We studied and analyse Harvard Business Case on Performance Management for our Post Graduated Business School subject in People in Organization. Do use it as reference and work on your own analysis, but try to avoid copy and paste.

1. PERFORMANCE MANAGEMENT AT
VITALITY HEALTH ENTERPRISE, INC
Syndicate 6
Amalia Sefrina C - 29115364
Dian Sadar Adi P -29115417Dian Sadar Adi P -29115417
Galih Wibowojati - 29115422
Mirna G Insani - 29115395
Silur Sasakawa I - 29115408

2. Case Background
 Vitality enterprise was founded in 1987 in Ames Iowa 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 peryear.
 In 1994, vitality partnered with several leading pharmacy In 1994, vitality partnered with several leading pharmacy
 retailers to market their products. 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 inner harmony is reached”

3. Case Background
 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 mindset and was
known troughout 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 thestrategy. 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

4. The Problems #1 : The Rating System
• The Company has 13 different rating levels (from A to E
including plus and minuses) which leads to way for managerial
abuses.
• PMET discovered that many managers, gave almost everyone
C or a B, provided D or A ratings, and rarely give Es

5. • This resulted to a homogenous ratings that failed to sharply
distinguish performers from non performers
The Problems #1 : The Rating System

6. What Vitality Did to Improve for
Problem #1
• Vitality launched a new rating system where employees were now
rated with respect to one another by differentiating among
employees on the basis of performance.
• There is fifth category, Not Rated, for employees who were too new
to the company or their position to receive an accurate rating

7. The Problems #2 : The Point and Salary System
 Each position had a base-level monthly salary calculations and
performance based raises. Each position had a base-level
monthly salary that was modified upward along a pay policy
depending on the number of “job evaluation points”

8. The Problems #2 : The Point and Salary System
 Individual salaries were further modified by a comparative
ratio or ‘compa-ratio” based on individual performance in the
company

9. What Vitality Did to Improve for
Problem #2
• Compensation was adjusted by the new
program. The new plan incorporated a system
of performance-related short and long-term
equity bonusesequity bonuses
• This also will allow for limited stock options to
upper levels of management and directors as
an incentive to successfully implement the
new PMS

10. Additional System Vitality Did to
Improve
• 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
JanuaryJanuary
• 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

11. The Result
• PMET2 was established to review the new PMS
implementation and compare performance ranking data for
review

12. The Result
• Responses to the employee surveys indicate that only
over half preferred the new system (54%), nearly a
third preferred the old system (31%) and the remainder
indifferent between two.
• Managers felt more difficult to discuss performance
with their team member because the yearly reviewwith their team member because the yearly review
process was tied s closely with merit increases
• Some empoyees and the managers themselves felt that
they were less likely to perform duties outside their job
description because those responsibility weren’t part
of their review.

13. Questions
1. Diagnose the CEO perception that putting blame on
Performance Management
 The implementation of the new rating systems are not
changing many old practices. It only reduced the number of
criteria and grading. In reality, the distribution of the Top
Performer and achiever are almost similar.
 Even worst the existence of Not Rated criteria for new Even worst the existence of Not Rated criteria for new
employee will drive low enthusiasm and motivation from
new employee.
 This will also impact to the turnover rate amongst the new
talents
 All investment made for trainings, development new
employees are gone along with new appointed employees.

14. Our Analysis & Recommendation
 As Vitality 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
aligned them is the Kaplan & Norton’s Balanced Scorecard
 The BSC framework consist of 4 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 trough their KPI

15. Questions
2. If it were justified, develop your own recommendation to
reinvent the performance management system at Vitality
Health Enterprise
 Refreshing and re-communicating 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 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 payout that does not include a
confusing forced distribution that only values individual performance
 provide a new system for performance payout that does not include a
confusing forced distribution that only values individual performance

16. Our Analysis & Recommendation
 It also should be noted that Beth Williams and PMET should be
aware of the correct balance of job motivations of R&D staff, as
opposed to sales and marketing staff. In the case of R&D and
scientists, where work can be extremely complex or creative,
bonuses and other forms of variable pay for performance can
largely undermine employees’ work ethic.”
 Intrinsic motivation or value for it’s own sake versus extrinsic Intrinsic motivation or value for it’s own sake versus extrinsic
motivation or satisfying needs indirectly through monetary
compensation, depends largely on the category that employees
fall into.
 Leadership is also something that Vitality need to develop
amongst their Managers
 On going recognition program, coaching, mentoring can help the
annual appraisal become more meaningful and monitored