Assignment:
Red Lantern Hotel
Part I
The Red Lantern Hotel (RLH) was constructed in south-west China in the 1950's as a state owned enterprise SOE) and was viewed primarily as a premier guest house for visiting dignitaries and officials, Communist party members and guests. As for many SOE hotels at that time, historically the RLH had the characteristics of overstaffing, archaic work practices and technology, unsystematic production systems and a dysfunctional motivation system unrelated to performance.
Up until the late 1990's the RLH management had little concern for profit and primarily focused its efforts on serving and meeting the needs of officials and party members. The majority of managers were untrained and internal family cliques within the hotel departments were prominent. These were built upon trust and they were known to use the hotels resources to improve the wants of clique members. Clique insiders were able to conduct their own private external business during working hours and use the Hotel's facilities free of charge. Government officials provided protection for well-connected employees and nepotism was common. Again, powerful guanxi was an important tool in facilitating these outcomes.
To staff the hotel, employees were usually transferred in from other SOE's and government departments primarily on the strength of their guanxi or connections. Having secured employment, RLH employees felt excited and very proud. Some recalled "if your relatives or your friends knew that you were working at the Red Lantern Hotel, you would be admired."
At that time the Chinese general manager (GM) Mr. Wen's management practices were from the planned economy era, with minimal concern for the development or expansion of the hotels business. Employees' jobs and salaries were secure and their working conditions and benefits were much better than compared to other jobs. The $75 per month paid to a barman or the $185 per month paid to a manager, combined with the easy work, neat uniforms, complimentary meals, health coverage, accommodation and fringe benefits for employees made the hotel an attractive and respectable place to work. The organizational culture was relaxed with many employees managing to find time to read newspapers, drink tea and some managers even conducting private business on the side.
The provincial government was concerned that the potential of the hotel was not being realized and decided in 2000 that the RLH needed modernization. They commenced the search for an international management company to stop the declining fortunes of the RLH and identified the Success International (51) as an organization with the right international reputation, credentials and brand name to take over management of the RLH and help realize the hotels potential.
By late 2000 after considerable negotiations it was agreed in principle that in 2001 Si would take over management control of RLH. The incumbent GM, Mr. Wen would take the new position of acting as a conduit through which SI communicated with the hotel's board.
April 2001
Paul Smith the general manager of SI arrived from England to commence preparations for RLH to begin transition from a Chinese managed SOE to a modernized management under SI.
Smith soon realized that a takeover involved massive changes in the hotel's organizational culture. Entrenched guanxi practices, an ordinary quality of customer service and the occasional annual loss had to be converted into accountable quality service practices provided by dynamic motivated employees.
Smith's team would need to identify efficient and effective employees who could produce the SI standard of excellence at the hotel. He also realized that many of the existing staff who had been employed for as long as 30 years were limited in their work professionalism, efficiency or the ability to communicate in English. The challenge was to transform a large group of relaxed family based employees working under an ad-hoc management style, into a professional group of dynamic employees operating within a structured international organizational culture.
With St's proposed arrival the hotels Chinese Board of management suddenly expanded from 4 to 20 members with 11 new representatives from the co-owners i.e. local tobacco producers Chung Group.
The final contract was signed by SI, Chung Group and the provincial government and stipulated that SI would take over management of the hotel from August 2001. There was construction being completed on a proposed new five-star wing to replace the old section of the hotel and they would take over this new wing once it was completed.
It was proposed that by November 2001 the old section of the hotel would be closed and stripped for demolition. All that would remain open for guests was the modern more expensive section of the hotel. Left with significantly smaller number of rooms to service, employee redundancies were imminent. The hotel had 675 employees well in excess of the 350 employees they estimated that would be needed to service the reduced number of rooms in capacity. Whilst many of the existing staff would be made redundant. SI planned to bring in 8 expatriate professionals to manage the takeover and later, when the time was right, expand their international management team to include pastry chefs, an executive chef, food and beverage managers and a much stronger professional management team.
Smith felt confident that within two years his team would be able to bring the service skills and professionalism of the local Chinese employees up to SI's world class standard. With this goal in mind, he announced a two month training period for all employees. In the new SI human resource selection process, previously valued guanxi networks would become irrelevant and powerless.
Co-owners Chung Group and the provincial government would have no control over the selection process and Chung Group would be financially covering employee redundancies or re-employing them elsewhere. Young employees were excited by the prospect of working in an international hotel; however, in sharp contrast older employees were concerned with their job security.
Smith realized that RLH's nepotism history would be a challenge to overcome. July
In late July SI's international management team arrived to join Smith to takeover administration of the hotel. They began working and assessing each employee's performance. Any employee who failed to meet the new higher standards would be asked to leave by the end of November.
Around the same time Pagoda Travel, an agency that in the past had provided many room bookings and banquet business for the hotel, contacted the hotel to book rooms for a Japanese tour group. The newly appointed manager from SI told Pagoda that their package deal offer "was too cheap" and refused to accept, stating that he "wanted them to pay the full price". Upon learning this, the Chinese head of food and beverage Mr. Fang advised him that "if he refused, the offer he would be effectively excluding SI from any future bookings from Pagoda Travel." The SI manager refused the offer and in retaliation, Pagoda cancelled all future tours booked at the hotel. This consequently resulted in a loss of business for RLH at a crucial time of increased corn petition.
After a short time under SI's management employees realized they had to work much harder and staff who had strong guanxi connections and did not like to work hard or who realized they were likely to be laid off requested transfers out of RLH.
While voluntarily redundancies were welcome, the hotel noticed that they were also losing industry contacts. One of the key senior staff with major connections decided to go and work for a rival competitor.
On August 1, 2001 each employee was issued a short-term contract guaranteeing his/her position for three months, out of which two months would be concentrated on training followed by a month's probation focused on their ability, attitude, and approach to the job. All managers and supervisors now worked an 8 hour day and were no longer able to conduct private business.
For contracted employees with less than five years' service, a voluntary redundancy package was drawn up offering them $125 for each year of completed service.
Although RLH was now under SI management, it remained Chinese in many aspects. For instance some old practices had merely gone underground such as watching TV or playing cards. Anyone caught was subject to immediate dismissal.
Several more managers with important guanxi retired or moved on as news spread regarding the hotel's forthcoming downsizing. Members of Chung Group and the provincial government were still scrutinizing SI's performance as the rumblings of discontent began to grow.
Five young talented staff members from the front office and food beverage departments gave notice in October that they were going to seek better opportunities elsewhere. Some had secured positions in other Chinese hotels.
With a small number of staying guests and only two restaurants open, business was slow for the food and beverage department. As expected no further bookings for banquets or accommodations came through from Pagoda Travel. The restaurants in the old section were closed and Chinese business clientele did not like the lack of privacy offered by the restaurants in the modern section of the hotel. Business was very quiet.
Following the completion of the three-month training and assessment program, the scheduled redundancies began. The objective was to release about 60 workers per week from beginning of November. On the first Monday in November a group of workers was given their redundancies. No prior warning was given to them as SI feared that any advanced notice would result in damage to equipment. Employees were told to proceed directly to, the payroll department to collect their last pay and then leave the building.
No official reason was offered as to why those employees were no longer required nor were they thanked for their years of service. In the locker room where they handed in their uniforms, many voiced their complaints and mentioned that they would have handled this much differently.
Each Monday that November the redundancies continued. There were tears, sadness and anger at the payout window. Because of this the work atmosphere had become uncertain, employees had lost confidence in the hotel. Occupancy levels continued to decline. On one night, there was only one paying customer staying in the entire 200 room hotel. By late November concern was growing that the hotel did not have sufficient funds remaining to pay operating expenses let alone wages. All advanced tour group bookings had expired and no future bookings were confirmed.
By end of November many of the hotel's young workers had been made redundant while older staff remained. In late November Smith expected to take to the board the final list of employees to be made redundant, a group of 30 well-connected older staff who did not fit the SI mould but had the connections with the Chinese board to protect their positions.
The Chung group was unhappy to "pay those foreigners working in our empty hotel." The original objectives of improving quality of service and occupancy at RLH were fading and disgruntled voices among the hotels board members were growing louder. The small reserve which has been accumulated by RLH over the last decade was rapidly being used up. RLH occupancy was now averaging 6% while other hotels in the vicinity were enjoying 20%.
December
The hotel's reserve fund was now exhausted and there was insufficient money left for payroll without extra funding injections by Chung Group. Si's front office and food beverage managers tried to collect their wages and were told there were no funds left to pay them. It was then that the board realized that to complete all the transition plans, Chung Group would be asked to spend over 100 million Yuans. This was to finance the construction of a new five-star wing, fund the wages of more than 350 employees, pay the redundancies of more than 200 employees and cover the salaries of nine expatriate SI managers at a crucial time when income generation at the hotel was very low. On December 16, Chung Group injected half a million Yuans into RLH's account which was spent within a week to cover all costs. To save costs two of the three passenger lifts in the hotel were taken out of use and air condition was now turned off in the public areas of hotel.
There was also fears that employees would not get their December wages and rumors were rife that employees may have to take a pay cut. Workloads had increased with one employee doing the work of three.
Before leaving for Christmas in Europe Smith met with the chairman of the Chung Group board to arrange for more funds to be released to finance RLH improvements planned for 2002 and beyond. The board was reluctant to continue injecting more money into the hotel's operations.
The provincial government and the Chung Group board waited for Smith to leave for Christmas holidays before ordering immediate termination of their contract. All SI expatriate management were asked to leave immediately.
Following Smith's departure, the former general manager Mr. Wen was reinstated and here was an immediate improvement in the hotel's occupancy levels. By January 2002, 60 of the employees made redundant had been re-employed. It seemed that RLH was avoiding the forces of change but for how long?
Answer the following questions:
1. What Chinese cultural characteristics were restricting the speed of change at RLH as it adopted to a market economy? Try to use as many concepts as possible from all course teachings.
2. How could have SI management been more culturally sensitive and prepared in order to achieve their goals?
3. How could have SI better utilized Mr. Wen?
4. What steps should have been taken to make the communication between the international managers and hotel employees smoother?
5. What are your thoughts about Si's redundancy process? What suggestions would you make to SI?
6. Do you think that the Chinese managers benefited from SI's presence?
Red Lantern Hotel
Part II
In 2001, the RLH board and provincial government had made their first attempt at modernizing the hotel, but the internationalization process failed due to a number of problems. A disastrous outcome caused the provincial government and RLH stakeholders to lose heart, momentum and the motivation to modernize. The local governments experience with HI had not been completely in vain. During the nine-month period, The Chinese departmental managers had documented all SI's international operations and practices.
After 2001, as the Chinese market economy continued to develop, a number of human resource problems emerged at the RLH. Solving these problems was now a priority.
After six years, the RLH board and new joint venture owner had recovered enough confidence to attempt the service standard upgrade for a second time. In 2004 two other new five-star hotels were completed in the region, with two more under construction and one under planning and development. With competition growing, developing the human resources to deliver a five-star service experience with RLH clientele was paramount.
An agreement was finalized in January 2005 to demolish the old section and replace it with a modern five-story state of art facility due to open November 2006. In early 2006, the Golden Hotel Services (GHS) was contacted to complete the training task. The committee asked GHS to come and upgrade employees' skills between October 2005 and October 2006 to prepare for the reopening of the new premises in November 2006. During this period the hotel would be closed.
After a short time GHS had noticed two interesting conditions. In the developing Chinese market economy, changing government labour policies were enabling employees to change jobs more easily as well as their city of employment. Under former planned economy conditions this had been forbidden. The demand for quality staff and number of new hotel's heralded the emergence of Chinese style head hunting.
Rival hotels targeted young talent from other hotels.
Another issue was the one child policy. This generation had not experienced difficult living conditions under SOE or China's planned economy. They were confident enough to change jobs if they were not satisfied. Collectively these conditions meant the RLH human resources department had to work harder to retain their good employees and attract young recruits. In the last three months of 2007, the attraction of higher salaries had caused three senior managers and 4 junior/middle level staff to leave and take up new positions elsewhere.
Service was suffering and hotel guests were beginning to complain more and more about the quality of service.
Please answer the following questions:
7. What were the critical errors that the RLH general manager Mr. Wen made after the departure of SI in 2001?
8. H-Y Ngo, Lau and S. Foley have identified how the so called "iron rice bowl" employment system that emphasizes egalitarianism and workplace stability has been criticized as incompatible with China's new economic environment. Identify any situations in both case sections where this incompatibility has been evident.
9. The RLH board is now asking you (Golden Hotel Services) to design a new program to encourage and increase its loyalty among new employees as well as increase business at its hotel. What actions, issues, and characteristics do you believe should be covered in this program?