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)

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 employee’s 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: Novartis’s 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 pay -

for-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 employees

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 can’t 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 Novartis’s many divisions in other countries, the divisions are not operating as per

company’s 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 MNC’s but fulfilling local housing and

education for children for retaining high performers would be costly.

By: Abhishek Mishra

ISBE-A//SS//10-12 (SB4)