Rocky Mountain Mutual: Fun or Fitness

Jane Thomas
University of Michigan Business School
thomasej@umich.edu

Contents

     Sample responses

     Analysis of samples responses

     Teaching notes

Sample Responses

Case Sample Response A

As I mentioned to you in our meeting last week, I have some concerns about your proposal to close the health and fitness center. During the past nine months, I have researched the value of the center, instituted a new program to encourage employee use of the center, and seen great benefits--both tangible and intangible--from employee use of this facility. I will present my findings below and respond to some of your concerns.

My data, collected several months ago, indicates that there are substantial savings in health care costs, significant gains in worker productivity, and important improvements in worker morale which might have a correlation with use of the health and fitness center. For example, annual hospitalization costs per employee over the past two years were $500 for employees who never used the center, $300 for employees who used the center at least once a week, and $100 for employees who used the center at least 3 times per week.

While these figures do not demonstrate a cause and effect relationship between exercise and lower hospitalization costs, they nevertheless show a strong correlation between the two. Thus, it is reasonable to assume that closing the facility may increase health care costs, and that by encouraging more employees to use the facility, costs could be cut further, perhaps by as much as $30,000 per year.

Based on this data, several months ago I launched an incentive program in the Claims Department which has rewarded employees for using the center at least twice a week. The results even surprised me: productivity has increased by 18% and sick days have decreased by 5% over the previous 6-month period. I, too, have felt more energized and productive on the job. The productivity gains are substantial, and I believe could be enjoyed in every department by instituting this program on a company-wide basis. These gains would save the company hundreds of thousands of dollars each year, more than covering the cost of operating the center.

Finally, I have witnessed other intangible benefits of our departmental program. Morale has never been higher, relationships among employees have been strengthened through their more casual interaction at the center, and disputes have diminished, as employees can vent some of their frustrations at the center rather than at each other in the office.

Let me address the three important points you raised in favor of closing the center. First, it is without a doubt true that the center is expensive to operate. However, as I have shown above, I am confident that these costs can be recovered through productivity gains and health care savings. Second, you point out that only a small portion of the work force uses the facility regularly. While this is true, I believe that it is a valuable benefit to this 35% of the firm. Perhaps we could increase usage through a promotional program so that more people can benefit from this resource. Lastly, you point out that the center is not necessary for us to effectively compete. The center clearly is unrelated to the insurance business per se, but it may give us some competitive advantages: lower health care costs, higher productivity, better morale, and an extra benefit with which to attract and retain talented employees.

I believe that there is a strong case for keeping the center open. I trust that you will make the right decision based on all the information at your disposal. Please let me know if you need any additional data from my research or would like to discuss my proposal in more detail.

Case Sample Response B

At our last meeting, you briefly outlined your plans for cutting company costs and improving profits. As I mentioned then, I strongly believe that closing the fitness center is not the best way to achieve those goals, and I have serious concerns about the effect this decision would have on the company as a whole.

You cite three primary reasons for closing the center and using the space for the Corporate Information Systems Department. After carefully reviewing these issues, and analyzing all available information regarding the impact of the fitness center on the employees and the company, I have concluded that the reasons to keep the center open far outweigh those to close it. Therefore, the following is a breakdown of your concerns and my response to those concerns:

Concern #1: The fitness center is too expensive to run

While the total cost of running the fitness center does cost almost $100K a year, that investment is not wasted money.

• Only 3 years ago we spent approximately $1 million to build the center. Those costs were allocated over time as a significant capital expenditure; if we were to shut it down now, we would have to allocate $300K to each of the last 3 years as a fixed costs, which would definitely not improve profits from a balance sheet perspective. Shareholders would not be happy. (In addition, it would look as if we took the decision to spend the initial $1 million lightly if we close the center after only 3 years.)
• The space was built to be a fitness center, not a home for CISD. We would have to expend considerable resources to remodel the space and would have to take a loss on all the equipment purchased. Our health insurance costs are drastically lower for people who use the center.
  • The average hospitalization cost for non-users (65% of employees) is $500/person or about $81,500 annually.
  • Average cost for employees that work out 1-2 X a week (31%) is only $300, $200 less than average non-users.
  • For the 4% of employees that use the center 3X or more a week, average cost is only $100, $400 less than the non-users.

This represents total savings of close to $20K annually among current users alone. The more employees that we encourage to use the center, the higher our savings.

Concern #2: Participation rate is not high enough

In the 3 years since the center was opened, about 35% of employees have become regular users, working out at least 1X a week. These people are the early adopters--those who are already into fitness or were interested in trying it on their own. As with any product life cycle, we must now concentrate on providing incentives to other employees in order to be profitable.

In the last 8 months, I have instituted a Wellness Program within my department and have budgeted $2K annually to encourage increased participation. All my department employees are beginning to use the center at least once a week, and exercise support groups have been started. Similar policies could be instituted company-wide, and I am sure we d see similar results.

Concern #3: Center is not necessary to be competitive

This is the concern I disagree with most vehemently. Since my department has been participating in the Wellness Program, productivity has been up 18%. The absentee rate has decreased 5%, and absentee rates are half (average 6 days) for users vs. non-users. In addition, morale is at an all time high. Although morale is an immeasurable factor in productivity and ultimate profits, I am sure you are aware how crucial good morale is to the success of any organization. If we take away the center, morale will suffer:

• There is no other fitness center conveniently located.
• No other company in our area offers this benefit, so it is source of pride to employees.
• If we take away a benefit that 35% of our employees use regularly, there will definitely be a public backlash, and negative PR could impact our image in the community.

As you can see, I truly believe that closing the center would not be an effective means of improving profits and cutting costs. After you've had a chance to review my comments, please call me to discuss. I would be very happy to assist you in any way possible to cut costs while maintaining an important benefit to both the company and its employees.

Case Sample Response C

As we discussed in last week's meeting, I promised to put in writing my recommendation to support preserving the fitness center. The purpose of this memo is to give you my perspective in the hopes of persuading you to reconsider your position.

The structure of this memo has two parts: first, I will address your three main concerns regarding the fitness center; second, I will try to illuminate additional factors to help you with the decision process.

One of the concerns I heard at last week's meeting centered on low utilization. Data collected via a survey indicated only 35% weekly utilization (or 88 employees). I was surprised by this statistic. Reports from my own department by people who use the facility indicate very high levels of use--especially during non-work hours. This anecdotal data coupled with my own personal experience leads me to believe that the survey may not have captured all employees using the center. My guess is that at least 50% of RMM employees use the center at least once a week.

The second concern was cost. To justify the $100,000 per year operating costs, consider savings in hospitalization, absenteeism, and productivity. Based on the survey statistics, a conservative estimate of hospitalization savings figures out at $23,000. Absenteeism savings (based on the standard $200 per day) comes to $17,000 per year. The greatest savings by far are found in productivity increases. For example, in my department alone, productivity has increased by a staggering 18% over a six-month period. This implies over $60,000 in per year savings in our department. This--given conservative survey statistics and using productivity figures from a single department--the savings equal approximately $100,000, just enough to offset operating costs. With less conservative statistics and information from all departments, savings would likely more than double the operating costs.

The third concern is that the fitness center is not critical to the success of RMM based on national trends. While the figure is still low (only 25%), the percentage of businesses providing exercise facilities nationwide is projected to increase every year through the year 0000, according to the Wall Street Journal. Further, on a local level, the center gives us a competitive advantage in the local labor market by attracting healthy, productive workers who value the employee benefits provided by the center.

Having addressed primary concerns, I want to suggest two issues to consider in your decision. The first is internal marketing. If utilization is still a concern, I would recommend adopting a Wellness Program company-wide as a way of supporting healthy lifestyles and increasing the return on the fitness center. In the Claims Department, for example, we have seen positive responses. Employees have set a goal of using the fitness center twice weekly, and some groups have even formed support groups to spur each other on.

The other issue is very important: morale. As we embark on the upcoming phases of the IS reengineering campaign, more and more personnel will be put in situations of having to cope with the pervasive spread of computers and information systems, which will tend to intimidate and frustrate a large share of our employee base. To help offset this hit on morale, the fitness center will offer sanctuary and solace to employees wanting to let off steam and revel in the simple, uncomplicated, elemental appeal of physical exercise.

Zach, I hope this memo has demonstrated why I believe the fitness center to be a valuable asset to RMM. Please call me if you have any questions about any of the points made in the memo. I will call you on Friday to follow up. I look forward to talking to you then.

Analysis of Sample Responses

Assignment 1: Case Sample Response A

Strengths / Weaknesses

Clear statement of position in 1st paragraph; addresses reader concerns; offers 3 positive points for keeping center; supplies data and reasoning, both qualitative and quantitative; tone strong but not harsh; focuses on health benefits and why those are good for company; smooth writing style with fairly good cohesion.

Although the writer recognizes the lack of causal relationship between the numbers and center users, he/she does not add to the numbers to make them relevant or to show a correlation; paragraph 4 claims a potential savings of "hundreds of thousands of dollars," an unreasonable number with data to support it; discussion of reader concerns adds little new information but just repeats earlier points; chart is inserted without context to show relevance.

Case Sample Response B

Strengths / Weaknesses

Clear opening statement of position; addresses reader concerns; clear organization of points with advance organizers; uses data supplied by the case; cohesion fairly good.

Main points only consist of response to reader objections; data provided by the case used but not developed or put in context; data regarding yearly savings (20K) not explained; Wellness Program mentioned but benefits and effects not explained; 1st two paragraphs state the same thing; tone sometimes questionable (disagree with most vehemently ; I am sure you are aware...).

Case Sample Response C

Strengths / Weaknesses

Clear statement of position and what will follow in the memo; reader concerns addressed; makes two positive points (utilization"; and morale" ); good tone; friendly close.

Rejects data supplied by case regarding users but only supplies a guess to support view; uses numbers supplied by case to cite savings, which are not explained or put in context; numbers offered don't make sense and are not explained; ignores some data provided by case (absentee rates, e.g.); doesn't develop Wellness Program example; writes in generalities at times (discussion of the morale issue); some writing style problems (sentence #8 in 4th paragraph, e.g.; "hit on morale" may be too colloquial).

Assignment 2

Like the memorandum in Assignment 1, the oral presentation should focus on 2 or 3 strong points in favor of keeping the fitness center. Considering the audience, a predominance of logical supporting data would be most effective, including the statistics provided in the case and any inferences that can be drawn from them. Evans' objections to the fitness facility should be addressed. Points in favor of keeping the center could include:

• Employees who use the center save the company money; hospitalization costs for users were 40% less than for non-users during the two-year period reviewed;
• Employees who use the center are more productive; users absentee rates were only half the rates of non-users during the same period.
• The writer finds the fitness center an important benefit of working for RMM.
• Number of users is significant.

These figures must be dealt with in the context of other possible reasons fitness center users have lower medical costs and higher productivity. But with some extra reasoning and evidence, a writer could draw a correlation.

Teaching Notes

This case provides students with an opportunity to explore communication strategies when the values of the writer and the reader(s) are conflicting. Most students will identify with the writer in the case and not with the audience, although even when a student holds an opposing view to the position required, he or she can learn a lot about persuasion by arguing the other side.

The format of the case is somewhat complex, with the information not always readily apparent or easy to grasp. Writers are expected to be able to make appropriate inferences from the information provided. The data is not packaged neatly and is spread throughout the case. You should expect a clear statement of the writer' s position early in the memorandum with a reference to the context of the problem.

Teaching Objectives

• To learn to recognize and make use of the various strategies of written persuasion.
• To open a dialogue regarding the complexities of audience, including primary and secondary audiences.
• To offer an opportunity to recognize the effects of organizational approach, whether direct, indirect, or some combination of the two.
• To stress the importance of supporting data in argument and to learn to make legitimate inferences from details given in the case.
• To offer an opportunity to either write or speak in the context of persuading an audience in basic disagreement with the writer or speaker.
• To learn about managing differences between organizational objectives and personal preferences and needs.

Communication Problem

The central communication problem in this case is the need to persuade a person in a superior position to change his mind about an issue. Both the primary audience (Zachary Evans) and the secondary audience (Board of Directors) are in positions superior to that of the writer or speaker. Care must be taken to define an appropriate tone for the memo or the presentation and to offer the kind of appeals that will be effective. A major challenge is to offer the kinds of data and other information that will be effective for a reader who does not share the writer' s opinion and values. What might be persuasive to the writer in this case may not work with Zachary Evans or the Board of Directors. Students must be ruthless in evaluating their own reasoning and evidence.

Potential Difficulties

A major difficulty in both cases is the temptation to attribute a cause and effect relationship between the lower medical costs and higher productivity and the users of the health center. Users of the center are probably healthier to begin with and are interested in fitness; therefore, they would probably have lower medical costs even without the facility. Without more precise statistics, which might include such items as age, hereditary risk factors, eating habits, etc., a writer cannot prove a causal relationship between company costs and fitness center users. This aspect of the case is a trap which many students will fall into unless warned or unless taught about fallacies in persuasion before attempting the case. This problem, though, does not negate the value of the data provided. This data can be used to construct a strong argument and should be included in the response.

Another major difficulty concerns the emotional aspect of attitudes regarding health and fitness in current corporations. Many people on both sides of the issue tend to be extreme. In this case, offering logical, data-driven points will overcome much of the resistance. The danger with the emotional aspects of this issue lies with the tone of the written document or the oral presentation. We may feel that Zach is old-fashioned, unhealthy, short-sighted, and wrong, but we must accommodate his view and maintain a respectful tone in communicating our views.

A further major difficulty is the temptation to proselytize in the matter of employee health and fitness and disregard the need for quantitative and qualitative data to support an argument. Respondents to this case must be able to pick out the data from the case and draw authentic inferences from the information.

A final difficulty concerns the use of the statistics in the case, not as a fallacy, as discussed above, but in drawing conclusions not supported by the numbers or in creating quantitative savings not supported by the data in the case. The chart below explains the figures used in the case.

Statistics for Rocky Mountain Mutual Case

Individual costs: all users per person cost 3/5 or 60% of non-users

Heavy users (3X or more per week) cost 1/5 or 20% of non-users

Total yearly costs for both users and non-users are misleading because there are many more non-users than users; as the number of users increases and non-users decrease, the totals could be close to the same or total users costs could be more than total non-users costs