The NETHERCOTT TOY MANUFACTURING Company produces a variety of toys for “tots to teenagers”. It specializes in toys that teach children specific skills or stimulate their thinking. NTM’s plant and corporate offices are located near Ames, Iowa. The company is relatively small, employing 372 production workers and 111 sales, office, and management personnel. NTM has grown rapidly in the past decade, from an initial 15 employees to its current size.

Founder Jay NETHERCOTT, president and chief operating officer, had been national sales manager of a large toy manufacturing , but he always yearned to own and operate his own business. He believed that his proven sales ability and his extensive contacts in the toy industry would insure his success in his own venture. After securing a bank loan and obtaining additional capital from two investor friends, he started NTM.

NETHERCOTT’s business strategy was to maintain competitive edge in the market by introducing new products each year that would appeal to children. He relied heavily on ideas submitted by employees, all of whom had children of their own. NETHERCOTT took great pains to build and maintain a family environment and to encourage creativity among the employees. Thus, employees moral was the key to the success of NTM.

The Operations Department considered employee ideas and had them evaluated by the Engineering Group. If they appeared viable- that is, if the toy could be produced cost-effectively and seemed likely to be accepted in the marketplace- a prototype was designed, manufactured and tested. At that point, if introduction of the new product appeared feasible, it was entered into full production.

Jay NETHERCOTT paid little attention to the operations aspects of the company. Rather, he focused his attention on promotion and marketing by contacting key accounts and manufacturer’s representatives. He left operating decisions to Ray Groff, his plant manager. Groff, one of the original employees of NTM, had designed the plant and production facilities, purchased and installed all the equipment, and hired the initial employees, including managers. The company’s practices was to allow supervisors to make human resource decisions -- hiring, discipline, promotion, rewards--- within their own groups. This had worked well for a considerable period.

Then things began to change, seemingly with the increase in the number of employees. NETHERCOTT noticed that morale was deteriorating. He was especially concerned because of his business strategy’s dependence on employee suggestions for new products, which had declines substantially as morale waned. In discussing the situation with Ray Groff, NETHERCOTT lamented that “the family spirit we’ve worked so hard to keep seems to be evaporating into thin air”. Jay NETHERCOTT decided that the company needed someone to be in charge of human resources.

Ernest Billingsly, a senior accountant, was having lunch in the plant cafeteria when one of the secretaries told him about NETHERCOTT’s plans. He had wanted to get into human resources for quite some time. As he told one of his associates, “ I always wanted to work on the people side of business. It sure beats crunching numbers all day”.

Billingsly had been with NTM for six years. After he graduated from the University of Iowa with a BBA in accounting, he started with the company as a cost accountant. An outgoing personality, he managed to make friends in all the departments. Jay NETHERCOTT and Ray Groff agreed that he was conscientious and bright and that he was well liked by all. When Billingsly applied for human resources manager job, he was selected. The position was assigned to the Operations Department, which reported to Ray Groff.

Billingsly’s new office was next to the plant entrance to give him ready access to employees. He was assigned a secretary, to function essentially as his assistant. When he took over the HR Manager job, Jay NETHERCOTT told him, “ Your HR Department is going to be key to the success of this company. If our business strategy is going to work, we’ve got to get a ‘one big family’ feeling back.”

As one of his first actions, Billingsly sent a memo to all supervisors, with the approval of Ray Groff, that “all future hiring will be done by the Human Resources Department”. In addition, the memorandum announced that human resource actions, in general, would be made by the HR Department, which also would have approve any such decisions prior to any action being taken.

The resentment among supervisors over the organizational change was evident. Several voiced the opinion that the promotion had to to Billingsly’s head. The operations manager began to receive complaints from supervisors that the new hires “weren’t up to par” with the ones they had hired. When Groff noticed a drop in production, he questioned several supervisors. They responded that their hands were tied. “ We’ve lost control, boss. We can’t hire, or promote, or even discipline our own people. How can you expect us to get out the work if we don’t have any control?” One supervisor blurted out, “Billingsly should go back to his accounting job!”.

1. State at least two objectives of this case study.

2. Give an HRM princiniples and/or Management principle for this case. (e.g. Shows a comprehensive understanding and analysis of the situation and issues using an appropriate framework / tool / relevant management principles. The assumptions, if any, are reasonable and necessary to be able to put a proper perspective on the situation. It does not alter the situation or issues at hand.)

3. Summarizes what the case analysts have learned while analyzing the case. Cites specific management principles (and sources) applied without necessarily detailing what they are about.