Corporate Performance  Management
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Corporate Performance Management. Performance Management Framework. Vision Mission Strategy. Strategy Map. Key Performance Indicators. Company strategy. Identifying Defining Measuring Monitoring Reporting . Performance Management Process. Performance Management Component.

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Corporate performance management

Corporate Performance Management


Corporate performance management

Performance Management Framework

Vision

Mission

Strategy

Strategy Map

Key Performance Indicators

Company

strategy

Identifying

Defining

Measuring

Monitoring

Reporting


Corporate performance management

Performance

Management

Process

Performance Management Component

Three critical components for effective process of performance management

Performance management cycle is continuous and consistent

Performance Management

Infrastructure

Performance

Management

Culture

Logistic support and performance management administration

Culture that is based on performance accountability


Corporate performance management

Our responsibility to continuously develop

Creating Good-to-GREAT Company


Corporate performance management

Moving from Good to Great

The good-to-great leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it


Corporate performance management

Moving from Good to Great

The key point of this element is not just the idea of getting the right people on the team.


Corporate performance management

Moving from Good to Great

The key point is that "who" questions come before "what" decisions—before vision, before strategy, before organisationstructure, before tactics. First who, then what — as a rigorous discipline, consistently applied.


Corporate performance management

Performance Management Cycle

STRATEGY

Set Measures and Target

Reward and Coach

Plan and Execute

Monitor and Evaluate


Tools for performance measurement

Tools for Performance Measurement

  • Financial Budgets

  • Introduced in 1992

    • Robert Kaplan and David Norton

    • is the most commonly used framework for ensuring that agencies execute their strategies

    • today, about 70% of the Fortune 1,000 companies utilise the Balanced Scorecard to help manage performance.

  • Definition:

    • The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organistionis progressing towards the achievement of its strategic goals.


The balanced scorecard why

The Balanced Scorecard; Why?

The Balanced Scorecard:

  • Balances financial and non-financial measures

  • Balances short and long-term measures

  • Should contain just enough data to give a complete picture of organizational performance… and no more!

  • Quantifies the Agency Strategy in measurable terms

  • Leads to strategic focus and organizational alignment.

  • Must capture a cause-effect relationship between strategic objectives over the four perspectives on the Strategy Map.


The balanced scorecard why do it

The Balanced Scorecard; Why do it?

To achieve strategic objectives.

To provide quality with fewer resources.

To eliminate non-value added efforts.

To align customer priorities and expectations with the customer.

To track progress.

To evaluate process changes.

To continually improve.

To increase accountability.


Corporate performance management

Managing Performance with Balanced Scorecard

Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organisation is progressing towards the achievement of its strategic goals.


Building performance using the balanced score card as a tool

Building Performance using the ‘BalancedScore card’ as a tool


Corporate performance management

A Sample of Users of the balanced score card


Corporate performance management

Balanced Approach

  • The oldest approach of performance measurement is using financial measures.

  • In 1991, scholars of Harvard started to question the validity of measuring performance by means of financial measures only.

  • Egan (1995) argued that financial indicators are not only liable to distort the realities of business but also tend to lag rather than lead success.

  • Performance Measurement System “has a series of measures that provide information about the operation of many different processes” (Robert, Vijay, 1998).

  • Balanced Scorecard is an approach to implementing Performance Measurement System. Kaplan and Norton originally developed this concept in 1992.

  • Kaplan and Norton (1992) stated, “No single measure can provide a clear performance target or focus attention on the critical areas of the business.”


Corporate performance management

Balanced Approach

  • Kaplan and Norton (1992) divided the measurements in four perspectives of organisation performance, namely; financial management, customer service, internal business process efficiency and learning and development.

  • According to Kaplan and Norton (1992), the Balanced Scorecard endeavours to create a blend of strategic measures: outcome and driver measures, financial and non-financial measures, and internal and external measures.


Corporate performance management

Balanced Approach

  • As Canada’s Management Accounting Guideline, ‘Applying the Balanced Scorecard’, states:

  • “Managers can use the Balanced Scorecard as a means to articulate strategy, communicate its details, motivate people to execute plans, and enable executives to monitor results. Perhaps the prime advantage is that the broad array of indicators can improve the decision-making that contributes to strategic success. Non-financial measures enable managers to consider more factors critical to long-term performance. In addition, the Balanced Scorecard can help organisations strategically manage the alignment of cause-and-effect relationships of external market forces” (Crawford, 2005).


Mission and objectives

Mission and objectives

Vision

Mission

Goals and objectives


Levels of strategy

Levels of Strategy

Corporate

Business

Functional


Conflict between objectives

Conflict between objectives

Sources of goal conflict

  • Between short term/ long term goals

  • Between different stakeholder groups

  • Means/ends conflicts

  • Within the stakeholder group


Conflict between objectives1

Conflict between objectives

Resolving conflicting objectives

  • Satisfying (…the most powerful?!)

  • Sequential attention

  • Side payments

  • Prioritisation

  • Bargaining


Other views on objectives

Other views on objectives

Drucker

  • multiple objectives (covering 8 areas)

    Cyert and March

  • coalitions of stakeholders leading to compromise

    Simon

  • satisfice to combine needs of all stakeholders


Scope of ethical issues

Scope of Ethical Issues

  • Support for the disadvantaged

  • Dealing with unethical companies or countries

  • Treatment of stakeholders

  • Treatment of animals

  • Green Issues


Objective setting

Objective setting

Horizontal consistency

Time consistency

Mission

Vertical consistency

Corporate

Business

Operational

Individual


Corporate performance management

Organisational Systems Analysis

Corporate Goals

Targets

Customer

Financial

Employee

Internal Processes

Strategic Obj

Strategic Obj

Strategic Obj

Strategic Obj

Performance Optimisation

Process

Departmental Objectives- Aims

Planned Objectives

Targets- KPIs

Management reviews tactical

actions

Mang feedback-Quarterly Reports

Implemented dept

“a” objectives

Implemented dept

“b” objectives

Implemented dept “c”

objectives

Indiv

Indiv

Indiv

Indiv

Indiv

Indiv

Appraisal

Appraisal

Appraisal

Appraisal

Appraisal

Appraisal

Set Objectives

Set Objectives

Set Objectives

Actual KPIs Achieved

Analyses of variances

Recommended

Performance Improvement Actions


Corporate performance management

Managing Performance with Balanced Scorecard

  • Balances financial and non-financial measures

  • Balances short and long-term measures

  • Balances performance drivers (leading indicators) with outcome measures (lagging indicators)

  • Leads to strategic focus and organisational alignment.


Corporate performance management

4 Perspectives in Balanced Scorecard

The Strategy

Financial Perspective

If we succeed, how will we look to our shareholders?

Customer Perspective

To achieve our vision, how must we look to our customers?

Internal Perspective

To satisfy our customers, which processes must we excel at?

Learning & Growth Perspective

To achieve our vision, how must our organization learn and improve?


Corporate performance management

Strategy and Balanced Scorecard

Mission – Why We Exist

Strategy Map : Translate the Strategy

Strategic Outcomes

Vision – What We Want to Be

Satisfied Shareholders

Strategy :

Our Game Plan

Delighted Customers

Balanced Scorecard : Measure and Focus

Excellent Processes

Values – What’s Important to Us

Motivated Workforce


Corporate performance management

Strategy Map Framework

Long-term Shareholder Value

Cost Efficiency

Revenue Growth

Financial

Price

Quality

Service

Availability

Brand

Customer

Regulatory

and Social

Processes

Operations

Management

Processes

Customer

Management

Processes

Innovation

Processes

Internal Process

Learning & Growth

Human Capital

Organisation Capital

Information Capital


Corporate performance management

Financial Perspective

  • In the financial perspective, the strategic goal is the long-term shareholder value. This goal is driven by two factors, namely : revenue growth and cost efficiency.


Corporate performance management

Strategic Objectives in Financial

Long-term Shareholder Value

Cost Efficiency

Revenue Growth

Expand Revenue Opportunities

Improve Cost Structure

Increase Asset Utilisation

Enhance Customer Value


Corporate performance management

Customer Perspective

  • This perspective is very instrumental, because without customers, how can an organisation survive?

  • Customer perspective covers the following elements:

    • Customer acquisition

    • Customer retention

    • Customer profitability

    • Market share

    • Customer satisfaction


Corporate performance management

Strategic Objectives in Customer

Customer Retention

Customer Profitability

Customer Satisfaction

Market Share

Customer Acquisition

Price

Quality

Service

Availability

Brand


Corporate performance management

Internal Process Perspective

  • This perspective reflects the processes in key business that should be optimized in order to meet the needs of the customers.

  • There are four main themes in this perspective, namely:

    • Operations Management Process

    • Customer Management Process

    • Innovation Process

    • Regulatory and Social Process


Corporate performance management

Strategic Objectives in Internal Process

Operations

Management

Processes

Customer

Management

Processes

Regulatory

and Social

Processes

Innovation

Processes

Processes that produce and deliver products and services

Processes that enhance customer value

Processes that create new products and services

Processes that improve communities and the environment

  • Supply

  • Production

  • Distribution

  • Selection

  • Acquisition

  • Retention

  • Growth

  • New Ideas

  • R&D Portfolio

  • Design/ Develop

  • Launch

  • Environment

  • Safety & Health

  • Employment

  • Community


Corporate performance management

Learning & Growth Perspective

  • This perspective reflects the capability that an organisation should have, namely:

    • Human Capital

    • Organisation Capital

    • Information Capital

  • This perspective shows us that good human resource development system, organisational system and information system forms a solid foundation for improving organisational performance.


Corporate performance management

Strategic Objectives in Learning & Growth

Organisation Capital

Information Capital

Human Capital

  • Skills

  • Knowledge

  • Attitude

  • Culture

  • Leadership

  • Organisation Development

  • Systems

  • Database

  • Networks


Corporate performance management

Strategy Map Template

Enhance Long-term Shareholder Value

Improve

Cost Efficiency

Increase Revenue Growth

Financial

Build High Performance Products

Expand

Market Share

Enhance

Brand Image

Customer

Drive Demand through Customer Relation Management

Achieve Operational Excellence

Implement Good

Environmental Policy

Manage Dramatic Growth through Innovation

Internal Process

Learning & Growth

Develop Strategic Competencies

Build Learning

Culture

Expand Capabilities with Technology


Corporate performance management

Key Performance Indicators (KPI)

KPI = Measurement or indicator that provides information on how far we have succeeded in achieving the strategic objectives

Vision

Mission and Values

Strategy

Strategic Objectives

Key Performance Indicators

Finance

Key Performance Indicators

Customer

Internal Business Process

Key Performance Indicators

HR Development


Corporate performance management

KPI Guidelines

Guidelines in Formulating the KPI

  • The measure of success must show clear, specific and measurable performance indicators.

  • The measure of success should be declared explicitly and in detail so that it is clear what is being measured.

  • Costs to identify and monitor the measure of success should not exceed the value that will be known from the measurement.


Corporate performance management

KPI Guidelines

Relevant to the Strategic Objective

Does KPI have a linkage with the strategic objectives?

Are the KPI achievements still under control?

Controllable

Can any action be taken to improve the performance?

Actionable

Simple

Is the KPI easy to explain?

Credible

Is the KPI not easy to manipulate?


Corporate performance management

Environmental Scan

Strengths Weaknesses

Opportunities Threats

A Model for

Strategic

Planning

Values

Mission &

Vision

Strategic Issues

Strategic Priorities

Objectives, Initiatives, and Evaluation


The strategy focused organi s ation

The Strategy Focused Organisation

Source: The Strategy Focused Organization, Norton & Kaplan

  • The Five Principles

  • Translate the strategy to operational terms.

  • Align the organisation to the strategy.


The strategy focused organi s ation1

The Strategy FocusedOrganisation

Source: The Strategy Focused Organization, Norton & Kaplan

  • The Five Principles (cont.)

  • Make strategy everyone’s job.

  • Make strategy a continual process.

  • Mobilise change through executive leadership


The balanced scorecard and the big picture

The Balanced Scorecard and The Big Picture

  • Activity Based Costing

  • Economic Value Added

  • Forecasting

  • Benchmarking

  • Market Research

  • Best Practices

  • Six Sigma

  • Statistical Process Control

  • Reengineering

  • ISO 9000

  • Total Quality Management

  • Empowerment

  • Learning Organization

  • Self-Directed Work Teams

  • Change Management


Four views of performance

Strategy can be described as a series of cause and effect relationships.

Provides a “line of sight” from strategic to operational activity

working on the “right” things.

“If we succeed, how will we look to our stakeholders?”

“To satisfy our customers, at which processes must we excel?

"To execute our processes, how must our organization learn and improve?"

“In order to succeed, what investments in people and infrastructure must we make?”

Stakeholders

Internal Processes

Learning & Growth

Agency Investments

Four Views of Performance

Strategic Objectives


Corporate performance management

Examples of Measurements by Perspective

Internal Processes

Stakeholder / Customer

  • Current customer satisfaction level

  • Improvement in customer satisfaction

  • Customer retention rate

  • Frequency of customer contact by customer service

  • Average time to resolve a customer inquiry

  • Number of customer complaints

  • Number of unscheduled maintenance calls

  • Production time lost because of maintenance problems

  • Percentage of equipment maintained on schedule

  • Average number of monthly unscheduled outages

  • Mean time between failures

Learning and Growth

Investments

  • % of facility assets fully funded for upgrading

  • % of IT infrastructure investments approved

  • # of new hire positions authorized for filling

  • % of required contracts awarded and in place

  • Percentage employee absenteeism

  • Hours of absenteeism

  • Job posting response rate

  • Personnel turnover rate

  • Ratio of acceptances to offers

  • Time to fill vacancy


Why measure

Why Measure?

  • To determine how effectively and efficiently the process or service satisfies the customer.

  • To identify improvement opportunities.

  • To make decisions based on FACT and DATA


Measurements should

Measurements Should:

  • Translate customer expectations into goals.

  • Evaluate the quality of processes.

  • Track our improvement.

  • Focus our efforts on our customers.

  • Support our strategies.


Selection criteria for performance measurements

Selection Criteria for Performance Measurements

  • MEANINGFUL - related significantly and directly to organizations mission and goal

  • VALUABLE – measure the most important activities of the organization

  • BALANCED – inclusive of several types of measures (i.e. quality, efficiency)

  • LINKED - matched to a unit responsible for achieving the measure

  • PRACTICAL – affordable price to retrieve and/or capture data

  • COMPARABLE – used to make comparisons with other data over time

  • CREDIBLE - based on accurate and reliable data

  • TIMELY - use and report data in a usable timeframe

  • SIMPLE -- easy to calculate and understand


Initiatives

Initiatives

Once measures and targets are established, it is the responsibility of management to determine HOW the organisation will achieve its goals.

Measures are used to determine the effectiveness of strategic initiatives.


The leadership team

The Leadership Team

Develops the division’s vision, strategy and goals

Develops organisational objectives and targets

Provides leadership, endorsement and vision for the project

Clears barriers to scorecard progress


The core team

The Core Team

Drafts the strategy map and scorecard

Works with employees to develop measures supporting strategic objectives

Works with the Leadership Team to plan and implement the Balanced Scorecard


The importance of alignment

Complete Framework for IRPS

Strategy

Objectives

Measures

Agency

Department

Team/

Individual

The Importance of Alignment


In order to be successful the agency s targets should

In order to be successful, the Agency’s Targets should . . .

  • Be comprised of a balanced set of a limited vital few measures;

  • Produce timely and useful reports at a reasonable cost;

  • Display and make readily available information that is shared, understood, and used by the Agency; and

  • Supports the organisation’s values and the relationship the organisation has with customers, suppliers, and stakeholders.


The balanced scorecard as a management system

The Balanced Scorecard as a Management System

BSC reviewed regularly to enhance operational decision-making

Success of initiatives assessed based on DATA… not opinions

Leading indicators evaluated to confirm accuracy of assumptions


The balanced scorecard as a management system1

The Balanced Scorecard as a Management System

The BSC is a “Living Document” that requires regular revision of objectives, measures and initiatives:

How are we doing?

Are we measuring the right things?

What initiatives do we need to get us where we want to go?

Have our organizational goals changed?


Performance optimisation in the hospitality industry

Performance Optimisation in the Hospitality Industry

Performance Appraisal


Performance management

Performance Management

  • Performance appraisal: the measurement and assessment of an employee’s job performance

  • Performance management: the integration of performance appraisal systems with other HRM systems for the purpose of aligning the employees’ work behaviors and results with the organisation’s goals

    • Example: link an employee’s pay increase to the employee’s job performance

      • To do this, we have to measure the employee’s job performance

    • Goal: Improve the organization by improving the employees’ work behaviors and results


Performance management frameworks

Performance Management Frameworks

“A successful performance management framework aims to improve the organisation’s performance through the enhanced performance of individuals”

Performance Enhancement

Acquire Knowledge

Performance Optimisation


Performance management1

Performance Management

  • “Performance management is the process of creating a work environment or setting in which people are able to perform to the best of their abilities” (Thake, 2003).

  • It is a work system that begins when a person is employed to perform a job and finishes when the worker leaves the organisation.

  • “It is owned and driven by line management in different divisions or departments” (Thake, 2003). But even though it is owned and driven by line managers it concerns everyone in the business. “It rejects the cultural assumption that only managers are accountable for the performance of their teams and replaces it with the belief that responsibility is shared between managers and team member” (Armstrong, 2002).


Corporate performance management

Performance Appraisals

“The achievement of your goal is assured the moment you commit

yourself to it.”

Michael Douglas


Performance appraisals some views

Performance Appraisals- Some Views

‘Managers are comfortable when they are in a position of playing God’ Mc. Gregor

‘The annual performance appraisal may be the most universally hated ritual in corporate life’ Block

‘The process of performance appraisals is of most importance in Human Resources Management’ Baruch

‘To abandon or abuse the performance appraisal process is a breach of business ethics’ Axline


What is a performance appraisal

What is a Performance Appraisal?

ABOVE ALL PERFORMANCE APPRAISALS ARE A MEANS TO MOTIVATE EMPLOYEES!!!

The guiding principle must be:

  • How can you improve things for the appraisee;

  • How can you develop their talents to the benefit of the organisation.


Performance management2

Communicate

Set Goals

Observe

Evaluate

Performance Management

An iterative process of goal-setting, communication, observation and evaluation to support, retain and develop exceptional employees for organizational success.


Why manage employee performance

Why Manage Employee Performance?

  • To reach organizational mission and goals

  • Encourage and reward behaviors aligned with organizational mission and goals

  • Curb or redirect non-productive activities


What do employees expect

Clear expectations

Positive/constructive feedback on a regular basis

Involvement in goal setting

Be treated fairly and consistently

Sharing of information and resources

Job/career enrichment opportunities

What do Employees Expect?


Your experience

Think about your last review:

What thoughts come to mind?

What went right, what went wrong?

Your Experience


Performance management cycle

Performance Management Cycle

Source of figure: Adapted from Fisher, Schoenfeldt, & Shaw (2006), Figure 10.1, p. 421

Development Tool

Administrative Tool


Functions of performance appraisal

Functions of Performance Appraisal

  • Employee Development Tool

    • Goal setting: Set performance goals for each employee

      • Involve the employee in goal setting

      • Make the goals specific, concrete, & measurable

        • Example goals (some of many) for a retail store manager:

          • Sales goal for year = €2 million

          • Customer satisfaction goal = average rating of 4.5 on 5-point customer satisfaction rating scale

      • Make the goals difficult but achievable, challenging but realistic

      • Empower employees to achieve their goals


Functions of performance appraisal1

Functions of Performance Appraisal

  • Employee Development Tool (more)

    • Provide feedback to reinforce & sustain performance

      • Employees need to know how they are doing

    • Provide help & advice to improve performance

      • Be a coach in addition to being a boss

    • Assist employees in achieving career progression goals

    • Determine training needs

      • Do employees have job performance deficiencies for which training would be an effective remedy?


Functions of performance appraisal2

Functions of Performance Appraisal

  • Administrative Tool

    • Link rewards to performance

      • Examples: pay increases, promotions, demotions, terminations, disciplinary actions, etc.

      • Goal: Create incentives to motivate employees to increase their performance

    • Evaluate HRM policies & programmes

      • Example: Evaluate a training programme: Measure job performance before and after training to see if performance improved


Criteria for effective performance appraisal systems

Criteria for Effective Performance Appraisal Systems

  • 1. Validity: are we measuring the right thing?

    • Are we really measuring job performance?

      • We want to measure important (“relevant”) aspects of job performance, in a way that is free from extraneous or contaminating influences, and that encompasses the whole job (i.e., our measures of job performance are not “deficient”: we aren’t leaving out important aspects of job performance)

  • 2. Reliability: consistency of measurement

    • Example: inter-rater reliability

      • If two people observe a particular employee’s job performance, do they agree in their rating of the employee’s performance?


Criteria for effective performance appraisal systems1

Criteria for Effective Performance Appraisal Systems

  • 3. Freedom from bias

    • It does not illegally discriminate (race, sex, age, etc.)

    • It is free from rating errors (intentional or unintentional):

      • Leniency errors

      • Severity errors

      • Central tendency errors

      • Halo errors

  • 4. Practicality

    • The benefits the organization gets from using it should outweigh the costs of developing & using it

      • Utility analysis

    • It should be relatively easy to use

    • It should be accepted by managers and employees


Types of performance to measure

Types of Performance to Measure

  • What aspects of an employee’s job performance can we measure?

    • We have 3 basic choices:

      • Results produced by the employee

        • Example for a salesperson: Amount of sales (€) in the past month

      • Behaviours of the employee

        • Example for a salesperson: Number of sales calls in the past month

      • Traits of the employee

        • Example for a salesperson: Friendliness


Types of performance to measure1

Types of Performance to Measure

  • Results-based (results-oriented): measure the results produced by the employee

    • Examples for a retail store manager (examples of some results for which the store manager has responsibility and so should be held accountable):

      • Sales of the store

      • Profit per square foot

      • Inventory shrinkage

      • Customer satisfaction

    • Makes sense for most jobs

      • Results matter (usually)


Types of performance to measure2

Types of Performance to Measure

  • Results-based (more)

    • Challenges:

      • Which results are relevant may not be obvious for all jobs

      • Some results are not under the employee’s control

      • May foster a “results at all costs” mentality

      • May interfere with teamwork

      • May be difficult to provide effective feedback


Types of performance to measure3

Types of Performance to Measure

  • Behaviour-based (behaviour-oriented): measure the employee’s behaviours

    • Examples for a retail store manager:

      • Good attendance

      • Completes management reports correctly & on time

      • Monitors customers and employees for theft

      • Coaches employees to welcome customers to the store & offer assistance within 3 minutes, and to thank customers as they leave

      • Conducts regular sessions with employees to develop teamwork

    • Makes sense for many jobs

      • Use it where how the employee produces results matters


Types of performance to measure4

Types of Performance to Measure

  • Behaviour-based (more)

    • Advantage: Makes it easier to provide effective performance feedback to employees

      • Examples for a retail store manager:

        • Feedback with results-oriented performance appraisal: “You didn’t achieve your sales goal.” (Measured by sales reports)

        • Feedback with behaviour-oriented performance appraisal: “You are allowing your employees to wait too long before offering help to customers.” (Measured by observations of a secret shopper)

    • Challenges:

      • Difficult to capture the full range of relevant behaviours

      • Different behaviours can lead to the same results

        • We may not always care which behaviors were used


Types of performance to measure5

Types of Performance to Measure

  • Trait-based (trait-oriented): measure the employee’s personal characteristics

    • Examples for a retail store manager:

      • Ability to make decisions

      • Loyalty to the company

      • Communication skills

      • Level of initiative

    • This is usually a bad idea for several reasons:

      • Poor reliability & validity of measures of traits

      • Weak relationship between traits and job effectiveness

      • Measurements of traits are more likely to be subject to biases (sexism, racism, ageism, etc.)

      • Hard to use traits to provide effective feedback


Types of performance to measure6

Types of Performance to Measure

  • So, in most cases, we want to measure the job performance of an employee in terms of the results and behaviors of the employee

    • Make a list of results & behaviours that are relevant to the job

      • Starting point: Use the job description to identify the essential tasks of the job

        • Example task statement on job description for a Retail Store Manager: “Manage inventory shrinkage.”

      • Translate the tasks into results & behaviours

        • Example (continued): Measure the amount of inventory shrinkage in the store (a result)


Performance appraisal methods

Performance Appraisal Methods

  • Once we decide which results & behaviours we want to measure, we next need to decide how to measure those results & behaviours

    • We have 3 categories of choices:

      • Objective measures of performance

      • Subjective measures of performance

      • Management By Objectives


Performance appraisal methods1

Performance Appraisal Methods

  • Objective measures: measure an employee’s job performance in terms of things we can see and count with no (or minimal) use of opinion

    • Production measures: count units produced by an employee

    • Sales measures: count the sales (€) of an employee

    • Personnel data: count things in the employee’s personnel file

      • Examples:

        • Number of times late to work

        • Number of times absent

        • Number of disciplinary actions taken


Performance appraisal methods2

Performance Appraisal Methods

  • Objective measures (more):

    • Performance tests: for an employee, evaluate work samples or simulations under standardized conditions

      • Example: for an airline pilot, program a flight simulator with specific flight conditions to test if the pilot handles it correctly

    • Business unit performance measures: for managers who are responsible for a business unit, measure their performance by measuring the performance of the business unit they lead

      • Examples:

        • Market share of the business unit

        • Profit measures for the business unit: profits & profit rates (return on sales, return on assets, return on equity)

        • Stock price


Performance appraisal methods3

Performance Appraisal Methods

  • Subjective measures: measure an employee’s job performance using human judgment

    • Ranking: subjectively rank employees from best to worst

      • Example:1. Bob2. Carol3. Ted4. Alice

      • Note carefully that the ranking is in terms of subjective opinion (e.g., who is your best salesperson overall?), not objective factors (e.g., which salesperson sold the most?)

      • Note the ranking requires you to compare one employee to another

      • Problem: it can be hard to determine the subjective ranking position of employees who are in the middle (it all blurs together)


Performance appraisal methods4

Performance Appraisal Methods

  • Subjective measures (more)

    • Rating scale (graphic rating scale): subjectively rate the employee’s job performance on a labeled numeric measuring scale

      • Rating scales are perhaps the most commonly used method of subjectively evaluating an employee’s job performance

      • Before we use a rating scale to subjectively rate an employee’s job performance, we need to:

        • Identify the aspects of job performance (results & behaviors) that are to be evaluated (rated) using the rating scale

        • Develop the rating scale itself


Performance appraisal methods5

Rating Scale Examples

Performance Appraisal Methods

Rating Scale Examples

Examples of a 5-point scale:

5 = Excellent4 = Very satisfactory3 = Satisfactory2 = Unsatisfactory1 = Very unsatisfactory

5 = Greatly exceeds standards4 = Exceeds standards3 = Meets standards2 = Below standards1 = Far below standards

Example of a 7-point scale:

7 = Truly exceptional6 = Excellent5 = Very good4 = Good3 = Satisfactory2 = Unsatisfactory1 = Very unsatisfactory


Performance appraisal methods6

Performance Appraisal Methods

  • Subjective measures (more)

    • Rating scale (more)

      • The same rating scale can be used to rate:

        • Overall job performance, and

        • Multiple specific aspects of job performance

      • Some aspects of job performance can be measured objectively and subjectively

        • Example: Quality of work

          • Objective measure: defect rate (percentage of units produced by an employee that fail inspection)

          • Subjective measure: subjectively rate the quality of the employee’s work using a 5-point rating scale


Performance appraisal methods7

Performance Appraisal Methods

  • Subjective measures (more)

    • Rating scale (more)

      • Example: MSU Course Evaluation Form

        • Note how the same 5-point rating scale is used to evaluate several different aspects of the professor’s job performance:

          • Course as a whole

          • Instructor’s contribution to the course

          • Use of class time

          • Etc.


More examples of rating scales

More Examples of Rating Scales

  • Decisions:

    • Use a graphic or just use words?

    • Label all the points on the scale, or just label some?

    • Odd or even number of points on the scale?

    • Fewer points on the scale, or more points on the scale?

      Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 10.6, p. 449


Performance appraisal methods8

Performance Appraisal Methods

  • Management By Objectives (MBO): evaluate employee job performance in terms of the extent to which the employee achieved each of his or her goals during a specified period of time

    • Goals can be both objective and subjective

      • Example goals (some of many) for a retail store manager:

        • Objective: Sales goal for year = €2 million

        • Subjective: Customer satisfaction goal = average rating of 4.5 on 5-point customer satisfaction rating scale

  • Commonly used for managers and professionals


Performance appraisal methods9

Performance Appraisal Methods

  • MBO (more)

    • Process:

      • At the beginning of the review period, the employee and the supervisor meet and they agree on a set of goals to be achieved by the employee during the review period

        • Review period is typically one year, but could be more often

        • Apply the goal setting principles:

          • Involve the employee in goal setting

          • Make the goals specific, concrete, & measurable

          • Make the goals difficult but achievable, challenging but realistic

          • Empower employees to achieve their goals


Performance appraisal methods10

Performance Appraisal Methods

  • MBO (more)

    • Process (more):

      • Throughout the review period, progress toward the goals is monitored

        • Employee’s supervisor should be providing coaching to help the employee achieve his or her goals

      • At the end of the review period, the employee and the supervisor meet to evaluate the extent to which each goal was achieved and to set new goals for the next review period


Performance raters evaluators

Performance Raters (Evaluators)

  • Who should be asked to evaluate the job performance of an employee?

    • Performance evaluators need to have:

      • Opportunity to observe the employee’s job performance

      • Ability to translate observations of performance into an evaluation of performance

      • Motivation to do a good job of observing & evaluating


Performance raters evaluators1

Performance Raters (Evaluators)

  • Options for Job Performance Evaluators

    • Supervisors

    • Self-evaluation

    • Peers (co-workers)

    • Subordinates

    • Customers

      • External customers

      • Internal customers

    • 360-Degree Appraisals


Performance feedback

Performance Feedback

  • Employees need effective feedback

    • Allow time & eliminate distractions

    • Okay to cover both administrative issues (e.g., pay increase) & developmental issues (e.g., future goals) in one feedback session

    • Provide specific feedback

      • Example:

        • Don’t say: “You’re always late.”

        • Do say: “You were more than 5 minutes late on 25 occasions in the past 3 months. This is unacceptable. We need to develop (1) a specific goal concerning prompt attendance and (2) an action plan that you will follow to achieve the goal.”


Performance feedback1

Performance Feedback

  • Types of feedback sessions:

    • Tell-and-sell: the supervisor tells the employee the results of the performance appraisal and explains the reasons why the appraisal is correct

    • Tell-and-listen: the supervisor tells the employee the results of the performance appraisal and listens to the employee’s response

    • Problem solving: the supervisor acts as a coach to assist the employees in setting their own goals and in evaluating their own job performance


Performance feedback2

Performance Feedback

  • Types of feedback sessions (more):

    • Combination of tell-and-sell & problem solving:

      • First part of feedback session: tell-and-sell

        • Focus on the past:

          • Supervisor tells the employee the results of the performance appraisal and explains the reasons why the appraisal is correct

          • Supervisor tells the employee about any administrative decisions that were made (e.g., pay increases, etc.)

      • Second part of feedback session: problem solving

        • Focus on the future:

          • Supervisor acts as a coach to help the employee identify barriers to improved future job performance


Common mistakes

Common Mistakes

  • Labeling

  • Recency

  • Central Tendency

  • Leniency

  • Horns/Halo Effect

  • Constancy

  • Similarity


Tone atmosphere

Tone & Atmosphere

A Golden Rule of a performance appraisal is to be HONEST.


Performance appraisal

Performance Appraisal

  • Feedback is the breakfast of success;

  • Performance praised is performance repeated;

  • Performance Reviews: The emphasis is on ‘Praise’.


Employees do need to know where they stand

Employees do need to know where they stand!!!


Prior to the appraisal

Prior To The Appraisal

  • Fix a mutually convenient time (1 week prior to the review date set);

  • Do not fill the diary for the whole day with appraisal interviews;

  • Describe to the appraisee, in advance, the format and procedure to help allay fears;

  • Review in advance targets or special projects;

  • Prepare the interview room – somewhere which is informal;

  • Make sure any aggravation from a previous meeting is out of your system before starting the interview.


Prior to the appraisal1

Prior To The Appraisal

  • Collect all relevant performance information

    • Review last year’s objectives set;

    • Collate employee’s progress against Key Objectives;

    • Read and review job descriptions, standards of performance, priorities, personal file and performance documentation;

    • Gather performance input from others if applicable.


Corporate performance management

Beginning the Discussion

  • Be relaxed and put the appraisee at ease;

  • Outline the objectives, agenda and time allotted for the discussion;

  • Use the following structure:

    • Current performance;

    • Future objectives;

    • Development plan.


Beginning the discussion

Beginning the Discussion

  • Begin the discussion by inviting the employee to review themselves;

  • You and the employee exchange views on how each of you sees their performance;

  • Keep to the facts, do not let bias cloud your judgment;

  • Create a conversational atmosphere;

  • Ideally the individual should explain about the way they feel that they have performed over the last six months.


Putting yourself on level with the employee

PuttingYourself on Level with the Employee

The manager can put him/herself on a level with the employee by:

  • Positive use of language;

  • Allowing them to talk;

  • Creating the right environment.


Putting yourself on level with the employee1

PuttingYourself on Level with the Employee

Use of language:

  • Avoid things like “Now look here!” or “Now just you listen to me!”;

  • Keep language positive when dealing with areas of development;

  • Use open questions to invite comments and reactions from them.


Putting yourself on level with the employee2

PuttingYourself on Level with the Employee

Allowing them to talk:

  • Encourage them to talk, even if it means waiting in silence for them to reply. This can be difficult – but do not be tempted to interrupt and answer your own question;

  • Don’t feel you have to have all the answers;

  • If you find yourselves discussing some problem area, invite their suggestions for a solution.


Putting yourself on level with the employee3

PuttingYourself on Level with the Employee

Creating the right environment:

  • Provide informal setting arrangements;

  • Ensure no interruptions;

  • Have refreshments available.


Corporate performance management

Using Interpersonal Skills

  • Listen more than you speak;

  • Keep the discussion positive;

  • Focus on problem-solving rather than apportioning blame;

  • Focus on behaviour rather than personality;

  • Be assertive, not aggressive;

  • Use open questions, e.g. ‘What can be done to improve this situation?’.


Corporate performance management

Using Interpersonal Skills

  • Use probing questions to investigate deeper issues;

  • Be open to criticism;

  • Be sensitive to underlying issues and concerns;

  • Summarise and agree understanding regularly, e.g. ‘So let me phrase that to check my understanding…’.


Typical types of questioning

Typical Types of Questioning

Obviously you need to probe some of the answers given – you should not accept all the answers at face value; you may require more explanation. Be prepared to react to statements made.


Praise criticism

Praise & Criticism

  • Praise is VITAL, it gets people to relax;

  • Some praise from you could make the difference that will keep staff committed;

  • Praise is best when it is for specific deeds;

  • In appraisal, the accent is on praise.


Praise criticism1

Praise & Criticism

  • In criticism pick your language carefully;

  • Treat criticism as an abstract problem, not as a character defect;

  • Leave out Judgment loaded words, eg fault, mistake;

  • Avoid emotive explanations;

  • Always have examples.


Praise criticism2

Praise & Criticism

  • When criticizing, use the Sandwich approach

Positive

Areas of Development

Positive


Try to move the emphasis

Try To Move The Emphasis

FROMTO

Judgement Analysis

PastFuture

Personality Performance

InconsistencyConsistency

PassiveActive

JudgeHelper

PsychologistCoach


Plan of action

Plan of Action

Once progress in the job has been reviewed, what needs to be discussed is:

  • How to use the person’s strengths in the future;

  • How to achieve any improvements required;

  • How the person sees his/her development.

    Agreeing on an action plan is vital for the discussion to end successfully.


Setting targets

Setting Targets

“Targets provide the employee with both direction and satisfaction”


Corporate performance management

Targets

“If you don’t know where you’re going, you’re probably not going to get there.”

Forrest Gump


Targets

Targets

  • Targets need to be set for all measures

  • Should have a “solid basis”

  • Give personnel something for which to aim

  • If achieved will transform the organization

  • Careful not to develop measures/targets in a fragmented approach:

    i.e. Asking people to increase customer satisfaction has to be backed up with the knowledge, tools, and means to achieve that target.


Setting targets1

Setting Targets

By setting goals we can:

  • Achieve more;

  • Improve performance;

  • Increase our motivation to achieve;

  • Increase our pride and satisfaction in our achievements;

  • Improve our self-confidence;

  • Plan to eliminate attitudes that hold you back and cause unhappiness;

  • Allow for success to be reviewed;

  • Clarify the reasons why actions are being carried out.


Setting targets2

Setting Targets

Research (Damon Burton) has shown that people who use Effective Goal-Setting:

  • Suffer less from stress and anxiety;

  • Concentrate better;

  • Show more self-confidence;

  • Perform better;

  • Are happier and more satisfied.


Setting targets3

Setting Targets

“Nobody is Lazy, they simply have Goals that do not Excite them”Anthony Robbins


Setting smart objectives

Setting SMARTObjectives

SSpecific

MMeasurable

AAgreed

RRealistic

TTimed


Smart objectives

SMARTObjectives

Specific – focused on specific results to be achieved

Measurable – outcome is clear and be measured

Agreed – are you committed to your objective?

Realistic – relevant to departmental goals and organisational objectives

Timed – clear date of completion assigned to each objective


Setting targets4

Setting Targets

Summarize Action Points

&

End on a Positive Note


Development

Development

‘Your employees are your resources. Developing, nurturing and growing them is the most important part of the performance appraisal and management’


Ensure high quality development plans

Ensure High Quality Development Plans

  • Managers should base Individual Development Plans on:

    1. Further developing of the low-rated

    competencies;

    2. Achievingthe Key Objectives set.

  • Managers should consider the areas that are critical to the success of the job;

  • Managers should look into developmental areas in line to career progression plans.


Corporate performance management

Career Planning

  • A good career planning discussion:

  • Open and honest;

  • Realistic openings.


Arthur neely vodafone executive nz management magazine may 03

Arthur Neely Vodafone ExecutiveNZ Management Magazine May 03

“People work for reasons other than money. People don’t get out of bed saying ‘I’m going to improve shareholder value.’ That’s the result of what they do, not the focus.”


Corporate performance management

Effectiveness of Career Development

100%

80

Company effectiveness

Stretch/development

60

Formal training

Special projects

Job structure

Speed of job moves

40

Training Outside

360 degree feedback

Told strengths/weaknesses

Performance evaluation

Informal coaching/feedback

20

Being mentored

Training Inside

Job rotation

Feedback/Mentoring

0

80

40

100%

20

0

60

Importance to my development

Source: McKinsey & Company, August 2000


Closing the discussion

Closing The Discussion

  • Re-cap the main points;

  • Check whether your impressions tally with the appraisees;

  • Check for any signs of discomfort or silent agreement;

  • Finish on a positive note, reinforcing any praise offered earlier;

  • Thank the appraiseeagain for his/her contribution.


Corporate performance management

Performance Management Process

What you

Do

Key

Objectives

How you

do it

Competency

Profile

Overall Job

Performance

What you

Need to

improve

Individual

Development Plan

Job performance is evaluated both by “what you do” (objectives)

and “how you do it” (competencies)


The golden rules

The Golden Rules:

  • The Review should be a dialogue;

  • Do your homework before the review;

  • Create an informal atmosphere which assists in promoting discussion;

  • An appraisee expects and should be given the opportunity to discuss his work;

  • Discuss performance, not personalities.


The golden rules1

The Golden Rules:

  • Only discuss those things which can be remedied or improved;

  • Never reach a conclusion before giving the appraisee the chance to react;

  • Conclude on a positive note.


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