2.

The Dilemma at ABC Autos

what
Mr. Shivanna, the
anna, the Deputy Manager of the Product Unit in ABC Autos, felt remorse for
General
to
His throat had gone dry and he was tensed as to how he would convince his people
happened.

in their performance
pay. He was in a dilemma as he looked into the Composite Pertor
hapt in
cut himself,
takea Index. How
akedex. How could could this happen? Suddenly he got up from his chair and muttered to
manc

the HR not
to change the process, but they did not listen. They were able to convince
manldtold the will
had
1management,
the t o p
and now see what has happened. Now who will face the officers, the HR
managemern

to do it myself.
I will have
it, setting
doShivanna
otMr. back to his chair, sat down and year ago when the
thought of a goal
Shivanna went
wen

being implemented. This was the first time the HR proposed the idea of omposite
cs was
process was

Performance
Index with the following justification:
People are working in silos while achieving the performance targets.
to see the big picture as to how their goals are linked to the plant
Officers are not able
and consequently the sector performance.
performance interest towards achievement of
lots of internal tights to protect each individual's
There were
goals.
close to the boss usually
in appraisals as people thought that officers
the
Lack of transparency
ratings as well as bonuses.
got better performance officers who were not
had pointed out that if the CPl system was put into place,
Mr. Shivanna
to 100%% performance pay,
the advantage because all officers were entitled
working would also get it was possible that because of a few
unit achieved all the targets. At the same time
f the Product was debated and finally seeing that
officers the whole Product unit would suffer. In fact, this point
the top management went ahead.
there were more positives in going ahead with the CPI system

Mr. Shivanna's Career with ABC Autos

after completing his education in one
Mr. Shivanna had joined this organization as a graduate trainee the final
of the prestigious engineering colleges. He was good in
academics and topped his class in
a first line officer, and
within a short span
year. He joined the organization in the machine shop as and people
the machining and gear cutting processes
0T four
years had become an expert in all
working he completed his Masters in Human Resource Management.
nanagement skills. While
a period of 14 years he was heading a product
unit as a Deputy General Manager.
WUin skills, a hard task master, and at the
same

. dhivanna was a star performergood in negotiation

his people and was open to job
He believed in developing
people orientation was high. and grooming them to
of his team. He used to take the risk of inducting fresh graduates
n visited his department, he/she would
find the
Unportant roles in his department. If anyone

Ihis case has students of XLRI School of Business and

been prepared Prof. S. N. Bagchi based on submission by
prej by The case
Human Resources. Names
Names of the students, the company and the
location have been
rendered anonymous.
concerned. It has also been verified
Tel
released after ensuring to the organization
and the individuals
that the a t e r ensuring anonymity
non-proprietary in nature. urther the case does not
information in
contain information n the case is typical in or the industry and
to the competitors.
other aspect that may give any advantage
The
e Case is iintendedpertaining to the strategy any
discussion rather than
to illustrate either
effective or ineffective handling
an administrative t to b
be a basis for class
be used as a source of data regarding any
administr neither purports to be nor should
organization or industry.
1ation. This case
people focused on their job, housekeeping was at the best at any time, and the n
of the Product unit was consistently good.
the oerformance recot
ABC Limited
ABC Ltd. was into manufacturing of automobiles. Based in
Pune, it had two other
facilities in Uttar Pradesh and Tamil Nadu. Mr. Shivanna used to work in
to Head Manufacturing,
the Pune plant ae manufacKacturina
Aggregates and Assembly who used to report to the Vicee President, Oper
tions. See Figures CS.4. C5.5, and C5.6. Presidan and
Basically the Pune plant had six product units and other central
functions which
product units. The Head, Aggregates and Assembly directly catered .
DGM, Transmission and DGM, Axle took care of the managed the
Foundry product in* thee
Aggregates and Assembly. Similarly, Head Vehicle andrespective product units and reported toHeadu
DGM, Body and DGM, Vehicle Assembly managed Engine Product unit
product unit reported to him. whie

Direct Reportees to VP (Operations)

VP
Operations

GM -5

Head Head Head Head

Manufacturing Head
Aggregates and Manufacturing
Vehicle and SCM Quality Plant
Assemblyy Assembly Engineering|
DGM 3

DGM
DGM DGM
CMD Administration P&IR
and
Security
MGR 3
Manager Manager Manager
Safety Technical HRD
Assistance

OP 1
Executivve
Secretary
FIGURE C5.4
Direct
reportees to VP (operatign
 Direct reporting to Head
Manufacturing-Aggregates and Assembly
Head
Aggregates
and Assembly

DGM 2

DGM
DGM
Transmission FOUNDRY PU
Axle PU PU

Sr Manager Manager-|| Manager-|| Manager-|Manager Manager Manager-

Tool Room Manu-
M G R - 7

Manu- Main- Technical

Improvement Quality
facturing facturing tenance Cell Training
Core& |Molding&
Felting|Melting

OP-1
TMC&
Stores
1 No

FIGURE C5.5 Direct reporting to Head Manufacturing

which had c o m
into Machining, Heat treatment and Assembly of gear boxes
Transmission PU was
It made three different types of gear boxes and
and high quality requirements.
plex processes was the sole manufacturer
of gear boxes
as well as to other two plants. It
catered to the Pune plant
The resources available with this product
unit

and manufactured nearly 600 gear boxes per day.

were as follows:
Number of officers: 56
Number of workmen: 359
Number of machines: 251
ne Previous Performance Management Systemn
and the system
evolved over a period of time. The
with the PMS system in 1989
,started
ystem gained more focus in the last three years.
n the system, SMART Goals were set (that is)
S- Stretched
M- Measurable
A- Agreed upon
R- Relevant
T Time related were set at the beginning
with the
business goals
Measurable
of the
goals for every
individual, linked
from Vice President's
financial cascaded down

TOP DOWN apyear.

N for goals setting.
approach
goals Individual

80als
g0als. Performance (MoPs) for the year.

Each individual has five six Key to

of Measures
100%.
Each MoP has a
of weightage
ainhtage Total sum
was
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 IANCE MANAGEMENT FRAMEWORK.

nerformance, i.e., the expected

Level of outcome at
various levels was defined for
Le set in consultation every goa
targets were with the superior and
the subordinate.
A ance with respect to MoP's was the basis for
Performance
individual. calculation of performance payment
nt for
an
amo

TheNew oM Performance Management System

year the
composite pertormance index was introduced for the manufacturing
50% weightage was for composite performance index and for theonly
In the p r e v i o u

n remaining 50% each

proceshad
proce

three to
had three
individual
to four other goals depending on his area of work. Table C5. gives the
ndomposite perfo
nerformance index for Mr. Shivanna's unit for the year ended 2008.

Table C5.1
Composite. Performance Indexfor Mr. Shivanna's Unit for the Year Ended 2008

SNo Goals
MOP Weig- LOPs (Level of Actual
(Composite) htage performance) scores

for
2008

Measure of % 5 4 3 2
Performance)
schedule 15
15 99% 97% 95% 93% 90%% 5
Achieve volume Daily
adherence for
growth
aggregate production
No. of vehicles 15 100% 95% 90% 85% 80% 5

produced in F08
(based on targets
5 4 3 2 I.5
10
2 Quality Quality systems
SCore 6% 4% 2% I.5
10 10% 8%
Reduction in rework
due to improvements
in quality 2.25
I.0 1.25 I.50 1.75 2.0
3 Operating cost Expenses as percent- 10
age of income
management 4% 26 1.75
4 Productivity Improvement in 10 I0% | 8% 6%
increase effective working
time over previous
assessment year 2 3
0 0
Ensure safety Major accidents 10
(Reduction over pre-
vious assessment year
to be considered)
8 6 2 2.5
6 10
ldea generation ldeas per person 3
5
TPM consistency Readiness for internal 10
|award
 PERFORMANCE MANAGEMENT
178

in the composite performance index, the following were the status problems because of whieh
score had reduced in transnmission PU.
the
I. The production parameter was achieved at level 5.
2. The quality system score was reduced since the audit was done more rigorously as compared
to previous year and hence it was below level 2. Usually, the managers faced the audit
and
required they called the officers/workers down the line. The score was arrived taking into
consideration 20 different parameters.
3. There was a skip in the heat treatment process that resulted in assembly throw back of 250
assemblies which resuted in level two performance.
Operating cost had gone up due to more manpower used, since there were disruptions in
production for capacity increase projects in certain cells in the Product unit and some compo
nents had to be offloaded to vendor for a short term. This also effected the effective working
time which resulted in level 2 and below level 2 performance, respectively.
5. There was one major accident resulting in a worker not able to report to work for three days
in the assembly cell. (Any accident resulting in worker not reporting to work for 48 hrs or more
is considered as major accident.)
6. The product unit has achieved level 3 performance in ideas/person.
7. Subjective rating was given at level 3 performance for TPM.
The payout for performance linked pay was based on percentage of individual salary in that unit. The
details are as follows:
I. Level 5 I00% payout
2. Level 3 6 0 6 payout
3. Level 2 30%6 payout
4. Below level 2 - zero payout
the unit's
During calculation of individual's performance pay, 50% of the bonus depended on
an
50% depended on each individual achievingindi
composite performance index and the remaining
remains the same.
vidual goals depending on his area of work. The format
Individual performance linked bonus
individual employee bonus = Unit linked bonus
100%
level 5, an individual employee was entitled to
For example, if the unit's composite index was be
linked bonus. For the remaining component, his individual performance index would
of his unit
considered. 54.75%
2.85. That entitled the workers to get only
For Mr. Shivanna's unit, this year's score was
to be out of 50%, it implied only
27.375% of the maximum
of their unit linked bonus. Since that was
50% they could have earned.
other product units out of 50%
Percentage payout achieved by
. Axde - 37.5
2. Engine - 41.55
3. Foundry 31.75
4. Body 39.5
5 Vehicle - 40.5. hard this year. They had increased the
was His people had worked quite i n v e s t m e n t of I 2 lakh. The warranty
worried.
r.
shivanna
from 520 t o 600 with a m e a g e r capital excellence award
for production
Prooucuon capacity had w o n the
manufacturing
many projects
They done
alure had c o m e down drasticaly. awards given by the management. They had
C h was o n e of the prestigious
 PERFORMANCE MANAGEMENT
179

on enerey saving savings. Contribution of some of the

on eople will suffer....amI being fair to officers was substantial. 'But what is the use, he telt,
my people?
Shivanna picked up the phone to call the
my
Mr. Shivanna
GM
the
sctem should be scrapped for the next year. Heand put up his case. He strongly suggested that
then called up the Vice President, Operations.
Questions/lssues for Discussion
Is Mr. Shivanna's concern justified? Why would the unit
unit linked assessment system? employees lose out in the case of a new

2 ls the philosophy of a unit's performance

system as followed in ABC Auto
3What performance management framework is best suited for ABC Auto? justifled?