Creating Performance Based Culture trough Performance Management Systems

CREATING A PERFORMANCE-BASED CULTURE SESSION 1: THROUGH PROPER PERFORMANCE MANAGEMENT SYSTEMS CNI’s Journey, Mistakes, and Lessons Learned Kenny Ong CNI Holdings Berhad

Intro: CNI

18 years old

Core Business: MLM

Others: Contract Manufacturing, Export/Trading, eCommerce

Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan

Staff force: ± 500

Distributors: 250,000

Products: Consumer Goods and Services

Why we hate Performance Appraisals

Complaints about Performance Appraisals As an Appraisee As an Appraisor Mgmt/HR

Complaints about Performance Appraisals

Bias

Different Standards

Surprise

Subjective

No linkage*

No differentiation

Secretive

No follow up

No control

As an Appraisee

Cannot remember

Tedious

Subjective

Right targets

Scoring Competencies*

Defensive staff

No $$ to differentiate

Prejudices

Results or Activities

As an Appraiser

Flexible or Control?

MBO or Character?

Best Practice or Fit Culture?

Backward or Forward?

Quarterly Results or Long-term?

No $$ to differentiate*

Perfect System, Bad performance

Recency and Halo effects

Untrained Appraisers

Mgmt/HR

Complaints about Performance Appraisals - Summary

Process problem

Form problem

People problem

What is Performance Appraisal used for? Reward? Discipline? Development? Motivation? Promotion? Monitor?

Performance Management Performance Appraisal Performance Development Performance Measurement Common terms and definitions

What is the OBJECTIVE?

What is the ultimate objective of a Performance Management System?

‘ Performance’ – achievement,

‘ Management’ – controllable, improvement

‘ System’ – predictable outcome, autorun

Summary?

A Predictable process to Improve Controllable Achievements

Summary… What went Wrong?

Wrong Business Model – blame PM Systems. Having a good PM System cannot correct a bad business model

Focusing on the Process (Best Practices), instead of the Business (Customization)

Good strategy, Bad Implementation, No Linkage

No Alignment – PMS is treated a single, separate process

System Weaknesses - Process, Form, People

1. Get the right Business Model first

Wrong Business Model – blame PMS. Having a good PMS cannot correct a bad business model

How to fail without trying

1. Wrong Business Model

The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time Clear Sailing Today’s performance Ad-hoc Tactics Denial & Defense Doom Projections Overdue Failure The Moment of Truth X Performance Freefall Tomorrow’s actual performance Downpresure of Unclear Strategy

Denial and Defense

“ It’s not really good value our competitor is offering, because it doesn’t include a lot of our features.” - ABC vs Air Asia

“ It’s good value but not in our preferred customer market.” - ABC vs Toyota

“ Sure they’re hurting us, but with their unfair advantage, what can we do?” – ABC vs MILO

“ The rules we are playing by have always worked before” – AMEX vs VISA

Ad Hoc Tactics

Selectively hold discounts to hold business that has started to go elsewhere

Introduce new promotions, terms, conditions, and offers to confuse and cloud the market

Beef up customer service by adding people to fix mess-ups and quicken delayed shipments

Delay capital investments and adjust accounting methods to portray quarterly financial results more favorably

Introduce “new and improved” products that are new in form, but not in substantive ways that are of consequence to purchasers

Introduce Balanced Scorecards and Performance Management Systems

“ What is the moral of the story?”

2. Focusing on the Business Strategy and Intent

“… in the past 18 months, we have heard that profit is more important than revenue, quality is more important that profit, people are more important than profit, customers are more important than our people, big customers are more important than small customers, and that growth is the key to our success. No wonder our performance is inconsistent"

CEO, Anonymous

Before we start…

In the old days of HR…

Average training hours per staff

% of staff attending training

# of training programs

% of training programs conducted

Training needs analysis conducted

Competency models developed

Training budget as % of payroll

What’s wrong with this picture?

Before we start…

Moral of the story…

Innovation:

Business models

Products

Services

Market Leadership

Competitive differentiation

Get the picture?

“ What is the moral of the story?”

Example: FSS Objectives? Transactional Cost reduction, Efficiency, Agility, Fast Copy AP, General Ledger, B/S analysis, Accounting, Fixed Assets, AR, Facilities Value-added Budgeting, Reporting, Financial Analysis, Forecasting, Tax, Legal, Treasury Consistency, Analysis, Value creation, customization Systems, Standardize, Benchmarking, ERP, Streamlining, Automation, Governance Best Practices Process improvement, service innovation, secondary KPIs, internal customers Transformation Market Leadership, Competitive Differentiation, Business model, M&A, CSI Direct Business Impact, primary KPIs, external customers

Example: FSS Open & Hidden Objectives

Eliminate redundancies

Remove no value-adding activities

Cost Savings

Focus on Core

Economies of Scale

Compete with external vendors

Specialized skill sets

Move from staff to line

Salary Band

Career Path

Manage external vendors

B.U.s appreciate services

Additional revenue w/o interfering core

Divestment/IPO

MSC tax break

Make accountable to SBU vs. HQ

Undertake large infra projects

Strategy

Mamak stall

Strategy: Value Disciplines Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution)

Product Leadership

New, state of the art products or services

Risk takers

Meet volatile customer needs

Fast concept-to- counter

Never satisfied - obsolete own and competitors' products

Learning organization

Strategy: Value Disciplines

Operational Excellence

Competitive price

Error free, reliable

Fast (on demand)

Simple

Responsive

Consistent information for all

Transactional

'Once and Done'

Customer Intimacy

Management by Fact

Easy to do business with

Have it your way (customization)

Market segments of one

Proactive, flexible

Relationship and consultative selling

Cross selling

The McPlaybook*

Make it easy to eat

50% drive-thru

Meals held in one hand

Make it easy to prepare

High Turnover

Tasks simple to learn & repeat

Make it quick

“ Fast Food”

Tests new products for Cooking Times

Make what customers want

Prowls market for new products

Monitored field tests

*Adapted from: Businessweek , Februrary 5 th 2007

Sample KPIs for Each Discipline

Price

Selection

Convenience

Zero Defects

Growth

Customer Intimacy

Customer Knowledge

Solutions Offered

Penetration

Customer Data

Customer-success focus

Product Leadership

Marketing

Functionality

# of Successes

# of Failures

Learn from key users

Interdisciplinary teams

Pipeline

Move know-how from top performing units to others

Benchmark against best in class

Ensure operations training for all employees

Use disciplines like TQM for continuous learning to reduce costs and improve quality

Customer Intimacy

Capture knowledge about customers

Understand customer needs

Empower front line employees

Ensure that everyone knows the customer

Make company knowledge available to customers

Product Leadership

Reduce time to market

Commercialize new products fast

Ensure that ideas flow

Reuse what other parts of the company have already learned

Ensure there are multiple sources of funding

Strategy: Value Disciplines Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution)

Business Situation vs. Performance Mgmt Focus Upturn Flat Downturn Fight Complacency Sharpen Edge Keep Momentum Conquer ‘ Change’ mgmt Reduce Fat Continuity Everyone Happy Innovation Acquire Profits Build momentum Sales Cash Flow Talent Mgmt Innovation/R&D Early wins Slow Down HR Costs Top Talent focus Sales, Sales, Sales Increase attrition

3. Performance Management = Business Plan Implementation Strategy and Intent

Focus: Corporate Alignment Financial “ To satisfy our stakeholders, what Financial objectives must we accomplish?” Internal Process “ To satisfy our customers, in which internal business processes must we excel?" Customer “ Who are our target customers? What is our value proposition?” Learning & Growth “ What capabilities and tools do our employees require to help them execute our strategy?

Focus: Corporate Alignment Financial Learning & Growth Internal Process Customers / Distributors Revenue Growth Productivity Market Value Department Operations Supplier & Alliances External Involvement Target Markets Products/ Services Channel Strategies Human Resources Technology Information & Intelligence Systems & Processes

Focus: Corporate Alignment Financial Learning & Growth Internal Process Customers / Distributors Profit after Tax. Revenue. Cash-to-cash cycle. Operating cash flow Customer Complaints. Customer Acquisition Rate. Product Availability. Product Quality & Service. Renewal Annual Subscription. Distributor Rank Achievement. No. of Active Distributor. No. DC/Regional Sales. Distributor with commission Customer Database Availability. Accuracy of Forecast Planning. Continuous Improvement. Response Time to Customer Needs. Perfect Order Fulfillment. Inventory Turnover. Number of Effective Sponsoring Program. On Time Delivery. No. of Effective Training. Number of Effective A&P % of staff evaluated on Core Competency Framework. % of staff with Career Development Plans. No. of training hours completed per staff. % of staff with access to strategic information. Q12 Index. % staff evaluated on Culture alignment

E3 – Department BSC Financial Perspective On Time Delivery Innovation Quality OPEX CAPEX Targets Measures Goals

Individual Performance 2.0 Goals and Targets for Q1 6.0 Appraiser Overall Comments/ Feedback 5.0 Rating (Merit x Weight) 4.0 Merit* 3.0 Achievements and Efforts for Q1 1.0 Key Results Area (Max 6)

4. Aligning for Performance

Alignment: 4-Wheels Model Philosophies Corporate Objective Performance Objectives Structure Resources Leadership Person

Alignment: Framework

Equal / Fair

Happy / Productive

Performance vs Potential

Retention / Engagement

Philosophies

Alignment: Framework

Org Structure

Job Design

C&B

Policies & procedures

Decision making

Job fit

Management Systems

BSC and KPIs

Decentralized & Empower

Structure

Strategy: Framework

Tools

Physical facilities

Peer support

Information

T&D Programs

Mentors

Guides

ICT

OJT

Resources

Strategy: Framework

Role modeling

Vision/Mission/Philosophy

Leadership Style

Delegation & Empowerment

C&B, Promotions

Sense of Urgency

Speak regularly about Performance

Leadership

Strategy: Framework

Recognition

Recruitment

Training

Profit sharing

Values

Motivation

Self Efficacy

Awareness

Useful Competencies

Career aspirations

Attribution (control)

Appraiser

Appraisee

Person

Alignment: 4-Wheels Model Philosophies Corporate Objective Performance Objectives Structure Resources Leadership Person

5. Implementing the Right System

What is Performance Appraisal used for? Reward? Discipline? Development? Motivation? Promotion? Monitor?

Which system should we use? Behavior-based Knowledge/Skill based Results-based Trait-based Managing Performance = Managing Expectations What’s YOUR expectation? Activity based

Performance Management for Change

Review Performance & Results

o Grievance level o Absenteeism o Discipline issue o Poor work ethics Degree of Clarity of Job Results Vision Led Performance driven High Low High Level of Trust & Commitment (Between Subordinate & Boss) UNCLEAR

Discuss & Agree on Account

Objectives & Key Measures

Standards for Performance

Provide Coaching & Counselling

RESULTS DRIVEN

High Level of employee empowerment

High Employee Performance

High Employee Satisfaction

High Employee Involvement

Challenging Working Environment

Optimum HRM Cost Structure

District Engineer, TNB Duties and Responsibilities If stated as Accountabilities then the job must produce : Control, operate and maintain the District Distribution System Ensure uninterrupted supply to consumers in the district by operating the District Distribution System. Manage major supply projects to customers in the district. Ensure satisfaction of the major customers in the district by managing supply and Distribution. Supervise all technical staff in the district. Ensure high performance and Productivity of technical staff by adopting proper human resource management methods on selection, training, coaching, counselling and motivation. Plan and design the High voltage system Ensure availability of adequate supply for future needs of industries in the district by planning and designing the High voltage System

MBO Target Setting - Objectives and Measures

SMART Targets

Specific (definite objective and purpose to be achieved)

Measurable (by definite observation and a certain time one should be able to tell whether or not it is attained)

Achievable (Must be within reach of the employees, e.g. to meet stated deadlines, neither too high nor too low)

Rewarding (Rewarding means it must be satisfying to you, no one else)

Time phased (per quarter, per year. By end of fiscal year, by 15th of November)

MBO Target Setting - Objectives and Measures

When is the result to be produced / performed

Timeliness

At what expense the result is produced / performed

Cost

How much / many of the results are produced or performed

Quantity

How well the result is produced / performed

Errors and Appearance

Quality

MBO – Sources of KRAs and KPIs, Targets

Department Scorecard [E3],

Employee’s Job Description,

Department SOP,

Department Quality Objectives,

Corrective Action Requests (CAR),

Preventive Action Requests (PAR), or

Special Projects relevant to the employee.

MBO Standards Useless Poor Average Good Excellent E D C B A

MBO Standards Useless Poor Average Good Excellent E D Good C B A

MBO Standards Useless Poor Average Good Excellent Commit Suicide E Not Good D Good C Very Good B Excellent A

MBO Standards Commit Suicide Not Good Good Very Good Excellent Unacceptable performance E Did not fully meet planned results D Achieved Planned Results C Higher than planned results B Consistently achieved 4 for 3 quarters A

Competency Target Setting

Initiative

Teamwork

Problem Solving

Leadership

Integrity

What’s the problem here?

Competency Target Setting

Initiative

Minimize problems quickly without needing to be asked

Seeks personal growth and professional self-development

Doing more than is required/expected in a job

Seeks new and improved solutions and approaches to completing assignments

Looks for opportunities to help others and team

Competency Standards Does not meet behavioral standards. Require counseling or disciplinary actions. 1 Meets behavioral standards some of the time. Needs improvement. 2 Meets behavioral standards consistently . Is a good role model for others. 3

Coaching & Counseling Month 1 Performance Planning Month 12 Performance Appraisal Month 2-11 ?

Performance Setting & Review Schedule Step One - August

Senior Management – Facilitate BOD Strategic Planning process by studying & producing appropriate papers from BOD

Macro economic data and observations

Emerging business conditions

CNI’s strategic considerations/needs

Step Two - August

BOD consideration & consensus on:

Macro economic information

Emerging business conditions

SWOT

Strategic Needs

Broad business goals & operating philosophy

Sr. Mgmt Strategic Planning Process

Study BOD observations and directions & review:

Corporate vision / mission

Change dimensions

Strategic initiatives

Corporate key results

Step Three September - October Sr. Management Annual Management Plan for Board of Directors Approval Step Five - November Approved Annual Management Plan for execution Step Six - December