Below is a cross-post from my column at today’s AsiaHealthcareBlog:
In past analysis of the senior care industry (here, here, here, here and here as just a handful of examples) we have discussed the unique challenges related to finding, training, and retaining personnel in China. Of all the strategic challenges the senior care industry faces as it expands inside of China, navigating the human resource challenges is – I want to propose – the number one priority. It can also be one of the easiest challenges to overlook and badly mismanage. We already know that cultural standards relative to filial piety can change to accommodate western care models. We already know the demographic burden in China is irreversible. We know the Chinese government understands the problem and is working to make it easy for public/private partnerships to flourish around the country. Here is what we do not know: where are all the necessary “boots on the ground” going to come from? In a country already struggling with shortfalls of doctors and nurses for its primary care system, not to mention the little clinical geriatric care that exists, where is the necessary staff going to be found?
Let me take this question one step further. Assume that you have answered the last question and you know where your staff is going to come from. Perhaps you have a proprietary relationship with a feeder institution like a state-run hospital or medical school. Or, perhaps you have elected to start with people who have the most basic of skill sets and train them to your western standards. Fine. Great. All good ideas. But here is where it gets tricky: China’s human resource (HR) market has a couple of characteristics that overlap industries. One you need to be thinking about is what happens in an infant industry where trained staff are hard to find, but easily identifiable to your competition. The likely outcome? The staff you worked so hard to find and train becomes difficult to retain and, the cost of retention can quickly and very negatively impact your financial model. In an industry with few established sustainable practices, buttoning down your HR strategy has to be a priority. The question is, what goes into a solid HR strategy that allows you to keep the talent you have trained?
With this challenge in mind, I reached out to a number of people both inside China’s healthcare industry and others outside who have first-hand experience in HR within China. Some asked to speak on background, which is why not everyone’s name is identified. The latter include ex-pats who have managed operations in China for the better part of a decade, during the explosion of their industries when many of the same HR challenges the senior care industry is now facing presented themselves. The net of these discussions has been six lessons for senior care operators, developers and investors as they build their Chinese businesses.
HR Lesson #1: Limit the Role of the Expat
During my research of existing facilities in China that have struggled, the role of expat help brought into the Chinese senior housing development has always been front and center. Some times, the expat help was overwhelmed early into their first overseas assignment; other times, the expats were disengaged out of the gates, many besieged by cultural differences that they felt were insurmountable; in many, finding good expat help was impossible and local expertise was brought into the facility instead. Even with these difficulties, I have yet to speak with a player in the senior care field who does not wish they could find a local Chinese senior executive or facility manager who “knew the business.” Absent this option (given the industry does not yet exist in China), the next hope is to find a good expat who knows China and can navigate the cultural challenges of building an organization up from scratch. I doubt it will be possible for the senior care industry to evolve in China without poaching senior management talent from the US, Europe and Asiana to come in; however, the first lesson for new operators in this space is to intentionally limit the role of this expat.
There are a couple of reasons for this. One is financial: expat packages are very lucrative for the individual, and very expensive for the company. The sooner you can transition to domestic talent, the better. But another reason, and one we will discuss in more detail later on, is that when you set up the organization to have an expat leading it in perpetuity, it sends a message to your staff about their upward career mobility. The top levels of your Chinese organization are symbolically powerful, and it is in your interests to have a strategy intentionally designed to move western expats out of the top back home once your operations have stabilized. Susie Bates, a UK HR practitioner who has been operating in China for the past 30 years, has worked with the United Healthcare group and has seen first-hand the HR challenges specific to healthcare businesses in China. On the point of limiting the role of expats, she offered this thought, “My recommendation for companies entering this newly blooming sector is that each key role is assessed against an ‘import’ scenario, and where the skillset is undeniably unavailable in China, overseas hires need to be made with the proviso that anything up to 50% of the role be set against identifying, training and developing the next generation in that role.” In other words, if expat help is necessary, make sure everyone knows it is short-term, and that an explicit deliverable of the assignment is to find a local replacement.
HR Lesson #2: Where to Find the Talent
Once you have landed in China, the question becomes where to find the necessary talent. Many early entrants, in particular those that want to offer themselves up as five star, luxury brands, are going to rush to get the best doctors and nurses they can find. Inevitably, they will find themselves knocking on the doors at the prestigious John Hopkins-Peking Union Medical College trying to find doctors and nurses coming out of this superb institution. This is certainly a great idea, but it also comes with a lot of costs, both immediate and when considering the replacement value in a HR environment characterized by high labor mobility. One expat in another industry (he recruited mostly chemical and mechanical engineers) offered this insight to me: “Recruit from GOOD universities, not the BEST universities. My favorite university in China from which to recruit really smart, hard-working and stable people? Zhejiang University in Hangzhou.” The temptation for an early industry, especially one looking to build a luxury brand, is to recruit from the best in class. In his industry, that would have been less Zhejiang and more Tsinghua. His point? Recruit from several different schools, not all of which are where the best students go. Find out which ones are most adaptable to your model and culture.
HR Lesson #3: A Balanced Compensation System
The first HR lesson people want to focus on is compensation. Let’s get the obvious out of the way first: compensation is going to be very important. How important? Well, that’s difficult to say. One expat said, “Money is important – you need to be competitive – but it doesn’t always keep top talent.” Another “firmly believes that money and perks still talk in China.” What seemed to be a consistent theme was to pay well, but not to try and pay the most in your industry. One expat stated, “Pay well, but not the highest in the industry. Give yourself room to provide token raises during the year (every six months).”
Susie offered a couple of very practical insights into compensation schemes that I found useful: “Incentivize employees via active and visual motivational programs – tying daily operations and learning successes directly to business outcomes allows employees to realize the role they play and the outcomes (both financial and in terms of acknowledgement) mean something. This ties into setting corporate culture early on.” Anyone who has toured manufacturing facilities across China – especially well run ones – has seen the ways team production boards are used to visualize how the assembly line or work team is producing in relation to the company’s goals.
In addition, Susie believes bonus plans have a place in China. She shared, “Bonus schemes that are set in place encompassing both individual and facility-wide achievement – this loops two incentives into one whereby the employees become accountable both for their own individual success, and for the success of the organization.” Beyond bonuses, my expat sources noted offering “perks like health club memberships, a transportation allowance … and going big on Chinese New Year … do not underestimate the importance of the annual staff party.”
HR Lesson #4: A Clear Ladder to Climb
If compensation alone is not enough, then what else matters to Chinese employees? Everyone I spoke with consistently emphasized having a clear ladder to climb as they advanced in their career with you. This was referenced earlier when talking about the limited role for expats in your China facility. One friend offered that you need to “Make certain employees understand their upward career path, and always dangle the next carrot in front of them.” Susie expanded on this, stating that in her experience, “trends show that Chinese employees no longer focus only on financial reward; today, it has become more about development, career opportunities, clear articulation of company goals and acknowledgment of (realistic) individual achievements that need to be tied directly to day-to-day operations.” This lesson may seem so obvious that it does not need to be offered, but in my experience, this has been one of the more common frustrations Chinese employees offer as the cause for their exit. I attribute this mistake to the tendency by western companies to assume that the large numbers of potential workers in China insulates them from having to put in place best practices like having a clear career ladder for their domestic employees. While having a big population to draw from is accurate, the pool gets much smaller when you talk about qualified staff. The more you want and need to hold onto existing talent in China, the more important having a clear career path available to them, against which they are being measured and managed for becomes.
HR Lesson #5: The Training Quid pro Quo
This fifth lesson, what I call the “Training Quid pro Quo” is entirely from Susie, and I think it is genius: “Training and development need to be provided with a documented cost both in terms of time and money; a Training Agreement, tied to the Employment Agreement, is a legally acceptable way to tie employees to fulfilling their commitment to the company against costs of education or learning fees incurred by the company to develop them. A standard model is a ratio-tied pay-back if the employee leaves early – e.g. within 3 months of completion 90% paid back; 6 months 75%; etc. etc.” If this is of interest, let me advise you reach out to someone like Dan Harris at ChinaLawBlog who has written extensively on Chinese employment law.
In a past blog post on the topic, Dan offered the following: “As you will see, the Chinese employment system is based on Asian socialist and Northern European models. China’s employment law system is quite different from the U.S system. The main difference is that the U.S. is an employment at will system, which means you can terminate employees at any time for pretty much any reason. China’s system is the opposite. The Chinese system is a contract employment system. This means all employees must be engaged pursuant to a written employment contract and during the term of that contract, it is very difficult to terminate an employee. An employee can only be terminated for cause and cause must be clearly proved. This means the employer must maintain a detailed set of rules and regulations and must maintain careful discipline records to be able to establish grounds for dismissal. This whole situation makes the employment relationship and the employment documents much more adversarial than is customary in the U.S.”
HR Lesson #6: Build the Facility as Much for Staff as Customers
Last up; build the facilities as much for your staff as your customers. I know, I know; this seems overkill. But just like you need to understand the needs and expectations of your potential customers – what sort of amenities, services and costs they want and are willing to bear, similar questions need to be asked relative to your staff’s needs.
Specifically, think about the location of your facility in terms of where your staff is going to be living. If your facility is hard to get to, that is going to present a major retention problem as the industry evolves. In a country like China where a hotel you can see from your hotel in Beijing, but that takes 45 minutes to drive to, you will want to think about transportation vouchers. And, be creative. What would you want if you were going to be stuck on mass transportation for up to 2 hours a day? I bet getting a new iPod or iShuffle upon completion of an employee’s training, along with gift cards for downloads to listen to on their commute would go a long way. Smart companies might even find a way to offer company training via podcasts with incentives for staff to listen and complete quizzes, adding further value to these incentives.
In addition, think about how to ensure the employee’s work environment is hospitable. As an operator in the west, you know how trying caring for elderly patients can be – both physically and mentally. Make sure this wear and tear on the individual is reflected in how you take care of the common employee spaces. Offer them ways to relax, unwind and socialize and to do so in an environment that is similar to the level of sophistication and finish you provide your customers.
None of these lessons are rocket science, but poorly constructed HR practices have governed the ability of other infant industries in China to expand. Some times this has meant Chinese competitors have been able to innovate and work within their culture after seeing the mistakes of their western counterparts. Other times it has simply resulted in industries that struggle to grow as quickly as they could if HR was not the sector’s primary bottleneck. I would imagine that as this industry continues to move forward, we will see many early entrants struggle to get and stay at scale primarily due to HR problems versus the market’s acceptance of the products or costs for the services rendered. Of all the problems the senior care industry would do well to put behind it, crafting strong and balanced HR practices may be the most important to resolve.
By: Benjamin Shobert, bshobert (at) rubiconstrategygroup.com, +206-652-3572