Between 2000 and 2012, Gap, Inc. (Gap) ceded its world leadership position in specialty fashion retailing to Inditex of Spain and H&M of Sweden. These two companies, each less than a quarter of Gap’s size in 2000, were now setting the pace in the global mass fashion market, and Gap appeared to be falling ever further behind. In the intervening twelve years, three CEOs had struggled to turn around the fading brand. While several temporary profit boosts appeared to herald a recovery, a sustained rally remained elusive. Mickey Drexler, Gap’s CEO since 1983, who had been responsible for Gap’s rise to global prominence, was fired in 2002 after two years of double digit, same-store sales declines and a 75% drop in the stock price. 1 His successor, Paul Pressler, appeared to have engineered a remarkable recovery, but was fired in 2007 after disappointing sales and another slump in profits. His replacement, Glenn Murphy, fresh from a successful turnaround at a Canadian drug-store chain, promised tighter price controls, lower administrative costs, and a leaner, more aggressive Gap. He cut costs and drove up earnings per share, but sales continued to decline. After four years of troubles, Murphy brought in former J. Crew President, Tracy Gardner, to consult with the Gap brand and he began a bold program to close one fifth of Gap’s North American store base. In 2012, sales had lifted 8%, same-store sales were strongly positive for all of Gap’s domestic sub-brands, and the company’s share price had lifted nearly 50% from the prior year. After 12 years of poor performance, had Glenn Murphy finally discovered the answers to Gap’s problems?  Mickey Drexler: 2000-2002 After Gap, Inc. “misjudged fashion trends in 2000,” its sales growth rate slowed to 18%, below the historical average, and operating profits fell 20% to $1.4 billion.3 CEO Mickey Drexler, was confident that this stumble was a short term problem, but 2001 results suggested otherwise. Sales lifted only 1%, operating profits plunged anther 70% to $426 million and the company made a net loss. 2002 saw sales rise 4% and operating profits recover to $1.0 billion, but comparable stores sales continued to fall. Gap’s stock price decreased from a high of $53.75 in February 2000 to $14 in May 2002.4 Several top designers and senior executives left the company “disillusioned with how bureaucratic the organization had become.” Analysts noted that, while Gap had made “button-down shirts, chinos and basic cotton T-shirts the boomer uniform,” it was struggling to resonate as well with some members of Generation Y (those born in the late 1970s to early 1990s) who were “looking for individuality, not conformity.”6Chairman Don Fisher had had enough. The night before the Gap board meeting on May 22, 2002, Steve Jobs, a board member, called Mickey Drexler to warn him that the board was planning to fire him the next morning. Drexler entered the board meeting aggressively and a board member later described it as “a very emotional scene.”Despite his shock and disappointment, Drexler quickly recovered. In 2003, he became the CEO of J. Crew, a quality basic clothing chain which was incurring heavy losses. Within two years, he had returned it to profitability and, within five, he had more than doubled sales. Paul Pressler: 2002-2007 Paul S. Pressler replaced Drexler as the CEO of Gap, Inc. Pressler had spent 15 years with The Walt Disney Company and ended his tenure there as the chairman of Walt Disney Parks and Resorts. The press noted the difference in the two men’s leadership styles: whereas Drexler “flew by the seat of his khakis,” relying on his honed intuition to direct apparel development, Pressler was researchoriented and left decisions about apparel to Gap, Inc.’s designers. 8 Pressler stated, “I had to demonstrate to everyone that the general manager is here to lead the people—not pick the buttons.”9 Pressler moved quickly to close 200 underperforming stores, slow the rate of new openings, and reduce excess inventory, 10 resulting in a “spectacular turnaround” in 2003. 11 Between 2002 and 2003, operating profits rose 87% to $1.8 billion, marginally beating the all-time record set in 1999. Gap Brand Pressler hired Canadian Pina Ferlisi as executive vice president of product design in March 2003 to define the division’s style aesthetic. Before joining Gap, Inc., Ferlisi worked at Perry Ellis, Tommy Hilfiger, and Theory; she also helped launch the successful Marc by Marc Jacobs line. Her Gap design team was located in New York City and included Vice President of Women’s Design Louise Trotter, who formerly worked at Calvin Klein, and Vice President of Accessories Design Emma Hill, who previously held a similar post at Marc Jacobs. Both Trotter and Hill hailed from the U.K. Scores of consumer and employee insights indicated that female Gap customers felt that the brand’s offerings were too androgynous and boxy. Hence, Ferlisi made the women’s lines more feminine and focused on fabric and fit. Banana Republic For years, Banana Republic had a reputation of being “a purveyor of chic basics—casual office wear in black or beige”27—i.e., an upscale Gap. However, under the direction of President Marka Hansen, the division focused on making its product assortment more fashionable and trendy, minimizing the overlap between Gap and Banana, and catering to 25- to 30-year-old professionals . Hansen explained, “What’s the hook or differentiation? . . . It’s an affordable, covetable luxury . . . . We’re bringing fashion to a wider audience. Old Navy Under President Jenny Ming, Old Navy continued its focus on families, rolling out underwear, maternity, and infant lines to raise margins.32 The division expanded to Canada in Pressler’s first year as CEO and it targeted Hispanics with its first Spanish television spot at the end of 2003. The company’s localization strategy was tested in select Old Navy stores in 2004, and the company planned to extend the program to all Old Navy outlets in 2005. Forth & Towne Gap, Inc. established five test stores for Forth & Towne in Chicago and New York by fall 2005. Under Gary Muto’s leadership, the firm positioned Forth & Towne to appeal to women aged 35– 50. Gap Online Toby Lenk, a 1987 Harvard MBA, headed the company’s online division, Gap, Inc. Direct. In 2004, Gap, Inc. was the largest U.S. online apparel retailer with sales of over $500 million. It was “redesign[ing] and rebuild[ing] all of [its] websites from the ground up” to enhance visitors’ online shopping and to improve online and in-store integration.47 Lenk noted that 35% of the company’s Web site visitors were pre-shoppers preparing for store visits, and 13% of those who entered a Gap, Inc. store had visited the store’s online site beforehand. The firm’s new e-commerce platform would allow the sites to take back orders and preorders. Lenk explained, “This means we will never have to walk a sale on a basic item, and at the same time it will allow us to run our basic inventory much tighter.”48 The company planned to have most of the Web site enhancements completed by the 2005 holiday season. Marketing Along with reworking Gap’s main brands, Pressler also overhauled Gap’s public image and publically positioned its divisions as lifestyle brands. The CEO remarked, “We need to bring more theatrics, storytelling and consistency [to retail]. If you can’t tell me what a Gap dinner party, Banana Republic car or Old Navy vacation looks like, then we haven’t built our stories.”49 Pressler had also been focused on differentiating the brands and “upgrading the marketing functions at all of Gap’s brands, including the hires of new head marketers at all three units.”50 Recent Gap-brand TV advertising featured actors and singers. The company paid 40-year-old actress Sarah Jessica Parker, former Sex and the City star, $38 million to appear in television and print ads for three seasons during 2004–2005. It replaced Parker with 17-year-old British soul singer Joss Stone as its Gap spokes-model in the summer of 2005.51 In an effort to tout its “vastly expanded variety of fits” in jeans, the company planned to use more nontraditional types of advertising—i.e., “guerrilla marketing and grassroots tactics,” according to Jeff Jones, executive vice president of marketing at Gap. After lackluster results in 2005 and six consecutive quarters of declining same-store sales, Pressler pointed to 2006 as a key year to prove Gap’s recovery and justify his rebranding efforts.60 Pressler noted, “We are acting with a tremendous sense of urgency to win back customers.”61 Pressler also increased the annual cash dividend 78% for 2006 and the board authorized a further $500 million for a share repurchase program, $250 of which would be repurchased in Q1 and Q2 of 2006. Fisher: Interim CEO, 2007 Although Fisher was interim CEO for less than a year, he made a number of moves that undid much of Pressler’s previous work. Less than a week after firing Pressler, he cut many of Pressler’s hires from Disney. Cynthia Harriss, the president of Gap U.S., was replaced by Marka Hansen, the previous president of Banana Republic and an employee since 1987. Fisher also closed all Forth & Towne stores by the end of June, taking a pretax charge of $40 million.67 Although Forth & Towne has been open since 2005, financials were never disclosed for the brand. Fisher also began to reduce Gap’s workforce to bring down expenses, cutting a “relatively small percentage” of the 150,000 workers. Glenn Murphy: 2007-2012 On July 26, 2007, Gap appointed Glen Murphy, as the new CEO. Since 2001, he had been the CEO of Shoppers Drug Mart, a Canadian drugstore chain. Murphy’s first major move as CEO was to cut expenses and control inventory discounting. Quarter three profit for 2007 lifted 26% due to lower marketing spending and better product margins. In 2008, Spain’s Inditex overtook Gap, Inc. as the world’s largest specialty apparel retailer, reaching $3.3 billion in sales for the first quarter of 2008 compared to Gap’s $3.25 billion.86 With over 200 designers and rapid supply chains that could produce and stock hot items within weeks. Problems returned in 2011. Sales remained steady at $14.5 billion, but operating profits fell 27% to $1.4 billion. Murphy hired former J. Crew President, Tracy Gardner, to consult with the Gap brand. Gap announced plans to shut more than one fifth of its North American stores over the next two years and aimed to shrink the U.S. store base to 700 by the end of 2013.91 Murphy noted that China was Gap’s biggest market for further growth. However, by the end of 2012, Murphy’s strategy appeared to be working. Sales lifted 8% to $15.6 billion, a six-year high, and operating profit recovered to $1.9 billion. Store closings lifted sales per store in the North American Gap to $3.7 million (from a low of $3.3 million in 2009) and comparable store sales were strongly positive for all of Gap’s North American divisions. Gap had also made significant steps toward streamlining its production and engaging more closely with trending fashions. By 2012, Gap had cut its lead time from more than nine months in the early 2000s to less than four months for key items.96 Across all lines, production time had been cut by nearly one third. 97 In January Gap acquired Intermix Inc. for $130 million, which promised expansion into the luxury market as well as greater access to of-the-moment fashion pieces. Although Intermix didn’t manufacture its own clothing, it has established relationships with a variety of high street designers. What else could Murphy do to restore Gap’s leading position in fashion retailing? Would Murphy’s international and online focus be enough to sustain this turnaround?

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What is the case about?

What are the important events that occurred in the case?

What can we learn from reading the case?

What advice do you have for the leaders in the case and/or company in the case?

Q7) Pearl Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2020. Jim Alcide, controller for Pearl, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Pearl’s Raw Materials Inventory account was $444,720, and Allowance to Reduce Inventory to NRV had a credit balance of $27,340. Alcide summarized the relevant inventory cost and market data at May 31, 2020, in the schedule below.

Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Pearl’s May 31, 2020, financial statements for inventory under the LCNRV rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle.

Incorrect answer iconYour answer is incorrect.

Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2020.

For the fiscal year ended May 31, 2020, determine the amount of the gain or loss that would be recorded (using the loss method) due to the change in Allowance to Reduce Inventory to NRV. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Pharoah Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2020. Jim Alcide, controller for Pharoah, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Pharoah’s Raw Materials Inventory account was $456,960, and Allowance to Reduce Inventory to Market had a credit balance of $28,300. Alcide summarized the relevant inventory cost and market data at May 31, 2020, in the schedule below.

Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Pharoah’s May 31, 2020, financial statements for inventory at lower-of-cost-or-market as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Assume Garcia uses LIFO inventory costing.

(a1) Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2020.

(a2) For the fiscal year ended May 31, 2020, determine the amount of the gain or loss that would be recorded due to the change in Allowance to Reduce Inventory to Market.

Taco Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2020. Jim Alcide, controller for Taco, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Headland’s Raw Materials Inventory account was $461,040, and Allowance to Reduce Inventory to Market had a credit balance of $29,040. Alcide summarized the relevant inventory cost and market data at May 31, 2020, in the schedule below.

Alcide assigned Burger, an intern from a local college, the task of calculating the amount that should appear on Taco’s May 31, 2020, financial statements for inventory at lower-of-cost-or-market as applied to each item in inventory. Burger expressed concern over departing from the historical cost principle. Assume Burger uses LIFO inventory costing.

(a1) Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2020.

(a2) For the fiscal year ended May 31, 2020, determine the amount of the gain or loss that would be recorded due to the change in Allowance to Reduce Inventory to Market.

Pharoah Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2020. Jim Alcide, controller for Pharoah, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Pharoah’s Raw Materials Inventory account was $428,400, and Allowance to Reduce Inventory to Market had a credit balance of $26,750. Alcide summarized the relevant inventory cost and market data at May 31, 2020, in the schedule below.

Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Pharoah’s May 31, 2020, financial statements for inventory at lower-of-cost-or-market as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Assume Garcia uses LIFO inventory costing.

(a1) Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2020.

(a2) For the fiscal year ended May 31, 2020, determine the amount of the gain or loss that would be recorded due to the change in Allowance to Reduce Inventory to Market.

A business students claims that on average an MBA students is required to prepare more than five cases per week. To examine the claim, a statistics professor ask a random sample of ten MBA students to report the number of cases they prepare weekly. The results are given below. Can the professor conclude that the claim is true, at the .05 level of significance, assuming the number of cases is normally distributed with a standard deviation of 1.5?

1) Is the test statistic for this test Z or t?

2) What is the value of the test statistic of the test? ( Enter 0 if this value cannot be determined with the given information.)

3) What is the pvalue of the test? (Enter 0 if this value cannot be determined with the given information.)

4) What is the relevant bound of the rejection region? (Enter 0 if this value cannot be determined with the given information.)

5) What decision should be made?

Select one:

a. Do not reject the null hypothesis

b. Accept the null hypothesis

c. Can not be determined from given information

d. Reject the null hypothesis

MBA Corp is considering whether to expand widget production. This would require the purchase of a new widget-producing machine at a cost of $5,400,000. The machine would produce 450,000 widgets per year during its useful life of three years, and would be depreciated for tax purposes at a rate of $1,800,000 per year. The machine would not have any salvage value. Expanding widget production would also require the use of a building that could otherwise be leased for $500,000 per year. Working capital required for the new machine would be 12% of the next year’s sales. Widget prices are $20 and are expected to remain stable. The materials and labor required to produce a widget cost $12, and these costs are also expected to remain stable. The corporate income tax rate is 30%. The discount rate is 6% per year. (a) Forecast the incremental cash flows resulting from the purchase of a widget machine on a year-by-year basis and draw them on a timeline. (b) Decide whether MBA Corp should go ahead with the purchase of the new machine.

show calculations work and calculator strokes

Envision yourself as the CEO/President of an organization with full responsibility to the company, management, shareholders, creditors, regulators, and the general public. Develop a philosophy regarding internal controls for the organization. The polar extremes are 1) “Keep employees/management away from temptation”, whereby the internal controls are very well-defined, or 2) employees/management will follow the good judgment of their leader, whereby you set a good example and trust is the theme until employees do something to betray that trust. As you develop this philosophy, provide 10 examples (from issues in our chapters, fraud events in the news, to justify your philosophy.

A company needs to budget for fuel, they have to consider the weight of the shipment.

Average weight= 20,160 pounds

The CEO wonders if preferences have changed and you have to adjust the budget for fuel. Based on 14 shipments, the average weight has been 20,901 pounds with a sample standard deviation of 800 pounds. What should you conclude at the 99% confidence level?

Show your work on the calculated score (Commands from Excel)

Indicate what your calculated score is

Indicate and justify what your critical score is and determine if this sample average is statistically significant from the mean

Read the case study entitled ‘PremiumSoft: Managing creative people’ at the end of this assignment and answer all the questions below:

Question 1

Examine and identify any problems found in the current staff hiring and retention practices adopted by PremiumSoft. What would you propose to tackle the problems identified, particularly in a context of company expansion?

Question 2

Critically examine the approaches to organisation and job design used in PremiumSoft’s software product development. Would you recommend making any changes to the existing design? Justify your answers.

Question 3

Ken Lin, the co-founder of PremiumSoft, said that ‘we provide a relaxed culture and learning culture.’ Critically evaluate the learning and development practices implemented in the company. How could the practices be improved?

PREMIUMSOFT: MANAGING CREATIVE 0PEOPLE

“These are all clever people and we don Y want them to feel that they are being held back. ”—Ken Lin, co-founder, PremiumSoft

PremiumSoft was a player in the Structured Query Language (SQL) software market for 10 years. Regularly rated number one in database.com ratings in the database category, PremiumSoft’s database programs were downloaded over 45,000 times per week. In 2010, with a revenue of over HK$10 million, it had over 2,000,000 database users and 50,000 registered customers in 138 countries worldwide. These customers ranged from individual users, small businesses, enterprises, non-profit and community organisations, to over 100 Fortune 500 companies including FedEx, Apple, Boeing, Hewlett-Packard and General Electric. With few competitors in the marketplace (only one major competitor in the Windows environment and no significant competitors in the Mac environment), PremiumSoft was dominant in its market. PremiumSoft was staffed by 24 employees.

PremiumSoft’s continued success depended on its ability to continuously evolve its successful product lines through research and development. Key to this process were its creative people: Ken Lin, PremiumSoft’s co-founder, believed that they were the company’s most important asset. In the decade since PremiumSoft’s establishment, Lin had created a team-centric, informal work environment that promoted creativity and innovation, This included a mix of formal and informal controls when dealing with recruiting, retention, roles and responsibilities. In 2010, Lin and his co-founder Roy Choi were looking to grow PremiumSoft through the development of new software. Lin realised that this additional product line would require an expansion of his staff by 25%.

How can Lin manage the growing human resources needs of PremiumSoft—recruiting and retaining the right people and maintaining the proper levels of quality, production and creativity—while expanding their staff?   

Company Background

PremiumSoft was founded in 1999 by Lin and Choi as a web design company. Lin started his career as a computer programmer for a large bank but found the job “too boring and not creative”. He had to spend months reading a user manual before he was able to begin programming, and frustrated with the prospect of an inefficient use of his time for a year-long contract and with only being able to complete a small project, he approached his friend Roy about launching an independent web design business. Lin and Choi quickly found the web design market to be too competitive and the profit margin to be too slim. The web design business, however, provided Lin with the initial capital to turn PremiumSoft into a software development company without having to rely on borrowing and external investors.

PremiumSoft developed products that accelerated the development of applications and facilitated the management of databases. These software products aimed to “enhance productivity” and “maximize the results”^[1] of their customers. The company had two main software solutions: Navicat and NaviCoder.

PremiumSoft launched its database tool, Navicat, in 2001. Navicat was built as a tool to manage and administer multiple databases across different operating systems using a graphical user interface (GUI). The GUI automated and simplified programming tasks that were previously done by hand, allowing users to “create, organize, access and share information in a secure and easy way”.^[2] Users ranged from individuals managing a website to system administratrators and programmers managing tens of millions of pieces of data in multiple databases.

In October 2009, PremiumSoft launched its second product, NaviCoder, which was a powerful Integrated Development Environment for Windows. It was a professional source code editor for PHP, HTML, C/C++, Perl and Java; this program targeted individuals who worked in various programming environments, supporting multiple programming languages and script files.

PremiumSoft was awarded a number of accolades,^[3] and Navicat was recognised as the “Most Popular MySQL front end GUI”.^[4]

In 2010, PremiumSoft continued to work towards updating its popular NaviCoder and Navicat software, but was also on the cusp of expanding its product line to include a webware development team, and was changing its marketing and sales model.

“Our uniqueness is that our product is one software that can support different database software; we will be supporting more databases—this is where we can see the growth [of our company]. ”—Ken Lin, co-founder, PremiumSoft

Company Structure

In 2010, PremiumSoft employed 24 staff, divided into three departments: software development, marketing, and customer service (Exhibit 1). The software development department, composed of 13 staff, was further divided into three smaller work teams composed of junior and senior programmers and lead by a supervisor. Supervisors had high autonomy in managing their teams and were responsible for project management as well as team member evaluation. Programmers worked independently to build both major software features (which would take up to six months) and minor software features (with an expected development time of one month). The customer service and marketing teams, with nine staff in total, were led by one supervisor. These teams were responsible for front-line relationships with potential customers and current users, as well as market research and development of marketing material to promote the software products.

Lin was the director of software development and oversaw the software development department. His role included discussing and setting strategic goals with supervisors, solving problems, and identifying key features to be modified or developed by programmers. He also managed the larger strategic direction and management of the company. He did not do any programming. Lin spent 80% of his time on product development (managing development on both new and existing products) and 20% on management tasks (dealing with partners, human resources matters, etc). Choi had the role of finance and marketing director. He managed the customer service and marketing departments and was also responsible for the financial management of the company.

Knowledge Management Tools

PremiumSoft implemented what they termed “knowledge management” tools. Lin described the interdepartmental collaboration on knowledge management: “[the] customer service department will help the development team to record down [customer] feedback; we have a centralized database to record this kind of feedback ... an internal system for knowledge management ... [D]uring meetings we will follow up on the case ... this can give us targets on how to improve our product.”

These centralised databases (wikis) were set up across the marketing, customer service and programming teams. The customer service team collected information from clients through a web-based survey (approximately 10 surveys per month), feedback from users who had uninstalled the software, one-on-one relationships with customers, the PremiumSoft Lacebook page (with over 200 fans), Twitter, and a live online help chat. The team posted the up-to-date feedback from customers on the wiki, and the software development teams would use this information as the basis for their continued product development. The software development team also used the wiki to record discussions about features that were being developed and the outcomes of problem-solving meetings. Milestones were clearly listed to allow employees to monitor their own progress and the progress of others. Specific questions from customers were posted: developers could see the problems in the products or features they were responsible for and would solve them. Solutions were also recorded so that when similar issues appeared, employees had access to previous outcomes. PremiumSoft also built software that allowed them to track and analyse sales growth, generate sales reports and allowed them to compare month- to-month sales figures using different parameters.

While directors at PremiumSoft had integrated a number of management control mechanisms, they were also wary of the additional work load that would result from reporting or process requirements. Lin was concerned that too many controls would detract from their focus on innovation and development as was the experience of a friend: “she said the paper work [in her job] was terrible. Now most of the time she is stuck filling out forms and writing reports, she has no time to do her work. We don’t want our staff to be left in a situation like this.”

Company Communication

PremiumSoft prioritised the development of innovative, timely, relevant software for its customers by establishing feedback loops with its customers that drove product development:

“We have a dedicated R&D Team helping us to remain competitive in the products we release. We also run a trained customer support team devoted to communicate regularly with our customers and continually gather feedback to make our products better. Whether a suggestion comes in through the Support Center, via our partners, or by some other means, our development team knows how to turn customer requirements into winning products that address real business needs. ”

—www.navicat.com

To manage this product development, the leadership at PremiumSoft focused on developing strategic milestones and product portfolio plans. Quarterly meetings were set up, during which directors met with staff to discuss their goals, the feature improvements they wanted and the required output for the next quarter: products were mapped as much as one and a half years in advance. Weekly meetings were held to discuss ongoing feature improvement ideas. These ideas were driven by the constant stream of customer feedback or research on competitors’ features, and Lin and the programming teams decided which features would be appropriate and beneficial to develop. Lin noted that “we have regular meetings because every day many customers they will give us feedback and we will get the feedback and decide whether we will provide features for these customers and we will summarize what kind of features we will include in our product.” Afterwards, the team met without Lin to discuss the technical issues involved with development.

Individuals on work teams would then spend several months working on features towards a product launch date of one year from the start of work, a point Lin stated was important: “Timeline is critical when launching a new product ... we have to finish [products] within one year because we are worried about competitors.” Lin pointed out that frequent feature updates were important due to the nature of the product cycles of the databases that PremiumSoft’s products support. “In order to attract customers to buy upgrades or continue using our product, we have to provide a major release once every year. Basically, MySQL, PostgreSQL, Oracle, MS SQL, SQLite, [database software supported by PremiumSoft] vendors frequently release new versions. Their database users always hope Navicat will be able to help them to manage the latest version of the database. We also wanted to develop features that would speed up the user’s daily operations.” In addition to major product releases every year, PremiumSoft would have minor releases several times a year to provide fixes for minor bugs in the program. Employees worked independently on their product development tasks without direct involvement from the senior staff: Lin emphasised that “these are all clever people and we don’t want them to feel that they are being held back.” PremiumSoft relied on the creativity and innovation of its staff to drive its product development.

The leadership at PremiumSoft had set up a number of avenues for communication to support the independent work of the staff. Supervisors held regular meetings with employees to deal with any programming obstacles. Employees were also given the opportunity to speak directly with the directors to discuss emerging problems that might delay the release, or new features that they thought would be valuable additions. This communication was bottom-up driven directors would not “get in their way” by forcing programmers to report on their progress or bypass the supervisors to interfere directly.

Company Culture

Lin prioritised making PremiumSoft’s work environment one that cultivated innovation and loyalty from its young employees: “Because we are doing research and development, coming to our office is just like when they went to university.” Lin noted that “the company culture is relaxed, we make sure everybody is concentrating on the task and we will be able to finish on time and our job is to provide to them the best circumstance in order for [them] to carry out the task efficiently and effectively.” These young employees—the average age of PremiumSoft’s staff was 26 or 27 years old—were supported through daily communication and mentoring. PremiumSoft prioritised establishing a high level of trust and belonging between its team members across all levels and departments.

Lin challenged his employees to work at a high level by displaying his confidence in their abilities and providing them with positive feedback from customers:

“I will let them know after each new version our sales are improving, and show them positive customer feedback. From this they will understand if they trust me and finish new features, even if they are difficult, sales and growth will come. For example, Stanford University requested 60 licences to use in their classroom ... I shared this news to the team and we were all proud. This is how I try to motivate them—I show them that the company is growing. ”—Ken Lin, co-founder, PremiumSoft

Lin was aware that this culture brought an advantage to his company: “I hear that it is different from other IT companies ... in our office we don’t have pressure, we give you a time frame and we will not monitor you every day.”

Strategic Human Resources

“The software development team is the most important, because software is a creative product. If the developer sits the whole day and doesn ’t do anything, or he works very hard, but the throughput is very poor it will affect your business ... [the software developers] will try to get something from our company and we also want to use their talent to make a creative product for all our customers. It is a mutual benefit for the two parties. ”

—Ken Lin, co-founder, PremiumSoft

PremiumSoft believed that its biggest asset was its people. Because its business was centred on the timely development of software with innovative features, it depended on individuals who possessed both the creativity to develop new features and the skill and discipline to do so efficiently and under tight schedules. Recruiting and retaining high quality staff was always a priority of the leadership of the organisation, however they did not have a human resources department or a systematic approach towards their human resource management. Lin noted that “To hire the best people is our biggest challenge.”

Recruitment

The majority of PremiumSoft employees started with the company as recent university graduates. To recruit staff, advertisements were placed on online recruitment websites.

PremiumSoft would receive, on average, 100 applicants per job posting. They preferred candidates with a computer science degree (14 out of 15 software development staff were computer science graduates), a final year project in a related subject, proficiency in the programming languages uesd in PremiumSoft products, and graduation with a high academic standing. It was also preferred that they were a graduate of one of three particular universities in Hong Kong with the reputation of having the best computer science programs. Students who fulfilled these criteria were interviewed: normally, only 20% of applicants had sufficiently high grades to warrant an interview. Through in-person interviews, a director and supervisor assessed candidates’ communication skills and ability to fit into the culture of the organisation. Lin noted that “we look for the people who are friendly and also willing to communicate because we divide our company into different teams and team communication is very important.” PremiumSoft did not hire people they considered to be shy. The final decision on hiring was “just by our feeling, not a systematic approach”.

Retention of Valuable Staff

PremiumSoft’s employee retention strategy revolved around two main factors: offering competitive compensation to their staff and maintaining a desirable work environment. According to Lin, PremiumSoft offered “a competitive salary package”. In addition, PremiumSoft provided an automatic one month bonus after one year of employment. Promotions in the form of salary increases were normally granted after two years of service by programmers as a method to retain staff, but due to the small size and scope of the organisation, roles and responsibilities rarely changed.

PremiumSoft’s working environment included flexible working hours (employees could start their day between 9:30 and 10:00 and could leave between 6:30 and 7:00 depending on when they started), long lunch breaks, Xbox and virtual tennis games, and social activities outside of the workplace. “Programming can be stressful and depressing from time to time and we want our employees to have something to ease their feelings.”

PremiumSoft also differentiated itself from other IT companies in Hong Kong with its human resources policies; Lin noted “In Hong Kong the working pressure is very high so we try to give freedom and not be very strict.” PremiumSoft did not make unpaid overtime work a requirement (a norm in Hong Kong), gave employees independence in their time management and emphasised team building. He was critical of a restrictive work environment: “Personally, I don’t think that it is very good for staff, because the staff spend most of their time working in the office. Maybe the time is longer than the time they spend at home.” Lin would often eat lunch with his employees and participated in all of the activities. He felt that it built trust and said, “We are like a family.”

According to Lin, PremiumSoft had an extremely low turnover rate: less than 10% over 5 years. “There is one supervisor who has been in the company for 10 years, since its establishment.” He attributed this retention to the work environment at PremiumSoft: “We provide a relaxed culture and learning culture. Staff are happy and they feel both challenged and fulfilled.”

Staff Evaluation and Compensation

PremiumSoft did not have a formal evaluation system in place. Lin attributed this to the small size of the company and the knowledge if its founders: “We have no [formal] performance evaluations—we have no experience, no knowledge and we did not study this.”

PremiumSoft had informal evaluations of its employees. These evaluations did not take place at regularly scheduled intervals, with the exception of a three-month probation period for all newly hired staff. Supervisors played a major role in assessing the performance of their group members. Lin noted that “supervisors knew the performance of individuals more than anybody else in Premiumsoft, for me, all I can see is whether the team has successfully accomplished their assignment. Yes, as we are still a small business and headcounts are limited, I do get some information about individual performance from daily communication and observation. But performance is about the quality of the task rather than the time a person [is] spending working in [the] office.” Supervisors would speak with employees if they fell behind schedule or if the quality of their work was low, as evidenced by a large number of bugs found in their software. Lin would also speak to employees who were underperforming: “I try to talk to them in person and I give [them] some guidance on how to improve, for example you have to speak out in the meeting and you have to give more ideas, because this is research and development.”

Lin’s evaluations of supervisors were not systematic: “We always communicate and T will give them suggestions and advice on how to manage the team better. In my point of view they have done the job. [My evaluation is] by observation only.”

According to Lin, innovation—demonstrated by an employee’s ability to provide new ideas and problem solve—and intelligence—demonstrated by the creativity of ideas and the speed and efficiency at which he functioned—were highly valued at PremiumSoft. With the absence of a formal evaluation and compensation system, employees were not rewarded for exhibiting these qualities above and beyond their peers.

“I give no different rewards for him—there is currently no system. My concern is that if I only provide the best to him, it will cause other employees to see it as an issue. I treat all [employees] the same. In person, I will give him positive feedback. His salary is almost the same. ”—Ken Lin, co-founder, PremiumSoft

Lin believed that the lack of differentiation was not a problem, and that his employees were very happy. Lin believed that employees could not easily compare their performance because their work was independent and different.

He recognised that if the discrepancy of performance was high, and the other employees were perceived as “very lazy” while still receiving the same compensation that individuals may want to leave but said “we won’t let this happen—we will also encourage other employees to be better, so the difference is not very obvious.”

When the difference was obvious, and individuals were falling behind in their schedules as the result of a bad work ethic, PremiumSoft showed little tolerance: “For some staff we have had discipline issues; we will give them a warning and then a warning letter.” Lin noted that after issuing a warning letter to two employees who were chatting excessively, they stated that they felt the workplace “was not suitable” for them and left the company. One employee was let go after she disobeyed company rules for personal communication during work hours: “She spent half [her] day on MSN. We are only concerned if you play like this for half day, it is not acceptable. If you just send one message it is ok.”

Challenges for the Future

PremiumSoft was an award-winning software company with thousands of users around the world. It had achieved 10 years of success through the regular release of innovative products and had built a small and loyal team of software development, marketing and customer service employees. Looking forward, co-founder Lin believed his biggest challenge was in the growth of the company: recruiting and retaining high quality staff. He wanted to do this without sacrificing the independent work environment that he felt was important for cultivating creativity and innovation, but wanted to maintain the high quality of work that emerged. With the imminent growth of PremiumSoft in both employee size and product scope, how can this small company attract and keep the best talent in a competitive environment? And how can Lin continue to manage this environment with a growing number of staff?