Project Report on Performance Managment Submitted toProf.

Snigdha Patnaik Performance Appraisal System in TCS Submitted By:Auronil DuttaRoll No. 8,PGDM (3 Year) (2007-2010)XAVIER INSTITUTE OF MANAGEMENT,BHUBANESWAR

Tata Consultancy Services Limited (TCS) is the world-leading information technologyconsulting, services, and business process outsourcing organization that envisioned and p i o n e e r e d t h e a d o p t i o n o f t h e f l e x i b l e g l o b a l b u s i n e s s p r a c t i c e s t h a t t o d a y e n a b l e companies to operate more efficiently and produce more value.They commenced operations in 1968, when the IT services industry didn’t exist as it doestoday. Now, with a presence in 34 countries across 6 continents, & a comprehensiver a n g e o f s e r v i c e s a c r o s s d i v e r s e i n d u s t r i e s , t h e y a r e o n e o f t h e w o r l d ' s l e a d i n g Information Technology companies. Seven of the Fortune Top 10 companies are amongour valued customers.They are part of one of Asia's largest conglomerates - the TATA Group - which, with itsinterests in Energy, Telecommunications, Financial Services, Chemicals, Engineering &Materials, provides us with a grounded understanding of specific business challengesfacing global companies.As we move into an era of e-business where IT professionals will interview employers sos t r i n g e n t l y t h a t 4 0 p e r c e n t e m p l o ye r s w i l l m i s s r e c r u i t m e n t g o a l s ( s o u rce: Gartner Group), the role of HR assumes unthinkable proportions a n d i s s u b j e c t t o m a m m o t h challenges. With this sensitive breed of IT professionals, how has TCS grown to andsustained at the number one position is a question which market watchers have askedthemselves a thousand times. There is but one answer - passion for excellence in theworkforce practices. TCS has developed an unbreakable bond with sound HR practices inan environment that defies traditional roles and responsibilities.The TCS-HR group operates with technical experts to create a synergy which is enviable.Figure 1 illustrates the role of HR, which evidently is that of a facilitator. So whether it isr e c r u i t m e n t o r e v e n c a r e e r d e v e l o p m e n t , H R i s t h e c a t a l y s t w h i c h i n i t i a t e s a n d institutionalizes processes. To manage all the functions for over 14000 employees is aHerculean task but the smoothness of operations is intriguing. The HR structure, whichallows flexibility and empowerment, is the solution

The organization is able to predictits capability for performing work because it can quantify the capability of its workforceand of the competency-based processes they use in performing their assignments) P-CMM . Environmentaldistractions. The organization uses the results of the quantitative managementactivities established at Maturity Level 4 to guide improvements .there is inconsistency in how these practices are performed across units and little synergyacross the organization. Poor communication. or skill. unclear performance objectives or feedback. The organization is now able tomanage its capability and performance quantitatively.Optimizing Level (The entire organization is focused on continualimprovement. P-CMM . to the performance of competency-based processes. Ritualistic practices. and Emotionally detachedworkforce). and to workforce practices and activities.Managed Level (Typical characteristics: Work overload.Displacement of responsibility.Defined Level (Although there are performing basic workforce practices. Low morale) P-CMM .Predictable Level (The organization manages and exploits the capabilitycreated by its framework of workforce competencies. Lack of relevant knowledge.The five stages of the People CMM framework are: P-CMM . The organization misses opportunities to standardize workforce practices because the common knowledge and skills needed for conducting its businessactivities have not been identified) P-CMM . These improvements are made to the capability of individuals andworkgroups.Initial Level (Typical characteristics: Inconsistency in performing practices.

At the end of the second appraisal if the employee’s ratings do not improve to agrade better than 2. In this process if an employee gets a grade of 2 o r b e l o w d u r i n g t h e f i r s t a p p r a i s a l c y c l e .51 billion. at the company. TCS announced its annualresults for the fiscal 2004-05.0 6 .08. t h i s n u m b e r c o u l d w e n t u p t o 6 0 0 . despite being under mentorship. a b o u t 1 0 0 0 e m p l o ye e s w h o s e p e r f o r m a n c e w a s n o t u p t o t h e m a r k w e r e a s k e d t o l e a v e T a t a C o n s u l t a n c y S e r v i c e s (TCS). TCS came in the news for cutting down the variable pay of employees for slippages in internal growth targets — a move that will save it about Rs 83 crore.000.Maturity Level 5 organizations treat change management as an ordinary business processto be performed in an orderly way on a regular basis) A CASE STUDY ON EVA AND COMPENSATION MANAGEMENT SYSTEM IN TCS D u r i n g t h e f i r s t q u a r t e r o f t h e f i n a n c i a l ye a r 2 0 0 5 . TCS's decision to retrench employees madeheadlines in several Indian news dailies. TCS had asked around 500 people to leave thecompany after the second annual appraisal it carries out. citing performancerelatedi s s u e s . On April 19. the largest IT company in India. The grades are on a scalef r o m 1 t o 5 . 2005.It seemed to be aroutine exercise carried out bi-annually to weed out non-performers. CEO & Managing Director . w i t h 1 b e i n g t h e l o w e s t a n d 5 b e i n g t h e h i g h e s t . TCS arranges for placement agenciesto help the employees get placed in other organizations though.The first two year cycle of EVA had just been completed when the retrenchment decisionwas taken. The company declared total revenues of US$ 2.5% of thecompany’s employee strength of 1. B y t h e e n d o f t h e f i n a n c i a l y e a r . the employee is asked to resign. The number of employees impacted during this year till date is 500 which constitutes about 0. Thismove however was unlikely to be linked any slowdown worries. This manner of forceda t t r i t i o n w a s o n l y l i n k e d t o t h e a p p r a i s a l p r o c e s s . I t c o n t i n u e d i t s s u c c e s s s t o r y w h e n i t b e c a m e t h e f i r s t I n d i a n I T c o m p a n y t o e a r n revenues of more than US$2 billion per annum.S. t h e c o m p a n y p u t s t h e e m p l o y e e o n a performance improvement plan that includes additional training and assignments on new projects. TCS had been the first Indian IT company to achievethe US$ 1 billion revenue milestone in the fiscal 2002-03. Ramadorai (Ramadorai).Those who were asked to leave had obtained low ratings in their performanceappraisal for two consecutive years.HR experts believedthat this decision was based on the implementation of the EVA(Economic Value Added) based model for assessing employees' contributions. I t w a s n o t l i n k e d t o a n y o t h e r factor.at Maturity Level 5. T h e employees who were asked to leave are mostly those with 2-3 years of experience and donot include trainees because they have less than a year’s experience. At a time when IT manpower was in short supply and IT and BPO companies were goingout of their way to reduce employee attrition.24 billionand net profit of US$ 0.

TCS is proud to be the first ITCompany to cross the two billion dollar milestone. and an individual couldcontribute in any or all of these areas at all the three levels. Through our strategic initiatives wehave managed to double our revenues in the last two years. EVA was adopted to focus on continuous improvement rather thanshort term goals and also to motivate employees. working ats e v e r a l l o c a t i o n s a c r o s s t h e w o r l d . the costs of which were divided among allthe units. which included engineering. There was an increased sense of belongingamong the employees and the employees were motivated to increase their contribution asthey were also equally benefited by the increase in EVA. TCS went in for the EVA as duringthat time. The EVA compensation model was used as a basis for giving incentives to employees and the bonus declared was a part of improvedE V A a c h i e v e d .t h e s e c o n d d i m e n s i o n c o m p r i s i n g o f s e r v i c e p r a c t i c e s l i k e e business. All the units could determine how they had fared against the targets. E m p l o ye e s became aware of their responsibilities and their share in increasing the EVA of the unitand organization. Through EVA-linked compensation. EVA was controlled by revenues. when the company had a staff of around 15000. It is not just compensation. There were several people who played an important role in the successo f t h e o r g a n i z a t i o n . Theindividual was informed how he or she could contribute to the EVA enhancement at allthree levels. the company was not a public limited company and hence could not have astock option plan. They had to think like entrepreneurs and know the cost attached to their business and how will they addvalue to the investment."4 TCS aimed atearning revenues of US$ 5 billion by 2010. We are alive to the challengesfacing the industry and are geared to enhance our leadership position. while global and regional o p e r a t i n g a r e a s f o r m e d t h e t h i r d dimension. According to him "There's noceiling on the bonus. transportation and telecom.of TCS commented. EVA measured operating and financial performance of the organization through BSC andthe compensation of all employees was linked to it. A s t h e r e w a s n o w e a l t h s h a r i n g mechanism in place.EVA . It can be equal to the fixed portion of the salary. profit sharing and stock options. a p r a c t i c e . employees could claim stakes at threeEVA levels . with closerelationship between pay and performance.The bonus banks also helped in sustaining performance from the individuals.TCS adopted EVA in 1999.In 1996. the process aimed atemployees to also have get a feeling of ownership for their own unit.at the organization level. and its performance. It was designed to construct a definedincentive system. w h o n e e d e d t o b e r e c o g n i z e d . which would reward on the basis of profitability. providing the cellhas shown that kind of EVA growth. at the business unit and the individual level. capital and costs.technology consulting. T h r o u g h t h e E V A m o d e l . T C S a i m e d a t c r e a t i n g economic value by concentrating on long term continuous improvement. The units that did not fall under the purview of any of these w e r e corporate offices and research & development. Fixed pay c o m p r i s e d o f w a g e s a n d p e n s i o n w h i l e t h e v a r i a b l e p a y h a d components like bonus. outsourcing.A b u s i n e s s u n i t c o u l d b e a p a r t o f a s e r v i c e . Every unit was considered to be a revenue center and had itso w n E V A target. a g e o g r a p h i c a l u n i t o r a combination of all the three. I n t h e E V A m o d e l .T h e benefits of EVA were realized across all levels in the organization. TCS was organized into a three dimensional model with the first dimensioncomprising of industry practices.Each employee was made to feel as if they are running their business. the components of fixed and variable pay weredetermined. "Consistentwith our position as the pioneer of the Indian IT industry.

000 duringFebruary and March 2008. due to which the growth of TCS could be restricted. Whatever be it. There was a universal support building up among IT staff in thef o r m o f a w e b c a m p a i g n c o n d e m n i n g t h e m o v e . I n d u s t r y a n a l ys t s c o m m e n t e d t h a t E V A c o n c e n t r a t e d m a i n l y o n return on investments. TCScaused an uproar in the IT industry when it reduced the variable salaries of employees by10%.The TCS move to cut the salary of the employees on falling short of its projected revenues for the quarter has taken the ITfraternity by surprise. The reduction in the variable salary resulted in an overall reduction of monthly take-home salary for most of its employees. 2003. T h e m o s t a f f e c t e d p a r t i e s o f t h e “ s a l a r y adjustment” were reportedly the confirmed employees of TCS located in the US andIndia. And this has resulted in blog and email campaigns mustering support against the move. This was the initial impact of EVA which was implemented in the company fromApril 01.There is fear that soon other top companies such as Infosys and Wipro too may adopt the practice owing to the appreciating rupee value against dollar. the woeso f T C S staff did not seem to end only with this quarter. . the sudden manner in which the decision had been implemented h a d caused a furore. there is a n o m i n o u s reference in the letter saying. we will follow the same basis of advance paymentof Variable Pay as per expected EVA projections at the beginning of 200708. appropriate adjustment in VariablePay will be made either upwards or downwards as the case may be. There is an element of fear among the entire software community as to if the IT companies would take a cue from the TCS initiative and make such salary pruninga r e g u l a r p r a c t i c e t o s h o w p r o f i t s i n f u t u r e . The internal communication within a unit hadincreased considerably. In 2003. When theaudited results for Q4 are announced in April 2008. These people were likely to have their paycheques lesser by Rs 10.was not just a performance metric but an integrated management process aimed atachieving long term goals. For. One of the major benefits of implementing EVA in TCS wasincreased transparency in the organization. F r e n z i e d b l o g s w e r e b u s y g a t h e r i n g support against the announcement.Though the tactics employed by the management of Tata Consultancy Services (TCS) is p e r f e c t l y legal. “In Q4. The decision making process became more decentralizedThe EVA-based compensation system received severe criticism during the initial years of i t s i m p l e m e n t a t i o n .

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