Tata Tea’s Munnar operations

           

             On reading the blog on ‘Participative management in KDHP’, my friend Mr Dave wanted to know as to why Tatas decided to exit the business of tea estate in first place. Was it due to losses, inefficiency, workers problems or something else? I truly don't know Tata's version. But the deal of Tatas bringing workers participation in the equity and in the operations of the tea estate, has been a win-win situation for both the parties.

            From what is being seen today, the deal brings the following two perspectives to the fore:

     i)   From Tata's perspectives, the selling of shares to the workers provided the Tatas an exit from the loss-making tea estate business. This also enables them to focus on their forte of highly valuable retail tea brands. They package and produce 'Kanan Devan' retail tea outside the town, which shows their interest in operation of consumer brands.

          The success of this model, besides becoming a vehicle for resolving the profit crisis of the tea industry, also trumpets the company's socially responsible business ethic.

    ii)   For the vulnerable workforce in a time of crisis in the industry, this deal gave them an opportunity to save for their futures, besides giving them a sense of financial commitment in the company. 

Participative Management: The inspiring turnaround of the tea estates at Munnar

   In the ET (19-10-10) I read an interesting article (by P K Krishnakumar) on workers’ participative management in the tea estates. I find it inspiring and worth sharing.

   “As per the report, in 2005, Tata Tea, the owner of Kanan Devan Hill Plantations estate in the picturesque Munnar (Kerala) decided to exit the business completely and handed over the management to its employees. Today, 98% of the 13,000 workers own around 68% of KDHP, while the remaining is owned by Tata Tea and others. Each worker has a minimum of 300 shares of Rs 10 each. In 2009-10, KDHP clocked a net profit of Rs 41 crore (as against Rs 8 crore losses in 2005). The turnaround is not only on account of buoyed tea prices, but is a testament to the change in company’s management structure and operational processes.

    Productivity has increased 58% from 33.3 kg per worker per day (in 2005) to 52.6 kg in 2009-10. The workers are a more prosperous lot, enriched by higher bonuses and dividends, besides capital appreciation of their shares. The employee-run KDHP model is making a show-case for the people intensive plantation business.

    The new management structure has also helped in a marked improvement in the physical and mental health of workers and their families. The infant mortality rate among KDHP workers has fallen, the birth rate has dropped, alcoholism is on the wane, and workers are now eager to come to work without supervisory checks. Unauthorized absence from work has also fallen.  

    Their workers today exhibit ownership in their performance. The workers are paid higher wages, if they perform above their average benchmarks, maintaining the quality of plucking.

    Apart from financial incentives, workers are motivated by that now they have a voice in the management, and being consulted in administration, welfare and other activities. The suggestions made by them for efficiency and cost savings are considered for implementation. This instills a sense of pride in them and they are encouraged to deliver more. They have also representation on the board, the selection being made on the basis of their performance. Decision –making, which was top-down under Tatas has now become bottom-up.”

    The above report outlines the evolvement of society as has been long cherished and dreamt by planners and visionaries. If you have been to Munnar, you may visualize the picture perfect setting in there.

    Skepticism would lead us to think that one sparrow does not make the summer. But the impact of changing aspirations of workers for a better life and redefining of the requisites for motivation are truly reflected in this case. It also confirms the belief in the theory ‘Y’, which advocates that the ‘employees enjoy their mental and physical work duties’. The unions being rendered redundant is a significant pay out of this management approach. But only brave hearts like Tatas would dare to be the first to tread on such untrodden path.

    Only posterity will tell how other industries / enterprises take cue from this model to cure their own ills.  

Strategy: Confidence building

There are products and services, which exude confidence of reliability. This is backed by sustained efforts by the company to be consistent in offering what they are perceived to offer.

   The collapse of Enron, Lehman Brothers, Barings Bank and the tricksters revealed in the functioning of Satyam, IPL and likes, have left us to wonder whether the definition of ‘business’ has been revisited to mean ‘making money and money’ alone. No body believes in business any more. It is not strange to understand this change, which has been witnessed in almost all professions, including the medical – where the doctors are expected to govern themselves by the ‘Hippocratic Oath’ and the noble profession of teaching -where schools are supposed to be temples of learning and not for extortion of money from students. We shall save the reading by omitting the much touted politicians, bureaucrats and self professed god men etc.

    If a business strategy has the spirit of ‘sustainability’, it must work to command the confidence of its customers and public at large. The business must be seen to be coming from a good and responsible corporate citizen. This is a continuous process and should be exhibited both in words and action and perceived the same by all the people, i.e., the employees, the customers and the persons affected by the operations of the company, overtly or covertly.

   If you feel that your company should be reckoned with the trusted brand equity, you can start by

·        Treating people with utmost humane approach

·        Bringing transparency in your dealings

·        Being bold enough to accept responsibility, correct yourself and move on

·        Taking the feedback as an opportunity to improve and not as criticism

·        Learning to give more value for money through R&D, innovations, and ‘Benchmarking’ etc., and

·        Ensuring that the environmental balance is not disturbed.

   You can do it. The time to start is now.

To Worship the workplace and ‘My machine’

We often hear the advice “work is worship” in the form of a gospel. This, I feel, is told more as a metaphor than as a practical guide. The possible reason being, that both work and worship are intangibles.

Getting to tangibles, I have observed people worshipping their workplaces. They bow and touch the floor at the office entrance, revere before their desks/ workstations and some people pray for a while. Many of them dust the desk/ desktop etc., themselves, as well, before starting the day. The performing artists are generally seen to bow and touch the floor before entering the arena. These small gestures give back positive feelings to the workers/ employees, and it instills a sense of ownership in them. This sense of ownership leads the employee to work with dedication and commitment. The employee is then ready with the basic desire to lead a nice day. It is now up to the work environment to get best out of the employee.

In the above paragraph, the pivotal point is the feeling of ownership of the workplace by the employee, which adds value to the environment.

Taking the ownership factor further, recently I came across the concept of ‘My Machine’ at a plant. This concept can do wonders in improving the performance of the machines. In plants, where a worker or set of workers is assigned to work and operate on a particular machine, its ownership can be assigned to them. The owner’s name(s) can be displayed near the machine. They refer to the machine as ’my machine’. These virtual owners are expected to-

- Keep the machine neat and clean at all times (as a concerned housewife who keeps on cleaning the kitchen platform whenever there is some spillage or mess).
- Display the work status of the machine (e.g., under maintenance, under repair, no plan, no operator or the product being manufactured etc.)
- Also display the details of the work loaded on the machine and the quality checks that are to be performed.
- Suggest measures to improve the performance of the machine, like minor modification and technological improvement etc.
- Suggest improvements in the working environment of the machine.
- Keep periodical record of the improvements made in its performance and report ‘then’ and ‘now’, as a matter of learning.
- Ensure its timely preventive maintenance.

The best way to demonstrate the benefits of ownership are to let a vital (may be complex) machine to be owned by the Chief of Production.

The good practice should start from the top. Try this.

Performance Pay: Implementation issues

Performance Pay (PP) or Variable Pay is the component of the CTC that is paid to the employees, based on their performance evaluation.


The process can be broken into the following steps:

• Deciding the targets/ tasks to be performed by the employee during the review period.

• Depending on the role and responsibilities of the employee, deciding the percentages of the fixed pay and the variable component.

• Timeliness of the evaluation reviews and payment of PP

The implementation of PP system requires a robust HR set up in the enterprise and high level of involvement of the leaders in the goal setting process and evaluation. It involves a great deal of preparation and performance measurement and evaluation remains an issue in most of the cases.

Once the organization has graduated to PP, despite the difficulties being faced, the journey should go forward. Continuing the journey has many advantages, viz.:

• Even if it is loosely implemented, PP acts as a tool for the managers to show carrot. Majority of the employees do respond to the excitement of PP.

• While graduating to PP is a sign that the enterprise has attained a particular ‘capability maturity’, reverting back to previous system would signal lack of grit on the part of leaders.

• With the growth in the size of the enterprise, PP can be effectively used to achieve the benchmarks in sync with the corporate goals.

• One of the goals of the PP is to retain and promote talented employees and weed out the employees with questionable talent.

• The entire process of planning and monitoring requires a disciplined approach at all levels of the organization. The PP system, thus, can be used as a self-cleaning process to remove lethargies and tentativeness in the enterprise.

Things to remember:

• PP should be implemented only when the enterprise is ready for the level of professional approach its implementation demands.

• PP is not a ‘one size fits all’ mechanism. Different models should be evolved for various cross sections of employees, viz., leaders, middle managers and juniors. The variable component may also vary from, say, 20% - 40%, depending on the assigned role. Some portion of the PP component may be paid annually.

• The leaders should be evaluated more on achievement of long term goals, with reasonable weight on short term targets. At lower level, the PP may be based on short term goals.

• The goals should be both financial and non-financial. In general, it should create value for the shareholders.

• A poor performer may perform better in another set up or under another manager. A talented employee’s poor performance must be examined with a lot of circumspection.

• The manager’s role should be put under scanner, as a team developer and his effectiveness in influencing and evaluating the employees’ performance.

• Where the operational results are seen to be a ‘team’ effort, the reward of PP should be similar to all members of the team.

• The HR function should be geared up and adequately trained, so that they are in touch with the employees.

• The negotiation of the goals should be finalized after copious discussions with candor. This should bring out the quid pro quo of the ‘deal’ and its workability, including the impact of environmental factors on the performance.

• The assumptions made at the time of negotiating the goals should be clearly spelt out. The assumptions may at times require cross-functional commitments. These commitments should be built in the performance targets of the associated departments. E.g. when the sales manager agrees to a target of ,say, 40% increase in sales and if this requires putting up certain manufacturing facilities within a given time frame, the PP of the people involved in procurement and making the machine operative by the given time, should be linked to this.

• The exercise of PP starts from the Board level, who need to specify the performance targets of the leaders. The leaders, in turn, should negotiate the targets with the employees. The steps involved are:

o Annual Business Vision given by the Board

o Forecasting by the business units

o Based on forecasts, annual goals for the leaders given by the Board

o Leaders / managers to negotiate targets with the employees

o The work plan should be a "living document", and it may be reviewed and adjusted at least quarterly.

o KRAs to be crystallized before start of the quarter.

o At the end of the quarter, the employees could submit data based self appraisal.

o The timeliness of the entire process must be maintained, up to the point of the employees getting the PP.


A few of the organizational set up required for administration of PP could be:

• Systems and tools to ensure the Integrity of the measurements, including quantitative and qualitative results.

• Leaders to imbibe, communicate and promote the true value of the system at all levels.

• Top management and the employees, as well, must be able to see the linkage of the PP system with results.

• The implementation of the system should not be made difficult/ cumbersome. It should be blended into day to day working.

In fine, the successful implementation of PP system depends on:

o How best strategies are made and the goals broken down to various functionaries’ levels and negotiations made.

o How best performance data is captured, removing biases, and normalizing for the constraints beyond the employee’s control.

o The essence is to reward the performance, but not to ignore ‘talent’. This requires personal involvement and should not depend on spreadsheets, alone. However, there should be complete transparency in the system.

o How best the essence of the PP is percolated and observed in letter and spirit. This requires copious deliberations and documentations.

o How best the management is able to closely monitor the performance of the new entrants, who are generally negotiated at a higher pay package, so that level of discontent in the existing employees is minimized.

o How excitement is kept alive at all levels and employees also develop passion for the business and not merely keep focus on targets. Excitement is critical to success of PP.

o However, the crux of the success is objectivity and transparency to make the system sustainable and profitable.