Course: MGMT9730: Human Resources Planning

Topic: Outsourcing

Read the Rana and Change Cases

Questions:

1. What went wrong with Rana?

2. Thinking of all the concepts you have learned in class what would you do differently?

3. Think about everything we've covered in class and the Change case.What are your key learnings? If a potential student asked you what did you remember most? What was the biggest 'ah ha' moment for you?

Rana Case (Pages1-5):

1

CASE STUDY HOW MUCH CHANGE CAN A NEW CEO DEMAND? THE YOUNG HEAD OF A BANK WORRIES THAT EMPLOYEES HAVE HAD ENOUGH. BY PAUL HEALY Sena Aslan wished the drive from the Ankara airport to FDM Turkey's largest branch were a bit longer. As the bank's recently appointed CEO, she had made PAUL HEALY is the site visits a priority. They helped her see how frontline James R. Williston employees were weathering the changes she'd been Professor and the senior associate dean for faculty spearheading, and she used them to scout for young managers who were development at Harvard ready to move into more-senior positions. Business School. This But this time Sena wasn't making the trip alone. Sophie Renou, fictionalized case is based her longtime friend and mentor and a board member at FDM Turkey's on his HBS Case Study "A French parent company, was with her, and the two women could have Challenger's Strategy: Pinar Abay at ING Bank Turkey" used much more than a half hour to catch up. (case no. 116023-PDF-ENG), "I want to hear about work, of course, but first tell me how Deniz and coauthored by Gautam the girls are doing," Sophie said. Mukunda and Esel Cekin, "They're good. Sweet, but strong-willed." which is available at "Just like their mother," Sophie said with a smile. HBR.org "We were at a theme park this weekend," Sena continued. "Zehra was on the Tilt-A-Whirl for what felt like hours. We finally had to yank her off-over her very loud protests-and I found myself saying, 'You know, Zehra, we all need to slow down sometimes.' Which was funny, because Erkan said the exact same thing to me last week!" Sophie didn't look surprised. Erkan Malas was FDM Turkey's COO, and from the start he had chafed at Sena's appointment and approach. CASE STUDY While her supporters, including Sophie, saw a bright 35-year-old former TEACHING NOTES consultant to the financial industry who had lots of energy and big Is Sena the right person for ideas for how the company should adapt to a rapidly changing market, this job? Paul Healy teaches detractors saw a young industry outsider who'd never held an executive the case on which this one position or even worked at a bank-and who still had a lot to learn. is based in an HBS executive Although the board had given Sena a mandate to shake things up, education program for women on boards. He asks Erkan had challenged every strategic shift she'd made: moving away the participants to think from the siloed branch structure, letting about 40% of the bank's stodgy about whether the CEO is a senior managers go to make room for fresh talent, and pushing to good fit. JANUARY-FEBRUARY 2017 HARVARD BUSINESS REVIEW 157CASE STUDY HOW MUCH CHANGE CAN A NEW CEO DEMAND? transform the hierarchical corporate culture into a more performance- driven one. \"T can just hear Erkan saying that,\" Sophie said. \"He hates change.\" \"Or hates everything I touch,\" Sena replied. \"You don't need his approval,\" Sophie said. \"You're doing the right thing. And aslong as he's executing on your decisions, there's no problem?\" \"Hereally doesn't like the new strategy, though,\" Sena said. Tasked with rethinking the bank's retail approach, she'd rejected the traditional path of expanding the branches. Instead she was ramping up mobile-banking operationswhich competitors were also doingand looking to experiment with something more innovative: partnerships with supermarkets and electronics stores that would allow FDM to set up kiosks within them. This would enable the bank to serve customers when and where they needed access to cash and make it more convenient to apply for loans. \"He says the staff has 'change fatigue' and won't be able to get it done. And some board members may agree. I'm afraid they'll digin their heels\" \"Let them,\" Sophie said with a wink. \"Our heels are sharper.\" STRESS ON THE GROUND The branch manager, Meryem Kartal, met them in the lobby and introduced a few staff members before showing the two women to her office. As they sat down, Sena noticed an org chart on the desk. It had x's through lots of roles and a few arrows signifying structural changes. She could barely read the names that remained. Meryem caught her looking. \"I know that must seem old-fashioned to print out and mark up an org chart. Iwas just using it to help employees understand what's happening with the broader business.\" Sena's heartsank a bit at seeing such a messy visual representation of the changes she'd been making, \"Are people confused?\" \"Tt's like any reorgani- Healy also asks students how as board members they would support a nontraditional CEO. Many banks have begun installing self- service kiosks in their branches and elsewhere. For example, Chase Bank offers them in the United States, and Shinhan Bank offers them in South Korea. Research shows that as many as 70% of transformation efforts fail, often because of change fatigue, apathy, or passive resignation. zation,\" Meryem said. (D \"There's an adjustment period. We've all been 3 158 HARVARD BUSINESS REVIEW JANUARY-FEBRUARY 2017 surprised by the, um, high turnover at headquarters. But I think people also see room for advancement where they didn'tbefore\" \"Do people understand the reason for the changes? Do you?\" Sena needed managers like Meryem on her side. \"Oh, yes. The industryis changing. No one wants to comeinto thebranch anymore, Customers want to do everything on their computers or their phones, Just yesterday someone asked one of our mortgage spedialistsif he would mind dealing with her by text, since she no longer checks e-mail. He didn't know if he's allowed to do that.\" \"Heis,\" Senareplied. This was exactly the kind of agility and responsiveness she was trying to encourage. \"Of course, and I coached him through it. But people are wondering how they'll fit into the business going forward. They want to know whether we're going to start closing branches, Will we all be working out of call centers or supermarket kiosks next year? It's stressful Sophie asked if they could talk with a few staff members. Meryem invited them to walk around. \"Ilet them know you'd be here, and they do have some questions,\" she said, Sena joined two tellers at the counter. \"Isitalways so slow at this time of day?\" she asked. There were no customers to be seen. One of the tellers, a tall young man with short hair, turned red, seemingly shy and embarrassed. His counterpart,a middle-aged woman, wasn't as hesitant. \"Thisis alull, for sure, butit'll get busy at lunchtime\" Sophie asked if they had questions. \"Are we going to lose our jobs?\" the young man blurted out, and then laughed nervously. \"Well, [ wouldn't have put it that way, but itis what we're all wondering,\" his colleague said. She added, \"My girlfriend says that at her company, when there are changes atthe top, it isn't long before frontline layoffs follow.\" Sena assured them that no layoffs were planned. They nodded, but they didn't look as though they entirely trusted her. Sophie and Sena met with a few staff analysts and loan officers. No The concept of the traditional bank branch is being challenged by technology, competition, and consumer preferences. According to one report, up to 50% of the branches currently in U.S. bank networks could be obsolete by 2020. One of the biggest benefits of a strategy like this is zero fixed costs. If the economy turns, the bank needs only to change its sales approval thresholds. It doesn't have to close branches or lay people off. Turkey currently has 47 banks and just over 10,000 branches, according to the Banks Association of Turkey. one was as blunt as the teller had been, but the anxiety was palpable, \"Well, that was worrisome,\" Sena said as they walked out the door. \"Changeis necessary to survival,\" Sophie replied. \"Yes, but maybe it doesn't need to happen so fast.\" THE RISKS OF NOT ACTING The next day, back in Istanbul, Sena met with Ahmet Ozan, the CFO. He'd been at the bank for decades, like many of the leaders Sena had pushed out, but she valued his expertise, and he'd been supportive of her transformation efforts, especially ones that cut the firm's costs, He'd also invested a lot of time in the model for the kiosk pilot, \"The projections look mostly good,\" Ahmetsaid. \"The marketresearch from Capital is promising. But the IT systems we'll need to handle the loan applications are complex. The execution on this is going to be a beast, which\"he paused for a moment\"is why Erkanissoupin arms\" \"He's been up in arms since I got here,\" Sena said. \"True, but he might have a point on this one, Sena. His team will need to work 24 hours a day to make this happen on the timetable you're suggesting, It's going to take a huge marketing push and some big shifts in staffing, which could resultin even more attritionnot just us old folks, but even some of the younger people who like the way we do business now.\" Sena grimaced at the way he'd characterized the recent management shake-up, but she let him go on. \"Also, we don't know that the model will work. Will people want touse the kiosks? If they do, can we screen their loan applications quickly and effectively? [ know theideaisto reinvent banking in this country, but are you sure our customers are ready to apply for loans without a specialist helping them with the process? Are you sure we'reready for that? Why not slow down a bitdo some more-intensive market research to check that our assumptions are accurate?\" Sena took a deep breath, trying to absorb everything he'd said. \"Ireally value your opinion, Ahmet, and these are all good questions. But the point of the pilot is to answer them, We can experimentand learn in real time, That's the agile way to do it.\" \"But it's not the FDM way,\" Ahmet said. \"Iknow you might think that slowing down will give the impression you're second -guessing your decisions. Tt won't; it will just give people a much- needed break. Trust me. Tunderstand why you're pushing this. The board is watching you like a hawk, and we need to deliver the growth it's demanding\" \"Exactly. Part of my job is to change the FDM waykeep the good, of course, but move us into the future, We have to weigh those risks you just citedwhich are seriousagainst the potentially bigger risk of not moving first on this idea. We'd all hate itifa competitor beat us to this. If we focus just on mobile, like everyone else, we won't differentiate ourselvesand differentiation is the only way to win in this market.\" HARD TO KEEP UP That night Sena was sitting at the dining room table reviewing Ahmet's analysis when Deniz came downstairs. \"You going to be up late?\" he asked. \"Probably,\" she said. \"You're frowning. What's going on?\" Sena closed her laptop. She appreciated that he could read her so well, It kept her honest about her feelings, \"Remember what Erkan said about slowing down? Well, Ahmet agrees with him. And I'm worried that they're right\" \"But the board brought you in to be achange agent. That's your job.\" \"I know. And I really feel it's my duty to keep pushing. Changeis good. - N\\ \\ It's necessary, as Sophie always says. This bank has been sitting down for too long. We need to continue moving.\" She found herself pounding on the table to make her last point. \"We can't lose momentum,. If we take the break they're asking for, when and how will we start up again?\" Deniz was still nodding, but she could tell he was suppressing a smile. \"What?\" she asked. \"It's good to see the fire back. You're doing the right thing, Sen, ButI also get where Erkan and Ahmet are coming from.Iknow how hard it is to keep up with you?\" ~ In 2013 Turkey had four dominant banks, each controlling more than 10% of the sector's assets making it imperative for the others to capture market share. i SEE COMMENTARIES ON THE MEXT PAGE JANUARY-FEBRUARY 2017 HARVARD BUSINESS REVIEW 159 CASE STUDY HOW MUCH CHANGE CAN A NEW CEO DEMAND? SHOULD SENA SLOW THE PACE OF CHANGE AT FDM? THE EXPERTS RESPOND MITCH KREBS SENA IS MAKING a mistake by trying to effect all this change on her own. She needs to slow down, regroup, and reposition so that the shiftin strategy is seen not as \"Sena's plan\" but as the company'sor at least the team'splan. Until that happens, she'llbe fighting an uphill battle. When I took over as CEO of Coeur, in 2011, it too was in need of transformation. To support and manage the huge growth we'd experienced in the previous three years and prepare for scalable future growth, we needed to restructure nearly every division of our 90-year-old company. [ also decided to move headquarters from Idaho to Chicago. Like Sena, I had permission from my board to make changesbut [ didn't march off to battle alone, I started by making sure that the board support I had was visible, It's good that Sena has such a strong relationship with Sophie, but she needs to ask for a more formal, explicit mandate from the entire group. I did that about a year into my new roleafter I had established credibility outlining the changes I wanted to make and explaining why I felt it was too risky to maintain the status quo. Having secured the board's backing, I began to share my plan and the path forward with others, and [ had my chairman join me in those meetings. His presence demonstrated that employees couldn't wish the changes away or make me fail by resisting them. Support from the rest of the organization is equally important, Sena needs to recruit ambassadors who can help push her vision forward. Right now Erkan is undermining her efforts and reputation. She should change the dynamic by making him feel part of what she's trying to accomplish, asking for his input, and assuring him that he's being heard. She doesn't have to do everything he suggests, of course, but she needs him working with her, not against her, if she wants everyone else to fall in line, In my case, I knew [ had to get members of the old guard on board. Individuals who have been in their careers a long time and know the industry well can be strong allies. Senashould also think about creating a small team that cuts across functions and generations andonce they understand the plan, direction, and messagetasking its members with spreading the word about why the changes are necessary. Perhaps Meryemthe branch manager and the teller with the nervous laugh could join that effort. Up-and-comers would welcome the opportunity to participate, and it would send a message that the changes are a movement led by the masses, not by one young outsider. I applaud Sena's efforts to visit the branches, and I suggest that she find more ways to hear what people on the ground are thinking and feeling. It's not always comfortable or fun, but it's critical to let employees express themselves and ventand, as CEO, to listen. During our restructuring, I held town hall meetings across the organization. We didn't stop until all our employees had the information they felt they needed. SENA NEEDS TO SLOW DOWN, REGROUP, AND REPOSITION THE SHIFT IN STRATEGY NOT AS \"SENA'S PLAN\" BUT AS THE COMPANY'S PLAN. Honesty and transparency are of the utmost importance in these cases, T have the sense that when Sena told the tellers there wouldn't be more layoffs, she wasn't being entirely truthful. That's a mistake, Once people have the factseven if it's bad newsthey stop filling in the blanks and get to work. Sena will save herself a lot of headachesif she'shonest from the start, It seems as though people at FDM assume that Sena is pushing change for the sake ofit and to advance her career, By getting the board's support, building a team of ambassadors, and communicating more effectively, she can prove that she's doing what's best for the company. All this will take time, of course, but it's worth it S 160 HARVARD BUSINESS REVIEW JANUARY-FEBRUARY 2017 SENA SHoULD NOT slow down. I''m a big believer in executing radical change at high speed. Of course she'll face some resistancebut if she doesn't keep pushing, the risk of failure goes up. This caseisloosely based on my experience at ING Turkey, so [ know the urgency of FDM's situation, Bankingis a growth market in our country, butlots of foreign players are coming inmost of the big European banks have made full or partial acquisitionswhich creates an incredibly competitive landscape. Turkey also has a young population that adapts to technology quickly, which makes for a very demanding customer base. Banks must therefore offer an outstanding experience to differentiate themselves, And Sena's strategy, including the new distribution channels, could certainly be a step in the right direction, At ING Turkey, we tried partnering with the country's largest grocery chain to offer no-name debit cardswhich customers could activate with their cell phonesin plastic milk bottles, The idea was to provide instant access to cash, Although we didn't see the results we wanted from the channel and eventually closed it, we've repurposed the technology behind it, and I know that the brand benefited from the experiment. Because of the unusual delivery method (no one expected to see a debit card in a bottle!), Turks learned that we were a different kind of bank, challenging how business had always been done in our country. We supported that message in other waysfor example, with TV commercials in which we poked fun at ourselves and at Turkish banks in general. In fact, our industry association sent us a warning to stop \"ruining the image\" of banks, Sena can't focus just on strategy and operations, though. She also needs to think about the culture at FDM. After all, you can pretty easily change a new distribution channel that isn't working, It's not so easy with culture, This is the tougher dilemma for Sena: how to move PINAR ABAY people away from the traditional slow- moving hierarchy and encourage them to embrace dynamism and innovation. Sena's efforts should start with the top management team. Although she has let many lower-level members of the old guard g0, one person in the C-suite, Erkan, is fighting her, If he can't get on board, it might be time for herto replace him, Thiswas a top priority for me when I became CEO of ING Turkey. handpicked direct reports who could support the kind of change I wanted to see. In many cases that meant bringing in people from the outside, including from different industries. Still, I kept people like Ahmetinsiders who supported my vision SENA WILL FACE SOME RESISTANCE-BUT IF SHE DOESN'T KEEP PUSHING, THE RISK OF FAILURE GOES UP. THE ROAD TO ORGANIZATIONAL CHANGE IS LONG. YOU CAN'T LET RESISTANCE HOLD YOU BACK. but were willing and able to challenge and disagree with me on certain points. [ wanted people with diverse perspectives and ideas. Together we created an organization that emphasizes collaborative rather than top-down decision making, along with creativity and agility; makes junior people feel comfortable speaking up; and welcomes employees of all stripes, rewarding them for performance and potential rather than tenure and giving them freedom in terms of where and how they work. Sena has made some important moves already, but she shouldn't stop now, The road to organizational change is long. Five years in, I'm still working on our cultural and strategic transformation. You can'tlet resistance hold you back. @ HBR Reprint R1701N Reprint Case only R1701X Reprint Commentary only R1701Z (49 COMMENTS FROM THE HBR.ORG COMMUNITY Preserve Connections Moving too fast and leaving behind key frontline employees who are connected to customers will damage the bank's brand. Sena should focus on strengthening those ties during the period of change. Priscilla Archangel Test Before Deciding Having one board member behind her is not enough; Sena needs a critical mass of supporters. She should test her ideas with a few others. If she has backing, she should continue at the current pace. If not, she needs to reevaluate. Kresimir Profaca, CFO and Montaz Improving the Bank or Proving Herself? Sena needs to evaluate whether she's pushing the changes because of a desire to prove herself. Slowing down to assess plans is not a weakness. It shows that you are able to consider every element of the change process and make intentional decisions to stay the course or adjust as needed. Kim Ripley, HR n rimp Imp i JANUARY-FEBRUARY 2017 HARVARD BUSINESS REVIEW 161 SEBASTIEN THIBAULT EXPERIENCE When Tragedy HBR.ORG strikes the Supply Chain In the wake of a factory collapse, a clothing retailer must decide whether to relocate production. by Ram Subramanian Ram Subramanian is a professor of leadership at Stetson University. aura Cronenberg, the CEO of LTots & Teens, sipped her black teain the lounge of Shahjalal International Airport and took some time to collect herself before her flight departed. The past few days had been a whirlwind, and she was still trying to make sense of how her work life had transitioned so abruptly from celebration to crisis. On Monday she'd been at the New Jersey headquarters, feting T&T's employees in acknowledgment of the company's strong fiscal-year performance. The children's clothing retailer had increased its profits by 5%, and Laura had gathered everyone for a champagne toast. But then T&T's chief operating officer, Jim Zappa, had pulled her aside to tell her the shocking news: A garment factory in Bangladesh that produced and packaged merchandise for T&T and other retailers had collapsed in the middle of a workday. She and Jim booked flights right away, landed in Dhakathe following moming, and took a car to the disaster site. It was a horrible scene. Bulldozers were clearing large piles of debris, escue workers were searching for survivors, and a group of mothers sobbed and held up pictures of their missing sons and daughters. The area looked like the aftermath of an earthquake. According to news reports, the building had been constructed quickly and cheaply with substandard materials on a filled-in pond. More than 2,000 workers had perished, and many others were injured. Surveying the wreckage, Laura felt queasy. The human loss was devastating, and as a mother herself, she didn't want to imagine what the parents of the dead and injured workers were going through. But she had to stay strong; she had a job to do. The company would have to find a way to support the victims and their families and to tighten up oversight of its supply chain. Even more pressing, it needed to find a eplacement facility. The fall line, which typically accounted for 80% of T&T's revenue, was scheduled to go into production in two weeks. Laura had to quickly decide if another Bangladesh contractor could do the work orif'she should shift to a factory T&T was already using in China. Pros and Cons She and Jim spent the rest of the day touring other facilities, and the next morning they returned to Shahjalal, enroute to Shenzhen, where they would visit one of their Chinese contractors. Now Jim joined Laura in the lounge carrying two bottled waters and an extra-large coffee. He looked as haggard as she felt. \"That was rough yesterday,\" Laura said. \"I can't stop thinking about the rubbleand the sobbing.\" \"Yes,\" Jim replied, nodding. A Texan and aformer Marine, he could sometimes be taciturn. \"What's your view on keeping operationsin Bangladesh? Can we be sure this will never happen again?\" \"Idon't think so,\" Jim said. \"Of course, thereare pros and cons. A few yearsago, when we decided to stop carrying other brands January-February 2016 Harvard Business Review 109 EXPERIENCE Casce Study (9] Teaching Notes Ram Subramanian teaches the case on which this story is based in his course Corporate Strategy. WHAT DREW YOU TO THIS STORY? For most of my American students, events in Bangladesh seem remote and unconnected to their everyday lives. 1 thought learning about the Rana Plaza disaster would help to bridge this disconnect. The case also encourages a conversation about business ethics, supply chain strategy, and the human cost of a $5 T-shirt. HOW DO STUDENTS TYPICALLY RESPOND? Most argue that the company should stop sourcing from Bangladesh. A few recommend that it stay there and help improve the situation. WHAT DO YOU HOPE THEY'LL LEARN FROM THE DISCUSSION? I want them to learn about the wide-ranging implications of a strategic decision and to see that the \"race to the bottom\"a hallmark of many global industriesaffects real people's lives. Strategists who ignore that cost do so at their own risk. and create our own, we chose to manufacture in Bangladesh for the costand convenience. Labor and transportation are cheap, qualityis relatively good, and all the factories are clustered in one small area. The other prois that Bangladesh has duty-free access to the European Union, which China and the African Tell us what you'd do in this situation. Go to HBR.org. countries don't have.\" Laura nodded. T&T's five-year strategic plan called for expansion into the United Kingdom, France, R o A 1o Harvard Business Review January-February 2016 e and Spain, and the tax breaks would be helpful. \"What are the cons?\" \"Well, obviously, even though Bangladesh has established worker safety standards and regulations, they're often sidestepped or ignored. We had no idea this factory was in such bad condition, but clearly the owners didn't care, and the inspectors looked the other way for fartoo long. The facilities we saw today appear to be up to snuff. But there are no guaranteesespecially when we and other retailers create so much pressure for fast turmover. There's also a lot of corruption and chaoshere\" \"Can we change things for the better? What about the effort that's under way to pull together an industry coalition for worker safety?\" \"That won't be easy or quick,\" Jim said. \"Moving everything to China would be more expedient and less risky. ButI worry about what will happen if we just pack up and leave. I think\" Interrupted by their boarding announcement, he broke off. \"That's us,\" he said, picking up hisbag. But Laura knew exactly what he meant. If T&T exited, and others followed, where would that leave Bangladesh and its workers? She'd seen the stats. Work from the apparel industry had helped cut poverty in the country by a third and now accounted for a third of its GDF. A mass exodus by retailers would be devastating to its economy. But what if T&T stayed, and nothing substantial changed? The company might have to face another disaster. When Laura had decided that T&T should launchits own clothing lines and engage more directly with the supply chain, she'd never imagined that anything like this could happen. Now, as she and Jim walked down the tunnel to their plane, she was at aloss. In her five years as CEO, she'd successfully managed stock market crashes, layoffs, a recession, strikes, downsizingbut nothing had prepared her for this. Costs and Risks \"We can expand operations, no problem\" Kevin Chen, the owner of the Shenzhen factory, told them. A graduate of Wharton who spoke fluent English, he was a gracious and gregarious host. And he'd been agreat partner. Tots & Teenswas currently producing 36% of itsmerchandise in China and had never had any problems there. The hangarlike factoryfull of humming sewing machines and workers wearing face maskswas both pristine and efficient. Still, Laura wondered whether Kevin could execute on the promises he was making. Asshe and Jim were chauffeured to their hotel in downtown Shenzhen, she picked Jim's brain again. \"Kevin says they canramp up their operations, but do you really think they cando itasfastashe says?\" \"I have no reason tobelieve otherwise,\" Jim replied. \"But I suppose there's no guarantee.\" Laura wasn't satisfied. \"Ineed more than that,\" she said. HBR.ORG "We already use China for a large percentage of our manufacturing, and so far we've been happy," Jim said. "They've been doing this for a HBR's fictionalized long time, and they're good at it." case studies 'But with an increased production present problems load, will they be able to handle faced by leaders in real companies quick turnarounds?" and offer solutions This was a big issue for T&T. from experts. This one is based on Formerly, it took about six months the Ivey Business for the company to design a piece School Case Study of clothing, send it into production, "The Children's Place, Inc.: and get it into stores. But now, Challenges in because of competition from fast- a Post-Rana fashion retailers and the capricious Plaza World' (case no. W15231- demands of buyers, many T&T lines on half our merchandise. Even worse, | and care only about themselves. PDF-ENG), by were restyled every four weeks. The there could be a worker strike-or He says they're trying to shirk their Ram Subramanian, Dhaka factory had manufactured a natural disaster. Half our goods responsibilities. Is that true? I can't which is available at HBR.org. those products. would be delayed or destroyed." The believe T&T is involved in this." "I think so," Jim said, but without same scenarios had already occurred His words stung, but Laura his usual confidence to Laura. understood. Devon reminded Laura's phone pinged with The car pulled up to the hotel her of herself as a college student: new e-mails. She saw a note from entrance. After checking in, parting passionate, idealistic, confident, T&T's head counsel, who was ways with Jim, finding her room, and, well, naive. If only life were drafting language for the worker- and replying to e-mails, Laura called so simple... safety coalition, and one from the room service for a hamburger. But I'm sorry, Mom," Devon said company's communications chief by the time it arrived, she'd lost her quickly. "I didn't mean to freak out. to alert management that a protest appetite. All she wanted to do was lie I know this situation isn't easy for group had announced plans to down and close her eyes. you. If it's any consolation, I'm sure assemble outside T&T's headquarters you'll make the right decision. You the following afternoon. A Son's Question always do." Laura sighed. She could answer Laura had never been so happy to Laura smiled. Unfortunately, the those when she got to her hotel see the Newark airport. A 15-minute 'right decision" had never before room. She turned back to Jim. "What taxi ride later, she was at home in seemed so elusive. What would else do we need to consider?" Summit and surprised to see her son, be best for the company? For its 'Labor costs in China are Devon, a sophomore at Columbia, employees and customers? For the significantly higher than in sitting at the kitchen table eating workers all over the world who made Bangladesh and rising. But my main chips and guacamole. its dresses, shirts, and sweaters? concern is supplier risk. Right now "I took the train down," he said. we're spread out between the two of "Dad told me you could use some them and, to a lesser extent, Vietnam, cheering up. And I was sick of dining Cambodia, and a few other countries. hall and takeout food." He grinned. Should T&T relocate If we move more manufacturing into Laura asked about his classes; its production from China, 50% of our production will be Devon was a political science there and we'll be..." major with a focus on international Bangladesh to China? see commentaries on the next page. Laura finished his sentence: relations. Soon the conversation "Exposed." turned to the disaster in Bangladesh. Jim nodded. "I worry about what 'The whole thing is messed up," will happen if costs spike further. We Devon said. "My professor says that can't afford to have the margins drop | U.S. companies are exploitative January-February 2016 Harvard Business Review 171EXPERIENCE The Experts Respond John Manners-Bell is the CEO of Transport Intelligence, a global market research organization; an adviser to the World Economic Forum; and a visiting professor at London Metropolitan University. LAURA SHOULD keep Tots & Teens in Bangladesh. The company has a moral responsibility to support factory workers, give them safer workplaces, and contribute to the community. It would be unethical to pull out in the wake of the building collapse. The question is where to start. Forming an alliance with other companies is a good first step. That's exactly what U.S. and European retailers did after the 2013 Rana Plaza disaster, on which this case is loosely based. They formed two groups to help victims and improve safety conditions. But if T&T wants to make real changes in Bangladesh, it has to do a lot more, beginning with ensuring that workers make a decent wage. Higher pay will raise the standard of living, and GDP will grow as a result. Once that happens, the government should have the funds to improve the country's infrastructurea win- win for both Bangladesh and the companies that do business there. 112 Harvard Business Review January-February 2016 T&T should also improve relations with its contractors. The best way to do that is to stop jumping from one to the next, in an effort to reduce costs and manage demand, and instead work to establish meaningful and long- lasting partnerships. That will lead to better communication and discourage factories from using subcontractors that operate outside T&T's purview. None of these things will be easy. But many companies, including Marks and Spencer, Tesco, and walmart, could be models for T&T. And Switcher, a clothing retailer based in Switzerland, started an experiment in 2014 in which it donated 1% of all its purchases T&T should recommit to Bangladesh. It's the ethical thing to do. from one Chinese supplier directly to factory workers. Tots & Teens could do something similar in Bangladesh. Laura may face an uphill battle. To T&T's board, China probably looks like an inviting option, especially since the company needs to solve its problem as quickly as possible. Laura must therefore make an economic as well as a moral argument. By staying in Bangladesh, being socially responsible, and managing an ethical supply chain, T&T could develop a competitive advantage over other retailers. It would be better positioned to identify and avoid risks, sparing itself uncertainty, surprise, and unexpected costs. And it would increase the value of its brand among socially conscious consumers, boosting sales. It might even be able to start selling its clothing at a premium and using some of the profits to further improve its supply chain, creating avirtuous cycle. Bottom line: T&T should recommit to Bangladesh. It's the ethical thing to do, and it's in the best interests of the business. Comments from the HBR.org community Move Production to the West Laura should also consider moving production to the United States or Europecloser to the UK market expansion. If labor costs in China are increasing, bringing production closer to the end customer would cut logistics costs and limit supply- chain risk. Euan Granger, community and content manager, Procurious China Is Equipped to Handle Production Laura should relocate to China for these reasons: The fall line accounts for 80% of T&T's revenue, and it's just two weeks away from launch. China already manufactures 36% of T&T's production, so it's equipped. And Bangladesh is good for manufacturing costs but not for safety. Andrew Naveen Kumar, software engineer, Accenture Don't Run Away T&T should remain invested in Bangladesh. Yes, the company has had a setback, but running HBR.ORG away may not be the best option. Strategically speaking, Bangladesh is ahead of China on costs, access to Europe and the key growth markets being targeted, and the ability to execute a variety of designs quickly. These are keys o T&T's long-term success. Umang Bhatnagar, vice president, strategic sourcing, specialty chemicals business, SRF Limited Adam M. Kanzer is a managing director and the director of corporate engagement and public policy for Domini Social Investments. SHOULD TOTS & Teens stay in Bangladesh or leave? The answer is extremely complicated. But one thing is certain. Doing business in any emerging market is rife with difficulties, so whatever T&T decides, it needs to do a much better job of managing its supply chain. The more controversial option is to leave Bangladesh. But there's precedent for that. In 2013 Disney decided to pull out of several high- risk countries, including Bangladesh, after a series of fires and safety lapses. By exiting so publicly and recommending implementation of the International Labour Organization's Better Work program, Disney sent a strong signal that government officials should clean up their act. Having engaged with Disney about its supply chain for many years in my role at Domini, I thought the decision to leave was a good one. T&T could use Disney as a model. T&T shouldn't take this decision lightly, however. Its presence in Bangladesh is more substantial than Disney's was, and it therefore has a much greater responsibility to the community. At the very least, it should provide money and support to the victims of the building collapse. Cutting and running is not an option. But if factory owners in Bangladesh aren't serious about making changes, and if government officials don't enact and then enforce stronger worker protections, then T&T would be well within its rights to leave. Lines must be drawn, and one company can do only so much. If, ultimately, T&T doubts that it can operate in Bangladesh without subjecting workers to unacceptable risks, it should not be doing business there. The more credible option is to stay in Bangladesh. But if T&T decides to go this route, it must conduct a top-to-bottom review of its supply chain and select factories that are safe, compliant, and accountable. It must also advocate for factory workers. This is a crucial point. After the Rana Plaza disaster, | and my colleagues at the Interfaith Center on Corporate Responsibility worked to pull together a coalition of investors representing $3 trillion, which urged apparel companies to sign the Accord on Fire and Building Safety in Bangladesh, a legally binding agreement that made companies accountable for improving safety conditionsand, more important, for strengthening labor unions. At Rana Plaza, factory workers saw cracks in the wall but didn't refuse to work out of fear of losing their jobs. A strong labor union could have changed that dynamic. Unfortunately, a lot of U.S.-based companies, unlike their European counterparts, were reluctant to sign the accord out of concern about potential liability and a general discomfort about working Whatever T&T decides, it needs to do a much better job of managing its supply chain. side-by-side with labor unions. T&T must reform its fast- fashion practices as well, though that will be extremely difficult. Customer preferences can't be changed overnight. However, apparel companies need to take a hard look at how their business and design decisions affect workers on the floor. It's no secret that cheap prices and quick turnarounds place a lot of pressure on factories, which demand overtime from workers or use subcontractors to help fulfill orders. Incentives to cut corners on worker health and safety often start at the top. That needs to change. It's impaortant to note that the priorities I've outlined aren't unique to one country. No matter where T&T does business, it must work to implement these changes. Disasters on the level of Rana Plaza are unacceptable. Companies can no longer overlook safety issues in the pursuit of cheap labor. They need to uphold higher standards. HER Reprint RI601K Reprint Case only R1601X Reprint Commentary only R1601Z January-February 2016 Harvard Business Review 113