Case Study: KA Australia

In 2012, KA achieved over $1.6bn in company sales, negotiated a new Enterprise Bargaining Agreement and implemented a computer-based Enterprise Resource Planning (ERP) system to ensure a “flexible and high-performance future”. It had also proudly developed what its management called a Quality Leadership Process which was supposedly used by the company “in every department and at every level from team leaders to directors”. But that year a comparative survey of KA’s multimedia businesses in Australia, Canada, Ireland and the UK concluded that KA Australia was the least productive and profitable of the four operations. The report made it clear that quality assurance and labour costs were areas in which the Australian offices operated at a comparative disadvantage to many of KA’s other operations. Other problems identified included lower standards of training and poorer relationships with suppliers.
KA Australia also faces substantial competition, not only from other companies overseas, but also from other KA operations abroad, with growing pressure for improved quality and competitiveness. KA Australia has already lost its export markets in South America to KA’s North American operations and has now also begun to face increased local competition as a Japanese competitor has entered the Australian market and begun to gain more and more market share. Head office in the US consequently decided at the end of 2013 to send one of its more promising managers out to Australia with a license to “fix things up”.
The Australian company was then headed by an acting CEO, the general manager of product, who had begun working at KA in 1995 and had risen up through the ranks to become the firm’s chief operating officer. In early 2014 the new North American CEO arrived, an electrical engineer with a Harvard Business School MBA who had previously headed a telecommunications consultancy owned by KA’s US parent. Headquarters in the US had high hopes that he would be as successful at KA as he had been in his previous assignment.
The new CEO’s first action was to analyse operations at KA and to look for ways to reduce costs and increase profits. Staffing costs, he decided, could be reduced and processes improved dramatically by installing automated solutions using the latest technology. Staffing arrangements also seemed too inflexible to him, so he ordered that overtime for full-time staff be cut back and more temporary employees be engaged to undertake special projects. Communication also seemed a problem: information was not shared across the company, team leaders seemed only to know about their own immediate areas and appeared unresponsive to staff complaints about working conditions and overtime.
The response to the new CEO’s plans seemed to be enthusiastic. The general manager assured his new boss of his “110% support” and quickly moved to establish the “self- directed teams” that the new CEO required. The general manager was respected by many staff for his experience and expertise, and he had long served as a gatekeeper between staff and previous CEOs. Yet the teams did not seem to work well at first: whenever a team faced a problem and tried to find a solution, the general manager would step in and take over. “This is a simple problem, there is no need to waste time,” the general manager was often heard to say. And then the problem would usually be solved.
The teams never seemed to be able to reach the new standards expected of them, however. Team meetings often became one-way affairs where team leaders would tell staff what was going wrong. The general manager began to increase his hours, spending more and more time troubleshooting problems and he expected the team leaders to do the same. He pushed his managers even harder, but now felt that he had less of an understanding of his staff, some of whom would now go over his head and complain about his behaviour directly to the CEO.
The continued poor performance at KA was increasingly blamed on the general manager. “It might help if you treated our people with a little more respect,” the CEO told him. “You need to get the teams together and let them show you that they can solve things themselves.” An experienced content producer was brought in from the US to facilitate coordination between production teams and performance seemed to improve for a while. But finally the CEO decided to dismiss the general manager in an effort to “change the culture”. Other managers such as the heads of IT and web production were similarly let go that year.
KA Australia had long favoured hiring staff who already had contacts within the company. The HR Department usually preferred to hire staff recommended to them by existing employees as they found that this often led to better cohesion within KA. The company had also long valued its ability to retain staff, to “look after” employees who may have been displaced by re-organisation, and to transfer and re-train staff whose careers have been threatened by new technological developments.
The new ERP, for example, had been designed by KA staff as the company had long made use of its own employees to develop new technical projects. “Technological change will always be with us”, remarked one production manager, “and we need to continually engage with our staff to keep ahead of the competition”. KA had an established reputation as an innovator in Australia and had won the country’s inaugural Australian Design Prize in 1992, but soon after the departure of the general manager, even more problems began to arise.
The new CEO had also decided to bring in technical assistance from the US as part of his drive to modernise the firm. But the new director of design solutions did not seem to be able to win the respect of the team leaders. “Ensure everyone understands what you are trying to do”, he was once overheard saying to a lead designer, “but make sure you weed out the knockers and rumour mongers who undermine morale”.
Gradually the team structure began to break down – and the increasing reliance on temporary staff began to affect quality assurance and customer relationships. Moreover, in 2016 a series of disputes broke out between web designers and IT, and even the HR Department began losing key staff. “You’re losing a lot of good people that you’ve trained – they’ve got a lot of knowledge”, one content manager commented. Another blamed budget cuts: “we had really strict budget restrictions put on us – and the reaction was to get in graduates on lower salaries and to train them up.” Other managers blamed the new staffing policy: “you can train any skill possible, but you can’t train work ethic and you can’t train attitude.”
A new automated quality-control process that the CEO sought to have installed in digital design was particularly controversial. But the HR policies brought in by the new CEO were a particular cause of criticism by managers. An experienced producer complained: “We didn’t increment the salaries of the new people to reflect the experience that they were gaining”. Another remarked that “We cannot really rely on people to stay here, to keep the knowledge, but I don’t think people leaving is all about salary”. A lead designer commented: “A poor manager can make or break an employee’s relationship with a company.”
The company’s training policy seemed mainly focused on sales: “We were focusing a lot of our training on what’s best for the customer”, reported one manager. When asked about the company’s training strategy, a senior HR consultant commented: “When they come in they will get an induction. They’ll get the business strategy explained to them”. One team leader admitted “I know that some of my team struggle with the new software”. But “we’ve got a lot of millennials, we’ve got a lot of young people coming fresh in from university”, she continued. “We can’t really expect that they will stay for much more than a year”. Another manager blamed the company’s culture: “I’m a little bit concerned that sometimes perhaps we’re too casual. People get a bit of a shock if we do pull them into line”. As one of the more experienced lead designers said: “when it comes to performance it’s very easy to tell people how great they are. It’s not so easy to tell them when they’re not doing well.”
Some team leaders felt the company had a communication problem. “There’s been a lot of decisions that are made without having the knowledge of what it is like to manage a production team” one observed. Another team leader commented: “But I think both the organisation and the employee need to improve their relationship. I think the organisation needs to trust employees a little bit more and I think employees need to trust the organisation a little bit more”. Another senior manager explained that “I’m quite tough on my team leaders. I expect a lot from them. But I think there’s definitely some employees who feel that they’re not treated as fairly as their colleagues.”
By the end of 2017, KA’s profitability had clearly declined as employee morale continued to sour. The company had brought in a ticketing system to monitor staff performance and had begun training team leaders in performance review and how to deal with underperforming employees. But staff continued to leave in increasing numbers. As one employee observed, “you get to know people, and then they leave. I started two years ago, and, I’d say, 90% of my good friends are now gone.” Another who said she was thinking of leaving commented: “I don’t think the culture is the way that it used to be, it’s not as strong as it used to be”. One web designer observed: “I don’t think we are being appreciated for the work that we do.” Performance management and promotion were often causes for criticism. “Some people have more workload than others, but less productivity”, one staff member commented, “and promotion only seems to go to managers’ favourites.”
HR had begun to respond by undertaking a salary benchmarking process and implementing a new system of pay grades. But the CEO remained skeptical of the new proposals. “We have a business to run and we are on tight budget” he responded. “We have already increased benefits – we don’t have unlimited money.” Asked at a staff meeting about the pay structures, the CEO’s response was “Its just something people have to get used to”. When his contract came up for renegotiation in 2018, the CEO decided to return to the United States taking most of his American colleagues with him as they transferred to another of the US parent corporation’s subsidiaries.

Assignment objectives:

The objective of this assessment is for you to critically analyse the human resources situation in the case provided (“KA Australia”). We expect you to identify key HR and ER issues, and using the theories and knowledge that you have gained from this unit, develop well-supported recommendations for changes/improvements to the current HRM practices employed at the firm. Your recommendations need to include a description and explanation of at least four HRM and ER theories and principles studied in this unit. Recommendations based substantially on theories and principles taken from other units (Leadership and Change, Strategic Management etc.) will not receive any marks.