Perera ASIACASE:COM a rinaninaianese cast iNge Nanyang Business School MALAYSIA’S HERBALINE FACIAL SPA: A HUMAN HBP No. NTUD69 RESOURCE STRATEGY FOR GROWING A STARTUP. pubterep 0: SECC 2015-001 Print Copy Version: 6 Apr 2015 Lim Beng Chong & Wee Beng Geok The case study discusses the human resource strategy of a fast-growing company in the highly competitive beauty spa industry in Malaysia. It examines how the founders’ personal values and philosophies are expressed in the human resource policies and practices and the influence of these on the company’s customer service delivery and service culture. HerbaLine’s focus on excellent customer service enabled the founders, Mr. Low Chee-Kwong and Ms. Liu Kim-Hwa, to position the beauty spa operator as a viable alternative to expensive, high-end international beauty chains and low-cost, no frills individually-operated beauty salons. The success of their service strategy is reflected in the growth of the beauty spa operator from one outlet in 2000 to 55 outlets in 2014. With a vision to expand HerbaLine beaitty spa to every major town in Malaysia, the founders embarked ona new a profit sharing scheme for high performing employees to reward performance and to sustain and grow the high levels of employee commitment and excellent service delivery that underpinned the company’s growth. Could this be the motor that would enable the company to double its number of outlets to 100 by 2024? Topics: The link between service strategy and HRM practices; organisational culture in a fast growing company; an ‘internal franchisee’ scheme as a motivational tool for employees. ‘Associate Professor Lim Beng Chong and Dr Wee Beng Geok of Nanyang Business School, Nanyang Technological Uni- versity, Singapore, prepared this case based on interviews with management of HerbaLne's Facial Spa, As the case is not intended to ilustrate either effective or ineffective practices or policies, the information presented reflects the authors’ interpretation of events and serves merely to provide opportunities for classroom discussions, ‘COPYRIGHT © 2015 Nanyang Technological University, Singapore, Al ights reserved. No part of ths publication may be Copied, stored, transmitted, altered, reproduced or distributed in any form or medium whatsoever without the written consent ‘f Nanyang Technological University. For copies, please write to The Asian Business Case Centre, Nanyang Business School, Nanyang Technological University, Nanyang Avenue, Singapore 639798 Phone: +65-6790-4864/5708, Fax: +65-6791-6207, -mall asiacasecentre@ntu.edu.sg ‘Ths docurent is authorized fr esestorrevaw uso ony by svashanogam choktanga, PES University unl Sep 2022. Coping o posing i an iningoment of copy ermicslonsenbap hevra.ed o 177837860,Page 2 ‘ABCC-2015-001 EXECUTIVE SUMMARY HerbaLine, a facial spa beauty chain in Malaysi arew from one outet in 2000 to 55 outlets (23 owmer- operated and 32 franchised) in 2014, The two co- founders, Mr. Low Chee-Kwong (CK) and Ms. Liv Kim-Hwa (Kim), created a niche for themselves in a highly crowded and competitive beauty industry with a business model based on a “cil, /k J)" (Beauty, Stress-tree) philosophy. This phiiosophy underlined three major elements of the beauty spa operations: services and products, environment and ambience, and pricing In the country’s highly fragmented industry filled with more than 600 skincare and beauty salon brands, HerbaLine was the only local Malaysian facial beauty spa operator to grow from a single outlet to 23 ‘company-owned outlets as well as a franchise chain of 32 shops in 2014. (See Exhibit 1 — Location of HerbaLine Outlets.) othe founders, a major contributing factor in the rapid growth of the company-owned outlets was HerbaLine service people, staff that they had recruited and trained to deliver the service excellence that underlined one of HerbaLine’s core strengths. However, as the total number of outlets grew, Ck and Kim were becoming increasing troubled by the growing gap in service delivery between HerbaLine- owned outlets and the franchised outlets. Unlike the owner-operated outlets, franchise operators were independent contractors and were not employees of HerbaLine. Herbal ine's franchised operation was started in early 2000 when the company had only a few outlets. At that time, to enable scale in production of HerbaLine’s own range of products used in its beauty treatment regimes, CK sought the support of some beauty salon operators to promote and use HerbaLine products for their facial treatment services. Eventually, these operators became franchisees and friends of the husband and wife team As HerbaLine continued to grow and expand, Ck and. Kim felt that it was important to maintain and continuously improve the service standards associated with the brand and which HerbaLine’s customers had come to expect. However, it was becoming ASIACASE.COM increasingly challenging to align franchise operators with HerbaLine's conceptualization and expression of its "Beauty, Stress-free" philosophy. Franchisees were ‘often reluctant to commit additional resources to fine tune service standards or renovate their outlets to keep pace with HerbaLine’s expectations. For HerbaLine, it was essential to continuously improve on the key ‘elements of beauty spa operations in order that the company's philosophy and service standards remained relevant in a competitive environment. ‘As the number of stores grew, the founders felt that ‘a more effective management over the delivery of HerbaLine service and products was needed. To ensure this, the two founders maintained close supervision of company-owned outlets but as the number of such outlets grew, they knew that they would become severely stretched. CK and Kim felt that anew growth strategy, in particular with regard to human capital, was necessary to ease this problem and ‘enable HerbaL ine to move to the next phase of growth. In late 2011, CK was mulling over the feasibility of an “Internal Franchisee” scheme whereby promising and ‘capable employees could be offered profit sharing in the company-owned retail outlets. The selected ‘employees would be those who shared the company service philosophy and corporate values, well trained and experienced in delivering the service standards that were essential in upholding the HerbaLine brand reputation. Furthermore, from the employee's perspective, not only would this be an attractive reward and recognition by the company for their work ‘excellence and commitment, it also presented a long term career path that all beauty consultants could look forward to when they joined HerbaLine. Deep in their hearts, CK and Kim felt that they might have just found the key to unlock HerbaLine’s potential ‘The challenge was in the implementation. CK and Kim had over the years built an organizational culture anchored on HR policies and practices that had bolstered support among staff for HerbaLine’s service ‘excellence practices. Going forward, they had to think through the implications of this new scheme on the ‘organizational culture as well as on the HerbaLine brand. They also needed to consider the implications {for HerbaLine's human resource management policies as well as the additional leadership roles that they had to assume as they nurture a new group of internal HerbaLine retail outlet managers. ‘Ths documents authorized fr esestorrevaw uso ony by svashanogam choktanga, PES University unl Sep 2022. Copying o Poin i an iningoment of copy ermicslonsenbap hevra.ed o 177837860,ASIACASE.COM {We ASHN BUEINESS CASEEONTRE To create “stress-free” services and products (used in the treatments), “5-Star" service was delivered at “3-Star’ prices. Furthermore, beauty products used only natural plant extracts and did not include harsh chemicals such as peeling acids, which were common in many facial treatment products. This gave customers peace of mind in the treatment regimes. ‘To generate a “stress-free” environment and ambience, HerbaL ine outlets were designed to have a resort-ike feel natural materials finishes, soothing colours, and mood music. These helped customers relax during their facial treatments. To enable customers a “stress-free” spending experience, facial treatments were priced competitively, HERBALINE’S SERVICE & PRODUCT STRATEGY HerbaLine’s core business strategy was to provide clients with facial spa experiences not previously available to them at reasonable and acceptable prices. (See Exhibit 2—The Facial Spa Journey, ) This strategy was encapsulated in the company's "if, > HA" (Beauty, Stress-free) philosophy. ‘The company’s “stress-free” service strategy comprised several major elements, 1. Stress-free pricing ~ "5-Slar" service delivered at “3-Star" prices, and no aggressive selling of promotional packages: 2. Stress-free producis — Only natural plant extracts were used in the production of products used in HerbaLine's facial spa treatments to give customers peace of mind while undergoing the treatment; and 3. Stress-free environment and ambience, so that customers would be calm and relaxed during their facial treatments. To enable customers a “stress-free” spending experience, facial treatments were priced between RM69 to RM149 (in 2014). These prices were ‘comparable to those charged by beauty salons in the main towns of Malaysia, However, HerbaLine prices were much lower than those charged by beauty spa chains operated by major cosmetic brands in Page 3 "ABCC2045-001 Malaysia. Furthermore, HerbaLine chose not to follow the common local industry practice of requiring customers to commit to up-front payments for pre- signed packages of facial beauty treatments. This meant that customers just paid for services delivered ‘on demand that is no hard selling and to encourage stress-free beauty treatments with no gimmicks or strings attached. This also implied that HerbaLine ‘customers were free at any time to seek alternatives: if they were not satisfied with the treatment received. Although competitors’ packages were cheaper when averaged over each treatment, CK and Kim felt that HerbaLine’s pricing strategy more than offset the ‘cost savings by being “stress-free” on the customers’ pockets. ‘To further ensure ‘stress-free purchase decisions for clients, beauty consultants were strongly discouraged {rom upselling and this was reinforced by basing their ‘sales targets on the number of returning and new customers rather than the absolute sale figures. To add tothe stress free experience, the company had a strict, “no tipping" policy. With no upfront cash commitments, {o tie the customers down and upselling discouraged, HerbaL ine beauty consultants had to ensure continuing customer satisfaction with the services and product, offerings. CK explained: We do not tie down our customers with re-signed packages. We believe strongly that if we impress every customer that walks in with our services, they will continue to patronise our establishment. In 2007, the company launched its new retail concept of standalone “beauty houses’ located in bungalows ‘or detached landed properties. This was a major move away from its outlets which were located in shopping malls. Modelled after spas, the beauty houses aimed to create a resort-like ambience for customers based on an Asian tropical theme. With well-designed interiors, and specially created ambience, the aim was to create a five-star spa experience for clients. For the founders, the “3, “E1i/1" (Beauty, Stress free) business philosophy meant that the focus of the service offerings were not only on enhancing the clients’ physical beauty, but also on their feeling of well-being, ‘Ths documents authorized fr esestorrevaw uso ony by svashanogam choktangam, PES Univers unl Sep 2022. Coping o posing i an iningoment of copy ‘eimicslonsenbap hearse o 17 783.7860,Page 4 ‘ABCC-2015-001 ‘THE HERBALINE STORY Early Days In 1994, Kim invested her savings in the beauty treatment business, She rented a small 200 sq.ft. floor ‘space within a larger hair salon in a suburb of Kuala Lumpur (KL), the capital of Malaysia, The business of beauty treatments proved profitable within a short time, ‘Seeing much potential, her husband, CK, left his bank manager job and joined her in running the business. ‘Together, they expanded their business and opened more outlets. 2000-2007 By 2000, after the husband and wife team had ‘opened their fith outlet, they decided to create their ‘own beauty brand with a range of products for their beauty treatment regimes. They decided on the name HerbaLine for the products as these products were made primarily from extracts from traditional plants and herbs. HerbaLine engaged a contract manufacturer based in Taiwan to produce a sufficient range of skincare products for the HerbaLine brand. In order to take advantage of economies of scale and hence lower cost of production, the company had to order in large: ‘quantities. However, this was much more than the five outlets could absorb, or able to utilize or sell. To move, the products, CK began promoting the products to ‘other beauty salon operators through trade magazines: and exhibitions. With attractive pricing and good products, the company was able to sign on beauty ‘salon franchisees mainly in KL but also in other major cities and towns throughout the country and Brunei. HerbaLne's first company-owned outlet of about 1,600 ‘square feet opened in Puchong IO! Shopping Mall in KL with six full-time beauticians on its payroll. With the new branding, the strategy was to set up the new outlet in one of the capita’s more popular shopping malls ‘The key consideration was locations with high human traffic in order to attract sufficient walk-in customers, ‘as HerbaLine was a new brand in the beauty salon business in Malaysia at that time. ‘The company opened an average of two outlets. pper year from 2001 to 2006, and also signed more independent beauty salons into HerbaLne’s franchise ASIACASE.COM network. With an average annual growth rate of between 15% and 20%, the founders’ goal was to establish a presence in all the suburban shopping malls around the KL area. By 2007, HerbaLine had 12 owner-operated outlets in shopping malls scattered around KL. city and a franchise network of 50 outlets dispersed across 12 states in Malaysia. Beauty House Concept (2007-2014) However, operating in shopping malls presented some challenges for the entrepreneurs. Firstly, as most shopping malls had stipulated minimum operating hours and total annual days of operations for mall tenants, the problem of work-life balance for staff became @ major issue. The late (most malls started operations just before noon and continued till the evening hours) and long operating hours made the work unattractive for some beauty consultants. Weekends were the busiest period for malls and as many of the beauty consultants were from out-of-town ‘twas difficult to have regular weekends off to return home. Mall rentals tended to increase with each lease renewal, increasing the operating costs of running the shop. With all these factors weighing on them, CK and Kim decided to examine other options. In 2007, CK came upon an old bungalow, situated a short distance from a shopping mall where a HerbaLine outlet was located in Cheras, a district in Kuala Lumpur. Notwithstanding concems about the effects of global financial crisis on business, he and Kim decided to purchase the property for conversion into a HerbaLine outlet. With more space and the freedom to shape the outlet as they saw fit, the HerbaLine Beauty House was bom. This resort-lke facility allowed them to design a new “facial spa journey’, which was received enthusiastically by customers. (See Exhibit 2 The Facial Spa Journey) Delighted with this positive response, the two owners proceeded to establish more HerbaLine beauty houses across Malaysia, By 2014, they had set up 12 such houses. As the first of its kind in Malaysia (and possibly in Southeast Asia), CK and Kim created a niche for HerbaLine, by positioning it between the traditional mum and pop salons providing low-cost basic facial services and resort spa operators who offered a full spectrum of services at premium prices. HerbaLine targeted middle income consumers as articulated by ck: ‘Ths documents authorized fr esestorrevaw uso ony by svashanogam choktanga, PES University unl Sep 2022. Copying o Poin i an iningoment of copy ermicslonsenbap hevra.ed o 177837860,ASIACASE.COM {We ASHN BUEINESS CASEEONTRE 5-Star environment, 5-Star service at 3-Star price. Despite launching the new facial spa concept a year preceding the 2008 global financial crisis, Herbal ine's business continued to grow. According to CK: During the recession, consumers were ooking for affordable alternatives to their usual choices. Furthermore HerbaLine was also able to attract customers with a different profile with the new outlets. ‘These customers would not go to an outlet in a mall for facial treatment but would gladly visita resortiike Beauty House. ‘This re-positioning of the Herbaline’s core business resulted in its annual growth rate doubling from about 17% to about 37% as it moved its outlets from shopping malls to independently-owned Beauty Houses. Staff numbers grew from 48 to 185, while the number of outlets grew from 12 to 19 (ie., 12 beauty houses and 7 outlets in shopping malls) in 2013, and a record turnover of more than RM 30 million for that year. ‘At the end of 2014, seven years after opening its first Beauty House in KL, HerbaLine had 23 owner- ‘operated outlets including 12 beauty houses operating from within their own bungalow properties. Sales revenue increased to RM 38milfion in that year. HR PRACTICES: (CK and Kim considered HerbaL ne staff as an important component of the company's repertoire of services and products, and good customer experience depended on the quality of interaction between the customer and the staff, Hence, to them, ensuring that the staff was well trained and keeping them engaged with their job was, critical . (See Exhibit 3 ~ Quotes from the Founders on People Management.) Recruitment At the end of 2014, HerbaLine had about 220 ‘employees, Beauty consultants made up the main bulk of the staff. Applicants for this position were generally from less well-off families, and usually with tle formal ‘education. In targeting a beauty consultant job, they Pages "ABCC-2045-001 ‘were seeking opportunities to leam a new skill and an ‘opportunity to acquire a stable livelihood. Since the late 2000s, Herbatine began to have more applicants seeking to join the company as beauticians or beauty consultants. CK attributed this to two reasons. Firstly, Herbal ine had become a well established beauty brand in Malaysia. The company had a clear career progression policy for beauticians beautician, assistant supervisor, supervisor, manager and partner. Secondly, existing staff often introduced their family members and friends to join the company due to the family-oriented culture, good employee benefits and a more stable and attractive compensation package compared to the industry average. Hire For Altitude, Not Skills In hiring staff, CK and Kim believed that attitude ‘was more important than skills, as skills could be acquired with the right attitude. To ensure there was ‘a good match in expectations between company and prospective employee, every new recruit was required to attend a one-month orientation program ‘conducted at HerbaLine’s corporate headquarters in Kuala Lumpur. During this period, they were expected to stay in the corporate dormitory together with other staff and recruits, ‘The first week of the orientation was designed to inculcate HerbaLine's corporate values and for trainees to learn more about themselves and to see if the job ‘would be suitable for them. As part of the orientation program, newly recruited employees had to lear to be personally responsible for their surroundings. For instance, they were expected to clean their own toilets ‘as well as keep the dormitory cleaned. They were also ‘expected to get along with other people living in the dormitory. ‘The founders discovered that this was a good method to help screen recruits who were not prepared to be hands-on and work with other staff. Very often, those Unable to adapt tothe life in the dormitory would choose to quit during the training, Training The formal training programme commenced in the second week. By then, the newly recruited employees would have learned much about the company, its “Ths documents authorized er esstorrevaw uso ony by svashanugam choktanga, PES University unl Sep 2022. Coping o posing an iningoment of copy ermicslonsenbap hevra.ed o 177837860,Page 6 ‘ABCC-2015-001 culture, and also got to meet the co-founders and other key staff. Jennifer, HerbaLine's Operations Manager explained: Those trainees who are not able to take care of themselves; how do you expect them to take good care of others and provide excellent service to our customers? ‘She added that an important element in the orientation was training in corporate values that involved a ‘component based on the concept of “it, fik, #2" (translated to mean “her, you, me"). Essentially it taught the consultants to first think from the perspective of customers, then from the perspective of their colleagues, before taking their own perspective. ‘This training was important as HerbaLine management wanted employees to always think not only from their ‘own perspectives but from their colleagues’ and also’ ‘customers’ perspectives. To the founders, this abil to ‘constantly assume the perspectives of other people's had not only created an environment where HerbaL ine colleagues were more tolerable of one another, but also shaped at HerbaLine’s service culture. ‘Compensation & Benefit Practices In terms of remuneration, the starting salary for a beautician at HerbaLine was not among the highest in the industry. According to CK, HerbaLine's starting monthly pay, ranging from RM 1,000 to RM 1,200 (in 2014), was relative low compared to the market as. ‘some competitors were offering around RM 1,400 per month. However, HerbaLine was still able to attract many new staff to join the company for other reasons. While HerbaLine consultants had a lower starting salary, their salary rose quickly to between RM 1,300 and RM 2,000 within three to six months after their basic training. At this point, their income was ‘comparable to that offered by competitors. Moreover, ‘employees with the appropriate work attitude could eam up to RM 4,000 after working in HerbaLine for just one year. Secondly, given that HerbaLine was stil expanding rapidly, high performing employees could ‘expect to be promoted to assistant supervisors or ASIACASE.COM supervisors and subsequently given the opportunity to manage owner-operated outlets. Assistant supervisors and supervisors could eam up to RM 6,000 and RM 10,000 respectively. HerbaLine offered one month paid training at HerbaLine corporate headquarters, before they start ‘work, whereas many of its competitors practiced on- the-job training for new staff in their existing salons. CK felt that such training was not very effective as staff ‘would always be interrupted by customers or suppliers, As part of their continuous learning after the basic training, new employees were also sent on a partially ‘company-sponsored trip to Pangkor Laut Resort. At this 5-Star resort situated on an istand off Peninsula Malaysia, they could enjoy the §-Star experience while leaming the finer touches of service excellence HerbaLine also implemented another benefit for ‘senior employees in the form of a “co-pay” scholarship scheme for employees’ children to enable them to Pursue their tertiary education overseas. Since its inception, this scheme had been very well-received by its staff. CK and Kim saw this initiative as a way to help the kids and their parents to fulfill a dream they always have, but were held back due to worries about high financial costs. Incenti ‘There were also annual incentive trips organized by the company as a reward for employees who met their sale targets for the year. These overseas trips were a ‘major motivator for employees. One of them explained: These overseas trips are very unique and well organized. Unlike the typical group tours organized by a tour agency, these incentive trips are organized, managed and led by the bosses themselves. You can tell that they did a lot of research before finalizing the tinerary. For example, where to eat local delicacies, and where are the must-visit places. The experience is always very unique and enjoyable. ‘Ths documents authorized fr esestorrevaw uso ony by svashanogam choktanga, PES University unl Sep 2022. Copying o Poin i an iningoment of copy ermicslonsenbap hevra.ed o 177837860,ASIACASE.COM {We ASHN BUEINESS CASEEONTRE ment = Promotion From Within ‘To further reward well-deserving staff and deepen the corporate culture, all managers were promoted from within the company. HerbaLine made it a policy not to recruit senior staff from the market, BUILDING AN ORGANISATIONAL CULTURE Fostering A Family-like Culture May, one of the founding staff members as well as the logistics manager at HerbaLine, remarked: ‘AtHerbaLine, we are like family members. Like May, many staff members had been with the company for many years. CK and Kim made ita point to know all their staff. Every newly recruited employee would have at least one dinner at their home before’ the end of the one-month training. They made it a point to celebrate various occasions such as employee birthdays and baby showers. As the ‘heads! of the HerbaL.ine family, CK and Kim led by example. They wanted an organization where managers at different levels would do the same for their staff. And, similar to a typical family, CK and Kim expected more from the 'senior family members’ (ie. the managers), while holding themselves to even higher standards. To the founders this meant that prior to asking the staff to do fa task, they would have to be the first to try out the task. Hence, they were well known among the staff to be very ‘hands-on’ bosses, Akey annual event al HerbaLine would be the party during the mooneake festival, which all employees and their family members were invited to attend: Entertainment and food were provided for more than 1,000 people. Two other major events would be the ‘Company Annual Dinner and the Big Gathering during Chinese New Year. These company-wide events allowed employees not only to get to know colleagues. from other outlets, they also allowed their family members to experience first-hand the culture and the Page7 "ABCC 2045-001 ‘Staff Well Being ‘The founders’ personal values were evident in how policies and work processes were designed. CK and Kim's management philosophy, to agreatextent, were ‘shaped by their Buddhist teachings and in particular, the concepts of #138 (compassion and gratitude), ‘which they incorporated into their work values. Having practiced and benefited enormously from Buddhist meditation, they also strongly encouraged their staft to take up such meditation practices so as to enhance their own well-being, Meditation allowed one to be at ‘2380, fool relaxed anid have clarity of mind, In fact, staff members were given the opportunity to go fora fully paid one-week meditation class every year twas also the norm for staff members to do.a 20-minute meditation before the start of each business day. Winnie, the manager at a Kuantan outlet, explained: This initiative from the bosses has created a culture of peace and tolerance. Now, we have fewer conflicts among colleagues. There are more overt expressions of care and concern for each other in the company. Our customers also benefited as the staff are more likely to be in a good ‘mood, which has made the place more pleasant to work. For me personally, | leamt to see things more positively, often with a sense of gratitude towards others. Importantly, the positive mood in the outlet has a positive effect on the customers as well ‘As a service business, the peak loads were during the weekends, which meant that most beauty salons ‘operated at full force during the weekends. However, fat HerbaLine, the operating hours for weekends ‘were actually two hours shorter than on weekdays. HerbaLine outlets closed at 6 pm on weekends so that the staff could go home and have dinner with their loved ones. Kim explained: We want them to leave their outlets while the sky is stil bright. ‘Ths documents authorized fr esestorrevaw uso ony by svashanogam choktanga, PES University unl Sep 2022. Copying o Poin i an iningoment of copy ermicslonsenbap hevra.ed o 177837860,Page 8 ‘ABCC-2015-001 ‘She strongly believed that this was something she ‘could do for the staff to make sure they could spend time with their family Continuous Innovation To maintain the 5-Star service, continuous product development was critical. The founders visited renowned spas around the word, to bring back the best practices and experiences that they gleaned from these notable resort spas. They also made ita point to ensure ‘employees during incentive trips, had opportunities to experience first-hand 5-Star resort spa services. For Herbaline, innovation was not just about inventing new things. Il was also about reviving old traditions land repackaging them appropriately to render them attractive in the contemporary market place of beauty treatments. Kim explained: We introduce ancient traditional beauty practices from around the world and revive. them in a modern setting. This creates a novelty factor to the business as old beauty methods die hard, ‘An example of a traditional practice that HerbaLine had re-introduced was the butterfly face threading, (See Exhibit 4 — Traditional and Adapted Butterfly Face Threading.) This was an ancient facial cleansing technique used in China more than 1,300 years ago where cotton threads were used to remove tiny hairs on the faces. Itwas an effective way of reducing dead skin ‘on the epidermal layer, shrinking pores, toning the face ‘and allowing skincare produets to be easily absorbed. ‘Afier CK and Kim discovered this technique during a business trip to Taiwan, they adapted into a HerbaLine signature treatment using modern, hygienic processes to.apply butterfly facial threading as a beauty treatment in the outlet. GROWING THE COMPANY - A NEW HR POLICY By 2011, given the challenges managing external franchisees, coupled with a growing network of owner- ‘operated outlets and the continuing need to retain and engage well-deserving staff, CK and Kim had been mulling over the possibilty of an “internal Franchisee” ‘scheme to accelerate the growth of company-owned outlets. ASIACASE.COM ‘The objective of the new HR policy was to enable staff with high potential and who have contributed to the growth of a retail outlet to have ownership by sharing inthe profits ofthe outlet under their management. This was unprecedented in the Malaysia beauty industry. Working in Herbaline as a beautician was not just simply a job but a long-term career as long as one ‘was wiling to learn and work hard. A success story has already started making the rounds. Anne, 21 years old, rose to the rank of supervisor after only 18 months with the company. At the youthful age of 25, she was given the opportunity to manage three HerbaLine outlets in Penang. Given her potential, she might be made senior supervisor in the next two years, and possibly charged with overseeing five to six outlets in the area. The broad outline of the “Internal Franchisee" scheme as conceived by the founders was: ‘* Each manager would be given the option to "buy" up to 50% share of the profit entitlement of the HerbaLine beauty house operations (excluding the property) she was managing. The proceeds for the purchase of this profit entitlement would come from her bonuses eamed from the preceding year's profit for the outlet. Up to 50% share of the profit of any branch would be offered to all staff who have worked for more than two years at that branch. The percentage of their participation in this scheme would be based on their position and seniority at that branch, ‘© The valuation of business for the purpose to arrive at the share value would be based on historical ‘set-up cost rather than current market valuation (Price x potential earings), ie. no "share premium” or "goodwill is included in the valuation process. To CK, this was because the manager had also contributed to the growth of the outlet. ‘© Senior staff members in the management team would also have a share in the profits of the entire business, CK explained the important role played by his people in building up the business: In this company, there are many he or she, ‘many you but only one |. ‘Ths documents authorized fr esestorrevaw uso ony by svashanogam choktanga, PES University unl Sep 2022. Copying o Poin i an iningoment of copy ermicslonsenbap hevra.ed o 177837860,ASIACASE.COM {We ASHN BUEINESS CASEEONTRE Giving deserving staff a stake in the company was an important element in the founders’ management philosophy ~ they believed that as bosses they could only do well i their employees were doing well. In this way, not only were they able to provide their staff with ‘900d employment opportunities, deserving staff could also become a business partner over time. ‘This ‘prosper thy staff approach to staff engagement had kept staff turnover comparatively low at HerbaLine ‘over two years. This was uncommon in the beauty industry as it was common for beauticians to quit a company after a few years to start their own beauty salon. Page 9 "ABCC2045-001 Inline with the concepts of #1584 (Compassion and gratitude), CK and Kim believed the staff members. were the ones who made the money for the company. Hence, instead of seeing profit-sharing as “lost income’, they were grateful that the staff members helped them build up the business. GOING FORWARD With the “Internal Franchisee” scheme in place, CK and Kim planned to grow HerbaLine from 23 owner- operated outlets in 2014 to 80-100 outlets within Malaysia by 2024, with one HerbaLine outlet in every Malaysian town. Will the profit sharing scheme be the motor that drives this leap forward? ‘Ths documents authorized fr esestorrevaw uso ony by svashanogam choktanga, PES University unl Sep 2022. Copying o Poin i an iningoment of copy ermicslonsenbap hevra.ed o 177837860,Page 10 ASIACASE.COM ‘ABCC-2015-001 {THE ASN BUGNESS CASECENTRE EXHIBIT 1 LOCATION OF HERBALINE OUTLETS Map of HerbaLine in Malaysia Direct Outlet 23 Franchise 32 Total 55 @ HerbaLine ‘Source: From Herbaline “Ts docunt is authrizod fr educator raw use ony by Sasharmugam chokkalngam, PES University unl Sep 2022. Coping posing ian intingoment of copyiat ermicslonsenbap hevra.ed o 177837860,ASIACASE.COM Page 11 {We ASHN BUEINESS CASEEONTRE "ABCC 2015-001 EXHIBIT 2 ‘THE FACIAL SPA JOURNEY ‘The beauty houses used an Asian tropical theme with a combination of wood, stone, natural lighting, soothing colours and air conditioning meticulously adjusted for comfort. Upon arrival, customers would be warmly greeted by a concierge, eager to shield them from the hot tropical sun with huge umbrellas. As customers stepped through the entrance, they were warmly greeted by the facial consultants, seated and then served with a warm towel and herbal tea. Transitioning into this new environment helped customers feel that the hustle and bustle ‘of modern day living had momentarily ceased behind the closing doors, Ti ‘After selecting the specific facial treatment from the menu, the customers entered a door with a sign “your journey begins..”. They then walked on a path made of cobblestones meticulously placed 6 inches apart, with pebbles filed in, to deliberately slow down their walking pace. This helped customers enter a deeper state of relaxation as they walked along the path. ‘After removing their shoes, customers indulged in a soothing sea salt foot spa before being lad to an aromatherapy section, where they were asked to take three deep breaths to inhale the warm scent of relaxing lavender from an aroma pot, By now, they were fully relaxed and ready for their facial treatment. Yes, they only got their facial treatment 20 minutes after walking through the entry door. It was a journey into a new realm, not merely a facial treatment session, One of the facial consultants explained: “This soothing, relaxing and complimentary spa joumey sets the physical and emotional conditions right and ‘makes it conducive for customers to receive their facial treatments. “Ths documents authorized er esstorrevaw uso ony by svashanugam choktanga, PES University unl Sep 2022. Coping o posing an iningoment of copy ermicslonsenbap hevra.ed o 177837860,Page 12 ASIACASE.COM SC a Tene Oe EXHIBIT 2 (CONTINUED) ‘THE FACIAL SPA JOURNEY Herbal ine's products were formulated with natural herbs without the use of AHA and compulsory skin peeling, offering @ natural treatment which is refreshing, non-cily and lightweight. Eight types of professional facial ‘treatments forall skin types were on offer; they used a combination of oriental massage and western techniques specially formulated for Asian skin. The journey did not end with the facial treatment. Instead, refreshed and rejuvenated customers took their ime to sit back and sip a signature facial spa tea. They were then led to the aromatherapy section again to freshen Up with the scent of lemongrass. Finally, customers were treated to a fish reflexology session. High-quality imported fishes tickle, nibble and play with customers’ feet and toes, sending surges of delight to conclude the customers’ journey. After 90 minutes, not only had the customers’ faces been professionally cleaned, they also felt rejuvenated and ready to face the hustle and bustle of modem life. Kim explained: The experience of our customers is very important. Just like going to an upscale restaurant, customers will only fee! the full experience of dining if they also get to have an appetizer to start and a dessert to end the whole dining experience. To top it all, perhaps they can even complete the whole experience with an aroma coffee. This is the experience that we want our HerbaL.ine customers to have, While the focus is stil on the facial treatment, we want to provide them with the whole wellness experience of a spa facility. Prices for the multi-faceted treatments ranged from RM69 to a maximum of RM149. There was no charge for the complimentary, value-added services and the resort-ike ambience. ‘Source: Herbal.ine Website, Retrieved March 6, 2015 from htip:/wwww.herbaline.com mylenfindex.hml ‘Ths documents authorized fr esestorrevaw uso ony by svashanogam choktanga, PES University unl Sep 2022. Copying o Poin i an iningoment of copy ermicslonsenbap hevra.ed o 177837860,ASIACASE.COM Page 13 THE ASN BUSINESS CASE CENTRE "ABCC-2015.001 EXHIBIT 3 QUOTES FROM THE FOUNDERS ON PEOPLE MANAGEMENT. “In this company, there are many he or she, many you but only one 1.” “Our staff is our greatest asset. Without them, there is no HerbaLine.” “At HerbaLine, we are like family members.” “We are grateful that the staff members are the ones helping us to build up the business.” “We want them to leave their outlets while the sky is still bright.” “People who come into this industry are not well to do and are not highly educated. We aim to give them an opportunity to build a career so that they can be respected by their friends and relatives." “We do our best to plan for a well-charted career and fruitful life for our staff, rather than trying to fill up short term job vacancies.” “Not only do we strive to take care of our staff financially, we also do our very best to take care of their kids’ future” "Complete every task with a sincere heart, and not expecting anything in return... Nature, will reward us handsomely.” “The emotional well-being of our staff is important to us” “Hire for attitude not skills” “Prosper thy staff” ‘Source: From numerous interviews with the founders, “Ths documents authorized er esstorrevaw uso ony by svashanugam choktanga, PES University unl Sep 2022. Coping o posing an iningoment of copy Permisiona@hoap vated of 817.783 7350Page 14 ASIACASE.COM I ees EXHIBIT 4 ‘TRADITIONAL AND ADAPTED BUTTERFLY FACE THREADING Source: HerbaLine Website, Retrieved March 6, 2015 from hitpi/ww.herbaline.com,mylenfindex. hl “Ths documents authorized er esstorrevaw uso ony by svashanugam choktanga, PES University unl Sep 2022. Coping o posing an iningoment of copy Permisiona@hoap vated of 817.783 7350