Q1. Brief synopsis of the case.

Answer: In late 2007 Novartis was the 3rd largest pharmaceutical company in the world and had over 100,000 employees across 140 countries. Its businesses are vaccines and diagnostics, generics, animal health, eye care and oncology.  As a global company, Novartis goal was to enhance sensitivity.  Offered a program called Leading Global Teams that o Provided a generalization of national culture, and organizational culture of different business units o Utilized a tool called Cultural Orientations Indicator (COI) y Included 10 dimensions- each contain a cultural continuum measuring preferential styles of behaviour and allows comparisons across country cultures

Training and Development Key in the Success of Novartis Pay for Performance Management System and Talent Management is Training Line Managers In:    Setting Objectives Coaching Skills And Process Managing For Performance Improvement

PERFORMANCE MANAGEMENT  Novartis viewed Performance Management as central to their Global Talent Management Activities  At the heart of their Performance Management is a system that: o Grades Employees and Matches their compensation to:   Business Results Values & Behaviours

 Each of the two performance dimensions (values & behaviours and results) are rated on a three-point scale. o 1- poor performance o 2- satisfactory performance o 3- Superior Performance  Some of the Values & Behaviours consist of: o Results Driven o Exercising Leadership o Demonstrating Empowerment and Accountability  Employees/Managers urged to solicit multi-rater feedback

 Performance Calibration Meetings are held annually o Ensure cross-functional equality o Review, Measure and differentiate performance of associates in a structured, thorough and consistent way o Foster trust in the organization by being open about employees performance  Performance ratings (not OTR) have a large impact on associates compensation.  Initially employees base salary and target incentive are driven by market data  High performers (3,3) may be eligible for almost double their base salary in their annual bonus  Conversely, low performers do not receive a salary increase or a bonus Retention Novartis Challenge with Retention in China  Novartis was typically hiring talented young professionals in China who then started with low productivity  These employees underwent 12-18 months of training and ended with high productivity  But with the training and multinational experience they moved to another company for salary/career advancement  Novartis solution: to offer stock grant programs with multi-year vesting periods. Also to offer long-term educational support and flex-time for employees who remained with the company.  Result: Turnover decreased from 20.1% in 2006 to 17.6% in 2007

Q2. What are the basic fundamentals of IHRM with respect to performance management that Novartis has included in its system? Answer: Novartiss performance management system included several fundamentals. Some are mentioned here. 1. Strong Incentive Pay for Performance System Vasella found out the need of a systematic review process that focused Novartis management on agreed upon objectives and linked compensation to performance. Vasella designed a global target setting, evaluation and payfor-performance system and introduced standardized incentive system. The system included midterm review and 360 degree appraisal. 2. Talent Management Culture: Vasella wanted to create the performance culture which should reflect the values of Novartis; The culture which has aspirations and expectations regarding adherence to a set of values. He went on to introduce one system for rating performance and one for assessing human potential. The company believed that it has developed a culture in which honesty and candor were a norm and where managers were increasingly trained and prepared for difficult conversations.

3. Leadership development: Novartis felt the easiness and compatibility in growing an individual from within the organization over time. Novartis found feasible and less expensive to build a company culture when employees come up through the ranks with shared values and experiences. The employees saw their compensation closely connected to company performance and individual performance rating. Each year group of 14000 employees included line managers and above went through a program called Organization and Talent Review (OTR) 4. Assessment of Performance Management System: The company had conducted anonymous online surveys around the world offices of Novartis, and it revealed high uniformity around the world. The company also found out that growing majority of employees appeared to at least profess enthusiastic acceptance of the purpose, design and implementation of the global incentive system and process. 5. Evaluation of Performance : After receiving the rating for performance the employees had to meet the superiors for the reviewing of the results and the need for improvement. The discussion would update on how the ratings would affect the employee s salary and incentive payout. 6. Training for Managers: The company instituted in-depth managerial program like Novartis Manager Program: Leading at the Front Line. The program intended to encourage continuous improvement in middle and senior-management capabilities. 7. Keeping Reserve Pool of Talent: The company has designated bench list of people ready to assume for every critical position. So, for opening of any position, line manager and hr could quickly act up. 8. Sourcing Talent From Outside: Novartis expanded its hiring from known business schools and also sought to hire undervalued talent and to mould it. Q.3.What is the feasibility of the Novartis system? Answer:  The performance management system employed by Novartis looks satisfactory at glance because of the results it has yielded in many countries, but there are some flows in this system.  At Novartis in the ,month of January managers set the goals in July, progress towards achieving goals is observed and at the end of the year; say in December, again performance review and meeting targets with direct reports think quarterly appraisal would be more feasible for achieving and creating accurate picture of the performance.  Midyear performance review process is not used as well as it should.  The rating system on scales from 1 to 3. I think the scale is very short in defining the performance .this leads to impression about the average performance in spite of having rating 2.the employees having the tendency to achieve near 1 may be spilled in 2, resulting in considerable change in incentive payout.  The objectives of the company vary from time to time during the year; many cant be foreseen. So rigidly sticking to the goals of January may not be feasible and may deteriorate the image of the company policies in employees eyes. In Novartiss many divisions in other countries, the divisions are not operating as per

  

  

companys norms and behaviours but the managers give the employees higher rating. So, subjectivity is involved. This leads question to the senior management of how and what to respond to these divisions. Encouraging but not rigidly requiring employees to follow normal distribution curve can be feasible for this performance management system but it contradicts with the fulfilment of values and behaviours set by Novartis in many divisions of the company. Women are more likely to receive lowest rating on the values and behaviours category ,then how can the performance and fulfilment o company values be correlated within normal distribution? will be the question for the feasibility of the system The pay according to performance system is feasible and already in use in many organisations. The variable salary is dependent on achieving of targets. This may get resistance from the senior managers who are accustomed to uniform pay out but ultimately the incentive system is good and feasible and also encourages employees to work beyond their limits. The values and behaviours of Novartis seem to be rigid in many cultures.e.g.in Japan the organisation had adopted local conditions and recalibrated the scale like A was made for outstanding, B-excellent, C-very good, D-meeting improvement. According to inflation rate prevailing in the market, base wage rise is difficult but the company was able to explain the trade unions that the result oriented and target based bonus and incentive scheme is better because it gives them opportunity to earn more. Training programs and OTR is good step and is feasible to apply in MNCs but fulfilling local housing and education for children for retaining high performers would be costly.

By: Abhishek Mishra ISBE-A//SS//10-12 (SB4)