Managing Performance at HAIER

Managing Performance at HAIER(A) Case Review Situation Analysis In 2006 Haier was ranked the 6th largest maker of large kitchen appliance. Haier had 4% global market share and strong positions in the production of washing machine and refrigerators. Haier became successful after the arrival of Zhang as a CEO in 1985. After that Haier increased its revenue from RMB 3.48 million to RMB 104 million. Haier transformed into a group of 240 plants and companies, having more than 50,000 employs. Haier has moved to this position in just two decades and the average age of five global players in the household electrical market was 95 years. Zhang make sure that any product which is not up to its standard will not be produced. Haier evolved from one refrigerator to 86 different product categories with over 13,000 specifications. Haier innovated to create their niche markets. Another main reason for the success of Haier was their marketing initiative which emphasized quality. Performance management system at Haier Performance management system at Haier was a variant of forced distribution system. In this type of performance appraisal system the top 10% were promoted and bottom 10% were sent back to the training at the expense of the company. After this training if they again come under the bottom 10% then they were again given leave and this time they went to training but on their own expense. In the third review if they again come in to the bottom 10% then they were fired. According to many surveys these types of performance appraisal systems are said to be harsh on employees but in this variant as they were also providing the training on their own expense and were giving three chances to improve so the method was employee friendly. Another tool used by the Haier was a set of coloured footprints on factory floor. These footprints were yellow, green and red coloured. Any employee who has not performed well has to stand up on the yellow footprint and tell the employee why they have not performed well and how they will improve their performance. The employee who has performed best has to stand up on the red foot and tell the employee why they have performed better than

others. This system was effective as it performs the appraisal system over the complete year so it avoids the recency effect. One more tool used by the company to measure the performance of the employees on daily basis was to discuss the goals of the employees before beginning of their shift. This method is known as Management by Objectives in which after the shift, employee and the supervisor asses the goals achieved. Based on the goals achieved, employee received a coloured face which gives an informal rating to the employees. Haier have their own 80:20 principle in which the 20% of the employees who were managers are responsible for the other 80% of the employees. If the employees did not perform according to the standards then their supervisors were liable for the results. Apart from this there were frequent appraisal processes. All the employees were treated as separate company and they have their different accounts and profit and loss statement. If the employees exceeded their goals then they increase savings in their accounts and when they did not reach their goals then they have debt on their account. This system was mainly designed to increase employee motivation to perform better than the standards defined. Profit for all the mini companies resulted in the profit of the parent company. Talent pool was generated for any new opening in the company so that the best employee gets the new position. Job rotation was prevalent in the company and any employee was tested at different positions before assigning a final job. The average length on any management position was three years Evaluation was done on the basis of points awarded to different employees and any employee could be transferred out of the talent on not getting the points for minimum standards. If any manager was not performing well and minor improvements were required than he was put in medication. If serious improvements were needed then they were demoted and if performance did not improve than they were fired. Problems Forced distribution method used by the company where they were ranking top 10% and bottom 10% of the employees, was morale damaging for the employees. Although their method a little bit on the softer side because they are providing training to the employees on their own expense. The greatest challenge of this method is to differentiate between other

80% of the employees and this method may be biased by the recent performance of the employees. Methods in which they were providing the employees mask and in which employees has to stand on the footstep are rating the employees along the overall time period as they were done on the daily basis. But a disadvantage in this method is that is does not give any ranking to the employees so it would be difficult for decisions related to appraisals and salary increments. Another challenge for the company is that will these performance management systems would be applicable in the other locations where the culture is different from china. These performance management systems are subjective and many times tend to be biased. Action Plan To make the appraisal more effective and acceptable, company can adopt different methods. One of them can be Graphic Rating Scale method which is the simplest and most popular method for the performance appraisal. In this method the employees are ranked on different scales such as communication, team work and skills related to their job profile. This method would be effective as they are not using any ranking method for the appraisal. For making the appraisal more precise company can also use paired comparison method. They judge the performance of each employee on different traits with respect to other employees. In this method two employees are chosen and were ranked on different parameters and this process is followed for all the other employees. Between the two employees the better employee gets a ‘+’ and the other one gets a ‘–‘. At the end all the ‘+’ and ‘-‘are counted and the employees are rated accordingly. This method will give the ranking of the employees and can be very effective for salary increment. This method will also avoid the problem of central tendency, which other ranking methods have in which people tend to rank each employee as average. Company can also implement management by objectives method from the organization goal perspective. In this method goals of each employee is discussed and associated with the goal of the organization goal. After that, performance of the employees are assessed and discussed with the employees. Feedback will be given to the employees and rating is also provided. To eliminate the bias in the appraisal different types of methods should be used and employees should be rated by different individuals. Rating can be done by their immediate supervisor and peers. Self rating method can also be used.

Contingency plan A contingency plan should be there in case of performance of most of the employees goes down the standards of the company. HR Managers should penalize the employee and strict warning should be given to improve their performance. If performance does not improve after that then employee can be send on leave. But in this case organization should be ready with the substitutes or new employees to serve the market demand and quality. Reward system should be introduced to motivate the employees for going an extra mile to perform their jobs better.