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By Dr. Ratna Sinha
Associate ProfessorISBR Business School
Bangalore
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Performance Management at Vitality Health Care
Vitality enterprise was founded in 1987 in Ames lowa by Hikaru “Fred” Kikuchi. Initially it started with importing products from Japan and marketing them. It went success within 3 months and resulting to more than $15,000 in sales.
In 1989 import tariffs and supply constraints forced vitality to start their own manufacturing unit. By the summer 1991, business grown to $3 million per year. In 1994,Vitality partnered with several leading pharmacy.
In 1995 company went global, targeting markets around the pacific Rim including Taiwan, China and Japan. In 1997 Vitality acquired Herbapure Nutraceuticals. Vitality‘s name was changed as Vitality health Enterprises ,also in this period company went public.
With the expansion, Kikuchi maintain his vision by matching it to the Corporate strategy to one his favourite sayings. "Outer beauty can only be achieved as harmony is reached”.
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Case background cont.… By 2007 company had around 5500 Employees in HQ and nearly 1500
employees in global offices. In mid 2008,global economic crisis brought relatively stagnation to
Vitality’s growth and Beth Williams was made the CEO of Vitality Health Enterprises. Williams brought a disciplined operational mind-set and was known throughout the industry for reducing global production cost by 12% during three years at the helm of B&W Beauty.
In the first quarter of 2009, Vitality began rolling out its new business strategy, In addition,Williams organized a committee to review the policies and methods for tracking the performance goals of all non-sales and non-executive employees across the entire company .
Over the next four months, the performance Management Evaluation Team (PMET) Studied the evaluation and rewards system.
The PMET discovered that the PMS presented problems for the 2,500 professionals staff.
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Six Hat Thinking
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Six Thinking Hats is a simple, effective parallel thinking process that helps people be more productive, focused, and mindfully involved. A powerful tool set, which once learned can be applied immediately!
1. MANGER GIVES RATING
THROUGH PMS (A-E).
2. LATER NEW EVALUATION
SYSTEM STARTED.
3. WHEN PERFORMANCE WAS
LACKING PMET2 STARTED.
4. EVALUATION BY MANAGER
WITH RESPECT TO
COMMUNICATION CLARIFIES
STAFFING NEEDS.
1(a) Who should evaluate employees performance ?
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Yellow Hat1.In Manager logically we
are looking with vivid
experience whose
judgment is important
2.Team leader and top
managers equally in
contest for rating.
3.Function Managers, raters
peer may be there for
judging
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Green HatThere should be speedy, agile
one size for constant learning
method to judge employee
The evaluation system must
not measure rating tendency
of the evaluator
But the candidates ideal
performance snapshots
needed.
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Black Hat
Employee is not alone entity
must not be kept in oblivion
while rating
Manager and employees are
two sides of coin both to be
included
Idiosyncratic rater effect is
highly probable biases to be
prevented
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Red HatDuring critical exchange of
setting expectation and
feedback the emotional
intelligence part of both the
reviewer and reviewees must
be in alignment.
7cs of communication to be
effectively implemented.
Completeness, Conciseness,
Consideration, Clarity,
Concreteness, Courtesy,
Correctness
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Blue HatUltimately every leader is
important but the team leader
knows what to do with each
member as he is having vivid
experience of each individual
performance so, they should
lead the way although view of
employee and peers individual
must be incorporated.
Team leader/manager should
know what to do with each
team member rather what
they think of each individual
to improve the performance.
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1(b)What should leader do when the performance is lacking?
There should be performance
reviewable system through
conducting interview surveys and
eradicate any homogenous rating.
Competency Icebergs takes
help of Iceberg to explain
competency or the level of
competency to make people
perform to the best of their ability
and improve their performance
invisible part of their
characteristics along with
knowledge and skills to be
promoted.
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2(a) Should the new performance review system at Vitality Health be revised? What changes would you recommend to the new performance management system ?How should the changes be implemented ?
The company had 13 different rating level from A-E including plus and minus which led to managerial abuses.
PMET discovered that many managers gave almost everyone C or B Provided D or A rating and rarely gave E.
And hence there was a homogeneous rating system which fail to distinguish between performers and non- performers
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New Forced Distribution System where employees are differentiated on basis of performance among themselves
Yellow Hat
54% of the employee prefer
the new system more as it
values top performances
more:Easy to determine which
category employee falls into.
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Black HatFew categories put more burden on
managers.
Forced distribution system is too
rigid manager need to put
employees in specific gradient just
for the shake of bell curve.
We are trying to create a normal
bell shape curve forcefully.
This system create doubts in mind
of both managers and employee.
New employees abuse, no rated
rank for less than one year saving
high ranks for veteran manager
trying to force employees into
distribution
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Intuitively appear to be
evolving system.
Adaptation problem as
people not used to bring
rated against each other.
It appears employees are
getting defensive not ready to
do things outside their job
description.
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Red Hat
Green Hat New system must be in accordance
with MACLENNAN NEED
THEORY satisfying and rating for
affiliation, achievement and power.
CHARLES HANDY CULTURE
MODEL organization culture based
on power, role, task and person, the
personal management policy must
backup the organization culture.
The old PMS was role and task
oriented where as the new PMS is
making it person oriented.
Need 360 or 180 feedback-
It is a powerful self-development tool
used worldwide in organizations and
other contexts. It is simply an exercise
where you select competencies that
are relevant to your work/life/role
circumstances, rate yourself on where
you see yourself, and then ask others
to rate you on the same
Skewed rating curves would serve the
purpose better than forcefully curve.16
Overall the system has tried
to overhaul the process but
the element of idiosyncrasy
still persist although it
generates competitive spirit
among employees for short
term. 54% employees referring it
due to affinity towards
change but still short coming
are there.
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Blue Hat
Problem-2(b)The point and Salary System
Each position had a base –level monthly salary calculations and performance based raised,
Each positions had a base level monthly salary that was modified upward along a pay policy depending on the number of “job evaluation points”.
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Compa –Ratio Ranges (Assumes 500 Job Evaluation Points)
Compa-ratio Lower Bound Upper Bound 80-95 $5944.0 $7058.5 95.01-110 $7059.2 $8173.0 110.01-120 $8173.7 $8916.0
The point and Salary System
What Vitality Did to Improve for problem-2(b)
• Compensation was adjusted by the new program. The new plan incorporated a system of performance –related short and long –term equity bonuses.
• This also will allow for limited stock option to upper levels of management and directors as an incentive to successfully implement the new PMS.
• All performance reviews were to be conducted at the start of the calendar year and delivered to the employees in conjunction with the annual goal-setting process in January.
• The timetable will put the entire company in the same review cycle for collaborative efforts and to limit the effect of external factors on the relative rankings.
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Blue Hat
As vitalily looks at revising their newer corporate performance management system in conjunction with their corporate vision they should ensure that the CPM is aligned. The common tools used to align them is the Kaplan and Norton's’ balanced scorecard.
The BSC framework consist of four elements–Financial, customer, internal process and learning development. By cascading these perspective to the performance review, managers and employee will always feel that what they reviewing and conduct is part of their job responsibility and measured through their KPI.
providing bonus in case of R&D workers may not be a good idea may lead to crowding out theory intrinsic motivation or value for own work versus extrinsic motivation or satisfying needs depend on category employee falls into different region.
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3.Should the new performance at Vitality be revised? What changes you recommend and how to implement?
Our intuition says:
Refreshing and recommunicating the
strategy through management and
employee training,the entire organization
will be able to understand the vision that
CEO is seeking for continued growth,
Cascading and managing the strategy
through the balanced scorecard to
‘connect the dots’ between the various
components of strategic planning and
management.
Provide a new system for performance
pay out that does not include a confusing
forced distribution that only values
individual performance.
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Red Hat
Black HatManagers felt difficult to discuss
with employees since it affects the
merit increase.
Employee didn’t do the work which
were not part of the their
evaluation.
Unwilling to spent time on
implementing process.
Using not rated employees
category as a tool to reserve higher
ranking for old employees.
Uniform rankings
Reluctant to disclose the ranking to
the employees.
Rotation of highest rankings
between employees from one year
to the next. 23
Research done by evaluation
team showed both positive
and negative comments.
Forced distribution initially
helps to get rid off poor
performers but later it
removes good performers as
well.Be a star if my team falls flat
or fall flat if my team is a star.
Hoffman need to present this
in the board meeting.
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Blue Hat
4.How important is relative nature of the system?
Identify Top Performers Through The Bell Curve GradingThe forced relative ranking compels managers to make decisions and differentiate between the performances of different employees. Those who are identified as high performers are rewarded; they feel motivated and work harder to grow in the company. Their growth and career plans can be developed suitably and initiatives taken to retain them within the company. This not only helps retain the top talent but also builds succession pipelines.Manage Lenient And Strict Ratings Of ManagersThe relative system is perhaps the only method that can be used by the organization to manage leniency and strictness of managers’ ratings. Lenient ratings mean a larger cluster of employees in a high-rating group (a right-skewed bell-curve), and strict ratings mean large numbers of employees in a low-rating group (a left-skewed bell curve).These unbalanced ratings may demotivate high performers and retain mediocre employees. The average manager has a tendency to rate on a lenient scale.
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4.How important is relative nature of the system?
Identify Suitability Of Employees In A Job Position An underperforming employee may be more suited for another
position in the company. The forced ranking with adequate analysis and HR intervention can identify other positions for employees. By digging deeper into the competencies, strengths and career plans of employees and placing them in positions which map better to their capabilities, HR can play a key role in employee development.
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Thank You!!
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