A study of coercive management styles

Introduction

Ajax HealthCare is the prime source for a great deal of the analysis here to give this study a realistic basis. However, this problem, coercive management style, is not unique to Ajax or the insurance industry alone. Coercive management styles are often the management style by default for many companies in many industries especially in sales.

This is a study of coercive management style utilized within the professional insurance sales force of a company called herein Ajax Healthcare. For many years coercive management styles have been the norm for management of most sales forces. In the insurance industry alone it tends to be more heavily utilized as the management style of choice for most companies. The primary intent of this study is to prove as to whether such aversive styles of management do in fact produce higher performance and productivity. The secondary intent of this study is to determine if there are any consequences or not that are demonstrated by lack of customer satisfaction and/or loyalty from this type of management style.

Numerous peer reviewed articles have been studied to determine what to any extent has been already studied or proven on this subject. This paper will show that employee motivation is not higher by the use of coercive management styles. In fact, the reverse is true and in many cases higher employee turnover usually of the most qualified experienced personnel is the lasting result of such tactics. This paper will further show that not only is performance and productivity hurt by such aversive tactics, in the long run employee attitudes are destroyed and ultimately customer satisfaction and loyalty are reduced. The long term result of such management styles can be, and has happened for many companies, complete company failure due to tough economic times. When the going gets tough, the employees will not be committed to the company’s survival and would rather jump ship and move on than stay and help.

Ajax Healthcare

Ajax Healthcare is in the business of providing health insurance to groups and individuals. Ajax provides health insurance for all age groups including Medicare insurance products to those Americans on the Medicare program. The analysis provided here is from a five year working period in the Ajax sales force as a field sales associate. During that five year period there were dramatic changes within Ajax that required extensive changes in product development, sales processes, and compensation changes. The primary driving force behind the organizational problem was the mandated changes in the Medicare program from the Centers for Medicare & Medicaid Services (CMS). These changes reduced the reimbursement rates provided to insurance carriers participating in the Medicare program as well as mandate serious changes to the way these carriers could conduct business with Medicare recipients.

As Ajax began undertaking the changes mandated by regulatory implementation, the company’s primary methods of operation and sales had to change dramatically in order for Ajax to adjust to the changing requirements and competitive marketplace. This meant that the company had to find immediate methods to reduce costs due to the lower reimbursement rates provided by Medicare. This also meant the company had to find alternative sources of income outside of the Medicare program products. The company needed to begin to sell other products that were value added sales to a substantial base of Medicare recipients. However, CMS had mandated changes to contacting methods for Medicare recipients.

CMS mandated how, when, and where these new products could be broached with Medicare recipients. Nothing could be demonstrated or talked about that was not directly related to Medicare at any appointment or meeting that had been billed as a Medicare meeting. Not only was it mandated that nothing could be said, shown, or inferred about non-Medicare products at any Medicare related contacts, sales people were not allowed to contact the Medicare recipients directly about other products outside of Medicare products. This meant the sales people basically had to find all new prospects and clients for these new products.

The field sales force which had been trained primarily on certain products, methods, and tactics for Medicare related products to makes sales was now faced with new product types, new sales processes, changes in compensation, and completely new sales methodologies and tactics in extremely short notice. Ajax did not provide any guidance or training on how to be productive in this radically changed working environment. Instead of providing the needed training and support to mitigate the stresses and pressures caused by these changes, the company chose a coercive management style instead to motivate the sales force through intimidation and threats of job loss to attain production requirements.

Due to CMS mandated changes to how, when, and where these new products could be sold to Medicare recipients, the sales force was forced to start all over finding and securing long term client relationships with all new demographics for potential clients. This would be analogous to the changes facing blacksmiths when horses went out of favor as the prime method of transportation for the general population. It was a drastic radical change in the ways business was to be conducted. Unlike what faced the blacksmiths, this happened almost overnight.

Problem discussion

At issue here is to determine whether coercive management styles such as utilized by Ajax Healthcare do in fact increase motivation, performance, and productivity. From experience it was determined that the sales force was not more motivated but highly frustrated and intimidated. As a consequence of that coercive management style, the more experienced sales professional slowly began to leave the ranks of the company. This began to slowly impact customer satisfaction due to the remaining experienced sales force being stretched and not able to address customer issues as quickly or in a quality manner as in the past.

Eventually Ajax began a hiring spree of new untrained inexperienced sales people. The company then began a systematic process of getting the more experienced sales people, higher compensated ones, to either produce at much greater levels, leave voluntarily, or be let go. This philosophy produced either higher revenue from coerced production increases, or lower immediate cost of doing business by eliminating the higher compensated employees. Tactics such as this can produce a better fiscal looking company in the short run, but over the long run the keeping of only the less experienced employees will have a dramatic impact on the bottom line of the company. This is because of customer satisfaction problems arising and/or going unresolved. This will not only hurt the company directly it will have a dramatic negative impact on employee motivation.

Motivational Theories

What constitutes employee motivation? There can be a significant difference between what is done from a management viewpoint and how it is perceived by the employee. How the employee perceives the action of management is what will affect the employee’s motivation. While there may be real strong reasons for changes within a business structure such as took place within Ajax, the end result on employee motivation is not a desirable outcome. As Elangovan demonstrated, “perceived legitimate power and coercive power of the supervisor were major predictors of subordinate stress,” (Elangovan 2000). As will be shown later in this paper employee stress causes major concerns for both the employees and the company.

While Ajax as a company had to restructure the sales force and products in dramatic fashion, field management was left to accomplish new goals by whatever means necessary. Since there was no one set up as a change agent and no training for managers on how to manage the changes, the managers for the most part chose coercion to accomplish the company goals and changes managers were face with.

Thoroughgood, C. N., Hunter, S. T., & Sawyer, K. B. (2011) showed what can happen and did happen within the management structure of Ajax. “Perceptions of organizational politics create an environment of uncertainty whereby leaders may seek to reestablish control by engaging in political influence tactics such as bullying,” (Thoroughgood, Hunter, & Sawyer, 2007). Since managers were left to accomplish corporate goals however they decided, most opted for coercive draconian methods like intimidation, innuendo, and open threats of termination. The executives supported whatever measures that were undertaken as long the measures did not violate any laws and produced results. While there may seem to be extenuating circumstance for the initial reactions to the changing environment for managers, at some point Ajax should have stepped up and established a better employee support system to work through the changes rather than allow first and second line managers to coerce employees to get on board or leave.

Coercion versus Persuasion

There is a significant difference between coercion and persuasion. Penny Powers (2007) reiterated that much of what we do in action seeks to “influence the thinking or behaviors of others,” (Powers, 2007). There is no questioning the fact that everyone seeks to influence others. How that influence is accomplished falls into one of two categories, coercion or persuasion. While coercion is generally thought to be unethical it is rampant and acceptable within the insurance sales industry. No matter how much support such activities receive they are still destructive. As Penny Powers (2007) stated it plainly, “Strategies to influence people backed up by credible research may be effective and still be unethical,” (Powers, 2007).

When one individual has the ability to cause another to adapt to the requirements the first person has established, they have power over the second individual. This is the bases of the management employee relationship. Power itself is not bad or destructive. It is essential in business. How one uses that power is what will constitute the good or bad use of that power. What becomes most important about this control or power is the perception of it by subordinates. It is not what managers think or do, but rather how the employees perceive manager or supervisor power. It is imperative that managers attempt to determine what subordinate perceptions are about the leader’s power and attempt to undertake, “managing the impression” (Hinkin, 1994) the employee has about the manager’s power. The employee’s perceptions of this power will ultimately affect the employee’s sense of justice in how the employee is treated and rewarded for efforts performed.

There needs to be a sense of justice in the methods utilized by management in dealing with employees. Clearly in a coercive organization such as at Ajax, there is a perception of injustice within the sales force instead. High performance goals with threats to back up lower potential productivity cause immense undue stress within the sales force. The result at Ajax was the best, brightest, and most experienced sales individuals began to leave the company resulting in an inexperienced sales group left behind. It is unknown at this time whether Ajax management lacked the proper education on true motivation and justice or was just not concerned about it. Stecher & Rosse (2007) believed that a sense of justice is absolutely necessary for the psychological well-being of employees. They further articulate that to mean that a sense of justice or injustice impacts the employee on and off the job. The employee’s perception of this could affect the intention to engage in either positive or negative work-related behaviors.

Motivation has been studied for thousands of years. While much of the research utilized here is from the past fifty years or so, there is no empirical data that shows coercion does not work, at least to some extent. While this may seem to be a weakness in the philosophy stated here, it really needs more research to clarify the real impact of such management styles on the overall company and its performance. There is clear research that demonstrates that proper persuasive techniques and perceived justice do increase such things as employee commitment and citizenship within the organization. The perception of justice resides with the employee, (Robbins & Judge, 2011, P. 224). Expectancy theory would state that this makes sense. If employees believe they are being treated ethically and are being rewarded properly for work performance, employee commitment and citizenship should increase.

Motivation and Productivity

There is a connection between motivation and productivity within a workforce. Simply stated, workers are more committed to companies that treat them with dignity, (Ahmadi & Ahmadi, 2011) and therefore usually become more productive. While this may seem straight forward and simple, it is not a concept that Ajax embraced as well as many other companies within the insurance industry. Ahmadi and Ahmadi believe that the people in an organization, the human capital, are that organization’s most important asset. Ahmadi and Ahmadi (2011) present this proposition as the (QWL) “Quality of Work Life,” (Ahmadi & Ahmadi, 2011) philosophy. The QWL philosophy states that in order to be fulfilled an employee’s work environment should be rewarding not overly stressful or containing other negative personal consequences, (Ahmadi & Ahmadi, 2011). Employee overall commitment to the company is tied directly to the QWL of the working environment.

As the QWL changed within Ajax more and more experienced long term sales employees began to leave. This resulted in a much lower experience level of sales people. These less experienced employees had much less commitment to the company than did the individuals being replaced. The inherent problem with this is that less experienced individuals can and often do wilt under the stressors placed on them by management. While research shows there can be a positive correlation between normal stress on the job and improved productivity when channeled properly into action, the data also shows that less experienced employees have less ability to channel the stressors properly into effective production, (Khan, N., Riaz, M. T., Bashir, H., Iftekhar, H., & Khattak, A., 2011). This is related to commitment. Employees with greater commitment had a much better chance of turning stress into production than those with less company commitment, (Khan, et al., 2011).

Stress and Longevity

“Employee stress also leads to significant costs for the organization by adversely affecting employee performance and prompting withdrawal behavior, as reflected by increased absenteeism, tardiness, and turnover,” (Elangoven, 2000). While it is clear the insurance sales environment is one of high stress, it is also clear that companies should do whatever is within the company’s power to alleviate unnecessary stressors. One of the drawbacks of an industry such as the health insurance industry is that those individuals that rise to management have not, in most cases, been realistically trained in management. They are typically just successful sales people who have been elevated to management. Management training within Ajax constitutes more of a logistical approach on how to manage the workload and not on how to treat the employees and get the best out of those employees.

The company training manuals at Ajax state all of the ethical issues properly. However, the organizationally induced stress goes unchecked. The pressure on lower level managers and supervisors is to get performance and productivity up at all costs and without excuses. The end result is coercive generated organizational stress. There is a bureaucratic order in place at Ajax that is demanding and unyielding. Individuals are placed where they fit and no one goes outside the accepted norm whether in management or not. Ideas not originating from the top down are seldom addressed or considered.

There are two basic areas that become important in evaluating Ajax, role conflict and organizationally induced stressors. Because of the mechanistic structure within Ajax, stress is created through lack of effective communication between managers and employees. Communications are one way, down. Role conflict comes into play because of two competing priorities for the sales force. First, the sales force is an extension of the company. The role then is that of employee with responsibilities toward the employer. The second role is that of customer or client agent. The customer considers the sales person to be a personal consultant in the area of health insurance. These two roles are often in conflict because what the company wants is not always in the best interest of the customer. This conflict creates tremendous stress for the conscientious sales person.

The second area of concern, organizationally induced stressors, is caused directly by the highly structured and inflexible nature within the hierarchy of Ajax in this case. The organizationally induced stressors are extremely counterproductive. This extra stress can manifest in many ways, poor performance, absenteeism, turnover, and more. In today’s highly competitive and highly charged work environments a company must pay attention to these added stressors which the company can control. “Today's organizations can ill afford the adoption of an organizational structure that does not account for the dysfunctional impact of work stress on their members' performance,” (Conner, & Douglas, 2005).

Personal effects of stress

Along with job performance issues stress of this sort and magnitude can have substantial personal effects on employee’s health and wellbeing. The anonymous author put it, “one way employees are subject to stress is through a combination of high work demands and low job control,” (Anonymous, 2003). The demanding aspect brought on by the rapid restructuring of Ajax increased the stress on employees. While many in the sales industry usually consider high stress to be normal and acceptable, additional stresses can induce significant physical issues for the employee. Recent studies on the health effects of high job strain and imbalances between an employee’s efforts and the subsequent rewards increase the potential for heart related deaths, (Anonymous, 2003). At Ajax the perspective of the employees is that employee health and welfare are not a priority in the least. While employee welfare may not be a priority for some businesses, stress at this level will have an impact ultimately on the bottom line through the employee’s interaction with customers.

Customer impact

While many insurance companies demonstrate little regard for employee welfare, all are concerned about obtaining and keeping customers. Company treatment of employees will impact employee attitudes. Employee attitudes will impact the customers where employees touch the customers in some fashion. From the employee’s perspective those that feel higher levels of job satisfaction believe they can and do deliver superior customer service, (Shmit & Allschied, 1995). Schmit and Allshied (1995) go onto say that studies have shown that employee attitudes can directly and positively impact customer satisfaction.

Customer satisfaction improves the company’s bottom line through customer retention, loyalty, further product sales, and potential referrals. Schmit & Allshied (1995) predict that higher organizational demands and employee difficulty in meeting management goals will likely result in the employee’s attitude deteriorating resulting in lower levels of customer service. What this says is that lower levels of customer service will affect customer satisfaction. Lower levels of customer satisfaction will ultimately impact the company’s bottom line negatively at some point. While this negative impact will not happen overnight in the long run it can have dramatic consequences for a company in an extremely competitive marketplace such Ajax Healthcare resides in.

Understanding customer desires and needs has become a significant determinant in management thinking since the 1990s, (Vilares, 2003). The concept of understanding and anticipating what the customer is going to want now and in the future is what many companies attempt to determine as quickly and precisely as possible in order to keep their respective competitive advantages. Since many products, services, or systems need time to develop and implement it is paramount that management know as accurately and as early as possible exactly what the needs of the customer will be in the future. The customer is the life blood of the company. What Ajax either does not know, or does care, is that Ajax employees, especially the sales employees, have a significant impact on customer satisfaction and loyalty.

Vilares (2003) puts it this way, “employee variables like employee satisfaction, commitment and loyalty influence customer perception of the value of the product and service, which in turn influences customer satisfaction; customer satisfaction influences customer loyalty; and corporate financial results are directly influenced by customer loyalty,” (Vilares, 2003). There is a direct connection between an employee’s perception of personal welfare and customer loyalty and customer loyalty impacts company financial results.

Conclusion

The volatile economy today will not end soon. There are many variables that are worldwide in nature. No single country can bring this economic instability to an end. The competitive landscape for most companies in this economic environment will be tough requiring companies to maintain as many customers as possible. Gaining market share will be more and more difficult and only the best companies will prosper in the near future. The environment for the sales forces of these companies continues to become more and more complex and competitive. There is no substitute for experience when considering the complexities and stresses produced for these sales forces. If companies are to truly compete regionally, nationally, and globally, more needs to be done to reduce those negative characteristics of the work environment wherever possible.

As stated previously, the sales environment is comprised of a stressful, pressure packed working lifestyle. Individuals do not stay in sales unless they can thrive on stress and channel it into production. However, the existence of inherent stresses in the job and the ability of professional sales people to channel those stresses into productively does not mean increasing the level of stress will mean more productivity. If management wants to keep the company healthy long term they must work to increase employee job satisfaction. Proper effort/reward relationships must be established. Reducing and/or eliminating added stressors are of primary concern here.

Coercive management styles do not provide a healthy working environment for sales people. The overly stressful working life will have dramatic impact on employee attitudes and poses potential health hazards if endured over long periods of time. Contrary to the belief within Ajax, these changing attitudes will affect the financial stability of the company at some point in the future. Although Ajax is a Fortune 1000 company, there is no way of knowing how dramatically the negative impact will be if management continues to operate in the current status quo. Companies such as Enron and Global Crossing have proven beyond any doubt that size is no guaranty against failure when management undertakes defective or destructive management styles. The only difference between small or large company failures is that the failure of larger companies usually ends up hurting far more people.

If Ajax makes use of qualified change agents as discussed in Robbins and Judge (2011), this potential catastrophic problem could be addressed more effectively (p. 592). Even such drastic changes as those facing Ajax can be managed with the proper people undertaking the proper course of action. Ajax is not attempting to address any of the real concerns facing the sales employees in the company. If Ajax intelligently and proactively addresses these changes the company is faced with, Ajax could avert losing so many important skilled employees and keep customer satisfaction at a high level.

Recommendations

Ajax should undertake a revamping of its management philosophy. The first step would entail putting out a survey to the field sales people to ascertain what the sales forces feels should be done to improve relations between management and employees and how to adapt more effectively to a seriously changing sales environment. Ajax should work to become a learning organization, (Robbins & Judge, 2011, p. 604). The current changes mandated and which are being implemented is only the beginning. With current economic instability facing the U.S. coupled with the baby boom generation coming of Medicare age, there is no doubt that changes in Medicare are not now over. The Medicare program will continue to evolve in order to meet the new economic and regulatory environment of the future. This likely means more changes for those companies participating in the Medicare programs.

In Ajax’s case, sales force employees should also be given more of a voice in determining what will work in the field. No one knows how to do the job better than the individual already doing it successfully. As the field sales force is directly in contact with both current clients and prospects understanding what they are asking and desiring, the field force should have serious input into changing company policies in regards to this. As Glover (1992) showed in the solutions presented in the case of the failed company Sheetrock, Inc., “Employee input could have been used to design strategies to offset sales declines in economically depressed markets,” (Glover, 1992). In Glover’s (1992) opinion Sheetrock continued to use coercive top down management styles until the company ultimately failed.

Times change and tactics and techniques should evolve with the changing work environment. Sales today is a highly complex, technical, and ever evolving process. Once out of the sales environment for a period of time management loses touch with what really works in the field. At the current rate of change within the insurance industry sales processes can become obsolete in just a couple of years. Most of the upper management in Ajax has been out of the field for a decade or more.

Management should also work to reduce undue stressors or least not create any new stressors. One way to help facilitate the changes the field sales force must endure for a company such as Ajax is through support and training. Sales people need obstacles that are unnecessary removed from in front of them and also not have new obstacles placed in front of them. Coercion and intimidation only places more stress and obstacles in front of professional sales people. By providing the proper products, techniques, tactics, training, and support the company shows field sales employees the company stands ready to support all the sales forces’ efforts in an ongoing and constructive manner. This will send the message that will help the sales force endure the stresses involved in such dramatic changes as Ajax has already undergone and will undergo in the near future. This is not unlike Kotter’s eight step plan for implementing change, (Robbins & Judge, 2011, p.597).

Change in today’s global economy is the norm and not an aberration. In order for companies to prosper in the changing and competitive face of a world economy, companies must maintain experienced highly motivated employees. High turnover rates within companies in extremely competitive markets faced with dynamic changes will cause downward pressures on customer loyalty and ultimately impact company financial performance. By working to create satisfied employees through proper training and support, companies are more strategically positioned to compete and be successful.

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(3 points)