Question

TOPICS: Corporate Culture

SUMMARY: Kimberly Clark was a company characterized as paternalistic. It was a place where you could have a job for life. The company paid above market salaries and avoided layoffs. Low performers didn't face consequences and could hide "in the weeds." That's changed as the company significantly overhauled how it evaluates and tracks employees' progress. The company uses performance management software which can quickly recognize those who are performing well or expose those who are not. The company was proud of its low turnover, but now turnover is twice of what it was a decade ago. The company doesn't view this as a problem because the culture changed. These changes are designed to help the company generate more revenue and profit. Companies are moving away from annual performance reviews to continuous oversight and feedback. The goal is to create continuous improvement. Software lets managers track the progress of workers with dashboards that display goals, accomplishments, attendance, peer feedback and other data. The performance culture which requires setting goals and holding workers accountable seems to result in faster growth, higher profitability and a lower likelihood of bankruptcy. Change can be difficult at a company like Kimberly-Clark because it requires a cultural shift.

CLASSROOM APPLICATION: Instead of focusing on the financial performance of a company, this article focuses on the role of culture and management. As times changed, Kimberly-Clark changed its culture. The company had low turnover because employment was for life. The company had to change to become more competitive. The company now tracks, evaluates and communicates with employees using performance management software. The company culture was paternalistic and avoided conflict. Like many other large companies, Kimberly-Clark moved from annual performance reviews to continuous reviews. The company made changes beginning in 2008. It now recognizes the relationship between its human-resource innovations and the stock price. Changes in human resources practices are mostly invisible to analysts and investors. Other factors including lower commodity prices, cost-cutting and growth in emerging markets also likely explain performance. The company no longer promises employment for life and has reduced its workforce by 2,900. The company has gone from a conflict-averse culture to one where "I care enough to tell you the truth."

QUESTIONS:
1. Explain in detail what the term "corporate culture" means?

2. Describe the culture at Kimberly-Clark prior to the changes it instituted starting in 2008.

3. Review the characteristics of performance management software and how it is used at Kimberly-Clark to improve employee performance.

4. How would you describe the current culture at Kimberly-Clark?

5. Why do you think many larger companies are using or plan to use performance management software?

Corporate Culture Change at Kimberly Clark

Diaper and tissue maker shifts from a paternalistic company to one focused on pushing workers to constantly improve, closely tracking progress and shedding laggards

Not long ago, when Kimberly-Clark Corp. employees gathered for interdepartmental meetings, they prefaced their comments with their names and years of service at the company.

These days, “no one cares,” said Scott Boston, vice president of human resources. The attitude in meetings is “ ‘let’s get moving,’ ” he said.

For generations, having a job at Kimberly-Clark meant having a job for life. The maker of household products such as Huggies and Kleenex paid its employees above-market salaries and avoided layoffs.

Even low performers rarely felt pressure. “A lot of people could and would hide in the weeds,” said Rick Herbert, a sales director who retired in 2014 after more than three decades with Kimberly-Clark.

That’s over. One of the company’s goals now is “managing out dead wood,” aided by performance-management software that helps track and evaluate salaried workers’ progress and quickly expose laggards. Turnover is now about twice as high it was a decade ago, with approximately 10% of U.S. employees leaving annually, voluntarily or not, the company said.

Armed with personalized goals for employees and large quantities of data, Kimberly-Clark said it expects employees to keep improving—or else. “People can’t duck and hide in the same way they could in the past,” said Mr. Boston, who oversees talent management globally for the firm.

It has been a steep climb for a company that once resisted conflict and fostered a paternalistic culture that inspired devotion from its workers.

The changes mirror what is happening inside many large companies, where “performance management” reflects the conviction that a sharpened focus on creating a high-performing workforce is a vital tool to generate revenue and profit.

Some of Kimberly-Clark’s best-known products are decades old, including Kotex sanitary napkins, above in 1949, Kleenex tissues and Huggies diapers. Photo: Kimberly-Clark

In the past year, firms including Accenture PLC and General Electric Co. have dropped annual performance reviews in favor of more continuous oversight and feedback from managers, all meant to drive constant improvement.

Coca-Cola Co. in June approved pushing its new performance-management process from the pilot stage to a global rollout. The new system encourages managers to conduct a monthly “reflection” on every direct report, answering five questions that include “Given his/her performance, would you assign this associate to increased scale, scope, and responsibilities?” and “Is this associate at risk for low performance?”

Adobe Systems Inc., which was one of the first big companies to home in on performance management, scrapped its annual review in favor of frequent “check-ins” in 2012.

Performance management shifts companies away from backward-looking, once-a-year reviews framed largely as compliance requirements—a paper trail for potential job cuts and salary decisions—to a process that is real-time, continuous and focused on helping people meet ambitious goals, or move out of the company faster.

The last recession led many employers to rethink the nearly automatic merit raises they had been doling out, forcing them to do a better job identifying high and low performers when giving raises and bonuses. Millennial workers, meanwhile, demand more feedback, more coaching and a stronger sense of their career path.

Companies spend $14 billion a year on products to help manage employees, including human-resources software from Workday Inc., SAP SE ’s SuccessFactors and Cornerstone onDemand Inc., with about $2 billion of that dedicated to performance management, according to human-resources advisers Bersin by Deloitte.

Those systems let managers track workers’ progress via dashboards that display their goals, accomplishments, attendance, peer feedback and other data.

The company was founded in 1872 by Charles B. Clark, Frank C. Shattuck, Havilah Babcock and John A. Kimberly, clockwise from top left. It initially specialized in top-quality newsprint. Photo: Kimberly-Clark

Executives’ use of phrases like “performance culture” in conference calls with analysts and investors has doubled in the past five years, according to a review of transcripts in the Factiva news database. Firms that set goals and hold workers accountable “clearly outperform,” said Nicholas Bloom, an economist at Stanford University and co-author of a recent paper that used Census data to examine more than 32,000 U.S. manufacturing plants. He said they have faster growth, higher profitability and are less likely to go bankrupt.

Some academics say constant monitoring can feel intrusive and threatening to workers, especially those who value stability. But human-resources experts largely agree that the traditional review process is a waste of time and needs an overhaul.

The shift to a performance focus, which requires consistent oversight and sometimes uncomfortable feedback, can be bumpy.

At Kimberly-Clark, CEO Tom Falk—himself a 33-year veteran—pushed the Dallas-based company onto its new course. “We all talk about how having the best team is the most important difference-maker in your results,” said Mr. Falk, who became chief in 2002. “But we didn’t have the supporting processes to make that sustainable.”

In 2008, with the company’s shares stagnant, few innovations in the pipeline and a belief that costs were bloated, the CEO added human-resources executives to the team putting together the firm’s long-term business plan for the first time.

Holding workers close through good times and bad is “not sustainable” any more, said Liz Gottung, the company’s human-resources chief. “If you look at when we started implementing the big pieces of the company’s people strategy, when you map that to our stock price and our business results, you can see the clear correlation.”

Shares closed at a high of $138.13 in April, and its quarterly dividend, which it has raised every year for more than four decades, hit a high of 92 cents a share in February. The share price has more than doubled since 2008.

Engineers in 1948 worked on product development at a company mill in Neenah, Wis. Photo: Kimberly-Clark

Behind-the-scenes changes to human-resources practices are largely invisible to analysts and investors. Analysts attribute Kimberly-Clark’s rising stock price to declining commodity prices, aggressive cost-cutting, growth in emerging markets and a generous dividend payout.

Big cuts

Since 2009 Kimberly-Clark has laid off around 2,900 mostly salaried workers world-wide, some of the first big cuts in the company’s 144-year history. It currently employs about 43,000.

Remaining employees are expected to work “smarter” and meet regularly raised targets. “We have to routinely shuffle the resources and say, what’s the most important thing we need to do today, this week, this month, to drive this objective?” said Stephanie Martin, an engineer who analyzes new product ideas.

Using the Workday tool, Kimberly-Clark’s salaried employees set goals and report their progress, record accomplishments or mistakes, and solicit and send feedback. (Hourly workers don’t use the system.)

The system collects and archives feedback, which can be seen by employees’ managers. It also holds data on staffers’ strengths and development needs, their performance ratings and the risk they might leave the company.

“It’s certainly more challenging” for employees, said Mr. Herbert, the retired sales director. “If you really don’t have the mettle, you’re asked to get on with your life’s work [elsewhere].”

In 2015, Kimberly-Clark retained 95% of its top performers. Among the employees whose work was rated “unacceptable” or “inconsistent,” 44% left the company voluntarily or were let go. Ms. Gottung said she is “pretty pleased” that low-performer turnover has been rising.

Retired sales manager Jeanne Sanders remembers executives boasting about the firm’s low turnover when she interviewed at Kimberly-Clark in 1987. Stories are told about how during the Depression and in more-recent production interruptions, mill managers reconfigured shifts to avoid layoffs.

These days, leadership has communicated to employees that turnover is a good thing, said Chris Luettgen, a senior research manager who left in 2014 to join the engineering faculty of Georgia Tech. “I saw it as a good move in that we could get some new thinking and innovation into our pipeline,” he said.

Mr. Falk, the CEO, reviews 100 senior managers’ performance plans every year to make sure their goals are ambitious and reflect company priorities. Managers are instructed to begin every meeting with a story about how someone demonstrated one of the six behaviors the company promotes, such as “build trust” or “think customer.”

Training sessions

Regular “culture of accountability” sessions train employees in giving and receiving difficult feedback. When a colleague suggests improvements, “the proper response was ‘thank you for the feedback,’ not defensiveness,” Mr. Luettgen said. Employees also practice reinforcing positive behaviors, such as praising a colleague who had given up a weekend to solve a customer complaint.

More than 10,000 of Kimberly-Clark’s workers used the feedback feature in Workday in 2014, and about 25% of the comments were considered “constructive,” while the rest were positive or neutral, said Sandy Allred, a senior director on the talent management team. Staffers can send feedback to peers or workers above or below them.

Making paper for Scott paper towels at the company’s Chester, Pa., mill in 1917. Photo: Kimberly-Clark

An earlier, unpopular system required managers to rank employees in a nine-box grid according to strict percentages, and then put the lowest performers on mandatory performance improvement plans, often the first step to a termination. In 2013, the company switched to the current, more-flexible system, which uses four ratings, with percentages that are suggested for each rating.

Around that time the company trimmed some salaries and put more workers on a bonus plan, to tie pay more closely to performance.

Dave Bernd, a 33-year veteran whose father was a senior executive at the company, said that when he walked on the Roswell, Ga., corporate campus a few months ago he found the old warmth missing. “It doesn’t feel like the family it once was.”

The former manufacturing director, who retired in 2013, said a decade ago, “whether you knew anyone or not,” employees said hello in the parking lot and engaged in camaraderie typical of a smaller company. Even so, he said he approves of the recent management changes.

One of the firm’s core values is still “caring,” said Ms. Gottung, who joined Kimberly-Clark in 1981. “When I started with the company, we were very conflict-averse, very oriented towards consensus,” she said. “And now it’s ‘I care enough about you to tell you the truth.’ ”

CEO Tom Falk, left, at a volunteer event to clean donated furniture, electronics and appliances for needy families in Ventura, Calif., in April. Photo: Michael Kovac/Getty Images for Viva (Kimberly-Clark)

One former employee said he was initially glad that the company was identifying those who weren’t pulling their weight. Then, after earning top reviews over his decadeslong career, he said he was given a low rating and placed on a performance-improvement plan after missing a project deadline. After that, “no one would talk to me” about other positions, he said.

He said the situation eventually improved with a new supervisor, but he still decided to leave the company last year.

In that instance, “did the system work or not? I don’t know,” said Ms. Gottung. With thousands of performance reviews happening every year, “I wish we had 100% satisfaction, but that’s unrealistic. Overall, our employees think this is a fair and equitable process.”

Basma Osman a 27-year-old product-development engineer, considers herself a beneficiary of the new system. Tapped early in her career as a high-potential employee, she was working on health and wellness products but told her manager she was interested in industrial safety. He soon asked her to oversee a $30 million project in that area. “I was terrified,” she said, but she was also grateful that her manager “understood what I wanted and what I’m good at.”