Performance Management At Vitality Health Enterprises Case Study

“Performance Management at Vitality Health Enterprises, Inc.” Case study

HR Strategy IV Midterm Exam

Fall 2015

Name: Yuting Cai (RUID: 161001401)

The questions on this exam relate to the case, “Performance Management at Vitality Health Enterprises, Inc.” This case is available for purchase at the following URL:

https://cb.hbsp.harvard.edu/cbmp/access/41780737

Complete all questions on this exam. Type answers under each question in this document. It is fine if your answer to a question doesn’t fit in the space allocated and causes the space under the question to expand. You may also reallocate space provided for answers as needed. However, your completed exam should not exceed 7 pages (typed in Times New Roman, single-spaced, 12 point font), including the typed questions I have included. Read each question carefully to ensure your answers effectively and completely address the exam questions. Your responses should be based on the information provided in the case as well as material covered in class readings, lectures, and discussions. You will be graded on

  • the effectiveness of your responses in addressing the questions,
  • the extent to which your responses integrate information from the case, content from this course, and content drawn from other courses in the MHRM program, and
  • the quality of critical assessment and unique insights evidenced in your analysis and recommendations.

Collaboration or discussion of the assigned case or exam with anyone is strictly prohibited and will be considered a violation of the University’s Code of Academic Integrity. All of your responses should be in your own words; you should not copy and paste material from the case in your answers.

Your completed exam is due to be uploaded in the Assignments section of Sakai no later than Wednesday, October 14th at 10pm.

1. a. What is Vitality Healthy Enterprises’ basis for differentiation?

The basis for differentiation of Vitality Healthy Enterprises is providing a whole-range of high quality personal care products, including health, wellness, and beauty products, through different sources of retailors to the global market.

Vitality acquired HerbaPure Nutraceuticals to expand its products line, which align cosmetic products with inner care products. The move gave a chance to Vitality with new segments of market and accesses to larger product distribution with both large and small health and nutrition retailers.

Asian consumers occupied a large market for cosmetics. Vitality expanded the company into the global market, with the top market in Western Europe and the top growing market in Asia. With increasing competitors, Vitality concentrates on providing high quality products to stand out.

b. Does this meet the RBV requirements for sustained competitive advantage? Assess whether this basis for differentiation meets each requirement of the VRIO framework in your response (explaining each assessment).

Yes. This meets the RBV requirements for sustained competitive advantage.

V: The resources are valuable. Vitality provides both inner and outer personal care products. It helps Vitality open to more customer markets. Moreover, Vitality has a Japanese chemist to create unique product formulas. Gradually, Vitality’s products have been expanded into the global market.

R: For now, the full chain of providing both beauty and health products is rare. Not only the combination of products, but also Vitality manufactures its own products and distributes them by different sources of retailers. The company has worked with the leading pharmacy retailers in US and Canada, specialty health and nutrition retailers, and smaller and regional pharmacies. Also, the suppliers and technologies of Vitality are unique.

I: The resources of Vitality are not easily imitated. The unique product formula of Vitality is created by Japanese chemists, which made it distinctive from the normal beauty products in US. It harmonizes the Japanese style formulas with the needs of foreign customers’ needs. It is hard for competitors to copy the special formulas.

However, the idea of combine inner and outer personal care products could be easily imitated. Other competitors could see the success of Vitality to sell the whole range of beauty and health products. They could use the same way to attract customers.

O: The resources are organized to capture value. Vitality provides high quality products to its customers. After the expansion, the company has offices around the world. However, Vitality made all the regional offices’ structures similar to its headquarter. They contain different departments with all the functions. It also recruited a global manager to revitalize the company after the growth.

2. What were the problems with Vitality Health’s old performance management system? [Discuss specific implications for value creation/value capture and human capital emergence.] What were the root causes of these problems?

Under the old performance management system, many managers tend to give all the employees an average rating to avoid upsetting them. The result could hardly distinguish the top-performing employees and the nonperformers. The top-performing employees would feel unappreciated and dissatisfied with the merit increase for that.

The final salary was a combination of the Pay policy line formula and the comparative ratio. The merit increases could decrease if the comparative ratio is higher. As a result, some of the employees might have lower raises than other employees with same performances.

Moreover, in order to reduce turnover, Vitality benchmarked the compensation level for each peer group. It made the compensation system flat without any bonuses or alternatives. The salary will automatically increase with the employees’ tenure irrespective of performance. This would generate some free riders and low incentive to the hardworking employees.

Value creation/value capture

All of the above could make top-performing employees feel unrecognized and unrewarding. Employees would create more value if they could capture more values. That means if employees knew that they could earn some benefit from extra effort spending on work, they could work harder. However, the company’s compensation system suggested that it doesn’t really matter if they work hard or not. It looked like most of them earned about average level. There is not much distinguishing of the employee financial benefit.

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Case | HBS Case Collection | July 2012

Performance Management at Vitality Health Enterprises, Inc.

by John Bingham and Michael Beer

Abstract

Vitality Health Enterprises, a medium-sized firm that manufactures health and personal care products, has experienced six straight quarters of strong revenue growth. James Hoffman, the new Senior Vice President of Human Resources, fears that the chain of success is shifting the company's focus away from effective performance management. Recently, Vitality has been faced with increasing turnover among the company's talented research scientists that may be due to a performance management system that leaves top performing employees slighted by the practice of uniform ratings. In an effort to retain top employees, the company institutes a forced distribution model of performance rankings, moving from an absolute ranking system to a relative one. Hoffman and his performance management evaluation team must assess the practical and strategic effectiveness of the new system and present their findings and recommendations to the Board.

Keywords: Performance Evaluation; Motivation and Incentives; Compensation and Benefits; Talent and Talent Management; Health Industry; Consumer Products Industry; Manufacturing Industry; United States;

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