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THE SYNERGIZING ROLE OF HR
“Performance Assessment – A Shift from Intangibles to Tangibles”
Under the aegis of:
Presented by Jonathan Franklin Babinall Prachee Sehgal Subhadip Bagchi Neelam Mundhra
“Many of the things you can count , Don’t count. Many of the things you can’t count, really Count!” -Albert Einstein ABSTRACT Performance management is the systematic process of planning work and setting expectations, continually monitoring performance, developing the capacity to perform, periodically rating performance in a summary fashion and rewarding good performance1 Although more and more organizations are using competency models and accompanying behavioural standards as a basis for performance management, there is also increasing focus on and importance of evaluating employees’ results as part of the performance management process. A critical issue faced by organizations is how to measure and evaluate results . Performance Measurement can be done in two ways : objective and subjective. Objective performance measures include production data(dollar volume of sales, units produced, number of errors, amount of scraps),as well as employment data(accidents, turnover, absence, tardiness).These variables directly define the goals of the organisation, but, they often suffer from several glaring weaknesses, the most serious of which are performance unreliability and modification of performance by situational characteristics. The objective in performance appraisal should be to judge an individual’s performance and not factors beyond his or her control. Moreover objective measures focus not on behaviour, but rather on the direct outcomes or results of behaviour. Admittedly there will be some degree of overlap between behaviour and results but the two are qualitatively different *.Finally, in many jobs(e.g., those of middle managers),there simply are no good objective indices of performance, and, in the case of employment data(e.g. awards ) and deviant behaviours(e.g. covering up one’s mistakes),such data are usually present in fewer than 5 percent of the cases examined**.Hence they are often useless as performance criteria.2 In short, although objective performance measures are intuitively attractive, theoretical and practical limitations often make them unsuitable. And, although they can be useful as supplements to supervisory judgements, correlations between objective and subjective measures are often low***. Consequently it **(Landy & Conte 2004) *** Bommer, Johnson, Rich, Podsakoff & Mackenzie,1995:Cascio & is often not easy to predict employees’ scores on objective measures of *(IIgen & Favero,1985)
Valenzi,1978:Heneman,1986). performance. The disadvantages of objective measure have led researchers and managers to place
major emphasis on subjective measures of job performance. However since subjective measures depend on human judgement, they are prone to the various biases. To be useful, they must be based on careful analysis of the behaviours viewed as necessary and important for effective job performance. There is a enormous variation in the types of subjective measures used by organisations. Some use a long list of elaborate rating scales; others use only a few simple scales; still others require managers to write a paragraph or two concerning the performance of each of their subordinates .In addition, subjective measures of performance may be relative (in which comparisons are made among groups of ratees) or absolute (in which a rate is described without reference to others). This paper talks about various such measures which can be used to gauge employee performance and their evolution over the years to accommodate the requirements of the ever changing economic and social environment. INTRODUCTION PERFORMANCE ASSESSMENT- A SHIFT FROM INTANGIBLES TO TANGIBLES Gone are the days when performance measurement use to be a green eyeshade profession**, essentially managed by inertia, without critical re-evaluation. In today’s competitive world, only those companies can survive who are constantly re-engineering their processes to meet the demands of the changing circumstances. The economic scenario today is characterised by growing competitive pressures, weak economic conditions, the need to obtain value from overheads and the demand for more flexible production. The requirement of the time is that performance measurement should reflect business imperatives which include improved productivity, the achievement of global economies of scale and efficiency, and the enhancement of customer satisfaction .
In** Green eyeshadesit is very important to realise that workforce is the middle 1900s b, telegraphers, copy editors and this attempt, are a type of visor that were worn most often from the late 1800s to the single most important renewable source of competitive advantage as firms compete more and more though “knowledge capital”3
management, economics, and budgeting, they became commonly associated with these activities. The term "green eye-shades" can be applied others engaged in vision-intensive, detail oriented occupations. Because they were often worn by people involved in accounting, auditing, fiscal
and “brainware”4. who are excessively concerned withattract, matters or small and insignificantthe appropriate workforce derogatorily to individuals Those firms that can pecuniary focus, and motivate details (Wikipedia) capabilities and behaviours stand the best chance of not only surviving but thriving in competitive environments.
But this entire exercise requires a sound, logical performance measurement system which ensures, firstly, that organisations are held accountable for their performance and actions; and, secondly, facilitates learning and improve performance. These two roles are often at odds with each other, and tensions are provoked around this ‘accountability–learning dichotomy’5. Hence it becomes extremely important to design a performance measure which is S.M.A.R.T. i.e.
Specific – Objectives and standards should let employees know exactly which actions and results they are expected to accomplish. Measurable – Whenever possible, objectives and standards should be based on quantitative measures such as direct counts, percentages, and ratios. Attainable – The objective or standard should be achievable, but challenging, and attainable using resources available. Relevant – Individual goals, objectives and standards should be in alignment with those of the unit and the department in support of the University’s mission. Timely – Results should be delivered within a time period that meets the department and organization’s needs.6
How does it help?
Objectives and standards identify baselines for measuring performance results. From performance objectives and standards, supervisors can provide specific feedback describing the gap between expected and actual performance. Hence developing a good performance assessment is a baffling task.
History of Performance Management Let’s take a peep into the history of Performance Measurement… Theoretical notions of performance and efficiency were first introduced by Frederick Taylor at the beginning of the twentieth century. He proposed the application of scientific methods to discover the most efficient working techniques for manual forms of labour as well as to improve managerial control and supervision. Taylor’s mechanistic management approach became known as ‘Scientific Management’. Taylorism was seen to legitimise management as a control agent, and Taylor’s techniques laid the groundwork for management control systems. Subsequent developments in the search for greater managerial efficiency were shaped by the work of highly successful managers, such as Henry Ford, in developing the early mass production systems; as well as the writings of theorists like Henri Fayol who identified the basic principles of rational administration. He defined the key managerial functions, including planning, organising, command, co-ordination and control*. The first decades of the twentieth century were marked by this positivist and mechanistic understanding of how human organisations function, and the belief in objective measurement**. New performance measurement systems were introduced. For example, the Dupont Company developed a Performance Pyramid which linked financial ratios to rates of return on investment***. The growing awareness of the value of such systems and the recognition of the need for more sophisticated measures prompted organisations to experiment with non-financial performance indicators to complement the range of financial measures already used. General Electric, in the 1950s, was one of the first organisations to implement a broad-based set of performance measures incorporating both financial and non-financial measures. The centrality of objectives to these processes was highlighted by Peter Drucker’s work on Management-By-Objectives****. Ongoing interest in performance measurement, and an increased understanding of the processes involved, led to a greater acceptance of the need to take a more holistic and balanced approach to such systems.
*(Hatch 1997; Courtney 2002) **(Lynch and Dicker 1998).*** (Neely 2002), ****(Drucker 1973)
While, in the 1980s, much interest was centred on new measures of specific organisational dimensions designed to supplement financial measures, the focus of the 1990s was on integrated performance measurement frameworks such as the Balanced Scorecard and the Performance Prism. The involvement of key stakeholders in the processes is central to these frameworks; the way they identify and communicate their priorities and strategic needs is increasingly recognised as a crucial element in such systems*. The integration of non-financial, qualitative, and process-based measures with existing financial and quantitative performance measurement systems reflects greater awareness of the complexity of the management process. Initially, organisations were depicted as mechanistic and rational entities that could be measured objectively; now they are increasingly perceived as evolving cultures and dynamic systems. There is currently greater understanding of the impact of human interaction and negotiation on organisational development and management processes. But despite this trend, the epistemological tensions between the quantitative and the qualitative, the hard and the soft, are inherent in many debates about effectiveness and efficiency. 7 Traditional Methods Graphic Rating Scales A scale that lists a number of traits and a range of performance of each. The employee is then rated by identifying the score that best describes his or her level of performance for each trait.
Advantages: It is simple to use and provides a quantitative rating for each employee. Disadvantages: The standards may be unclear. Also the halo effect, central tendency leniency and bias can be the main problems.
Ranking Method Under this method the employees are ranked from best to worst on some characteristics.
Advantages: Ranking Method is inexpensive & simple to use and it avoids central tendency and other problems of rating scale.
Disadvantages: Reliability and validity of the method is a problem. The method may be affected by rater bias or varying performance standards. Also of the size of the difference between individuals is not well defined.
Paired Comparison Method Under this method, the appraiser ranks the employees by comparing one employee with all other employees in the group, one at a time for each trait and indicating which is the better employee of the pair.
Advantages: Results are in more precise rankings than just alternative ranking. Disadvantages: The method is difficult and time consuming. Also the employees are simply compared to each other on total performance rather than specific job criteria.
Forced Distribution Method Under this method, the rater after assigning the points to the performance of each employee has to distribute his ratings in a pattern to conform to normal frequency distribution. It is similar to grading on a curve. With this method, predetermined percentages of rates are placed in performance category.
Advantages: This method allows the appraiser to get results for predetermined number of people in each group.
Disadvantages: Appraisal results depend on the adequacy of original choice of cut-off points
Free Form Appraisal
This method requires the manager to write a short essay describing the employee’s performance during the rating period. Here the emphasis is on evaluation the overall performance, based on strength/weakness of employee performance rather than specific job dimensions
Advantages: By asking supervisors to enumerate specific examples of employee behaviour, the essay technique minimizes supervisory bias and halo effect.
Disadvantages: The process can be time consuming and the quality of the ratings depends, not actually on employee performance, but on the writing ability of the rater.
Critical Incident Method The supervisor continuously records the critical incidents of the employee performance or behavior relating to all characteristics (both positive & negative) in a specially designed notebook and rates the employees on the basis of notes taken.
Advantages: Helps specify what is “right” and “wrong” about the employee’s performance; Forces managers to evaluate subordinates on an ongoing basis.
Disadvantages: It is difficult to rate or rank employees relative to one another.
The Scenario Today…. Performance measurement approaches are continuously criticised as insufficient and inappropriate. Therefore, various attempts have been made over the years to modify existing frameworks, use them in different ways, and create alternative frameworks. Often, the same framework or strategy is used for different purposes such as planning, management, and measurement, despite the fact that each process requires different framework features. Consequently, the terminology is not very precise; the same performance approach may be characterised by some as a performance management framework, and by others as a performance measurement system. The point to be noted is that the appraisal process is a means to open the lines of communication about the organizational needs, the individual's areas of growth required to support those needs, and metrics that describe success. But unfortunately, there is not enough clarity around examples of competencies or skills due to the subjectivity involved in traditional measures. A “meeting of the minds” across managers around descriptions of the competencies that lead to success is required
which has led to the evolution of quantitative measures for Performance assessment marked by a shift from Intangibles to Tangibles. A look at some of them…. Total Quality Management (TQM) 8 By 1990 the corporates ushered in the concept of Total Quality Management (TQM), pioneered by Japanese firms like Nippon Electrical Corp. and Toyota. Although TQM had a lot of qualitative aspects, yet efforts to quantify such measures were instantaneous. Metrics like quality, customer satisfaction, innovation and even human resource related measures were identified, and a competitive benchmarking technique was developed to quantify them. Although widely accepted and practiced, TQM does have certain constraints. TQM is often criticized for failing to explain specific performance gaps and identify who is responsible for them. Six Sigma In recent years statistical tools have been extensively used to quantify performance assessments. Six Sigma is one such cost saving, quality-focused strategy, designed and developed by Motorola to reduce defects and problems. Six Sigma has found world-wide recognition as an accurate performance assessment tool and is used by many organizations around the world especially those engaged in production and delivery. Behaviorally Anchored Rating Scale (BARS) BARS or Behaviorally Anchored Rating Scale is a modern method used to measure and report on performance. BARS are normally presented vertically with scale points ranging form 5 to 9. This method combines traditional rating scales as well as critical incident methods. Effective and ineffective behavior related to the job is identified and converted to performance dimensions (quantified). Groups of participants are then asked to re-classify incidents. All meeting retranslations and standard deviation criteria will be used as BARS. ‘Midas’ uses BARS as its official Performance Appraisal Method. Benchmarking
Benchmarking, originally invented as a formal process by Rank Xerox is usually carried out by individual companies in order to study and measure performance of departments, employees and the organization as a whole. Benchmarking is the process of comparing the cost, time or quality of what one organization does against what another organization does. Best-practice benchmarking is a process whereby organizations pursue enhanced performance by measuring their processes and practices against those in other organizations. For example, comparisons may be made with competitors, partners, and organizations with similar processes operating in different spheres, and even other parts of the same organization. Benchmarking is a strategy that can be used to measure performance and identify performance gaps, as well as bring innovative ideas into organisational processes, thus improving organisational management. The shift to active organisational learning requires analysis of performance measurement by comparisons with better performing organisations, and investments of time and resources in order for improvements to take place. The actual implementation of benchmarking varies with regards to the network of contacts created, the degree of mutual receptivity of ideas, and the willingness to test these ideas in a new context. Neely distinguishes between ‘indicator benchmarking’ which focuses on performance measurement, and ‘ideas benchmarking’ which is concerned with performance improvement. Benchmarking between similar organisations is likely to be competitive, and the process may be inhibited by considerations of commercial advantage. Consequently, similar benchmarking partners are more likely to pool indicators than share ideas. In the less competitive public sector, the number of benchmarking networks is increasing. Over the years, the notion of benchmarking has undergone an evolution from internal benchmarking to generic process benchmarking: • Internal Benchmarking: comparing similar operations within one’s own organisation • Competitive Benchmarking: comparing with best practice of organisations in direct competition • Functional Benchmarking: comparing practices and methods with similar processes in the same function outside one’s industry • Generic Process Benchmarking: comparing one’s work processes with those organisations that have innovative, exemplar processes Evidence suggests that there is a benchmarking maturity curve whereby organisations appear to move from simple comparisons of easily measured discrete activities with close partners, to
comparing more complex processes with a range of partners. While indicator-driven benchmarking may lead to problems of comparability and consistency of data, the extensive use of comparative assessment of good (and bad) practice suggests that such an approach delivers immediate and operational benefits. Economic Value Added (EVA) 10 An ideal performance measure should ensure that the managers would bear all the consequences of their own actions, but are not exposed to the fluctuations over which they have no control. In search of such a metric – traditionally - companies are used to capture managerial performance and reward them through the operation based measures like Profits, EPS(Earnings Per Share), ROCE(Return on Capital Employed) and ROE(Return on Equity). However these measures are not free from limitations. An appropriate performance measure should assess how managerial actions affect the firm value. For this to happen the performance measure must incorporate at least three things *. a. the amount of capital invested b. the return earned on the capital and c. cost of capital (WACC-Weighted Average Cost of Capital) – reflecting the risk adjusted required rate of return The Stern Stewart & company, a New York City based consulting firm developed the Economic Value Added (EVA) for the purpose of managerial performance evaluation. Economic value added (EVA) provides the rupee value created for investors in a given time period by weighing the profit generated by a decision against the value of the capital employed to generate that profit. EVA is the Adjusted Net Operating Profit After Tax (ANOPAT) for a period minus the capital charge (the rupee cost of capital) of the investment over that period. EVA can be expressed as EVA = Adjusted Net Operating Profit After Taxes (ANOPAT) - Capital Cost Where , ANOPAT3 = Capital Employed (CE) X ROCE (as ROCE = EBIT (1-T) / CE)
Capital Cost = WACC X Capital Employed (CE) Thus, EVA = Capital Employed (CE) X ROCE - WACC X Capital Employed EVA = (ROCE - WACC) Capital Employed Capital is generally measured by book value WACC is the weighted Average of cost of Equity (generally measured by CAPM) and cost of Debt. If managers are told that their performance is measured by EVA and compensation is liked to that, they would try to improve EVA by doing one or more of the following. A. Improve returns with the existing Capital B. Employ Capital productively C. Reduce the capital cost
The Use of EVA in Performance Appraisal Process at Selected Indian companies
The usage of EVA As a measure that aligns the interests of the employee, the company and the shareholder As a performance measure linked to compensation As a tool to tell its clients that the value delivered by Infosys is greater than what the client pays for. As a signalling device to tell its employees that capital is important. As a qualifying criterion to grant rewards such a variable pay, stock options and performance bonuses.
Balanced Score Card 11 The Balanced Scorecard is a performance measurement and management framework which was developed by Kaplan and Norton in 1992 in order to measure the economic and operational performance of a firm. The Balanced Scorecard aligns performance measures with organisational objectives through strategic performance management. The framework provides a balance between financial and non-financial measures; between internal and external measures. It integrates four dimensions of performance, each containing goals and corresponding measures*. These dimensions or perspectives are: • The Customer Perspective – this refers to customer concerns about time, quality, performance, service, and cost.
• The Internal Business Process Perspective – this refers to those business processes that have the greatest impact on customer satisfaction. • The Innovation and Learning Perspective – this refers to innovation, as well as improvements to existing products and processes.
(Kaplan and Norton 1998a)
• The Financial Perspective – this refers to the extent to which the company strategy contributes to profitability, growth and shareholder value. The Performance Prism 12 After analysing the weaknesses and characteristics of existing performance measurement systems, Neely (2002) developed his own performance measurement and management framework, the Performance Prism, which takes as its point of departure the reciprocal relationship with each stakeholder. The Performance Prism links value creation with performance measurement by investigating the organisational strategies, processes and capabilities needed to create value for stakeholders. The Prism is based on Neely’s belief that a good performance measurement system should provide a balanced picture of the business and its performance. He argues that any performance measurement framework should be multi-dimensional and comprehensive. The Performance Prism is applicable across the organisation; across its functions and hierarchy; and entails methodologies for measuring specific activities or processes. Compared with the Balanced Scorecard, it incorporates a range of stakeholder perspectives such as those of regulators and pressure groups. Neely presents five distinct but interlinked perspectives: stakeholder satisfaction, strategies, processes, capabilities and stakeholder contribution. The Performance Prism is designed as a dynamic model illustrating the interplay between these five perspectives. It can be applied at any organisational level, and provides a balanced picture of the organisation, highlighting external (stakeholder) and internal (strategy, process, and capability) measures. Human Resource Accounting 13
Human resources a company possesses is an asset to the company. The special skills and their outcomes that human resources possess is called Intellectual Capital (IC). The IC should be quantified and recorded in the books of accounts in order for a firm to be accurately valued. This concept is gaining popularity among HR managers for performance assessments. This method includes –
1. Real Capital Cost part 2. Present value of future salary/wages payments 3. Performance evaluation part In India companies like Infosys, ONGC are using Human Resource Accounting. Assessment Centre 14 This method was first applied in the German Army in 1930. In this approach individuals from various departments are brought together to spend 2 or 3 days working on an individual or group assignment similar to the ones they would be handling when promoted. Observers rank the performances of each and every participant in order of merit. Most companies find it difficult to make error-free decisions when it comes to identifying people for senior jobs, or when they want to promote. HR’s challenge is to help managements make the right decisions. The assessment centre concept is very powerful for such decision-making. An assessment centre will have a standardised process for evaluation of behaviour using multiple inputs. These centres need well-trained process observers and robust techniques are used. Trained assessors observe and evaluate candidates on their relevant managerial qualities, while those candidates are performing a variety of situational exercises. Assessment centre exercises (e.g., role-play, in-basket, fact-finding and group discussions), intend to measure dimensions such as leadership, planning, sensitivity, problem solving, and many others. For success of the centres, assessors have to demonstrate the capability to observe and record the behaviour of candidates. This is demanding as assessors have to understand the difference between merely looking for concrete verbal and non-verbal behaviours and interpreting these behaviours. Assessors should be able to organise their behavioural observations by job-related dimensions. This means indicating to which dimension each behaviour belongs.
Another skill involves accurate rating of candidates on dimensions. They should have the ability not to make comparative judgements. This is critical. Infact assesors must actually put down scores for the behavioural attributes of employees under assessment. This signals a vital shift from intangibles to tangibles as, it seeks to quantify behaviour, skill, potential and discipline amongst others. Some companies which have pioneered the use of this technique are AT&T, IBM, GE and Sears.
Management By Objectives (MBO) MBO involves setting specific measurable goals with each employee and then periodically reviewing the progress made. It consists of six main steps: Set the organizations goals Set departmental goals Discuss departmental goals Define expected results Performance reviews Provide feedback The introduction of MBO is a reflection of the need for assessing impact and ensuring greater accountability. This method quantifies the metrics of goals and their subsequent achievement by setting standards. Performance is measured against standards. ROI – On The Cutting Edge Increasingly, HR departments are turning to a variation of an established financial metric--return on investment or ROI--to demonstrate the financial vitality of their most critical and highly visible initiatives. The HR-tailored ROI ratio is calculated by assigning monetary values to an HR program and dividing the value by the program's costs. (Total program benefit divided by program costs). Key ROI ratios include – Revenue factor, Human Capital Value Added, Human Capital ROI, Total Investment Factor, Training investment factor and turnover costs. These metrics can be used to evaluate performance of individuals and groups in an organization.
Sixth Pay Commission – Performance Assessment and Reward IIM – Ahmedabad conducted a study regarding the implementation of a performance assessment system in government organization. They came up with PRIS or Performance Related Incentive Scheme which was used by the Sixth Pay Commission(Annexure 2.5.5). Under this scheme, individuals/groups are judged against pre-set mutually agreed upon goals for the period (non additive and non cumulative). The suggestions included the phasing out of the ad-hoc bonus schemes and PLBs. The savings thus generated could be used to finance PRIS. The result of PRIS is efficiency, customer and employee satisfaction. Under PRIS it is suggested that bonus rates lie between 5% and 20% of basic pay. Special care is taken to ensure that performance and delegation of power go hand in hand. The system helps to measure accountability on the basis of – ability of the system to deliver, on time delivery, expected quality and customer satisfaction. The performance is evaluated quantitatively by re-engineering Management Information Systems to focus on work processes linked deliverables and outcomes. Subsequently Balanced Scorecards are used to refine and integrate the process. The process is quantifiable and see-through and thus widely accepted. Montecarlo Simulation Montecarlo Simulation is extensively used in forecasting the human resource requirement of certain organizations and demand supply dynamics prevailing in job market from various quoted industry practices. It is proved beyond doubt that every employee from his inception to a organization is evaluated consciously or subconsciously on daily basis. If an effort is made to make the process more routine by maintaining daily evaluation score card based on different parameters (weighted average) over a certain period of time, an extensive datasheet can be generated. Then by employee Montecarlo Simulation, his position in the organization can be forecasted. Also different employees’ probability to grow up to a certain level can be judged through a tailor made performance score card system that varies from sector to sector. Using it, a proper succession and growth plan can also be designed to suit their growth in the potential slab. Recommendations A real time performance appraisal modelling –a tangible way
After studying various industry prevalent practices, in various public & private sector organization, it can be said undoubtedly that though there has been a lot of efforts are made by HR professionals to standardise the process, a degree of certain subjectivity always would be there. In any case, every organisation is unique and to standardise human quality in a quantitative terms requires painstaking exercises. A probabilistic model to quantify the qualitative characteristics on a 10 grade point is presented below-15
Core Values ToRatings be evaluated on a continuous scale of 1-10, with 1 being minimum & 10 being maximum 1 2 3 4 5 6 Business Ethics Exhibits a high level of morality & fairness in all his actions; is transparent in his dealings; complies with all guidelines relating to disclosures under various acts and rules. Customer Focus Has conviction that the customer is the centre of all activity; is courteous, sincere, patient and sensitive to the customers and honors commitments on time. Organizational and 7 8 9 10
Professional Pride Holds the company in high esteem and has a sense of ownership with it; holds
esteem and takes pride in belonging to it. Mutual Respect and Trust Has high regard for and faith in the fellow members; organizational
believes in collaboration and openness and has good team spirit Innovation and Speed Thinking new and ahead and being swift without compromising on quality, is creative and innovative and has the willingness to experiment and take risks Total Quality for Excellence Believes in pursuing
excellence in all spheres of activity; makes continuous efforts in improving standards of performance, systems and processes. Aggregate Score
Total possible score based on 6 qualitative parameters is 60 (6 x 10) On a daily basis entries are made on a scale from 1 to 10 for the various parameters. Though there can be ‘n’ number of parameters, due to limitations in the scope of discussions, we primarily emphasise on these parameters. Due to the uniqueness of different industries, the parameters should be customised accordingly and the weightages also should be altered similarly. On a grade point
scale through a relative grading technique an interval of scores is assigned to a pre-determined performance level. Illustration – 55 and above – exceptional 45 – 55 35 – 45 30 – 35 Below 30 - very good - satisfactory - average - extensive training required
Performance evaluation into the future is the need of the hour. Initially performance evaluation started out with being strictly bound to profit and sales figures. Soon business managers and HR managers alike discovered the need for quantifying intangible aspects of employees. Factors like discipline, initiative, commitment towards the organization, business ethics, customer focus, organizational and professional pride, mutual respect and trust, innovation and speed and total quality for excellence must surely account for something. It was soon understood that for a performance assessment system to be worth its weight, it had to include such intangible factors. Here arises the problem of quantifying such intangibles. The challenge is to seamlessly integrate the intangibles with the tangibles by finding appropriate ways to quantify them. The performance measurement systems have shown significant development, from financial to integrated financial and non-financial measures for the past two decades. Several non–financial (qualitative) performance measurement approaches, or frameworks, for building and managing performance measurement systems have evolved today. According to various authors,*enterprises that have been successful at performance measurement have generally developed measurements based on the following characteristics:
Performance measures need to be aligned with the organisation's strategy - The starting point is to determine what to measure. This depends on the organisational vision, mission and strategy *
(such as Brown, 1996:4-9; Artley, 2001:19 ;Kaplan & Norton, 1996:163; Reisinger, et al. 2003:430; Parker: 63-66),
Vital few versus the trivial many - Similarly, Kaplan & Norton (1996:163) conclude that designing few and improved measurement system may save time and arrive at specific goals and objectives for success. The key to having a successful set of metrics is paring down organizations’ database to the vital few key metrics that are linked to success . Linkage to vision, values, and key success factors - Identifying vision where you want to be and to know how to link measures with the key success factors is essential in today’s competitive environment.** Metrics should focus on the past, present, and future – Measures (metrics) should be long-term oriented as well as simple to understand and implement***. The problem with most measures is that they focus on the past. Metrics should be linked to the needs of the customers, shareholders, and employees – This is well illustrated that the set of measures used by an organization has to provide a "balanced" picture of the business and reflect the external measures for shareholders and customers, and internal measures of critical business processes, innovation, learning and growth to obtain necessary information from all parts of the organization****. Metrics should flow down to all levels and should be consistent – According to Brown (1996:6) metrics need to be defined for the highest level of the organization first and then flow down to all levels and functions. Multiple measures can be combined into several overall indices of performance - This practice of aggregating data into a single statistic is risky, because the aggregate statistic often hides trends that might be noticed in the subsidiary measures*****.
*(Parker, 2000:63). **(Litman, et al. 1999:15).*** Kaplan & Norton, 1996:38,**** (Kaplan & Norton, 1996:9), *****(Reisinger, et al. 2003:430)
Metrics should be changed as your strategy and situation changes –
According to Kaplan & Norton (1996:22) point of view, measures must change dynamically with the strategy as the basis for continuous improvement and for designing an adequate information system. Performance measures should be modified when there is a change in the organizations objectives. Measures must be reliable - It is therefore important to identify measures, which can be made reliably and consistently over the desired time period*. Metrics need to have targets of goals based on research – Organizations have to design their target to shoot for challenging, worthwhile, and achievable goals**.16
*(Parker, 2000:63) **(Litman, et al. 1999:5-6)
Over the last few years the landscape of Indian industry has under gone a huge change. After witnessing years of unprecedented growth, the economic scenario is not too bullish .Mantra of lean organization with a focus towards retaining best talents is the flavour of the season and hence performance management becomes very critical here. While in the short term, the performance assessment systems, need to be adjusted to changing circumstances and managerial priorities by changing performance indicators, ensuring continuous monitoring or adopting the milestones approach, In the longer-term, performance measurement systems and frameworks should be modified to reflect changing organisational imperatives and societal concerns .In this process ,if a shift from intangibles to tangible occurs ,there is no harm in adopting it and moving ahead with time. Values are changing, rules have been re-written, it’s a critical time. Maybe the great Neville Cardas is not right always. “Scoreboard is an idiot” – maybe true for Victorian England’s cricket fantasy but in third world sweaty brick and mortar scenario, scores may tell untold stories. Puritan may express their doubt, but when there is a thesis, there has to be an anti- thesis and then comes synthesis. Thus the clash of two schools of thought of subjectivity and objectivity makes ways to a new way of HR Management – scorecard with a human element, i.e objective subjectivity and here lies the future.
2., Wayne F Cascio , Herman Aguinis , Applied Psychology in Human Resource Management, Prentice Hall 3,4. Mark A Huselid., Brian E. Becker, The Workplace Scorecard,Managing Human Capital to Execute strategy, Harvard Business School Press 5. The New Look of Corporate Measurement EIU and KPMG Consulting,Universities Press 6. http://hrweb.berkeley.edu/GUIDE/performance.htm 7. europarl.europa.eu/comparl/budg/events/20051205_hearing/palmer_en.doc 8,9 ,11,12. http://www.intrac.org/docs/OPS44Final.pdf 10. Irala, Lokanandha Reddy, EVA-The Right Measure of Managerial Performance?, Indian Journal of Accounting and Finance, Apr-Sep 2005 13.Frederiksen Jens V., Westphalen Sven Age, (1998), “Human resource accounting: interests and conflicts”, Cedefop Panorama,A discussion paper Prepared on behalf of ;CEDEFOP – European Center for the Development of Vocational Training , website: http://www.cedefop.gr Roslender Robin, (2004), “Accounting for intellectual capital: rethinking its theoretical underpinnings”, Measuring Business Excellence, 8(1), 38-45 Frederiksen Jens V., Wsetphalen Seven Age (1998); “Human Resource Accounting : interest & conflict” ICAI, Chartered Accountancy Course Material, 2002 14.http://www.psychometrics.co.uk/adc.htm ;http://www.itpeopleindia.com/20020916/management1.shtml - Dr. EJ Sharma CEO Hurmist 15. NTPC Performance and Training Manual
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