Change Management Plan: Performance Reviews at Cincom Systems

Overview of Cincom Systems and Its Core Problems

Cincom Systems is one of the leading enterprise software companies in the United States, serving aerospace and defense, industrial, and high-tech electronics manufacturers. The company's founder and CEO continues to operate its five divisions privately, with only a handful of insiders knowing the company's true financial condition. During the recessions of the 1990s, management decided to forgo annual raises, and none have been offered to employees since. It is common knowledge within the company that the only way to receive a raise is to obtain a job offer from an outside firm and see whether Cincom will match it — which they often do — or to leave and return years later at a higher salary, a path several employees have taken.

Cincom is having difficulty retaining its highest-performing engineering, marketing, and sales employees as a direct result of the absence of an annual performance and salary review process. The U.S. software industry was valued at $161 billion in 2012, growing to $173 billion in 2013 — a 7.6% increase — with enterprise software and the streamlining of manufacturing among the most significant growth catalysts (Business Monitor International, 2013). Cincom has reported to Dun & Bradstreet a run rate of approximately $100 million per year in revenues, the majority of which derive from existing contracts for installed enterprise applications.

Like Oracle, Cincom began as a database applications company. Over time, the company has grown complacent by relying too heavily on enforcing existing contracts rather than attracting new customers with more valuable software applications. Through a coercive approach to contract management, the CEO and senior management are paradoxically shrinking the market faster than market dynamics alone would force. By pressuring existing customers to purchase more, the company is alienating them more rapidly than competitors would.

The Lack of Performance Reviews and Pay Raises

There is no annual review process in place for managers to provide feedback to employees, and no mechanism for granting raises. The absence of a performance appraisal process is turning Cincom into a haven for employees that no high-performing company would actively seek to retain. Three types of workers have emerged: incompetent employees who know just enough to get hired but cannot secure positions at top-tier software firms; workers waiting for retirement who are indifferent to raises because they are focused on their retirement portfolios; and employees who run their own businesses during the majority of their hours in the Cincom offices.

There are three major reasons Cincom needs to implement a rigorous performance review and annual salary process. First, the company must address the presence of deadwood employees — those who remain because they lack the competence to work elsewhere or who are exploiting Cincom resources to operate side businesses. Second, it needs to re-engage workers who are simply marking time until retirement. Third, and most critically, it must retain high-performing employees and position the company for growth.

Addressing these three issues would fundamentally transform the company. Successful change management initiatives that involve employee participation often lead to greater levels of commitment — both to the organization and to continuous improvement over time. In short, they reshape cultures by instilling greater personal accountability for success (Hoadley & Lamos, 2012). This is precisely what Cincom requires: greater accountability for performance and a genuine willingness on the part of senior management to reward strong performance with higher compensation and incentives. Currently, there is no motivation to improve, so employees either disengage emotionally or launch side businesses — often both.

Proposed Annual Performance and Salary Review Program

The proposed performance review and salary program will be based on a job analysis of each position in the company and a ranking of each person's performance relative to defined job objectives. Each position will have a set of requirements that must be met for minimally acceptable performance. In addition, a separate set of objectives will define what constitutes exceptional performance. These secondary objectives — commonly called "stretch objectives" in the context of Management by Objectives (MBO) methodology — will also be used to define performance improvement targets and financial incentives. The use of MBOs and stretch objectives is well established in creating and managing performance management and incentive programs (Scott, 2000).

The strategy for implementing Kotter's 8-step process for leading change within Cincom's performance and salary review program is as follows. The urgency of any change initiative must galvanize an organization into meaningful, long-term action if that initiative is to become a core part of company culture (Kotter & Sathe, 1978). In this case, the urgency is clear: the risk of losing the best employees to more lucrative opportunities, and the potential for accelerated professional growth, must serve as the catalyst that drives the program into existence.

The guiding coalition must consist of the CEO and founder along with his direct reports, who must treat the challenge of retaining talented employees — and removing those taking advantage of Cincom — as a high priority. The vision for the program also needs to be created by the CEO directly, as he has the greatest capacity to change the culture quickly, a point Kotter reinforced through his many studies of organizational influence (Kotter, 1978). Communicating the vision and empowering others to act on it must be delegated to senior management, with training provided before the program's formal launch.

The communication plan must also illustrate, through concrete examples, how each employee's performance will be measured against job expectations. The CEO must underscore these first five steps of the 8-step process with clear examples showing that employees who excel can earn significantly higher performance ratings and corresponding raises, while those who do not improve face the prospect of being let go. Creating quick wins will be achieved through an initial round of performance reviews focused on engineering and sales — two areas currently experiencing exceptionally high turnover, well above 30%. These quick wins will center on managing high performers in the company's most volatile departments.

Building on the change and institutionalizing it must also be anchored in those same two strategically critical areas — engineering and sales — where high turnover has slowed new product development and revenue growth. Leaders must begin to redefine the company's core values by demonstrating through their actions and their recognition which behaviors matter most (Hoadley & Lamos, 2012). All of these elements taken together are essential to the long-term success of the performance and salary review program.

There will be significant resistance to change, particularly among long-tenured managers, directors, and vice presidents who operate side businesses and rely on them for additional income. In some cases, senior employees own and run entire companies on the side. This resistance can be addressed by the CEO declaring unambiguously that all work hours must be devoted to Cincom's success, and that working on outside businesses during company time will not be tolerated. Any employee found doing so will be placed on a 90-day performance probation and terminated if productivity does not improve. The CEO must demonstrate visible personal commitment to the program and communicate the expectation that the entire organization will improve as a result. Implicit in successful change management is the capacity to redefine company culture through incentives and rewards that promote productivity and collaboration, while requiring underperforming employees to either improve or seek roles better suited to their abilities (Hoadley & Lamos, 2012).

References

Business Monitor International. (2013). United States Information Technology Report — Q3 2013. Business Monitor International Publishing.

Hoadley, E., & Lamos, J. (2012). Change management: An information flow approach. International Journal of Management & Information Systems (Online), 16(1), 83.

Kotter, J. P. (1978). Power, success, and organizational effectiveness. Organizational Dynamics, 6(3), 26.

Kotter, J., & Sathe, V. (1978). Problems of human resource management in rapidly growing companies. California Management Review, 21(2), 29.

Scott, G. M. (2000). Critical technology management issues of new product development in high-tech companies. The Journal of Product Innovation Management, 17(1), 57–77.

Shabayek, A. A. E. (1999). New trends in technology management for the 21st century: An analysis. International Journal of Management, 16(1), 71–76.