HRM3706_ SUMMARY AND STUDY NOTES_ HRM3706 - Performance Management.

HRM3706_ SUMMARY AND STUDY NOTES. HRM3706 - Performance Management. THE STRATEGIC IMPORTANCE OF PERFORMANCE MANAGEMENT Effective performance management serves many purposes in organisations, including the following:  It can enhance the motivation and productivity of employees. The key concepts in motivating employees are expectancy (the relationship between making an effort and performing well), instrumentality (the relationship between performing well and the consequences thereof), and valence (the value of the consequences to the employee).  It ensures that the organisation’s strategic goals are linked to the performance goals of individual employees and their work teams.  It facilitates strategic planning and change. By helping managers detect performance problems, performance measures provide valuable information for use in strategic planning and implementing change. Def: Strategic performance management is “the process where steering of the organisation takes place through the systematic definition of the mission, strategy and objectives of the organisation, making these measurable through critical success factors (CSFs) and key performance indicators (KPIs), in order to be able to take corrective actions to keep the organisation on track.” Strategic performance management goes beyond individual and team performance and focuses more on the performance of the organisation as a whole. The strategic objectives of an organisation are identified through the strategic planning process, which involves:  describing the organisation’s destination  assessing (and removing) the roadblocks in the way to that destination, and  selecting the appropriate approaches to reach that destination Strategic planning provides the road map and the action plan for a company’s business strategy. Strategic performance management is also linked to strategic human resource management (SHRM), to who participates in formulating the overall organisational strategic plan and to aligning HR functions with the company’s business strategy. The business strategy influences the types of employees to be recruited, the behaviours needed from those employees, the conditions in which they are expected to work, and so on. 3.4 THE IMPORTANCE OF CRITICAL SUCCESS FACTORS (CSFs) AND KEY PERFORMANCE INDICATORS (KPIs) IN THE STRATEGIC PERFORMANCE MANAGEMENT PROCESS A critical success factor (CSF) is an element that is necessary for an organisation to achieve its mission. It is a critical factor or activity required for ensuring the success of a company. A CSF provides a qualitative description of an element of the strategy in which the organisation must excel in order to be successful. Key performance indicators (KPIs) are measures that quantify strategic objectives along with a target, and that enable the measurement of strategic performance. Examples of CSFs and KPIs:  CSF = Installation of a call centre for providing superior customer service.  KPI = Number of new customers (measurable, quantifiable) + target = 10 per week. 3.5 PERFORMANCE MANAGEMENT AND STRATEGIC PLANNING Strategic Planning The process of strategic planning consists of the following steps: Step 1: The process starts with an environmental analysis, which considers the external environment as well as the internal organisational environment (SWOT analysis). Decision-makers must analyse the threats and opportunities in the external environment, which include the following components:  The competition and industry structure (critical issues that need to be identified include who the company’s chief competitors are and how they compete, barriers to entry, critical success factors within the industry etc.)  Government regulations (the scope of laws and regulations that may have an impact on what the company does)  Technology (E.g. automation processes and new materials and techniques for producing goods and services)  Market trends (Existing and potential customers’ needs and expectations and examining demographic and lifestyle issues among consumers)  Analysing economic trends (forecasting the condition and direction of the national and local economy) This is particularly important for multinational organizations because they are concerned with both domestic and international trends. The organisation’s primary strengths and weaknesses are determined by its internal resources and management systems. The resources include the following:  Financial resources such as cash flow.  Physical resources include the equipment and machinery owned, as well as the location of the business and its proximity to customers, labour, raw materials and transportation.  Human resources include not only the sum of the employees’ knowledge, skills and abilities (KSAs), but also their personal traits (commitment, loyalty, judgement and motivation).  Technological resources include the processes by which the company produces its goods and services, and intellectual property (obtaining patents, trademarks or copyrights) can be a tremendous competitive advantage.  Capital resources include all other items of value, including brand names, reputations with customers, the company’s relationship with key role-players in the environment, as well as goodwill. The management systems that must be assessed include the following:  The organisation needs to assess the company culture to understand the core values and philosophies that guide its day-to-day activities. Elements of the company’s culture are identified, and the organisation understands how these elements of the culture influence behaviour and impact on overall performance.  The organisational structure has a significant impact on how work is carried out, how groups and departments interact with each other and where accountability for performance lies.  The assessment of the power dynamics and politics allows an organisation to see who really controls what happens within an organisation.  Decision-making processes can be a competitive advantage to an organisation or a roadblock inhibiting timely and effective action. The assessment criteria used should allow the organisation to determine whether its decision-making processes promote or hinder effective performance as defined by the organisation’s strategic objectives.  The organisation’s past strategy and performance should be examined in order to gain insight and understanding of its internal environment  The assessment of the organisation’s work systems is also critical. Work systems include the design of jobs and the allocation of responsibilities to enable the organisation to meet its objectives. Step 2: The second step in strategic planning is to formulate a mission statement based on the outcome of the gap analysis. The mission statement defines a company’s business and provides a clear view of what the company tries to accomplish. It should provide answers on the following:  Why does the company exist?  What is the scope of the company’s activities?  Who are the customers they serve?  What products and services are offered and what are their unique benefits?  What technology is used in production?  What is the company’s managerial philosophy (values and beliefs)? Step 3: The third step in strategic planning is the vision statement, which is top management’s view of the kind of company it is trying to create. You can think of it as a best-case scenario of where the company wants to be in the future. The vision statement should:  emphasises the future and future aspirations  should be brief, verifiable, bound by a timeline, current, focused, understandable and inspiring  is often combined with the company’s mission and values in one statement Value statements often detail employees’ expected behaviour towards each other, towards customers, towards suppliers and towards the community. Step 4: The next step in the strategic planning process is to generate specific goals and objectives to fulfil the company’s mission, vision and core values. The purpose of setting such goals is to formalize statements about what the organization hopes to achieve in the medium- to long-range period. Goals have important effects on employee motivation. Setting performance goals that are clearly defined, difficult but achievable and accepted, has a positive effect on productivity and performance. Goals also need to be flexible, so that they can be adjusted upward as well as downward in response to how events in the environment unfold. Goals also provide a basis for:  making decisions by keeping the desired outcomes in mind  performance measurement because they allow for a comparison between what needs to be achieved and what each unit, group and individual is achieving. Step 5: The final step in the strategic planning process is to identify strategies that will help to achieve the stated goals. HR professionals play an important role in identifying strategies, because they can ensure that the organisation’s performance management practices  are aligned with the internal organisational environment  reflect state-of-the-art knowledge  meet legal standards Performance management is more effective when HR professionals  provide support to line managers  hold managers accountable for being involved in the performance management process  provide support to employees. The identified strategies now cascade down to all the organisational levels, where each unit also creates its own strategic plan, consistent with the overall organisational plan. Job descriptions (that include the appropriate tasks and KSAs) are then developed for individual employees and must be congruent with the strategic objectives of the organisation and unit. Linking employees’ goals directly to the company’s strategic objectives has two benefits:  Employees understand their organisation’s strategic focus and how their jobs fit into it.  The employees’ goals direct their behaviours toward activities that are consistent with and supportive of the business strategy. DEVELOPING STRATEGIC PLANS AT THE UNIT LEVEL the branch administration division had a mission statement that was aligned with the overall organizational mission statement. Similarly, the vision statement, goals, and strategies of the various units need to be congruent with the overall organizational vision, goals, and strategies. High performing organizations have a clear alignment in the mission and vision of the overall and unit-level mission and vision statements. CONSENSUS ABOUT STRATEGIES AND GOALS ACROSS ORGANIZATIONAL UNITS Strategic consensus occurs when the various organizational units agree on a common set of strategic priorities. Although it may seem that the greater the consensus across units, the better firm performance, this is not always the case because we must differentiate between consensus regarding strategies and consensus regarding goals. Two alternative sequences, strategies to goals versus goals to strategies. It is beneficial for the cascading of strategic planning to first have units agree on common strategies before they agree on what goals will be set to reach those strategic priorities. JOB DESCRIPTIONS Job descriptions also need to be congruent with the organization and unit mission, vision, goals, and strategies. The tasks and KSAs included in individual job descriptions must be congruent with the organization’s and unit’s strategic plans. In other words, job descriptions should include activities that, if executed well, will help execute the mission and vision. INDIVIDUAL AND TEAM PERFORMANCE The performance management system needs to motivate employees to display the behaviours and produce the results required to support the organization’s and the unit’s mission, vision, and goals. Developmental plans need to be aligned with unit and organizational priorities as well. Well-designed performance management systems define a clear path from organizational mission, vision, and goals to individual and team performance. This is critical because organizational success is a direct function of the alignment between collective and individual objectives. knowledge of organization- and unit-level mission and vision provides information about how to design the performance management system. Knowledge of the organization and unit vision and mission allows the HR function to make informed decisions about design choices. BUILDING SUPPORT Performance management is the primary tool that will allow top management to carry out its vision. The performance management system, when aligned with organization and unit priorities, is a critical tool to:  allow all employees to understand where the organization stands and where it needs to go and  provide tools to employees (e.g. motivation, developmental resources) so that their behaviours and results will help the organization get there. STUDY UNIT 4: Performance measurement 4.3 DEFINITION OF EMPLOYEE PERFORMANCE Performance management systems usually include measures of both behaviours (what an employee does) and results (the outcomes of an employee’s behaviour). Performance is about behaviour or what employees do, not about what employees produce or the outcomes of their work. There are two additional characteristics of the behaviours we label “performance.” First, they are evaluative. This means that such behaviours can be judged as negative, neutral, or positive for individual and organizational effectiveness. Second, performance is multidimensional.2 This means that there are many kinds of behaviours that have the capacity to advance (or hinder) organizational goals. Because not all behaviours are observable or measurable, performance management systems often include measures of results or consequences that we infer are the direct result of employees’ behaviours. 4.4 DETERMINANTS OF PERFORMANCE AND PERFORMANCE DIMENSIONS A combination of the following three factors (determinants) allows some people to perform at higher levels than others:  Declarative knowledge: Declarative knowledge is information about facts and things, including information regarding a given task’s requirements, labels, principles and goals.  Procedural knowledge: This is the combination of knowing what to do and how to do it, and it includes cognitive, physical, perceptual, motor and interpersonal skills.  Motivation: Motivation involves three types of choices, namely: 1. the choice to expend effort (e.g. “I will go to work today.”) 2. the choice of level of effort (e.g. “I will put in my best effort at work” versus “I will not try very hard.”) 3. the choice to persist in the expenditure of that level of effort (e.g. “I will give up in a little while” versus “I will persist no matter what.”) Implications for Addressing Performance Problems In order to address performance problems properly, managers must find information that will allow them to understand whether the source of the problem is declarative knowledge, procedural knowledge, motivation, or some combination of these three factors. Factors Influencing Determinants of Performance There are also factors that have an influence on the determinants of performance:  the employees (abilities and previous experience)  human resources (HR practices)  the work environment These three factors should basically serve as a point of departure when managers address performance problems. This means that managers must first diagnose which of these factors are hampering performance and then help employees improve their performance. PERFORMANCE DIMENSIONS Performance criteria are the dimensions against which the performance of an employee, a team or a business unit is evaluated. Performance criteria should assess an employee’s task performance and contextual performance.  Task performance are activities transforming raw materials into goods and services produced by the organisation, and activities helping with the transformation process. All these activities relate to the core technical processes of the job.  Contextual performance relates to the context in which the job is performed, in other words, the organisational, social and psychological environment in which the job occurs (E.g. volunteering to carry out task activities).