CASE STUDY

new wine

in an old bottle
By Prageetha Raju
and outdoors look and express. Three years ago, the company diversified into Abrasives and Industrial ceramics. Nest has always been a profitable company and sales have been growing at about 5.2 percent per year. However, as competition in the market deepened, profit margins have started to decline. The President, Mr. Srikant Amanaganti, is unbending about meeting the competition head-on and has emphasized the need to cut costs. The company's new strategic business plan clearly indicates the need to improve performance. Nest has just hired a new Vice-President of Human Resources,

How should a performance management process be linked with employee performance? What should be its objectives, besides being linked to the compensation system?

est Ceramics has been in business for the last 22 years manufacturing and supplying ceramic products such as Ceramic tiles, ceramic wall tiles, ceramic floor tiles, ceramic glazed tiles and ceramic sanitary wares. In the recent times the ceramic industries have credit to develop many ceramic formulations in Zirconium oxides, Mullite, High purity Aluminium, Forsterite, Steatite etc. Ceramic Tiles today have become an integral part of home improvement. It can make a huge difference to the way your interiors

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CASE STUDY
Ms. Prerna Talapatra. The President is advising that Prerna and the Human Resources department amend the performance review process so that employees are compensated for their performance in helping the company achieve its business goals. Mr. Mahesh Mandhaas, Sales Manager at Nest, looked out his office window and gazed aimlessly. He was relieved that performance review season was finally over. This year, there had been a bigger nuisance than in the past. He could now turn his attention back to more pressing business concerns. Sales were down and some customers left Nest and had gone to their competitors. He sighed as he recalled the copy of the memo Manas Prakop, Vice-President of Business Services and the Head of Mahesh's department, had circulated after the last Executive Management Council meeting. The memo announced that Nest would be giving a face-lift to their performance review process. Also, in the memo, according to the new strategic business plan, a performance management system that links job performance and salary is proposed. Clearly, there is also a need to ensure that we have a motivated group of employees to help us achieve our goals and objectives. Also, many companies are moving to pay for performance plans. To quote a recent book on the topic, 'they have found that a plan that pays for improved business results translates into more customers, higher profitability and a more motivated workforce. I am encouraging all managers to participate actively in the changes and improvements. All departmental heads and their managers were given the same news. At lunch, later that same day, Mahesh had whined to a colleague, "I'm up to my neck in this alligators race trying to get sales up and keep our customers. Do they really think that changing the performance review process is going to make any difference, just because we call it "performance management'? No one really takes the performance review process seriously. It is just a paper exercise that is needed to determine next year's salary increases. It is about numbers and what matters most to employees is, getting the highest number they can, on their evaluations so that they get a pay raise. We have pay for performance without merit system. Why change things? Ghosh!! Spare me from the anguish of yet another HR initiative". Since the process was under review, Manas had suggested that this year, department managers conduct their performance reviews with employees, based on
DR. G. PRAGEETHA RAJU

the forms and procedures that they had been using for the better part of a decade. Employees are rated on a five-point rating scale from 1 (unacceptable) to 5 (outstanding) across various performance factors (e.g. quantity of work, quality of work, knowledge of the job, co-operation, interpersonal, communication skills, etc.). Department managers are expected to conduct an interview with each employee to discuss the performance, focusing on the strengths and weaknesses of the employee's work performance, areas of improvement and goals for the next year. When he received the Performance Review forms from the Human Resources department, Mahesh put them aside for as long as he could. He didn't like doing them any more than the Sales Associates in his department like, having them done. Finally, he couldn't put it off any longer, he sent a memo to each employee and a copy of the form, asking them to take some time to think about their job and responsibilities over the last year and fill our the form. He also completed a performance review form for each employee and then arranged a time to meet with them individually to discuss the contents. Following the interview, Mahesh and the employee, both signed the form acknowledging that the review had taken place and had been discussed. He sent the completed forms to Manas. A few days later, Manas called Mahesh to his office. "Mahesh, I've gone through the performance reviews and I noticed that over 90 percent of the employee in your department are given fours and fives on the fivepoint rating scale. We've got to get costs out of the system. You can't tell me that this many people are doing "outstanding" jobs. If this is the case, our sales figures would have looked better. The higher ratings should only go to those who have demonstrated a major stretch beyond their normal responsibilities, I want to see the department's Sales Managers and Associates much more responsive to customer needs and I just don't think that is happening. I think you've been too generous and you're going to have to go over them again. Try to be more objective. I would like to see at least 30 percent occupy the bottom two categories. We cannot afford to lose our best employees but at the same time, we need to identify any deadwood and deal with it." Mahesh complied with Manas's wishes. He had redone the performance review forms and tried to be more critical this time. He had discussed the new ratings

ASSOCIATE PROFESSOR - HR

SYMBIOSIS CENTER FOR MANAGEMENT & HRD

Dr. G. Prageetha Raju is an Associate Professor & Head of Department (HR/OB) at Symbiosis Center for Management & Human Resource Development (SCMHRD). She possesses 13 years of teaching experience at MBA level. She teaches Organizational Behavior, Human Resource Management (HRM), and courses of HR electives for MBA program as well as the Executive MBA Program. She is an active trainer in the areas of Organizational Behavior and HRM. She undertakes organizational research, especially in the HRM area on a free lance basis. Her areas of expertise include Performance Management, Competency Mapping, Human Capital Analytics, and Assessment Centers. She is an avid researcher besides being an active teacher in the above areas. She likes experimenting on novel pedagogical tools to teach model based courses like Organizational Behavior, Competency Mapping, etc.

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CASE STUDY
with each employee. Kalyan Vivash, a Sales Associate in the department for eight years, had been quite upset with the lower ratings he had received for several of the performance factors in the Form. He had signed the form but indicated on it that he disagreed with the review of his performance. As Mahesh walked away from the window and took a look at his desk, he couldn't help but have misgivings about the way things worked out this year with Kalyan. Recently, the merit increases were given out and Kalyan received less than usual because of performance review. Harsh Hasmukh, a Sales Associate in the department, had received a higher merit increase than Kalyan. He noticed that Kalyan now barely spoke to him in the office. On more than one occasion, he had overhead him with a customer on the phone and Kalyan was unusually curt and argumentative. Mahesh knew he had a problem and now seemed like the time is ripe to talk to Prerna Talapatra in HR. She must know how to resolve this issue and she was the one heading the re-design of the company's performance review process. He was reaching for the phone to set up an appointment when it rang. Prerna, the newly-appointed Vice-President, Human Resources for Nest, picked up a paper clip and fingered it absently. Kalyan Vivash had just left her office and he was not happy. She pondered over his words. "Prerna Mam, if I'm doing just as good a job as Harsh, why shouldn't I get a similar raise? Besides, I've been here longer. I've had "outstanding" ratings for years. I won the monthly Sales Award last February. I can't believe that I am now "In Need of Improvement." I'm entitled
RAJENDRA GHAG

to that merit increase. Mahesh told me he was just doing what Manas Prakaop wanted for the performance review. I met Manas and he apparently told me that his hands were tied when it came to deciding merit increases. He said he only had a limited merit pay budget and a couple of "special circumstances.' I don't think they know what they're doing. He probably heard that Harsh might leave Nest and that's the 'special circumstance' he was talking about. This is not fair. If this is the way things are going to work around here, what's the point in knocking myself out?" Prerna assured Kalyan that she would look into the problem and get back to him. She felt a little guilty. This was a transition year as the company shifted to a new performance management and compensation systems. She should have worked more with the Unit Heads and Department Managers as the performance reviews were being conducted and the merit increases were determined. But, at the time, neither Mahesh nor the other managers asked for assistance. Now, it appears, there is a problem. The President (Srikant Amanaganti) had given strong indications that he was not satisfied with the current merit pay system and HR was to look at alternatives. Prerna knew that Nest couldn't contemplate moving to an alternative pay for performance system until changes were made in the performance review process itself. If she were able to help managers and employees understand performance management, they might see things in a new light. In fact, Prerna would like to see the department and line managers take ownership for the new performance management system. She picked up the phone to call Mahesh.

EXECUTIVE VICE PRESIDENT - HR

HDFC STANDARD LIFE

T
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Rajendra Ghag completed his Masters in Personnel Management way back in 1986-87 in addition to his commerce graduation and Law (LLB-Gen) degree as an academic qualification. He has more than two and half decades of rich work experience mostly in large Indian and multinational companies. During his previous employment with DHL Express, as Head of HR for India and Senior Advisor - Quality and Processes (First Choice Programme) for South Asia, Rajendra was one of the important members of the board and has travelled extensively across the globe as trainer as well as participant of various management conferences. He brings with him huge perspective not only in HR domain, but also in the overall business management area due to his six sigma and process management expertise. Rajendra is also a certified Change Management trainer and considers People Engagement as his forte. on bottom line has suggested (assuming) many initiatives and one the important one was revisiting the existing performance management system in the company. The mistake that many existing organisations do when they are faced with such situations is to know or get to know what some others players in the industry has done with some hear say about their success storey with a particular intervention and try to push the similar one in their own organisation. While it may be true that the organisation do require urgent intervention of such sort but it can't be just adopted without analyzing different circumstances and situation. In fact, in my view the first thinking about changing the performance management system or bringing in the

he Nest case is no different from what many organisations that transition into such new processes. It is a clear issue of an absence of change management process when such an important change was brought about. The organisation that has been working with more than 5 percent growth with reasonable profitability would find it very difficult to adopt to the change, particularly the one which deals with the people, their aspirations and emotions. Performance Management for any organisation is not just an HR functional process but it is an important organizational enabler. The President, when pushed with competition and pressure on cost and as a result

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CASE STUDY
One point should be borne in mind here that there pay for performance concept should be discussed in the top most level of Management at the time of business is nothing wrong with what of change in most cases, it planning discussions. The entire top management where is the how of change with respect to stake holder all functional representatives are present would then get management that make the change fail. One of the to know and deliberate the need for such an intervention researches proves that people generally resist change and benefits of the same if executed well. This is what due to one of those four quadrants of resistance i.e. a) I consider as the first step of change management to Security/Insecurity, b) Comfort/discomfort. c) Status/ make any change successful. For any change particularly power and d) Benefits/WIFFM and hence it is important when it comes to impacting people, following three/ for the change agents or management to know who are four levers are most important; a) Creating Shared Need, such stake holders and which boxes they are and how b) Developing Vision, c) Mobilising commitment and d) quickly they should be communicated to come out of Continuous planned communication during all these it so that they do not resist change. By the way, resistance phases. There are others like providing infrastructure to change does not necessarily visible in negative but it and resources etc. Yes, not to remains there in the system with forget; the Leadership plays an hearing loud 'NO' delaying the overarching role in all these levers entire process. Performance in managing change particularly Knowing this, Prerna should like the one brought by Nest. ensure that Shared need for the Management for any Now, if we analyse the Nest new performance management organisation is not just system is articulated clearly at the issue with respect to its newly launched performance top most level with some facts. In an HR functional management system with the this case, I am sure President of above change management Nest would have looked at the process but it is an philosophy, it clearly talks about years` performance important organizational previous both top line and bottom the leadership to start with. If the numbers; management/president had line vis--vis competition and had enabler. some views. There could be an clearly articulated the shared need issue of lower top line growth and for such intervention with facts higher cost ratio against the plan creating pressure on and the likely benefits other stake holders look at it bottom line. This should be the trigger point at the positively. Each of such changes go through the lot of president level to explain to the colleagues that as an deliberations at that level, however once it gets agreed organisation they have`nt performed as required and it it becomes a "Shared Need" and every one takes it as will be difficult to sustain the same level of costs including their own requirement instead of terming it as the the people cost. Then there could be debate on issues forced one. Similarly, the group which has the HR like market conditions, overall performance of nest and representative as well also articulates the future state its leadership etc. These rationales help create the shared i.e. clearly debating as to what would change for positive need to ultimately mobilizing commitment from the if we execute the change effectively. This is called stake holders for such important change. "Developing Vision". If at the highest level these two Once the commitment at the top most level is levers are debated and accepted it easily brings in the garnered, it will be easy to then cascade it down with commitment from the stake holders who are well planned "What" of change with effective participating in such debate. In Nest case, I am sure communication around "How" of the change coupled someone like Mahesh would have been part of it. As with time lines and monitoring. This should then be mentioned earlier, if organisation has a culture of followed by ensuring that organization' overall goals are communication and cascade of required information, connected to each of the functional goals with such changes are also communicated appropriately measurable KPIs which should be clearly articulated with its What, How, When and WIFFM to get maximum and communicated to all concerned at the start of the buy in. year. The success of any performance management Prerna as an HR catalyst could play an important system lies in if the employees clearly know at the start role in getting this debated at that level to create such of the year as to what are they chasing and what would shared need so that she could have avoided the issues they achieve (including compensation) if they reach a that cropped up. particular level of performance. Prerna should ensure Now that the Sales organisation has already brought that senior HR team does the road shows on how to up the issues and I am sure other functions would also conduct the performance appraisals including how the have similar grievances, there is no other way in my ratings will be given and how the same will be moderated view than to go back to the drawing room for next with respect to its bell curve force ranking etc. cycle right at the time of start of the year business There are best of the processes around performance planning and working on the requirement again with management system available in the HR book; however change management concept mentioned above. In fact, in my view, it will be wrong to assume that it will fit with the learning out of the issues already raised, it in the organisation without having any reference to the would be little better for Prerna to look at what is being Leadership and softer aspects mentioned above. taken up and why so that the same can be addressed.

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CASE STUDY
PRABIR JHA

SENIOR VICE PRESIDENT & HEAD-HR

TATA MOTORS

Prabir Jha is an alumnus of St. Stephen's College, Delhi and XLRI Jamshedpur. After doing his Masters, Prabir was selected for the prestigious Civil Services and as a bureaucrat handled the entire gamut of HR & IR issues of the Indian Ordnance Factories. On his switch to the corporate world after almost 10 years in the government, he has worked in senior management positions for organizations like Thermax, TechMahindra and was till recently the Global Head- HR & Corporate Communications at Dr. Reddy's. He has handled all areas in HR, with special interest in Change Management, OD interventions, Global HR Strategy, Employer Branding and Leadership Capability Development. Prabir is an accomplished thought leader whose articles have been published in various publications. He is a sought-after speaker, executive coach and a visiting faculty at various business schools and top management training institutes.

est Ceramics has created a situation for volte-faces leaving employees bewildered. Super stars itself not very different from many of yesterday have no reason to understand why they organizations. It has pulled the trigger are strugglers overnight! Worse, the perception that without due thought and preparation. ratings and rewards have been conveniently disbursed Prerna Talapatra has indeed had her job rather than objectively decided has huge implications cut out. Where did it all go wrong? The on employee motivation and even retention. Losing intentions behind a revamp of the appraisal process employee commitment in the face of an intensifying and tying it in with the rewards mechanism were honest business environment is creating just the opposite of and logically sound. However, the company never what the executive memo hoped to create! prepared its managers well enough, either in the new Prerna rightly understands the mess the new performance philosophy or the art of feedback, situation has created. However, she must revisit the differentiation and overall leadership. With a difficult fundamentals. Why is a performance management situation that annual performance management is, the system needed at all? Surely, it must not be to just lack of ownership for a new approach is obvious. cloak an arbitrary increment decision or a bonus payout. Managers seem to be following a diktat without owning She must help the organization first clarify the strategic actions. This creates a clear alibi for lack of ownership. business metrics and priorities for Nest. She could use Why a different reward for a different performance is a Balanced Score Card framework or even otherwise not clearly anchored. Either the traditional 'soft state' clearly articulate what will improve both the at Nest which made everyone feel super special or the performance (the near term) and the health (longlack of individual accountability was something that term) of the organization. These should be the key could not be accepted to be ignored by the rank and strategic levers that need to be tweaked. These priorities file without massive must then be explained to the communication and entire organization through a roadshows. This unfortunately series of roadshows and town never happened at Nest. halls. Helping people People must see the Nest has reduced a critical understand what the company connect between strategic decision like a new is focussed on is most critical performance and rewards for their ownership and priorities and their own system to an executive memo! subsequent actions, not just individual expectations. This having a performance While some of the theoretical principles are fair, managers management system itself! The should itself lead to an cannot be expected to merely employee meets must also opening up of the culture comply with a memo. It is highlight how the strategic shocking that the change is priorities play out for various and make the new announced at the end of the departments and business appraisal cycle, not in the philosophy better groups and then for individual beginning. It is not fair to actions. People must see the appreciated. change the rules of the game connect between strategic after the game. Ideally, the priorities and their own timing should have been to announce it for the new individual expectations. This should itself lead to an financial year so that everyone has a better opening up of the culture and make the new philosophy understanding of the inherent logic. better appreciated. One is also intrigued that managers were not even Apart from alignment of goals, removal of any subtrained to handle the difficult conversations that they optimal goals, enabling the principle of 'global optima' were suddenly expected to do. Passing the buck to triumph over departmental goals Prerna must also upwards was a natural but very avoidable corollary. comprehensively revisit Nest's compensation Liberal ratings were followed by equally surprising philosophy. This would imply making a choice of how

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the company wants and needs to position itself in the employment market. While business is seeing erosion of margins, is the reward mix in line? What part of an individual's total compensation should be variable? How should this ratio look for different levels of management? Maybe the senior management should have a significant part of their compensation at risk to drive a performance culture. At progressively, junior levels it must be lesser. Leadership behaviour if rightly anchored will drive a certain performance orientation across the hierarchy. Prerna must also firm up what will be the best individual differentiation philosophy for Nest. What works well somewhere else may not always be an ideal plug and play for Nest. The number of rating scales, with a clear descriptor of what each would represent is a choice to make. It is better for everyone to know what these precisely measure and how one is different from then other scale. And yet, performance management is finally about informed judgment. It is not a mathematical science. This is the art that must be acquired, internalized and perfected by the managers of Nest. The art of goal setting, constant feedback through the year, the quality of a constructive dialogue, a more inclusive rather than just a boss-centric assessment system, clarity on a forced curve or otherwise, the provision of any appeal process are all aspects that must be clear to every manager. Wrongly and unfairly executed can create far more dangerous implications. Done in its true spirit, it will drive performance and health. Nest must also reflect on whether it needs to go through all the pain only to decide certain financial rewards. There is a larger long-term need it must keep in mind. How does it use the tool to create a high performance ethic, differentiate between the 'stars' and the rest, signal potential actions to low performers and bring a certain vibrancy in the system. It also must be used to signal what values and leadership behaviour will be rewarded and what is clearly unacceptable, irrespective of performance. This will be critical for Nest if it has to prepare itself for the future and be a truly sustainable organization. Possibly even more critical would be to look at the performance management process as a capability building and employee development platform. In the long run, this will be its most potent value-add. It must help employees become more self-aware, identify their strengths, areas of development for their future growth and generally help the company have deeper capability and leadership bench strength to drive future growth. This entails developing the capability of having productive coaching conversation and the ability to honestly give and take feedback. Maybe a 360-degree feedback process would make the process less top-down and make it more wholesome for the individual. While human beings do not like to be evaluated,

which any performance system does, the way it is administered can change the way individuals psychologically receive it. Executed more as a developmental tool, not just a reward disbursement mechanism can help re-brand the tool. Stronger linkages with training interventions, career transitions (including placing people in roles they are more likely to enjoy or excel) and other self-development possibilities will help get the individual to focus on these very important dimensions. Annual financial rewards then become an important but not the exclusive recall of the system. Nest must ensure that in the guise of improving the connection between business performance and individual rewards, these larger goals are not marginalized. And these indeed, become the real reasons for such a system to gain acceptance and flourish. Getting these new operating systems debated and accepted by the management team will be a test of Prerna's professional competence. It must indeed not appear to be a pure HR decision. Involvement of line leaders who have to implement a new system is nonnegotiable. Line managers must actively front end these sessions to ensure their own public commitment to the new system. Nest and Prerna have their job cut out. They must remedy the current knee-jerk mess they have inadvertently got themselves in. There is an urgent need to re-look the issue in its entirety, not just a quick-fix to a certain business reality because they open more issues than close. Given its own maturity and evolution, Nest does seem to be well placed to attempt a comprehensive review of both the philosophy and then the operating system in that order. Change will not be easy or overnight. But if the philosophy is well debated and explained, the details are easy enough to manage. Executive memos alone can only serve old wine in new bottles. Nest needs to HC actually concoct a new wine altogether!

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