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Importance of Performance Management Systems

Questions:

1. How was Heinz’s approach to performance management invalid in relation to Moretti’s job? Explain your answer in relation to significance of strategic performance management, appraisal and employee feedback in organizational context.

2. How was Heinz’s approach towards employee performance management unreliable? Discuss your answer that relates employee performance management and its impact on strategic human resource management and organizational performances.

3. Identify the ways in which Heinz’s employee performance management could be improved. As part of your answer, make sure you explain carefully how the company should implement your recommendations because so much of success in this area depends on the ‘how’ of any strategy is implemented.
 

The below report is an analysis on the Frank Moretti Vs. HJ Heinz Company Australia Ltd case where the performance management system of the Heinz company led to wrongly dismissing an employee. The report is divided into three sections with each one identifying the various aspects that effect the development of an efficient performance management system. Section 2 lists out four popular performance management frameworks long with few details on employee appraisal and employee feedback. Section 4 has details of a new performance management system that need to be implemented at Heinz to ensure issues do not arise.

Every organization has a business strategy that is designed to reach the organizational goals. Certain steps, rules, guidelines are all made up as a part of this strategy and the same is implemented into the organization (De Waal, 2013). Most of these strategies in one way or the other look in the direction of improving company’s productivity. However, the productivity of the company is heavily dependent on how its employees understand and pursue this strategy (Serban, 2013). Hence it is crucial for a company to make sure that the employee works in the right direction, putting in considerable amount of effort to reach the organizational goals. Strategic Performance Management is the perfect term to achieve this (Bento, 2014).

Strategic Performance Management is a technique used to guide employees in reaching their zenith in performance, keeping their individual goals aligned to the organizational goals (Rothaermel, 2015). In simpler terms, the technique makes sure that every employee in the organization understands the strategies being used to reach the organizational goals and guides them to achieve their part of the overall goal. Performance management involves a proactive partnership between the employee and the management (Van Dooren, 2015). It is like a scorecard or a feedback highlighting where the employee has done well or where a need for improvement is required. This helps in motivating the employee and establishes a collaborative environment in the organization.

There are several Strategic Performance Management tools used by several employers to gauge the overall performance of an employee or a team. Below listed are a few of the commonly used tools

Popularly known as MBO model, the Management by Objectives model aims at improving the performance of an employee by listing objectives for the employee (Mio, 2015). These objectives are usually defined after a discussion between the management and the employee. The objectives should consider the individual’s idea of improvement and a way to enhance the employee’s personal career path, while being aligned to the organizational goals (Larsson, 2016). MBO has become considerable famous and is followed in majority of the organizations around the world. This is because the model makes the employees the center of discussion, motivates them to achieve better through a clearly define set of objectives. The best way to follow MBO is by setting S.M.A.R.T objectives (Smart, Measurable, Achievable, Realistic and Time Bound Objectives (Robins, 2014)).

Strategic Performance Management: Definition and Purpose

This is another popular model that can be used to improve performance management in an organization. A simple table is designed that lists a set of tasks that needs to be completed by the employee and a goal for each of the same is defined (Grigoroudis, 2012). The actuals is then recorded and the performance of the employee is calculated by the difference. In case the difference is negative, necessary corrective interventions take place and in case of a positive difference the employee can be provided necessary appreciation identifying their work (Kaplan, 2014).

This very efficient model believes that the involvement of stakeholders is highly necessary to design a strategy as ultimately the organizations productivity is measured based on the value delivered to the stakeholders (Yuanzhi, 2013). The below picture explains the various faces of the prism. The prism top and bottom are the stakeholder satisfaction and the stakeholder’s contribution, while the adjacent faces define the strategies, capabilities and processes that are to be used by the organization 

Figure 1: Performance Prism

The stakeholders here include shareholders, employees, customers, distributors, suppliers and so on. Each of the five faces of the prism is considered when developing a measurement design.

Stakeholder Satisfaction: Identifying the key stakeholders and their needs

i. Strategies: Developing strategies to meet these needs

ii. Processes: Developing processes to execute strategies

iii. Capabilities: Assessing capabilities available to implement processes successfully

iv. Stakeholder Contribution: Input from the stakeholder

For effective performance management of employees the stakeholder who be the employee and the strategies, processes and capabilities are determined based on the needs of the employee and inputs provided by the employee (Striteska, 2012).

Key Performance Indicators can play a major in performance management. The entire concept here is that KPIs for each individual employee are identified in realistic numbers to reach the vision of the organization. The employee is then provided with steps to reach the KPI (Parmenter, 2015). There are several actions that needs to be performed by the employee to reach each of these KPIs and buy completing each KPI the employee is one step closer to achieving the organization’s goals. Determining the KPIs is critical and hence they are derived from vision.


Figure 2: Reaching organization vision through KPIs

The vision of the organization is defined and several strategies are designed to reach the vision. The strategies are made of objectives which are derived from the critical success factors of the organization. The KPIs are designed to reach these critical success factors (Smart, 2013).

The above mentioned are only a few models and framework of performance management. There are several other models like value based model, result oriented approach and so on that are followed by various companies for strategic performance management. These models are designed based on the field in which the company works and what fits best to the organizational culture of the company. Several organizations often make use of integrated models that are a mix of two or more performance models to come up with a unique performance system that is suitable to the company’s structure.

Popular Frameworks of Performance Management

Once a performance management system is designed the next step is to use this system for performance appraisal. Appraisal by definition is the act of assessing something or someone. The term employee performance appraisal is the process of assessing the performance of the employee based of the performance management system adopted by the organization (Martin, 2014). Appraisal processes happen periodically within an organization based on a pre-defined time line. Many organizations adopt a 6-month appraisal process to make sure that the employees are in track round the year.

Say a company adopts the Balanced Scorecard model of performance management and performance appraisal for employees happen every January and June. In January the employee and management define the areas of measurement and the target to be reached. Over the next 6 months the employee’s actuals are tracked in the balance scorecard. In June, the Balanced Scorecard is used to assess the difference between the target and actuals to understand the performance of the employee. In case the employee’s performance is low, corrective interventions are suggested and the same can also be included as a part of the Balance Scorecard that is define for June to December (Sumelius, 2014).

The data for performance appraisal can be collected in several ways. In case of target based companies a direct objective production method can be used, where the targets achieved by the employees determine the actuals. Some companies prefer a much more complex system for collecting employee performance data. Apart from simple target based system, behavioral traits are also considered (Šalková, 2013). Employees are also rated based on their leadership skills, ownership capability, responsibility, customer satisfaction and so on. In some companies self-assessment and peer assessment along with management assessment is made to rate an employee while in some the performance of employees who belong to the same level are compared and rated based on the best performing employee. Hence there can be several ways to collect data of the employee. Again the method adopted significantly depends on the work the employee is assigned (Farndale, 2013).

Employee feedback is crucial factor in determining how well a performance management system works as they the ultimate end users of this system. Several performance management systems such as the performance prism consider the feedback of an employee as a key in understanding what improvements need to be done to the performance development plan of the employee and also how the management has helped the employee with their previous plans (Gregory, 2012). Employee feedback enables a collaborative environment in the organization. It is only through effective communication an organization’s management can identify where it is lacking and where improvements are required.

The reason for Heinz management model to be invalid is because the employee involvement in the employee’s plan is almost zero. The organization has no collaboration. The communication in the organization is one way where the senior management has just informed the employee that his performance needs to be improved and hence he has to follow the performance plan. Not only that, the one way communication also unfortunately did not brief what aspects that would have to be worked on. The employee was asked to sign up for the plan without having no details about it. It is quite obvious that the employee refused to follow the plan as he had no idea what are the objectives of this plan. Also, the idea of rating the entire employee force same symbolizes the lack of individual appreciation.

MBO Model

This approach lacks the one factor that plays the most efficient role in improving an employee’s performance that is motivation. The approach in reality demotivates employee, clouding the employee’s knowledge. A performance model that is unclear, demotivating and closed for communication is bound to fails

One of the key areas that is impacted by performance management is the strategic human resource management of the company. Human resource management is an extremely familiar term in any organizations as this is the function that recruits, trains, deploys and rewards employees. Strategic HRM (SHRM) is the process of involving and aligning HRM functions with the strategies being implemented to realize the organizational goals (van, 2014). The primary goal of SHRM is to increase the productivity of an employee and use them as efficient resources in fulfilling the company’s goals. Performance Management and SHRM are closely related to each other. It is the responsibility of the HR team to ensure that an environment that increases the productivity of an employee is created within the organization. They need to provide a sense of direction and generate skilled and motivated employees. A productive employee leads to a productive organization

Gaining an employee’s trust is crucial for the HR management. This has failed in case of Heinz. The lack of communication and employee feedback has not only affected the performance of employees but also led to legal cases that the HR and legal teams were answerable. The employee performance management at Heinz was unreliable as they have rated the entire workforce the same rating. This means that individual assessment has either not been performed or was wrongly performed. Also, the employees were not communicated with the objectives of the performance management plan. Since, the employees are the one that are subjected to the plan, expecting them to follow something that is unclear leads to problems. The objectives has to be first discussed with the employees and the consent of the employees has to be taken before implementing a performance management plan. For the plan to actually succeed it in necessary to help an employee understand why the plan has been designed. Since there was no communication of any kind between the management and the employee, the performance management plan has become unreliable

A new performance management system has to be implemented in Heinz to include employee feedback and their aspirations as a part of the performance assessment criteria. The below diagram is a simple flow of the various stages that needs to be involved as a part of performance management at Heinz.


Figure 3: Performance Management Process to be adopted by Heinz

Step1: Management and employee collaboration to identify goals: Heinz Management has to list down the goals of the organization, understand what it is that they want to work on and how the employee under review can help with reaching these goals. Once they are identified S.M.A.R.T objectives are to be defined for the employees (Rolstadas, 2012). The ultimate goal of these objectives is to contribute to the organizational goals. However, the objectives also have employee’s aspirations in regard and hence include training and development program that enhance an employee’s professional background.

360-Degree Feedback

Step 2: Performance planning to reach targets: After defining the goals, a plan on how to achieve the same has to be developed. Employee and the management comes to terms with the targets to be set for the employees and the time frame to achieve the same. Behavioral aspects are also given importance and a certain weightage is dedicated to them. This helps the employee to stay motivated to develop not just technical skills but also inter-personal skills. A clear plan is laid out to guide the employee on the actions that need to be done during the entire period considered for evaluation

Step 3: Ongoing feedback: It is only after a person starts working the negative impacts of the actions actually come into focus (Mone, 2014). From a managerial point of view for a sales man to sell ten bottles of Heinz product in a day may not seem like a challenge. However, say the salesman is deployed in an area that is below poverty line and the number of people who but Heinz ketchup by bottles are close to zero, selling even a single product would be challenging. Hence, ongoing feedback is a necessity to make sure that any midterm glitches faced by employees are fixed without waiting from them to come up only during a performance review. Feedback has to be continuous part of Heinz organizational culture to understand how the performance management system is helping the employees and what changes are required to be done to prevent the occurrence of a major setback.

Step 4: Performance Evaluation: Once the set period is completed, the performance of the employee is to be reviewed. The performance data is to be collected through self-assessment done by the employee, assessment of the employee performance through two peers and assessment of the employee by the manager. Four different people are to rate the employee’s performance and each once opinion is given a certain amount of weightage. All the employees involved in the rating should provide a justification for their rating. The manager has the maximum weightage. However, assessing the employee would be easier when the manager has feedback from various sources

Step 5: Performance Review: Once the evaluation is done by the manager, a review of the same is done along with the employee to make sure that the employee understands where they lag or outperform. Defining the areas of improvement will be the useful to set up goals for the next period (Pollitt, 2013).

Step 6: Corrective Interventions: In case of setbacks it is necessary to develop a training plan or other corrective interventions that would help the employee improve performance is the area they lag.

The above steps have to be performed twice a year and the plans have to continuously evolve.

Conclusion

A performance system plays a key role in increasing the productivity of any company. Employees are the major stakeholders in a company and hence developing a performance management systems that contributes to individual development of an employee aligning the needs of the employee to the organizational goals is crucial for the development of the company.  

Performance Prism

References

Bento, A., Bento, R. and White, L.F., 2014. Strategic performance management systems: Impact on business results. Journal of Computer Information Systems, 54(3), pp.25-33.

De Waal, A., 2013. Strategic Performance Management: A managerial and behavioral approach. Palgrave Macmillan.

Farndale, E. and Kelliher, C., 2013. Implementing performance appraisal: Exploring the employee experience. Human Resource Management, 52(6), pp.879-897.

Gregory, J.B. and Levy, P.E., 2012. Employee feedback orientation: Implications for effective coaching relationships. Coaching: An International Journal of Theory, Research and Practice, 5(2), pp.86-99.

Grigoroudis, E., Orfanoudaki, E. and Zopounidis, C., 2012. Strategic performance measurement in a healthcare organisation: A multiple criteria approach based on balanced scorecard. Omega, 40(1), pp.104-119.

Kaplan, R.S. and Norton, D., 2014. P.(1993). Putting the Balanced Scorecard to Work. Harvard business review, 5(71), pp.134-142.

Kaufman, B.E., 2015. Evolution of strategic HRM as seen through two founding books: A 30th anniversary perspective on development of the field. Human Resource Management, 54(3), pp.389-407.

Larsson, M. and Hanberger, A., 2016. Evaluation in management by objectives: A critical analysis of Sweden’s national environmental quality objectives system. Evaluation, 22(2), pp.190-208.

Martin, J. and Van Tien, N., 2014, July. A Framework for Employee Appraisal in Services. An Experiment in a Vietnamese Bank. In Toulon-Verona Conference" Excellence in Services".

Mio, C., Venturelli, A. and Leopizzi, R., 2015. Management by objectives and corporate social responsibility disclosure: First results from Italy. Accounting, Auditing & Accountability Journal, 28(3), pp.325-364.

Mone, E.M. and London, M., 2014. Employee engagement through effective performance management: A practical guide for managers. Routledge.

Parmenter, D., 2015. Key performance indicators: developing, implementing, and using winning KPIs. John Wiley & Sons.

Pollitt, C., 2013. The logics of performance management. Evaluation, 19(4), pp.346-363.

Robins, E., 2014. An Instructional Approach to Writing SMART Goals.

Rolstadas, A. ed., 2012. Performance management: A business process benchmarking approach. Springer Science & Business Media.

Rothaermel, F.T., 2015. Strategic management. McGraw-Hill.

Šalková, A., 2013. Theoretical approaches to employee appraisal methods. Scientific papers of the University of Pardubice. Series D, Faculty of Economics and Administration. 28 (3/2013).

Serban, D.C., 2013, November. STRATEGIC PERFORMANCE MANAGEMENT ANALYSIS A TOOL FOR MANAGEMENT THEORY AND PRACTICE. In International Conference on Management and Industrial Engineering (No. 6, p. 332). Niculescu Publishing House.

Smart, A. and Creelman, J., 2013. Managing Performance. In Risk-Based Performance Management (pp. 137-166). Palgrave Macmillan UK.

Striteska, M. and Spickova, M., 2012. Review and comparison of performance measurement systems. Journal of Organizational Management Studies, 2012, p.1.

Sumelius, J., Björkman, I., Ehrnrooth, M., Mäkelä, K. and Smale, A., 2014. What Determines Employee Perceptions of HRM Process Features? The Case of Performance Appraisal in MNC Subsidiaries. Human Resource Management, 53(4), pp.569-592.

van de Voorde, K. and Boxall, P., 2014. Individual well-being and performance at work in the wider context of strategic HRM. Well-being and Performance at Work: The Role of Context, p.95.

Van Dooren, W., Bouckaert, G. and Halligan, J., 2015. Performance management in the public sector. Routledge.

Yuanzhi, L., 2013. Research on the Digital Library Service Performance “Prism” Evaluation Model. Information Studies: Theory & Application, 12, p.021.

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