Essay on Beer and Monetary Punishment

Five Star was one of the oldest brewing companies in china which was founded in 1915. Five Star was a state-owned enterprises and had been consider as one of the oldest and the best equipped brewery in China. Like most of the other breweries in china Five star initially served local markets like Beijing and the surrounding Hebei province. As the years passed Five Star was able to gain some major shares in the areas beyond the immediate region. Nevertheless, due to the poor leadership and administration, the company had experienced a string of problems during early 1990s including loss of sales in its dominant local market and had quality issues with products. Later, Asian Strategic Investments Corporation (ASIMCO) and Five star went into a joint venture which resulted in major stake being owned by ASIMCO (63%- for which they outlay capital of 70 million US dollars). It was ASIMCO largest single investment in their portfolio.

In order to deal with the underlying problems in Five Star structure and to support the operations, Alliance Brewing Group (ABG) was established which was a management service group. ABG had separate corporate levels, which supported a number of functions like marketing, brewing, quality control, operation services, financial control and new business development. The general goal of ABG was to help the brewing company to realize their return on capital investment. ASIMCO and ABG concluded that improving the quality of operations and product had to be at the highest priority in their schema. As a result, Five Star’s general manager(Mr. Xu) was replaced by Mr. Zhao a manager with a view for object orientation. Zhao came up with the idea of pay for performance, which was two fold i.e. commission based compensation system to encourage the sales team to boost sales and a monetary punishment system to spur the performance of workforce to improve quality.

PROBLEMS ANALYSIS

Quality Problem

Due to the existing challenges, Five Star Beer had to change its operations, the field that needed the most devotion was ‘quality’. In the beer industry, quality was defined with having consistent taste, clarity, carbonation and packaging. There were instances when half full beer bottles, bottles with foreign substances or bottles with improper labels reached the customers. The company was passively identifying the problems but no major steps were being taken to rectify the problems which became an even bigger issue due to the increased competition in the industry, hence a totally new management practice became necessary to stay competent.

Solving the quality problem was ASIMCOS’s key agenda, for that they took a certain measures. First step they took was that of hiring western experts who increased the quality control in the production process. There were a few challenges in their way, first was to achieve higher quality while using existing badly maintained equipment, also they had to keep in mind that western management practices were not adapted easily in China while dealing with the employees due to difference in work culture. The experts had to change the Chinese employees’ viewpoint regarding consistency of quality. While going through studies about management practices in China they came across the idea that managers could use fear in order to achieve necessary quality targets, also an organization needed to integrate other measures to attain consistent quality, for example strong and transparent company policy, well laid out objectives and also efficiently assigning duties and responsibilities.

Another measure they took was introducing the Pay-for-Performance System, In 1997, Mr. Zhao began to develop a specific pay-for-performance system for Five Star. He believed that monetary punishment would be a good method of improving employee’s performance. Monetary punishment meant that if an empty or short-filled bottle reached the customer, all six employees, who belonged to the originating filling line team,

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