by Rainer Strack, Jean-Michel Caye, Carsten von der Linden, Pieter Haen, and Filippo Abramo
Henkel, a global manufacturing company based in Germany, recently conducted a major cultural shift to become a performance-driven organization. With 47,000 employees and a heritage that dates back to 1876, Henkel had grown quite solid by the middle of this century’s first decade, when it held the second or third spot in many product categories but lacked a strong competitive spirit.
In 2008, the board named Kasper Rorsted as its new CEO. He started by outlining a bold set of financial goals and restructuring the company. He also took steps to revamp the company’s culture, rewriting its values and vision statement to focus on excellence and a strongly customer-oriented approach. To make these changes stick, however, Henkel would need a new performance-management system.
At that point, the company’s performance-management system was not sufficient to thrive in such a competitive environment. According to Rorsted, during the five-year period that ended in 2008, 95 percent of the company’s employees hit their individual targets. However, during that period, the company did not hit its overall targets even once. Such dramatic gaps between individual and overall goals can be found at many companies. The company needed a new system with stronger management capabilities and increased individual accountability.
Henkel’s approach involved the introduction of a four-by-four grid by which the company’s 9,000 managers would be rated on their performance and future potential. The ratings would be assigned during collaborative roundtable sessions consisting of a group head, his or her direct reports, and a moderator from the HR department. Each manager’s performance and potential was discussed for about ten minutes and was given a designation on the grid. Only a certain percentage of managers could be in each of the four performance categories—both within each operating unit and across the company.
In this way, the new system imposed tough choices. The grid gave the company a way to compare the performance of managers across locations and business units and, thus, discover its most promising future leaders. Moreover, it introduced a means for identifying poor performers and offering them specific training to improve their performance. In that way, the system brought transparency to the way that managers were evaluated, helping them calibrate their own performance and motivating them to be accountable and improve over time.
The new, high-performance culture was reflected in a new reward system, which linked bonuses to the financial performance of the overall company, team performance (that is, the manager’s business unit), and individual performance. In previous years, bonus payouts had been linked to complex scorecards with numerous KPIs; today, the performance on each of the three levels is measured with a maximum of three clearly defined KPIs.
As Kathrin Menges, executive vice president, human resources, puts it, “The new performance-management system is an integral part of our corporate culture and the basis for the development of our employees. We believe that in highly competitive international marketplaces, the quality of our global team plays a decisive role. With clear and unequivocal feedback, rewards in recognition of individual performance, and tailored development plans, we want to ensure that our 47,000 employees around the world are well prepared to take on the challenges they confront every day. In the end, it’s our people who make the difference.”
The new system has helped turn Henkel into a highly performance-driven company, and its financial results since the system was introduced have been very positive. Despite the harsh economic environment, from fiscal 2008 through 2012, Henkel’s total revenues grew by 17 percent, and its adjusted profit margin increased from 10.3 percent to 14.1 percent.
Government is the #1 enemy of the people and the source of all major problems of humanity. Anarchy is the best political system. Basil Venitis, venitis@gmail.com, http://themostsearched.blogspot.com, @Venitis
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