Analysis of UIT Hong Kong Sales Team Poor Performance

and High Staff Turnover

By Vincent Low Hock MunMBA Student

Henley Business School,University of Reading

Henley, UK

Assignment for Managing People and PerformanceDecember 20, 2009

Contents

1 Abstract............................................................................................................................................3

2 Introduction......................................................................................................................................3

3 Analysis of the Issues......................................................................................................................4

3.1 External Realities.....................................................................................................................4

3.2 Structure and Culture within UIT............................................................................................5

3.3 HRM in UIT & the role of Line Managers..............................................................................5

3.4 Psychological Contract between UIT and the Hong Kong Sales Team..................................6

3.5 The Importance of Psychological Contract and Discretionary Behaviour..............................7

3.6 Breach of the Psychological Contract......................................................................................7

3.7 Wrong Performance Measurement leading to Poor Reward System......................................9

3.8 Poor Training and Development............................................................................................10

4 ACTION PLAN.............................................................................................................................11

5 Justification, Benefits and Implications.........................................................................................11

5.1 Applying the Bath Model to UIT...........................................................................................11

5.2 Devolving some HR Functions to the Line Manager............................................................12

5.3 Train Line Managers to manage the employee engagement.................................................13

5.4 Managing the Psychological Contract and Discretionary Behaviour....................................14

5.5 Setting Performance Measures and designing a total reward system....................................15

6 Reflection and Learning.................................................................................................................16

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1 Abstract

This paper will examine why UIT’s Hong Kong Sales Team is suffering from poor performance and

high staff turnover with emphasis on the Human Resource functions.

Data for the analysis was gathered via interviews with the Sales Manager, and members of the Hong

Kong Sales Team. However, quantitative data is not available as the HR department has refused my

request for access.

The paper will examine the various interdependencies between the Psychological Contract, Employee

Engagement and Performance.

The results of this paper indicate that there is a close connection between breaches in the

psychological contract with the high turnover rate. Various theories and Frameworks were applied to

arrive at a plausible solution to resolve UIT’s Hong Kong performance issues.

2 Introduction

United Information Technology, Co. Ltd., (UIT) was setup in 2000 by 5 Individuals, all with

substantial experience doing business in China. By the end of 2007, UIT had become the top Chinese-

owned company providing Data Storage Solutions in China according to International Data

Corporation (IDC) (IDC, 2008). The market in which UIT operated in is one where the competition is

intense, from well known international brands like EMC, HP and IBM, to small Taiwanese

manufacturers like Promise and Infortrend. Within China, UIT had a well established brand, but

outside of China, the brand was an unknown and untested entity.

UIT had its main office in Beijing, where all the administrative functions are headquartered. It also

has sales offices in Shanghai, Shenzhen and Hong Kong. The Hong Kong Sales office also housed its

international sales team, where this author, as the Regional Sales Director for South Asia, shares an

office with the Hong Kong Sales Team. The Hong Kong Sales team consist of 1 Sales Manager, 2

Sales Executive, 2 Technical Engineers and 1 Sales Administrator. The Sales Manager reported to the

Sales Director, who is based in Beijing. Unfortunately, the Hong Kong sales team, which was set up

in January 2008, is suffering from a high staff turnover rate. The Sales Manager post has already

been refilled twice and both sales executive positions have been refilled once in 2009. Only the 2

technical engineers and the sales administrator positions remained unchanged. This led to the

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inevitable low morale in the Hong Kong Sales Team, manifesting itself in the way the technical and

administrative staff would eat lunch as a group (citation needed), while the sales staff typically

lunched alone. There was little bonding between the sales staff and the support staff. The high sales

staff turnover also meant that the Hong Kong Sales Office had not met any of its revenue and profit

targets to date and it was the only sales office in UIT’s China operations that is consistently under-

performing. It has also become a concern to the Board as the Hong Kong sales team was dragging

down revenue and profit for the enterprise as a whole.

Although there are other factors contributing to the poor performance of the Hong Kong Sales team,

this author believes that the factors that directly can be attributed to the HR functions are:

Lack of HR Policies and Line Management.

Breach in the Psychological Contract.

Wrong Performance Measurement.

Poor Training and Development plans.

3 Analysis of the Issues.

In order to get a better understanding of the issues involved, let first understand the context in which

the Hong Kong Sales Team is operating in.

3.1 External Realities

With China’s one party rule providing the necessary stable political platform for economic

development (Younis et al, 2008), China’s economy continues to grow during a time when

most other developed economies are still recovering from the financial crisis of a year ago. This

is also reflected in UIT’s revenue stream, where revenue generated in China still accounts for

95% of its total revenue. The China “indigenous innovations” rule, where a product must

contain some elements of intellectual property that is owned by indigenous Chinese, effectively

provides a level of protectionism for UIT products. Almost all of UIT’s customers come from

the Central Government, provincial government, state-owned-enterprises, or medium to large

local Chinese companies that would typically follow the purchasing policies set by the Chinese

Central Government. This created a very strong “China first” focus within the company, even

among its top managers.

Unfortunately, the advantages enjoyed by UIT in China did not apply to the Hong Kong Sales

team. Hong Kong, due to its history, has its own laws and governance, and the protection and

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stability that was found in the mainland did not extend into Hong Kong. Hong Kong was

suffering from a bad recession in 2008 and 2009 and many enterprises and organisations had

reduce, frozen or delayed purchases of external storage solutions. Also, Hong Kong was a

mature market for external data storage, where large multi-national competitors of UIT have

already been entrenched for many years. With the recession, many IT managers were also

cautious of buying new and untested brands, preferring to stick with brands that were stable and

familiar. UIT products also did not contain any significant technological advantage over its

competition, as all the equipment are build to industry standards. All these contributed to slow

sales, which exacerbated the sales team feeling of inadequacy.

3.2 Structure and Culture within UIT

UIT’s corporate structure closely reflects it organisational culture. UIT structure can be

described as a mechanistic organisational (Burns and Stalker, 1995) which is characterised by

highly centralised management control, with clearly defined formal roles for both managers

and staff, and a narrow span of control with an average of 3 to 4 staff per level. This form of

hierarchy sits well with the Chinese as it also reflects the values and management style of the

current set of top managers, which is still heavily influenced by Confucian ethics. Expert

knowledge is quite often subjugated to power of position. This leads to little dissent, but also

does not encourage creativity or initiative from staff.

UIT’s mechanistic organisation would fit in Charles Handy’s culture model as a an orgnastion

with “Role Culture” (C. Handy, 1985); where there is a clearly defined role for managers and

staff, and that power comes from the person’s title rather from his expertise. This cultural

model of UIT is further supported if we apply Hofstede’s cultural dimension (Hofstede, 2001)

to UIT. We find that the cultural measurement for China and Hong Kong share very similar

cultural views, with great tolerance for Power inequality as indicated by their Power Distance

scores. This also fits with UIT management style and culture.

3.3 HRM in UIT & the role of Line Managers

Although UIT has over 400 staff, its HR functions are rather limited. UIT’s Human Resource

department is located in Beijing and the department is only responsible for:

Non-managerial Recruitment

Performance Management and Appraisals

Training of new non-managerial Staff, in co-ordination with Product Department

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Legge, K. (1989), according to her article, would have classified UIT’s HR functions as

primarily that of Personnel Management and would suggest that UIT’s HR function does not

encompass a strategic nature. Majority of the personnel functions resides with the Sales

Director, who was responsible for job design, managerial recruitment, approval of new hires,

dismissal, setting of performance indicators, performance evaluation and benefits and

communications with employees. It can be also be argued that the current HR strategy would

be that of the “Best Fit” model (Boxall and Purcell, 2003a) where UIT cost leadership strategy

fits into the description of Cost Leadership in a High Technology manufacturing environment.

Unfortunately, the Hong Kong Sales Manager had neither power nor influence apart from

setting local sales targets for his 2 sales executives, which in itself is subset of his targets, as

assigned to him by his Sales Director. According to Purcell et al (2003a), Line Managers bring

HR policies to live. In this case, the Hong Kong Sales Manager is hampered by the fact the

position did not confer any control over recruitment, development and remuneration of his

people. The accepted tradition of HR Management has been for HR specialist to provide

support and services to line managers but with the control of majority of the HR functions

being either in the hands of the HR department or with the Sales Director, the Hong Kong Sales

Manager capacity to manage these resources effectively is greatly diminished (Armstrong, M.,

2001).

3.4 Psychological Contract between UIT and the Hong Kong Sales Team

When an employer hires an employee, most employees would be offered a formal contract of

employment, stating the terms of their hire. This is an example of a formal employment

relationship. However, contemporary HR practitioners also believe that an unwritten contract

also exists between the Employer and the Employee and this is called the Psychological

Contract.

The psychological contract was described by Schein (Schein, E. 1965) as:

“The unwritten expectations operating at all times between every member of an

organisation and the various managers and others in that organisation... Each

employee has expectations about such things as salary or pay rate, working

hours, benefits and privileges that go with a job… the organisation also has more

implicit, subtle expectations that the employee will enhance the image of the

organisation, will be loyal, will keep organisational secrets and will do his or her

best.”

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The Psychological Contract is also defined by Armstrong (Armstrong, M., 2001) as “…the

combination of beliefs held by an individual and his or her employer about what they expect of

one another”.

3.5 The Importance of Psychological Contract and Discretionary

Behaviour.

We need to understand why a breach of the psychological contract can lead to a decline in

performance and commitment from the employee. Purcell (Purcell, J., 2002) describes

discretionary behaviour as

“…making the sort of choices that often make up a job such as the way the job is

done, the speed, care, innovation and style of job delivery. Discretionary

behaviour is at the heart of the employment relationship since it is hard for the

employer to define and then monitor and control the amount of effort, innovation

and productive behaviour required.”

Employee chooses how conscientiously to they should undertake their job but this choice of

how, and how well to do things may be an unconscious choice and can be withdrawn at any

time, usually when the employee perceived that the organisation has breached its part

psychological contract with the employee. The employee may feel that the organisation no

longer cares about employee, or the employee’s future, or opinions. Ultimately, no matter what

incentives or remedial actions the organisation may use to encourage positive discretionary

behaviour from the employee, it is up to the employee whether to give it or not, as the case may

be. And when there is collective withdrawal of positive discretionary behaviour, the morale

and performance of the organisation will suffer. Our own experience tells us there are times

when morale is low, or the ‘buzz’ has gone, or everyone just wants to go home as soon as

possible as is the case with the Hong Kong Sales Team.

3.6 Breach of the Psychological Contract

From the Hong Kong Sales Team point of view, they believed that the company has failed to

fulfil some of the aspects listed by Armstrong (Armstrong, M. 2001). The team has the

following grievances:

Unfairly treated in terms of their benefits

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o Benefits like phone allowances, transportation allowances for sales, per diem

and travel and lodging allowances are based on rates for mainland China where

such expenses were much lower than that of Hong Kong’s. The staff felt that

they are being “cheated” of their benefits, and that the company is perceived as

being “Cheap”.

Failed to provide clear career expectations and the opportunity to develop skills

o For some unknown reason, No performance reviews were ever conducted for

the Hong Kong Staff. This was the responsibility of the Sales Director, but

even when no appraisals were submitted to HR for the Hong Kong sales team,

no action was taken by HR to address this matter.

o Sales and Technical Training that was provided were held in Mandarin and the

training materials were all in simplified Chinese. This made it difficult for

some of the team members to understand what was being taught, leading to

poor testing results.

Involvement and influence

o The Hong Kong Sales Team is not consulted in any decision that affects them

directly. All decisions are made in Beijing and the team is expected to accept

and follow all such orders and decisions. They feel that they have zero

influence on the direction and policies that affect them directly, as these are all

set in Beijing and usually without consultation with them.

o The team is also usually not invited to any of the activities that their mainland

counterparts takes part in. There is no feeling of involvement from the Hong

Kong team with their mainland counterpart.

Trust in the management of the organisation to keep their promises.

o All staffs were promised during their recruitment interviews that they will be

“entitled” to a raise after their probation period but no such raises have ever

been made.

o All staffs that had completed 1 year of service were promised stock options,

but, again, so far none has been given.

The Hong Kong Sales Team feels the company has not given them any clear direction with

regards to pay, benefits and performance and the unfulfilled promises has led to loss of trust

in the organisation. The Hong Kong Sales Team perceived that the company has breached the

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psychological contract with them and “…a company staffed by ‘cheated’ individuals who

expect more then they get is heading for trouble.” (Armstrong, M. 2001).

Guest, et al (1996) states that the psychological contract, if managed positively, has been

linked to higher commitment by employees to their work, registers higher satisfaction from

employees, and enjoys better employment relationships between employers and employee.

However, the negative effects of the above statement have been observed in the Hong Kong

Sales Team. All the team members were showing negative Organisation Citizenship

Behaviours (OCB), discretionary behaviour and Morale.

This author feels that the breach of the psychological contract is the single most damaging

reason for the poor performance in the Hong Kong Sales Team.

3.7 Wrong Performance Measurement leading to Poor Reward System

Kessler (Kessler, I., 1995:254) states that “the way employees are rewarded is central to the

regulation of the employment relationship”. An employee reward system should be a

representation of the value that the organisation places on that employee (Armstrong, M.

2001:620). In the Bath Model (Purcell et al, 2003), Pay satisfaction is a component that will

determine performance outcomes. Given the importance of the Reward System to the

employment relationship, let examine the reward system for the Hong Kong Sales Team.

The Hong Kong Sales Team was given a typical reward system for Hong Kong. Compensation

for Sales staff is divided into 3 tranches, Base Pay, Commission, and Bonuses. Compensation

for the 2 technical and 1 support staff is also divided into 3 tranches, Base pay, Incentives, and

Bonuses. The Base Pay range is determined by the HR department in Beijing, which does an

annual survey of the current market rate for equivalent positions in the industry in China, by

regions. The actual base pay is determined by the Hiring manager and must be within a pre-

determined budget, subject to the CEO’s approval. Commissions and Incentives are 40% and

15% a percentage of Base Pay respectively. Commission for Sales staff is payable upon

achieving 100% of revenue targets and sales staff bonuses are payable upon achieving 100% of

profit target only. No commission or bonus targets are paid if it is below 100%. For the support

staff, incentives are paid if they meet their individual performance targets, as set by their

immediate managers, and bonuses are paid if the Hong Kong Sales team achieves 100% of its

profit targets. There are no other rewards for performance.

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The sales staffs were extremely unhappy with the performance measures used for their reward

systems. The biggest issue the sales team was that the sales targets, which were set by the

Sales Director in Beijing, were unrealistic and unachievable. Both the Revenue target and the

Profit targets for the Hong Kong Team were set without consultation with the Hong Kong Sales

Manager, and were primarily based on the amount of Revenue and profit the Hong Kong office

had to make in order to be profitable, and not set according to the actual business environment

that the office was currently in. The sales staff again felt that the company was ‘cheating’ them

of their commissions by being given unrealistic and unachievable targets. No explanation was

given ever by the Sales Director on how the targets were arrived at.

To make matter worse, the support team found that their incentives, instead of being based in

individual performance measures as they were told during their interviews, had been changed

by the Sales Director, to tie into the sales team sales targets. This means that only if the Sales

team were able to achieve 100% of their targets would the support team be entitled to their

incentives. And since the sales team were not achieving their targets, the support team blamed

the sales team for losing them their incentives. UIT HR department again did not address this

matter. According to Lance Berger (Berger, L., 2008); performance measures should be “…a

measurement of actual results achieved within those areas for which the employee is held

accountable”. The support staff rightly felt that they were note being given the appropriate

measures.

3.8 Poor Training and Development

Armstrong (Armstrong, M. 2001) states that the fundamental aim of training is to add value to

an organisation employee so that they can better perform their jobs. McBain, R (2006) noted

that some organisations do not consider training and development as critical to the

organisation.  Furya (Furuya, T. 1988) also states that “Training is one of the major processes

contributing to employee development, career development and self development”.

All the staffs were promised internal training when they joined. The 2 Technical engineers

were fresh graduates from Universities. They were hired because they were “inexpensive” and

the HR Department and the Sales Director felt that internal classroom and “On-the-Job”

training would be sufficient to bring them up to par to support customers. All sales staffs were

required to attend product and sales training conducted by the Product Marketing department.

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Unfortunately, the training was held in Mandarin and the materials were all in simplified

Chinese which made it difficult for some of them to understand what is being taught. The On-

the-Job training also lacked any form of direction, and was usually in the form of an email from

the Technical Manager in Beijing telling the 2 engineers to “play” with the machines and to call

him if they encounter any issues. The training needs of the staff were not identified as per

Furya Table 2.1 (Furaya, T, 1988:11). The Sales team felt they could not trust the technical

team to do any but the simplest of installations. This certainly did not help to build a team

spirit or trust between Sales and their support teams.

4 ACTION PLAN

It is too much to expect UIT to adopt a strategic approach to HRM overnight. Its current culture

would not allow for too much devolution of power from the senior managers to line managers, and as

such, this author believes that we will have to address the issues at a tactical level rather than from

any major change in the firm’s cultural mindset to include strategic goals for HRM.

In order to address the issues above, this author recommends that UIT should focus on the following

areas:

Use the Bath Model to look for HR processes that can be devolved to the Line Manager to

address the lack of HR Policies and poor Line Management.

Train Line Managers on how to build and maintain trust, commitment, employee engagement

and to manage the psychological contract through processes such as recruitment, coaching

and appraisal (Henley, 2008)

Take the necessary steps to mend the current breach in the Psychological Contract.

Set tangible measures and appropriate use of key performance indicators to measure

performance and the use the Rating Scale for performance appraisals.

5 Justification, Benefits and Implications

5.1 Applying the Bath Model to UIT

Purcell’s Bath Model shows a direct link between people and performance and by applying the

model to UIT, we are able identify various areas where it is possible to devolve some HR

functions to the Sales Manager so as to enable the Sales Manager to better manage his team’s

behaviour. The model is also able to address the issue of fixing the breach in the psychological

contract and for aligning training and development with the expectations of the employee.

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5.2 Devolving some HR Functions to the Line Manager

In the study conducted by Hutchinson and Purcell ( Hutchinson, S and Purcell, J., 2003) for

CPID, they found that line managers plays a major role in ensuring that HR policies are

properly implemented and acted upon. They also found that

“…where employees feels positive about their relationship with their front line

managers they are more likely to have higher levels of job satisfaction,

commitment and loyalty which are associated with higher levels of performance

or discretionary behaviour. Discretionary behaviour is defined as that which

goes beyond the requirements of the job to give that extra performance which

can boost the bottom line.”

The study also found that line managers can significantly influencing how their employees

view their jobs. The study also noted that the areas where line managers make a significant

difference to people management practices include:

performance appraisal

training, coaching and guidance

employee engagement (involvement and communication)

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openness – how easy is it for employees to discuss matters with front line manager

work-life balance

recognition – the extent to which employees feel their contribution is recognised.

By transferring the implementation of these functions to the Sales Manager, the same functions

that HR will have difficulty in implementing by itself as it is located in Beijing, the Sales

Manager will have a method to maintain high employee engagement and is also able to have

some influence over the discretionary behaviour of his staff, which may lead to the preferred

outcome of improved performance.

5.3 Train Line Managers to manage the employee engagement

The Institute of Employment Studies (IES) defines engagement as:

“a positive attitude held by the employee towards the organisation and its values.

An engaged employee is aware of business context, and works with colleagues

to improve performance within the job for the benefit of the organisation. The

organisation must work to develop and nurture engagement, which requires a

two-way relationship between employer and employee.”

Robinson (Robinson, D. et al, 2004) states that in an IES’ 2003 attitude survey of over 10,000

employees in 14 organisations in the National Health Service (NHS) in the United Kingdom, it

found that positive responses to the engagement statements in their survey indicate:

a positive attitude towards, and pride in, the organisation

belief in the organisation’s products/services

a perception that the organisation enables the employee to perform well

a willingness to behave altruistically and be a good team player

an understanding of the bigger picture and a willingness to go beyond the

requirements of the job.

One can reason from the findings that being able to fully engaged employee would lead to a

higher performance and positively discretionary behaviour.

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The Bath model agrees with these findings and suggests that in order to encourage positive

discretionary behaviour from the team, the Sales Manager needs to learn how to engage the

employee by:

Build a good working relationship with his colleagues.

Help and support employees to take more responsibility for how they do their jobs by

coaching and guidance.

Build effective teams.

By being able to devolve some HR functions to the line manager, it will allow the Hong Kong

Sales manger to have some control over the team performance. This will also allow team to feel

that they have a conduit to senior management via their line manager. The Sales Manager

would be able to engage his employees in order to better manage the psychological contract.

5.4 Managing the Psychological Contract and Discretionary Behaviour

Purcell wrote in this paper “Sustaining the HR and Performance link in Difficult times”

(Purcell, J., 2002) that if “…employees believe or feel that their boss, or their firm, has broken

or breached their expectations about work and career opportunities, they feel less committed to

the organisation and job satisfaction sometimes falls too.”

However, Purcell, citing Robinson (Robinson, S., 1996) also says that the negative

consequences that follow a breach in the psychological contract are less like to appear if there

exist a high level of trust between employees and their managers and the firm, and that “there is

good communication, which is believable, on why the problem occurred which triggered the

action.” Purcell also notes that at some time, most firms will inevitably break the

psychological contract and that what is really important is that when such a break does occur, is

understood or “forgiven” by the employees, without leading to any drop in performance. If the

Sales Manager is able to create an environment where it encourages positive discretionary

behaviour, then there is a good chance that it would help alleviate the current situation of

negative OCB.

By allowing the line manager to manage the psychological contract through engagement, UIT

would be able to start mending the current breach. Armstrong (Armstrong, M., 2006) suggest

that the following steps be taken to mend the breach:

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Define expectations during recruitment and induction programs

Communicate and agree on expectations as part of an ongoing dialogue

Adopt a policy of transparency on company policies, procedures and on management

proposals and decisions as they affect people.

Generally treating people as stakeholders, relying on consensus and cooperation rather

than control and coercion

5.5 Setting Performance Measures and designing a total reward system

UIT does have a performance measurement system. However, it would seem to be the fault of

the Sales Director that this was not implemented correctly for the Hong Kong Sales team. The

Team feels that the current KPIs are not representative of their individual performance and in

the case of the support staffs, using sales targets as part of their performance measures is

definitely not appropriate.

In designing Performance measures, Armstrong (Armstrong, M., 2001) suggest that the

following guidelines be used:

Measures should relate to results, not efforts.

Measures should be within the job holder’s control.

Measures should be objective and observable.

Data must be available for measurement.

Existing measures should be used or adapted whenever possible.

This should tie in with UIT HR’s devolving the performance appraisal role for the staff to the

line manager and not have it in the hand of the Sales Director nor with the HR department. The

HR department should also ensure that the Sales Director, as the line manager for the Hong

Kong Sales manager, conduct regular performance appraisals for him. UIT HR department

should ensure that line managers follow Armstrong’s (Armstrong, M., 2001:486) 5 key

elements of performance review, consisting of:

Measurement - Assess results against agreed targets and standards

Feedback – Give the staff information on how they are performing

Positive Reinforcement – emphasize on jobs done well

Exchange of views – allow full, free and frank exchange of views

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Agreement to an Action Plan – for individuals to implement alone or with support from

management.

The performance appraisal method should use the Rating Scale Method. Although the method

has many disadvantages, it one key advantage is that it is structured and standardised. This

allows ratings to be easily compared and contrasted. As each employee go through the same

appraisal process and rating criteria, and range of responses, this creates a feeling of fairness

and equality in treatment for all appraises and imposes standard measures of performance

across all parts of the organization. It is also simple to implement and manage, which, with

UIT HR department limited scope, should be able to create and manage.

Once appropriate measures have been set for the team and the appraisal method is in place, UIT

can apply elements from each quadrant of Higg’s Total Reward Framework and to tie in Pay

and Benefits, with Learning and Development, and positive working environment. Higgs has

argued in this research note (Higgs, M, 2006 04) using a total reward framework seems to offer

a better approach to building stronger employment engagement and organisation performance.

This again ties in with our goal of reducing staff turnover and improving performance through

employee engagement.

6 Reflection and Learning

It is obvious to author that there were clear interdependencies between the various functions of

Human Resource Management. I am amazed to learn what a strong impact the psychological

contract has on performance and how employee engagement can be used to manage the

psychological contract. The fact that a breach in the psychological contract between and

employee and his firm. It is apparent to this author that the un-written contract between a firm

and its employees is more important than the written one. There are obvious and immediate

remedies for breaches of a written contract, but for breaches in the psychological contract, it can

either be a non-issue, if employee engagement is positive, or it could fester within the individual,

team or even the organisation until it grinds the organisation to a halt.

The concept of employee engagement and how it can affect organisation performance is also

something new to this author and it is clear to me that today’s managers must be fully aware of,

and be able to manage, the relationship between the engaged employee, performance and the un-

written contract.

WORD COUNT = 5214

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