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In this case study, you will take the role of Steven, who is the newly-appointed General Manager of Longxiang Building Material Co. As its name suggests, Longxiang produces building materials for the Chinese market. It is located in Linfen City, Shanxi Province, China.
As a general manager, Steven will have to deal with all kinds of problems and challenges that plague the Longxiang Building Material company, and the greatest challenge he has to face is the HR problem. The company is held back by high turnover rates, the disconnection between junior and senior managerial staff, and lack of qualified personnel to replace the ones that left due to reasons caused by numerous flaws within the company’s structure. It is up to Steven to come up with strategic decisions to remedy these problems and help bolster the company to a new level of operational effectiveness.
These issues are not unique to Longxiang alone – Chinese companies, in general, have problems with high turnover rates due to the abundance of the low-quality workforce and not enough qualified personnel to occupy management positions. High turnover rate, in turn, causes a disconnection between different levels of the managerial ladder – junior managers do not stay for long due to long probation periods at half-wages. The HR problem is connected to the previous two – it is unlikely for qualified personnel to stay in Longxiang due to these conditions.
Together, these issues reduce the company’s overall efficiency. Teams filled with unqualified and unmotivated personnel along with conflicting managerial staff cannot handle large projects without setbacks and delays, which are detrimental to business. While these factors may not be prevalent in China, where every company suffers from these problems, which makes it an equal playing field, they may become a problem, should the company try to reach out to markets outside of China.
Longxiang is planning to expand into Russian, Indian, and Middle-eastern markets, with the potential of going global and reaching towards Europe and the Americas, in the next 5 years. By that time, organizational and HR problems of the company must be resolved.
The company “Longxiang Building Material Co., Ltd” was established in 1990 in Linfen City, Shanxi province, China. It works in the construction market segment for over 26 years. The company is a family-owned business in China, with a great reputation in the building materials industry. The company’s goal is to provide the best service, superior values, and quality materials to the customer. The products include wood, brick, natural stone, travertine, slate, concrete blocks, and more. Its registered capital equates a sum of circa 60 million renminbi.
The Directorial board of Longxiang Building Material Company feels that they have hit their ceiling in the Chinese market since growth rates have been nonexistent for the past several years. In order to expand their ventures, the company plans to penetrate markets in India and Russia, and use them as platforms for future jump towards Europe and the Americas. However, in order to do so, they must first overcome their organizational and HR problems.
The company has a strong matrix organizational structure. It is an authoritative model where most of the power is held by project managers, who are employed full-time and have full control over the administrative staff underneath them. This kind of structure is typical for many Chinese construction companies.
Shanxi, where the company is located, is a highly industrialized region in China. It houses numerous industrial and free-market economic zones, which means that the flow of money and commerce through the region is high. It has a highly developed transportation system that supports these economic zones. The region is home to numerous universities, some of which are dedicated to construction, architecture, and engineering.
In this scenario, there are several principal actors. The directorial board, which Steven will have to consult with, is interested in improving the company’s effectiveness and productivity. Mid-level managers would be interested in the reduction of turnover rates, as they cannot work properly with junior managers that shift every three to four months. Junior managers are the third group of principal actors. They are interested in the reduction of probation periods and salary increases.
Critical company variables for Longxiang Building Materials Co. are high turnover rate, lack of qualified personnel, and disconnection between junior and senior managerial staff. Employee morale is considered an independent variable, as it can affect the critical variables in a positive or a negative way.
Critical industry variables include the overall state of the Chinese construction industry, the number of potential competitors, and the demand for construction materials. Independent variables that may affect this and must be taken into account are economic crises around the world, geopolitical conflicts, and worldwide construction industry growth rates.
Decision maker’s POV
I am Steven, the new General Manager of Longxiang Building Materials Company. I arrived in Linfen, China, two weeks ago. I have been hired by Longxiang to fix their organizational and HR problems in their preparation for a great push towards external markets. Since they were unable to find a native specialist with my level of experience, they were forced to rely on my services. A week ago, I attended the meeting with other board executives. During this meeting, I was introduced to how the company works, and all major challenges that it has to face. Xian Lu, one of the board executives, reported that “our company did not gain any market share for three years in a row.” He presented this as one of the reasons to support future expansion. Long Feng, a board director, also stated that “over 75 employees were switched out of junior managerial positions in the past 4 months, none of them managing to complete the 6-month probation period”. There were also mentions of project delays due to errors and mistakes caused by ineffective management.
In the past week, I inspected the company and talked to some of the workers and managers. Overall morale among the employees is very low. While they are not worried about the company’s collapse, they state that they work for Longxiang only because they did not find a better place yet. They complained about low salaries and long probation periods. Some mid-level managers stated that “we have to work with managers that have barely any experience in the field and were picked off the street to plug holes in the managerial department.”
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To summarize, my job will be to improve employee morale, reduce the turnover rates, find competent employees for managerial positions, and improve connection rates between mid-level and junior level managers. All these problems are interconnected, so improvement in one area will inevitably affect all the others.
There are several options for each problem that must be considered. In order to reduce turnover rates, the company could improve sales, reduce probation rates, or involve a minimum obligatory working period in their contracts.
Finding competent employees for managerial positions can be solved in several ways. It could be done either via the promotion of competent employees, creating suitable conditions for hiring skilled and talented native managers, or recruiting foreign talent.
To improve connections between managerial staff, we will first have to reduce turnover rates. Then, I will have to consider remodeling the organizational structure into clusters, where every senior and mid-level manager has to work with his junior managers, and not above them. Other possible solutions include team-building exercises.
Employee morale is the last issue that needs to be addressed. If all previous measures are successfully implemented, employee morale will inevitably go up. However, transitional leadership practices must be incorporated into all reforms, as I will need to motivate the employees and serve as an example to them. In addition, I will have to facilitate their growth, which will improve their competence and decision-making.
In order to help Longxiang succeed in its planned push for the external markets, Steven will have to solve numerous problems including the company’s corporate culture, recruitment, and employee treatment policies, and conduct structural reforms. In order to do so, he will have to implement several strategies and modern management theories, such as Bolman-Deal human resources framework, Leader-Member exchange theory, and Transformational leadership theory. Potential ways of solving Longxiang’s problems would be decreasing probation periods, increasing salaries, promoting talent among company employees, and improving morale and team spirit through special exercises and the introduction of a positive corporate culture.