Decrease of remuneration and inadequate staff training at vinamilk

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business LE PHUONG NAM DECREASE OF REMUNERATION AND INADEQUATE STAFF TRAINING AT VINAMILK MASTER OF BUSINESS SUPERVISOR: DR NGUYEN PHONG NGUYEN Ho Chi Minh City – Year 2019 DECREASE OF REMUNERATION AND INADEQUATE STAFF TRAINING AT VINAMILK TABLE OF CONTENTS EXECUTIVE SUMMARY Company overview 1.1 History of establishment and development 1.2 Market share 1.3 Vision and mission 1.4 Business goals 1.5 Organization structure Symptom 2.1 Higher accident rate during transportation and loading process 2.2 High job turnover rate 2.3 Lower employee performance Problem identification 3.1 Potential problems 3.1.1 The decrease of remuneration to employees 3.1.2 Slow adoption of new technologies in operations 10 3.1.3 Inefficiency of OHS practices 10 3.1.4 Lower training to employees 11 3.2 Validating problems 12 3.3 The importance of main problem 21 Cause validation 23 4.1 Potential causes 23 4.1.1 Poor top management support 23 4.1.2 Poor middle management leadership 24 4.1.3 Low employees’ training awareness 25 4.2 Validating causes 26 Alternative solutions 28 5.1 Solution to poor top management support 28 5.2 Solution to poor middle management leadership 32 5.3 Solution to low employees’ training awareness 34 5.4 Change plan design 36 REFERENCES 38 APPENDIX I: INTERVIEW TRANSCRIPTS 44 LIST OF ABBREVIATIONS Abbreviations Meanings USDA United States Department of Agriculture CSR Corporate social responsibility HCMC Ho Chi Minh City ODR Occupational disease rate LR Leave day rate AR Absence rate IR Injury rate OHS Occupancy Health Safety KPI Key Performance Index TAM Technology Acceptance Model TRA Theory of Reasoned Action TRI Technology Readiness Index TAR Technology Adoption Propensity ERP Enterprise Resource Planning LIST OF TABLES Table 1: Business performance of Vinamilk Table 2: OHS Index of Vinamilk Table 3: OHS Index of Vinamilk Table 4: Employee turnover rate in Vinamilk Table 5:% Employees achieved KPI Table 6: Remuneration to Vinamilk’s employees 16 Table 7: Green energy used by Vinamilk 17 Table 8: Role of each level towards safety management 29 Table 9: Cost for implementation of solutions to top management support 32 Table 10: Cost for implementation of solutions to poor leadership of middle management support 34 Table 11: Cost for implementation of solutions to low employees’ training awareness 36 Table 12: Change plan 36 LIST OF FIGURES Figure 1: Organization structure of Vinamilk Figure 2: Initial cause and effect map 15 Figure 3: OHS management framework of Vinamilk 20 Figure 4: Training to employees in Vinamilk 21 Figure 5: Main problem and symptom 22 Figure 6: Potential cause and effect map 26 Figure 7: Final cause and effect map 28 EXECUTIVE SUMMARY Withstanding to the position of leading company in Vietnam, Vinamilk has continued renovating itself to further improve the quality of products in the way of improving living standards and health quality of the customers The company has more than 40 years of doing business since 1970s and current market share is about 50% However, the accident rate been increased in previous years along with higher employee turnover rate and lower employee performance, raising the concern of the board of directors The reasons are identified as from the low top management support, poor leadership skills from middle management, and lack of training awareness The examination of these factors enable the change to renovate current business structure to further improve the business performance of Vinamilk in coming times COMPANY OVERVIEW 1.1 History of establishment and development Vinamilk was established in 1976 with three factories for dairy production Throughout more than 40 years of development, Vinamilk has been become one of the largest corporations in Vietnam with primary business is to produce milk and dairy products The company now has many dairy factories which are located in different provinces In 2008, two dairy factories of Vinamilk gained the certification in environment protection awarded by the Ministry of Natural and Resources and Environment Despite of global economic and financial crisis happened in 2008, Vinamilk has been expanding its business throughput global business strategy A factory was established in New Zealand with full capacity of 32,000 tons per year and some smaller factories in U.S and other countries, increasing the revenues from export activities to 15% of total revenue Vinamilk has made its effort in corporate social responsibilities by implementing Public Health Nutrition Consultant Centers and the application of new technologies to produce better products to the customers The application of new technology has been proven through the establishment of mega dairy factory in Binh Duong with all manufacturing activities have been automated In 2014 and 2015, Vinamilk raised its stake in a New Zealand’s company and officially launched its brands in some ASEAN’s countries In 2016, Vinamilk introduced a premium product, namely Vinamilk Organic Fresh Milk and this product passed the requirements from the United States Department of Agriculture (USDA) Currently, Vinamilk has more than 10 farms national-wide and breeding cows are originated from U.S., New Zealand, and Australia The branches and operating facilities of Vinamilk has been populated in different cities and provinces and its farms have achieved international standards in agricultural practices For example, Vinamilk was established the first organization dairy farm in Da Lat and it qualified the standards provided by Control Union Organization Total breeding cows in Vinamilk is about 120,000 and it supplies an average of 750 tons of raw milks which allows the company to produce about million milk-glass per day The business objective of Vinamilk is to increase the number of breeding milk up to 200,000 by 2020 so that total raw milks production volume will be 1,500-1,800 tons per day It is asserted that all raw milks collected from dairy farms are transported to Vinamilk’s factories in Vietnam Moreover, part of raw materials are transported to another factory located in Cambodia The action of placing factory outside Vietnam is to attain the competitive advantage of cheaper labor cost Up to now, Vinamilk’s products have been presented in more than 40 countries and territories with export turnovers was creased from US$30 million in 1998 to US$260 million in 2016 The company has invested into corporate social responsibility (CSR) system, programs, and practices For example, Vinamilk has introduced a milk fund program under the name of “Growing Vietnam” since 2008 and this program’s objective is to bring financial supports to disadvantaged children After more than 10 years of operation, this CSR program has helped more than 380,000 disadvantaged children in the country with total financial support up to VND130 billion The company also joined into the program named “1 million trees for Vietnam” with the objective of growing green areas for the country Vinamilk also participated into “World Milk Day” to provide useful health consultants to Vietnamese old people Vinamilk developed a program to build schools for children in mountain areas and this program actually brings educational services to more than half of million children in both kindergarten and primary schooling level 1.2 Market share Vinamilk is now doing business in producing and trading dairy products in Vietnam It is perceived that dairy production which is part of Vietnamese food and beverage industry Vietnamese food and beverage industry gains high growth rate which was 29.7% in 2017 and 34.3% in 2018 as reported by the Statista (1) Regarding to dairy production market, there are more 230 companies and the market is being dominated by players, including Vinamilk, Nestle Vietnam, Nutifood, Frieslandcampina Vietnam, and TH Milk According to the Stoxplus (2), current market share of Vinamilk is more than 50% The company is dominating the market along with four other companies, namely TH Milk, Frieslandcampina, Nutifood, and Nestle Vietnam The company is also planning to consume 60% of local market share by 2023, according to Vietnam Investment Review (3) 1.3 Vision and mission The vision of Vinamilk is to become a global brand in producing nutrient and healthy products The mission of the company is product and to deliver nutrition to the community with high responsibility, love, and respects To support this vision and mission, Vinamilk delivers five core values, including compliance, ethics, fairness, integrity, and respect The compliance is defined as a core value in which it demands that all activities of the company are to follow the regulations issued by the government and the company’s code of conducts Ethics mean that Vinamilk establishes and maintains all ethical standards which are developed and implemented accordingly Fairness refers to the importance of all stakeholders of the company are treated in fairly manner Integrity is determined as the demand of all activities which are conducted the company are transparent Finally, respect is put into core values of Vinamilk and it addresses the importance of making good cooperation among all stakeholders 1.4 Business goals The business goals of Vinamilk are emphasized through its business philosophy Currently, business philosophy of the company covers three main areas, including quality, demand, and innovation It is translated to the statement of all activities and products of the company are to serve the customers in higher quality and innovative manners In addition, all customers’ demands are captured and analyzed so that the company is able to produce diversified and quality products The company commits that the products are produced in strict compliance with government’s regulations and food safety standards and the products are sold at competitive prices contrast, the employees who receive low performance in KPI assessment, they have to involve into performance improvement programs conducted by their supervisors and their salary increase level and incentive or bonus level are lower than high performance employees Seventh, beside of allowance and gift to the employees, Vinamilk should develop other benefit packages to its employees It is recommended that human resource management department of Vinamilk should design a job rotation program in which the employees are able to join job enrichment and job enlargement after they qualify job requirements and achieve outstanding performances Job enlargement program refers to the fact that the employees with outstanding performance are able to choose working other job types in the company The objective of job enlargement is to educate an employee in the next leader or manager of the company in the future Job enrichment program is developed and it allows the employees with outstanding performance to be trained in order to understand a job deeply The objective of job enrichment program is to educate the employees to become the experts in one area Benefit: There are some benefits that will be gained from implementing the solutions above First, top management will play more visible role in employee management in Vinamilk Second, top management will understand the current situation related to employee behavior and working intention and therefore they are able to formulate the policies and programs to better manage their employees as well as reducing accident rate in workplace Cost: The cost to implement solutions to poor top management support is estimated as below: Table 9:Cost for implementation of solutions to top management support Solutions To establish Safety Review Board The establishment of safety management department Safety policies review and management Working safety program Safety incentive Safety news Cost of implementation - To allocate head of each depart to the board Total headcount is 12 people - Each of them will receive allowance of VND10 million for such participation per month - Total cost = 10VND million x 12 = 120VND million per month - To recruit 12 headcounts to work for this department - Each of them will receive average salary of 15VND million per month - Total cost = 15VND million x 12 = 180VND million per month - There is no cost incurred for this solution - The investment cost for safety program and system is set at VND3 billion - Vinamilk should spend the incentive budget at 3% of total salary cost which is equivalent to VND3.6 billion per year - There is no cost incurred for this solution Source: Developed by the researcher 5.2 Solution to poor middle management leadership Content of solution: First, middle management should show significant role in preventing their employees from accident possibility The managers should apply a program, namely working safety It is conducted by jointing effort of the supervisors in production units and factories In this program, each supervisor plays the role of monitoring the safety actions of the employees through a checklist Every day, the supervisor must go through all the items in the checklist and it is done for each employee in order to ensure that there are no source of hazards such as the employees not use protection equipment or use safety suits or deal with the toxic Second, the managers should develop a safety incentive scheme must be developed in which the employees who can propose innovative ideas of safety management will be received a tangible rewards from Vinamilk At the end of the year, the employees who propose innovative ideas are nominated for grand prize Safety management department should provide a communication such as safety news in monthly basis in which key issues should be captured, addressed, and resolved Third, Human resource management department must review the salary level for each function unit and each job role to ensure that Vinamilk is able to deliver competitive salary package compared to other competitors in the market It is addressed that some foreign-based food manufacturers are able to pay higher salary to employees and it poses a threat to employee retention in Vinamilk Beside of competitive salary package, Vinamilk should develop and implement non-salary package to the employees It refers to the development of allowance, insurance, vacation, and gift to the employees Currently, Vinamilk is providing two allowances to the employees, including maternity allowance and lunch allowance Human resource management department should develop other allowances such as allowance for the employees who are working more than hours per day or the employees who are working in high hazardous environment The company is strictly following insurance policies which are mentioned in the labor code of Vietnam, including health insurance and social insurance In addition, Vinamilk is providing 24/24 health insurances and it covers the case of having accidents in workplace It is recommended that Vinamilk should revise health insurance in the way of applying different health insurance package for each job type For example, the employees who are working in factories and production unit are able to receive higher insurance payout compared to those who are not working in these area Vinamilk is also providing gifts to the employees in birthday and marriage events, gifts to female employees during International Women Day, and gifts to the employees’ children during Children Day The company should design other gifts to the employees during Vietnamese Women Day and Lunar New Year Human resource department must establish recognition program It refers to the identification of employees with high job performance in each unit or employees who can provide innovative ideas to help the company to increase business performance and to save operating time and cost Recognition program refers to internal communication about qualified staffs and this communication is published to entire company In addition, the employees who are nominated into recognition programs are able to receive a bonus payment Benefit: By implementing the solutions above, middle managements are more integrated with their employees They are able to closely monitor how their employees working status and working condition They can strengthen the HRM policies to protect the benefits for their people throughout the consulting to top management Cost: The cost to implement solutions to poor leadership of middle management is estimated as below: Table 10:Cost for implementation of solutions to poor leadership of middle management support Solutions Job enrichment Job enlargement Recognition program Cost of implementation - Vinamilk should spend the job enrichment program budget at 3% of total salary cost which is equivalent to VND3.6 billion per year - Vinamilk should spend the job enlargement program budget at 3% of total salary cost which is equivalent to VND3.6 billion per year - There is no cost incurred for this solution Source: Developed by the researcher 5.3 Solution to low employees’ training awareness Content of solution: First, each employee must take a training court about safety management and current regulation of safety action in the company The training is conducted by human resource management department of Vinamilk This unit must establish at least one safety training per quarter for managerial and non-managerial level The training content for managerial level is about how to manage their employees to comply with training policies throughout frequent field checking The training content for non-managerial level is designed for each functional unit since each unit may have different safety practices Moreover, the training for non-managerial level should be design with practices so that the employees are able to performing safety actions in their daily work After each training session, a training feedback mechanism must be applied In more detail, each trainee will receive an assessment form and they will provide their assessment towards training content, topic coverage, usefulness of training content, and quality of trainers Second, human resource department must review all training activities in Vinamilk to detect the source of lower training intensity One of the main issue refers to lower revenue during 2018 and therefore, trainings are developed mainly for the suppliers but the employees Lower training intensity may reduce the job satisfaction and the job retention of the employees In this context, Vinamilk must develop training activities in the way of cost saving It is recommended that online training must be applied It refers to the training courses are delivered via online tools Human resource management departments should work with Information Technology department to develop online training applications and it can be accessed via website or mobile phone of the employees By developing and implementing online training, the employees in different working areas are able to submit trainings and it will reduce the operating cost of holding a training Online training brings the benefit to the employees since they are able to join a training anytime and anywhere Their working process is not disrupted by traveling to training location and participating into training courts as before Benefit: By increasing intensity to the employees, it is expected that the employees understand how their working skills and the reasons of high accident rate and lower working performance When Vinamilk can deliver adequate training sessions, the employees receive the opportunity to leverage their working skills and therefore they are more likely to achieve desired outcomes from their management team Cost: The cost to implement solutions to low employees’ training awareness is estimated as below: Table 11:Cost for implementation of solutions to low employees’ training awareness Solutions Cost of implementation - Vinamilk should spend the training budget equal to 5% of total remuneration to the employees or VND21.6 billion per year - The investment cost for online training program and system is set at VND5 billion Safety training Online training program Source: Developed by the researcher 5.4 Change plan design Change plan is designed given to the set of solutions It is expected that a change plan will consist of the objectives, the actions, the people, and the communication plan Table 12: Change plan Solutions To establish Safety Review Board The establishment of safety management department Objectives - To establish a functional board with the participation of top and mid-level management - To monitor overall safety level in Vinamilk - To monitor all safety issues - To develop and to maintain safety policies and guidance - To coordinate with different units to ensure safe and sound operation Safety policies review and management - To manage all policies related to safety management Working safety program - To reduce accident in workplace Safety incentive - To encourage the employees to follow safety policies and rules Safety news - To provide the updates about current safety status Actions People Communication Plan - The establishment and the operation of Safety Review Board are regulated in the decision issued by the Chairman - The establishment of Safety Review Board is done by a companywide communication - To approve all news and amendment of safety policies - To approve the budget for safety action implementation - To provide the direction of safety activities and safety management - To provide the ideas related to safety management - At least one member from Board of Directors - CEO / Deputy CEO - Chief Risk Officer - Chief Operation Officer - Chief Finance Officer - To prepare the safety management report in daily, weekly, monthly, quarterly, and yearly basis - To provide the training to employees related to safety practices - To publish existing and new safety policies in the company wide - To educate employees when new safety policies are rolled out - To transfer people who are doing safety management review from risk management department - To recruit people who have experience in safety management in labor market - The establishment and the operation of safety management department are regulated in the decision issued by the Chairman - The establishment of safety management department is done by a companywide communication - Policy officers in safety management department - Safety policies review action must be clearly defined and regulated in the policies issued by the Chairman and CEO - Supervisors in production units and factories - To communicate through internal billboard of the company - The officers in safety management department - Marketing department - To communicate through internal billboard of the company - The officers in safety management department - Marketing department - To communicate through internal billboard of the company - To review safety management policies periodically - To publish existing and new safety management policies online and to place printed documents in working places - To develop a safety checklists - To train the supervisor in term of how to use the checklist - To implement work safety program in which the supervisors must go through the safety checklist for each employee - Tangible rewards are given to the employees who can propose innovative ideas to reduce accident rate - Grand prize for qualified employees in the end of the year - To develop online news about safety management - To print safety news and to place it in working areas Safety training Key performance indicator development Salary and allowance review Job enrichment Job enlargement Recognition program Online training program - To increase the employee awareness of working safety - To develop performance assessment for each employees - To increase employee job satisfaction and job retention - To educate high performance employees to become next leaders - To educate high performance employees to become next experts - To increase employee job satisfaction and job retention - To reduce the training cost - The officers in safety management department - Training officers in human resource management department - To communicate through internal billboard of the company - Training officers in human resource management department - To communicate through internal billboard of the company - Human resource management departments communicates widely - The supervisor communicates with their followers - The officers in safety management department - The officers in human resource management department - To communicate through internal billboard of the company - To capture salary and allowance benefits in human resource policies issued by the Chairman and CEO - To allow high performance employees to choose working other job types in the company - The officers in human resource management department - To communicate through internal billboard of the company - To allow high performance employees to go deeper into specific job in the company - The officers in human resource management department - To communicate through internal billboard of the company - The officers in human resource management department - To communicate through internal billboard of the company - The officers in human resource management department - The officers in information technology department - To communicate through internal billboard of the company - To provide two-set of training for managerial and non-managerial role - To develop training assessment form - To review the quality of training after each training session - To develop a set of performance criteria for each function unit - To communicate with supervisors in each unit to finalize performance criteria - To reach the employees’ agreement towards performance indicators - To provide the update into performance indicator by half year basis - To conduct performance assessment by half year and full year basis - To link the salary increase and bonus payout with performance assessment - To review frequently salary level of each job type and job role in comparison with average salary from the market - To provide additional allowances such as over-time working, over-day working, allowances for those who are working in high hazardous environment - To diversify health insurance programs by job type, male and female employees, etc - To provide additional gifts to female employees in Vietnamese Women Day - To provide additional gifts during Lunar New Year and Liberalization Day - To identify the employees with high or outstanding performance - To publish selected employees to internal company communication modes - To provide a reward to those employees - To develop an application in which the employees are able to retrieve training courses anytime and anywhere - To ensure that the trainings are reached via websites or mobile phone of the employees Source: Developed by 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It depends: empathy and concern with future consequences moderate the impact of a shortterm time horizon on organizational citizenship behaviors Journal of Applied Psychology, 2006; 91(6):1307-1320 61 Bahari SF An investigation of safety training, safety climate and safety outcomes: A longitudinal study in a Malaysian manufacturing plant Thesis Manchester Business School; 2011 62 Leiter MP, Zanaletti W, Argentero P Occupational Risk Perception, Safety Training, and Injury Prevention: Testing a Model in the Italian Printing Industry Journal of Occupational Health Psychology, 2009; 14(1):1-10 APPENDIX I: INTERVIEW TRANSCRIPTS Title Content Sales Manager The first issue which was sourced from internal operation of Vinamilk whether total remuneration of the production employees were decreased in 2018 due to the change in incentive policy, leading to the large portion of sales employees felt demotivated It is asserted that when the employees feel less motivated to work for the company, they are able to perform worst or they were not very careful in production process and it might lead to higher accident rate Operation The operation manager highlighted an issue in which Vinamilk now Manager has slow adoption of new technologies into procurement process and the old technologies sometimes lead to wrong operations and it causes higher accident rate to the employees due to malfunctions Human resource She indicated the first reason of the decline of net profit after taxes in manager 2018 was from inefficiency setup in Occupancy, Health and Safety (OHS) management and practices It is explained by the fact that Vinamilk has established OHS framework but the company does not have proper system to keep tracking the current status of OHS practices and to identify high risk working areas for improvements Moreover, the employees received inadequate trainings during 2018 and this situation limited to their satisfaction at the workplace She believed that every employee in Vinamilk is always expecting for professional career development and they considered trainings as one of the most efficient way to improve their knowledge and skills and therefore they can attain to higher job position and salary The human resource manager also mentioned about the current issue related to occupational health and safety in Vinamilk She updated about current OHS framework has been implemented but the awareness of the employees towards OHS issues has been still low and many employees did not wear protection suit or used protection equipment during working The association between OHS issues and business performance downturn was highlighted by the human resource managers because of OHS issues led to higher leave day rate and absence date of the employees after they got injuries at workplace The higher number of leave day rate and absence date will deteriorate the employees’ attitudes since they perceived that working in Vinamilk’s factories is not safety and the number of day lost due to injuries affects to the employees’ productivity; therefore, it lowers the outputs while the company is charged the cost for health recovery .. .DECREASE OF REMUNERATION AND INADEQUATE STAFF TRAINING AT VINAMILK TABLE OF CONTENTS EXECUTIVE SUMMARY Company overview 1.1 History of establishment and development... originated from U.S., New Zealand, and Australia The branches and operating facilities of Vinamilk has been populated in different cities and provinces and its farms have achieved international standards... the year of 2016 when the number of resignation was decreased to 509 and it was lower than 2014 and 2015 In term of turnover rate, the researcher calculates that turnover rate in 2017 and 2018