How are China's State Owned Enterprises Transforming HR?

Globalisation and an increasingly competitive environment have led China’s State Owned Enterprises (SOEs) to transform their HR functions. What must HR start doing right now?

How are China's State Owned Enterprises Transforming HR?

5 Aug 2015 by  Michele Lee

Globalisation and an increasingly competitive environment have caused China’s State Owned Enterprises (SOEs) to start transforming their HR functions. However the special status that these SOEs enjoy in the Chinese society and decades-old HR practices have made this an uphill task.

Here are some HR interventions which they should be looking at immediately to transform their businesses. 

Designing reward systems for performance

Employees with longer tenures in SOEs are better placed in relation to their compensation compared to newer colleagues. Many times long–serving employees receive higher salaries and better benefits despite performing similar work as their new peers. They are also given priority for learning and development opportunities. This seniority based reward system would prove detrimental for new employees’ aspirations and impact their engagement and retention. SOEs should adopt job analysis and job evaluation with a view to put in place well defined jobs and job descriptions. They should also start setting up performance areas with specific objectives and a focus on tracking progress of employees and providing rewards that are in line with their achievements.

The resistance of tenured employees should be managed sensitively with a good communication and change management plan. HR should partner with the business leaders in assisting these employees to recognise the realities of a competitive environment and educating them in terms of how a well-designed performance management system would help them in achieving their career goals.

Dealing with underperforming workers

Due to the earlier planned economy period, HR policies of SOEs are still aligned to the philosophy of ‘lifetime employment’.  Also, it’s not uncommon to find three generations from a family working for the same company.  A robust performance management system will help SOEs to identify their underperforming workers and enable them to develop their competencies to become successful.  At the same time, SOEs should have well defined exist processes in place to manage involuntary attrition.

Increasing leadership commitment

SOE leaders tend to play dual roles of businessmen and government officials.  Besides considering economic benefits and growth, they also have to think about stability of the society and harmony within the community they lead.  Prioritising stability over a company’s business benefit would weaken any transformation effort.  The transformation agenda shouldn’t be just an HR agenda, it should be a business agenda as well.

With the increase in globalisation, stiff competition and decreasing export led demand, the challenges faced by China based SOEs are very real.  At the same time, SOEs need to manage growth through acquisitions and learn about integrating and harmonising the HR systems of the acquired companies.  Transformation of HR will be a long journey for SOEs.  Many have already started on this journey but more can be done to accelerate the transformation of their HR systems and processes for sustainable long term business advantage. 

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Michele Lee

Michele Lee is global partner and head of Greater China Mergers and Acquisitions Solutions at Aon Hewitt. She is based in Shanghai.

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