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Ireka Construction Berhad A Chinese Family Business Goes Public Case Solution
From a small family business to a large corporation, the story of Ireka Construction Berhad is nothing but a success story. The company was started in Malaysia in the year 1997. It started as a construction firm involved in the earthmoving contract for tin mines, factory sites, housing lots and roadwork construction. However, with time the company gained expertise and it was able to branch out into other areas of construction like bridges and flyovers, as well as other infrastructure projects. This case helps the reader understand the journey behind the company’s success and analyze it from a critical perspective.
Following questions are answered in this case study solution
On the basis of the case provided, explain how the Lai family has managed the change from a small family business to a larger, and evaluate the impact on Ireka going public.
Discuss and evaluate the problems with human resource management, and explain what the areas that Ireka’s directors should focus on to maintain success supported by examples from the case.
Develop recommendations that you would improve Ireka capabilities in dealing with unexpected future problems based on the case provided.
Case Analysis for Ireka Construction Berhad A Chinese Family Business Goes Public
1. On the basis of the case provided, explain how the Lai family has managed the change from a small family business to a larger, and evaluate the impact on Ireka going public.
Ireka’s transition from a small family owned firm to a large public limited entity is indeed a success story. There were several things which the company did right, but it also committed some mistakes along the journey.
Grabbing New Opportunities
The first and the most important thing which the management did was that it successfully grabbed any opportunity that came it's the way. For instance, when the Malaysian government started expanding in the 1970s the company instantly took on the road construction project and was able to even get a licensed status from the government. Similarly, when in the 1980s and 1990s the Malaysian government started encouraging businesses to go public, the company immediately followed suit and attained a public limited status. This constant struggle and timely action on any new opportunities that came their way helped the company achieve phenomenal success. It is said that when small businesses follow such an approach and keep adapting themselves to the changes happening within the environment it becomes easier for them to succeed and prosper (Torrès and Julien, 2005).
Innovation and Risk-Taking
Small businesses have one advantage which is not there in established organizations. Family members who initially start such businesses can introduce innovations very easily as the cost of doing that is lower for a smaller firm as compared to that of a large corporation. For instance, when the company decided to move from just focusing on simple construction projects to ones that required complex engineering and greater management the company was able to use its long-established name as well as experience of the past to perform such ventures with ease and comfort. These innovative ideas are eagerly encouraged in small firms because they are hungry for growth whereas larger firms tend to stick to their established methods and procedures for fear of losing out on their existing image and brand value. Since the management of Ireka was willing to take risks and realized that only innovation and doing new tasks can help them achieve higher returns the company was able to sustain growth (Gartner, 2010).
Responding to Economic Environment
One thing which helped the company to keep thriving even when faced with difficult circumstances was their response and reaction to the overall downturn in the Malaysian economy. Between 1984 and 1985 the company did face slowdown in demand but keeping itself rooted to the basic pillars of managing a family business it decided not to let this downturn impact the employees as well as the family members. Most family businesses that end up becoming successful in the long run are built on this very pillar itself. Such firms value their employees and their well being over everything else. It does not matter to them how bad the market becomes. It is their belief that if management supports its employees and treats them as families in difficult times then it is highlight likely that most of these employees will end up supporting the business when it actually needs their loyalty and commitment (Leebaert, 2006). This is exactly what Ireka did, and the bond of family, as well as employee loyalty with the company, became stronger than ever after this gesture.
Bringing in Non-Family Members
Instead of allowing only family members to become a part of the company especially its senior management, Mr. Lai recognized the need for bringing in fresh blood into the company. He knew that many small family businesses become myopic and lose their overall competitive position due to this reason. Family members start thinking only about their benefit, and this ends up harming the company rather than benefiting it. To avoid this very problem, Mr. Lai implemented two changes. First, he started recruiting well educated and experienced personnel who did not belong to the family. Second, he also changed the name of the company to a more generic title instead of using his name. Both of these steps prove that the vision of Mr. Lai was always broad. He had the idea that real success and sustained growth will only become possible if the company keeps growing both from within and from outside. Consumers and marketers respond better when a company has a generic name instead of just having a family member as its title. It gives an overall more professional and corporate image to the brand. Therefore, both these steps helped the company move away from being just a small family business to a large corporation (Jasra et al., 2011).
Employees and Communication
The company had little control over its recruitment and selection process as there was no HR department in place. This was a problem that was later addressed by the company in 1995 when a formal HR department was setup.
Communication was an important tool which the management used to create this successful business. In the earlier days, the directors would directly work with staff on daily businesses and listen to their grievances but as the company became bigger it was felt that a proper communication structure must be laid in place. For this purpose, a bimonthly newsletter was also initiated so that the company staff was still kept updated with the latest happenings, and they continued to feel some sense of connection with the management (Conte, 2006).
The decision to go public is the right direction for any small business to grow. The major reason why this is true is the financial resources that public status brings. Most small businesses fail to expand due to lack of funds, and ultimately no family can claim to have unlimited cash. Hence, going public helps these companies not only raise capital but also use it to expand and diversify their operations (Jasra et al., 2011).
However, there are some negative aspects as well. Public firms listed on the stock exchange cannot afford to be slow in taking decisions otherwise their stock price will reduce. Moreover, due to the listing of this company on a stock exchange potential investors will always stay on the lookout for any information. This means a company is more susceptible to market trends now than ever before. Due to increased scrutiny family members may start to feel a conflict of interest between majority and minority shareholders (Pérez-de-Lema, Duréndez, and Mariño, 2011).
2. Discuss and evaluate the problems with human resource management, and explain what the areas that Ireka’s directors should focus on to maintain success supported by examples from the case.
There were several issues related to Human Resource Management prevalent in the company. These have been analyzed below:
No HR Function
Before the year 1995, Ireka did not have a separate HR department which led to several issues. This was an extremely unprofessional approach because it allowed the company management to take staffing and selection issues based on their needs and judgment. Individual division heads took all the HR decisions related to their domain, and this meant a lot of coordination issues would crop up. This lack of formal HR structure within the firm essentially meant that for the entire existence of this company i.e. more than two decades the employees had literally no exposure to real HR management. This made them resistant to change and also gave rise to communication issues within the organization. Human Resource is said to be the most valuable asset for a company, and the organization did not invest in managing it which made things difficult (Greenwood and Buren, 2010). For instance, when the company introduced an Employee Stock Options scheme the staff did whatever they wanted with the shares. If there had been a formal HR function in place, every employee would have been informed of the value which these shares would receive in the future years and the staff may have decided to hold onto them instead of selling them at low prices.
When Mr. Lai brought in Mrs. Lee who was an HR professional, the challenge was huge. For her assistance, an HR committee was set up which included directors and many department heads. The committee was responsible for giving their input on the new systems and procedures which Mrs. Lee introduced within the organization, but this did not go as planned. Since the employees had become used to the old system of ignoring HR function and relegating themselves to daily operational work the new systems started clashing with their personalities. Managers started to treat HR as a counseling center where people's problems were solved. This meant that Mrs. Lee did not have time to focus on other aspects of HR related to training, recruitment and employee skill-building. This extreme resistance of change was bound to happen as in the past employees had learned to treat HR as non-existent and something that was taken care of easily by their department heads. Now when the company employees had actually to learn and follow the new systems, there was a lot of resistance faced by them (Benn and Baker, 2009).
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