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Following is the speech by the Commissioner for Labour, Mr Matthew Cheung Kin-chung, at the Opening Session of the 19th Institute of Human Resource Management Annual Conference today (Wednesday) on "Managing Costs, Productivity and Change - Business Success with a Human Touch":

Mr Mak, Mr Wright, Ladies and Gentlemen,

It is my honour and privilege to address such a distinguished audience of management experts and human resource practitioners at the opening session of the 19th Institute of Human Resource Management Annual Conference.

We are at the turn of the century. In just 37 days, we will say goodbye to an eventful millennium - a millennium of proud achievements : from astronomy, science and medicine, to international trade, communication and management.

Mankind has succeeded in conquering the moon, but has failed to resolve the problem of poverty and deprivation on earth. We can communicate through the Internet with someone we have never met at the other end of the globe. However, ironically many senior managers find it difficult to communicate with their own staff working under the same roof and within a stone's throw.

Turning Point

At the turn of the millennium, Hong Kong is critically re-examining its competitive strength and identifying the opportunities the new millennium has got to offer. The Government is continuing to invest heavily in the territory's infrastructure, while Hong Kong re-positions itself as the financial, tourism and trading centre of the region and a leading metropolis of the world.

The financial turmoil that swept through Asia in 1998 left few economies in the region unaffected. The Hong Kong economy experienced one of the most severe setback in its history. External demand was hit by the fall-off in regional demand while domestic demand shrank largely because of depressed local sentiments. As a result, the labour market has slackened, with wages softening and unemployment hovering at a high of over six per cent.

The bad news of this painful economic adjustment is that many firms are left with the legacy of excess manpower and an unaffordable payroll. Downsizing, cost-cutting, retrenchments and redundancies have become virtually the order of the day. The good news, however, is that human resource (HR) managers are given renewed importance. For one thing, most of the challenges of downsizing are people-related issues that often require sophisticated HR interventions and support.

The new millennium offers unprecedented opportunities for Hong Kong in tourism, technology, trade and finance. Our future prosperity will be built on our strength. We have one of the best ports, airports and mass transit systems in the world. We have some of the world's most efficient and cost-effective communication systems and one of the highest concentration of mobile telephones. We have invested one-fifth of our annual budget in education to ensure the supply of high quality manpower needed for our continuous economic growth. We have a rich and diversified cultural heritage, a bilingual open society and a free port. We do not have to compete on cheap labour and we must not. If we do, we shall be competing on our weakness. We have to compete on our strength, on our ability to manage opportunities, to add value, to innovate, and to deliver quality service to the total satisfaction of our customers.

Hong Kong is forging ahead on various fronts. We will house the third Disneyland outside the United States in 2005. This will reinforce Hong Kong's position on the international tourist map. It will also have an important impact on our employment scene. The Cyberport ensures that Hong Kong will not be left out in the Information Technology (IT) race. Our financial market reform will better prepare Hong Kong to become the financial centre in this part of the world.

Managing Costs

The worst of the Asian financial crisis is now over and the economic recession is bottoming out. However, some local firms are still seeking to regain their competitive edge by cutting costs. The commonly used approaches to cut labour costs include downsizing, out-sourcing and reduction in wages and fringe benefits.

The Wall Street Journal recently profiled a survey of 1000 firms in the United States that downsized and concluded that only 46% had cut expenses, only 32% had increased profits, only 22% had increased productivity and only 22% had managed to reduce bureaucracy. In another study it was reported that more than 70% of the companies that downsized indicated that morale, trust, and productivity suffered after downsizing.

HR managers in Hong Kong seem to have done a better job, according to a survey conducted by the International Survey Research on staff morale in leading companies in seven countries and territories in this part of the world. Hong Kong came out as the overall leader, even better than Japan and Singapore.

Most leading companies in Hong Kong have handled the thorny problems of downsizing and pay cut with consideration and sensitivity. Some cases in fact lend themselves as best practices.

Voluntary Exit Programme

Experience has indicated that when dealing with excess manpower, a voluntary exit programme is generally better than retrenchment. It allows the flexibility for individual staff to make a free choice, an informed decision based on one's individual circumstances. It takes the heat off an otherwise highly emotionally charged situation.

There is a prevalent belief that in a voluntary exit programme, you would lose the best and retain the worst. This is a myth. The management has every opportunity to identify and line up the best performers and give them a pep talk before the announcement of the voluntary exit package. Who would give up a promising career in a turbulent time if one has a choice?

A voluntary exit programme has its merits. But it can give management surprises. It may happen that a highly competent staff member chooses to offer to leave. Although the management has the prerogative not to approve his application, it would not be advisable to do so as this would adversely affect management's goodwill. One option is to seek the understanding of the staff concerned by inviting him to stay on for another three to six months. In the final analysis, no one should be indispensable in a well managed company.

A well-designed voluntary exit programme can enhance, instead of blemish, the image of the company in the eyes of its staff. In one case, the employer, apart from offering an attractive package, allows the departing employee to stay in the staff quarters for up to three months to ease the transition. A good package may cost a little more. But it is a one-off payment, and management will be able to achieve long-term savings. Take a slightly longer term perspective, the huge savings would justify any additional ex-gratia payment.

A voluntary exit programme works out best with good manpower planning. A vivid example is offered by a major local public utility company which introduced the programme before the onset of the Asian financial crisis. The company is now operating at around 60% of its original headcounts, with increased efficiency, better staff morale, and better customer satisfaction.

Even when retrenchment has to be made, it can still be carried out more professionally and in a dignified manner. Employees of large and profit-making companies have, rightly or wrongly, higher expectations than employees in small money-losing firms. Employees retrenched from small firms may be more than happy if they can get what they are entitled to under the Employment Ordinance. But employees retrenched from large and profit-making companies would expect a little more. This is perfectly understandable. They may think that they have contributed more to the success of the company in the past, and therefore they deserve a more decent treatment. It may also take a longer time for such employees to find another job because of the specialized nature of their job experience. Employers of well managed companies often offer something extra on top of the legal minimum compensation, usually in the form of an ex-gratia payment related to the length of service.

Pay Cut

Pay cut is another difficult decision that many HR managers have to face in recent years. Again, a professional approach that takes into consideration the feelings and problems of the staff would make all the difference. If the operating scene is so austere, why keep it to yourself? Why not share all the harsh facts and figures with your staff? If your company has a crisis, why shouldn't your staff be informed? Why don't you involve your staff to stand together to fend off the adversity, instead of wasting time, energy and resources fighting each other? Why not tap the collective wisdom of your staff to generate alternatives to tackle the imminent problems? Why not bring them to your side to find a rational and viable solution, instead of pushing them to the opposing side to become your adversaries? If the scenario is really that bad, if people are convinced that the situation would improve, and if the union, if there is one, puts job security above all during the crisis, the option for a pay cut may come from the staff side instead of from you! Is this too good to be true? No, there are plenty of such cases, both locally and abroad.

Managing costs should not be confined to managing only the operating costs. One has to take into consideration the risk of a protracted confrontation, which may run into tens and sometimes hundreds of millions of dollars, and the important invisible costs of the morale of the remaining staff, the business goodwill, the corporate image, as well as customer loyalty. No firm can afford to blemish its own image in this highly competitive business environment for just a little extra saving. No amount of extra savings can justify an irreversible damage to staff morale or to the loss in customer loyalty.

The top management must take the lead in generating the trust and the cooperation with the staff, and to involve the staff when a major decision is to be made affecting their important interests. We must not understate the detrimental effect of redundancy on the "survivors" - defined as those remaining employees who escape the axe. The "survivors" are expected to work and contribute at higher levels in a climate that does not guarantee job security or long-term employment prospects. Too often, unfortunately, the hands of a HR manager are tied. Much as he would like to protect the interests of employees, he may not have much influence in the decision-making process when it comes to cutting costs. At the top management level, the Chairman or the Managing Director would simply set a target. Then the HR manager is directed to implement it without fail. "I want to get rid of such and such number of staff before the end of the month (or before the end of this millenium if this happens next month). Pay them off according to the labour law, no more nor less!"

HR managers must therefore, first of all, try to win the confidence of the top management and secure his place in all major discussions and decisions affecting a large number of staff. If you are already in this position - and my congratulations to you and your company - you must give your professional advice, and drive home to the top management team the longer term implications on the company's management-staff relations. You would then be in a better position to advocate for a win-win situation, instead of starting off from the wrong foot of a win-lose situation, and ending in a lose-lose situation.

Managing Productivity

Improving productivity offers an important alternative to reducing wages as a means of improving the profitability of the business. You can hardly achieve this effectively without involving your employees, or without winning their support.

The most commonly used method is process improvement. The fundamental of this approach is not to take things for granted. A work process considered impeccable at the time of design can also become easily out-dated and needs improvement.

The experience of the Labour Department's Employees' Compensation Process Improvement Project bears witness to this. In a bid to improve the procedures for processing employees' compensation claims, a Quality Improvement Team comprising representatives from all grades and ranks involved in the processing procedures was set up. Through active participation of the staff, the team completed the project in three months and made 20 recommendations for improvement. The recommendations have been implemented without resistance and the new procedures have been well received by the operational staff and welcome by our clients. We attribute the success of the project to the active and full involvement and ownership of staff and firm support from the management.

New technologies can enable enterprises to break new ground in productivity. Bar-coding at points of sale, automatic teller machines, cellular phones and electronic transactions, just to name a few, are examples of how technologies have changed the way business is done. The opportunities made available by new technologies will abound in the next millenium.

To capitalize on new technologies, enterprises must ensure that the management is receptive to new ideas and sensitive to new opportunities. It must also build a skilled and flexible workforce through continuous education, training and retraining. Most important of all, workers should be involved in productivity improvement. Front-line staff who is most familiar with the operation procedures of an enterprise has the greatest potential to identify weaknesses in the system and make appropriate suggestions for improvement. To realize the innovative potential of employees, they must be encouraged and supported to participate in productivity improvement programmes. Research shows that involvement of all interested parties is critical to achieving new workplace practices that can be implemented effectively. A participative approach is therefore more productive than a unilateral one.

Innovation perhaps offers the greatest potential for productivity gain. Innovation changes the whole perspective of looking at a problem. It may come up with a totally different approach. For instance, the change of the billing cycle from one month to two months enables an electricity company to achieve productivity gain by reducing handling costs.

Innovation is made up of 1% inspiration and 99% perspiration. Innovation comes from an in-depth knowledge of the subject, from an inquisitive and analytical mind. Innovation requires the ability to identify problems as well as opportunities, to pinpoint any illogicality in the existing mode of operation, and to generate new alternatives that are simple, user-friendly, less labour intensive and less costly.

Innovative people are sometimes misconstrued as argumentative and unpredictable. They are treasured by dynamic, creative organizations and hi-tech companies as valuable assets but are often misunderstood and wasted away as trouble-makers in tradition-bound companies.

Participation and innovation requires a supportive environment. Management must provide employees with the necessary training and support in conducting productivity improvement programmes, must value staff input, give recognition to new ideas, shoulder responsibilities when pilot schemes failed, and reward suggestions that result in productivity gain.

In view of the important potential contribution to productivity gain and business success, forward-looking enterprises need to cultivate a culture that encourages, supports and rewards innovation.

Managing Change

The new millenium will be an era of rapid changes. The speed of change will increase with the speed of the computer. The ability to handle and analyse management and market information in a more speedy way will ensure speedier and more frequent modifications and improvements. Organizations that are able to lead the changes will emerge as industry leaders. Those that lag behind would face increasingly difficult times ahead.

To cope with continuing changes in our economic, political, social and technological environments, the management team in an enterprise must itself stand ready to change. How to ensure that changes are implemented smoothly without impacting on morale and productivity as well as the company's goals is an important agenda for human resource managers.

It is a psychological truth that people do not welcome 'change', for fear of the unknown - the most fearful fear. Lack of information is often the cause of such fear and effective communication is the medication. However, people do welcome one type of change - change for the better. Hence, it is important to implement changes with transparency so that the benefits of change and the implications to employees are made known to everyone concerned.

Effective communication is crucial to managing change. To illustrate, I would like to share with you the success story of how a multi-national company relocated part of its operation to the new airport at Chek Lap Kok. To ensure that the relocation exercise was implemented smoothly, the company set up a Focus Group comprising representatives of both management and staff well in advance of the target date. Surveys were conducted to collect the employees' views on various issues of concern to them such as transport arrangement, working hours, the new working environment, procedural changes, structural changes, arrangement during inclement weather etc. The management considered all the views carefully and communicated their response and follow-up action to staff through a special newsletter and various briefing sessions. Throughout the preparatory stage, the management continued to have active dialogue with staff to sort out issues of concern and to keep them posted of developments. Prior to the actual relocation, a visit to the new workplace was organised for staff. As a result of all these preparations, the relocation was carried out smoothly. The success of the exercise is manifested by the positive remarks of an employee that his first day's work at the new airport was exciting and that he felt rejuvenated.

The advantage of a participative approach to managing change is that each participant can bring a unique perspective to the discussion of workplace changes. Accommodation of particular needs will ensure that change is implemented in a fashion that is acceptable to all parties.

If changes have become necessary because of a crisis situation, it is important that employers can inform employees of what the crisis is and how it will affect them. For the same reason, sharing business projection with employees would help them better understand the problems the company is facing and so employees can adjust their expectations accordingly. Such a joint problem-solving approach can enable employees to share ownership of a problem and search for its solutions. Very often, innovative solutions that are beneficial to both the company and its employees will come up. If certain moves can avert a crisis situation or lessen its negative impact, such moves can be presented to the employees as a change for the better.

A moment ago, I highlighted employees' participation as a key element for managing productivity and change. But unless there exists a common vision and common goal between employees and management, the chance of employees participating zealously to enhance his employer's competitiveness and facilitate change will be slim. The question is how can a common goal be created? The answer lies in creating a win-win situation, which requires the management to watch the balance sheet, and also be considerate and sensitive to the problems and the needs of their staff. Managing a company in this turbulent time is far more difficult than managing a set of figures. Whoever is at the helm must manage with a human touch.

Labour Relations in Hong Kong

Good employer and employee relations are essential to social stability, the broader prosperity of the community and the success of the Hong Kong economy. In fact, Hong Kong's economic success has been firmly underpinned by its harmonious labour relations.

The primary responsibility for good relations rests with employers and employees themselves. They need to work together in effective partnership to secure the continued success of their enterprises.

The Government - and the Labour Department for that matter - seeks to facilitate good employer - employee relations and provides a framework for resolving disputes. This includes :

* first, promoting public understanding of labour laws and encouraging good labour management practices and communication together with good human resource management;

* second, providing conciliation services to assist employers and employees to resolve disputes;

* third, adjudicating employment claims promptly and efficiently; and

* finally, registering and regulating trade unions to bring about sound administration and responsible trade unionism.

We are committed to promoting harmonious employer and employee relations, with a view to minimising labour disputes, employee claims and work stoppages. To this end, we are stepping up our efforts in promoting effective communication between employers and employees, as well as direct and voluntary consultation at the enterprise and industry levels on employment issues.

The Labour Department's Workplace Consultation Promotion Unit offers advice to employers on good people management practices and assists them to develop effective channels for staff communication and consultation at the enterprise level. We organize training courses, seminars and workshops for management and employees' unions.

To foster good human resource management practices, we have organised, for the first time, a Good People Management Award to give recognition to employers who excel in their people management practices. The experience of the award winners - to be announced shortly - will provide useful references for other employers.

In order to sustain harmonious labour relations, the co-operation of social partners - i.e. employers, employees and the government - is essential. Tripartite consultation is an effective means of promoting such partnership. To encourage tripartite consultation at the industry level, our Workplace Consultation Promotion Unit has been helping industries to set up tripartite committees to facilitate direct dialogue among employers, employees and the Government on issues of common concern. So far, five tripartite committees have been set up in catering, construction, theatre, warehouse and cargo transport, and in property management. We will continue to assist more industries to set up such tripartite consultative committees.

Our existing industrial relations system is long-established and well-tested. It prescribes basic employment standards and provides an effective mechanism for speedy settlement of labour disputes. It has served Hong Kong well under our free market economy.

Hong Kong has continued to maintain a good record of harmonious employer and employee relations. In 1998, we handled 30 541 employment claims and labour disputes, over 60 per cent of which were resolved amicably by our conciliation efforts. The situation has now stabilised : the quarterly figures on labour disputes and claims have shown a downward trend so far this year compared with the same period last year. Notwithstanding the relatively large number of labour disputes and employment claims mainly as a result of the economic adjustment experienced by Hong Kong, the total number of days lost through work stoppage was only 1 411 in 1998, or 0.47 working days lost per 1 000 wage earners and salaried employees - which is among the lowest in the world. This rightly reflects our generally peaceful labour relations scene. In the first nine months of this year, only 12 working days have been lost due to industrial conflicts.

Employees will only give their best if their employment and working conditions are deemed and seen to be fair. Protecting the rights of employees under the labour laws is one of the Labour Department's remit. In playing this role, our aim has always been to progressively improve employees' rights and benefits in a way which is commensurate with the pace of Hong Kong's economic and social development, and to strike a reasonable balance between the interests of employers and employees. I should stress that there is no question of the Labour Department taking side with either party. To do so would not only be unfair and dangerous, but would also undermine our credibility and the basis of the tripartite partnership. As Commissioner for Labour, my job is always a fine balancing act and, admittedly, I feel like walking on a tightrope all the time.

In setting, promoting and ensuring enforcement of rights and standards, we provide customer-oriented information services to ensure that employees and employers know their rights and obligations, and enforce compliance by vigorous inspections, investigations of complaints and prosecutions. We adhere firmly to the system of tripartism or tripartite co-operation amongst employers, employees and the Government. This fully accords with the spirit of the International Labour Organisation. This system is best illustrated through the role of the Labour Advisory Board (LAB). The LAB, chaired by the Commissioner for Labour and comprising an equal number of employer and employee representatives, has long been the most important consultative forum on labour matters. As a general practice, the Government consults LAB on all legislative proposals on labour laws before introducing them into the legislature. Over recent decades, the success of this tripartite structure has led to significant improvements in employee welfare and benefits. It has also contributed greatly to maintaining Hong Kong's harmonious labour relations.

My experience in the Labour Department tells me that many labour disputes stem from inadequate communication, or the sheer lack of it, between employers and employees, mutual suspicion and misunderstanding. If employers could implement proactive and enlightened people management practices and form partnership with employees, I am confident that Hong Kong would continue to enjoy harmonious labour relations as well as sustainable economic growth.

Conclusion

To conclude, successful entrepreneurs and executives share one thing in common. They all succeed in building up a team of highly talented, innovative and dedicated staff. More importantly, they genuinely see their human resources as valuable asset and in turn manage with a human touch. They manage with a sense of proportion and a sense of compassion, punctuated by a sense of pragmatism and realism. In the process, they win the hearts and minds of all and sundry in the workplace, whether they be casualties or survivors. In short, behind every employee management issue lies a solid human dimension. This is often rather fragile and calls for careful handling. After all, it is a question of sense of sensibility.

End/Wednesday, November 24, 1999

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