The 2008 global financial crisis resulted in many unexpected and dramatic challenges for the CEO of EasyFinance. Leading one of the best Chinese finance training companies, not only did Marshall Ma have to cope with a significant slowdown in revenue growth, he also had to deal with increasingly low morale among his management team who had just experienced four years of fast growth and were not used to operating in a downturn. In the midst of flat revenues and shrinking margins, how could Marshall and his partners retain, motivate, develop, and empower their key team members? The management team knew it would have to deal effectively with this challenge if EasyFinance was to have any chance of returning to growth when the economic cycle turned again in its favour.
Professional training companies began emerging in China in the 1990s. The first group was from overseas, subsidiaries of large multinationals - most of their clients were also multinational companies. Language and price barriers made the foreign training companies inaccessible for local Chinese companies. This fostered a group of small local training companies. Though their quality and price were initially much lower than those of their foreign counterparts, by 2000 some of the top Chinese training companies began to compete against foreign rivals. Low entry barriers and high gross margins made this industry one of the most competitive in China.
Guo Yan and her friend Lu Linping established EasyFinance in 2004. Both were professional trainers and had considerable experience as finance managers in multinational companies. They believed a company specifically focused on finance training would serve a niche market with strong potential that had been neglected by both Chinese and foreign training firms. The former lacked advanced training skills and international perspectives while the latter lacked in-depth knowledge of the Chinese market and the country's finance and taxation policies. The founders priced their company's services above other Chinese training firms but below those offered by international companies. Business picked up quickly and before long their courses were considered the best in China. Other competitors emerged after 2007, but none was big enough to threaten EasyFinance until 2009.
Guo Yan's husband, Marshall Ma, joined EasyFinance a year after launch as the third partner. He took responsibility for management issues so that Guo Yan and Lu Linping could focus on course design and delivery.
PRODUCT AND MARKETING STRATEGY REAPS RAPID REWARDS
EasyFinance's training model required trainers to invest more time in class design and preparation. Therefore, the company could not rely on freelance trainers as many other Chinese training companies did, because they would not dedicate the time and effort needed to adapt their content and course delivery method. In its marketing, EasyFinance emphasised the company, not the individual trainers. The partners believed this would build the company's brand, and would make it easier to provide training services at a larger scale in the future.
EasyFinance enjoyed rapid growth in the four years following its 2004 launch. Its sales revenues almost doubled every year, and it became the leading brand in the niche finance training market. EasyFinance had revenues of RMB 13.5 million for 2007. It attracted 2,646 participants to attend 121 open seminars in six major Chinese cities. Among participants, 63 per cent were from foreign or joint venture companies, and many were Fortune 500 companies. EasyFinance also offered 118 company-specific programmes, which accounted for about 40 per cent of revenues.
As 2008 began, the partners were projecting that annual revenue growth would again double. They planned to continue brand building efforts and hoped to offer career development and profit sharing for staff. To achieve these long-term goals, the partners decided to increase investment in talent development, brand building, and IT.
MANAGING AND RECRUITING TALENT
Marshall considered people development his first priority. He spent a considerable amount of time to recruit, develop and retain team members. Marshall also sought to optimise the efficiency, capacity and competitiveness of the organisation.
Expecting business would double again in 2008, the partners decided to further expand the team and improve organisational competencies. EasyFinance recruited more than 30 people in 2008, across all departments. That summer, Marshall implemented key compensation structures for sales, administration and training staff. "We know our business relies heavily on our people, so we really do not want to underpay our staff. This is one of our general principles," said Marshall.
In the first nine months of 2008, EasyFinance achieved its objectives in terms of business development and organisational expansion. It became an Association of Chartered Certified Accountants (ACCA)-registered Continuous Professional Development (CPD) provider, and an Institute of Management Accountants (IMA)-registered Continuing Professional Education (CPE) provider. An HR manager and a finance manager were hired in mid-2008, in order to prepare for rapid growth.
ECONOMIC CRISIS: THE UNEXPECTED PROBLEM
When the global financial crisis began in September 2008, it took about a month before EasyFinance felt the effects on its business. The partners agreed that aggressive expansion was no longer wise and halted further staff recruitment, except for trainers.
In November, traditionally the peak training season in China, EasyFinance's revenues nosedived - over 60 per cent of clients said they would delay, reduce or cancel their training programmes. Business was anaemic in the last two months of 2008, and the company failed to reach its revenue target of RMB 27-30 million for the year; instead annual income was RMB 25 million.
EasyFinance responded to the economic crisis by changing to a more conservative growth strategy and set "survival" as its goal for 2009. Cost control and new course development were its top priorities. Previously it had a no-discount policy, but knowing the importance of cash flow in a downturn it began to sell discounted course packages to clients if they agreed to pay the whole package price in advance. It nearly doubled the number of public seminars (to 400) in nine cities in 2009. Marshall decided to increase prices slightly, although the sales team strongly recommended a price reduction of 30 per cent. EasyFinance was unable to maintain its premium pricing for company-specific courses.
TRANSFORMATION OF CUSTOMER PROFILES AND ITS CONSEQUENCES
The economic crisis had not only created frustration and lowered staff morale; it also led to unexpected challenges in business operations.
During the first half of 2009, EasyFinance's client base changed from multinationals to state-owned and local private companies, as a government stimulus programme had spurred these companies to invest more in training. This brought more complexity to the way EasyFinance sold and delivered its programmes. Compared to multinational companies, most state-owned and local private companies had far less experience in training. They were unwilling to pay a premium for quality yet had very high expectations regarding results. Convincing new clients to buy a training programme took more effort, as did servicing them. Marshall feared his team members would lose their confidence and interest in their jobs.
Another concern was the competency of the middle managers. Most were under 30 and had difficulties performing in such a difficult situation. Marshall found he had to be deeply involved in the daily operations of each department.
Marshall was also concerned about how to motivate trainers when their schedules were not full. If EasyFinance did not provide an attractive platform and incentive system, they would leave, and could set up a new training company and become competitors.
2009: THE SILVER LINING
By the summer of 2009, it was clear the situation was not as dismal as had been expected. EasyFinance did not lose much of its business volume. Supported by the sales and marketing department's tremendous efforts, its first half sales revenues were only slightly lower than in 2008. Trainer recruitment was also positive. The company also had 11 trainers.
In surviving the crisis, Marshall realised that the core competitiveness of EasyFinance was its team. The young, efficient, and professional individuals with a strong desire to grow had a long-term commitment to the company. The stability of the team kept EasyFinance ahead of its competitors.
The global financial crisis in 2008 was an important turning point for EasyFinance. First, business growth slowed: the compounded annual growth rate for sales revenue dropped from 140 per cent in the period from the company's founding in 2004 through 2008, to 12 per cent between 2009 and 2014. The sales revenue of 2014 was about RMB 46 million. Second, EasyFinance's clients' profile shifted permanently from multinationals to state-owned and local private companies. This change brought EasyFinance more diverse and dynamic training demands. Marshall thought team competency was the bottleneck threatening future business growth, so he invested more resources in talent development.
In the ensuing three years, Marshall realised that while team competency was important, it was not the only thing needed. The traditional organisational structure was also a drag on potential growth.
Said Marshall: "Initially, our sales representatives communicated with clients to learn their training demands and reported them to supervisors; then the supervisors reported to the sales manager and the sales manager spoke with the trainer team who then more or less customised and delivered the training project. This chain was quite long and errors were possible at every step. It also meant that junior staff would never have a chance to learn how to make decisions. More importantly, the trainers had no incentive to customise their training products to satisfy customers' needs. We needed a new structure to shorten the communication chain, reduce the margin for error, provide an opportunity for junior staff to grow, and to align the interests of the trainers, sales team and clients."
Marshall designed a communication platform named the "cloud"; it was a messaging group that included all trainers and the managers in finance, logistics as well as himself. Sales supervisors and representatives were put in charge of collecting clients' demands and then sales supervisors sent the information to the "cloud". All trainers and functional heads could respond to these demands freely. A temporary project team was then formed to address specific demands. All communication within the "cloud" was transparent. Finally, all sales staff and trainers would get a proportion of the project profit as a reward.
Signs off Marshall: "With this structure, we no longer need standardised talents with similar skill sets. People with different core competencies will find different resources in the cloud and everyone has the chance to grow and succeed in this structure. I hope it will help EasyFinance break the bottleneck of talent development and realise future business growth."
(This case was written by S. Ramakrishna Velamuri, professor of entrepreneurship, and Xin Fu, doctoral candidate at CEIBS, with editing support from Janine Coughlin.)
IF EASYFINANCE HAS TO SCALE, ORGANISATION DESIGN AND CAPABILITY BUILDING SHOULD BE TOP PRIORITIES
"It appears to me that the design of the EasyFinance organisation and its pivotal roles did not support its strategy"
Founder of Totus Consulting
The founding team of EasyFinance and its CEO Marshall Ma certainly demonstrated great entrepreneurial abilities in coming up with a business model that took advantage of the emerging finance training market, positioning themselves in a segment that was between global players and local players and coming up with two offerings for two client groups - public seminars and company-specific programmes. The growth in revenue between 2004 and 2008 clearly validates that they got their core model right. In fact, they were able to manage the 2008 crisis quite well.
Unfortunately, building an organisation calls for a lot more than just entrepreneurial fervour. To begin with, Marshall Ma never had a clear handle on what problem he was trying to solve on the organisation and people front. He seems to have taken a simplistic view that hiring more people, paying them more money and training them would solve all his problems. Because his problem was ill-defined, his solutions were not helping him build a sustainable organisation.
From available data, it appears to me that the design of the EasyFinance organisation and its pivotal roles did not support its strategy. Because the design was not aligned to its strategy, it did not have the right capabilities to achieve scale, align roles to the needs of clients and facilitate effective internal collaboration across departments to deliver client value.
Instead of paying attention to some of these structural issues, Marshall Ma ended up focusing on things like morale and motivation.
Here are a few areas of organisation design that seem to warrant urgent attention:
- Sixty per cent of EasyFinance business seems to have come from public programmes and 40 per cent from company-specific programmes. All of us understand that selling public seminars is very different from selling company-specific programmes. While the former will call for B2C sales capabilities, the latter will call for consultative selling given that each client would like their programmes to be customised to meet their specific needs. This will bring up the need for building consultative selling capabilities within the organisation instead of trying to have layers of sales employees trying to act as mere messengers. While Marshall recognised that he had a problem in this area, his solution of creating a communication platform was certainly not going to solve it. The capability gap needs to be addressed.
- Given the growing volumes across both segments and the resultant pressure on trainers, I am not sure if Marshall recognised the need to determine the need for centralisation and standardisation. For example, I see the need for a strong central team to work on content creation. This is in line with his philosophy of the company's brand standing out. This would also de-risk the firm from potential attrition.
- As the firm was hiring more and more trainers and wanted them to be in-house, I see the need for standardisation of trainer styles and training delivery methodologies.
- Marshall may also need to examine if there is need to build the capability for handling large accounts.
- For a service business it is important to establish flat process-based teams rather than hierarchical and functional teams. This will ensure that everyone adds value to the business and does not create bureaucracy.
If EasyFinance has to scale, organisation design and capability building will need to be the first port of call.
EASYFINANCE MUST FOCUS ON THE PREMIUM MARKET WITHOUT DROPPING PRICES
"The challenges before Ma are two-fold: How does he insulate the company from global volatility? How does he maintain his brand premium?"
Visiting Faculty, Centre for Public Policy, IIM Bangalore
Managing operations in times of volatility and downturn is a challenge in general but particularly so in function that are not generally perceived to be "core" of the organisation. Thus in any downturn, the first budget to be slashed would be the training budget, apart from the other austerity measures (like slashing travel budgets) that corporations undertake. However, Ma should look at this as an opportunity to examine the business model on how he would like to diversify the risk and ensure that there is a stable core that is giving adequate margins. There is another challenge in the EasyFinance model - it focuses on the corporate brand rather than the individuals who deliver the training programme. This means that there could be no "stars" on the trainer list that can outshine the EasyFinance brand. This also means that there has to be significant standardisation in the delivery processes so that the customers get a common feel at the end of each training programme.
The challenges before Ma are two-fold. How does he insulate the company from global volatility? A part of the answer has naturally been found in the local market with significant customisation. But this component is required to maintain stability in the business in the light of global volatility. So Ma, while retaining stability, has to reach out to the markets to grow - and growth in this business comes significantly from the vibrancy of the market. It is important to ensure that there is a continuous and dynamic offering of programmes to suit the concerns of the time.
The second challenge is: how does Ma actively participate in the international segment of the market and maintain his brand premium? The idea of not offering discounts on the public seminars, and instead increasing the price was a smart move - this will help in continuing the optics that they are indeed a premium company, while the pricing on a specific case could vary depending on the client, without denting too much on the brand perception. However, Ma has to regain the market in public seminars. If we look at the numbers, it is clear that while revenue from public seminars has fallen to a third after the downturn, revenue from company-specific seminars has fallen by half, broadly indicating the type of volatility and stability in the respective markets.
As EasyFinance recovers from the downturn, its biggest challenge would be to regain the public seminar market and increase the share of international companies in its internal pie. At any given time, Ma possibly has to ensure that at least 40 per cent revenue comes from international companies while maintaining about 30 per cent from state-owned corporations and the rest from other companies.
At this time, he needs to concentrate on the premium market without dropping prices, but with some aggressive marketing. This is an area where Ma could possibly get speakers whose profile could be larger than the EasyFinance brand, so that the joint brand equity of EasyFinance and the speaker attracts more audience. Ma needs to urgently regain this market, not lose on the pricing and continue to make the presence of EasyFinance felt. For this, there has to be a smart choice of themes and speakers to ensure that EasyFinance continues to be a relevant training outfit, with compelling themes even in situations of downturn where companies are still willing to invest in knowledge resources. That continues to be the challenge of EasyFinance.