Summarize the case and answer the questions asked at the end of the case.
CYPRESS SEMICONDUCTOR CORPORATION USES A COMPUTERIZED
MANAGEMENT SYSTEM TO MONITOR AND MOTIVATE EMPLOYEES
T.J. Rodgers, CEO, says: “Most companies don’t fail for lack of talent or strategic vision. They fail for lack of execution the mundane blocking and tackling that the great companies do well and strive to do better.
At Cypress, our management systems track corporate, departmental, and individual performance so regularly and in such detail that no manager, including me, can plausibly claim to be in the dark about critical problems.
All of Cypress‘s 1,400 employees have goals, which, in theory, make them no different from employees at most other companies. What does make our people different is that every week they set their own goals, commit to achieving them by a specific date, enter them into a database, and report whether or not they completed prior goals. Cypress‘s computerized goal system is an important part of our managerial infrastructure. It is a detailed guide to the future and an objective record of the past. In any given week, some 6,000 goals in the database come due. Our ability to meet those goals ultimately determines our success or failure.
Most of the work in our company is organized by project rather than along strict functional lines. Members of a project team may be (and usually are) from different parts of the organization. Project managers need not be (and often aren’t) the highest ranking member of the group. Likewise, the goal system is organized by project and function. In Monday project meetings, employees set short-term goals and rank them in priority order. Short-term goals take from one to six weeks to complete, and different employees have different numbers of goals. At the beginning of a typical week, for example, a member of our production-control staff initiated seven new goals in connection with three different projects. He said he would, among other things, report on progress with certain mini-computer problems (two weeks), monitor and report on quality rejection rates for certain products (three weeks), update killer software for the assembly department (two weeks), and assist a marketing executive with a forecasting software enhancement (four weeks).
On Monday night, the project goals are fed back into a central computer. On Tuesday mornings, functional managers receive a printout of their direct reports’ new and pending project goals. These printouts are the basis of Tuesday afternoon meetings in which managers work with their people to anticipate overload and conflicting goals, sort out priorities, organize work, and make mutual commitments about what’s going to get done. This is a critical step. The failure mode in our company (and I suspect in most growing companies) is that people overcommit themselves rather than establish unchallenging goals. By 5 p.m. Tuesday, the revised schedule is fed back into the central database.
This ‘two pass’ system generates the work program that coordinates the mostly self-imposed activities of every Cypress employee. It allows the organization to be project driven, which helps us emphasize speed and agility, as well as functionally accurate, which works against burnout and failure to execute. On Wednesday morning, our eight vice presidents receive goal printouts for their people and the people below them another conflict-resolution mechanism.
On Wednesday afternoons at my weekly staff meeting, I review various database reports with my vice presidents. We talk about what’s going wrong and how to help managers who are running into problems. The following reports typically serve as the basis for discussion: progress with goals on critical projects; percentage of delinquent goals sorted by managers (their goals plus those of their subordinates); percentage of delinquent goals sorted by vice president (the percentage of pending goals that are delinquent for all people reporting up the chain of command to each vice president); all employees without goals (something I do not tolerate); all goals five or more weeks delinquent; and all employees with two or more delinquent goals, sorted by manager.
As we’ve refined the goal system and used it more extensively, I’ve developed some general principles. First, people are going to have goals they don’t achieve on time; the key is to sense when a vice president or a manager is losing control of the operation. My rule of thumb is that vice presidents should not have delinquency rates above 20% and managers should not let more than 30% of their goals become delinquent. When managers do have a delinquency problem, I usually intervene with a short note; ‘Your delinquency rate is running at 35%, what can I do to help?’ I often get back requests for specific assistance. Part of my role is to hold people accountable. But it is also to identify problems before they become crises and to provide help in getting them fixed.
Second, people need positive feedback. Every month we issue a Completed Goal Report for every person in the company. The report lists all goals completed over the past four weeks as well as those that have yet to come due. ‘Individual Monthly Goal Report,’ an excerpt from a monthly report for a production-control staffer, lists all goals completed in workweek 45 of last year. The entire report consists of 49 goals, 28 of which were completed on time, 4 of which were completed late, and 17 of which were pending an outstanding record.
The completed goal report is also a valuable tool for performance evaluation. … At Cypress, the completed goal report triggers a performance minireview; each month managers read through their people’s printouts and prepare brief, factual evaluations. At year end, managers have a dozen such objective reviews to refresh their memories and fight the proximity effect.
Managers shouldn’t expect outstanding performance unless they’re prepared to reward outstanding performers. Yet evaluation and reward systems remain an organizational black hole for three reasons.
First, managers aren’t very scientific about rating their people. They may be able to identify the real stars and the worst laggards, but the vast majority of people (who must still be ranked) get lost somewhere in the middle. Second, even if they evaluate people correctly, managers like to spread raises around evenly to keep the troops happy. This is a deadly policy that saps the morale of standouts who deserve more and sends the wrong signal to weak performers. Third, managers are totally incapable of distinguishing between ‘merit’ and ‘equity’ when awarding increases. Merit refers to that portion of a raise awarded for the quality of past performance. Equity refers to adjustments in that raise to more closely align salaries of equally ranked peers. Merit and equity both have a place in the incentive mix, but confusing the two makes for mushy logic, counterproductive results, and dissatisfied people.
As with all our resource-allocation systems, the focal-review system starts with policies at the top and forces middle management decisions to be consistent with that thinking. Senior management and the board of directors review our annual revenue forecasts, survey compensation trends among our competitors, and settle on a total corporate allowance for raises. The ‘raise budget’ is not negotiable, and it drives raises throughout the company. If the corporate budget is 8%, then every department must meet a weighted-average salary increase of 8%. It’s up to managers to distribute the 8% pool, which is where the focal-review system comes in.
Only after they have awarded percentage increases based strictly on merit can managers make adjustments for salary inequities created by personal circumstances and historical accidents.”
Update on Cypress‘s Goal-Tracking System
A number of problems emerged with Cypress‘s computerized goal-setting system over the years. For example, employees found ways to override the software and trick the system in order to change the dates that their goals were due. This enabled people to create the impression that they never fell behind in meeting their goals. Employees also became resistant to entering their goals into the system because it took too much time. T.J. Rodgers ultimately concluded that 100% adherence to the system led employees to engage in counterproductive behaviors. People began to hide potential problems rather than admitting that a particular goal had not been met. This led Rodgers in 1997 to conclude that the use of the goals system was optional rather than mandatory. Half of the company’s managers used the system in 1998.
1. Does Cypress treat its employees equitably? Explain using Equity theory.
2. To what extent is Cypress‘s management system consistent with expectancy theory?
3. How does Cypress use goal setting to motivate employees?
4. What are the drawbacks associated with Cypress‘s goal-setting and tracking system?
5. What would you do now?
Source: This update is based on information contained in C. O’Reilly and D.F. Caldwell, “Cypress Semiconductor (B): Vision and Values, But No Killer Software,” Harvard Business School Case HR-8B, Boston, MA: Harvard Business School Publishing, April 1998.