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

Complaints about Performance Appraisals Cannot remember Tedious Subjective Right targets Scoring Competencies* Defensive staff No $$ to differentiate Prejudices Results or Activities As an Appraiser

Complaints about Performance Appraisals 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

Summary… What went Wrong? Wrong Business Model – blame PMS. Having a good PMS 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

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?

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: 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 Operational Excellence 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

Operational Excellence 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 Strategy: Value Disciplines

Strategy: Value Disciplines 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

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)

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

5. Implementing the Right System

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 Senior managers performance plans, objectives and standards Performance vs. plans for top management review Quarterly performance review reports of the Board of Directors Step Four - November Step Seven - January Review annually performance plans vs. results

Performance Review processes Result Planning schedule inc. BSC, Budget Quarterly Performance Appraisals EMC – sales performance QMS – non-sales performance Divisional meetings Annual Appraisals Specialized KPI committees CAR, PAR, SCAR KPI improvements Internal Audit & MSD – process problems HRM & TND – people problems Supervisor Induction – PM training Talent Management

Thank You. soft copy of slides: www.totallyunrelatedrandomanddebatable.blogspot.com

Creating Performance Based Culture trough Performance Management Systems

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Creating Performance Based Culture trough Performance Management Systems