The management principles of many firms reflect the cultures from which the corporations and managers hail. Some of these approaches may be beneficial to the organization in question or can impede its progress. For instance, the way societies socialize their members can be transferred to businesses, and can be identified in different employees’ relationships. Unfortunately, the negative aspects are also incorporated into businesses. Managing a family business can be easy because the scope of the business is small compared to a complex public establishment. Therefore, the management of the two commercial organizations may differ. The ability to change the management approaches when the family business becomes a public corporation is important to the enterprise’s success. This paper will evaluate the transition of Ireka Construction Berhad from a Chinese family business to a publicly traded organization. The paper will determine if the Lai family was excellent in managing the change and estimate the impact of the corporation becoming a public entity. Additionally, the essay will discuss the human resource problems the company faces and areas on which the directors need to concentrate efforts. Finally, the paper will develop recommendations that the company should implement to gain capabilities in order to deal with future unexpected events.
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The initial management of the company as a Chinese family business has unique characteristics that are not common for large corporations. First, the people involved in the management were family members. At the initial stages of the company, family was an influential factor for choosing employees. The advantage of having a family-run business is that decision-making is swift as family members are unlikely to resist change. Additionally, the loyalty the employees have to the business goes beyond the financial gains. Therefore, in demanding times, the workers stick to the business because they have sentimental connections to it. The characteristics of Chinese family business management may have contributed to its survival even when its competitors went out of business.
However, the characteristics also have negative consequences for the investment. For instance, the company was not able to downsize when economic conditions were unfavorable because of the family relations. It had to continue incurring labor costs that were not adding any value to the business just to maintain the family cohesion. Moreover, the family-run business cannot have objective perspectives since the senior members of the family cannot be challenged by the young people. Therefore, the company was unlikely to benefit from the insights of the young and ambitious members of the workforce. As the business grew large, the additional employees did not feel equal to the family members.
The management of the company realized the problems the family ownership caused, impeding the progress of the enterprise, and decided to implement changes. The changes prompted Ireka to become a public entity. There were several advantages associated with the organization going public. The company was able to get more contracts from the government and expand its portfolio. The large projects available due to the expansion of the establishment created the need for additional finances. The funds could only be raised through the public shares. However, its transformation into a public organization had demerits because it increased uncertainty and challenged the existing management principles. The managers had to grapple with solutions for administration of an increased workforce and reduction of conflicts among them. What is more, while the family business utilized hands-on management procedures, the size of the public entity made it impossible for such approaches. Consequently, the organization was in a state of uncertainty as the changes interacted with environmental conditions.
The Lai family succeeded in promoting the transition from the family to the public controlled organization only to a certain extent. The first full success that the family attained was employment of non-family members. The essential step was to include some of them in the board of directors. The move showed the company’s willingness to relinquish power and control to other people. The organization also halted promotions based on seniority and loyalty, and focused on competences and qualifications. Consequently, other non-family members started feeling part of the organization. However, the change prompted some of the older members of the company to leave and either become competitors or subcontractors for Ireka.
The Lai family achieved another success when it diversified its portfolio. As a family business, it only concentrated on earth-moving projects, and construction of roads. When the business obtained government contracts, it could have focused on them because they were sufficient. However, the family steered the corporation towards the private sector, depending on the changing demand of projects. Moreover, it undertook projects in the hotel industry and constructed a hotel. The hotel was handed over to a different management that had an expertise in the sector. Such diversification spread its risks and ensured its survival. When the government contracts were few, the company could still generate revenues from the other diversified sectors.
The disunity that was caused by the employment of non-family members confused the roles and responsibilities. The Lai family, which controlled the daily operations of Ireka developed a new organizational structure to clarify responsibility and authority. The structure addressed the career paths that various employees could pursue. Apart from it, the family initiated projects to promote communication and cordial working relationships. Communication in an organization is critical because it mediates between decision-makers and implementers (Nese 2014). Firstly, the projects included the formation of a recreation and sports club for employees and their families. Secondly, bi-monthly newsletter improved interactions as it highlighted employees and their characteristics. Thirdly, the company created Projects Operations Supervisory Board (POSB) to keep track of projects. Moreover, the company initiated Head of Divisions Forum, which was composed of heads of various divisions. They met once a month to deliberate on the strategic and current issues affecting the company and find the ways to approach them. These changes provided visibility to the senior management on the position of the corporation and its favorable management. The Lai family succeeded in orienting the organization to create a new vision that stated the company’s future and new methods to realize it. The vision gave employees a sense of direction and their necessary contribution.
Apart from bridging the disunity, the family was eventful in creating an employee stock option scheme. In this venture, workers were provided with a chance to own shares in the company. The management hoped that employee ownership of the company would improve their loyalty and working relationships. However, it was not successful because of the degradation of the shares provoked by harsh economic conditions.
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Another unsuccessful attempt to enhance the transition was evident in control the Lai family continued to exercise. The family owned about half of the company. Such ownership was not likely to prioritize the interests of the shareholders. The presence of family members in the board of directors was one failure to promote the transition. Unlike in a family-run business, corporate governance in a publicly traded company is required to ensure that the managers maximize the interests of the shareholders. The composition of the Board of Directors ought to include independent directors, but Ireka definitely lacks them. Corporate governance structures, such as independent directors, control the behavior of managers and prevent them from making self-serving decisions instead of focusing on shareholders (Gnan, Hinna, Monteduro & Scarozza 2013).
Managing people is critical to the company’s strategies because it empowers the employees to work harmoniously. Although the employees may be highly trained, they may fail to achieve the set goals because they do not work together. Managing people ensures that the workers are motivated, comprehending their required participation in achieving organizational goals (Dowling & Donnelly 2013). Managing people involves understanding the factors that motivate them, as well as their behaviors and perceptions. Comprehending their behaviors helps the organizational leaders to create motivational packages that satisfy their needs and predict their behavior during decision making.
The human resource (HR) problems experienced at Ireka were due to the neglect of the human resource aspect of the company. The previous HR procedures were delegated to divisional heads. They took care of their divisions’ workforce needs independently. The human resources in an organization are as essential as material resources. An organization cannot optimize its material and process resources to gain competitive advantage without the right human resources. However, Ireka failed to recognize this importance and gave HR functions to people with no experience in human resource management.
The objective of forming the HR committee was to ensure that all the HR needs in the entire corporation were considered before the new systems were crafted. The involvement of the committee also guuaranteed that the development agenda of the company was the basis upon which the HR systems were formed. The committee involvement was critical because the systems would affect them directly. Therefore, their input and approval of the HR department’s systems would support their implementation. Unfortunately, since they had no prior HR experience, they provide insights that were not effective in managing human resources. Consequently, the implementation faced impediments as numerous changes had to be effected when the recommendations could not work. The changes in the HR systems’ implementation created a negative image to the employees. The division managers, who were previously responsible for making HR decisions, realized that some of their authority was being taken away from them. As a result, they were not supportive of the new HR systems. The current HR policies require all employees’ matters to be handled by the HR department, which will unify procedures throughout the organization.
It was evident from the feedback the employees gave that the company had failed in engaging them when making decisions that affect them. The employees felt that there was no transparency in the company. Little information regarding the organizational goals and their future in the corporation denied them near-term perspectives. According to Nese (2014), employee involvement in the change process is an essential success factor. Their resistance to change may water down all the organizational efforts. When employees are involved in the organizational activities, they understand why some changes are necessary. When their input is considered, they own the implementation process and put extra effort to ensure the decisions are implemented successfully.
Another problem that Ireka faced was that the employees needed the performance appraisals to be harmonized with performance outcomes and bonuses. The workers felt unappreciated for their efforts and wanted their output to be reflected in the bonuses. Employee satisfaction is a critical performance ingredient because it permits them to focus on work and not on other disturbing aspects of their lives. The management’s excessive involvement in employees’ task completion was among the complaints from the workers. When the management of an organization fails to give autonomy to employees, they feel micro-managed and inadequate. Employee freedom in duty execution can be realized by developing their competencies. Such development was absent at Ireka because there were no documented policies and procedures on how to cope with it. The new HR systems were successful because there was improvement in the way people interacted with each other. The employees understood the complexity of handling human resource issues and appreciated the company’s continued effort to improve.
The improvement in internal processes in managing people can lead to the alignment of the strategic goals with human resource practices. One of the improvements entails considering HR policies from the standpoint of the employees. It is imperative to understand how employees view HR policies to determine their success. According to Chen and Wang (2014), different employees interpret procedures and policies in dissimilar ways. Therefore, the involvement of the HR committee alone was not enough. Seeking the opinions of the workers who would eventually be affected by the decisions was essential. There were grievances that despite the initiated recreational activities, the workload had increased and prevented employees from enjoying the recreational benefits. The directors should focus on ensuring that every member of the staff interpret the benefits to the employees as genuine. Some workers may perceive mischief on the part of the company if the workload curtails their ability to participate in the sports. As a result, the intended success for the improvements may be hindered. Additionally, they should consider the suggestions to link job appraisals to performance and bonuses. Such a consideration can increase motivation and internal competition, which would improve performance.
The Asian continent has become very competitive. Therefore, an empowered workforce is a competitive tool that corporations can use to gain market share and profitability. Improving the performance of the workers by motivating them is one of the areas that the directors should focus on. The continuous improvement of HR policies should be among the vital guidelines the directors should follow when deciding the strategic direction of the company. Hiring of new employees will always be needed because the company requires fresh talents that can easily handle the existing problems. The organization is a system that interacts with its external environment (Eddie & Victor 2014). The influx of elements from the environment improves the performance of the corporation. Therefore, aligning the HR policies with the changing labor needs will empower the corporation to compete with other firms effectively.
The first recommendation for Ireka is to allow non-family members to be part of the board of directors. The family cannot guarantee the shareholders that they will not make decisions that conflict with their welfare. The behavior of managers should be closely monitored by independent directors to keep them in line with shareholders’ priorities. The management is involved in making decisions that are risky for shareholders’ investments. As such, the board should have the authority to regulate the ventures the company decides to pursue by acting as an oversight body. Therefore, the independence of the board is a risk-mitigating strength for the owners of the corporations.
The second recommendation, which can help the company gain capabilities to deal with future unexpected forces, is the formation of a team in charge of scenario thinking and strategic analysis. In the current competitive markets, it has become increasingly strenuous to predict the forces that will emerge and affect businesses. Apparently, there is a need for Ireka to have a scenario thinking team, which will conceptualize different scenarios in the future that can adversely affect the corporation. The team should also provide tentative solutions to every possible problem. Apart from predicting possible problems, the team can identify opportunities in the future that the company can consider. Well-ordered team is critical because among all the future scenarios that may arise, Ireka will always be ahead of its competitors without such teams.
The company must link its needs to those of the employees to ensure that the current changes in the firm are successful. When the organization sets goals, they should be crafted in such a manner that they appeal to the employees. The employees must have personal interest in fulfilling the company’s objectives. Connecting the needs requires some benefit system that will be tied to the organization’s performance. When the performance of the company is exceptional, the employees should be compensated accordingly. This arrangement is essential to the company’s capabilities to deal with expected future events. The highly motivated employees will become creative in solving problems and seeking new opportunities because the success will reflect the benefits.
Finally, Ireka should create an employee development program that will train them depending on the organizational needs. The program should provide them with chances to advance their careers through promotions. Investing in employee’s development will help Ireka to reduce the rate of employee turnover. Consequently, the costs of employee replacement will reduce. When the workers have career development prospects, they will become loyal to the corporation and ensure that its knowledge base is preserved. According to Valerie and Werner (2006), some employees are motivated by financial gains while others derive their motivation from career development and advancement. When motivation plans are being considered, it is also imperative to pay attention to the two types of employees. A corporation with a rich source of knowledge and loyal employees can overcome future crisis and emerge victorious because of the employees’ resilience and commitment to its success.
The Lai family has been successful in managing the transition of the business to a publicly traded organization. Some of the changes that have been beneficial include diversification to spread risks and creation of a new organizational structure. The structure clarified responsibilities and the employees’ role in the vision of the company. Another move that made the transition a success is the improvement of communication through POSB and the creation of the heads of division forum. The only factor that delayed the change was the family’s control over the company. The human resource problems at Ireka included resistance to change, unqualified HR committee on human resource matters, lack of employee engagement and failure to link performance appraisal to compensation. The recommendations to the managers include forming an independent board of directors, organizing scenario thinking and strategic analysis teams, and creating an employee development program.