Reference: Essentials of International Human Resource Management by David C. Thomas and Mila B. Lazarova

Peter Hanson: Building a World-Class Product Development Centre for Hi Tech Systems in China

"Peter Hanson, the Head of the Product Development Centre (PDC) of Hi-Tech Systems in Shanghai had been in China for five months. He was the first person in the Product Development Centre when he arrived in Shanghai in April 2000. Thinking back at the period he had spent in China so far, he felt that things had gone quite well. The PDC was now up and running and today, on September 12, 2000, Peter welcomed its sixteenth employee. Nonetheless, Peter still had a number of concerns. The PDC was still rather small and it was possible for him to interact with and influence all employees. As the PDC would grow significantly over the next year, he wanted to make sure to make a healthy and positive atmosphere and orientation towards work. His vision was to give a world-class PDC in Shanghai, but how to do that in a country that mainly was a recipient of technological know-how from abroad, and what measures should be taken to convince other parts of Hi-Tech Systems to engage in joint development projects with his PDC?" Read the full case

Case 4 Peter Hanson: Building a World-Class Product Development Centre for Hi Tech Systems in China Ingmar Bjorkman Introduction 272 Peter Hanson, the Head of the Product Development Centre (PDC) of Hi Tech Systems in Shanghai had been in China for five months. He was the first person in the Product Development Centre when he arrived in Shanghai in April 2000. Thinking back at the period he had spent in China so far, he felt that things had gone quite well. The PDC was now up and running and today, on September 12, 2000, Peter welcomed its six teenth t'mplnyt'tf. Nonetheless, Peter still had a number of concerns. The PDC was still rather small and it was possible for him to interact with and influence all employees. As the PDC would grow significantly over the next year, he wanted to make sure to create a healthy and positive atmosphere and orientation towards work. His vision was to create a world-class PDC in Shanghai, but how to do that in a country that mainly was a recipient of technological know-how from abroad, and what measures should be taken to convince other parts of Hi Tech Systems to engage in joint devel opment projects with his PDC? And even if he managed to develop the competen cies needed to build a world-class PDC through careful recruitment and selection as well as good investments in training and development, how were they to retain the employees in a market where job hopping was common, money apparently an important reason why people switched jobs, and well-educated people had ample opportunities in other companies? Basically, his question was: would lessons on now to manage human resources obtained in North America and Europe apply also on the People's Republic of China? Product Development in Hi Tech Systems Hi Tech Systems was established in Stockholm, Sweden, in 1976. By the late 1980s, it had become known as one of Europe's most innovative firms in its industry. The growth continued in the 1990s, with firm profitability remaining healthy. The company is cur rently one of the three largest firms in its industry. Hi Tech Systems' global manufac turing comprises six production facilitates in five different countries on three different continents. Approximately 45 percent of sales come from Furope, but Japan, China and, in particular, the United States have become important markets. Product development is seen as key to the success of Hi Tech Systems. Almost 20 percent of Hi Tech Systems' employees are working in research and development. Hi Tech Systems has Product Development Centres (PDCs) in Sweden, the UK, the US, Japan, Hong Kong (China) and, most recently, mainland China. There is a global PDC management group headed by Johan Lind that consists of all the PDC heads, which convenes once a month. Johan Lind reports to the head of global product development in Hi Tech Systems, Anders Jonsson. The responsibility for product development programs resides with the global busi- ness lines and the \"platforms\" (such as Japanese user interface). Research programs within the business lines that lead to actual products also draw on the work being done within the platforms. In each PDC, people work on projects related to both Hi Tech Systems business lines and platforms. A full-grown PDC has some 400-500 employees, a variety of competencies, and is expected to have the capability needed to develop an entire new product. There are several reasons why the company has established a whole portfolio of PDCs. First, dif- ferent areas differ in terms of technologies and standards relevant for the business. 'Therefore, it makes sense to locate research and development activities in locations where the technologies reside. Second, by dispersing PDCs to different parts of the world, the company can move product creation activities in response to environmental and market changes. Third, it enables Hi Tech Systems to draw on human resources not available in one location. Hi Tech Systems has traditionally done most of its product creation in Sweden, but as a result of growth there are not enough engineering students in the whole country to satisfy its needs. Fourth, products need to be local-adapted and this is easier to carry out locally than in a distant PDC. In a typical research program, most of the work on the key components of a new product is done within one single \"core\" PDC. Within each project, there is a fairly clear distribution of responsibilities across the PDCs involved. Other 'peripheral' PDCs are typically involved in developing locally adapted variances of the product. Most of the work has typically already been done in the core PDC before the other PDCs get involved (although, in order to ensure that the necessary local adaptations of the final product can be made at a later stage, people from each of the geographical regions are involved in steering groups during the conceptualization stage). The knowledge trans fer mostly takes place through people from the PDCs who visit the core PDC for 1-3 months to work with the product development people before they return to their own units. At the point when the project has been established in the peripheral PDCs, the 274 ESSENTIALS OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT focal project leader reports to the global head of the focal product development project and to the head of their own PDC. Heavy emphasis is put on establishing and following up project milestones. HiTech Systems in China 'The People's Republic of China started opening up to the outside world in 1979. In 1992, the Hi Tech Systems group established a representative office in Shanghai and, in 1995, a first joint venture was established. By the beginning of 2000, Hi Tech Systems already had four joint ventures and wholly owned subsidiaries in China. Hi Tech Systems had become a significant player in the rapidly growing Chinese market, where it was competing with other Western, Japanese, and also increasingly strong local com petitors. China had become one of Hi Tech Systems\" most important markets. Most of the products sold in China were produced in the firms local factories. However, Hi Tech Systems had so far no Product Development Centre in China. Towards the end of the 1990s, there was growing consensus that this neglect had to be rectified. A decision to establish a PDC in Shanghai was made by Hi Tech Systems' management board in January 2000. Peter Hanson was chosen to head the PDC. Peter Hanson Peter Hanson was born in California in 1962. After graduating from college with a major in management, his first job was with a major US industrial firm. As a part of his job, in 1989-90 he spent 6 months in Hong Kong. During his assignment in Hong Kong, he fell in love with Asia and China. Since that moment he knew that he was going to return to Asia. Peter also met his future wife, who moved with him to the US. In 19991-93, Peter did an MBA and then started to work in a small start-up company. In late 1997, Peter was persuaded by one of his previous colleagues to join Hi Tech Systems. When joining Hi Tech Systems, Peter was appointed operations man ager. After some months, he was asked to head the engineering unit of the new Product Development Centre that was built up in Philadelphia. Peter accepted the job, which meant that he would be responsible for the largest unit of the PDC. Peter and his new boss, Curtis O'Neill, soon became very close, with Peter acting as the second in charge of the PDC. Peter recalls, [ learnt a lot from Curtis. He was very people-oriented. He would make sure that you get an opportunily lo gel into an environment where you cither learn or you don'l. He gave people lots of challenges, lots of learning opportunities, where they could prove themselves. He would also quite directly point lo areas of improvement. He also underlined the importance of networking, how to build networks of people that you can draw on. One of the things that Peter learned soon after joining Hi Tech Systems was the importance of having good personal contacts within the company. The Hi Tech Systems global product development worked, to a significant extent, through informal contacts Cases 275 across units and it was crucial to be well connected. His choice of the five product line managers in his department reflected this view. While people in the Philadelphia unit expected and pressured him to choose local people for the positions, he selected three expatriates and only two local employees: People thought | was taking promotions away from Philadelphia. I had my own views in mindwe needed to be connected to the other centers. If you're well connected people trust you to do a good job within a research program, and it is also easier to get technical help if needed. I then used lots of interviews with the candidates Lo convince people aboul their capabilities and to get some buy-in from the other managers. I also made sure to tell people that the objective was to fill the positions with local people in two-three years. In fact, the line managers had as an explicil objective lo develop a local replacement of them- selves. During the next 18 months, Peter visited Sweden several times. He often took part in the global PDC group meetings as O'Neill's stand-in. The global PDC management also knew that he was interested in returning to Asia, somelhing Peter had mentioned from the outset in his perfurmamce management discussions. Establishing the Product Development Centre During the summer of 1999, the global PDC management group decided that a feasi- bility study on the possible creation of a PDC in the People's Republic of China should be carried out. In October 1999, Peter was asked to become involved in the project. His task was to examine the data and write a report on whether or not a PDC should be established and, if so, where in China it should be located. By that time, Peter also knew that he would be the prcfcrrcd candidate as head of the PDC (if approved). In January 2000, the HI Tech Systems global management board approved the establishment of a PDC in Shanghai. One of the advantages of Shanghai was that the PDC would be able to use the existing Hi Tech Systems organization in the city. It would be easier to learn from the experiences of Hi Tech Systems' largest Chinese production and its China headquarters, both of which were located in Shanghai. In February, Peter went to China on a pre-visit mainly to meet with people in the Hi Tech Systems organization. When it became clear that the PDC would be established, Peter started to look for people. There was no established policy for people management within the global product creation organization, but Peter was told to draw on the HR department at the Hi Tech Systems group in China for support. He thought he would initially need approximately ten positions for expatriates, and it would be of crucial importance to find suitable people for the key positions: It was networking all the way-the social networks were very important! There were many people who knew that 1 would do il and some of them contacled me. I conlacted and spoke to lots of people in all parts of the Hi Tech Systems organization. | wanted the candidates 1o have experience in launching Hi Tech Systems products in China. They should know the Chinese environment and culture. This meant that there were only a very small number of 276 ESSENTIALS OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT people who fulfilled my criteria. And they had to commit to staying at least two or even three years, which is not usual in Hi Tech Syslems. 'Towards the end of the period (hey start hunting for another job anyhow. Peter finally identified four people that he wanted: one Swede, and three persons from the Peoples Republic of China who had studied and worked for several years abroad (two in the United States one in Sweden). One of them he already knew in advance, the others he had identified through his networking activities. All the Chinese had a strong educational background, with degrees from top Chinese universities before leaving the country for overseas graduate studies. Everybody had at least some experience in leading their own teams: I talked a lot to them. Have they thoughl aboul living in China? Were they (the Chinese) conscious about the challenges involved in going back to China? For instance, people may be jealous of them making much more money, travelling abroad and having much higher posi tions than they themselves had? Have they realized that it's going to be a start-up operation, and that it may be difficult to get things started and people on board? To persuade the people he wanted to accept relocating to China, Peter tried to create a positive and challenging vision for the PDC. To date, Hi Tech Systems had probably not done enough to meet the needs of the Chinese-speaking countries. Did they want to become a part of the process of creating a world-class PDC in China? The PDC would become responsible for the Chinese user interface platformdid they want to participate in the challenge of its development? Being restricted by the company's expatriate compensation policy, which was built on a standardized job grading system, he was able to offer competitive but not exceptional salaries. He finally managed to persuade all four candidates to accept a job in his PDC. They all knew each other from their previous jobs. During the late spring of 2000, he found some additional people in the global Hi Tech Systems organization who also agreed to taking up jobs in Shanghai: A part of my strategy was to get people from different Product Development Centers. By having these people in my organization we are able to easily reach into the other PDCs, which is particularly important in the beginning as we are dependent on doing parts of larger projects in collaboration with other centers. If we have good people who have credibility from each of the other PDCs, we will be recognized and seen as trustworthy. But Peter did not see technical competence as the only important criterion. In his view: 80 percent is attitude. It doesn't matter what you can do, if you lack drive. With drive you can always fill in the gaps . . . Perhaps il has something Lo do with my own background. | have had to manage without an engineering education in an organization and industry that are extremely technology-intensive. The PDC was to report to the Global PDC management and to the Hi Tech Systems China country management. As agreed upon with the Global PDC management group, Cases 277 PDC Shanghai would be responsible for product creation in the Chinese language area, including mainland China, Hong Kong, Singapore, and Taiwan. In the beginning, it would mostly do limited parts of larger products in collaboration with other global PDCs, working, for example, on software and on Chinese-specific applications. The long-term vision was eventually to have the competencies to be able to build new products in China. The Start of the Product Development Centre Peter and his family finally arrived in Shanghai on April 12, 2000. The next employee arrived from overseas in May, and by September the unit had 16 employees, half of whom had been recruited from abroad. Peter's estimate was that, long term, 15-20 percent of the employees would be from overseas but that it would take 3-4 years to decrease the proportion of expatriates to that level: When you build a home, first you build the foundations. You need to make sure that the foundations are in placethe recruitment process, human resources management, finance. Then you need key managers to build the organization around. In the recruitment of local employees, the PDC was collaborating closely with Hi Tech Systems' human resources (HR) department. After job descriptions and job grade levels had been determined by the PDC, the HR department would announce the position using both advertisements and the Hi Tech System home page, receive CVs, do a first screening of the candidates, and arrange for interviews and assessment of the applicants. The interviews were done by a minimum of two PDC managers, who also acted as observers in the assessment centers organized by the HR department. For the assessment of applicants in China, Hi Tech Systems used \"The Space Shuttle.\" The Space Shuttle was a game where the applicants worked together in a group with the objective of reaching an agreement on how to build a space shuttle. By observing the applicants involved in a problem-solving situation where they also interacted with each other, the observers could draw their own conclusions about the applicants. Recruitment and selection of local employees largely resembled practices used elsewhere in the global Hi Tech Systems organization. Some other Western firms had apparently made larger adjustments in their selection practices in China. For instance, Peter had heard that Shell had changed its selection practices based on an in-depth study of its existing Chinese managers and entry-level management trainees. Traditionally Shell focused on analytical and prob lem-solving abilities. However, when, for example, applicants were asked to identify the strengths and weakness of the Chinese educational system and then say what they would do to remedy deficiencies if they were the Minister of Education, if there were any responses at all they tended to be uniformly bland. It was also found that the kind of \"Who would you throw out of the airplane?\" question commonly used in the West also tended to engender a \"learned helplessness effect\" on the part of Chinese univer- sity graduates, who have excelled at clearly defined tasks in a familiar environment and 278 ESSENTIALS OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT who had \"learnt\" to respond to the unfamiliar by simple freezing. Shell's system identi- fied the Chinese education system as the chief culprit. The educational system is hier- archical, extremely competitive and almost exclusively based on examination of rote learning. Problem-oriented interaction among strangers is unnatural and problematic for most Chinese. Therefore, to evaluate the decision-making skills, communication skills, analytical problem-solving abilities, and leadership capabilities of the applicants based on hypothetical cases solved in assessment situations may be very difficult. As a result, Shell's study recommended the use of real case studies rather than hypothetical questions.'' Competence development would probably be key to the success of the PDC, both in terms of localizing its operations and in producing good results. By mid- September, the new employees had mostly worked on small projects, such as setting up the IT system. A couple of people had also been sent to Hong Kong to work in the field with experienced engineers for 3 weeks. Formal training would be important, and the PDC would need to collaborate with Hi Tech Systems' HR unit on the course program offered to the PDC employees. To what extent should the Chinese employees receive the same content and delivery as Hi Tech Systems employees elsewhere? In China, the Confucian- and communist-influenced Chinese educational system in which the learner is a mostly passive receiver who is obedient to instructor tends to create linear rather than lateral thinking and precedent-based problem-solving where the focus in on getting the \"right\" answer. Nonetheless, hands-on on-the-job coaching would be even more important for the development of the new employees. Most of the responsibility for coaching would obviously be on the experienced Hi Tech Systems employees but also important would be to bring in people from other PDCs for visits in Shanghai. Coaching on the part of the expatriates would be extremely important, Peter thought. He had already been dis- cussing it at length with the managers that he had hired, but he was not sure whether or not that was enough, especially not when the unit would grow over the next couple of years. He certainly would not be able to coach all expatriates by himself. In Hi Tech Systems' globally standardized performance management system, all employees should carry out performance management discussions with their superiors. Within this system, individual objectives are established and followed up. According to company policy, the individual's objectives must be specific and, if possible, measur- able; key activities for how to reach the objectives shall be specified; criteria for how to evaluate the performance agreed upon; and finally, development plans decided upon. Peter's aim was that every new employee would do their first performance manage- ment discussion within a month after they joined the organization. All Hi Tech Systems superiors in China were trained in how to use the system but there was still a question of how the \"Western\" system would be implemented in the Chinese culture character ized by respect for hierarchy, face, and harmonious personal relationships. Peter had also given the question of the relationship between employee compe- tence development and career progress quite a lot of thought. In Hi Tech Systems worldwide, people achieved high status by having excellent technological knowledge and skills rather than having made a successful career as a manager. However: Cases 279 In China especially the young people expect to get a new title every year; otherwise they had belter start looking for another company. The speed of expected carcer progression clearly differs from the West. To develop the level of competence required for the next career step will be a challenge. Can they achieve it once a year? | think very few will. The compensation of employees would follow the Hi Tech Systems policies. Managers and team leaders were compensated based on both business and individual performance. High-level executives and senior managers had a large business performance component in their bonus system, while the compensation of lower-level employees was mostly based on their individual performance. In the Shanghai PDC, individual performance would be evaluated based on 4-5 objectives. Peter required that the objectives had to be measurable on a ten-point scale. For instance, a manager's performance could be evaluated based on the manager's ability to fill positions in his/ her group, employee satisfaction (as measured in company-wide surveys), employee turnover, the team's ability to stay within the budget, and some measure of quality (to be determined in discussions between the person and Peter). Each person's performance was evaluated every 6 months, and bonuses paid accordingly. The target bonus was 10 percent of the person's base salary, with 20 percent as maximum. People working on a specific development project were evaluated not every 6 months but the evaluation rather followed the milestones of the project. The bonus element was also somewhat larger for people working on projects than for other PDC members. Peter believed that the compensation system would work well in China. Having clear objectives and rewards linked with their fulfillment would help send a clear mes- sage to the employees: your performance equals what you delivernot the personal connections, or \"guanxi,' that you have! Nonetheless, at least in the start-up phase of the PDC it might be somewhat difficult to establish feasible objectives for the employ- ees. Additionally, there had been reports from other foreign firms that there was a ten dency among local employees to set objectives so that they would be reached by the subordinates. Looking Towards the Future Analyzing the start-up phase of PDC, Peter found that many things had gone quite smoothly. For instance, the two Chinese \"returnees\" who had joined PDC so far (the third was still in Sweden but would relocate next month) seemed to do well. Although China had changed a lot since they left the country some 10 years ago, their interaction with the local employees seemed to go well. Managing the growth would certainly be a challenge in the next couple of years, Peter thought. For instance, local employees would have to be taught to manage themselves and to take responsibilitybehaviors not automatically understood and accepted in the Chinese environment. While the Hi Tech Systems culture was non hierarchical and meritocratic, the Chinese culture is hierarchical, and the \"face\" of superiors could be at stake if subordinates made their own initiatives rather than wait- ing for orders from their superiors. Furthermore, since the communist regime from 280 ESSENTIALS OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT 1949, the Chinese have been discouraged from engaging in competitive and entrepre- neurial behavior. The Chinese proverb \"the early bird gets shot\" aptly illustrates the reluctance on the part of Chinese employees to engage in the kind of innovative behav- ior that Peter wanted to see in the PDC. On the order hand, Peter had seen several Chinese changing their behavior significantly abroad. What should they do to promote this behavior also in the Shanghai PDC? Peter was also looking for somebody to work closely with Hi Tech Systems\" HR function. 'This person would work closely with him and the line managers to define future competence needs and how they could be met. \"So far I guess I have fulfilled this role, but I'm afraid that neither me nor line managers will have time enough to pay sufficient attention to this issuc in the future\" Finally, Peter was concerned about retention. \"I have also been told by [a human resources expert| that a 1 renminbi salary difference may make a person switch job.\" Peter believed that money would not be key to retaining the employees, though. To creale a positive, family-like atmosphere might help. Peter had started a tradition of everyone in his unit meeting for a snack on Monday mornings. He also made a con scious effort to spend time talking to people in the department. Furthermore, he had invited people out for lunch and dinner. To maintain a positive relationship between the foreign and local employees, he tried to coach the expatriates not to mention how much money they made, how they lived, and how cheap they found most things to be in Shanghai (say \"reasonable\" instead, was his advice). All this had apparently con- tributed to there starting to circulate rumors that \"things are done a bit differently in PDC? He was now thinking of whether to involve the employees\" families in some way. Formal team-building exercises should probably also be done. There were so many things to do . . . Peter looked out of his window in one of the many new multistory buildings in the Pudong area of Shanghaiwhere should he start