Harvard Case - Ciyang Garment Factory: Switching Salary System
"Ciyang Garment Factory: Switching Salary System" Harvard business case study is written by Chongfeng Wang, Liyang Lu, Yi Wang, Fei Meng, An Li, Guanwen Huang. It deals with the challenges in the field of Human Resource Management. The case study is 9 page(s) long and it was first published on : Dec 8, 2021
At Fern Fort University, we recommend a phased approach to implementing a new salary system at Ciyang Garment Factory, focusing on transparency, fairness, and employee engagement. This approach will involve a comprehensive analysis of current practices, a clear communication strategy, and a robust training program to ensure successful transition and minimize potential disruptions.
2. Background
Ciyang Garment Factory, a successful SME in China, faces a critical decision: switching from a piece-rate salary system to a fixed salary system. This shift is driven by several factors, including increasing labor costs, competition from other factories, and the need to attract and retain skilled workers. However, the transition presents challenges, including potential resistance from workers accustomed to the piece-rate system, concerns about reduced earnings, and the need for a transparent and fair implementation process.
The main protagonists in this case are:
- Mr. Li: The factory owner, who is committed to the factory's success and is seeking a sustainable solution to address the challenges of the current salary system.
- The Workers: The factory's workforce, who are concerned about the potential impact of the new salary system on their earnings and working conditions.
- The Management Team: Responsible for implementing the new system and navigating the challenges of change management.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Human Resource Management (HRM), Organizational Behavior, and Change Management.
HRM Perspective:
- Compensation and Benefits: The current piece-rate system incentivizes individual productivity but lacks a clear framework for career progression and reward for skills development.
- Employee Motivation: The proposed fixed salary system needs to be carefully designed to maintain employee motivation and ensure a sense of fairness.
- Talent Management: The factory needs to implement strategies to attract and retain skilled workers, particularly in a competitive labor market.
Organizational Behavior Perspective:
- Organizational Culture: The factory's culture is likely deeply rooted in the piece-rate system, and the transition to a fixed salary system needs to be sensitive to this existing culture.
- Employee Engagement: The new system should be designed to foster a sense of ownership and engagement among employees, ensuring their buy-in and participation.
- Leadership: Effective leadership is crucial to communicate the rationale for the change, address employee concerns, and build trust during the transition.
Change Management Perspective:
- Communication: Clear and transparent communication about the rationale for the change, the implementation process, and the expected benefits is essential to minimize resistance and anxiety.
- Training: Employees need adequate training on the new salary system and its implications for their work.
- Employee Involvement: Involving employees in the design and implementation of the new system can foster a sense of ownership and reduce resistance.
4. Recommendations
Phased Implementation Strategy:
Phase 1: Assessment and Planning (3 months)
- Conduct a comprehensive analysis of the current piece-rate system: This should include evaluating its effectiveness, identifying potential drawbacks, and assessing its impact on employee motivation and productivity.
- Develop a new fixed salary system: This should be based on job descriptions, skill levels, performance criteria, and market benchmarks.
- Communicate the rationale for the change: Clearly explain the benefits of the new system, such as improved job security, career advancement opportunities, and a more predictable income.
- Establish a communication plan: This should include regular meetings, workshops, and online platforms to keep employees informed about the progress of the transition.
Phase 2: Pilot Implementation (6 months)
- Implement the new salary system in a pilot group: This will allow for testing and refining the system before full implementation.
- Monitor employee feedback and performance: Gather feedback from the pilot group to identify any issues or areas for improvement.
- Address concerns and provide support: Provide ongoing support to employees during the pilot phase, addressing any concerns or difficulties they may encounter.
Phase 3: Full Implementation (3 months)
- Roll out the new salary system to the entire workforce: This should be done in a phased manner, starting with the most experienced and senior employees.
- Provide comprehensive training: Train employees on the new salary system, including its calculation, performance evaluation criteria, and career development opportunities.
- Monitor performance and adjust as needed: Continuously monitor the effectiveness of the new system and make adjustments as needed to ensure it meets the needs of both the factory and the employees.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The new salary system should align with the factory's mission of providing fair compensation and fostering a positive work environment.
- External customers and internal clients: The system should be designed to attract and retain skilled workers, while also ensuring the factory's competitiveness in the market.
- Competitors: The new salary system should be competitive with other garment factories in the region to attract and retain talent.
- Attractiveness ' quantitative measures: The new system should be designed to ensure a fair and equitable distribution of compensation, while also considering the factory's financial constraints.
- Assumptions: The success of the transition depends on the factory's commitment to transparency, communication, and employee engagement.
6. Conclusion
By implementing a phased approach to switching from a piece-rate to a fixed salary system, Ciyang Garment Factory can create a more sustainable and equitable compensation model. This approach will require strong leadership, open communication, and employee engagement to ensure a smooth transition and minimize potential disruptions.
7. Discussion
Alternatives not selected:
- Abrupt implementation: This could lead to resistance, confusion, and potential disruption to operations.
- Maintaining the piece-rate system: This would not address the challenges of attracting and retaining skilled workers, and could lead to further cost increases.
Risks and key assumptions:
- Employee resistance: The factory needs to be prepared to address potential resistance from workers who may be accustomed to the piece-rate system and concerned about their earnings.
- Implementation challenges: The implementation process needs to be carefully planned and managed to avoid any disruptions to operations.
- Financial implications: The factory needs to carefully consider the financial implications of the new salary system and ensure that it is sustainable.
Options Grid:
| Option | Advantages | Disadvantages |
|---|---|---|
| Phased implementation | Minimizes disruption, allows for testing and refinement, fosters employee engagement | Requires more time and resources |
| Abrupt implementation | Quick and efficient | Potential for resistance, confusion, and disruption |
| Maintaining the piece-rate system | Maintains the status quo | Does not address challenges of attracting and retaining skilled workers |
8. Next Steps
Timeline with key milestones:
- Month 1-3: Conduct a comprehensive analysis of the current system, develop a new salary system, and communicate the rationale for the change.
- Month 4-9: Implement the new system in a pilot group, monitor feedback, and address concerns.
- Month 10-12: Roll out the new salary system to the entire workforce, provide training, and monitor performance.
By taking these steps, Ciyang Garment Factory can successfully transition to a fixed salary system, creating a more sustainable and equitable compensation model that fosters employee engagement and supports the factory's long-term success.
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Case Description
Sudden outbreak of the COVID-19 epidemic in 2020 caught small- and medium-sized Chinese enterprises off guard, such as Ciyang Garment Factory (CY) in Zaozhuang City, Shandong Province. Many migrant workers could not come for work on time because of the outbreak, and Li Qiang-the founder and general manager of CY-felt uneasy about defaulting on orders and worried about future lawsuits. The experienced garment maker Liu Ning, who had been working in Dongguan, Guangdong Province, was also stranded at home in Zaozhuang because of the epidemic. After meeting with Li, the two reached a cooperation agreement. Liu Ning's arrival temporarily solved the urgent labour shortage of CY; however, the pay difference between the veteran senior workers in the factory and those who had worked in the south, such as Liu Ning, became the catalyst of the 'absenteeism incident'. Because of the human resource management problems caused by this incident, Li was once again caught in a dilemma. Will the absent workers be back in 3 days? How should Li solve the human resource crisis caused by absenteeism? To help the development of CY, does Li need to reform the human resource management system? How can he change it? This case examines Li, the director of the factory, and Liu Ning, a skilled technician, to demonstrate the difficulties faced by small- and medium-sized private manufacturing enterprises in China under the impact of COVID-19. With the conflict between the two salary systems as the background, this case discusses how Li deals with the crisis and the future development plan of CY.
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