Performance Management Platform A Pivotal Foundation for Breakthrough Performance

Ravee Ramamoothie University of Liverpool 2012

Abstract
Strategy execution is a topic of practical importance and its success depends on how an organization integrates and aligns the business units and the employee performance to the strategic goals of the organization. However, many organizations find that their strategic goals realization is not optimized. One of the key issues is that the strategy and the performance goals of an organization are often disconnected with the performance management platform, a function of the strategic HR in managing employee performance. Essentially in this research, a performance management exercise that is aligned to organizational strategy and performance is viewed as a strategy execution and alignment exercise led by the HR team of an organization in the form of a performance management program. The purpose of this case study is to identify how a performance management program can be linked to organizational strategy and firm performance. Elements such as the enablers of alignment, if the model applied differs in companies of different scale, the application of goal setting and expectancy models and the reward systems are investigated to provide insights of the key success factors in implementing a performance management initiative. Case studies of two organizations of different scales in Asia were conducted. Based on these studies, the findings indicate that a few key enablers are critical for the successful implementation of a performance management initiative that aligns the organizational strategy and performance goals. These enablers are identified and validated against a contemporary management model presented by Kaplan and Norton (2006) on best practice principles of alignment and successful strategy execution.

Introduction
Leadership in organizations is increasingly being pressured to keep up with the demands of intense global competition, which are accompanied by increased rate of change and complexity Jeston (2008, pg.33). Thompson, Strickland & Gamble (2010, pg.372) infer that the impetus for organizations now is not just in crafting a good corporate strategy, but also in the execution and management of the strategy. Kaplan and Norton, (2006, pg. 2) in their research of global companies over a period of 17 years, found that the underlying principles for a good strategy execution and performance achievement reflect a similar pattern. Amongst the key principles is ensuring that strategy is translated into scorecards, which align the entire organization towards execution of the strategy. This essentially means applying performance management initiatives organizationwide, cascaded from organizational strategy. The pursuit of improvement in organizational and process efficiencies has always been a key factor that gives birth to countless new methodologies and operational philosophies. There have been numerous breakthroughs in management paradigms, specifically in the area of organizational excellence. Some of the notable examples in the field of strategy, execution management, performance, and change are: Porters Five Forces (Porter, 2008), Kaplan and Nortons Alignment (Kaplan and Norton, 2006) and Heart of Change by Kotter (Kotter and Cohen, 2002). However, the crucial factor in organizational excellence (Vecchio, 2004, pg.5) is the human element. These management principles are largely dependent on the human element, a fact that both academia and practitioners have long recognized. Organizations are manifestations of the underlying values, ensuing culture and output of their founders, managers, or members (Ledford, Wendenhof and Strahley, 1985, pg.5). Apple is one organization that has in recent times represented this fact. Its leaders enormous influence in the organization has built a culture of excellence within the organization, where the output of sophistication (Margulus, 2005), ecosystem (McGirt, 2006) and technology are to be marveled at and are enjoyed by the masses (Peterson, 2007). The foundation was in its human element that was spurred by a major cultural shift (Palmer et al., 2009). Improving human performance in organizations has become a crucial factor, and leaders have to focus on this to successfully steer through the current hyper-competitive era. However, the pursuit of improvement of human performance hinges on the performance management capability of an organization, which Mithas, Ramasubbu and Sambamurthy (2009, pg.240) infer is pivotal to enable firms to continuously evaluate strategy and refine actions towards optimum performance. This capability directly links the Ravee Ramamoothie University of Liverpool (2012) 1

organizations ability to deliver superior customer service, as well as enhanced financial and overall organizational effectiveness.

What are the key management principles for an Organization to be on the path of breakthrough performance?
In their recent book Alignment Kaplan and Norton (2006) describe through their research how they found that companies which have produced breakthrough performance - including some which went through adverse circumstances - possessed common characteristics. These companies, identified as high performers, reflect a pattern of key management processes. Kaplan and Norton (2006, pg.3) summarized and classified these processes as critical elements in achieving superior strategy alignment and execution. They have outlined and defined them in descending order of importance as below: A. Mobilization Change effected from executive leadership. Organizational strategy to be clearly defined and executed by top management team. B. Strategy translation Mapping the strategic direction and executing it through translation of the strategy to measurable results into organizational, divisional, departmental and individual scorecards. C. Organization alignment Alignment of all the business units and stakeholders into common goals of the strategy. D. Employee motivation Human capital development, education, and having in place a reward system linked to performance. E. Governance Consistent review and management of the strategy execution and performance achievement process through all leadership levels right up to the board.

Strategic Execution, Strategic HR Practices and Performance Management

Much research has been done in the areas of organizational strategy, organizational performance and performance management, but they all refer to each discipline in isolation. They rarely touch on the complex subject of how all the 3 main steps of organizational success are embedded as one staircase towards organizational excellence. This aligned approach is a pivotal catalyst of competitive advantage.

Ravee Ramamoothie

University of Liverpool (2012)

Performance Management
Beginning from the ground up perspective, performance management was initially described as the process of measuring employee performance and making it visible, explicit and measurable (Heinrich, 2002 cited in Den Hartog, Boselie and Paauwe, 2004, pg.557) for better management of employee productivity. It is said to be a pragmatic model for performance improvement through tools such as performance measurement, rewards/recognition, goal setting, and coaching/feedback (Schraeder and Jordan, 2011, pg. 5). Goal-setting theory (Locke 1968; Locke and Latham 2002; Lee and Wei, 2011) has been recognized as one of the most practical management theories in the area of employee motivation in organizational psychology (Miner 1984; Lee and Earley 1992; Pinder 1998; Locke and Latham 2002; cited in Lee and Wei, 2011, pg. 279), and amongst the most important of management theories. It plays an important role in the translation of organizational strategy into team and individual performance targets. Management-by-objectives (MBO) is a widely used tool that emerged from the goal-setting theory (Vecchio, 2004), in which the quality of alignment hinges on the aspect of participative management. One of its key features is participative involvement of the supervisor and subordinate in setting concrete and measurable goals for the subordinates performance. (Vecchio, 2004, pg.96). The concept of participative management has been recognized as a means to improve both individual as well as organizational performance. Miles and Ricthie (1971, pg. 48) termed it as the Human Resources Model, and their research revealed untapped potential of this model when it comes to performance management. This practice aids better alignment and implementation of goal setting. Locke, Alavi and Wagner (1997 cited in Lee and Wei, 2011, pg.280) infer that the key benefit of participative decision-making is cognitive rather than motivational and enhances information exchange. However participative management is dependent on contingent factors such as the culture of the organization. Goal setting and ensuring that they are linked to the strategy and performance goals of the organization becomes the central and critical function of organizational managers. Most often it centers on the function of strategic HR management (SHRM) wherein the HR division of an organization must embed performance management process within its overall people management processes (Jung and Takeuchi, 2010, pg.1931). Ravee Ramamoothie University of Liverpool (2012) 3

Strategy Execution and Translation

In a strategy translation exercise, especially in large companies, it is essential for the middle managers to collaborate with their subordinates to translate the organizational scorecard (organizational strategy translated into corporate metrics) and strategic initiatives (mid and long term corporate initiatives) into divisional and business unit scorecards based on their respective operational and strategic job functions. Sirkin, Keenan and Jackson (2005) claim that 60% of transformation initiatives fail due to inadequate focus on hard factors. They opine that performance management is vital. Kaplan and Nortons (2006) research in many organizations that are successful in strategy execution reflect a similar pattern, demonstrating equal importance paid to the hard factors as well as to the soft factors. They found that organizations that place importance on strategy and performance governance succeed better in aligning the workforce towards the strategy execution. However they do emphasize that soft factors, such as motivation and education, act as critical enablers for strategy execution. Any performance management implementation must necessarily address these key issues in strategy execution as an important element. Organizations need to specifically look into the processes that are important and critical for successful implementation. Apart from optimizing its strategy execution and strategic HR practices, an organization needs to embed the element of motivation, as a factor in organizational behavior that is critical towards successful strategy execution and performance management implementation.

Rewards as Key Employee Motivators in the Performance Management Initiative

Two theories that directly bind performance management are the goal setting theory introduced by Locke, et.al, (1981), and the expectancy theory introduced by Vroom (1964). The goal-setting theory advocates that the supervisor and subordinates need to engage in dialogue, be clear of each others goals, and ensure that the goals are specific, challenging and accepted by both parties. The goal-setting theory warrants that the goal definition process should be based on goals that are realistic and that intrinsically motivate the employee. In the expectancy theory, through the widely accepted Vroom model, (Vroom, 1964; Campbell, et.al.,1970; Sussman and Vecchio, 1985; Klein, 1990; Vecchio, 2004) the factor of expectation of the future outcome (the possibilities of achievement of the goals) and the plausibility of reward and its attractiveness are the motivational Ravee Ramamoothie University of Liverpool (2012) 4

drivers for the employee. The employees motivation to successfully complete goals is dependent upon the value the employee places on the anticipated reward upon performance achievement. Both these theories recognize that when the reward possibilities are clearly visible, achievable and valuable, the employees are driven to make the ultimate decision of the goals or output to be achieved in alignment with the organizational objectives. Performance appraisal is a form of this reinforcement. Sulsky and Balzer (1998) opine in their research that the practical application of performance appraisal is mired in controversies in most companies particularly in the area of metrics relevancy and actual performance. Finally, technology is often described as a key enabler in the execution of a performance management initiative, especially in mid-sized and large organizations. The next section looks at the aspects of technology being the key enabler for a performance management initiative.

Technology as key enabler of Performance Management Initiative

In a multi-tiered organizational management structure (Gary, 2010), where employees numbers range from a few hundred to more than a thousand, performance management initiative will be a difficult task if done manually. Mithas, Ramasubbu and Sambamurthy (2009, pg.240) assert that information management capability is a significant enabler of a firms performance management capabilities. Technology in the form of a performance management system (PMS) in its simplest form (Burney and Matherly, 2007, pg. 50) converts various inputs of data, transforms them into output that reflects the performance of an individual or organization and enables feedback communication. Performance visibility could also help tide the resistance to change. In the case of Home Depot (Charan, 2006) the CEOs change effort created waves of resistance from the branch managers who were comfortable with the freedom of the entrepreneurial style of management previously practiced by the founder. In pursuit of instituting performance accountability, the CEO invested in performance and business analytics systems, which produced ontime monthly reports of each store, and the information was made transparent across the organization. The idea was to provide visibility and an objective account of performance in the form of key metrics such as revenue and costs. The managers could not sustain their resistance when visibility of performance of their own stores reflected lackluster performance. The change gained momentum and the organization managed to overcome the initial resistance and transform itself towards MBO. Even when they were already on solid financial footing later on, the CEO never seemed to forsake the Ravee Ramamoothie University of Liverpool (2012) 5

performance accountability tool (Colvin, 2007). Similarly, an organization that is at the beginning of a performance management initiative may encounter initial resistance. The use of a performance accountability tool, which is transparent across the organization to peers, may help smoothen the resistance to change. The PMS for a performance management environment should ideally integrate a variety of measures computed from data derived (Burney and Matherly, 2007) out of various operational and financial systems, including quality measures (Sousa and Elaine, 2010) such as customer satisfaction and service level ratios. The output should ideally be a performance status report of organizational divisions and units, down to individual employees. The PMS system should also allow participation (Luft and Shields, 2003; Hunton, 2002; Burney and Matherly, 2007) and enable a feedback loop amongst superiors and subordinates through the system.

Glossary
C CEO H HR M MBO P PMS S SHRM Chief Executive Officer Human Resources Management-By-Objectives Performance Management System Strategic Human Resource Management

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University of Liverpool (2012)

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