Independent University

MBA 509-3 Human Resource Management, Autumn Semester, 2021

Quiz 2

Mohammed Iqbal Hossain, ID 2031313

ABC Learning: Collapse of an entrepreneurial venture

Questions 1. Identify and discuss the main business features of the childcare industry
[Generate a list of competencies].

Childcare industry is an industry where children are given appropriate caring services and basic
education particularly during pre-school and early childhood level where parents especially
women remain busy with their work. These caring services are popular in mainly developed
countries such as UK, USA, Canada, Australia and other European countries. But in the
developing countries as well childcare services are gaining popularity because of growing
economic development. Both profit and non for profits organizations are working in this area.

The main business features of the childcare industry are as follows:

1) Strong management skills: Management skill is a precondition of sustaining and

managing well for a childcare industry. As Dag Hammarskjold, Secretary General,
United Nations said, "Competent people can work miracles even with small
resources and draw wealth out of barren land.", human competency is one of the key
factors for managing an organization like a childcare organization.

2) Hands on knowledge of the industry: Childcare is very specialized industry who deals
with children wellbeing and day-to-day care. Without knowledge of the industry a person
cannot run the business and provides services to the recipients. In ABC Learning of
Australia case, it was found that poor management skill with nepotism and unscrupulous
business practice, the company did not perform well and ultimately collapsed.

3) Staff needs Higher Education and Continuing Training: Since the staff interact with
children of different characteristics and background the staff needs prior teaching/caring
knowledge and experience in early childhood development.

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4) Good health and safety practices: Good health and safety practice is essential in
childcare industry as young children are not aware for their health and safety practices.
The child care providers must ensure high quality health and safety practices for
betterment of children, their parents as well as staff.

5) High-quality child care facility: The facility of the child care center should be quite
large enough to accommodate all the children, parents, and other staff. A cozy and
quality facility with friendly atmosphere help developing children’s physical and mental
health which is a crucial for early childhood development.

6) An efficient and educated governance structure: An efficient and well-educated

governing body and management structure is needed to run the childcare center smoothly
and effectively. As we have seen in the ABC Learning the board of the company could
not oversee the misdeeds of the CEO and others.

7) Financial transparency and disclosure: As with other industry, childcare industry also
needs sound financial management practices and should ensure transparency and
accountability. In most cases, childcare industry uses public money and tax-payers’
money. So, the board should continuously eye on activities and operation of the childcare
whether these funds are used responsibly with due care.

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Question 2. Critically evaluate the main reasons for ABC Learning’s collapse. What are the
lessons learned from ABC’s mistakes?

ABC learning established in 1988 was a high growth company. When it collapsed in 2008 it
owed $1.66 billion to its creditors, banks, staff and other institutional lenders. Main reasons for
ABC Learning’s collapse are as follows:

1) Opaque operation: It means that there was no transparency in the operation of ABC
Learning. Their business model was not well devised, no prudent business practices were
performed. For example, when selecting a site there was no feasibility study such as, true
cost and performance of the centers and long-term profitability etc. were not conducted.

2) Inorganic expansion: ABC Learning’s expansion was not on their own and in-house
competencies rather it depended on mergers and acquisition and creditor’ lending which
is a major drawback for their collapse. No organization should expand primarily depends
on mergers and acquisition and other people’s money especially when it expanded
overseas. This is wrong business model which ABC Learning adopted.

3) Poor management practices: Poor management and accounting systems is liable for any
corporate failure. Nepotism, favoritism and lack of accountability and inattentiveness can
easily collapse of a company like ABC Learning. That’s what happened in the case of
ABC Learning. The maintenance contract given to CEO’s ex brother-in-law was such an
example. They also did unscrupulous business practice where Regional Management
Companies were formed in the name of franchise where in fact, they were controlled by
ABC Learning staff to avoid payroll tax. The accounting practice was not also transparent
also where Federal Government had to send forensic accounting to investigate.

4) Inefficient board: ABC Learning’s corporate structure did not follow industry best
practices. A corporate governance structure requires an efficient and knowledgeable
person with the inclusion of independent board members. But instead of professional
board members like accountants, legal, management practitioners, the ABC Learning
board was formed with politicians with no knowledge in the industry. Thus, the board

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 had failed to identify weakness in accounting process, loss of occupancy, selection of
improper location in a timely manner. It was also a failure of Audit Committee of ABC
Learning. Audit Committee is one of the main committees of the board who oversee the
accounting and corporate governance practice. But in case of ABC, the Audit Committee
failed to detect related-party transactions of ABC Learning, such as awarding
maintenance contact to CEO’s ex brother-in-law and purchase of land with high price
from 123 Global thus showing their profits with high margin. These transactions were not
disclosed in the financial report and thus it concealed true financial position of the
company.

5) Weak public policy and regulations: The sound corporate governance policy and
regulations as well as their monitoring is paramount to grow and sustain an industry. For
example, in response to financial scandals in the early 2000s involving publicly traded
companies such as Enron Corporation, Tyco International plc, and WorldCom a new law
named The Sarbanes-Oxley Act of 2002 was enacted in US, after which the corporations
have to operate with strict compliance and reporting requirement. During ABC
Learning’s collapse, there was no national standard for childcare industry nor criteria was
fixed for the industry. At that time the only criteria to receive subsidy of the government
was to enroll a child in a center and set number of carers per child, which was not
sufficient to regulate a sensitive and new industry like childcare industry. This is also a
failure of corporate regulators such as Australian Securities and Investment Commission,
Australian Competition & Consumer Commission and other license giver who should
have overseen the rapid expansion of ABC Learning as well as their gradual collapse.

Lessons learned from ABC mistake:

1) Strict regulation: First of all, strict policy and regulations are required to regulate the
industry. Without proper regulations and monitoring system in place, an industry like
childcare cannot perform well. The industry should not be monopolized like ABC when
they captured 25% market share in the childcare industry in Australia which is huge

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 given the nature of the industry. So appropriate competition policy needs to be
implemented, that is how much a company can grow.

2) Sound Human Resources Management practice: Child care industry deals with
children with tender age which needs specific and trained human resources. There should
be standards of human resources and qualifications who can get job in the industry. From
initial HR planning to recruitment and retention of human resources are crucial factor for
the industry.

3) Leadership and management: ABC Learning failed due to improper leadership and
management practices. From board to CEO and other management failed to show good
leadership and management skills such as, integrity and honesty, planning and
organization, decision making, strategic thinking, focus & result-oriented, self-
management, accountability etc. are needed for a child care industry

4) Appropriate corporate governance structure: As mentioned earlier appropriate

corporate governance structure is required to run a accompany smoothly and efficiently.
The management should appoint independent board members with appropriate skill, and
professional knowledge in accounting, legal and other management practices.

5) Supervision and monitoring: This can be done by local authority and community where
the centers are located. Involvement with local community and listening their advice and
grievance can help centers in better way and efficient way.

6) Social groups and media involvement: Since the industry is highly sensitive and
delicate, the involvement of social pressure groups and media’s role is also important to
operate the centers as well as the whole industry in a better way.

7) Continuous training of staff: Training and motivation should be a daily agenda for the
industry. The staff must be given training and upskilling on a regular basis so that they
can give professional services to the children.

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Question 3. What HR policy regime do you recommend for a viable childcare industry?
Explain.

For a viable child care industry, the following HR policy is recommended:

1) Recruiting competent people: In the age of globalization and change of rapid

technology the industry should cope with the present-day demand. So, people with
technology minded and adopting capability should be recruited. Moreover, modern
technology like robotics and artificial intelligence should be adopted to reduce pressure
on human resources and existing resources should be trained on using modern
technology. People with analytical thinking and innovation skill, problem-solving skill,
creativity and initiative, Leadership capability should be recruitment. These should be
included in the recruitment & selection policy of the industry.

2) Recruitment and selection policy: As a recruitment source both internal and external
sources can be used. Direct applicants & referrals can be the best policy as an external
source for the childcare industry because the industry need trustworthy people. If
someone referred by someone it is possible that trustworthy people can be selected.
Moreover, public as well private agencies can also be contacted for the HR source. As a
selection method following methods are important for the industry:

a. Job performance tests & work samples: This will help industry to judge
whether a person can show his or her performance through practical test.

b. Drug tests: This is important for the sector because the employees work with the
children and needs

c. Cognitive ability tests: Intelligence test is also required because the employee
needs to deal with the children intelligently and they need Verbal, Numerical as

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 well as Abstract Reasoning because the employee needs to train children on these
matters.

d. Personality inventories: This test is also needed for childcare industry because
the industry needs extrovert, adjustable, courteous, trustworthy, dependable and
organized people. Through personality test the right people can be recruited.

e. Honesty tests: Childcare industry needs employees to be honest and to behave

safely. That’s why this test should be taken

3) A favorable compensation & benefit policy: A favorable compensation & benefit

policy is required to retain and sustain of the organization. Policy of giving attractive
wages & salary, incentive, insurance, vacation leave, retirement benefits, profit sharing
etc. should be included in the policy.

4) Training & development: Training and development should be given priority in the
industry. Since the staff deals with sensitive and delicate children the sector needs people
with high morale, professional, relationship building, law abiding etc. are needed for their
daily job practice. So training policy should include social skills, technology skills and
communication skills. Training method should include classroom Instruction,
audiovisual, computer-based, on-the-job, case studies, behavior modeling, experiential
programs etc. can be adopted. Moreover, induction training should be adopted for each
employee before straining their activities which provide basic information they need to
settle down and reduce likelihood of the employee leaving quickly.

5) Performance management: A robust Performance measurement system, performance

appraisals and disciplinary procedure should be adopted. Benefits, promotion, posting should be
performance based which also helps employees to identify and develop their skills. When
selecting performance appraisal method, graphic rating scale and behaviorally anchored rating
scale (BARS) can be adopted because while graphic rating scale is simple to use and provides a

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quantitative rating for each employee, behaviorally anchored rating scale, on the hand, is very
accurate to measure which is critical for childcare industry.