Read the case scenario and respond to the following two discussion questions.
Problem 1: What OB theories were applied by Dr. Chen in the CBG case study? Discuss at least two theories in your response. In your scholarly opinion, did Dr. Chen exemplify transformational leadership or transactional leadership strategies? Support your response with evidence.
Problem 2: Discuss 1-2 theories that were not applied by Dr. Chen in this case, that possibly could have contributed to positive reform at CBG. How and why would you have applied the theory if you were in Dr. Chen's position?
Case Scenario: CHENGDU BUS GROUP
By Runtian Jing, University of Electronic Science and Technology of China
The Chengdu Bus Group (CBG) is a Chinese, state-owned enterprise with more than 4,000 buses and 14,000 employees. A few years ago, CBG encountered serious problems. The primary issue was the company’s management systems, but it also faced a considerable financial crisis. Complaints against CBG from its many customers were becoming increasingly common, and the operations of the company were in disarray.
At the end of a troubled year, Dr. She Chen was appointed the director (CEO) of CBG. Dr. Chen had proven himself in previous positions as a thoughtful and insightful manager. He had accumulated a wealth of experience in not only effective leadership in Chinese society but also the field of management theory. In addition, he had earned a PhD-a very rare achievement in the Chinese business community.
Due to the seriousness of CBG’s problems, the mayor of Chengdu gave Dr. Chen just three years to reform CBG-too short a time to gradually transform the organization, including the critically flawed management system and financial situation. Therefore, Dr. Chen had to implement rapid change and take risks to carry out a successful reform in the required time frame, even though he knew it would be met with great resistance from CBG’s employees and many stakeholders.
After taking up his new position, Dr. Chen conducted a careful investigation into the functioning of CBG, after which he formulated a series of reform measures. He then discussed his ideas and proposed changes with the mayor and leaders of Chengdu city, obtaining full support in both authorization and funding, before implementing the organizational changes in the company.
FAST-PACED MANAGERIAL REFORM:
Because CBG is an old, state-owned enterprise, very complicated working relationships and politics existed among the 14,000 employees. Dr. Chen knew that this situation would make it very difficult to carry out large-scale organizational reforms within the company. However, after two months of examination, Dr. Chen felt he had accurately grasped the important characteristics of the 533 managers in the company. He then carefully designed a reform plan and schedule for the managers and their positions. To avoid the influence of complicated guanxi (special relationships) among the managers, and to avoid them managers forming solid opposition to his changes, Dr. Chen implemented the reforms with a fast, accurate, and ambitious strategy. The changes were made quickly, precisely, and without compromise.
This strategy meant that adjustments to the managerial positions were completed before the managers could effectively react to what was happening and potentially disrupt the process. Nonetheless, when they realized what had happened, they began to protest. Dr. Chen was very calm and simply said to them: “After all these events have passed by, you will have many different impressions about me and my reforms. Although such an adjustment may bring some loss to you, in the future the commendation from others will be greater than the condemnation. All change must face resistance, complaint, and even rejection. What I have done is not for myself, but for the company.”
SIMPLIFYING THE BRANCH COMPANY STRUCTURE:
Another notable reform that Dr. Chen implemented involved the branch companies of CBG. The organization had four branch companies; two were wholly state-owned, whereas, the other two were joint ventures with external investors. In addition to operating bus routes, each company owned buses, bus stations, repair workshops, and other facilities and equipment required to run their bus services. However, this organization created significant problems and inefficiencies each company ran its operations independently of the other companies and did not share stations or repair workshops-essentially, the four companies were in direct competition.
Furthermore, different routes throughout the city had quite different profit rates. Without any formal authority coordinating the companies or implementing policies and rules, there was overcompetition for the desirable high profit routes, resulting in inefficiencies and losses for all of the companies. To rectify this situation, Dr. Chen arranged for CBG to buy back the external equity of the joint ventures and changed the branch operations to purely state-owned subsidiaries. He then removed overservicing on the high profit rotes and redployed the surplus buses and employees from these routes to develop the potential profitability of other routes, under the principle of optimization.
All the routes were rezoned to fall under the operations of four specific areas of the city, forming the eastern, western, southern, and northern bus companies. All bus stations were amalgamated into a single repair company. These reforms amalgamated into a single repair company. These reforms made it possible for each of the four bus companies to obtain services from the station company or repair company anywhere in the city, which greatly reduced resource waste, overcompetition, and operating costs.
SALARIES AND REWARDS:
Dr. Chen found that the salary system of CBG was questionable in both fairness and efficiency. For example, the frontline staff generally worked very hard, but their salaries were lower than the backup staff who did not work as hard, resulting in low job satisfaction and high turnover rates among the frontline staff. After careful evaluation of the different jobs’ tasks and demands, Dr. Chen distinguished the tasks and demands of the frontline and backup staff.
To reduce frequent accidents by bus driver’s “safe mileage accumulation program.” After an accident, the driver’s safe mileage accumulation decreased, which affected the driver’s wages. Conversely, if a driver had few accidents, or none at all, his or her wages would increase. A driver who had not been involved in any accidents could earn an even higher wage than the average middle manager! Such a policy quickly improved the safety awareness and practices of the drivers. Furthermore, Dr. Chen encouraged managers to use rewards instead of punishments to motivate their employees and abolished more than 50 penalty provisions.
THE RESULTS OF REFORM:
After just two years of Dr. Chen’s reforms, the Chengdu Bus Group achieved remarkable results. The management was greatly improved, the efficiency and profitability of CBG were enhanced, and the employees were performing better and were significantly happier. Through the safe mileage accumulation system, drivers’ safety awareness and quality of service substantially improved, and the rate of accidents decreased greatly. The public attitude toward the company and its social evaluation also improved significantly. CBG owned Assets Supervision and Administration Commission (SASAC) of Chengdu city in 2008.