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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