ENHANCING THE BUSINESS PERFORMANCE MANAGEMENT SYSTEM FOR MORE EFFECTIVE BUSINESS AND TALENT MANAGEMENTCase Study, Concepts and Debatable Ideas
Kenny OngCNI Holdings Berhad
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Intro: CNI
1. 19 years old
2. Core Business: MLM
3. Others: Contract Manufacturing, Export/Trading, eCommerce
4. Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan
5. Staff force: ± 500
6. Distributors: 200,000
7. Products: Consumer Goods and Services
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1. Why we hate Performance Appraisals
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As an Appraisee
As an Appraisor
Complaints about Performance Appraisals
Mgmt/HR
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As an Appraisee
Complaints about Performance Appraisals
• Bias• Different Standards• Surprise• Subjective• No linkage*• No differentiation• Secretive• No follow up• No control
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As an Appraiser
Complaints about Performance Appraisals
• Cannot remember• Tedious• Subjective• Right targets• Scoring Competencies*• Defensive staff• No $$ to differentiate• Prejudices• Results or Activities
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Complaints about Performance Appraisals
• Flexible or Control?• MBO or Character?• Best Practice or Fit Culture?• Backward or Forward?• Quarterly Results or Long-term?• No $$ to differentiate*• Perfect System, Bad performance• Recency and Halo effects• Untrained Appraisers
Mgmt/HR
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Complaints about Performance Appraisals - Summary
1. Process problem
2. Form problem
3. People problem
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What is Performance Appraisal used for?
Reward?
Discipline?
Development?
Motivation?
Promotion?
Monitor?
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Performance Management
Performance Appraisal
Performance Development
Performance Measurement
Common terms and definitions
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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
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What is the OBJECTIVE?
Succession Planning (Business Continuity)
Talent Management
Differentiation
Performance Management System
Budgeting + Planning
KPIs
BSC
Business Model
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What is the OBJECTIVE?
Succession Planning (Business Continuity)
Talent Management
Differentiation
Performance Management System
Budgeting + Planning
KPIs
BSC
Business Model
Business Plan Implementation
Talent Management
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1. Why we hate Performance Management Systems
Focus on the Business Strategy and Business Direction first
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“…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
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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
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Before we start…
Moral of the story…
1. Innovation:– Business models– Products– Services
2. Market Leadership
3. Competitive differentiation
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“What is the moral of the story?”
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What is the Business Model?
USP
Market Discipline
Profit Model
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Intro: Market Discipline
• Mamak stall
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Intro: Market Discipline
"They are the most innovative"
"Constantly renewing and creative"
"Always on the leading edge"
"A great deal!"
Excellent/attractive price
Minimal acquisition cost and hassle
Lowest overall cost of ownership
"A no-hassles firm"
Convenience and speed
Reliable product and service
"Exactly what I need"
Customized products
Personalized communications
"They're very responsive"
Preferential service and flexibility
Recommends what I need
"I'm very loyal to them"
Helps us to be a success
Product Leadership
OperationalExcellence
CustomerIntimacy
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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)
Strategy: Value Disciplines
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Operational Excellence
• Competitive price
• Error free, reliable
• Fast (on demand)
• Simple
• Responsive
• Consistent information for all
• Transactional
• 'Once and Done'
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
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
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
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
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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 5th 2007
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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)
Strategy: Value Disciplines
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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)
Strategy: Value Disciplines
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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
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Revenue Growth
Base Retention
Share Gain Positioning Adjacent Market
New Business
Operational Excellence
Product Leadership
Customer Intimacy
Competencies Information Systems
Motivation, empowerment,
alignment
Financial
Learning & Growth
Internal Process
Customers
Investment Strategy
Productivity Market Value
Focus: Corporate Alignment
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Financial
Learning & Growth
Internal Process
Customers / Distributors
Revenue Growth
ProductivityMarket Value
Department Operations
Supplier & Alliances
External Involvement
Target Markets
Products/ Services
Channel Strategies
Human Resources
Technology
Information & IntelligenceSystems &
Processes
Focus: Corporate Alignment
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Financial
Learning & Growth
Internal Process
Customers / Distributors
Focus: Corporate Alignment
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
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1. Why we hate Performance Management Systems
Implementing the Right System
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What is Performance Measurement used for?
Reward?
Discipline?
Development?
Motivation?
Promotion?
Monitor?
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Behavior-based
Knowledge/Skill based
Results-based
Trait-based
Which system should we use?
Managing Performance = Managing Expectations
What’s YOUR expectation?
Activity based
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Dangers of Best Practice and Benchmarking…
“Abraham Wald’s Work on Aircraft Survivability”, M. Mangel and F.J. Samaniego
Where would you focus reinforcement?
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Dangers of Best Practice and Benchmarking…
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Company Performance
high
low
‘Best Practice’ theories
low high
zero Performance
Trend line
“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005
Dangers of Best Practice and Benchmarking…
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Company Performance
high
low
‘Best Practice’ theories
low high
zero Performance
Trend line
“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005
Dangers of Best Practice and Benchmarking…
Selection Bias:
1. Success Traits = Failure Traits
2. Successful Cases + Failure Cases
3. Worst effects in ‘Old’ industries
4. Overvalue ‘best practice’ theories
5. Current accomplishments unfairly magnified by past achievements
6. Reverse Causal
Dangers of Best Practice and Benchmarking…
Also known as ‘Beware of Consultants’:
1. Selection Bias
2. Big vs. Small company
3. Selective success stories
4. Correlation vs. Causal
5. Survey problems
6. Practical vs. Glamour-to-have
7. Leaders who benchmark
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Survey Problems…
“In business after business, 60% to 80% of lost customers reported on a survey just prior to defecting that they were satisfied or very satisfied.”
HBR March/April 1996
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Why BSC?
• Reason 1: Balanced
• Reason 2: Cause-and-Effect
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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?
BSC: Balanced & Cause-and-Effect
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Performance Management for Change
o Grievance levelo Absenteeismo Discipline issueo Poor work ethics
Deg
ree
of
Cla
rity
of
Job
Res
ult
sV
isio
n L
ed
Pe
rfo
rma
nc
e d
rive
n
High
Low HighLevel of Trust & Commitment (Between Subordinate & Boss)
UNCLEAR
Discuss & Agree on Account
Objectives & Key Measures
Standards for Perform
ance
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
Review Perform
ance & Results
2. Performance Planning
MBO, KPIs, Competencies
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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 Standards
A Excellent
B Good
C Average
D Poor
E Useless
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MBO Standards
A Excellent
B Good
C Average Good
D Poor
E Useless
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MBO Standards
A Excellent Excellent
B Good Very Good
C Average Good
D Poor Not Good
E Useless Commit Suicide
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MBO Standards
A Excellent Consistently achieved 4 for 3 quarters
B Very Good Higher than planned results
C Good Achieved Planned Results
D Not Good Did not fully meet planned results
E Commit Suicide
Unacceptable performance
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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)
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MBO Target Setting - Objectives and Measures
Quality How well the result is produced / performed
Errors and Appearance
Quantity How much / many of the results are produced or performed
Cost At what expense the result is produced / performed
Timeliness When is the result to be produced / performed
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Sample KPIs for Each Discipline
Operational Excellence
• Price• Selection• Convenience• Zero Defects• Growth
Operational Excellence
• Price• Selection• Convenience• Zero Defects• Growth
Customer Intimacy
• Customer Knowledge
• Solutions Offered• Penetration• Customer Data• Customer-success
focus
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
Product Leadership
• Marketing• Functionality• # of Successes• # of Failures• Learn from key
users• Interdisciplinary
teams• Pipeline
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• 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
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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
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• 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
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Lagging and Leading KPIs
Lagging
Leading
Historical, Outcome, Results, 1st Level, Usually Financial or tangible, Quarterly and Annually
Current, Indicators, Drivers, 2nd Level onwards, usually non-financial or intangible, Weekly, Monthly and Quarterly
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Developing ‘Driver’ KPIs
Customer Retention % Lagging, 1st Level
Customer Satisfaction Index
Leading, 2nd Level
On time delivery
Time to market for new products
TNA %
Defect levels, warranty claims
Leading, 3rd Level onwards
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What is the Objective?
‘Do-or-Die’ KPIs for CNI• Revenue• ARPU
• Sponsoring• Retention
• Commission Plan (BDP)• Product• Corporate Image
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MBO – Sources of KRAs and KPIs, Targets
1. Department Scorecard [E3],
2. Employee’s Job Description,
3. Department SOP,
4. Department Quality Objectives,
5. Corrective Action Requests (CAR),
6. Preventive Action Requests (PAR), or
7. Special Projects relevant to the employee.
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E3 – Department BSC
Financial Perspective
Goals Measures Targets CAPEX OPEX
Quality
Innovation
On Time Delivery
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Individual Performance
1.0 Key Results
Area (Max 6)
2.0 Goals and
Targets for Q1
3.0 Achievements and
Efforts for Q1
4.0 Merit* 5.0 Rating (Merit x Weight)
6.0 Appraiser
Overall Comments/ Feedback
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Competency Target Setting
1. Initiative
2. Teamwork
3. Problem Solving
4. Leadership
5. Integrity
What’s the problem here?
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Competency Target Setting
Initiative
1. Minimize problems quickly without needing to be asked
2. Seeks personal growth and professional self-development
3. Doing more than is required/expected in a job
4. Seeks new and improved solutions and approaches to completing assignments
5. Looks for opportunities to help others and team
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Competency Standards
3 Meets behavioral standards consistently. Is a good role model for others.
2 Meets behavioral standards some of the time. Needs improvement.
1 Does not meet behavioral standards. Require counseling or disciplinary actions.
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Performance Setting & Review ScheduleStep 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 - AugustBOD 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
3. The Manager’s Role in Performance Management
Appraisal, Evaluation, Communication, Coaching, Counseling, Mentoring
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Coaching & Counseling
Month 1
Performance Planning
Month 12
Performance Appraisal
Month 2-11
?
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• Beating a Dead Horse
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Most Common Desperate Performance Improvement methods
1. Send for more Training
2. Enforce more Incentives (positive/negative)
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Mager and Pipe
• Analyzing Performance Discrepancies
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Alignment: 4-Wheels Model
Philosophies
Corporate
ObjectivePerformance Objectives
StructureResources
Leadership
Person
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4. Performance Evaluation
Formal Review, Incentives, Compensation, Reward, Differentiation
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Performance Evaluation Session: Key Ingredients
Self Review
Evaluator’s Review
Next Steps
Support/ Resources
ImprovementMethods
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PASSE
Praise and encourage
Ask questions
allow the person to Save Face
use SMART goals
Encourage small improvements
Performance Evaluation Session: Communication
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Incentive Problems
Problem with Incentives in managing performance:• Most people are confused or unsure about
compensation tools• Some people misuse compensation tools
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What to Pay?
• Pay for Service
• Pay for Job
• Pay for Performance
• Pay for Competency
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Performance and Incentives
1. Internal Equity1. Internal Job Rates
2. Performance differentials
2. External Competitiveness1. External Job Rates - Benchmarking
2. Demand & Supply
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What’s the Difference?
• Increment
• Bonus
• Promotion
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Compa Ratio Table
Use this if your company: • Pays for Performance, and • Pays for Job rates
Def:
Mid-Point = Mid Point of Pay Grade
Grade E2
Min RM2,000
MID RM2,500
Max RM3,000
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Compa Ratio Table
< 0.7 ≥0.7 - ≤0.9
>0.9 - <1.1
≥1.1 - ≤1.3
> 1.3
5
4
3
2
1
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Compa Ratio Table
< 0.7 ≥0.7 - ≤0.9
>0.9 - <1.1
≥1.1 - ≤1.3
> 1.3
5
4
3 5%
2
1
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Compa Ratio Table
< 0.7 ≥0.7 - ≤0.9
>0.9 - <1.1
≥1.1 - ≤1.3
> 1.3
5 9
4 7
3 9 7 5% 4 3
2 2
1 0
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Compa Ratio Table
< 0.7 ≥0.7 - ≤0.9
>0.9 - <1.1
≥1.1 - ≤1.3
> 1.3
5 15 12 9 8 7
4 12 9 7 5 3
3 9 7 5% 4 3
2 6 4 2 1 0
1 4 2 0 0 0
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Dangers of Direct Incentives
1. lessen internal motivation, 2. switch to mercenary mode, 3. do something and do not do something else, 4. bribe and fraud culture, 5. easier for competitors to recruit, 6. lessen teamwork & helpful culture, 7. less and less impact for same value, 8. mockery of base salary and employment
contract, 9. rebellion from non-incentivised staff, 10.end up incentivising everyone for everything?,
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Other Performance Review processes
1. Result Planning schedule inc. BSC, Budget2. Quarterly Performance Appraisals3. EMC – sales performance4. QMS – non-sales performance5. Divisional meetings6. Annual Appraisals7. Specialized KPI committees8. CAR, PAR, SCAR KPI improvements9. Internal Audit & MSD – process problems10. HRM & TND – people problems11. Supervisor Induction – PM training12. Talent Management
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Employee Distinctions through Relative Performance
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Employee Distinction?
< 0.7 ≥0.7 - ≤0.9
>0.9 - <1.1
≥1.1 - ≤1.3
> 1.3
5 9 8 7 6 5
4 8 7 6 5 4
3 7 6 5% 4 3
2 6 5 4 3 2
1 5 4 3 2 1
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Employee Distinction?
< 0.7 ≥0.7 - ≤0.9
>0.9 - <1.1
≥1.1 - ≤1.3
> 1.3
5 20 15 12 8 5
4 18 12 9 5 3
3 9 7 5% 4 3
2 1 1 1 0 0
1 0 0 0 0 0
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Employee Distinction
Average Rating
Rating Multiply Factor
Example Rating
Example Increme
nt
> 4.1 5 2 4.2 8.4%
> 3.3 – 4.1 4 1.2 3.5 4.2%
> 2.3 – 3.3 3 0.75 2.8 2.1%
> 1.3 – 2.3 2 0.5 1.8 0.9%
≤ 1.3 1 0 1.0 0%
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Employee Distinction
Group I
(Talent Pool)
Group II
( Potential)
Group III
( Performance)
Group IV
(Counseling)
2 3 4 5
23
45
PE
RF
OR
MA
NC
E
POTENTIAL• Identify
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Curse of the Bell Curve
‘A’ Staff
‘B’ Staff
‘D’ Staff
‘E’ Staff
‘C’ Staff
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Managing People performance: A Summary
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More Problems….
1. cost of evaluation vs. gains of evaluation
2. defer achievements of a good year to next
3. barely achieve so that next target is not high
4. spread improvements over several years
5. value reducing actions to increase performance
6. most ratings are 4 or 5, new people are 3
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Before I forget…
• Re-train Appraisers• Train new Appraisers
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Alignment: 4-Wheels Model
Philosophies
Corporate
ObjectivePerformance Objectives
StructureResources
Leadership
Person
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Thank You.
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