LingHe Simulation - INSEAD CALT

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the need to change might not be felt as prominently. In addition the company was defined to be moderately profitable, further reducing any urgency to change. The choice of a (former) state-owned enterprise (SOE) is a reflection of business reality in China, whereby recent and on-going alterations of state-owned enterprises into joint-stock companies have as goal the reduction of bureaucracy and pursuit of cost efficiencies - targets that managers may not necessarily be very familiar with. This choice was made in spite of the fact that especially in SOE’s the organizational structure would likely be very hierarchical in nature with decisions being imposed from the top down, negating the need to “manage change” as resistance would not be deemed very credible. However, this was countered by initiating the change outside the company itself, namely from its new majority shareholder following its alteration into a jointstock company. Rather than immediately introducing foreign ownership, authors opted for LingHe Company’s major Chinese customer to become the new majority shareholder – reflecting the close relationship that is often found between suppliers and customers in China - avoiding any “obvious” resistance on the part of LingHe Company management. The choice of industry sector on the other hand was driven by authors’ concern with realism, as managers being interviewed during the course of research deemed for instance the textiles sector less likely to undergo significant structural changes or introduce sophisticated management information systems. In conclusion, the context was defined in such a way as to convey a realistic case for change (following alteration into joint-stock company) yet with local management (the ones undergoing and having to carry out the change) rather unconvinced of any need to change the way they have operated to date. The eventual context of the LingHe Simulation was defined as follows: a. The Context: Ling He Company (LHC) is a switching equipment manufacturer founded in 1975 and located near Changsha in the Hunan Province (southern China). LHC is a state-owned enterprise controlled by the Ministry of Information Industry, and a major supplier to the local telecoms industry. As with most state-owned enterprises LHC has no board of directors but operates essentially according to the decisions of its General Manager, Mr. An Cheng. The formal organization of LHC includes departments for Finance, Human Resources & Administration, Research & Development, and Sales, and three Production units. All have direct 6
eporting lines to the General Manager. The five Deputy General Managers share a delegated responsibility over one or more of the departments. In spite of quite respectable financial performance the Ministry of Information Industry recently decided to sell a 60% stake in LHC to SinoCom, China’s largest national telecoms operator and internationally considered as one of the country’s best-managed enterprises. This move was to help introduce best management practices at LHC and to consolidate the national telecoms industry to better compete against foreign entrants. b. The Change Plan: SinoCom’s success was attributed to a combination of solid but lean management, and tight financial & operational performance measurement and reporting using an enterprise-wide, computer-based Performance Management System (PMS). The management team at LHC was left intact following the change in ownership, in no small measure due to Mr. An Cheng’s negotiating skills. However SinoCom insisted that the management structure should be simplified and LHC should start introducing best practices from its other operating units. As a result the Deputy General Managers have become Heads of Department with full and sole responsibility for the performance of their assigned departments, reporting directly to the General Manager. Initial actions included a significant reduction in the workforce. It was also seen as essential that each of the senior managers sets and adopts both personal and departmental goals, and should start using the corporate PMS to monitor and report on progress towards the achievement of those goals. Thus far no such performance management appears to have been introduced, much to the dismay of SinoCom. c. The Challenge: SinoCom has temporarily reassigned you from its Jiangsu division to help the LHC management introduce the PMS. Specifically, all senior managers at LHC are to comment on their department’s performance through the PMS. But for a company like LHC, adopting principles of profitability and personal objectives, as well as starting to use electronic tools for information gathering and communication, involves a major cultural change in how people think, behave and work. As you will experience, this is often a slow and difficult process. Your assignment has been limited to 6 months (120 days). During this time you will be able to: 7
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