CASE STUDIES 1. The Urgent Order’ As the first showers of monsoon brought in coo! breeze, Ramachandran looked up from his desk and turned towards the window to savour the mellow smell of the freshly rain-soaked earth. ‘It's time | took a small break,’ he said, thinking of applying for a leave. Apart from a scheduled meeting with union leader, Mr. Tripathi, in the evening, Ramachandran did not have much to worry that day. The morning had been uneventful. Apart from an urgent order (serial numbered TGSX-115 that involved manufacturing an earth-mover with certain additional specifications) that had to be fulfilled within a tight deadline of a fortnight, there was nothing that needed his personal attention. The task had been assigned to Section ! in the shop-floor and was proceeding smoothly. However, that was soon to change! From the rank of a graduate-trainee, a post to which he was appointed soon after he completed ‘engineering, Ramachandran had risen to become Plant Manager of Heavy-Mover Corporation (HMC). He had witnessed the tumultuous period of worker mifitancy and violent unionism in the eastern part of the country during the 1970s and 1980s when managers and supervisory staff had been physically assaulted by militant workers. Being located on the outer fringes of the industrial belt of eastern India, HMC had been fortunate enough to have remained relatively insulated from worker violence though there had been a few incidents of worker restlessness in the past. The history of union-management relationship had been generally friendly and cordial. Heavy-Mover Corporation Heavy-Mover Corporation was among the leading indian companies manufacturing equipment for transporting materials, such as material handling systems, port and yard equipment, and bulk material handling equipment. Established in the 1970s, the company was among the leading players in the business of design, manufacture, supply, installation and commissioning of material handling equip- ment, and systems in process plants. The end-user customers included core and infrastructure sectors like power, steel, cement and chemical industries. The equipment were subjected to extremely arduous working conditions by the buyers, hence the concern for quality often outweighed price considerations. A breakdown of major moving equipment would imply shut-down of customer operations. Thus concerns about reliability were paramount in the minds of HMC clients. To ensure that it kept its products at the cutting edge of technology, HMC had several collaborators including several MNCs. Since the lib- ¥ Copyright © 2005 Prof. S. N. Bagchi and Prof, Rajiv Misra, XLRI. This case has been prepared by Prof. S. N. Bagchi and Prof. Rajiv Misra to be a basis of a classroom discussion rather than to illustrate correct or incorrect handling of a managerial situation, or to be source of primary data, or endorsement of a particular management style. The case has been reteased after ensuring anonymity to the organization and the individuals concerned. It has also bed verified that dhe information in the case is typical in the industry and non-proprietary in nature, Further the case does not contain information pertaining to the strategy or any other aspect that may give any advantage to the competitors.eralization of Indian economy in the 1990s, the company had been engaged in cost-cutting measures and rationalization of processes to remain utterly focused on customer requirements. The need to be competitive had intensified further after the entry of Chinese players in the Indian market. Orders depended on successful bids for tenders floated by clients. The marketing department was responsible for responding to offers-to-bids which were advertised by various clients in different parts of the country. The marketing department was responsible for tracking newspapers and trade journals where the notices giving details/information about the tenders were published. The bids were prepared by teams comprising senior executives from the marketing and manufacturing de- partments. Once a bid fructified into a work-order, it was passed on to the manufacturing depart ment which took care of executing the order, that is, manufacturing the desired equipment based on client's specifications. Most work-orders were in the nature of build and install contracts. in which the installation was carried out in client premises by the HMC team. Since each client had its own: specifications, it was not uncommon to have a management team track each order till the comple- tion of hand-over to the client. Often, a single management team tracked multiple orders at the same time. There were approximately 350 workers and I10 supervisory and technical staff employed in HMC (see Figure C3.| for partial organization structure). The workers’ union, called Heavy-Mover Workers’ Union, was structured as given in Figure C3.2. Chairman-cum-Managing director Executive Executive ‘General manager Director Director (HR) (finance) yagy sii Manufacturing Mr. Ramachandran Maret) =a Industrial Planning | [roaeren . it ee ae fee tetsineering Manufacuring and Inspection and assembly packaging i ] Section 1 | seston 2 | FIGURE C3.1 Organizational structure of workers’ union90 PERFORMANCE MANAGEMENT Union president | Scenes Deputy president | Beats General secretary Assistant general secretary Section 1 Section 2 e ol ‘Committee Committee members members I i ‘Workers as union members Workers as union members FIGURE C3,2_ Structure of HMC workers’ union Organizational Dynamics within Heavy-Mover Corporation While the history of union-management relationship was cordial, it was not quite free from occa- sional tensions. The present Union Leader, Mr. Tripathi, not only had connections with the ruling party in the state, but also had substantial influence in the local administration. His influence was evident during the two voluntary retirement schemes (VRS) implemented by the management in the late 1990s. Faced with deciining orders, the VRS schemes were designed to cut costs by reducing employee strength, Mr. Tripathi had initially refused any reduction in the strength of workers. After sustained nego- tiation, he agreed that it would be purely voluntary. Even then only seven to eight workers, who had spouses working elsewhere and had no desire to work any longer opted for VRS. The removal of non-performers, one of the main objectives of the VRS schemes, ended as a complete failure in the case of workers. However, the story was different for the supervisory and executive staff. While VRS was sup- posed to be voluntary, the department heads were assigned targets regarding the number of em- ployees to be reduced from their respective departments. The executives and supervisors were identified and short-listed based on their performance and a list was created by the department heads in consultation with the HR department. Those in the list were then ‘cajoled’ into accepting VRS. During the implementation of the VRS schemes, some of the young engineers, who were the better performers, also left the organization. There were cases when short-listed executives, who did not opt for VRS but were being cajoled into accepting it, approached Mr. Tripathi and used his influence in getting themselves removed from the list. That the union had an upper hand was a fact that was grudgingly acknowledged by the management. This was evident from the fact that even today when some of the executives had a grievance, they would consult Mr. Tripathi before ap- proaching their seniors. Post VRS, the executives who were on the shortlist but somehow managed to stay put, found themselves in a difficult situation. News of their being on the shortlist slowly spread among their colleagues and workers, the consequent loss of face made it difficult for them to carry out theirDEFINING PERFORMANCE AND PERFORMANCE MEASUREMENT METRICS 98 responsibilities normally. According to one such executive, ‘there was constant pressure to prove oneself. Everyone behaved in a condescending manner towards you, It was like being evaluated every moment.’ Inter-departmental Conflicts Apart from the union-management tension, another constant source of conflict was the rivalry between the industrial engineering department and the works department. The industrial engineer- ing department was responsible for framing the standard time for each task. There were constant disagreements between the employees of the two departments over the fixation of standard time about any particular task. While most of the conflicts were resolved with the mediation of senior management personne! and Mr. Tripathi, the animosity refused to die down. Performance Appraisal System for Supervisory and Technical Staff The technical and supervisory staff consisted of the following six levels in ascending order: (i) Supervisor (i) Engineer—assistant engineer, engineer, senior engineer (lil) Manager—assistant manager, manager, and senior manager (iv) Department heads {v) Executive Director/General Managers (vi) Chairman-cum-Manager (CMD) For the technical and supervisory staff of HMC, the salary increments and promotion were based on two components-—performance and potential. Potential was based on two main criteria, namely managerial potential and technical potential. The evaluation consisted of three stages. The first evaluation of an individual's performance was carried out by his/her supervisor to whom he/she directly reported. The performance management system of the supervisory staff was based on balanced scorecard framework. The Key Result Areas (KRAs) for each department had been derived from the balanced scorecard implementation which had been carried out by the Indian arm of a well-known interna~ tionat consultant group. The KRAs had been translated into the heads of performance on which the employees were rated. The heads included details of work done, the quality of work, the delays in completing a particular work-order, etc. Supervisors’ reports on their team members, based on these heads of performance were sent to respective department heads. An employee's report was later discussed in an annual joint meeting between the department heads and seniors who had evaluated the employee. These meetings were used to check and moderate any excessive over- rating or under-rating of a subordinate by any senior. The reports were then sent to the corporate office. An apex committee composed of General Managers and CMD would then finalize the ratings. The ratings given by different department heads were normalized so that different employees could be compared. After normalization, a benchmark employee was selected by the committee members for each category and the rest of the employees would be graded with respect to the benchmark employee. Following the grading, the employees would be ranked based on the grades received. This was done with respect to both performance and potential, In terms of potential, each employee’s managerial potential was evaluated by the apex committee. The ability to learn, lead junior staff and workers, and the ability to show managerial skills were among the main criteria. The combination of the two rankings was used to determine the increases in remuneration and promotions.92 PERFORMANCE MANAGEMENT However, there was a lot of dissatisfaction among the supervisory and technical staff with regard to the performance evaluation system for the technical and managerial employees. The satisfaction level among the workers was much higher than that of the executives. This information came from an employee satisfaction survey that was carried out by a consultant which reported high dissatisfaction among the supervisory and technical staff. This was reflected in the high level of employee attrition. ‘The year in which this case was being written saw nearly 90 executives leaving the organization, Performance Management for Workers—The Pertormance Index The performance management system for the workers was based on a metric known as Perfor- mance index, called Pl by the workers, It determined the incentive bonus for the workers. The incentive linked wages had its roots in the union-management agreement in the late 1980s when it had been discussed and agreed to. Since other emoluments of the workers were on the basis of union-management negotiations and were more or less fixed, with regular increments as per norms, the Pl linked variable component had a major role in motivating the workers The Technicalities of PI Bonus group (BG): Every employee entitled to any incentive scheme is categorized a bonus group based on his grade. Elements: The lowest level of operation to which a job can be broken into, The time for the elements (like welding a 3 mm weld for 10 cm length weld, fixing a fittingrivet) had been obtained from work-time studies. Standard man-hours (SMHs): For elements - standard time = observed time from time motion studies X 1.20 (incorporating 20% allowance). For jobs they were obtained by combining the element-standard time durations based on the engineering drawings. Idle hours: Due to no materials, machine break-down, etc. PI (for a BG): Total SMHs (based on job cards) of a BG in a month x 100 (Available attendance hours in a month + Over time ~ Idle time) Performance index was calculated for each bonus group, and then corresponding to the Pl and the grade of the employee, the incentive was obtained from the tables (an example is shown in Table C3.) given in Appendix) for each group. Incentives for each category of workers were based on similar tables. An example is worked out as illustration. A BG had the jobs as tabulated here. Job Stondard time (hrs) 1 30 : | 3 40 3 | 60 (Oe ed eal aa ae anes en are Doing the three jobs, the Pl would normally be G0 + 40 + 60)/200, where 200 is available attendance hours in a month. If the BG is idle for 8 hours, while still managing to complete the three jobs, then the Pl would be calculated as (30 + 40 + 60}/!92. Incentive pay for PI of 67.7% would be interpolated from the values in the table and then calculated for 192 hours. The other salient points of the management-union agreement regarding the incentive pay are as given below: 1. There will be no incentive payment for P! < 50%. 2. The payment of incentive is subject to ceiling of 100%. 3. The Pl for calculating the incentive wage for a particular charge-man is average of individual performance indices of direct incentive workers under the said supervisor during that month.DEFINING PERFORMANCE AND PERFORMANCE MEASUREMENT METRICS 93 4. Cases where the Pl exceeds 100% or falls below 50% will be treated as anomalies/ambiguities and will be discussed on case to case basis. 5. The agreement also mentioned efforts to include quality factor in the incentive scheme. This factor was to be introduced after discussion with Quality Assurance Department, Design Department, etc., and will be governed by the number of rejections/rectification/re-work considerations. This being a new concept it will be done in future after a thorough discussion between union and management. The standard hours for many jobs had been derived from time-motion studies conducted around 10 years ago. There has not been any change in the standards. However, the actual time required for completing most of the tasks, particularly assembly work, had come down substantially as the employees progressed up the learning curve. Actual time for some of the work took less, than half the standard time, However, proposals for changing the standards were met with opposition from the union and had remained more or less unchanged over the last decade. Tasks of infrequent nature and new ones took longer time, because of non-standard nature and lack of pre-existent learning among employees. Such tasks for which learning curve did not exist ‘were not favoured. In those circumstances, having a non-standard job reduced the total number of tasks leading to a reduction of Pl, and of the incentive-based pay. Thus, the workers regarded any move to replace a standard job with a non-standard job, in which there was no learning-curve- benefit, a threat to their performance-linked incentive. The times for a job were arrived at by the industrial engineering department who identified the various work elements needed to manufacture any particular equipment, the specifications of which depended on the requirements of the clients. Because of non-routine nature of the job, there was always disagreement regarding the time required to complete a particular assembly between the industrial engineering department and the shop-floor employees. Plant Layout The plant was structured in two sections: Section | and Section 2, Both of them operated indepen dent of each other and were in a way, mini-plants within the same premise. Section | was headed) by Mr. Kurien, a reliable but a quiet and unassuming person. It had been a couple of months since his transfer from the Industrial Engineering department to the shop floor.’ Mr. Raghuram headed Section 2. Mr. Raghuram had been in the plant for the last 10 years, and was considered by his peers as a person who knew his job. As jobs varied on their complexity and newness, work assignment was usually done by Ramachandran in consultation with Kurien and Raghuram, so as to distribute the easier jobs equally. ‘The production planning department was also consulted during the work allocation. Easier tasks or jobs which were a repeat of earlier ones involved lesser time due to workers being higher on the learning curve. The sections had their own orders and separate delivery schedules. They usually got their components from the production planning department. Therefore, frequently it happened that ? arlier in the year the company had implemented VRS, in which the person selected from Industrial Engineering department had used political influence to get his name replaced by Kuriea. This came as quite a shock to Kurien as he thought that his performance wes above par. He was helped out by one of his senior colleagues, Ghosh in industrial engineering. Ghosh had gone to the Plant Manager and highlighted the work done by Kurien and managed to convince him that Kurien did nat deserve to be in the VRS list. Ghosh had further helped Kurien by providing him, opportunities (o showcase his performance, Thanks to the help provided, Kurien had also been awarded the best achievers award. This was predominantly due to opportunities provided by Ghosh. However, the stigma of being on the VRS list had stuck and unsettled Kurien, As per reports by his fellow colleagues, he had taken to drinking. He had also been involved in dranken brawl with a worker in the residential colony.same equipment would be manufactured paraltely in two sections, each for different customers, and each having different delivery schedules. Allocation of the Urgent Order—TGSX-115 The head office had passed on the urgent order, TGSX-1 15, to Ramachandran. It had a tight delivery deadline because of requirements of the client. The work was allocated to Section | by Ramachandran. This was more because of a request from Kurien, who wanted to take up the assignment. In course of manufacturing the equipment—an earth mover—a common equipment in mining and road industry, Section | ran short of two critical parts, the frame and the bucket. When the Planning department was informed about the urgency of the order, they identified that the required parts were available in Section 2, which they had procured for a separate order. To ensure that order TGSX-I [5 got fulfilled on urgent basis, Mr. Ramachandran, the heads of two Sections, and the Planning department met to discuss what needed to be done. The Section heads decided that the parts would be ‘loaned’ by Section 2 to Section I, and the same wéuld be ‘repaid’ back as soon as the vendor supplied the parts against fresh order. This implied that workers in Section 2 would see a reduction of work and an increase in idle time for that month. After the decision was made, the general secretary of the workers’ union was also informed. However, the news of the decision did not percolate to the concerned workers. Kurien approached Section 2 for the parts. The workers there refused, because if they handed over the parts, the PI of their Section would go down. Kurien informed the workers working in Section 2 that this has been decided by Mr. Ramachandran and stressed on the need to get the urgent order out of the plant. However, the workers in Section 2 refused... Rabindra, the Assistant General Secretary of the workers’ union, who worked in the Section, joined the argument. The Dispute While he was relaxing by the window, Ramachandran got a phone call from a staff member informing that Kurien and a union post holder had got into a physical fight; Kurien reportedly had caught Rabindra by the collar and the situation had become quite serious. As Ramachandran thought of a course of action, he received a call from the Executive Director on phone. He had been informed about the case by one of the engineers ‘It is a case of indiscipline by the Section head. Sack him.’ the Director spelt out his decision. ‘Anyway, Kurien is useless. He could not ever succeed in the new assignment,’ he added while putting the phone down. The Meeting with the Union Leader A meeting between Ramachandran and Mr. Tripathi, the union leader of the plant workers was scheduled that afternoon, in the post lunch session, This was regarding workers welfare-related issues that had been pending. As Tripathi walked in, the Plant Manager welcomed the Union Leader in his chamber. Tripathi started, “Your supervisors are now physically assaulting my union members.” The Plant Manager was taken aback. ‘This meeting had a different agenda, he said. ‘No, we are going to discuss the attack on my men’, the Union Leader persisted. ‘I have informed the Director,’ Ramachandran tried to pacify the Union Leader, ‘and we are in the process of holding an inquiry.” The CMD, when he got to know about the incident made a telephonic call to Ramachandran later in the evening and asked him to come ‘to the corporate office. As he drove down to his office, Ramachandran thought of ways to get out of this mess. The meeting was brief, 'It could not be one-sided. The union member must have done something too to get the supervisor angry. The supervisor is one of the most hardworking in the plant He hadDEFINING PERFORMANCE AND PERFORMANCE MEASUREMENT METRICS 95 Personally approached me to get a transfer to the shop. Who asks to be transferred to the shop nowadays? All fellows now want to go to either procurement, the IT department, or to be in HR. No one wants to be posted either at the project sites or at the shop-floor.’ Ramachandran pleaded on behalf of Kurien. ‘Sack them both,’ was the order, as CMD got up, finishing the meeting. As Ramachandran drove back to his plant, he pondered on the orders given by his superiors... Table C3.1 Incentive Earnings of Workers [ Section PI Incentive earning on full attendance (206 hrs) (3) i; 0-50 fete Nil : | 55 120 | 60 120 65 200 70 220 5 240 80 260 85 280 90 300 95 30 100 320 | 105 340 110 360 415 380 120 400 The above table gives a typical incentive chart for a particular category of worker. There were eight categories of workers and each worker-category had their own table where the incentive amounts varied based on respective Pls. While the table gives incentive details for Pl greater than 100, plant managers were extremely hesitant to have a situation where they violated the rule of Pl to be less than 100. This was due to the explanation they had to provide to the CMD/ Director who looked at these incidents as unnecessary bonus paid out to workers due to lack of proper planning on behalf ‘of the plant manager. Questions/Issues for Discussion 1. What are the flaws in the performance appraisal system and the linkage to rewards in this ‘organization? a. Justify your answer based on analysis of the organization's strategy, structure, and work processes. 2. If you were in Mr. Ramachandran's position, what action plan would you adopt? Provide suffi- cient justification for the same. 3. What would you do to prevent a repeat of such kind of incidents?