1.What are the specific practices of Haier’s performance management system? What are the guiding principles behind those practices?
Haier, being the world’s sixth largest maker of large kitchen appliances, had 4% global market share and strong positions in the production of washing machine and refrigerators. The key success behind was Zhang, the CEO who brought the company fortunes. Several innovative human resource management practices were introduced. First, there was a set of colored footprints on factory floor. 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 explain why he had done a good job. One more tool used by the company to measure the performance of the employees on daily basis was to discuss with their supervisor and set clear goals of the employees before beginning of their shift. At the end of the day, they met again for assessment. Then, the employee would receive a colored face in a board showing an informal grade for the day. For managers, their performances were reviewed weekly and the results were openly displayed at the cafeteria. Another tool used by Haier was the 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. Moreover, 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. 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. Evaluation was done by points system and any employee could be transferred out of the talent on not getting the points for minimum standards. The guiding principles behind those practices were OEC (Overall, Every, Control and Clearance), 80:20 principle and Racetrack Model. That’s mean, all performance dimensions of everyone everyday had to be considered and there were self-assessments and meetings with supervisors. Also, 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. Last but not least, under racetrack, the excellent employees had to keep racing and improving, creating a sense of competition.
2.Why does Haier’s performance management system work? What are the potential pitfalls of Haier’s system?
Haier’s management was work and has been well received by workers as this could be reflected by the company’s success in the past 2 decades. With the new HR practices, the workers were given opportunities to display their motivation, innovative and competitive attitudes and capabilities of such kinds under Haier’s management. Also, all practices were carried put under great transparency, fairness and justice. Importance of “face” was a characteristic of Chinese cultural tradition. With the daily assessment and ranking, the sense of competition instantly increases. The results of the evaluation of workers were shown with individual names. It seemed that workers or managers of poor results would lose their faces. So the workers were motivated to do better. The performance appraisal system the top 10% were promoted and bottom 10% were sent back to the training provided chances for the employee to improve and offer training before really fire them. This was considerate and lenient. Also, the meeting with supervisors made the expectations and standards of works crystal clear.
They set up, achieve and were accountable for the targets. Their performances were closely monitored, evaluated and rewarded and that’s why they were motivated. Moreover, under the 80:20 principle, the mangers had to have the courage and conscientiousness to assume responsibility at Haier. Thus, they had to be more dedicated and care more, leading to great effort and productivity for both the managers and workers. However, Haier’s management is in contrast to the old management of socialism. So there are maybe some potential pitfalls. “Face” and human relation are the two deep-rooted traditional Chinese concepts. If the Chinese employee cannot accept or adapt to the new practices, it arouse resentment among the employees. In long run, working under keen competition may impose heavy burden to the employees, leading to stress and mental problems. A disadvantage in the footprint method is that it did not give any ranking to the employees so it would be difficult for decisions related to appraisals and salary increments. Sometimes, it might embarrass the employee as well. Haier ranked top 10% and bottom 10% of the employees. This could be morale. 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.
3.If Haier expands into the U.S., will its performance management system be effective in the U.S.? Why or why not?
If there is any change you would like to make, what would it be? It may not be that effective in the U.S. The U.S. culture is different from Chinese. They have low power distance and privacy is an important issue. The U.S. employees may feel being insulted if their performances are publicized, i.e. the colored footprint may not work. Also, there is higher level of performance orientation in U.S., emphasis is not put on daily performance but final result. They also enjoyed individualism and freedom so they may not like being instructed or guided too much by the supervisor every day so grievances will appear. To be 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. 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 supervisor, peers and subordinates. Self-rating method can also be used.
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