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Pa e 4 93176033 Creating a Cross-Trained Workforce In an attempt to address the problems, Lo sought to restructure roles and work assignments among the ECS group. He planned to introduce a model that would allow the group to offer cross-coverage, meaning that multiple individuals within the group could handle any single client's business. Thus, rather than being assigned to a single function, each staff member was assigned to cover all the needs of a client. This change meant that each client would have a pair of dedicated representatives capable of performing a range of functions for them. No longer were individuals assigned to solely doing bookings or completing documentation, but they were to be cross-trained in performing these functions for the clients they were assigned to. Lo was concerned about the ability and interest of individuals to learn a different function (booking to documentation and vice versa), the intricacies of each industry, and indeed, the preferences of each client. He noted that ECS business fell into two categories: I) high-value and highnmargin very important (VIP) clients, and 2) medium- to high-volume but lower margin regular clients. The former accounted for about 70 per cent of ECS business. VIP clients required more customized solutions and more attention to their transport needs. ECS staff had to be available to respond to these clients as needed. For example, a request could come in at 7:00 pm. that required six hours to two days' worth of analysis. A VIP client could ask ECS staff to arrange shipments of ve or more full container loads of mixed product (household goods, gardening supplies, clothing} coming from five different factories and going to 10 different destinations. VIP clients could generate $200,000 in commissions per year. In contrast, regular clients might require one or two shipments of goods a monthmining equipment and supplies, for exampleone wooden pallet at a time. These regular clients might generate $8,000 in commissions per year. Regular clients needed a response that took perhaps 20 minutes to prepare. Lo noted: Our clients are not uniform in the way they send work to us. There are clients whose entire volume occurs during a very narrow one or ttvo-month window; there are other clients who provide consistent, stable volumes. And our high-volume VIP clients can sometimes offer us a signicant amount of work on short notice. Nevertheless, the experiment went ahead. The restructuring was implemented by way of a buddy system so that there were at least two people covering a client. Beginning in the rst quarter of 2014, individuals in booking and documentation were matched up with the intent that each learned the other's role. It was expected that booking personnel would coach documentation personnel on how to develop business. and in exchange, the former would learn how to complete documentation. By providing cross-coverage of clients, it was hoped that the buddy system would alleviate everyone's workload and allow the ECS group to continue providing a high level of service without overwhelming the staff. Consistently, in each of the three teams, there was one individual placed as the mentor and the other as the trainee. Pairings were put in place at the start of January 2014 (see Exhibit 3). Issues wlth the Restructuring It became evident within a week that there were issues with the new arrangement. The individuals in booking were generally gregarious and customercentricwilling to take on extra work and manage unexpected issues that clients brought up. They were exible and could think out-ofwthe-box when it came to nding solutions to shipping issues. The individuals in documentation were detailoriented and leaned IVEY Publishing 9B17C033 CANAAN GROUP: RESHAPING THE ECS DIVISION Ken Mark wrote this case under the supervision of Professor Kenneth T. Goh solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G ON1; (1) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright @ 2017, Richard Ivey School of Business Foundation Version: 2020-01-20 rams at Fanshawe College until Apr 23, 2022 In January 2015, Patrick Lo, the president and chief executive officer (CEO) of the Canaan Group, a Canadian logistics conglomerate, was thinking about ways to restructure his Export Cargo Specialist (ECS) division. The ECS division focused on ocean freight forwarding-helping customers coordinate and ship goods from origin to destination. Most requests involved picking up goods from a customer's factory or warehouse and managing the transportation of those goods all the way to the recipient's factory, warehouse, or stores. Over the past two years, the shipping industry had faced significant disruption due to excess shipping capacity and a fall in demand for shipments. In response, the ECS division was restructured to provide consistent coverage to clients. However, issues emerged as a result of the restructuring, leading to employee departures. Turnover in the division had reached 70 per cent in the past year. These trends and the impact from the restructuring led the division to record a net loss on operations in 2014. "We tried to restructure the division, and this change caused a lot of confusion," said Lo. "I recognize that we need to right the ship, Authorized for use only in educational prog but I want to think about how we go about doing this so that we can avoid further mistakes." FREIGHT FORWARDING INDUSTRY In the freight forwarding industry, customers valued the timely, cost-effective, transfer of goods maintained in their original condition throughout the process. To accomplish this work well, freight forwarders had to work with multiple carriers over various modes of transport - air, marine, rail, and land. Every transfer from one mode of transport to another, and every time jurisdictional boundaries were crossed, required a set of documentation to be completed. Completing this documentation was not just a simple task of filling up forms, but required one to be familiar with tariffs, customs regulations, and specific requirements of shipping by that mode of transport. While investments in information technology enabled freight forwarders to manage some of these tasks more efficiently, it was still a complex process with many uncertainties and irregularities that still required knowledgeable, experienced, and competent individuals to negotiate alternative arrangements, problem- solve on the fly, and assuage customers in the event that deliveries did not go as planned.Page 3 93176033 inspected, goods could be delayed at customs indenitely. If transportation options were closed because of deadlines or capacity constraints, alternate routes had to be found, rates negotiated, and passage booked. A key consideration for the ECS division was the value of having a satised customer over the long run. While the division might not make its margin on one or two complex shipments, satised clients often entrusted their business with the division for years. Thus, customer service representatives in booking often built strong client relationships with their customers. \"There are very few barriers to entry in the freight forwarding industry," said a manager. \"If we can't provide extra service, the customer can go elsewhere.\" Some of these extra services included covering the cost of unexpected documentation or delays, if they were a nominal sum, or helping customers manage packaging waste, such as surplus boxes or crates, at no extra cost. PRESSURE TO RESTRUCTURE During the Great Recession of 20082009. demand for raw materials and nished goods fell worldwide. This decrease in demand resulted in a collapse in the average price to ship products overseas as the owners of empty cargo ships competed for business. The major decline in shipping volumeand revenueswas followed by a second decline in demand from October 201 l to January 2012 (see Exhibit 2}. To preserve nancial strength. many carriers cut out non-core operations in their businesses, such as documentation service. To retain competitiveness and client relationships, freight forwarders had to perform more of this service for their clients. The ECS documentation staff members found themselves overwhelmed by the additional work, and it was difcult to hire new staff to take on this additional work. At the salaries offered. the ECS division could attract only younger, junior staff. However, it was difcult to retain them as they were discouraged by the mundane work of managing detailed documentation and the limited career prospects. To accommodate the additional documentation work, Lo decided to set up a three-person ofce in Taiwan in 20 [3. Lo believed it would be easier to nd and retain staff in Taiwan, where there was a larger pool of labour that was more accustomed to performing routine data entry work. By shifting more documentation work to Taiwan. Lo freed up resources in Vancouver. Changes in the Vancouver office seemed necessary as well. As each industry had its own set of regulations. clients were assigned to booking staff by industry. Each staff member covered multiple industries with no overlap in coverage. As a result, the department was caught short whenever someone was on vacation or called in sick. Tina, the ECS manager, had to rely on sporadic emails from the person who was not in the office to piece together the case being managed. Consequently, ECS staff worked long hours and were not able to take time off, which Lo recognized to be a problem: Due to the high volumes at times, I recognized my staff were overwhelmed. They would work overtime and come in on weekends. It was what we needed to do to keep our customers. It was a tough time in the industry, and one wouldn't want to lose a customer because a few emails weren't being responded to. Yet this reliance on staff working extra hard could not go on forever. Eventually. I was worried the quality of our service would suffer. Pa :3 IE 93176033 for each person, and similar numbers of high-volume, VIP clients per team.\" In theory, the client allocation per pairing was supposed to be equal. In practice, the volume of work coming from clients could not be predicted, and certain pairings received significantly more work than others. Lo had to manage signicant differences in workload: one pairing could be sitting idle while another would be overwhelmed with work. Even when shipment requests seemed evenly distributed, the complexity of tasks posed another issue. Complex shipments could require 15 different transportation modes in a single order, and the booking agent would often have to adjust a few connections along the way to account for delays. In contrast, routine shipments could require confirming a regular weekly shipment of low-value goods from factory to warehouse. Given the differences between complex and routine shipments, the attempt to balance the workload by distributing shipments evenly across all pairings left everyone frustrated. Less experienced staff could not adequately anticipate and solve problems on complex shipments. Often, experienced booking staff had to step in on an emergency basis to protect arrival dates that had been promised. Invariably, it was more work to \"save" a shipment than it was to anticipate the issues in advance. The documentation required for more complex shipments required experienced individuals as well. There were times when staff formerly in documentation had to step in to correct mistakes made by their less experienced colleagues. The unintended fallout was that some customers were dissatisfied with what they perceived to be a drop in the quality of customer service in both booking and documentation. There was the additional challenge that complex shipping requests typically generated higher margins and thus higher bonusesfor individuals working on them. Senior staff were unhappy that some of these higher margin opportunities were taken away from them, replaced by more routineand lower value work. Lo was aware of complaints from senior staff about reduced bonuses. Redistributing accounts also meant that some clients with a long-term relationship with a booking agent had to now deal with a new person. This upset the booking staff who had spent years cultivating a relationship with the client. In addition, clients were reluctant to work with a new staff member and threatened to take their business elsewhere if they could not work with their former booking agent. Six months into the experiment, it was evident that Lo's attempts at restructuring the ECS division had not gone as anticipated. Little cross-training had occurred between the pairs, and most booking and documentation work was still performed by the staff member whose original role it was. Despite Lo's best intentions, the division had reverted to its previous structure. To make matters worse, his attempt at restructuring had created greater animosity within the group and dissatisfaction among clients. By September 2014, there was tumover in the division with Tina leaving for a Canaan Group project in Alberta and three employeesSimon, Gail, and Sharonleaving the company. Four new hires were brought in as replacements but two left within weeks. Two more hires were made to replace these team members. In October 2014, the team was comprised of Brenda (manager), Bruce, Nora, Julia, Raye, and Paula. Nora was hired to replace Simon in documentation. Julia and Raye had experience at other companies in the logistics industry but did not have direct experience in the work performed by the ECS team. \"We wanted the new hires to complement the team,\" said Lo. \"We wanted the team to be easily moldable, if we decided to change the structure of the team again." Page 2 9B170033 CANAAN GROUP In 1931, Paul Lo founded a freight forwarding company in Vancouver, Canada that grew continuously to become one of the largest privately owned Canadian logistics companies~the Canaan Group. Over the years, it expanded to include various services: global air and sea freight, customs brokerage, warehousing and distribution, fully integrated courier service. cargo insurance, trade-aid consulting, real estate development, and venture capital nancing. Lo, who was Paul's son, took over as president and CEO in June 2002. Export Cargo Specialist (ECSi Division The ECS division was historically organized by functionsales, booking, and documentation. These were different roles and tended to attract different personalities. Sales consisted of one person dedicated to meeting prospective clients and selling them on the benets of working with the ECS division for their logistics needs. Once clients were brought on board, it was the booking department's job to take care of clients' needs. Booking staff worked with the ECS network of logistics service providers to nd the best possible routes for shipments and to anticipate and resolve shipping issues. Sending goods from one location to another required extensive paperwork to be lled in. This task was accomplished through documentation. Documentation staff identied the goods to be shipped, noted down the correct tariff codes if necessary, and generated specic disclosure documents for fragile or sensitive goods (such as machinery parts). Because of the specic logistical needs of different industries, ECS staff tended to be industry experts, with each client assigned to one ECS staff member. For example, a forestry product company wanted to ship lumber from its factories in British Columbia, Canadato a customer in Kyoto, Japan. The process the ECS team followed to assist the company in shipping its product included information gathering, obtaining rates, booking the carriers, lling in documentation, following up with the customer, and monitoring the shipment as it was transported from origin to destination (see Exhibit 1). In many cases, the services provided by the ECS team went beyond managing routine shipments. Delays in manufacturing or transportation resulted in shipments being held up or held back. For example, a delay caused by a railway line performing emergency maintenance could push the pick-up date from the factory by three days. This delay could create a domino effect where the truck carrying the goods to the port would arrive a day late, missing the cargo ship's original departure date. When such delays occurred, the booking department worked with its various transportation providers to nd alternative shipping options and routes. For example, instead of relying on the regular transport service, a higher-priced expedited service to cut Mo days off a trip could be booked. Alternatively, the booking agent could arrange for truck transport instead of rail transport if a railway were undergoing maintenance. In most cases, the cost of these changes was passed on to customers. An ECS manager stated: We help clients ship goods efciently and at a cost-effective rate. There was a lot of problem solving and creativity involved in the role because a shipment could involve many combinations of services. For example, shipping a few containers from Calgary to China could involve two different shipping lines and different ports, depending on availability. If any documentation was incorrectly provided, amendments needed to be made as soon as possible. Otherwise, if the item codes on a shipping manifest did not match the description of the physical goods being Pa 13- 5 93170033 toward strictly following the terms of any agreement. As they were more likely to be introverts, they did not seem comfortable dealing with clients in general. Within the first month, Bruce and Simon gradually took on fewer booking inquiries and projects, reverting to managing documentation for their paired groups. This seemed to come as a relief to Sharon and Paula, who preferred to deal with clients rather than learn about and fill in the documentation necessary for shipments. In the Brenda and Lorna pairing, it seemed as if Brenda was not willing to share booking responsibilities with Lorna. This resulted in some degree of resentment on Lorna's side; while she was eager and capable of doing more, she was 'ustrated at being treated like a personal assistant. Brenda commented on how she viewed the restructuring: I came to Canaan after working at various shipping lines. I remember that when I moved to Canaan, I had one of the biggest profiles at ECS. My budget numbers were in the millions while others were in the hundreds of thousands. I didn't want to do documentation because it didn't utilize my experience. I can use my resources for other things. Problem solving with clients' issues take time. If I spend this time doing documentationwhich is data entry, reallyit's not a good use of my time. There are issues in booking that we must deal with and we must be flexible to be able to drop out other non-value added work to focus on client issues. If we can't provide clients this extra service, if we can't resolve it speedily, clients will go elsewhere. Brenda's insights on the need to revert to the old rolesespecially when the team was under pressure rang true for the other pairings. While the intent was to have cross-trained individuals, booking agents did not want inexperienced team members providing incorrect information to clients or booking inefcient modes of transportation. Brenda added: \"Lonia, with whom I was paired, was not equipped to deal with shipping problems. I recognized that and I did not have the bandwidth to do anything else other than resolve the issues in item of me. That meant that Loma had to do her part, which was to focus on documentation." If there were any mistakes, booking staff knew that clients would be upset and that additional work would have to be done to placate them. Also, booking staff had spent months or years building up their book of business with clients. They had strong working relationships with clients and were often reluctant to share these clients with their documentation colleagues. Another issue that created resentment was the pay disparity between booking and documentation staff. Previously, booking staff tended to be more experienced producers, generating revenues and prot for the firm, while documentation staff were less experienced and seen as part of the back office operations. Thus, before the restructuring, booking staff earned an average of 20 per cent more than documentation staff. \"Then it was made public that the pairings would be sharing booking and documentation duties, Lo addressed this discrepancy by increasing the pay of staff previously in documentation. However, this increase was met with resentment by others. One manager stated: We're essentially supposed to do the same things nowbooking and documentation. Why are our colleagues in documentation getting a salary raise? Our team in booking has worked hard to bring the business back on track after the recession. Do we not deserve a raise as well for taking on documentation work, which is different from what we've been trained to do? Next, there was the issue of client mix. \"Accounts were initially assigned based on working language," said Lo. \"We'd evenly distribute the volume so that there was the same volume of documentation and booking Page 1' 93176033 NEXT STEPS After managing the busy last three months of 2014, Lo took stock of what he had seen in the ECS division. The experimentmoving to a buddy systemcould not yet be considered a success. It was not clear whether the changes should be reversed or if they were merely in the rst year of what should be a two- to three-year transition. \"What if we quit too early and don't give this plan enough time to succeed?\" he pondered. One option open to Le was to bring in one of his experienced project managersLucascurrently working in the Project Cargo division (which handled freight that did not t within the standard industry containers) to head up the ECS division. \"Should I bring fresh perspective into this department?\" Lo wondered. Another option was to promote one of the hookers or documenters into the manager role and allow that person to come up with a potential solution. \"They've dealt with the issue for the past year,\" said Lo. \"Surely they'll have some idea of what needs to be xed, and how.\" There were many opportunities in the freight forwarding industry. Lo could envision the Canaan Group specifically, the ECS divisioncapitalizing on the changes. Before he could build a stronger foundation for the future though, the turnover in the division had to be stabilized. Lo surveyed his ECS team's organizational chart and wondered what changes he should make. Consider the following questions while analysing the case: Why did Patrick Lo change the way the ECS team operated, starting in Jan, 2014? Do you agree with his initial strategy? Analyze the effects of the change in individual roles within the ECS team. What conclusions can you draw from your analysis? What are Lo's key issues going forward, and what advice would you offer him