The Five-Forces Model of Competition gives a short overview of Kitty’s Maids direct competition. While Kitty’s has 30% of the market, her top two professional competitors hold 17% each. The remaining market share is divided amongst the other three professional cleaning services and the several small shadow competitors. It is these shadow/part-time competitors that have began to saturate the market and undercut Kitty’s prices by 50 to 60%. The customers changing needs and wants play a significant role in Kitty’s competition. Kitty’s Maids currently mails out 50 W-2 each year and only employs 10 to 12 maids at any given time.
This results in a yearly employee turnover ratio of between 416 and 500%, an expensive factor when the average turnover cost per employee is $1,694. The Self-Directed Work Team Strategy I propose for Kitty’s Maids is one that will break employees into work teams of 4. These teams will not vary from day-to-day, but will remain the same. This concept will allow employees to gain each others trust and work as a unit. Self-directed work teams will enable Kitty’s Maids to meet one of the competitions greatest advantages; it will allow employees to provide cleaning services on a route basis thus increasing customer privacy and security.
It could also create a competitive advantage and increase market share. Having self-directed work teams would help to free up Kitty’s time for her to focus on other areas of the business. She could spend her time marketing and billing clients for transportation. For instance, she could focus her marketing attention to advertising on city buses and other forms of transportations. She could also start billing customers for mileage from headquarters to their homes or businesses at a rate of $0. 345 per mile. This would help to increase the profitability of Kitty’s Maids.
The PEO Strategy will financially benefit Kitty’s Maids. It will considerably lower the workers’ compensation premiums currently paid. With a PEO contract, Kitty’s Maids will be subject to a 7% premium. This is much lower than their current premium which is expected to rise to 29. 1% in July. Kitty’s Maids can offer personal chef and kitchen organization services for $35 an hour, grocery shopping services for 10% of receipt, and catering services for an agreed upon amount (budget). The $35 will also cover the cost of storage containers and mileage. Customer groceries are extra.
It is expected that market share of her maid service division will increase by 10% because of the new PCS. This amounts to about $47,000 a year. Kitty will need to double her staff from 12 to 24 with half providing maid services and the other chef services. It is estimated that a Personal Chef service provided by 12 full-time employees will increase Gross Income by $920,600 (12 chefs x 2080 hours a year x $35 an hour = $873,600 + 47,000 = $920,600). According to the USPCA the average startup costs for a Personal Chef business are $2,500 totaling $35,000.
While this is a startup cost, it would be wise for Kitty’s Maids to set aside this money for unexpected happenings. The yearly workers’ compensation expenses will double ($13,500). With the PCS Strategy, Kitty’s Maids will need to acquire four times the amount of yellow hatchbacks ($9,600). The USPCA estimates the yearly expenses of a one person personal chef operation to be $5,000. This includes purchases, grocery, office supplies, repairs, advertising, travel, and telephone expenses, as well as accounting and legal fees. For a twelve person operation the total estimated expenses would cost $60,000.
In order to increase employee satisfaction over wages, Kitty’s maids will increase payroll by four times to cover the cost of the pre-existing and new employees. The total payroll expense will increase to $250,000. This is the equivalent of paying employees $8 – 12 dollars an hour. This should help Kitty retain and hire better workers. If Kitty were to borrow the capital for her first year of PCS business she would need $305,600. Because starting a PCS business is flexible and can be started with as little as $10,000, I have not calculated borrowed capital into the following income statement.
The PCS Strategy will increase profits by $642,600. According to the Weighted Average Ranking Worksheet that follows, the best strategy for Kitty’s Maids to implement is the Self-Directed Work Teams (SDWT). The criterion factors were selected from the most important company goals and weighted according to their importance. While the Self-Directed Work Team Strategy had the highest weighted score of 8. 90, its score was very close to that of the Personal Chef Services Strategy.