personal ticks and previousexperience, salespeople never know what they will find when they start a sale. This is oneof the appeals of sales jobs.

There are types of customers whom salespeople dread, of course. The mostdisliked are people with horrible foot problems that no shoe can fix. In these cases thecustomer just wastes the time of the salesperson. Also resented are people just looking,those unwilling to pay full price, and those with unsanitary feet. Salespeople spend a lotof time complaining that they always get the losers, and wish for easier pickings. Ofcourse, these comments must be out of the hearing of customers.

Managers: The case for managers is opposite that of salespeople. What may seem morevaried is actually more routine. Being one step away from customers leaves the managerto do the routine tasks that must be done every day, such as counting the money, writingwork schedules and doing inventory checks. Managers often spend time on the salesfloor, not just to make money, but also to break the routine. Adding line responsibilitiesto managers job descriptions would introduce more variety, but not tremendously.

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IDENTITY

Salespeople: Salespeople are highly ego-driven, action-oriented and results-based. Theiraccomplishments are posted every day on the spiff board, and they brag about theirscore often. They take the instant gratification of a good sale as a right, and they credit

themselves for a stores success. They can be considered entrepreneurs or independentcontractors in a way; they reap the benefits of their skills directly.

Managers: The role of the manager is hard to quantify in the system. A store full of goodsalespeople will surely do well with or without good management; in fact it happens inthe Pre chain itself. A manager never quite knows how much he contributes to the storessales. Ultimately, the stores increased or decreased sales serve as his scorecard, but allknow that he is along for the ride in some ways. Still, managers take pride in their storesif they do well.

On the other hand, no one but the manager is responsible for a clean inventory,

neat store, and well-trained employees. The problem with that is those things do not adddirectly to neither the sales total nor his commission.

SIGNIFICANCE

Salespeople: Contrary to most sales jobs, selling shoes to runners and people withproblem feet is a rewarding job. Most salespeople agree that part of the appeal of the jobis getting a customer who has gone elsewhere to get help, but could not find anyone whoknows how to treat bursitis or plantar fasciitis. Salespeople enjoy being the bearer ofgood news and helping people out of pain. The job as practiced at Pre and NewmanMarkoff makes salespeople feel that they are doing good.

Managers: Again, being one step away from the customers takes away from themeaningfulness of the job. Managers must do the chores but do not get the payoff:genuinely helping customers. Giving managers more opportunity to sell would remedythis, but would be difficult practically. Someone has to run the store, after all. Somemanagers do feel that they are helping people stay healthy and pain-free, however.

AUTONOMY

Salespeople: Workers cite autonomy as one of the best parts of the job. Salespeople areon their own most of time, when they are with customers, and given much freedom to sellas they think most effective. There is no one method of selling at the stores. Of course,managers must make sure a new hire has less freedom than an experienced hand. This isa management challenge.

Managers: Managers also feel that the autonomy granted them by Fred is a chief benefitof the job. Fred and Fern are rarely in the stores, and do not micromanage very much.There are very low levels of meddling, and managers feel free to innovate, within theconfines of the stores mission.

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FEEDBACK

Positive feedback is not in the companys culture. It is extremely rare for aspecific piece of positive feedback to come from anyone in the organization. Some

managers pass on a nice sale or something like that, but nothing more substantial. Thisis a weakness of the store, and should be corrected. Fred and especially Fern offernegative feedback, however, and that causes fear and loathing of their visits. As we seeelsewhere, behavior cannot be learned by negative reinforcement.

INTRINSIC MOTIVATION

Salespeople: Most salespeople who succeed and stay with the company are driven bythe gratification of a sale and the pride of doing their job well. Many are runners andenjoy helping other runners succeed.

Of course, some people do not do well at the store, and they are usually just in itfor the next paycheck. These people need to be more aggressively weeded out. There islittle firing for general incompetence at the company; instead, poor workers get smallraises and bad hours.

Managers: Most managers in the system are overqualified and could be doing biggerthings. They stay because of the relaxed work setting and because they want to live thelife of the sport. That being the case, some managers are not the fieriest characters.They tend to be a bit lazy. However, it is not clear if more motivated but less capablemanagers would be better for the stores. Having managers with good judgment and theability to talk to over-educated Bostonites on their own level is an important skill to havein the store.

All of the same intrinsic motivation we cited for salespeople also goes formanagers, particularly regarding helping other runners being rewarding.

INTERNAL WORK MOTIVATION

MEANINGFULNESS

Salespeople: As we saw in the section on significance, salespeople see their work asdoing good. When a runner, desperate to resume running while injured, is able to do soafter getting some tips from the store, an absolute good is done. Likewise, when anoverweight or in-pain person is able to walk comfortably for the first time because asalesman finally put her in the right pair of shoes, an important good has been done.

Managers: Managers, not helping customers directly, are not so able to see the goodbeing done. However, managers do understand it is there, and that it is partly due to theirstewardship and support that the job gets done right. Positive feelings about being in the

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fitness business are also cited by managers, as is the satisfaction of being able to run astore correctly.

RESPONSIBILITY

Salespeople: A salesperson is responsible for a customer 1) getting good information onhis needs and 2) closing the sale. Since selling is a one-on-one exercise, selling the wrongshoe or losing a sale falls directly on the salespersons shoulders. This is a positive, for itinspires excellence and does not allow anyone to hide in a cubicle. Any lacunae inknowledge or sales skills is out in the open.

Managers: While Fred likes to hold managers responsible for everything that happens ina store, most know that he overestimates their influence. A bad manager can hurt a storeall by herself, but the best manager is nothing without effective salespeople and thecompetitive buzz they provide.

As far as credit for sales go, managers feel they deserve some credit for salesgains, but none will accept responsibility for lower sales. For this, bad weather, poorproducts and animal spirits take the blame. The problem is, they are usually right. Thereis no control in retail, neither is there a strict win nor lose.

Managers do feel responsible for some aspects of store performance. Since theyare responsible for hiring and training, they get the credit and blame for their staffsperformance.

KNOWLEDGE OF RESULTS

Salespeople: Direct and instant gratification is the salespersons bread and butter. Theyknow when they made a sale and they know if they are good. Above all, they knowexactly how much money is under their name on the spiff board.

Managers: Managers usually know pretty much where the store is compared to last yearat all times. The year over year figures are considered the managers overall scorecard.The less clear aspects of the business, for example cleanliness and clean inventories, areharder to know how you are doing. Ferns job is get managers to worry more about suchthings, but she is not an effective manager. Fern is famous for denying credit forsuccesses and giving credit for failures.

INFORMAL ORGANIZATION

Informal organization is very important to the business because of its small size.The salespeople form a tight-knit group with their own language and rules. Usually theyplay a competitive yet friendly game of who can make the most spiffs or avoid the worstcustomers. The situation is not ideal because it rewards some bad behavior like customeravoidance, however the good-natured competition is good for the store and no customersknow what is going on.

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Inter-store alliances have sprung up occasionally, usually after employees haveswitched from one store to another. They are primarily social, however, and have littleimpact on the work.

The congruence model is important to apply here. Each store has differentstrengths and weaknesses, and even different needs depending on types of customers.Care must be taken to allow each store to develop and maintain its own culture. Toomany directives from Fred and Fern would be counterproductive and would reduce theentrepreneurial spirit of each store.

WORK GROUP PROPERTIES

NORMS/SANCTIONS/STATUS HIERARCHY

Each store is set up in a similar manner. The manager is responsible for making

sure everything is in place for the salespeople to do their job well. Fayols administrativemodel describes the managers role, namely:

1. To forecast and plan needed workers and inventory.2. To organize and plan the deployment of store resources such as staffers and

inventory.3. To command employees in the store.4. To coordinate the efforts of Fred, Fern and the workers in the store.5. To control the events in the store so customers benefit.

While not forbidden from selling, no manager sells very much. His time is spenton paperwork and inventory control. The salespeople feel subordinate to the manager inthe sense that the manager can ask them to perform non-selling tasks such as cleaningand stock work. The dynamic is interesting because the proud salespeople dont like toclean, but they understand the necessity. It can be said that the quality of cleaning is farlower than the quality of sales.

LEADERSHIP

Leadership in the organization comes from three directions: among thesalespeople, from the manager and assistant manager, and from Fred Prefontaine.

Salespeople: Usually two or three salespeople emerge as the top performers in the store.They gain prestige and status among the salespeople for being so effective, and new hiresare asked to watch them sell in order to learn the business. This is altogether good, as itenforces a culture of excellence within the store. The leaders are by definition goodemployees and good roll models.

From the manager and assistant manager: This form of leadership is not well definedand varies from store to store. Inevitably, the manager sets a tone for the store, and this is

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the largest influence he has on the organization. Some managers are lazy, so in theirstores the employees tend to sit around a lot. Some are efficient but cold, and these storestend to have inter-personal problems. Some managers are terrible salesmen, and this rubsoff on the employees as well.

Ultimately, the managers must keep a high level of standards in the store,ethically and professionally. This does not always happen, and the stores are hurt becauseof it. The company should pay more attention to developing managerial leadership skills;usually they are put into leadership roles after having been on the sales staff, and have adifficult time adapting to management.

From Fred Prefontaine: As a charismatic entrepreneur and former world-class runner,Fred is without doubt the leader of the organization and often times an inspirationalleader. He conveys the sense of mission he has for the store, and is always on point. Hehas a good way of talking to all kinds of people and inspiring them - partly through fearand partly through idealism to perform highly. His type of leadership is benevolent

authoritative, meaning he tells people what to do, but in a nice way and is usually right.

Fred identifies with the salespeople more than the managers, so salespeople getthe lions share of his attention. Fred is an outstanding salesperson, and can quickly andeffectively teach young people how to sell. He is not a great manager, and has little tooffer to managers other than a few truisms, that while indeed true, are less than complete.Fred has created the stores in his image, and he is first and foremost a salesman. Themanagers suffer from his lack of management skills, and follow the same pattern ofpaying disproportionate attention to salespeople at the expense of management.

From Fern Prefontaine: Fern is a classic Type X manager. She acts as if everyemployee is out to cheat the business by being lazy and unproductive. Whether or not shebelieves this is irrelevant; this is the impression she leaves on employees. Her bodylanguage is aloof and not friendly, ie her meta-communication is very negative. She triesto motivate people by hygiene issues such as rules and regulations. As Herzberg shows,hygiene issues are a poor motivator.

OUTPUTS

A good output is the service given to a customer that satisfies his needs. Manytimes a customer will walk in just for some running advice, and even though he does notbuy anything, there is still an output: an impressed customer or potential customer who islikely to return when he is ready to buy. The point is that Pre/Newman Markoff is aservice provider, not just a seller of shoes.

That said, each month the store comes up with a sales figure, and the managerscommission is based on it. In some stores the manager shares the figure with the staff,while in others it is secret. The more successful stores tend to publicize the number andthat may help motivate the workers.

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BEHAVIOR

The characteristic of the business that we have seen throughout this analysis is thepride and autonomy of the salespeople, and we will revisit that theme in this section. The

prime difficulty for managers in the stores is to get the prima donna salespeople to get ontheir knees and scrub a stain off the floor or straighten a rack of running bras. The goodsalespeople correctly view themselves as being the core of the store and essentiallyuntouchable, so while they cannot be openly insubordinate, they

prefontaine's sample case analysis

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