Lecture notes Performance Management

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Published Date:17-07-2017
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UNIT – I PERFORMANCE MANAGEMENT THE CONCEPT Performance is understood as achievement of the organization in relation with its set goals. It includes outcomes achieved, or accomplished through contribution of individuals or teams to the organization‘s strategic goals. The term performance encompasses economic as well as behavioural outcomes. Brumbach views performance more comprehensively by encompassing both behaviors and results. He is of the view that behaviors as ‗outcomes in their own right‘, which ‗can be judged apart from results‘. Performance is an impact. The roles of any manage can be seen in three parts: Being, Doing and Relating. Being it is concerned with the competencies of the manage that are relevant to his/her performance. It is preparedness of the mind of the manager. Doing focuses on the manage activities that are variably effective at different levels in the organization: that affect performance of other roles dependent on the manage output, and the organizational performance as a whole. As someone said, ‗Ideas are funny little things. They won‘t work unless you do.‘ ‗Relating‘ emphasizes the nature of relationships with members of the role network-vertical, horizontal or otherwise. Performance has a linkage with the individual potential and how best it is realized by the individual. With regard to manage, his/her potential becomes the input to the productive process and performance is the output. Managee’s Potential is determined when a set of tasks are assigned to him. It is also related to performance standards set. Task-related activities refer to managee‘s or supervisors involvement to achieve the allocated task or meet expectations in the given task environment. Performance is what the managee’s actually achieve. Performance in a role refers to the extent to which the managees achieve the purpose for which the role is created. ‗Choice, not chance‘, they say, ‗determines destiny‘. The actual performance of a managee is a function of several forces, internals as well as external to the organization-some of choice, some of chance. Most organizations do not take these forces into account-either systematically or intuitively-while building expectations from a managee. A managee in her task environment could be subject to some of the influences and factors shown in Exhibit. Framework to Understand Role Performance In this framework, Organizational Relevant Environment, Role Purpose or Objective, Stakeholder Expectations, Role Technology and Input Role or Vendor Contribution are inputs to the managee‘s performance. These are substantially known, and are the factors and forces, which organizational expectations from the Managee Performance can reasonably be predicted. Role Design, Managee Potential, Managerial Leadership, Competing and Collaborating Colleagues, and Group Climate are throughput factors that can be optimized by a manager to enhance the Managee Performance. These determine whether the organization‘s performance expectations from a managee are realistic. As such, throughput factors are the core concerns of PfM. It can be argued that Role Design and Managee Potential are, in fact, input factors. However, a manager can modify-enhance or stretch-these factors by improving the fit between the managee‘s capacities, resources and role requirements, PfM would assume these as throughput factors. Role Output or Managee Performance is the end-result-the effect for which we work. This is the variable that is predicted or planned. It is invariably observable and measurable. The behavior of all organisms is goal-directed. As such, people performance is not only a sequence of causes and effects; it is a chain of sub-goals and actions, leading towards the ultimate goal. In fact, when a managee has a goal, he/she behaves as if she is following some signposts that create a healthy expectancy in him/her to reach the goal. Role Purpose or Objective sets the boundary for the goal(s). It is a reference point for Stockholder’s Expectation. Managee Potential corresponds to the role to which a managee is assigned and the inputs he/she receives to fulfill the role purpose. It stretches or contracts depending upon the Group Climate, the behavior of the Competing and Collaborating Colleagues, and the Managerial Leadership. The actual realization of a managee‘s potential depends heavily on:  Group and Organizational Purpose.  Group or Organization Capacities and Resources.  Human Climate in the Group or the Organization.  Quality of Up-stream or Vendor Inputs.  Feedback on Performance. Role Design is fashioned by the organizing process. The sole purpose of organizing and designing a role is to provide a vehicle for implementing performance plans and expectations. It determines the requisite competencies, knowledge and skills. Role design predominantly determines task-related attributes needed by the managee. Managerial Leadership predominantly determines the behavioral attributes needed by the managee. Leadership role of the manager and managerial style of the leader are also major determinants of the managee‘s development and his/her job satisfaction. Managerial leadership and group climate have considerable influence on each other. Group Climate - The internal psychological environment of the group-influences the behavior, style and performance of the managee. It is also, in turn influenced by the behavior and attitude of the managee. Group climate is after all, the collective outcome of the behavior and attitudes of all the members of the group-the managee and all his/her competing and collaborating colleagues, the manager or the leader. People in any group or organization are less anxious about work if both goal clarity and goal agreement are present. Considerable conflict arises when purposes are unclear or when people disagree on what the priorities should be. Without convergence on goals and priorities, groups or organizations cannot develop a climate that facilitates performance. Three abilities or forces in an individual are said to be essential for achievement:  Icchha-desire or motivation;  Jnana-knowledge or know-how: and  Kriya-action to actualize. Not much performance achievement has been reported without the creative combination of these three forces which, acting dynamically and in concert, form the core motive force of all people in any organization. Through the medium of performance, an organization is able to effectively achieve what it sets out to. Indeed, it is the people‘s capacities and resources that determine an organization‘s capability to perform and to satisfy or influence its stakeholders. These capacities and resources reflect a measure of the internal state of an organization that is expressed through its results. Performance management is a way of systematically managing people for innovation, goal focus, productivity and satisfaction. It is a goal congruent win- win strategy. Its main objective is to ensure success to all managees i.e., all task teams who believe in its process, its approach and implementation with sincerity and commitment. The managee‘s success is reflected in organisations‘ bottom line in terms of achieving its planned goals. PfM is an endless spiral, which links several processes such as performance planning, managing performance throughout the year, taking stock of managee‘s performance and potential. Also it includes recognizing and rewarding success at the end of the year. PfM links these processes in such a way that an individual managees‘ performance is always oriented towards achieving organisational goals. PfM creates positive goal oriented task motivation and aims at reducing intra-organisational conflict. It is realized that organisations could not be successful if they do not have a good performance management system. Each manager needs to devise his/her own system of managing performance. While some norms of performance management are explicit others are not so clear even to the managers. It is said that standards or expectations that define good performance may be generally understood but are rarely specific. PfM is a holistic, largely participatory and goal congruent process of managing and supervising managers at work. It is understood as a systematic, organized approach to managing and rewarding performance by generating and sustaining positive managee (employee) motivation. It is neither the well-known system of performance appraisal nor the well talked about system of MBO. Its salient dimensions include performance standards- representing organizational goals and objectives, managee recognition and reward. According to Armstrong, ‗PfM is a means of getting better results from the organisations, teams and individuals by understanding and managing performance within the agreed framework of planned goals and competency requirements.‘ It is a process for establishing shared understanding about what is to be achieved and an approach to managing and developing people. PfM – Integrated Approach Armstrong and Baron, defines PfM as a strategic and integrated approach in delivering sustained success to organisations by improving performance of people by developing the capabilities of teams and individuals. These experts consider PfM as a strategic tool since it is concerned with achievement of long- term organisational goals and effective functioning of organisations in its external environment. PfM effects four types of integrations namely, vertical, functional, human resource and goals.  Vertical Integration – aligning objectives at organisational, individual and team levels and integrating them for effective performance. The individuals and teams agree upon to a dialogue to work within the broad framework of organisational goals and values.  Functional Integration – it deals with focusing several functional energies, plans, policies and strategies onto tasks in different levels and parts of the organisation.  Human resource Integration – this ensures effective integration of different subsystems of HRM to achieve organisational goals with optimum performance. These subsystems include people management, task monitoring, job design, motivation, appraisal and reward systems, and training and empowerment.  Goal integration – it focuses on arriving at congruence between the needs, aspirations and goals of the managees with that of the goals and objectives of the organisation. BASIC PRINCIPLES OF EFFECTIVE PfM Quality and effectiveness of PfM is a reality in organisations only when certain basic and fundamental tenets/ principles or practices of management are followed. These include: 1. Transparency – decisions relating to performance improvement and measurement such as planning, work allocation, guidance and counseling and monitoring, performance review etc., should be effectively communicated to the managees and other members in the organisation. 2. Employee development and empowerment – effective participation of employees/ managees (individuals and teams) in the decision – making process and treating them as partners in the enterprise. Recognizing employees/ managees of their merit, talent and capabilities, rewarding and giving more authority and responsibility etc., come under the umbrella this principle. 3. Values – a fair treatment and ensuring due satisfaction to the stakeholders of the organisation, empathy and trust and treating people as human beings rather than as mere employees form the basic foundation, apart from others. 4. Congenial work environment – the management need to create a conducive and congenial work culture and climate that would help people to share their experience knowledge and information to fulfill the managees aspirations and achieve organisational goals. The managees/ employees should be well informed about the organisational mission, objectives, values and the framework for managing and developing individuals and teams for better performance. 5. External environment – effective and contextual management of external environment to overcome the obstacles and impediments in the way of effective managerial performance. FEATURES OR CHARACTERISTICS OF EFFECTIVE PFM PfM is a complex concept that encompasses different dimensions of the organisation and the people. The mission, the objectives and the goals of the organisation should be well designed. Performance planning, development and reward systems enable the managees to realize their true potential in order to contribute for organisational growth and development. The managees‘ performance and quality is a function of several prerequisites that managers need to take care of. The following constitute the prerequisites /characteristics to ensure effective practice of PfM: 1. Clarity of organisational goals – the managers need to clearly and precisely lay down the organisational goals, objectives and ensure that these are well informed to the managees and other employees and make them to realize what the organisation expects from them. The organisational goals need to be translated into individual, team and departmental/ divisional goals. 2. Evaluation – the individual, team, department/ divisional performance needs to be evaluated on continuous basis. The organisation should develop an evaluation system and process, which is designed and developed on scientific lines. 3. Cooperation but not control – the managers should nurture the practice of getting work done through the system of obtaining managees‘ consensus rather than through control or coercion. 4. Self-management teams – the management need to encourage the individual and teams for self-management of their performance. This procedure creates in the managees a sense of responsibility and develops a spirit to work with commitment and evaluate his/her strengths and weaknesses from time to time and plan for reducing the performance gaps. 5. Leadership development – the managers need to identify such of the managees who have leadership potential and apart from sincerity and honesty to ensure better and effective two-way communication between the managers and the managees. 6. System of feedback – the organisation must have a foolproof feedback system of managees/ individuals/ teams/ departments‘ performance. It should be monitored continuously and generate feedback loops for better performance management. There must be a system that would help to monitor and measure all performance against the set standards and the managees need to be informed of their shortcomings. The evaluation system should be made transparent so as to repose managee‘s faith in the system. SCOPE OF PfM The PfM should conform to broad organisational framework. It should provide for managers and managees shared experiences, knowledge and vision. It encompasses all formal and informal measures and procedures adopted by organisations to increase corporate, team and individual effectiveness. Managees/ employees should be enabled continuously to develop knowledge, skill and capabilities. PfM has got to be understood in totality of the organisation but not in various parts. PfM is designed and operated to ensure the interrelationship of each of these processes in the organisation. PfM assumes that the managers and team members share accountability for performance by jointly agreeing on common set of goals i.e., what they need to do and how they need to do it. They jointly implement the agreed plans and monitor outcomes. PfM is concerned with everything that people do at work. It deals with what people do (their work), how they do it (their behavior) and what they do it (their result). PfM data generated by the appraising process is used primarily for deciding rewards. Including performance related pay. However, it is not the integral part of PfM process. THE PROCESS OF PfM The process of Performance Management is comprised of three important parts (1) Planning Managee Performance and Development; (2) Monitoring Managee Performance and Development and (3) Annual Stock Taking. These occur in a specified sequence. Planning is made at the beginning of the year while monitoring and mentoring is continued through out the year as the plans are executed. Stocktaking takes place at the end of the year. Each one of these phases requires certain concrete actions by the managers and the managee. Both these parties (manager and managee) provide appropriate inputs by keeping the whole process in perspective. The whole process of the performance management can be approached in a different mode. Planning, review and stock taking can happen through out the year, more specifically at the time of periodic review during the monitoring and mentoring phase. As such, these three phases are dynamic and a continuously interact with one-another. The plans are periodically reviewed and feasibility is tested the context of changing events and influences that could not be adequately forcing. Since the process involves in both the managers and the managees it has a participatory character. The following flow chart exhibits performance management process in an organization. Organizational Mission, Goals, Strategy, and Operational Plans 2 1 2 Individual Role & its Description, Indices for Role-wise Plans and Monitoring Performance, Expectations Performance Standards 3 4 Monitoring and Feedback Stocktaking Mentoring Activity The Performance Management Process The chart exhibits that individual roles and their description, indices for monitoring performance. Performance standards naturally cascade from organizational mission, goals, strategy and operational plans. Since performance management aims to improve quality of coordination among people in the organization, role-wise performance plans and expectations must flow from both. Organization‘s mission, strategy and operational plan, and individual managee‘s role and his/her contribution to organizational process are cardinal inputs to performance plans. The performance plans of all the managee‘s in the organization must finally add up to the organizational goals to be achieved during the year. Managee‘s performance and development plans are subjected to monitoring and mentoring. Without cogent plans, for task accomplishment, it is not possible to decide a benchmark to achievement against set goals. Mentoring and development draws it direction from both development plan and requirements. Mentoring can also include briefing the managee before each training and development activity – both on the job and off the job. Briefing focuses on the managee learning agenda. Debriefing the managee crystallize his/her learning achieved during the training. Stock taking both periodical and annual attempts to continuously assess the extent of work as well as learning opportunity that have been optimally avail by the managee. Inputs to stocktaking are provided by performance plans and monitoring and mentoring records. Stock taking also provides several inputs to future performance plan. Review in task assignments, task systems and tools are also possible through stocktaking. An assessment of managee‘s development needs of future tasks and responsibilities is done more realistically to stocktaking. There are certain special features that will make PfM more effective and qualitative in achievement of organizational goals. These include – 1. Continuous process: Performance management should be a continuous process and should be carried out through out the year, in its totality i.e., planning managee performance and development, monitoring managee performance and mentoring managee development and annual stock taking. These three phases should be implemented sequentially. 2. Flexible: The Performance management process should be flexible and should ensure the manager and managee acting together. However, each one of these parties should have sufficient maneuverability to design their own process within the overall framework for performance management. 3. Futuristic: Performance management should be futuristic. All the three parts of performance management are oriented towards the future planning and improvement. Evaluation system gives necessary inputs for future actions. 4. Participatory: PfM is participatory in character. It provides for regular and frequent dialogue between the manager and the managee to address performance as well as development needs. 5. Controlling: PfM aims at measuring managee‘s actual performance against planned performance i.e., targets, standards or indicators. 6. Behavioural in Content: PfM is completely development nature and concerns itself vigorously with managee‘s psychological behavioural aspects and personality traits, which are critical inputs to the performance process. PfM specify these personal attributes and behaviour of each managee and meticulously assess the extent of their contribution to managee level of performance. This paves the way to identify managee‘s future development needs; and 7. Win-Win Philosophy: PfM provides the frame work in which manager must support their managees to succeed and to win. KEYS TO HIGH PERFORMANCE Building organizational capability and successful implementation of high- commitment in management practices is a key managerial responsibility. High performance management practices require consistent leadership attention. Most organizations, either by themselves or external help are able to develop right business strategy without much difficulty. But, they find it hard to implement it effectively. Hence, devoting, attention, time and energy to develop people may be far more cost effective and provide a grater competitive edge. Three basic principles are used by leaders to transform their organizations into high commitment models of management. These include – 1. Building Trust: Building trust in people is vital and this could be possible by treating people with respect and dignity. Sharing information with everyone and treating them, as human beings will create a sense of trustworthiness among members of the organization. 2. Encouraging Change: Leaders can encourage change among employees and the managee by exposing themselves and their colleagues through alternative management models. 3. Measuring what is important: Leaders need to realize that ‗what gets measured‘ ‗gets measured‘. Robert Kaplan and David Norton‘s balanced scorecard approach, in which financial measures are weighed against measures of customer satisfaction and attention, employee attitudes and retention, new product and business development, or readiness for change. Details about what has happened is important. But much more important is the organization‘s current condition in terms what enables or hinders its performance. Currently knowledge and capability is the real key to success. This rest in people. So, paying serious attention to people‘s issues becomes evermore important. Leaders ought to build systems at this perspective. ORGANIZATIONAL PERFORMANCE Organizational Performance what it is? Performance is all of these. It‘s the end result of an activity. And whether that activity is hours of intense practice before a concert or race or whether it‘s carrying out job responsibilities as efficiently and effectively as possible, performance is what results from that activity. Managers are concerned with organizational performance—the accumulated end results of all the organization‘s work processes and activities. It‘s a complex but important concept, and managers need to understand the factors that contribute to high organizational performance. After all, they don‘t want (or intend) to manage their way to mediocre performance. They want their organizations, work units, or work groups to achieve high levels of performance, no matter what mission, strategies, or goals are being pursued. Why is Measuring Organizational Performance Important? Managers measure and control organizational performance because it leads to better asset management, to an increased ability to provide customer value, and to improved measures of organizational knowledge. In addition, measures of organizational performance do have an impact on an organization‘s reputation. The value created by Michael Jordan and other assets of the Bulls (coach Phil Jackson; other talented team players including Scottie, Pippen and Dennis Rodman; experienced marketing, operations, and financial employees; and other resources including the arena and practice facilities, available capital, etc) was possible only because they were managed extremely well as a portfolio of assets. That‘s what managers at high-performing companies do—they manage the organizational assets in ways that exploit their value. Asset management is the process of acquiring, managing, renewing, and disposing of assets as needed, and of designing business models to take advantage of the value from these assets. It‘s not just the top-level managers who are concerned with asset management. Managers at all organizational levels and in all work areas manage their available assets—people, information, equipment, and so forth— by making decisions that they hope will lead to high levels of performance. Because achieving high levels of organizational performance is important in both the short run and long run, managers look for ways to better manage their assets so that they look good on the key performance measures used by both internal and external evaluators. Increased Ability to Provide Customer Value providing value to customers is important for organizations. If customers aren‘t receiving something of value from their interactions with organizations, they‘ll look elsewhere. Managers should monitor how well they‘re providing customer value, and they can do that when they measure performance. For example, at IBM‘s Industry Solutions Laboratories in Hawthorne, New York, Stuttgart, Germany, and Yamato, Japan, customers interact with IBM researchers to come up with technological solutions that meet their unique and challenging needs. For instance, Britain‘s Safeway Stores PLC and the Hawthorne Lab collaborated on a consumer application that gives top customers the ability to conveniently create and maintain personalized grocery shopping lists and preorder groceries using a portable handheld device. And the Hawthorne Lab completed a project for Southwest Airlines that automated the crew-pairing process-a company logistics nightmare in which 2,700 pilots, 4,500 flight attendants, and more than 2,400 daily departures had to be logistically coordinated. It was important for the lab‘s managers to be able to measure how well they solved customer problems and to gauge their ability to provide customer value. Impact on Organizational Reputation You know that your personal reputation is important in what others think of you. It influences whether they will ask you for advice, listen to what you have to say, or trust you to complete assigned tasks. Organizations strive to have good reputations, as well. They want others—customers, suppliers, competitors, community, and so forth—to think highly off them. The advantages of a strong correlation between an organization‘s financial performance and its reputation. Which leads to the other? It‘s not always clear which comes first, but we do know it‘s difficult to have one without the other. In fact, a study of reputation and financial performance showed a strong correlation between good reputation and strong financial measures such as earnings growth and total return. Improved Measures of Organizational Knowledge: We know from our discussions in Chapters 2 and 10 that successful organizations of the twenty-first century must be able to learn and respond quickly—that is, they must be learning organizations. In learning organizations, organizational knowledge is recognized as a valuable asset, just like cash, equipment, or raw materials. What is Organizational knowledge? It‘s knowledge that‘s created by means of collaborative information sharing and social interaction that lead to organizational members taking appropriate actions. The key to valuable organizational knowledge is this connection between information and action. Organizational employees must share what they know and use that knowledge to make changes in work practices, processes, or products to achieve high levels of organizational performance. Measures of Organizational Performance There are three ways of measuring organizational performance. Generally applied measures are – 1. Productivity 2. Organizational Effectiveness, 3. Organizational Ranking. Peter F. Drucker the well-known management guru was of the view that an organization‘s employees need to see the connection between what they do and the outcomes. He said, ―The focus of the organization must be on performance… The spirit of organization is high performance standards, for the group as well as for each individual.‖ But before employees can see this connection and work toward achieving high performance, managers need to specify the performance outcomes that will be measured. The most frequently used organizational performance measures include organizational productivity, organizational effectiveness, and industry rankings. Productivity is defined as the overall output of goods or services produced divided by the inputs needed to generate that output. Organizations strive to be productive. They want the most goods and services produced using the least amount of inputs. Output is measured by the sales revenue an organization receives when those goods and services are sold (selling price x number sold). Input is measured by the costs of acquiring and transforming the organizational resources into the outputs. It‘s management‘s job to increase productivity by reducing the input cost and increasing the output price (selling price). Doing this means being more efficient in performing the organization‘s work activities. So, organizational productivity becomes a measure of how efficiently employees do their work. ―We are increasing our company‘s capability by increasing the capability of our employees.‖ Ford was investing in its future productivity by making employees more efficient in their job-related use of the Internet, said the Chief Information Officer of Ford Motors. Organizational effectiveness is a measure of how appropriate organizational goals are and how well an organization is achieving those goals. It‘s a common performance measure used by managers. Other descriptions of organizational effectiveness have been suggested by management researchers. For instance, the systems resource model or organizational effectiveness proposes that effectiveness is measured by the organization‘s ability to exploit its environment in acquiring scarce and valued resources. The process model emphasizes the transformation processes of the organization and how well the organization converts inputs into desired outputs. Then, finally, the multiple constituencies‘ model says that several different effectiveness measures should be used, reflecting the different criteria of the organization‘s constituencies. For example, customers, advocacy groups, suppliers, and security analysts each would have their own measures of how well the organization was performing. Although each of these different effectiveness models may have merit in measuring certain aspects of organizational effectiveness, the bottom line for managers continues to be how well the organization accomplishes its goals. That‘s what guides managerial decisions in designing strategies, work processes, and work activities, and in coordinating the work of employees. Ranking of Industries is determined by specific performance measures. For instance, Fortune‘s Top Performing Companies of the Fortune 500 are determined by financial results including, profits, return on revenue, and return on shareholder‘s equity; growth in profits for 1 year, 5 years, and 10 years; and revenues per employee, revenues per dollar of assets, and revenues per dollar of equity. Industry Week’s Best Managed Plants are determined by organizational accomplishments and demonstrations of superior management skills in the areas of financial performance, innovation, leadership, globalization, alliances and partnerships, employee benefits and education, and community involvement. Thus, different agencies apply different parameters or measures through which performance of organizations is decided to rank the Industry/organization. Performance Improvement Methodology and Techniques Out of the performance improvement planning process come specific performance improvement interventions, tactics and techniques. Note that these interventions happen at five checkpoints. Upstream systems, inputs, process,

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