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Improving Performance and Culture Change through Performance Management

Background on Steel Co.

Steel Co. is a small manufacturing company that is run by an owner-manager and employs around 65 people, mainly male, full-time, permanent, unskilled or semi-skilled workers. The firm has beenestablished for approximately 30 years – many of the current employees having long periods of service – and has, in this time, had mixed performance. In recent years, however, in the face ofincreased competition and difficult trading conditions, financial performance has been poor andlittle profit has been made. This situation has meant that the owner-manager has imposed a payfreeze for th e last three years and the overall terms and conditions of the employees are poor,there being, for example, no occupational sick pay scheme. Employees have expressed discontentwith the pay freeze and have suggested that in general the firm is a poor employer.The firm is divided into two main sections: the sales team (‘Sales’), which comprises around eightemployees, and the manufacturing operation (the ‘Works’), which comprises the remainder of theemployees, other t than for a small number of employees who work in administrative or quality-assurance roles. Historically, the owner-manager has managed the whole firm, but about 12 months ago he appointed a Divisional Director who is now responsible for managing the Works.The owner-manager made this appointment both to give himself more time to manage thebusiness as a whole, and to create a business as a whole, and to create a position with responsibility for improving performance in the Works. The owner-manager has a very autocratic approach and has always adopted a command-and-control style of management, viewing employees as a cost to the business and investing little inthem. The Divisional Director, however, has a more participative style of management andunderstands the need to view employees as assets – the firm’s human capital, in fact, throughwhom the firm can develop and maintain a competitive advantage. The historical managementstyle meant that on his arrival the Divisional Director was faced with a group of employees wholacked commitment to the firm and were focused purely on working their shift and earning theirpay, making the minimum possible contribution to the firm. The Divisional Director has thusundertaken a number of initiatives in order to improve both individual and firm performance.First, the Divisional Director organised the employees into four teams, each with a team leader anda number of other roles – for example, fork lift truck operator. These teams report to the WorksManager, who reports to the Divisional Director. In an attempt to overcome the dissatisfactioncreated by the pay freeze, the Divisional Director then introduced a scheme by which teamperformance against production targets is linked to the payment of a bonus to team members. Theteam leaders are nominally responsible for co-ordinating team efforts,although the role of teamleader is a new one that has not been formally defined, and the employees appointed to such roleshave been given no training. Indeed, little training other than on health and safety issues takesplace at any level in the Works. While the Divisional Director believes teamworking is an appropriate way to enhance performance, the employees are uncertain as to how it shouldoperate, and there is in fact some resentment that the team leaders appointed were selected forthe role entirely at management’s discretion. Leadership roles were not advertised so thatemployees could nominat nominate themselves for consideration.Second, the Divisional Director implemented systems to formally manage individual and team performance, setting production targets to communicate requirements to employees. These targets are devised by the Divisional Director, based on the firm’s overall requirements, and are posted on the notice board at the beginning of each week, together with a report indicating how teams have performed against the previous week’s targets. Where teams have achieved targets, a bonus payment is triggered.  Production data is available at both team and individual level, the Works Manager discussing poor performance with individuals where appropriate. It is not unusual for those employees who regularly fail to meet their targets to be disciplined, their colleagues supporting this action because they perceive that those who are under-performing are likely to impede the earning of a team bonus.Finally, the Divisional Director established a Staff Forum through which employees can raise issues of concern to themselves and offer suggestions on how working arrangements can be improved. This initiative was designed to overcome years of poor communication occasioned by the owner-manager’s autocratic management style and to counter the owner-manager’s belief that employees arrive at work and hang up their brains with their hats’. The Divisional Director wished to give the employees a mechanism by which they can contribute to and influence the operation of the firm. A year after implementing the changes, the Divisional Director has undertaken a review of performance and is disappointed to discover that neither productivity nor quality has improved in  the Works. In discussions with the Works Manager, the Divisional Director has also formed the view that the attitude of the employees has changed little, despite most earning bonuses in sevenout of the 12 months. When the employees were asked for feedback on the bonus scheme, one commented that it hadn’t ‘changed his life’, indicating that the payments made have not been sufficiently substantial to impact on his standard of living. Similarly, employee commitment appears still to be low, and although employees have made use of the Staff Forum to air their dissatisfactions, it has had little impact in terms of their making a contribution to how the firm operates. Disappointed and frustrated with the apparent lack of performance improvement achieved by his initiatives, the Divisional Director decided to discuss the situation with a local Business Adviser who specialises in performance management systems. The Divisional Director explained to the Business Adviser that he had sought to use performance management as a tool for culture change, to enhance the focus on performance, and that he had tried to support this using team-based working, bonus schemes and improved communication mechanisms. The Business Adviser agreed that managing performance  could be a very powerful mechanism for changing culture, and outlined to the Division Director his vision of a performance management system that would be more likely to achieve the Divisional Director’s aims Put yourself in the place of the Business Adviser and outline the advice you would give the Divisional Director in respect of the following issues:

1. structuring individual performance targets so as to maximise the firm’s performance

2. how a performance management system can be used to improve employee development 

and communications

3. the need to integrate performance management systems with other human resource 


4. the effectiveness of linking performance to financial reward

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