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CASE STUDY 2021: HAPPY COFFEE

Introduction To Management – BUSM4185B (SGS)

Lecturer: Nhan Nguyen

Assignment 2 – Individual Work

Nguyen Thi Thanh Mai – S3920913

Word Count: 2072 words

Pages (including this page): 11

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I. Introduction

Happy Coffee is a successful startup by Ms. Nguyen, with 28 branches across Vietnam.
Recently, the business is facing difficulties when one of its branches was closed due to
continuous profit loss and other six shops became unprofitable. This indicates that there are some
problems in the operating system of the store, which require urgent actions to save the business
from further damage. This report will identify these issues, suggest solutions and
recommendations based on management theories and supporting evidence.

II. Case Analysis

1. Inefficient human resource management

A major issue that Happy Coffee has is deficient human resource management (HRM). HRM
includes the activities of recruiting, selecting, training, motivating, and retaining competent
employees (Dessler 2017, p. 39). Humans are the key factor to the success of a company,
especially in the food and beverage industry. Accordingly, poor HRM in this situation has
directly ruined customer experience and caused a steady decline in revenue. Eventually, the store
was closed after ‘’40% loss in the final month of operations’’. There are two root causes of this
faulty HRM:

1.1. Ineffective recruitment and orientation

Firstly, ineffectual HRM originates from choosing the wrong people for the wrong job (Townley
1999). Mr. Tran reported that most of his staff had very ‘’little experience’’ and he usually dealt
with the employment shortage. This implies that Happy Coffee has not recruited its employees
elaborately. Findlay et al. (2013) claimed that recruitment is an initial but decisive step in the

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process. Breaugh (2013) defines this term as identifying, attracting, interviewing, selecting,
hiring, and onboarding employees. In detail, the store failed to build a detailed SHRM Planning,
which estimates the quantity and qualifications of people needed for the job (Nguyen 2021, slide
2). Also, they do not utilize the selection tools to pinpoint the most suitable candidates (Nguyen
2021, slide 4). Consequently, the staff members they hired lacked the competency to perform
their tasks successfully, proved by their late arrivals, ‘’poor attitude on the job’’ and unfavorable
customer feedback.

Furthermore, the manager said that his workforce was ‘’constantly changing’’: many of them
‘’stayed just for a few weeks and then quit’’, causing the serious undermanned issue. The reason
may be that their real job is far from expectation, causing great disappointment. This can be
attributed to a lack of realistic job preview to provide new workers with both positive and
negative aspects of the work and the company (Nguyen 2021, slide 16). As a result, the
understaffed status, along with incompetent employees, has significantly worsened the service
and reputation of the firm. If it refuse to take action to improve the HRM, the notoriety will
rapidly spread and cause enormous deficits for other branches, even closure of the whole system.

1.2. Ineffective compensation system

Not only did the company fail in recruitment but they also developed an inferior compensation
policy. It is a process of forming a fair and effective paying structure that attracts, retains
employees, and motivates them to work hard (Nguyen 2021, slide 7). According to a former
waitress, the reason behind her resignation is ‘’there were no bonuses or special rewards for high
performing employees’’. Additionally, it is impossible to get a salary increase as well as
promotion - ‘’She saw no career prospects’’. According to Okimoto and Tyler (2007), This
makes workers feel unfair, vague, and disagreeable: despite how excellent they are, their wage is
the same as those making fewer efforts. According to Equity Theory, the feeling of being
unjustly treated can cause deep disaffection and demotivation. In detail, they feel that their
attempts went unrecognized and have no incentive to contribute further. Dailey and Kirk (1992)
claimed that this leads to job dissatisfaction, underperforming, and subsequently, withdrawal.

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Despite the manager’s efforts to train members, he failed to maintain their good performances
and loyalty towards the firm owing to a lack of retention strategy.

2. Inadequate employee empowerment

Authoritarian leadership is an another key issue of Happy Coffee. This problem can be defined
as not offering subordinates the authority, opportunity, and motivation to take initiative and
resolve organizational problems. It accidentally encourages employees’ laziness and inactivity as
their supervisor has been responsible for everything. Mr. Tran complained that he ‘’felt
overworked’’ because of undertaking the most trivial decisions. Furthermore, since the workers
must wait for senior permission, it takes longer to complete a task or solve an issue (Brymer
1991). As reported in the case, a client expressed displeasure after waiting 30 minutes for a staff
to repair his mistake - ‘’I had to leave for work, did not get my drink and was not reimbursed.
Avoid this coffee shop at all costs!’’ Apparently, the shortcoming in discretion practice has not
only exhausted the manager but also ruined productivity and customer satisfaction.

3. Weak organizational culture

Another problem of Happy Coffee is that its organizational culture is not strong enough to
connect people through shared values and strengthen their loyalty towards the business (Körner
et al. 2015). The previous waitress confessed that she ‘’did not enjoy coming to work’’ and felt
there is ‘’no connection with her colleagues and manager’’. This is likely the phenomenon in the
shop as other employees also quit swiftly, indicating that they feel no bonds with the company.
To explain, the above-mentioned lack of empowerment shows a distrust from the supervisor
towards his juniors, thus creating a disconnection between leader and members. This negative
belief can spread easily as the manager’s perception can orientate the community’s one (Agut,
Hernández and Lozano 2019). Together with the unfair compensation and no promotion outlook,
it can be concluded that the store presents a contradiction between symbolic values and actual
behavior, which is characteristic of a weak culture.

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III. Solutions

Based on the power theory, besides legitimate power, Happy Coffee should simultaneously apply
reward power and referent power to reverse its downturn. Reward power means the power owner
exchanges benefits for exertion (Nguyen 2021, slide 6). Meanwhile, referent power happens
when the power user is universally beloved (Nguyen 2021, slide 8). Below are some solutions
for the utilization of these two powers:

1. Enhance compensation system

An effective compensation program plays a central role in stimulating workers to invest more
effort and retaining them. Hence, the new compensation policy should be attractive and equitable
enough to entice qualified employees and reduce the turnover rate, but still reasonable with the
company’s profit. They can start by setting a minimum wage for every staff and adding bonuses
under both financial and non-financial forms, based on employees’ performance. Chiang and
Thomas (2012) stated that non-monetary rewards are benefits that support employees' lives, such
as health insurance, education reimbursement, child care, etc. By practicing this, the firm has
utilized reward power and exchange tactic to exert influence. Exchange tactic is defined as
‘’trading favors for the purpose of getting something’’, which can strengthen employees’
commitment up to 42% (Nguyen 2021, slide 5). To judge staff impartially, the company should
implement the performance management system with the 360-degree appraisal model. This is a
multidimensional assessment method that evaluates an employee based on feedback from his
circle of influence, namely managers, colleagues, and clients (Espinilla et al. 2013, p. 460) and
various methods, such as written essays and rating scale. Finally, the manager should observe
their employees’ working process regularly and provide daily feedback to show his caring and
boost junior productivity. These modifications will improve HR quality since they work longer
and gain more experience.

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2. Strengthen organizational culture

Luoma-aho and Canel (2018) stated that strong culture is the most effective approach to enhance
staff morale and job satisfaction. This exists when key values are strongly held and broadly
shared and thus have a powerful impact on staff belief and behavior (Nguyen 2021, slide 2). To
build a strong culture, firstly Mr. Tran needs to utilize referent power to reinforce relationships
with his staff. Also, he should offer them more formal power - a tool that allows employees to
get discretion in their decisions (Brown & Kanter, 1982). Next, the company should transfer
from a stable culture, which is described as rule-oriented and bureaucratic (Nguyen 2021, slide
15), into a more innovative and people-oriented one. Innovative environment is flexible and
adaptable, while people orientation features fairness, supportiveness, and human rights (Nguyen
2021, slide 17 and 6). This will supplement employees with sufficient empowerment and create
connections between each other. Then, poor customer service and employment deficiency
problems can be solved, as employees devote more commitment to the company. It is exactly the
quotation of Branson (1993) ‘’Take care of your employees and they’ll take care of your
business’’.

IV. Recommend specific strategies

1. Design a coherent compensation package

To improve the payment system, Happy Coffee should build a detailed compensation program. It
should first research the basic salary in the market and compare with its competitors’ wage rate
to offer an optimal number. After that, as previously mentioned, it should divide salary into
various levels: based salary; incentives including bonuses for high-performance individuals,
profit sharing, and stock options such as a free cup of coffee every week. Also, the firm needs to
clarify its wage increase and promotion conditions. Together with some contractual terms, it will
ensure justice from the beginning and create security as well as obvious career prospects for
employees. Since the present company’s performance is not good as before, it ought to lower the

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sales target temporarily, then bounce it back gradually. Also, there should be a best employee
award and recognition for productive ones to encourage in-house competition and show the
company’s appreciation. Nevertheless, this activity should be moderate since exaggeration can
make the unrewarded discouraged or cause unhealthy rivalry. After completion, Happy Coffee
should have their employees review the plan and provide feedback as a way to value their
contribution. Finally, this policy should be modified periodically based on the situation to
maintain its effectiveness. As a result, the potential outcomes are an increase in job satisfaction,
higher employee engagement, better customer service, and sales upturn.

2. Adapt sufficient empowerment

After careful recruitment and training, empowerment is required to optimize the employees’
capability and experience. The process should start with the supervisor - Mr. Tran needs to trust
his staff. As an authoritarian manager, this task seems difficult for him. Thus, he had better
impose Mac McIntire’s rule (2014) of three explicit limitations: Black Zone, Green Zone, and
Red Zone. The Black Zone contains every responsibility and obligation that employees are
expected to complete. The Green Zone (familiar tasks) is where they can make their own
decisions, while the Red Zone refers to difficult tasks that require approval before carrying out.
In Happy Coffee case, Mr. Tran can slowly expand the Green Zone but never eliminate the Red
Zone. This allows employees to quickly solve troubles while keeping their decisions reasonable
and within the boundary.

This approach provides a dominance of instant improvement in client satisfaction. Customers

must be impressed with the professionalism of the instant response, which can help the business
regain its reputation and revenue (Brymer 1991, p. 59). However, this method may cause
confusion for some workers at the beginning, as several of them are inexperienced. There should
be an initial observation from the manager to timely give instructions and correct mistakes if
needed. Moreover, empowerment needs to be controllable to not cause overwork for the
employees and power abuse.

3. Highlands Coffee: An ideal organizational model

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To strengthen its culture, besides the solutions given above, Happy Coffee can learn from
Highlands, a Vietnamese leading coffee brand that ranked 56th in Top 100 Vietnam Best
Workplace 2020 (Anphabe 2020). This prize was evaluated based on several criteria, including
the organizational culture. Highlands owns a robust organizational culture that is widely shared
among employees. Its values are clearly communicated on its website: enriching Vietnamese
coffee heritage and spreading national pride spirits (Highlands Coffee, 2018). Its working
environment is comfortable like at home but still maintains professionalism thanks to the
qualified workers. To achieve this, Highlands conducts a detailed recruitment process with
apparent criteria posted on its Facebook page, website, and other job-seeking sites, which Happy
Coffee can apply for its business. Obviously, Highlands is people-oriented, which is the
suggested direction for Happy Coffee’s development. Hence, it can consider Highlands as a role
model for long-term development. With 28 branches across Vietnam, Happy Coffee has every
potential to recover from the losses and succeed as other well-known brands, if only they focus
on resolving the above-mentioned problems and developing human resources.

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