Organization Restructuring and Change Management

1. Organization Restructuring and Change Management May 23, 2003 Amway Korea Ltd.

2. Table of Contents For a Better Life Helping People Live Better Lives About Amway Corporation Organization Restructuring & Change Management

3. For a Better Life Helping People Live Better Lives AboutAmway Corp. I

4. VISION “TO HELP PEOPLE LIVE BETTER LIVES”

5. Amway Corporation Amway corporation is based in ADA, Michigan, USA In 1959, Jay Van Andel and Rich DeVos founded the direct-selling company Amway Amway is the biggest direct selling company in the world Amway possesses 380 patent rights as of Mar. 2001, and submitted 430 applications for the patent right Amway's largest sales come from Korea, Japan, China, India and Taiwan.

7. Amway Korea Ltd. Amway Korea was established in 1988, and started its operations in 1991 There are 2 RDC (Regional Distribution Center) and 12 IBO (Independent Business Owner) Plazas Amway Korea is No. 3 market within Amway Corporation, and it reached over 1.2 trillion won sales in FY02 There are 300,000 active IBOs in Amway Korea About 400 employees are working in Amway Korea Ltd.

8.  Eumsung RDC Daegu IBO Plaza 

9. Amway Korea Business Process Home Delivery IBO’s taking in products at home ADA Sungnae IP IBOs’ Direct Taking of Amway Products Kayang IP Daejon IP (RDC) Taegu IP Kwangju IP Pusan IP One-For-One Cheju IP Ulsan Kangnung

10. Visit us at http://www.amwaykorea.co.kr

11. For a Better Life Helping People Live Better Lives Organization Restructuring & Change Management II. 1. Background 2. Scope and Process : Organization Diagnosis 3. Output : Organization Diagnosis • 4. Current Task • 5. Future Tasks and Direction

12. Decreased Org. Efficiencydue to rapid growth (particularly in terms of org. size) Need for Change Lowered Managerial Capacity of Mid. Mgmt. due to considerable increase in headcount Lack of Customer-centered Mindset of Employeesdue to increased bureaucracy within the org. 1. Background Organizational Situation

13. 1. Background (Cont’d) Employees’ Initial Attitude of the Project Sensitiveness Junior and Senior   Leader Defensiveness All Employees   Expectation   All Employees

14. 1. Background (Cont’d) To resolve the problems concerned, 1) in-depth organization diagnosis was conducted 2) change management tools were utilized to improve employees’ readiness for change

15. 2. Scope and Process : Org. Diagnosis Organization Diagnosis Scope and Process Phase I Phase II Phase III Determination of Issues Diagnosis & Task Development Action Planning to Strengthen Org. Capability Focus Group Interview (Junior) EOS Result Review Top Mgt. Workshop to determine tasks Focus Group Interview (Senior) Action Plan Main Issues Determined Tasks Identified External/ Internal Environment Review Focus Group Interview (Leader) Solution Development Task Development Exec. Interview

16. 2. Scope and Process : Org. Diagnosis (Cont’d) Change Management Tools • Develop Business Case to attract employees’ attention • Identify and analyze Key Stakeholder • Assess Communication Channel Communication Plan

17. 3. Output : Org. Diagnosis • Each task has been ranked based on their strategic importance, easy implementation, urgency and short-term effectiveness. Tasks Strategic Importance Easy Implementa-tion Urgency Short-Term Effectiveness Priority Remarks Redefining and Sharing of Vision & Strategy 3 1 3 1 8 16 Org. Structure Re-design 5 1 5 5 10 Manpower Structure Re-design 3 1 1 5 3 10 Job Analysis 3 1 3 5 Succession Planning 3 5 5 18 One of the 3 main objectives of 2003 10 Korean Title Promotion Policy Re-design 3 3 3 1 14 Performance Mgmt System Re-design 5 3 3 3 Communication Effectiveness Planning 3 1 3 1 8 5 14 Leadership Development 5 3 1

18. 3. Output : Org. Diagnosis (Cont’d) <Priority Tasks> Org. Structure Re-design Succession Planning Leadership Development Performance Mgmt System Re-design Infrastructure for Change Mgmt <Supporting Tasks> Effective Communication Planning Manpower Structure Re-design Redefining and Sharing of Vision & Strategy Job Analysis Implement Team-Based Org. Structure Korean Title Promotion Policy Re-design

19. 3. Output : Org. Diagnosis (Cont’d) Changes in Employees’ Attitude after the Project • Positive attitude of project intention among team leaders increased • Employees’ trust of the top management increased • Employees’ expectation of the project increased • But, “let’s wait and see” attitude still exists especially among the juniors • There are still some managers who are not prepared to ‘buy’ the project objectives, hence not willing to participate in current initiatives for change

20. 4. Current Task Key Findings • HRM and HRD are separated; HRD is tied with GA(Usually HRM and HRD form one HR department; alternatively, each of the three functions operate independently) • Despite the increase in number of IBOs, sales function has remained unchanged. • Local Sourcing serves as an independent unit, with an executive as the department head. Amway Korea ManagementService Sales & MKT Logistics PR & Gov’tAffair Implications & Solutions Finance Biz. Relations Distribution PR & Gov’t Affair • Review HRD’s roles and relocate as necessary. • Review the capacity of sales function in line with the increase in both revenue and number of IBOs. • Review Local Sourcing’s position in the org., and investigate potential linkage with other function(s). • Due to the rapid growth of the org. there exists possibility of moral hazard, which may lead to need for internal audit function. • Review span of control : Sales & MKT, Management Service Treasury Logistics Planning Legal Affairs Marketing HRM BCR & BSM Special Event CSD GA/HRD Tech. Reg/QA RDC ISD RM & GDS Import & Export Purchasing Local Sourcing

21. 5. Future Tasks and Direction  Change Management  Succession Planning based on the New Org. Structure Performance Management - Identify future leadership competency  Establish Training & Development Plan based on succession planning - Leadership Development - Performance Management & Coaching Skills Training - Executive Development Program - Customized in-house MBA program  Others - Introduce “Cafeteria Benefit Program” - Talent Management and Retention - Develop “Total Compensation Strategy”

22. Thank You