The Privatization of the Tiger Leaping Guest House in Nanjing, P.R.C.
Decision Problem: The Liang Brothers, Xin and Jiang, must decide how to privatize their family guest house heritage from a mainland China SOE. Four urgently emerging human resource issues arose from this case: First of all, the old SOE employees were poorly motivated and there were no incentives in place at all. There was no pay mix internally aligned with any pay structure. The goals of employees were not aligned with the company’s vision and long-term management strategies if there were any.
Low employee morale and productivity combined with corrupted business model severely affected the occupancy rate and profitability of the guest house. Secondly, the internal and external competitiveness are both off the balance and unfair. Senior management would abuse their authorities to hire their relatives and formed clique, which promoted unhealthy anti trust organizational culture. External competitiveness was irrelevant to the old SOE employees as the pay was subsided by the government. However this would become very relevant under privatization.
Thirdly, the corruption of Guanxi not only affected the internal human resource management but also posed a greater challenge for privatization. A few senior managers are well connected to the local authority. Removing these managers from the house would potentially cause a greater threat to the future development and affect Guanxi with important parties there will be key to the brothers’ business. Guanxi is rooted in the Chinese history for thousands of years. It is part of the culture heritage.
It can be an advantage for the brothers to leverage but could also be a big road blocker. How to deal with these “king of Guanxi” employees would require the brothers leverage their own Guanxi and develop their own Guanxi web quickly. Lastly, the old SOE was lack of all the HRM essentials. Since it is state owned, taking customers surplus, i. e. profit making is not their top priority. At very high level, there is no corporate strategy. The house is simply an attachment to the government for developing its pillar industry economy.
There is no HR strategy so there is no matching with the corporate strategy at all. The culture of the house is simply set by the senior management and simply inherited the traditional way of SOE corrupted culture. Organization design, compensation and benefits are all blur and based on ad hoc approach. In addition to lack of training and standardized recruitment rules, HRM in the house also has no evaluation and feedback loop from the employees. The internal promotion depends on Guanxi and relationship with the management. Plan for the next 6 months to 1 year
It is important that the brothers must realize the importance of Guanxi in the process of shifting from SOE to privatization. To utilize their two cousins strong local connection in their Guanxi network can be extremely beneficial to both short term and long term development. The proposed the privatization HR plan for the brothers in the next 6 months are: 1. get to know the Guanxi network who are the major players: this task will be the most important one that the brothers should start right away and continuously expand their Guanxi network both locally and in China.
To succeed in this task, the brothers must obtain a list of current senior managers and their relationship in and outside of the guest house. First, it will help the brothers understand relationship both internally and externally. Then the brothers need to find ways to get connected with people with authorities that these managers know. The brothers can either utilize their cousins’ network or get connected with the managers. The brothers should not abandon these old SOE managers entirely too soon. They could also be a great resource for the brothers to understand the local culture and find ways to ease in the Guanxi network.
Once the brothers have got a strong Guanxi with the senior managers’ Guanxi, these experienced SOE managers will have no privilege and pose little or no threat to the brothers as everyone knows everyone. We are all on the same network. “Saving face” will be hard to break among Guanxi friends. 2. Set up company vision, corporate strategy, culture and HR strategy: in this task, the brothers must sketch an initial strategies planning for the overall company as well as choose a vision and select a clan culture for the guest house as it was a family heritage from generations.
Once the culture and company strategies set, the brother then must select a suitable HR strategy that is consistent with the culture and strategy. This step will also decide the type of organizational structure, design, compensation structure and incentives that will run later in the company. 3. Redefine the organization structure and adopt a flat structure: this task will reconstruct the current organization and jobs design. Different role with different skill sets should be clearly laid out as well as recruitment regulations.
It is important for the brothers to bring new hires into the newborn structure. The qualified candidates should have years of experience in the hospitality industry preferably in 4 stars above hotel. In addition, the candidates should also be able to adapt dynamic changing environment and previously experienced in SOE to privatization transition in the hospitality industry. All these characteristics are important for the new privatized guest house to grow in human capital. These candidates will eventually replace those old SOE employees who resist the changes.
A flat structure will be more suitable for a family oriented business as every employee takes a share of the pie. This is also consistent with the current positive SOE culture where employees have strong sense of trust and mutual respect. The re-staffing process may encounter some resistances at the beginning. It requires training and education for the current SOE employees. Additionally, the results would be more effective if the brothers can invite a powerful authority that is specialized in talking changed in SOE to privatization transition.
On one hand, the employees will learn what to expect in the transition and under the new privatized model, maximizing shareholder equity or profitability is the top priority. On the other hand, it will put pressure and create an impression for the corrupted managers that the old SOE era is gone. 4. Design suitable compensation and benefits structure: This task will require the brothers to set up both short term and long term structured compensation and benefits plan for the current employees.
It is important that the brothers benchmark with industry compensation standard. Additionally, the brothers must diversify the pay structure to support the new incentives. It is recommended that the brothers should increase bonus proportion of the pay mix. This will increase the employee’s incentive to work harder to earn extra bonus. Retirement funds and health insurance should all be consistent with the industry standard and obey the Chinese labour law. 5. Training plan: The training task can divided into two major categories: educational and service.
First of all, educational training should focus on helping employees transit from SOE to privatization with an emphasis on “your pay depends on your performance”. This part of training could also include a study trip to Taiwan where the brothers have already established successful hotels chain. This trip would be a great opportunity for these old employees to learn the operation in a privatized organization. The educational training could also be extended to the supervisors and managers. These continuous training will help them stay on top of the management and leadership.
Second, service training will be focusing on a long-term service quality improvement for all employees. The goal is continuously improve employees’ knowledge and therefore enhance customer satisfaction and increase profit. 6. Incentive programs: There are a few incentive programs the brothers should adopt. First, cash rewards in the form of gift cards and taxi allowance should be given to the top performers each week. A ranking system should be developed and evaluated employees based on few key criteria such as service quality, customer feedback, mystery guest scorecard etc.
Yearly bonus in the form of cash should also be awarded to the employees and managers if the sale target has met. A combined trip to Taiwan and training could also be awarded to the employees. 7. Transparent career development plan: in the long run, the brothers should also draft a career development and path for all job positions. The plan should be transparent and guide employees to reach their career goals. 8. Feedback and evaluation criteria: A monthly evaluation scorecard system should be setup for each employee.
Managers must provide feedback and help to employee on time. Priorities: The priorities in the next six months are: 1. Getting to know the major players and Guanxi. 2. set up company vision, corporate strategy, and culture and HR strategy. 3. Provide educational training for the old SOE employees and at the meantime recruit new hires to replace those who decided to leave. 4. Restructuring job design and skill for different position. 5. Redesign pay structure and mix with emphasis on bonus. 6. Setup and execute training and incentives plans for the next 6 months. 7.
Evaluate all the above six tasks after six months and get feedback from the employees The key challenging issue for the brothers is to establish a strong Guanxi network. Their cousins will be two great resources to quickly ease in. The art of gifting will be a great tool to open doors from time to time. It is extremely important that the Liang brothers will get all the important players’ cards on their hands. Only then the brothers will have a flexible Guanxi power to fundamentally implement the changes and transfer their SOE guest house to their own family heritage.
