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Global Performance Management
Chapter 9 Global Performance Management McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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Haier’s Legacy as a State-Owned Enterprise
Company as danwei – provider of social welfare Hierarchical, compliance-driven, risk averse Reliance on informal contacts (guanxi ) Paternalistic – “iron rice bowl” mentality Limited differentiation – the importance of face Attitudinal and input control Ambiguous, non-transparent 9-2
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What are the Distinctive Features of Performance Management at Haier?
OEC: Overall, Every, Control & Clearance 80/20 principle Racetrack Model – everyone can compete Tracking Individual P&L- Resource Bankbook Footprints - Red, Green & Yellow Faces Bottom 10% training and dismissal Transparent performance appraisal – for ALL! 9-3
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Questions for Discussion
What is your opinion about Haier's people strategy? What do you like? What don't you like? Why does it seem to work, even though it is rather different from other companies in China? 9-4
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Performance Management in Haier
Market-driven OEC/80-20 Individual P&L Resource bankbook Timely feedback Promotion Racetrack model Accountability Performance Management Egalitarian spirit Procedural justice Open talent pool Promotion from within Internal training opportunities Social welfare HR Strategy Quality Service Innovation Business Strategy Meritocracy Fairness Transparency Values Fit 9-5 5
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Supporting Performance Management at Haier
Recruit from everywhere and anywhere Everyone has talent and everyone can be in the race Promotion based on performance not seniority Extensive training and job rotation Haier University: One of the first for Chinese firms Continuous emphasis on community welfare 9-6
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Why Global Performance Management?
Creating alignment between corporate, business, geographic and functional objectives- critical for horizontal collaboration Providing input to all functional HR processes and linking them to corporate objectives Providing clarity about people’s roles, objectives, and contributions to the business Three elements of the performance management process Setting objectives (what is desired) Review, evaluation and feedback Linking the results to rewards and development 9-7
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Performance Management Cycle
Customer Value Added Performance Management Employee Value Added Profitable Growth Shareholder Value Setting Objectives Rewards and Recognition Feedback Coaching and Development Appraisal 9-8
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Performance Management “Upstream”
Developing a Shared Meaning of Objectives Playing the same game with the same rules Measurement Scorecards When should performance be measured? How much to communicate? What are the key criteria? Who should assess performance? Building Commitment Making sure that the strategic logic is well understood Involvement in goals setting has positive performance implications across cultures 9-9
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Tensions in the Upstream Cycle
The mix of financial versus nonfinancial targets The growing popularity of balanced scorecards Short-term versus long-term goals The danger of excessive reactivity Unit-level versus corporate-level objectives Achievable goals vs. local sub-optimization Incremental versus breakthrough initiatives Avoiding built-in bias towards replication and predictability Standardized measures versus local objectives Local goals must reflect competitive reality 9-10
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Balanced Scorecard Dimensions
Financial Measures Growth, profitability and risk Market and Customer Perspective Value and differentiation Internal Process Measures Priorities for operating processes (e.g. HR) Innovation and Improvement Climate that supports change and innovation Measuring results, not activities! 9-11
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Performance Management “Downstream”
At the core, performance appraisal & feedback Global performance appraisal serves multiple objectives – from development to pay and promotions – that may be in conflict with each other Because implementing PM is inherently difficult, criticism of performance appraisals is common: Weak, error-filled processes Undermines teamwork Promotes setting safe/mediocre goals…. Buy-in globally and follow-through from senior management is essential 9-12
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Fitting Appraisal to the Local Environment
Although “Western” style performance management may not always suit other contexts, there is increasing evidence of global convergence of PM practices Without global performance management in place, many other global HR policies will be difficult to implement Being different may be difficult, but acceptable; complying with local laws is essential Training in how to conduct appraisals is vital in all settings Commitment to implement a rigorous PM process is more important then the sophistication of methodology 9-13
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The “Forced Ranking” Debate
BENEFITS RISKS Upgrading the team with “A-Players” Tolerance of poor performance de-motivates employees Channels resources to the best Necessary to manage workforce reductions Poor implementation creates conflict Stifling teamwork and cooperation Too rigid if linked tightly to pay Lack of “cultural” fit Violates “social contract” 9-14
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360 Degree Evaluation And Feedback
Primary Potential Assessment Group Boss’s Peers Colleagues Boss’s Boss Direct Boss Peers Self Clients Subordinates 9-15
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Implementing 360° Feedback
Understanding the context Clarity on consequences of ratings – evaluation vs development Quality of supervisor - subordinate relationships Cultural fit with the organization Benefits of 360° Feedback Increases objectivity Increases readiness to change Pinpoints what to do Reduces blind spots Don’t know - can’t grow ! 9-16
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Performance Appraisal Outcomes
Performance evaluation often includes differentiation Consistency and comparability challenge Critical components: Pay/promotion decisions Development/mobility plans Employees differ in what outcomes they value the most! Two frequent questions to debate: How to deal with low performers? What kind of performance pay? 9-17
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Performance-based Pay: What We Know?
“How you pay matters” Trends Increasing interest in using variable pay globally Objectives vary - cost control, risk sharing Merit Pay (annual increases) Widely criticized Negative compounding effects on costs and commitment Profit Sharing Increase in “leverage” improves organizational performance Increase in scope improves organizational performance Difficult to sustain – global vs. local performance? Risk-Sharing Highest impact Most problematic! 9-18
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The Dark Side of Performance-Based Pay
Incentives and rewards are a source of competitive advantage, but… You get what you pay for - be careful what you measure Aligning performance with pay incentives may decrease employees’ intrinsic motivation The “New Deal” shifts risk and uncertainty to employees; many may not be prepared for the consequences The biggest hurdle for incentive plans: Low performance means no payment It is not all just money… more may not always be better 9-19
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Questions for Discussion
What aspects of Haier’s Performance Management system can/should be “exported” to overseas operations? What should remain the same? 9-20
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Supporting Collaboration
The underlying approach to measuring and evaluating performance has to be global Start with an emphasis on internal consistency and coherence Having a global scorecard does not mean that everyone has to have the same priorities Need clear guidance and principles on how to resolve tensions Recognize the conflict between the demands of the individual job and those of lateral coordination Requires explicit recognition of the need for collaborative behavior 9-21
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Appraising Global Collaboration at Bain
Client contributions: What have you done to build our relationship with customers or clients? People development: What have you done to recruit and develop the talent for future partners? Knowledge contribution: What have you done to increase the intellectual capital of the firm? Reputation building: What have you done to enhance the reputation of the firm? One firm behavior: What have you done to build relationships within the firm? Source: J.R. Galbraith, Designing Matrix Organizations that Actually Work (San Francisco: Jossey-Bass, 2009). 9-22
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Rewarding Global Teams: Some Observations from Research
Team-based reward strategies require stability of group membership Some cultures (e.g. US) may prefer rewards based on individual performance, although there is no conclusive evidence about other work contexts Independently of cultural differences, recognition and career opportunities are often as motivating as financial rewards Involvement of team members in designing the reward structure may help foster its future effectiveness High task interdependence increases the valence of team rewards relative to individual-based rewards In project-based global teams, both objective setting and the focus of appraisals/rewards should be tailored to the project stage 9-23
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Appraising and Rewarding International Employees
As a group, expatriates have the biggest impact on global coordination Key questions for expatriate performance management: What standards and criteria to use? Importance of local context Consideration of long-term impact Who should conduct the evaluations? - At least some variant of 360° appraisal is advisable - Input from host managers – a test of “localization” Does one system fit all? - Increasing interest in a differentiated approach – based on assignment purpose – but complex to execute 9-24
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Approaches to International Compensation I
For whom most appropriate Advantages Disadvantages Negotiation Special situations Organizations with few expatriates Conceptually simple Breaks down with increasing numbers of expatriates Localization Permanent transfers and long-term assignments Entry-level expatriates Simple to administer Equity with local nationals Expatriates usually come from different economic conditions than local nationals Usually requires negotiated supplements Headquarters-based balance sheet Many nationalities of expatriates working together for extended periods Very few TCNsA No nationality discrimination Simple administration High compensation costs Difficult to repatriate TCNs A Home-country-based balance sheet Several nationalities of expatriates on out-and-back-home assignments Low compensation costs Simple to repatriate TCNs A Discrimination by nationality Highly complex administration A TCN = Third Country Nationals, as discussed in Chapter 4 Source: Reynolds, 2001 9-25
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Balance Sheet Approach
Housing Goods and Services Reserve Additional costs paid by the organization Income taxes Premiums and Incentives Home- and assignment- location income taxes Home-country salary Assignment- location cost Home-country equivalent purchasing power Assignment- location costs paid by company and from salary Source: Adapted from Reynolds, 2001 9-26
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Approaches to International Compensation II
For whom most appropriate Advantages Disadvantages Modified home-country-based balance sheet Many expatriates of many nationalities on project assignments Moderate compensation costs Moderately simple administration Lack of conceptual purity Lump-sum approaches Resembles domestic compensation practices Does not intrude on expatriate finances Exchange rate variation makes unworkable for all except very short assignments Senior executives of all nationalities International pay structures Consistently short assignments (less than three years), followed by repatriation Tax- and cost-effective Expatriates and local nationals may be on the same compensation plan Inhibits mobility for lower levels of expatriates Lack of consistency among locations A TCN = Third Country Nationals, as discussed in Chapter 4 Source: Reynolds, 2001 9-27
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Approaches to International Compensation III
For whom most appropriate Advantages Disadvantages Cafeteria approaches Senior executives Tax- and cost-effective To be effective, options needed for each country Difficult to use with lower levels of expatriates Regional plans Large numbers of expatriates who are mobile with region(s) Less costly than global uniformity Can be tailored to regional requirements Multiple plans to administer Discrimination between regionalists and globalists Multiple programs Many expatriates on different types of assignments Can tailor compensation programs to different types of expatriates Possible lower compensation costs Difficulty of establishing and maintaining categories Discrimination by category Highly complex administration A TCN = Third Country Nationals, as discussed in Chapter 4 Source: Reynolds, 2001 9-28
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Implementing Global Performance Management
Necessary Conditions: Visible linkage of performance and rewards Understood, agreed upon objectives Meaningful, clear plan for payouts Continuous feedback – appraisal results should not be a surprise Organizational culture encouraging open dialogue Built-in evolution – it is never perfect! Management accountability for making it work 9-29
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Best Practices in Global Performance Management I
Design principles Coherent—aligned to global strategy, vision and values Simple and easy to use in multiple languages Flexible to reflect changes in the nature of the business For everyone, not only for high performers Processes Line accountability/ownership Globally consistent, but reflecting local differences Focus on dialogue, not the process or the form Senior management commitment 9-30
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Best Practices in Global Performance Management II
Measures Explicit link to global and local business goals Not only what, also how Customer feedback incorporated Support for collaborative behavior Outcomes Understanding what needs to be delivered Key inputs to guide global mobility and development Link to tangible rewards Commitment to action 9-31
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Performance Management: Managerial Consequences?
Key Question: Are managers evaluated on competence in managing performance? What happens to managers who are doing a good job in performance management? What happens to managers who are doing a poor job in performance management? Even the most advanced performance management process is no substitute for leadership 9-32
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Global Approach vs. Local Adaptation
Two Perspectives on Global People Strategies The National cultural perspective sees national culture as deterministic and constraining so that performance management must adjust to the cultural specifics of a particular country The Strategic alignment perspective emphasizes the importance of aligning people management with the company’s overall strategy, business model and values A global template may be necessary, but local units may need some leeway to adopt it to their circumstances Commitment of local management team is CRITICAL 9-33
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Creating Differentiation
You cannot create differentiating capabilities through commodity people practices… most firms with enduring success feel somewhat different from the rest of us Differentiation on the outside is connected to differentiation on the inside … There is no competitive advantage in being an “average” local firm Performance management is one of the key drivers for differentiation. The biggest hurdle is not culture, but implementation capability Differences within a culture are just as important as differences across cultures (a potential source of competitive advantage) 9-34
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Fundamentals of Global Performance Management
Simple, fair and transparent Motivational—creates energy Key principles are not changed all the time Should not be another bland system—Differentiate! 9-35
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