PERFORMANCE MANAGEMENT AT VITALITY HEALTH ENTERPRISE, INCSyndicate 6Amalia Sefrina C - 29115364Dian Sadar Adi P -29115417Dian Sadar Adi P -29115417Galih Wibowojati - 29115422Mirna G Insani - 29115395Silur Sasakawa I - 29115408

Case Background Vitality enterprise was founded in 1987 in Ames Iowa by Hikaru “Fred” Kikuchi. Initially it started with importing products from Japan and marketing them.

It went success within 3 months and resulting to more than $15,000 in sales In 1989 import tariffs and supply constraints forced vitality to start their own manufacturing unit. By the Summer 1991, business grown to $3 million peryear. In 1994, vitality partnered with several leading pharmacy In 1994, vitality partnered with several leading pharmacy retailers to market their products. In 1995, company went global, targeting markets around the Pacific Rim including Taiwan, China and Japan. In 1997, Vitality acquired

HerbaPure Nutraceuticals. Vitality’s name was changed as Vitality health Enterprises. Also in this period company went public. With the expansion, Kikuchi maintain his vision by matching it to the corporate strategy to one his favourite sayings: “ Outer beauty can only be achieved as inner harmony is reached”

Case Background By 2007 company had around 5500 employees in HQ and nearly 1500 employees in global offices. In mid 2008 , global economic crisis brought relatively stagnation to Vitality’s growth and Beth Williams was made the CEO of Vitality Health Enterprises. Williams brought a disciplined operational mindset and was known troughout the industry for reducing global production cost by 12% during three years at the helm of B&W Beauty. In the first quarter of 2009, Vitality began rolling out its new business strategy. In addition, Williams organized a committee to review the strategy. In addition, Williams organized a committee to review the policies and methods for tracking the performance goals of all non-sales and non-executive employees across the entire company Over the next four months, the performance Management Evaluation Team (PMET) studied the evaluation and rewards system. The PMET discovered that the PMS presented problems for the 2,500 professionals staff

The Problems #1 : The Rating System• The Company has 13 different rating levels (from A to E including plus and minuses) which leads to way for managerial abuses.• PMET discovered that many managers, gave almost everyone C or a B, provided D or A ratings, and rarely give Es

• This resulted to a homogenous ratings that failed to sharply distinguish performers from non performers

The Problems #1 : The Rating System

What Vitality Did to Improve for Problem #1• Vitality launched a new rating system where employees were now rated with respect to one another by differentiating among employees on the basis of performance.

• There is fifth category, Not Rated, for employees who were too new to the company or their position to receive an accurate rating

The Problems #2 : The Point and Salary System Each position had a base-level monthly salary calculations and performance based raises. Each position had a base-level monthly salary that was modified upward along a pay policy depending on the number of “job evaluation points”

The Problems #2 : The Point and Salary System Individual salaries were further modified by a comparative ratio or ‘compa-ratio” based on individual performance in the company

What Vitality Did to Improve for Problem #2• Compensation was adjusted by the new program. The new plan incorporated a system of performance-related short and long-term equity bonusesequity bonuses• This also will allow for limited stock options to upper levels of management and directors as an incentive to successfully implement the new PMS

Additional System Vitality Did to Improve• All performance reviews were to be conducted at the start of the calendar year and delivered to the employees in conjunction with the annual goal-setting process in JanuaryJanuary• The timetable will put the entire company in the same review cycle for collaborative efforts and to limit the effect of external factors on the relative rankings

The Result• PMET2 was established to review the new PMS implementation and compare performance ranking data for review

The Result• Responses to the employee surveys indicate that only over half preferred the new system (54%), nearly a third preferred the old system (31%) and the remainder indifferent between two.• Managers felt more difficult to discuss performance with their team member because the yearly review with their team member because the yearly review process was tied s closely with merit increases• Some empoyees and the managers themselves felt that they were less likely to perform duties outside their job description because those responsibility weren’t part of their review.

Questions1. Diagnose the CEO perception that putting blame on Performance Management The implementation of the new rating systems are not changing many old practices. It only reduced the number of criteria and grading. In reality, the distribution of the Top Performer and achiever are almost similar. Even worst the existence of Not Rated criteria for new Even worst the existence of Not Rated criteria for new employee will drive low enthusiasm and motivation from new employee. This will also impact to the turnover rate amongst the new talents All investment made for trainings, development new employees are gone along with new appointed employees.

Our Analysis & Recommendation As Vitality looks at revising their newer corporate performance management system, in conjunction with their corporate vision, they should ensure that the CPM is aligned. The common tools used to aligned them is the Kaplan & Norton’s Balanced Scorecard

The BSC framework consist of 4 elements; Financial, Customer, Internal Process and Learning Development. By cascading these perspective to the performance review, Managers and Employee will always feel that what they reviewing and conduct is part of their job responsibility and measured trough their KPI

Questions2. If it were justified, develop your own recommendation to reinvent the performance management system at Vitality Health Enterprise

Refreshing and re-communicating the strategy through management and employee training, the entire organization will be able to understand the vision that CEO is seeking for continued growth Cascading and managing the strategy through the balanced scorecard Cascading and managing the strategy through the balanced scorecard to ‘connect the dots’ between the various components of strategic planning and management. provide a new system for performance payout that does not include a confusing forced distribution that only values individual performance provide a new system for performance payout that does not include a confusing forced distribution that only values individual performance

Our Analysis & Recommendation It also should be noted that Beth Williams and PMET should be aware of the correct balance of job motivations of R&D staff, as opposed to sales and marketing staff. In the case of R&D and scientists, where work can be extremely complex or creative, bonuses and other forms of variable pay for performance can largely undermine employees’ work ethic.” Intrinsic motivation or value for it’s own sake versus extrinsic Intrinsic motivation or value for it’s own sake versus extrinsic motivation or satisfying needs indirectly through monetary compensation, depends largely on the category that employees fall into. Leadership is also something that Vitality need to develop amongst their Managers On going recognition program, coaching, mentoring can help the annual appraisal become more meaningful and monitored