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 been established 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 of increased competition and difficult trading conditions, financial performance has been poor and little profit has been made. This situation has meant that the owner-manager has imposed a pay freeze for the 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 discontent with 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 eight employees, and the manufacturing operation (the ‘Works’), which comprises the remainder of the employees, other 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 the 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 in them. The Divisional Director, however, has a more participative style of management and understands the need to view employees as assets – the firm’s human capital, in fact, through whom the firm can develop and maintain a competitive advantage. The historical management style meant that on his arrival the Divisional Director was faced with a group of employees who lacked commitment to the firm and were focused purely on working their shift and earning their pay, making the minimum possible contribution to the firm. The Divisional Director has thus undertaken 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 and a number of other roles – for example, fork lift truck operator. These teams report to the Works Manager, who reports to the Divisional Director. In an attempt to overcome the dissatisfaction created by the pay freeze,
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the Divisional Director then introduced a scheme by which team performance against production targets is linked to the payment of a bonus to team members. The team leaders are nominally responsible for co-ordinating team efforts, although the role of team leader is a new one that has not been formally defined, and the employees appointed to such roles have been given no training. Indeed, little training other than on health and safety issues takes place at any level in the Works. While the Divisional Director believes team-working is an appropriate way to enhance performance, the employees are uncertain as to how it should operate, and there is in fact some resentment that the team leaders appointed were selected for the role entirely at management’s discretion. Leadership roles were not advertised so that employees could 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 seven out 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 Divisional Director his vision of a performance management system that would be more likely to achieve the Divisional Director’s aims.
Author: Carol Atkinson, Manchester Metropolitan University
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The task: After reading the case 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:
- Evaluate the current Performance Management Systems (PMS) and propose a new system that could improve the firm’s performance’ (40%)
- Identify, assess, analyse and evaluate performance objectives at both the team and individual level (30%)
- Identify the possible barriers to the implementation of such a system and how these could be overcome (30%)
