120311 hkust mba case study hkbn watermarked

Center For Business Case Studies, HKUST

Ivy Buche prepared this case under the supervision of Professor Riki Takeuchi solely as a basis for class discussion. Cases are written in the past tense; this is not meant to imply that all practices, organizations, people, places or facts mentioned in the case no longer occur, exist or apply. Cases are not intended to serve as endorsements, sources of primary data, or illustration of effective or ineffective handling of a business situation. To order copies or request permission to reproduce materials write [email protected] or visit www.bm.ust.hk/cbcs. © 2013 by the Hong Kong University of Science and Technology. This publication may not be digitized, photocopied or otherwise reproduced, posted, or transmitted without the permission of the Hong Kong University of Science and Technology. Last edited:11 March 2013

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RIKI TAKEUCHI IVY BUCHE

Reaching the Summit and Beyond: Hong Kong Broadband Network’s Innovative Approach to Talent Engagement We want people to either love us or hate us. We don’t want people to be indifferent to our culture.

NiQ Lai, head of Talent Engagement and CFO of Hong Kong Broadband Network1

Hong Kong Broadband Network Limited (HKBN) was the second-largest broadband service provider in the territory, being also the fastest-growing and the most profitable fixed line carrier. Although it had entered the industry relatively late, HKBN succeeded by leveraging its Talents and technology. The company took great pride in its innovative Talent engagement policies, and the 3,080-strong Talent base was the foundation of HKBN’s productivity and competitiveness.

Ni Quiaque Lai (NiQ), head of Talent Engagement and CFO, saw people as the most conclusive factor in the company’s success. More money was spent on Talent—which NiQ insisted was represented with a capital T—than technology, marketing, or other aspects of the business.2 In May 2012, HKBN’s parent company, City Telecom, entered into an agreement to sell HKBN and all related telecom businesses to a global private equity firm, CVC Capital Partners. Within this changed context, the new directive for CEO William Yeung and NiQ was to lead HKBN to an initial public offering (IPO) in three to five years’ time. To do so, the key question that NiQ faced was how should the management team leverage its Talent base to maximize the value of the company?

HKBN: The Company

Incorporated in 1992, City Telecom was cofounded by entrepreneurial cousins Ricky Wong and Paul Cheung, with 10 people and a start-up capital of less than HKD1 million.3 City Telecom started by offering cheap International Direct Dial (IDD) calling services, pioneering call back

1 NiQ Lai, head of Talent engagement and CFO, HKBN, interview by author, Hong Kong, 5 September, 2012. 2 “Strategic HR – How HR Can Captain the Ship,” HR Conference, HR Magazine (Summer 2012): 49. 3 City Telecom was listed on the Hong Kong Stock Exchange in 1997 and the U.S. NASDAQ in 1999.

UST 0313-013

This document is authorised for non-commercial use by HKBN

HKUST Business School Thompson Center for Business Case Studies

2 UST 0313-013 Reaching the Summit and Beyond: Hong Kong Broadband Network’s Innovative Approach to Talent Management

facility to break the IDD monopoly in the industry. By the late 1990s, the founders realized with far-reaching foresight that with technological advancement, the IDD business would be replaced by Voice over IP in the long run. City Telecom started exploring fiber-based next-generation network technology and its capabilities, which brought about its next move—the establishment of HKBN in 1999. HKBN entered the market as a green field operator in 2000, launching broadband Internet services, followed by telephony and IP-TV services over the following years. Contrary to industry expectations about the feasibility of such actions, the company went on to build its own next-generation fiber optic network. By 2005, it had successfully built the largest Metro Ethernet network in the world [see Exhibit 1 for HKBN’s timeline].

HKBN’s fiber-to-the-building offering—which ranges from 50 Mbps up to 1 Gbps—is completely self-built and owned “from the socket in your flat to my data center.” Doing it alone allowed HKBN to build a truly differentiated service that allows us to avoid getting caught up in Hong Kong’s notorious price wars.

Ricky Wong, chairman and co-founder of City Telecom4

Driven by strong growth, HKBN reached a milestone in 2009 when total subscriptions reached the one million mark. Three years later, the company went on to achieve its long-stated goal of two million home pass reaching 85% residential coverage.5 HKBN was awarded the Best Fixed-Line and Broadband Carrier in 2010 and 2011 by Telecom Asia. In 2012, HKBN operated through two business segments—(1) FTNS, including broadband Internet access, telephony, and IP-TV, and (2) IDD services [see Exhibit 2A for HKBN’s business operations and Exhibit 2B for subscription growth]. In addition to its headquarters in Hong Kong, the company had a call center at Guangzhou, China. In Hong Kong, HKBN’s operations were structured vertically and subdivided by five geographic regions, each run by a “mini CEO” responsible for sales, network management, maintenance, and customer service [see Exhibit 3 for the operations structure]. This served to decentralize authority with the aim to better manage and facilitate innovation in respective areas, as well as avoid creation of malfunctioning silos. In addition, each area was benchmarked monthly against the others so that continuous improvements could be made. The “mini CEOs” structure was also introduced to other functions, and there were about 45 such positions throughout the company. All “mini CEOs” were empowered for decision-making regarding customer engagement (internal and external) and bore full responsibility for their P&Ls and balance sheets.6 In FY 2011, HKBN recorded total revenues of HKD1,681.5 million (an increase of 6.8%) with net profits of HKD313.9 million (an increase of 44.7% over the previous year). HKBN was the most profitable company among the other three key fixed line competitors,7 and the only one delivering double-digit net profit margins of 18.7% and 13.8% in FY2011 and FY2010 respectively [see Exhibit 4 for five-year financial highlights].8 In the first half of FY2012, City 4 John C. Tanner, “No Network Sharing for HKBN’s Wong,” CommunicAsia Show Daily, June 18, 2009, http://www.telecomasia.net/content/no-network-sharing-hkbns-wong, accessed August 2012. 5 “Hong Kong Broadband Network Achieved 2 Million Home Pass after 12 Years of Investment,” HKBN press release, August 3, 2012, on HKBN website, http://www.hkbn.net, accessed September 2012. 6 Wim Torfs, “Being the Best: An Interview with William Yeung and NiQ Lai, HKBN,” McKinsey, March 2010. 7 PCCW, i-Cable Communications, and Hutchinson. 8 “City Telecom Announces Annual Results 2011,” City Telecom press release, 2011, on City Telecom website, http://202.66.146.82/listco/hk/citytelecom/annual/2011/respress.pdf, accessed August 2012.




Telecom’s total revenue stood at HKD918 million—HKBN’s revenue contribution was HKD828 million (an increase of 14% year-on-year), and the international telephony business contributed HKD90 million (a decrease of 6%).9 Out of total annual cash outflow (operational and capital expenditure) in FY2011, HKBN spent the biggest component or 37% (HKD567 million) on Talents compared with capital expenditure at 29% (HKD448 million) and marketing expenses at 10% (HKD160 million).

Photo 1: HKBN Talent Meeting, June 2012

Organizational Culture

HKBN demonstrated its competitive spirit in 2006, when it set a “Big, Hairy, Audacious Goal”10 to become the largest IP service provider in Hong Kong in 10 years’ time. William called upon the entire company “to experience the emotion of competition, winning, and crushing competitors” [see Exhibit 5 for HKBN’s Vision Statement].11 From being the smallest carrier at the fourth spot in 2006, HKBN became the second largest by 2011, and was bigger than the third and fourth players combined. William envisaged that in the long term, the market would most likely have room for only two serious infrastructure players.

9 “Interim Results for the Six Months Ended 29 February 2012,” City Telecom press release, 2012, on City Telecom website, http://202.66.146.82/listco/hk/citytelecom/interim/2012/int.pdf, accessed August 2012. 10 Based on Jim Collins, From Good to Great (New York: Harper Collins, 2001). 11 NiQ Lai, “Finding LUCA (Legal Unfair Competitive Advantage),” PowerPoint presentation, 11 January, 2012, City Telecom, Hong Kong.




HKBN’s core value—“to fulfill the desire of Self-Actualization and to become everything that one is capable of becoming”—reinforced the company’s competitive advantage, its Talents, by uplifting their morale, attitude, and ability to adapt to different environments.12 Beyond this, the Talents were ably supported by advanced technology, corporate culture, systems, and processes, all of which allowed HKBN to deliver quality customer service. The common drive at HKBN was the search for “Legal Unfair Competitive Advantage,” which resulted in a united sense of entrepreneurial “sink or swim.” In line with this, HKBN’s management philosophy was articulated as 3Es: Entrepreneurship, Engagement, and Execution, represented by vve@hkbn or Venture for Victory as Entrepreneurs. Pronounced as “we at HKBN, this theme denoted that everyone worked together as a family, and that HKBN, was like a second home. The key point was “Venture,” which referred to taking calculated risks. Employee empowerment and risk taking were encouraged at all levels across the organization. For example, HKBN issued a corporate credit card with at least a HKD20,000 limit to management executives, irrespective of their functions. They were told to use it as they deemed fit for business needs. According to HKBN, this was a unique practice, as most companies normally issued corporate credit cards only to sales employees with a need for corporate entertainment. The message conveyed was that if managers saw a need, then they could act using the money to rectify it. The credit card exposure was not a lot of money but it gave a strong sense of empowerment. If Talents took a calculated risk within the allowed risk exposure and lost, they would not be penalized; rather, they would be rewarded.

Leadership Profile

William Yeung

William [see Photo 1: front row, seventh person from the left] joined the organization in 2005 as chief operating officer in charge of the Customer Engagement Department and the Network Development Department. Three years later, he was appointed as the executive director and CEO, with responsibilities for developing and executing the long-term corporate vision and overseeing entire operations. William walked the talk of engagement through G, O and D. G stood for give—highlighting the importance of servant leadership; O for objective—reminding leaders not to be self-centered; and D for Daddy—advocating the higher priority of family over work.

NiQ Lai

In 2011, NiQ [see Photo 1: front row, tenth person from the left] was selected by Global Telecom Business Magazine as one of the top 50 CFOs in the industry to watch. He had over 20 years of experience in the telecommunications, research, and finance industries. NiQ reminisced that in 2002, he was taken by Ricky for a tour of HKBN’s broadband network deployment in a public housing estate. As the cost of network deployment was inversely proportionate to the density of the apartments, HKBN focused its early fiber network deployment in the densest areas of Hong Kong, that is, the low-income public housing estates. This was in direct contrast to the typical thinking of incumbent players who first focused on the affluent. NiQ was completely taken by the prospect of helping the poor afford broadband, creating a “reverse digital gap” and being able to

12 “City Telecom Announces Annual Results 2011,” City Telecom press release, 2011, on City Telecom website, http://202.66.146.82/listco/hk/citytelecom/annual/2011/respress.pdf, accessed August 2012.




doing this profitably. He was so captivated by this business model that he sold his family home and purchased 2% of the company as he joined HKBN in May 2004. Talents at HKBN were of the view that the leadership styles of William and NiQ, though completely different, complemented each other very well. William was highly disciplined and systematic in his approach, doing things step-by-step to ensure value creation at the end of the day. He paid attention to detail, even to resolve minor complaints on forums. William’s style was perceived to be “hard,” but he commanded respect as a leader with good ideas. He set targets, placed trust in his team’s ability to achieve them, and gave support when necessary. NiQ, on the other hand, was seen as a more “macro” person, attaching importance to psychological returns. He wanted to inspire and was supportive of new, untested ideas. The feelings of customers and Talents were both equally important to him. Often, he would follow up on service jobs with e-mails to customers enquiring about feedback; subsequently forwarding compliments or other comments to the concerned Talents. NiQ gave a free hand by letting Talents try to solve issues and meet targets on their own first, and learn in the process. However, he helped by giving examples and information about happenings in the industry. If he noticed that there were problems, he would indicate these at once and help indirectly.

Talent Management

We do not have any ‘staff’ . . . We have only ‘Talents’. We have a very strong corporate DNA. . . . In the long term, it’s easy to replicate technology, but it’s difficult to replicate our Talent.

William Yeung, chief executive officer of HKBN13 HKBN consistently put a lot of effort into attracting high-caliber people. “We offer a career rather than a job” was the view taken by the company regarding Talent attraction and retention.14 NiQ knew that as an employer, HKBN could not appeal to all. So the Talent Management team had to clearly define the desired Talent profile and use this to appeal to the right kind of Talent.

HKBN wants its managers to be well-rounded thinkers rather than senior functional specialists.

NiQ Lai15 HKBN’s Talent structure consisted of seven levels. Points one through three were the entry–level, non-management grades, while points four through seven comprised management grades, which included 75 out of 3,080 employees. Entry levels (one through three) consisted of technicians, administrative assistants, and so forth. A minimum score of 6.5 IELTS (an English proficiency test) was mandatory for all management-grade positions, which the company felt was relatively unique for a local Hong Kong company. Candidates for management-level promotions had to undergo a stringent executive management panel review, which focused on factors such as past and future contributions to the company, continuous learning, and knowledge of company-wide factors beyond their functional specialty.

13 Wim Torfs, “Being the Best: An Interview with William Yeung and NiQ Lai, HKBN,” McKinsey, March 2010. 14 “City Telecom’s Winning Strategy,” Hong Kong Case Study, HRM Issue 7.7 (2007): 62‒63. 15 NiQ Lai, head of Talent engagement and CFO, HKBN, interview by author, Hong Kong, 5 September, 2012.




Talent Engagement Programs

To instill a learning culture throughout the company, HKBN took a structured approach to Talent development through various partnerships with Talents, encouraging “life learning” rather than “training” [see Exhibit 6A for HKBN’s Talent Development Programs].

For our Talents, we strive to do financially very well and emotionally even better.16 . . . Many companies hold back on developing their staff in fear that they will leave for better positions elsewhere. At HKBN we think differently—HKBN does not hesitate to ‘over invest’ and potentially lose money on individuals as long as we can inspire the whole company to do better. We make exceptional career-changing investments in our Talents at all levels—be it entry level or senior executives, and then proactively upgrade their career responsibility and authority to keep them engaged and challenged.

NiQ Lai17

“Talent ∞” Program—Broadband Executives’ Mindsets

Launched in 2006, the “Talent ∞” education co-investment program aimed to groom management Talents as highly competent business entrepreneurs by acquiring world-class eMBA/MBA degrees. HKBN co-invested 30% to 100% of the course fees. One of the key considerations for this investment was that many of the upcoming future leaders had spent major parts of their careers within HKBN. In order for these executives to gain external exposure, a high-quality eMBA that allowed them to interact with senior executives from other companies was one way to open their minds. By 2012, a total investment of HKD3.6 million had been made by the company and 75% of the management-level executives had gained or were in the process of gaining postgraduate degrees (compared to 15% in 2006). HKBN saw master’s qualifications, which provided valuable exposure and allowed for benchmarking with other industries, as a basic “hygiene” factor for its core Talent pool.18 NiQ also believed that “non-finance people” needed MBA degrees much more than “finance people” in order for the entire management team to speak a common language of business. Dick Ip obtained his eMBA degree from the Chinese University of Hong Kong (2007–2009), sponsored by HKBN’s “Talent ∞” program. He found his eMBA experience to be highly enriching, as he got the opportunity to meet people from different industries and understand how they ran their business. The skills and concepts related to other areas, such as marketing, HR, and finance, further enabled him to handle internal communications with HKBN’s various departments and understand their policies. Additionally, carrying out projects across departments became easier as he could recognize their requirements better. Dick was also a part of HKBN’s mentorship program, mentoring junior Talents who had the potential to make it to the management grade. As a passionate marathon runner, he supported HKBN’s physical fitness policies. In addition to good health, he felt that the marathon training allowed people from different departments to meet, share, and bond informally, which had a positive impact on work relationships. 16 Ibid. 17 “CXO of the Future - Adversity Today Builds Success Tomorrow,” HKBN reference material, August 24, 2012, and “HR Hard Sell,” HR Magazine (Autumn 2012): 28‒30. 18 “Unleash Talents’ Infinite Potential: 75% of CTI’s Senior Management are Master-Classed,” HKBN press release, 7 February, 2012, on HKBN website, http://www.hkbn.net/2012/en/pdf/press_release/2012/PR_TalentInfinity_E.pdf, accessed September 2012.




As a co-owner of HKBN, Dick’s considerations included the investment amount and a good return on investment, which were pinned on the confidence that HKBN would continue to do better than before. He believed in the management team and stated, “I am confident that HKBN will be the largest broadband provider (post-IPO/exit). On a personal level, I hope to be able to contribute more to society and the community after we have reached that stage.” 19 He was one of the Talents with long service at the company, having joined City Telecom in 1994 as a fresh graduate from HKUST with a bachelor’s degree in computer science. His career saw a change every two to three years as he progressed from one role to another. He started out writing software codes for IDD programming, followed by a one-year stint in Japan. When he returned to Hong Kong in 1998, the company received a special license (International Simple Resale) for the IDD business and he was instrumental in setting up its IDD1666 Direct Calling Service. Learning mostly took place “on the job,” as he was dealing with technologies not covered in his education. In 2000, HKBN entered the fixed network market and Dick was transferred to HKBN to take on the position of Senior Manager—Information Technology, in charge of both internal and external systems. In this new role, he helped to build the company’s e-mail system and Web site, amongst others. At the same time, he worked to bring about the successful migration of the entire internal HKBN billing system to a relational database management system, which was a new learning experience for him. He felt that new technical skills could be learned, but what was critical to succeed in every role was the mindset to understand the requirements (of each role) and deliver the best result. In 2003, Dick again left his comfort zone when he was transferred to the Network Operation Centre. Here he managed HKBN’s entire network, including the field staff. He explained, “I had to go to the roof top to look at the antenna and carry out maintenance, even in the small equipment rooms in buildings. I did not need to do any programming or key in any commands.”20 The next change came in 2011 when he became the head of business development. In this capacity, he had to work with international partners to find business growth opportunities for HKBN. After the management buy-out (MBO), there was some consolidation at HKBN as people moved to the parent company (CTI), and his role was expanded to include technical development. As of June 2012, Dick had dual responsibility as associate director of business development and technical development, with 40 Talents reporting to him. Looking back, he noted that while HKBN had evolved from a small company with simple structures and a family-business like environment, the working style had not changed much. Although there were more systems and policies to run in the fast-growing company, HKBN continued to take action very quickly and encouraged its Talents to attempt many different things and take “calculated risks.”

Next Station University—Second Chance in Life

As part of a long-term human capital development strategy, in 2009 HKBN launched “Next Station University,” a custom four-year Talent upgrading program, in association with the Hong Kong Management Association. It offered a formal education path, all the way from the certificate level to the undergraduate level. Talents who had been unable to complete their

19 Dick Ip, associate director, business development and technical development, HKBN, interview by author, Hong Kong, 20 December, 2012. 20 Ibid.




education for socio-economic reasons were given a second chance to earn a university degree. The company sponsored 80–90% of the tuition fee, which amounted to about HKD110,000 per student. To facilitate learning, university instructors were invited to teach at office premises, to balance full-time work and study schedules. The whole company chipped in to support this program, stepping up with flexible work schedules and backing up each other’s on-the-job requirements. By 2012, 48 Talents had gone through this program [see Exhibit 6B for Next Station University program details].

Photo 2: Next Station University Students at the Graduation Ceremony on Completion of Higher Diploma Level, March 2012

When Edwin Wong [see Photo 2, middle row, sixth person from the left] moved to Hong Kong from mainland China because of family reasons, he had to drop out of university and was unable to complete his degree. He started working to maintain his family and, three years later, having worked in clerical and technician capacities, he joined HKBN as a junior technician in 2001. Over the years that followed, he climbed the career ladder, being promoted to technician, then service engineer, and finally to his position as service network consultant in October 2012. Starting out as a junior technician, he carried out onsite installation and maintenance work. As he progressed, he first became a team leader monitoring a group of technicians and then the leader of a team that supported the technicians. In his role as service network consultant he coordinated between sales, customer service, and the technicians. Edwin’s goal was to be promoted to the management level, for which a degree was a basic requirement. When the Next Station University program was launched, Edwin was among the first to sign up. At that time, he was 32 years old and it was important for him to seize the opportunity to attain a bachelor’s degree, as it would serve to enhance his resume. He was concerned about whether he could balance his time between job demands, family, and coursework. He received the maximum support from his supervisor, who gave him enough space




to manage his projects, provided helpful advice when he faced difficulties, and imparted many skills to handle his job. Edwin also felt the need to improve his English proficiency to better his career and therefore joined the Global English Program (an online course) with monetary assistance from HKBN. Edwin perceived HKBN as a young company with young people. According to him, the company was dynamic, continuously striving to move to the higher level, and so were the people. The ability to accept change and adapt was essential.

All HKBN people have the same attitude that the current level is not enough. . . . Everyone is looking for improvement. People need to be suited to the style of HKBN and be aggressive instead of remaining complacent.

Edwin Wong, service network consultant21 Edwin felt that HKBN thrived on competition and that such an environment also existed within the company, both at the individual level, that is, among the Talents within a department, as well as at the inter-departmental level. Departments with higher performance received higher bonuses, and this success was a matter of pride for the Talents. Competition between individual Talents took place because top performers earned high bonuses. The challenge was to meet the targets set by management. Once those were achieved, new and often higher targets were set in line with the company goals. Edwin stated that although sometimes he might not have agreed 100% with some goals, he believed in his management and moved forward. Edwin was satisfied that HKBN supported entrepreneurial behavior. Citing an example, he described an occasion when his team went to install the network for a new customer. After they had finished installing the wiring, the customer was unhappy. He did not like too many wires in his home and cancelled the order. Edwin’s team quickly thought of a solution; the problem could be solved if they bought some new equipment to replace the wires. But at that time they did not have the authority to buy new equipment. They immediately proposed this to HKBN and were given the go-ahead to make the purchase, ultimately providing better service to the customer.

Education Partnerships—Co-investment in Personal Continuous Learning

HKBN provided up to 30% of a Talent’s monthly salary, capped at 80% of the course fee, for them to attend external courses or to enroll for professional memberships.

PowerBar Career Rotation Program—Developing a Wider Perspective

In order to develop well-rounded professionals instead of functional specialists, the PowerBar Career Rotation program was started in 2009 to provide career rotation opportunities for high-potential management Talents. All management-grade executives who had been in the same position for three years were expected to undergo this program so that they could gain exposure outside their existing area of expertise. PowerBar rotations ranged from three to twelve months, and by changing their position or reporting line, Talents experienced coaching by different mini-CEOs across the group. Indirectly, the PowerBar program helped to reveal fraud, as moving people put a second pair of eyes on a process. By moving around team leaders, the second in charge also got a chance to step up, which helped to develop a leadership pipeline. By 2012, 47 21 Edwin Wong, service network consultant, HKBN, interview by author, Hong Kong, 20 December, 2012.




Talents had been put through the PowerBar program, which was further offered to high-potential candidates being groomed for future management promotions.

Teambuilding Activities—Outside Comfort Zone Exposure

HKBN placed equal emphasis on growing individual competence and building effective teams. Taking people away from their normal workstations for offsite activities allowed them to gain different exposure and experience. A few examples of successful offsite activities included annual experiential overseas trips, company visits, outward bound trainings, strategic planning meetings, and even intensive workouts at gymnasiums [see Exhibit 7].

Photo 3: HKBN Employees at an Orphanage in Cambodia, December 2011

The experiential trips did not exhibit discernible immediate benefit to the bottom line. But the company felt that the trips helped to develop an atmosphere of trust, confidence, energy, and concern for team results, which contributed to the overall higher productivity of the company. One example was the HKD2 million invested in a trip to Cambodia in 2011. NiQ was convinced that while HKD2 million might seem like a lot, compared to the profits that Talents could generate based on “aha” moments they had on the trip this “cost” paled into insignificance.22 In November 2012, a team of 75 management-grade Talents was looking forward to a week-long trip to Las Vegas with the theme “In Search of Happiness.” This would include a full-day workshop by Professor Srikumar Rao, who had taught about happiness at the Ivy League business schools; interaction with the founder of the Zappos shoe company to learn about its unique culture; visits to the Google campus and Cisco; and offsite team-building activities at the Grand Canyon.

Often, outsiders question the Return on Equity on these seemingly extravagant events. We do things because we believe it is the right thing to do, without seeing an immediate ROE. . . . Such investments contribute to our long-term financial success, otherwise we would not continue with these extravagant events.

22 “HR Hard Sell,” HR Magazine (Autumn 2012): 28‒30.




NiQ Lai23

HKBN’s strong focus on Talent engagement was recognized by industry-wide HR experts and professionals in 2009 and 2010, when William and NiQ were awarded “Champion of Human Resources” by the HRM Awards respectively.24 Furthermore, for seven consecutive years (2006–2012), a total of 19 of HKBN’s nominees received the Distinguished Salesperson Award, a signature event for Hong Kong’s business community.25

CXO of the Future Program

The CXO of the Future program was HKBN’s elite 12-month management trainee program for fresh graduates, which focused on developing them as future C-suite leaders of the company.26 The program had been in existence since the inception of the company, and many of the company’s associate directors came from this pool. But it was formalized as a branded, high-profile program in 2007, and, over the following years, the number of applications grew from 700 in 2007 to 1,153 (from 153 universities) in 2011. Short-listed applicants were put through an exhaustive two-month selection process that culminated in a 36-hour Outward Bound Live-in Program. After going through a stringent process, out of 1,153 applicants only two elite candidates were chosen to join the company [see Exhibit 8A for an overview of the CXO program and Exhibit 8B for the CXO career path]. During the training period, trainees also had to pass the CFA Level 1, run a half-marathon, and read and reflect upon 12 management books to provide them with the theoretical management knowledge to test against real-world challenges. One of the elements of the training of future CXOs was to first take calculated risks and then learn from mistakes. For example, the 2011 trainees were given HKD40,000 and assigned a project to design and implement a marketing campaign to attract university students to use HKBN’s broadband services. On paper their proposal looked good, and they went ahead with the project, using the money to print brochures, hold roadshows, and so forth. But it turned out to be a complete failure.

Although they lost all the money, we are happy in buying them the experience. We would much rather have them lose HKD40,000 today, than HKD4 million or even HKD40 million later in their careers. In fact, we have even written this up as a positive showcase.

NiQ Lai27

At the end of the training period, employment contracts were terminated and trainees were required to reapply for a role within HKBN. NiQ hoped that in 10–15 years’ time these trainees would become better CXOs than the current generation of CXOs.

Our aim is that the two trainees will be able to learn in half the time of the 20–25 years that our current CXOs took to achieve their positions today. I became CFO when I was 36 and I hope they do better than me. We show them what we achieved

23 “Inspiration Rather than Motivation,” HKIHRM Presentation (29 November, 2011). 24 The HRM Awards were Hong Kong’s preeminent HR awards and the leading event for recognizing and celebrating exceptional human resources professionals and organizational practices. 25 Awarded by the Hong Kong Management Association and the Sales and Marketing Executive Club. 26 The CXO program had been shortened from 18 months to 12 months in 2011. The trainees aspired to become HKBN’s top executives, such as CEO, COO, CFO, CTO, CMO, CIO, etc. 27 NiQ Lai, head of Talent engagement and CFO, HKBN, interview by author, Hong Kong, 5 September, 2012.




in our career line and coach them to do better. I started at HKD12,000 in terms of real money today whereas they start at HKD36,000 per month, i.e., they are already well ahead of me at the same point of our careers. So my challenge to them is that don’t you dare fall behind me! They have to keep this three-times buffer.

NiQ Lai28

Photo 4: Kiana Shek, CXO of the Future 2011, Attached to Sales Team

Kiana Shek [see Photo 4], one of the two management trainees selected under the stringent CXO of the Future program in May 2011, had many prominent career options. But she chose HKBN over the others, influenced by one critical factor. Among the various interviews that she attended, it was only at HKBN that that the entire management team was present. This proved to her that the company placed superior emphasis and effort on recruitment of its Talents. Additionally, a personal preference for more autonomy at the early stage of her career swung her decision in favor of HKBN, compared to joining an MNC or being protected in a large organization. Kiana had heard of the saying “fail earlier, succeed sooner” and realized how it applied to her after undergoing the CXO program. Previously, she thought that failure was not an option for her. But during the year-long training, there were times when she made mistakes, failed, or learned through a trial-and-error process. She explained the change in her mindset: “I learned to be better prepared for failure because that is the only way I can succeed faster.”29 During the course of Kiana’s training, HKBN’s CTO broached the idea of developing the China business as a possible future role for her. Kiana was intrigued. She made several business trips (to

28 Ibid. 29 Kiana Shek, assistant manager, China business, HKBN, interview by author, Hong Kong, 20 December, 2012.




Shanghai, Beijing, Shenzhen, and Guangzhou) and, after three months, she realized that she enjoyed working with Chinese companies, meeting new people, coordinating with both sides, and bringing back new ideas to create value. In April 2012, Kiana decided to take up her new role as Assistant Manager—China Business. Her job scope included two areas: (1) Business development: To expand business partnerships in China by working with companies such as Youku (video content provider) and Baidu (Internet company) to speed up HKBN’s internet bandwidth, ultimately ensuring customer satisfaction. (2) New services and projects: To identify and bring new and viable projects or ideas from China’s growing IT industry back to Hong Kong. It was Kiana’s decision to relocate to Beijing (where HKBN did not have a presence yet) to be closer to the nerve center of China and have access to more business opportunities. HKBN supported her choice and entrusted her with this new responsibility. Subsequently, she was authorized to recruit some more Talents (both fresh and experienced) to grow the China business. After the MBO, Kiana became the youngest co-owner of HKBN. Despite being a new Talent in the company, the decision to invest (more than the salary she had earned till then) was not difficult for her. “I even asked for more, but they had limited shares,” Kiana stated.30 In addition to having faith in HKBN, she believed that in her own way she was contributing to the success of the company and thereby was partly in control of her investment. The MBO, however, made her realize that in the corporate world she should always be prepared to “expect the unexpected.”

Something I could never imagine happened. I never thought that our founder [Ricky Wong] would have sold his baby—HKBN. Before the MBO, I thought this is the company where I will stay forever. I found a good fit in terms of culture, job nature, and management support.

Kiana Shek, assistant manager, China business31 According to Kiana, as long as one could voice his or her ideas, HKBN allowed the opportunity and autonomy for execution of creativity. She expected that over the next three years she would be able to build a solid and sustainable team to support the China business.

Performance Management

HKBN is a very unpleasant environment for underperformers, but if you are passionate and able, it’s a great place to be.

NiQ Lai32 Alignment of goals and performance management formed the cornerstones of HKBN’s high-performance work systems. Drawing an analogy to a dragon boat, NiQ demonstrated that results depended upon the synchronized efforts of all and not the prevailing dominance of a few. Therefore, in the company, not only would everybody need to be in the same boat but also row at the same team speed, or else they would end up going in circles.

Compensation and Alignment with Organizational Goals

The remuneration package at HKBN consisted of a basic salary, bonuses, and other benefits. Bonus payments were discretionary and dependent on both company and individual performances.

30 Ibid. 31 Ibid. 32 Wim Torfs, “Being the Best: An Interview with William Yeung and NiQ Lai, HKBN,” McKinsey, March 2010.




Compensation was linked to performance at all levels. Typically, as in any corporate setting, employees received an average of two months’ bonus with an upside of two months’ bonus if the firm performed exceedingly well or a deduction of one month’s bonus from the average in a negative scenario. At the lower levels, employees were on low basic and high commission; for example, technicians typically received monthly earnings of HKD6,000/7,000 plus one or two times the same amount as commission. Talents in key roles were invited to put their salary behind their performance. For example, if one earned HKD100, he was asked whether he would like to put HKD50 at stake. That HKD50 could either become HKD25 or HKD75 depending on performance. So his total compensation would range from HKD75 to HKD125 instead of being fixed at HKD100. For example, during NiQ’s eight years at HKBN, less than 20% of his total income came from his cash salary, whereas 80% was derived from performance-related bonuses plus his investment in the company through equity.33 Salaries for some functions were up to 50% variable, based on individual key performance indicators (KPIs). KPIs for performance assessment were linked to respective functional areas and related to factors over which people had control. For technicians installing broadband at the customers’ premises, the variable salary component was based on the up-selling that they could achieve and on the customer feedback after every installation. IT personnel’s KPIs would be linked to metrics such as down time, recovery time, and so forth. Higher up on the career path, for the head of network deployment, the bulk of his KPI would depend on the number of home pass at a certain cost. For the Talent management department, the compensation was more traditional, fixed salary plus or minus bonus. On the other hand, for the CEO, the KPIs were business-related company-wide metrics such as revenue, net profit, subscription growth, EBITDA, and network coverage expansion.

While most companies motivated their staff to 20–30% higher productivity by upgrading their skillset, HKBN aimed to inspire the Talents to two to three times productivity gains by upgrading their mindset. A question was asked across all levels: “How can you help the company double your pay in the next two to three years?” The initial common response was, “This is quite stupid. How is that going to happen? My income has been effectively flat, inflation adjusted for the last 10 years.”

But the HKBN Talent Management department helped them change their mindset, to see how this could happen. For example, the typical monthly salary for technicians (who installed networks) was HKD12,000, supervisors (who managed a team of 12 people) earned HKD24,000, whereas the section head (overseeing 50 people) earned HKD48,000. The technician could not physically double the installation rate. Therefore, the question was, what attributes did the supervisor have that the technician did not possess, in terms of education, experience, or personal attitude? By answering this question they could set about narrowing that gap or even exceed it over the next two years. For senior executives, who earned over HKD100,000 per month, the comparison was made with people in the external market. For such high levels it was not so much direct salary, but improvement in net contribution and net worth that needed to be considered. The strong linkage between performance and pay drove people to persevere in their efforts. For instance, a technician was denied access to a competitor’s building to lay the fiber network 20

33 NiQ Lai, head of Talent engagement and CFO, HKBN, interview by author, Hong Kong, 5 September. 2012.




times over a period of 10 years. When he finally succeeded during the 21st attempt, HKBN saw his win as something that he had been nurturing for several years.

Benefits

HKBN provided comprehensive medical insurance coverage, subsidized health and dental checkups, competitive retirement benefits schemes, training programs, and free telecom services during employment and also offer a Co-ownership scheme for managers. The company believed that a work-hard play-hard philosophy served to attract people who were passionate about all that life had to offer. Therefore, with the view to maintain a good work-life balance, HKBN instituted some additional benefits, such as flexi-time, paternity leave, and sabbatical leave with continued benefits for personal development up to one year, among others. Moving away from fixed working hours of 9:00 a.m. to 6:00 p.m., HKBN started a flexi-time system in mid-2012, allowing Talents to work any nine-hour period between 8:30 a.m. and 6:30 p.m. Talents used this flexibility differently. CEO William Yeung was one of the first ones to opt for a later starting time of 9:30 a.m., which enabled him to take tennis lessons before work. Parents could start late so that they had time to drop their kids off at school, or start and leave early to have dinner with their family.

If you are a high-performing parent and we offer you this kind of flexibility that other companies don’t, you will prefer to come and work for us.

NiQ Lai34

HKBN Talents also participated in marathons; the company participation rate in the February 2011 Standard Chartered Marathon reached a record high with 324 runners, representing more than 20% of the Hong Kong-based Talent pool. For the past four years, HKBN employed a professional long-distance running coach to help prepare for this annual event. Another recent introduction was one-day paid leave for the Talents in Guangzhou in their birthday month while office-based Talents in Hong Kong could get off work at 4:00 p.m. on the first Friday of every month.

Termination Policy

HKBN terminated the bottom 5% of the total salary base annually based on performance reviews, applicable to all levels in the company, including the executive management levels. At times, people may have been a good fit at the point of hiring but, over the years, their interests became misaligned with the company. For the more senior people, the decision to terminate was taken by a committee, while at the junior level it was carried out by the department head. In a particular year, if a very senior person was fired, then fewer junior people would be asked to leave. This meant that if one person earning HKD100,000 per month was terminated then the firing of five employees earning HKD20,000 per month could be avoided. The company, NiQ elaborated, was not for everyone. Many companies invested resources to try to improve their bottom 5% performers and might make some improvement. But HKBN preferred to focus on the top 95% of performers and make

Photo 5: HKBN Talents in the 2011 Standard Chartered Marathon

34 Ibid.




great improvement strides. HKBN looked at Talent cost rather than Talent headcount. NiQ could not be absolutely confident that the correct 5% of underperformers were being fired, but he was 100% certain that out of the 100 people HKBN hired, there were some unsuitable ones. Through this policy, he ensured that such people were not accumulating in the company. HKBN believed that staff with the wrong mindset could be dangerous; beyond being low contributors, they were frequently the bottlenecks that obstructed progress. Often, when these people were removed, HKBN found that things were done faster even if the headcount was not replaced. According to HKBN’s Talents, competition between individuals was often driven by the bottom 5% termination policy. It encouraged them to improve because they knew that if they did not improve, someday they would need to leave the company. While this policy served to raise the bar for the Talents in the company, there was another key benefit. In order to attract superior Talents, HBKN needed to inflate the salary base. One option was that the 5% cost that was freed up by firing the underperformers could be paid out to the remaining 95% by spreading out the workload instead of having replacement hires:

We can hire 5% new headcount or we can use that 5% to pay the existing 95% of the people, i.e., we have less people but pay more. And that is very effective because if we do so for three years in a row, we get a 15% increment.

NiQ Lai35

35 Ibid.




Management Buy-Out and Talent Buy-In

The transformational management buy-out of HKBN in May 2012 was triggered by parent CTI’s decision to liquidate the profitable company (as a going concern) at approximately HKD5.1 billion and use the proceeds to break new ground in another business area. Going forward, this acquisition by CVC Capital Partners was expected to combine its financial strengths with HKBN’s established capabilities to further strengthen its competitive position. While HKBN’s business continued to be driven under the leadership of William and the management team, supported by the Talents of HKBN, the company’s mission evolved. NiQ articulated the new objective of HKBN in three to five years’ time: “We hope to IPO a company that we are proud of at a very decent price and create value for our shareholders.”36 To allow HKBN’s Talents to take ownership of the company’s future, 85 senior executives from the management grade were invited to co-invest, turning themselves into HKBN’s owner-managers. As part of this process, the managers were granted access to the five-year business case, which looked at market share, pricing requirements, and profit margin. Based on this, they had to decide whether they wanted to invest one to two years’ salary in the company. For a typical private equity investor, three times money on money return over three to five years was quite normal. To incentivize management, CVC structured management equity with preferential returns.

Over a 40-year career life, if you invest two years of salary and make five times that amount, i.e., 10 years’ salary, it is equivalent to a lifetime’s savings, assuming a 20–25% saving rate. We have an opportunity to make that lifetime savings in the next three to five years.

NiQ Lai37 The proposal met with an overwhelming response, and the management equity was well over-subscribed. Out of 85 high-performing individuals, 63 committed a total of about HKD165 million cash salary upfront, an investment that would be locked-up until the IPO. Among investors, many had to ask permission from their spouse because very few people would have spare cash of one to two years’ salary. NiQ explained that some might have taken out a mortgage on their primary home or given up investing in a second home in order to make the investment in HKBN. With the management becoming co-owners, collectively holding a 14% stake of the company, the key positive aspect was the enhanced commitment of this core group of Talents (some as young as in their 20s), along with confidence and trust within the team and in the company. NiQ felt that these Talents would have a changed outlook—being more focused on getting the multiplier at the end of three to five years rather than on the current year-end bonus. By comparing a 10-year upside versus one to two months’ extra annual bonus, he was certain that there would be a longer-term alignment of interests, which would in turn serve to empower HKBN.

36 Ibid. 37 Ibid.




Looking Forward

From his unique vantage point of dual positions as head of Talent engagement and CFO, NiQ maintained that a company-wide impact of the MBO would certainly be felt, as “the rules of the game had changed.” While there were clear positive incentives with the MBO program, there were also risks.

The fear is if we miss our numbers . . . if it looks like there is no hope and then people become disenfranchised, with a tramped feeling. They may have a sense that they have been conned because this is an upfront investment. This is something that we must avoid at all costs.

NiQ Lai38 While HKBN remained a distinctly “people” company, with the changing economic climate it was necessary to maintain a lean structure and maximize its resources. The company had to give up some office space in Hong Kong and Guangzhou due to rental pressures. At the same time, costs of Guangzhou operations were increasing in the double digits, due to RMB appreciation and high inflation levels. NiQ saw two ways to do more business—either by cutting costs or by growing revenues faster than costs. Going forward with the latter option, NiQ knew that he could grow company revenues only by ensuring that he had the best Talents in his workforce. NiQ set three goals for the company:

1. Deliver disruptive value to customers to win them over from the incumbents. 2. Create awesome value for CVC Capital Partners. 3. Participate handsomely via co-ownership investment.

NiQ pondered over a Talent management framework that would address attraction and retention issues to help him achieve these goals. How should his team leverage the Talent base to maximize the value of the company? Could HKBN’s existing human capital development strategy be sustained within the changed context or did it need to be improved upon?

38 Ibid.




EXHIBIT 1: HKBN TIMELINE Source: Based on data from HKBN, “About Us: Milestones,” http://www.hkbn.net/new/en/about-us-our-milestone.shtml, accessed October 2012.

2000: Obtained FTNS Wireless license and launched broadband Internet services

1999: HKBN established as subsidiary of City Telecom

2002: Upgraded to Wire-line based FTNS license and launched local telephony services

2003: Launched Pay-TV services

2004: Launched corporate data services for commercial industry and broadband phone services

2005: Launched 1Gbps residential service. Hong Kong became 1st country worldwide to have such high-speed Internet

2007: IP-TV renamed bbTV with strengthened contents

2008: Offered home phone switchovers of incumbent’s customers at USD1.3/month

2009: Awarded HKMA Quality Award (Bronze). Launched 100 Mbps broadband at USD13/month and exceeded 1 million subscriptions

2010: Launched 1Gbps broadband at USD26/month and expanded corporate fiber network coverage to renowned buildings

2011: Offered 1 Gbps triple-play (broadband, telephony and bbTV) at USD20/month

2012: HKBN acquired by CVC Capital Partners




EXHIBIT 2A: HKBN BUSINESS OPERATIONS

Source: Based on data from City Telecom (HK) Limited 2011 Annual Report and HKBN website, http://www.hkbn.net, accessed October 2012.

HKBN

HONG KONG GUANGZHOU, CHINA

Call Center Operations To service HKBN customers in Hong Kong (as labor costs were one-third that of Hong Kong).

Broadband Internet Access: HKBN had invested over HKD4 billion in establishing the most extensive fiber optic network. HKBN was the fastest growing and second largest provider with 27% market share.

International Telecom or IDD Services [Contributing 11.7% of turnover]

Fixed Telecom Network Services (FTNS) [Contributing 88.3% of turnover]

Telephony was a value-added service to the core broadband business, and HKBN was securing market share in the saturated market by offering integrated triple-play. After switching over customers from incumbents, HKBN capitalized on this customer base by up-selling other high-margin services.

IP-TV Services offered more than 100 TV channels with an emphasis on the Chinese-language market. HKBN’s strategy initially targeted the lower end of the market, based on upgrading consumers from terrestrial free-to-air services rather than from traditional pay TV services such as cable and satellite. After the MBO, the IPTV/multimedia operations remained under the scope of CTI.




EXHIBIT 2B: NUMBER OF REGISTERED SUBSCRIPTIONS

Sep – Feb 2012

FY2011 FY2010 FY2009 FY2008 FY2007

Broadband 617,000 590,000 526,000 391,000 316,000 247,000 Telephony 495,000 476,000 431,000 382,000 329,000 308,000 IP TV 195,000 181,000 153,000 170,000 156,000 128,000 Source: Compiled from City Telecom (HK) Limited 2011 Annual Report and 2012 Interim Results.

EXHIBIT 3: HKBN OPERATIONS STRUCTURE

Source: Alice Wong, “To Be the Largest IP Service Provider in Hong Kong by 2016,” PowerPoint presentation, FTTH Middle East Conference, November 10, 2009.

Customer Service

Sales

Network Development

Network Maintenance Cus

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Hon

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EXHIBIT 4: FIVE-YEAR FINANCIAL SUMMARY

Figures in HKD mn 2011 2010 2009 2008 2007 Turnover

- FTNS - IDD

1,681 1,484 197

1,574 1,356 218

1,478 1,231 247

1,303 1,011 292

1,141 817 324

EBITDA 594 469 508 378 354 EBITDA margin 35.3% 29.8% 34.4% 29.0% 31% Profit before tax 372 259 251 108 30 Income tax (expense)/benefit

(58) (42) (38) 16 (2)

Net profit 313 216 212 125 28 Total capital expenditure 449 345 287 211 132 Earnings per share – basic (HK cents)

40.8 30.7 32.4 19.7 4.7

Employee strength 3,080 3,232 3,173 3,051 2,692

Source: Compiled from City Telecom (HK) Limited, 2007–2011 Annual Reports.

EXHIBIT 5: HKBN VISION STATEMENT

Core Purpose Core Values Aspirational Values • To fulfill the desire of Self-

Actualization and to become everything that one is capable of becoming

• To experience the joy of advancing and applying telecommunications technology for the benefit of the public

• To experience the emotion of competition, winning, and crushing competitors

• Continuously strive for the best as a way of life • We are the People’s Leader and Pioneer • Direct and Action oriented

• Integrity • We only work with smart, capable, competent, and demanding people

Source: NiQ Lai, “Finding LUCA (Legal Unfair Competitive Advantage),” PowerPoint presentation, City Telecom (HK) Limited, Hong Kong, 11 January, 2012.




EXHIBIT 6A: TALENT DEVELOPMENT PROGRAMS

Source: City Telecom Management Team PowerPoint presentation, City Telecom Analyst Event, March 27, 2011.

EXHIBIT 6B: NEXT STATION UNIVERSITY STAGES

Source: “Next Station: University Program Update,” PowerPoint presentation, 30 March, 2012, http://www.hkbn.net/2012/en/pdf/press_release/2012/PR_NSUStage3_Ceremony_E.pdf, accessed September 2012.




EXHIBIT 7: PERIODIC MANAGEMENT TEAMBUILDING TRIPS (2009-2012)

Year

Location

1999 Gold Coast, Australia 2001 Star Cruises 2002 Sanya, China 2003 Zhuhai, China & Macau 2004 Qingdao, China 2005 Zhuhai, China 2006 Bangkok, Thailand 2006 Singapore 2009 Japan 2010 Germany 2011 Cambodia 2012 United States

Source: provided by HKBN




EXHIBIT 8A: “CXO OF THE FUTURE” PROGRAM

The “CXO of the Future” program was an accelerated training program to train future leaders of the company. The two-month selection process included four stages:

Application: Essay submission First Selection: Written test Advanced Selection: Language and aptitudes test, interview, and group discussion

Final Selection: Outward bound and panel interview

During the 36-hour Outward Bound Live-in Program, applicants were accompanied by the top management (including the chairman, CEO, CFO, CTO, and others), where they were challenged with corporate simulation scenarios under extreme physical and mental conditions. Finally two elite candidates were chosen to come on board. The training program comprised: Internal Exposure—was facilitated through in-house programs and action learning projects. Trainees had to work in cross-department projects and attachments that combined junior talents, middle managers, and senior directors, so that they gained first-hand exposure to the entire business operation and also experienced the norms of different departments. To deepen the understanding on frontline operations, trainees were assigned to positions such as street promoter, Guangzhou telesales, technicians of broadband installation, TV reporter, and so on. External Exposure—took place through visits to world-class companies as well as opportunities to meet up with executives and management gurus from different industries, such as asset management, media, financial institutions, and consultants. They were also allowed to participate and contribute ideas in the executive management meetings where key strategies of the company were discussed and invited to co-present with current CXOs at public events. Continuous Learning—occurred by taking the CFA examination and through the book reading program. Trainees were also sponsored to attend numerous workshops, trainings, and EMBA series with regard to leadership, team building, communication skills, and new trends of business. Personalized Mentorship—by a member and a department head.

Source: “CXO of the Future Vintage 2011,” Management Trainee Program Highlights, HKBN, August 2012.




EXHIBIT 8B: TYPICAL CXO CAREER PATH

Source: provided by HKBN


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