Performance management is a perfect vehicle to demonstrate the strategic role and contributions of the human resources department. By being involved, and hopefully, leading the rollout of the performance management system, human resources can serve as an expert internal consultant.
What is human resource management in terms of performance management?
Performance management is an ongoing process. Unlike a performance appraisal, it most certainly doesn’t take place just once a year. And it is not “owned” by the human resources function.The HR function plays a critical role in terms of offering support and resources such as training opportunities and online tools that can be used to measure performance and share feedback.
How to link performance management with strategic business objectives
Strategic human resources planning involves describing the organization’s destination, assessing barriers that stand in the way of that destination, and selecting approaches for moving forward. Among other useful outcomes, strategic planning allows for the allocation of resources in a way that provides organizations with a competitive advantage because resources are assigned in a more effective and more targeted manner.Overall, a strategic plan serves as a blueprint that defines how the organization will allocate its resources in pursuit of its most critical and important objectives.
Ensure the strategic plan does what it is supposed to do
The mere presence of a strategic plan doesn’t guarantee that this information will be used effectively as part of the performance management system. In fact, countless organizations spend thousands of hours creating strategic plans that are mostly talk and lead to no tangible actions.One of the functions of human resources management is to make sure that strategy cascades down the organization and leads to concrete actions; you need to make a conscious effort to link the strategic plan with what everyone does in the organization on a daily basis.
The following figure provides a useful framework for understanding the relationship between an organization’s strategic plan, a unit’s strategic plan, and job descriptions, which include information on what employees do and what should be measured in the performance management system.
Relationship between an organization’s strategic plan, a unit’s strategic plan, and employee job descriptionsThe organization’s strategic plan includes a mission statement and a vision statement, as well as objectives and strategies that will allow for the fulfillment of the mission and vision.
Get the managers involved
Another function of human resources management is to get the organizations' managers involved. The strategies are created with the participation of managers at all levels. The higher the level of involvement, the more likely it is that managers will see the resulting strategies favorably.As soon as the organizational strategies have been defined, senior management proceeds to meet with department or unit managers, who in turn, solicit input from all people within their units to create unit-level mission and vision statements, objectives, and strategies.
A critical issue is to ensure that each unit or department’s mission and vision statements, objectives, and strategies are consistent with those at the organizational level. Job descriptions are then revised and updated to make sure they are consistent with unit and organizational priorities.
So again, because they are driven by the job descriptions, as a result, the performance management system includes results, behaviors, and development plans for individuals that are consistent with the organizational- and department-level priorities.
Does the human resource management process of aligning organizational, unit, and individual priorities actually work in practice? Is it doable? The answer to these questions is “yes,” and the benefits of doing so are widely documented.
In other words, performance management systems have a critical role in translating strategy into action. In fact, a 2017 study published in Journal of Accounting and Management that included 338 organizations in 42 countries found that performance management is the third most important factor affecting the success of a strategic plan. This is particularly true for organizations that operate in rapidly changing environments, regardless of their size, industry, and age.
Keep score
One way to formalize the link between strategic planning and performance management is through the implementation of a balanced scorecard, which involves creating indicators of individual performance along four separate “perspectives” of an organization’s success. For the case of a bank, consider the following:- Financial (cost control, sales growth rate, profit growth rate)
- Customer (service product quality, customer satisfaction, service timing)
- Internal process (information delivery, interaction between employees and clients, standard operation process)
- Learning and growth (corporate image, competitiveness, employee satisfaction).
Ensure HR does what it is supposed to do
The HR function can and should play a critical role in creating and implementing the human resource management practices and performance management strategies that will allow the organization to realize its mission and vision. Specifically, the HR function can make the following contributions:- Communicate knowledge of strategic plan. The HR function is a good conduit to communicate the various components of the strategic plan (e.g., mission, vision, and objectives) to all the employees.
- Outline knowledge, skills, and abilities (KSAs) needed for strategy implementation. The HR function, through job analyses and the resulting job descriptions, serves as a repository of knowledge regarding what KSAs are needed for a successful implementation of the strategic plan. Thus, the HR function is in a unique situation to provide information about whether the current workforce has the KSAs needed to support the strategic plan, and if not, to offer suggestions about what types of employees should be hired and what types of plans (for example, training and development initiatives) should be put in place to develop the needed KSAs internally.
- Propose compensation systems. The HR function can provide useful information on what type of compensation system should be implemented to motivate employees to support the strategic plan.
For example, the system might place more emphasis on behaviors (processes) than on results (outcomes), or the system might emphasize more short-term criteria (quarterly objectives) than long-term criteria (triennial). Here are some of these choices:
- Criteria: Behavioral criteria versus results criteria
- Participation: Low employee participation vs. high employee participation
- Temporal dimension: Short-term criteria versus long-term criteria
- Level of criteria: Individual criteria versus team/group criteria
- System orientation: Developmental orientation versus administrative orientation
- Compensation: Pay for performance (that is, merit-based) vs. pay for tenure/position
For example, assume an organization is producing a mature product in a fairly stable industry. In this situation, an emphasis on behaviors, rather than results, is preferred because the relationship between processes and outcomes is well known, and the top priority is that employees display reliable and consistent behaviors in making the product. Regardless of the type of criteria used, be it behaviors or results, these must be observable so the person rating the criteria needs to have the ability to observe what is rated) and verifiable (that is, there needs to be evidence to confirm the criteria rated).
To be most useful and impactful, an organization’s performance management system must rely on its strategic plan. Job descriptions, which serve as roadmaps for what individuals are supposed to do and what results will be produced must be aligned with the vision, mission, objectives, and strategies of the organization and unit.
Organizations can expect greater returns from implementing a performance management system when such alignment is in place. Also, to the extent that the HR function is involved in the design and implementation of the performance management system, it will gain credibility and will be seen as a strategic and valued contributor to the entire organization.See also What is the Human Resource? to find out how analytics can help human resources management make decisions about the people in their organizations.