Luxury Cars (LC) LC is a manufacturer of luxury cars based in the US. Its customers expect LC to use premium materials in its cars. Customers are willing to pay higher prices than those charged by LC's competitors. The company's reputation for 'affordable luxury' is critical to its promotional strategy. LC's main customer markets are in the US and Europe. These two geographical areas were originally operated as individual profit centres. LC employed experienced design engineers and market research teams in each area. This ensured LC met the distinct customer needs in each area. A new Human Resource (HR) strategy A recent SWOT analysis indicated to the Board of Directors that LC has lost the support of its employees when it introduces strategic changes which directly affect them. There has been a loss of experienced workers with design and IT skills. This has led to a reduction in overall output across all factories. Productivity is $$\(30 \%\)$$ lower than projected. LC has received feedback from its employees (see Appendix 5). Appendix 1: press release announcing LC's new CEO in 2014 LC has appointed Juan Pedro, a former Finance Director, as its new Chief Executive. Juan is eager to use his experience to introduce strategic changes which will cut costs. Juan promises 'higher dividends will be paid to shareholders within the next ten years.' Appendix 2: extracts from LC's enterprise resource plan in 2016 - Centralised finance department to allocate all costs and calculate profit margins. - Monthly financial reports to be sent to head office to monitor performance and decision- making. - Inventory holding costs to be minimised. Appendix 3: new production employee contracts in 2021 - Change from salary to time-based contracts. - All bonuses removed. - Guaranteed working week reduced from 40 to 20 hours. - All hours worked, including overtime, paid at standard hourly rate. - LC's contribution to employee pensions reduced. Appendix 4: ratio results based on LC's financial statements 2014 to 2023 Appendix 5: feedback from employees in 2024 'The new contracts state 20 hours but l'm expected to work 45 hours most weeks with no increase in hourly rate.' 'Why should the impact of strategic change always fall on workers?' 'l've got to do two jobs now because LC's contract only guarantees 20 hours.' 'We are never involved in any decision making.' 'l've never worked in a worse job!' 'I feel like just another machine in the automated factory.' Advise LC on a new HR strategy to improve employee performance.

Indicative content
Responses may include:
AO1 Knowledge and understanding
Knowledge (max 3 marks) can be awarded for any relevant business knowledge about HR Strategy:
- Definition of HR Strategy (achieving business objectives is also accepted)
- Example - HR strategy is a plan to improve efficiency through the management of employees
- Definition of HRM
- Approaches to human resource management
- The difference between 'hard' and 'soft' HRM
- Flexible working contracts: advantages and disadvantages of temporary contracts or flexible contracts including zero hours contracts, part-time, full-time, annualised hours, flexi-time, home working, shift working, job sharing, compressed working hours, the gig economy
- The measurement, causes and consequences of poor employee performance
- Strategies for improving employee performance
- Management by Objectives (MBO) - implementation and usefulness
- The changing role of Information Technology (IT) and Artificial Intelligence (AI) in HRM
- Motivational theories
- Human resource management
- Training and development
- Motivation
- Management
- Organisational structure
- Communication
- Leadership.

No other AO2. AO3 or AO4 marks can be awarded without AO1.
AO2 Application
Indicated by as 1 mark (max \(2 \square\) ), Application must support an assessment objective to be in context.
- ERP plan - 2016; focus on centralised control
- Change of organisational structure from geographical to functional areas with centralised management control
- Renegotiated contracts in Appendix 3
- 2017-18 closure of labour-intensive factories and a subsequent loss of skilled jobs
- 2020 - investment into automation in capital intensive factory
- Significant increase in staff turnover and a loss of experience and design skills.

AO3 Analysis
Analysis of the impact of the HR strategy on a business ( \(\square\) and \(\square\) and \(\square\) 43 ) including:
Limited analysis \(\square\) - candidate shows one link in the chain of analysis (max 3).

Developed analysis of individual strategic element \(\square\) - candidate shows two or more links in the chain of analysis. Developed analysis of overall strategy \(\square\) - candidate shows a counter answer to the chain of analysis (2-sided answer).

Arguments may follow the following plausible scenarios, or any valid strategy based on the context
- The loss of benefits in the new 2021 contracts are likely to have been influenced by financial and accounting strategies in response to the change from labour intensive to capital intensive factories. This is likely to have had a negative influence on the employees, who if highly skilled may be able to find employment in competitor factories. Strategies to improve performance could include:
- Reinstating salaried contracts for skilled employees, which could improve the motivation to stay with LC as employees see a long-term future. This would reduce recruitment and training costs which would lead to lower costs in the long term. This would also help in setting accurate budgets as staffing levels would be more predictable.
- Improving the contracts to provide full-time minimum hours and using bonuses and overtime payment - increase financial rewards - improve employee basic needs (Maslow) allows for focus on non-financial motivators.
- Changing to an MBO from a top-down hierarchy to allow for more innovation and responsiveness to local conditions, which may increase the relationship between management and employees, which in turn is likely to mitigate the impact of lower benefits and increase the feeling of loyalty.
- Training employees on quality procedures such as QA which will increase the feeling of responsibility and pride in the product, empowering employees in a non-financial method which matches the need to keep employee costs low.
- Increase training in fields of AI and automation to show employees their roles are being future-proofed, which will lead to an increase in confidence and job security and a subsequent increase in employee retention figures, which
AO4 Evaluation
L1 \(\square\) limited supporting evidence - answering the question with a brief explanation.
L2 \(\square\) developed supporting evidence - reason is developed further.
L3 \(\square\) developed supporting evidence with context - Level 1 and 2 is answered in context.
- A judgement about a human resource strategy for LC to improve employee performance and retention.
- Judgement may depend upon: financial and budgetary constraints, impact on costs (total and per unit), external influences in the job market, internal and external influences on LC, the extent of HP's ability to relinquish control of their investment to managers, the likely effect of financial and non-financial motivators on employees.
- Weighing up the relevant arguments for different HR strategies.
- The reduction in short-term profit and level of financial risk that LC Board of Directors are willing to accept in their investment.

Accept all valid responses.