Principles of Performance Management

The principles of performance managementhave been well summarized as follows:

• it translates corporate goals into individual, team, department and divisional goals;
• it helps to clarify corporate goals;
• it is a continuous and evolutionary process, in which performance improves over time;
• it relies on consensus and co-operation rather than control or coercion;
• it creates a shared understanding of what is required to improve performance and how this will be achieved;
• it encourages self-management of individual performance;
• it requires a management style that is open and honest and encourages two-way communication between superiors and subordinates;
• it requires continuous feedback;
• feedback loops enable the experiences and knowledge gained on the job by individuals to modify corporate objectives;
• it measures and assesses all performance against jointly agreed goals;
• it should apply to all staff; and it is not primarily concerned with linking performance to financial reward.

Performance Managementis primarily concerned with performance improvement in order to achieve organizational, team and individual effectiveness. Organizations have to get the right things done successfully.

Performance Managementis concerned with employee development. Performance improvement is not achievable unless there are effective processes of continuous development. This addresses the core capabilities of the organization and the specific capabilities of individuals and teams. Performance management should really be called performance and development management.

Performance Managementis concerned with satisfying the needs and expectations of all of an organization s stakeholders owners, management, employees, customers, suppliers and the general public. In particular, employees are treated as partners in the enterprise whose interests are respected, who have a voice on matters that concern them, and whose opinions are sought and listened to.

Performance Managementshould respect the needs of individuals and teams as well as those of the organization, recognizing that they will not always coincide.

Finally, performance management is concerned with communication and involvement. It creates a climate in which a continuing dialogue between managers and the members of their teams takes place in order to define expectations and share information on the organization's mission, values and objectives. This establishes mutual understanding of what is to be achieved and a framework for managing and developing people to ensure that it will be achieved. Performance Managementcan contribute to the development of a high-involvement organization by getting teams and individuals to participate in defining their objectives and the means to achieve them.

Performance Management

Performance Management is a force for both vertical and horizontal integration. Performance management should be integrated into the way the performance of the business is managed and it should link with other key processes such as business strategy, employee development, and total quality management.

Vertical integration
Integration is achieved vertically in two ways. First, it facilitates the integration or alignment of business strategic plans and goals with individual and team objectives. The agreed objectives are those that support the achievement of corporate goals. They take the form of interlocking objectives from the corporate level to the functional or business-unit level and down to teams and the individual level. Steps need to be taken to ensure that these goals are in alignment. This can be a cascading process so that objectives flow down from the top and, at each level, team or individual objectives are defined in the light of higher level goals. But it should also be a bottom-up process, individuals and teams being given the opportunity to formulate their own goals within the framework provided by the overall purpose and values of the organization.

Objectives should be agreed, not set, and this agreement should be reached through the open dialogues that should take place between managers and individuals continually. In other words, this needs to be seen as a partnership in which responsibility is shared and mutual expectations are defined.

Secondly, vertical integration takes place between the core values and capabilities of the organization and the values adopted and level of capability achieved by individuals. Some companies approach to integration thus: Setting up appraisal systems in a vacuum adds no value. They are merely a record of a convention that must take place in the context of the business strategy and annual plans. Creating the right context for the conversation is an essential part of successful performance management.HR has to develop and implement a range of strategies across the organization which enable excellent performance from all our employees.

Horizontal integration
Horizontal integration means aligning performance management strategies with other HR strategies concerned with valuing, paying, involving and developing people. It can act as a powerful force in integrating these activities. The impact of performance management on organizational effectiveness is enhanced because, along with the development of competence frameworks, it is the most important means of helping to integrate the various approaches that organizations can adopt to improving effectiveness through their processes for managing, motivating and developing people.

The approach is related to the concept of bundling , which is the development and implementation of several HR practices together so that they are interrelated and therefore complement and reinforce each other. This approach is accepted by many, and appeared in many books, who commented that one thing is clear from all the research: there is no point in investing in specific practices. Performance-related pay, psychometric tests in selection or extensive training will not in themselves bring bottom-line results. The key lies in finding the right bundle of practices .

The process of bundling is sometimes referred to as the use of complementarities or as the adoption of a configurational mode. The concept of bundling was explained as follows:
Implicit in the notion of a bundle is the idea that practices within bundles are interrelated and internally consistent, and that more is better with respect to the impact on performance, because of the overlapping and mutually reinforcing effect of multiple practices. The logic in favour of bundling is straightforward Since employee performance is a function of both ability and motivation, it makes sense to have practices aimed at enhancing both.

Performance management can and should be a holistic process that is concerned with motivation, development and, in its broadest sense, reward.

Performance Management

Balanced Scorecard - Customer Perspective

The scorecard process starts with the senior executive management team working together to translate its business unit's strategy into specific strategic objectives. To set financial goals, the team must consider whether to emphasize revenue and market growth, profitability, or cash flow generation. But especially for the customer perspective, the management team must be explicit about the customer and market segments in which it has decided to compete. For example, one financial institution thought its top 25 senior executives agreed about its strategy: to provide superior service to targeted customers. In formulating customer objectives for the scorecard, however, it became clear that each executive had a different definition as to what superior service represented and who were the targeted customers.

The process of developing operational measures for the scorecard brought consensus among all 25 executives as to the most desirable customer segments, and the products and services the bank should offer to those targeted segments. With financial and customer objectives established. an organization then identifies the objectives and measures for its internal business process. Such identification represents one of the principal innovations and benefits of the scorecard approach. Traditional performance measurement systems, even those that use many nonfinancial indicators. focus on improving the cost, quality, and cycle times of existing processes.

The Balanced Scorecard highlights those processes that are most critical for achieving breakthrough performance for customers and shareholders. Often this identification reveals entirely new internal processes that the organization must excel at for its strategy to be successful.

The final linkage, to learning and growth objectives, reveals the rationale for significant investments in reskilling employees, in information technology and systems, and in enhanced organizational procedures. These investments in people, systems, and procedures-generate major innovation
and improvement for internal business processes, for customers, and, eventually, for shareholders.

CASCADING THE BALANCED SCORECARD

The effects of constant change on the modern business organization are difficult to overstate. Regardless of size, market, location, or maturity, every company in every industry is facing tremendous change. The electric utility industry is certainly not immune to the new realities, and is facing fundamental change of its own, as many jurisdictions around the world begin to deregulate the industry. As the industry prepares itself for the challenges and opportunities of the 21st century, it has started to examine new strategies, build on previously unconsidered synergies, and look for tools to effect the changes necessary to thrive in this new landscape.

For many companies utilizing the BSC, the method has evolved from a measurement tool to what Robert Kaplan and David Norton describe as a "Strategic Management System." Used in this manner, the BSC allows an organization to link short-term actions with long-term strategy by integrating the system into key management processes. BSC has been linked to many critical systems. For example, the annual business planning and budgeting process is now driven by the Balanced Scorecard. This new system is called "Strategic Resource Allocation," because it provides the opportunity to display how resource allocation decisions directly influence the achievement of strategy. The Scorecard is also linked to the incentive compensation system, and has been cascaded throughout the company to ensure goal alignment at every level.

Perhaps most importantly, the BSC is a powerful communication tool, signalling to everyone in the organization key success measures, and how they can influence them. Kaplan and Norton suggest that a well-constructed Scorecard should tell the story of the organization's strategy through a series of cause-and-effect relationships inherent in the measures. While the development of these measures can prove a challenging task, the results are worth the effort because the Scorecard will then provide a focal point for disseminating strategy throughout the entire workforce.

Producing a series of aligned Scorecards throughout the organization ensures maximum effectiveness of the Scorecard system. By cascading, we are able to use the BSC in all three ways described above: measurement tool, strategic management system, and communication aid.

Many companies started by creating a high-level Corporate Balanced Scorecard, representing the critical drivers of future success for the corporate entity. Consistent with Scorecard theory, the company worked hard to create a document that told the story of their strategy and after minor modifications, they created a multifaceted business performance tool.

At its core, the new Scorecard was a measurement system. Tracking results on objectives and measures helped gauge the effectiveness in fulfilling company strategies. More than that, it allowed the corporation the plans to create a strategic management system by linking the Scorecard to compensation and business planning, management reviews, and other key processes. Finally, the Scorecard served as a powerful communication tool. By distributing the Scorecard, every employee in the company was aware of the company's vision, strategies, and measures of success.

The question to consider was this: Did mere awareness of corporate vision and strategies lead to change at all levels of the organization? Literature on creativity and motivation in the workforce suggests that informed employees do in fact exhibit greater creativity.

To truly maximize the effectiveness of the Balanced Scorecard, it had to align individual employee performance with overall company strategies. The goal was to give every employee the opportunity to display how their day-to-day actions could influence the achievement of the company's key strategies.

That is what the idea of cascading is all about — creating a line of sight from the employee on the shop floor back to the company's long-term strategies. Kaplan and Norton consider cascading the Scorecard an important method of increasing employees' intrinsic motivation; a method that leads to innovation and problem solving. Given these advantages, cascading the Scorecard to ensure goal alignment is a natural extension of the process.

The Balanced Scorecard as a Management System

Many companies already have performance measurement systems that incorporate financial and non-financial measures. While virtually all organizations do indeed have financial and nonfinancial measures, many use their nonfinancial measures for local improvements, at their front-line and customer-facing operations. Aggregate financial measures are used by senior managers as if these measures could summarize adequately the results of operations performed by their lower and mid-level employees. These organizations are using their financial and non-financial performance measures only for tactical feedback and control of short-term operations.

The Balanced Scorecardemphasizes that financial and non-financial measures must be part of the information system for employees at all levels of the organization. Front-line employees must understand the financial consequences of their decisions and actions; senior executives must understand the drivers of long-term financial success. The objectives and the measures for the Balanced Scorecard are more than just a somewhat adhoc collection of financial and non-financial performance measures; they are derived from a top-down process driven by the mission and strategy of the business unit. The Balanced Scorecard should translate a business unit's mission and strategy into tangible objectives and measures. The measures represent a balance between external measures for shareholders and customers, and internal measures of critical business processes, innovation, and learning and growth. The measures are balanced between the outcome measures-the results from past efforts-and the measures that drive future performance. And the scorecard is balanced between objective, easily quantified outcome measures and subjective, somewhat judgmental, performance drivers of the outcome measures.

The Balanced Scorecardis more than a tactical or an operational measurement system. Innovative companies are using the scorecard as a strategic management system, to manage their strategy over their long run. They are using the measurement focus of the scorecard to accomplish critical management processes:

1. Clarify and translate vision and strategy
2. Communicate and link strategic objectives and measures
3. Plan, set targets, and align strategic initiatives
4. Enhance strategic feedback and learning

Balanced Scorecard

The BSC was developed in the early 1990's by Drs. Robert Kaplan and David Norton. The balanced scorecard is a management system that enables organisations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results.

The balanced scorecard suggests that we view an organisation from four perspectives. It develops metrics, collects data and analyses the data relative to each of these perspectives as illustrated in the diagram below.

BALANCED SCORECARD

Basic Concepts : Accountants communicate with financial statements. Engineers communicate with as-built drawings. Architects communicate with physical models. It seems that almost every profession has some means of communicating clearly to the end user. However, for people engaged in strategic planning there has been an on-going dilemma. The finished product, the strategic plan, has not communicated and reached the end user. Sure strategic plans are nice to look at, full of bar charts, nice covers, well written, and professionally prepared; but they simply have not impacted the people who must execute the strategic plan. The end result has been poor execution of the strategic plan throughout the entire organization. And the sad fact of the matter is that execution of the strategic plan is everybody’s business, not just upper level management. Upper level management creates the strategy, but execution takes place from the bottom up.

So why do strategic plans fail? According to the Balanced Scorecard Collaborative, there are four barriers to strategic implementation:

1. Vision Barrier – No one in the organization understands the strategies of the organization.
2. People Barrier – Most people have objectives that are not linked to the strategy of the organization.
3. Resource Barrier – Time, energy, and money are not allocated to those things that are critical to the organization. For example, budgets are not linked to strategy, resulting in wasted resources.
4. Management Barrier – Management spends too little time on strategy and too much time on short-term tactical decision-making.

Therefore, we need a new way of communicating strategy to the end-user. Enter the Balanced Scorecard. At long last, strategic planners now have a crisp and clear way of communicating strategy. With balanced scorecards, strategy reaches everyone in a language that makes sense. When strategy is expressed in terms of measurements and targets, the employee can relate to what must happen. This leads to much better execution of strategy.

Not only does the Balanced Scorecardtransform how the strategic plan is expressed, but it also pulls everything together. This is the so-called “cause and effect” relationship or linking of all elements together. For example, if you want strong financial results, you must have great customer service. If you want great customer service, you must have excellent processes in place (such as Customer Relations Management). If you want great processes, you must have the right people, knowledge, and systems (intellectual capital).

In the past, many components for implementing a strategic plan have been managed separately, not collectively within one overall management system. As a result, everything has moved in different directions, leading to poor execution of the strategic plan. Like a marching band, everyone needs to move in lockstep behind one overall strategy.

Therefore, you should think of the Balanced Scorecard as a management system, not just another performance measurement program. And since strategy is at the center of value-creation for the organization, the Balanced Scorecard has become a critical management system for any organization. In 1997, Harvard Business Review called the Balanced Scorecard one of the most significant business developments of the previous 75 years.

Balanced scorecardsprovide the framework around which an organization changes through the execution of its strategy. This is accomplished by linking everything together.

This is what makes the Balanced Scorecard so different; it captures the cause and effect relationship throughout every part of the organization. In the case of Mobil Oil, the truck driver pulls a balanced scorecard off the visor in his cab, outlining the five things he must do as a truck driver. Like a laser beam, strategy now has a clear path to everyone in the organization.