Performance Management and Human Resource Budgeting for H2O Organization - Case Study Example

? Performance Management and HR Budgeting for H2O A. Performance Management Introduction The purpose of performance management is to correlate employees’ performance with organizational performance. Management does this by motivating people to do the right things, provide barrier-free workplace environment, and continuously check employee performance on a recurrent basis. Performance managers have to check if their employees are performing well. Performance management is concerned with improvement, employee development, satisfying the needs and wants of the customer, and also satisfying the stakeholders’ expectations. Performance management is based in the belief that human resource has an unlimited potential. The purpose of performance management is to create significant performance indicators, so that employees can follow their own performance levels. This method can help them manage their activities, correct their weaknesses and provide a plan for the right processes to maximize their performance. Performance management measurement is about accountability – to the organization and then to one’s self. We can tell that the organization’s performance management system is working well if we notice the following signs: high morale for the members of the team; effective teamwork even across different departments; promotion decisions are well formulated; goals are achieved; people are motivated; appraisals executed effectively; and terminated employees are well informed of their performance. (Horwitz, 2005, p. 5) Performance management philosophies Performance management systems developed by organisations are based on the philosophy which emphasizes employee performance. This system motivates employees to perform well and work for organizational objectives. Performance management philosophy refers to developing an organized method of evaluation that requires performance expectations, monitors the job of the employees, evaluates their performance, and uses the information from this evaluation for management decisions and also for providing resources. (Bhattacharyya, 2011, p. 11) A management philosophy may start with the hiring process. The initial step is to focus on an applicant’s goals, capabilities, career focus, and so on. As soon as the applicant passes the tests, he/she becomes a member of a high-performing team. The developed performance management system allows the employees to know the company’s performance requirements and incentives, based on job results, and also to acquire new ways how to effectively perform up to the next performance cycle. According to Kandula (2006, p. 11), performance management is the result of utilitarian instrumentalism, which means it encourages hiring human resource at the lowest cost, retaining employees as long as they are useful, and termination of the contract if it is not anymore effective. Organizational culture plays a critical role in the development of performance management in an organization. Organizations with a supportive or collaborative culture have the chance of developing performance management processes that share information about improving employee performance. A reward system may create a desired performance rather than a punitive system which may result in unsatisfactory performance. (Micklitsch & Ryan-Mitlyng, 1996, p. 18) Performance management includes all possible initiatives managers undertake to have high performance among employees. These initiatives focus on giving performance appraisal, rewards and recognition to motivate high performance (Heslin, Carson, & VandeWalle, p. 89). Performance appraisal is almost similar to the principle of performance management. Many organizations of today are still applying the traditional method of performance management, i.e. ‘the maintenance-oriented, regulatory and administrative human resource management’ (Kandula, 2006, p. 11). This is a barrier to the application of performance management practices. There is a resistance on the part of the employees, and it can slow down the development of performance management. HRM staff must be able to slow down usage of the traditional practice, applying new strategies and interventions. All employees should know how to participate in the implementation of performance management strategies. Performance management philosophy is a value-based approach in determining the performance of employees. Organizations motivate their employees to work for the mission and objectives, or the business goals of the organisation and for their respective careers. Normally, a company appraises employee performance annually, providing motivational factors for their performance, for example in the form of benefits, and setting future targets. Performance management is influenced by organizational culture, i.e. beliefs on how it should be managed. It concerns with the knowledge of employees, in the form of skills, expertise and competence. These are inputs coming from the employees. Outputs are in the form of results they acquire in pursuing their objectives and how they are influenced by the organization they belong. The main purpose of performance management is to analyse outputs and determine the results and differences in reference to the inputs and behaviour of individuals and the factors affecting their performance. (Armstrong, 2002, p. 375) Employee performance should be aligned with organisational objectives and strategies. Alignment is defined as ‘the extent to which employees are similarly connected to or have a consistent line of sight to the vision an direction of the organization and its customers, often encapsulated within is current strategy’ (Schieman, 2009, p. 47). Best practices in Performance Management With the advent of globalization and advanced technology, the face of work dramatically changed. Organizations are constantly facing new challenges, innovations and applications. Organizations have to cope with constant change and answer to the demands of the changing times. Teams have been introduced in business practices since work has become complicated and the time to complete the work has been tremendously shortened. (Devine et al.; Goldstein & Gilliam as cited in Salas, Weaver, & Rosen, 2009, p. 197) Surveys conducted on U.S. organizations found that 48 percent of those organizations utilized project teams (Devine et al. as cited in Sales et al., 2009). Project teams are formed to perform specific projects or goals. This needs project management. Project management is now a major area of concentration in organizations, particularly in the US. Project managers with their teams occupy a unique position within firms because they work for special and regular projects or activities of the organization. The key to the success of a project is the understanding of the particular project, coupled with teamwork and close coordination with the project management team, along the lines of organizational systems and framework. Successful outcome of projects requires some investment on the part of the organization. It is obligatory on the part of the managers to see to it that the project is well planned and executed. This is how important project team performance is to the organization. The Balance Scorecard The balanced scorecard system is a PMS developed and introduced by Kaplan and Norton (as cited in Tangen, 2004, p. 730). This best practice method uses a balanced set of measures which focuses on four important perspectives of the business: 1.) How do we answer shareholders’ primary concern which is the financial perspective? 2.) What method can make us on top of all the others (internal business perspective)? 3.) How do we address customers’ concerns (customer perspective)? 4.) What are the means for improvement and creating value (innovation and knowledge perspective)? The balanced scorecard, which emphasizes financial performance measures, minimizes too much information since the number of measures can be limited and controlled. It allows managers to focus on the critical ones. Some commentators argue that this measure is not an improvement tool but rather a controlling tool (Ghalayini et al. as cited in Tangen, 2004, p. 731). Another best practice performance management is the implementation of a performance management cycle. Here, managers and employees have to review the goals and strategies for certain period throughout the year. This is advantageous to the organization for the following reasons: Disciplined and regular reviews provide a picture of individual accomplishments and what the employee has done with respect to his/her job Minimize conflict on different goals Allows the manager to motivate employees to perform well, and Lets the employee to be open to management, confident that if performance is supervised throughout the year where corrective measures are instituted, the final review of the performance management cycle will be favourable for the employee when benefits and promotion decisions will be given. (Montebello, 2003, p. 5) A best practice concept in production is kaizen or continual improvement. This has been perfected by Japanese car manufacturers, like Toyota. This giant automaker follows a pattern in building cars. The project team plans a project by establishing calendars or milestones. Work time has to be set for the team members and make a resource calendar for the activities. (Sobek, Liker, & Ward, 1998) Best Practice for Information Technology One of the best practices in the field of Information Technology governance is Strategic IT alignment. This practice refers to IT services and investments which should meet business objectives. Information Technology is considered “aligned” when the organization allocates resources and conducts projects in accordance with the strategic plans and business objectives of the organization. Sony’s Best Practice Sony’s recruitment and selection of personnel follows the ethnocentric orientation. The top management of Sony prefers to appoint parent country nationals (PCN) to managerial positions at their branches and subsidiaries. Lower level positions and jobs are being filled up by local employees. This set up is being followed by the US Sony Corporation. For example, the Sony Corporation of America, which is owned by Sony Corporation of Japan, takes care of local HRM functions, but international operations are being handled by top Japanese executives. (Aswathappa and Dash, 2008, p. 138) This kind of set up has both advantages and disadvantages. An advantage to this set up is that PCNs have the knowledge and familiarity of the organisation’s goals and objectives, along with the home country’s orientation and background. But a disadvantage is the PCN’s lack of knowledge to cultural needs of the local population. The manager who comes from Japan will have difficulty in responding to the problems of employees. This manager has to undergo cross cultural training in order to be responsive to the needs of the local population. Analysis of best practices Best practice recommendation for H2O organization is the lean management and team formation. As discussed above, team formation is effective in large organizations like H2O. This is the trend of the modern economy where businesses have to continually check the needs of their customers and deliver products and services at the shortest possible time. This has to be done with the best of their resources and with utmost effectiveness and efficiency to gain customers’ trust and to have an edge over their rivals. As a result, organisations have modified their strategies to meet the demands of the situation by forming teams. Teams have to work effectively to maximize employee expertise, fast track existing projects, meet deadlines, minimize errors and streamline operations (Baker et al. as cited in Salas et al., 2009, p. 198). Lean management and team building have also been applied in organizations across Europe, particularly Germany where H2O came from. It is to the best interest of the organization that their employees should study the art of team building and teamwork so that they can easily adjust to the American culture and the way they conduct business. B. Elements in HR Budgeting Human resource budgeting varies according to the organization’s policy, company budgeting process and its accounting system, and the nature of the business of the company Funds are needed for selection and placement. The recruiting personnel and staff will normally be provided salary and benefits. Before training, recruits will be inducted into the company policies and objectives. The orientation and seminar will need a minimal amount of funds, for example snacks and miscellaneous expenses for the staff and recruits. The staff will be given benefits. The amenities for the seminar don’t need budgeting as this will be held in company facilities. The workplace facilities will have to be improved and maintained. The chairs and tables need replenishment and the maintenance department needs budgeting. A salary contingency will be provided for the staff and special kills employees who will conduct the training and orientation, and who will handle the new recruits until they are fully aware of their responsibilities. Workers compensation will be provided for everyone who are participating in the human resource recruitment, selection and training of new personnel. Another important thing to be considered in budgeting is communication. If there is no internet connection at the moment, the organization should consider internet installation and intranet for department to department communication. Internet connection is needed for emails, newsletters and teleconferencing among staff and the different departments. Training and development will also need the internet. Labor relations will not to be disregarded. If the company is labor intensive, labor matters will become completed someday. This matter will necessitate the services of a legal counsel or a panel of attorneys to defend and settle legal matters for the organization. HR personnel will also need budgeting for travel expenses. This is necessary if there are branches and subsidiaries abroad wherein some of the new recruits will be oriented about company operations abroad. HR Department Budgeting challenges In a recent study, U.S. HR professionals made much use of funds by hiring additional staff and other HR services. Highly mature organizations provide more funds to talent management and strategic HR functions. These activities paid off in terms of lower turnover, higher productivity and higher employee performance. (Human Resource Executive online, 2011) Budgeting is all about money and funding the different activities of the organization. But before this has to be done, information and data have to be collected to be the basis for the budgeting. There are two common types of budgeting, incremental and zero-based budgeting. Incremental budgeting involves using adjustment, whether upwards or downwards, of the current budget to make a new budget. Zero-budgeting begins from scratch, which means that every item in the long list must be justified before it becomes a part of the budget. Some organizations allot extra spending for compensation benchmarking and consulting services. To prevent labor unrest or ‘noises’, other companies evaluate compensation structures of their employees and workers, and make necessary adjustments from extra cash reserved for such purpose. Compensation benchmarking has become a trend in organizations as they adjust their wage structures after the world financial crisis. For example, at Philips, HR leaders made adjustment by conducting compensation market analysis to remain competitive in the market. (Human Resource Executive online, 2011, para. 10) Other companies are adjusting their healthcare costs to improve the benefit structure for employees. They do this by improving employees’ insurance plans. There are those who make more deductions from employees’ salary to adding health-savings accounts. There’s a new law, the Patient Protection and Affordable Care Act which took effect last year, which has complicated the budgeting structures of companies as they try to adjust with this new law. Another concern of organizations’ budgeting is about compensation and benefits, in addition to payroll administration and employee relations. These subjects account to about 60 percent of the HR budget. (Human Resource Executive online, 2011, para. 14) Talent-management efforts account for about one-third of the HR budget. This refers to ‘recruiting, development, succession planning and performance management’ (Human Resource Executive online, 2011, para. 18). Talent accession and knowledge management are sometimes synonymous. Talents are inputs and they have to be provided focus and budgeting to deliver a good output. Apple’s HR Budgeting Apple invests much on human resource by hiring the best. This first started during the time of Steve Jobs, but it has continued until today. Apple encourages managers to assign work based on their competencies, and shuffle employees between departments. This allows knowledge sharing. Apple invests on human capital and its products. Its success can be attributed to a clever and successful management of human resource and also expert budgeting. Apple management chose partners carefully by having close relationships with artists and music groups. The management style of Jobs also worked in Apple. Jobs provides advocacies and manages work personally by controlling all aspects of a product, from hardware and software to the services they offer. Most of the time, Jobs and his people spent coming up with the next product which becomes in-demand to match their other products which have been successful before. Jobs also sees to it that the company keeps in close contact with suppliers, and with suppliers’ suppliers. Jobs’ style of leadership is a model to emulate. (Paley, 2008) H20 can use the style of Apple in hiring the best technical people. Apple provides high salaries and benefits to its employees. The company also does not believe in firing employees. As much as possible, employees stay up to retirement. References Armstrong, M. (2002). Employee reward (third ed.). London: Chartered Institute of Personnel and Development. Aswathappa, K& Dash, S. (2008). International human resource management: text and cases. London: McGraw-Hill Publishing Company Ltd. Bhattacharyya, D. (2011). Performance management systems and strategies. New Delhi: Dorling Kindersley Pvt. Ltd. Heslin, P., Carson, J., & VandeWalle, D. (2009). Practical applications of goal-setting theory to performance management. In J. Smither & M. London (Eds.), Performance management: Putting research into action (pp. 89-114). California: John Wiley & Sons, Inc. Horwitz, R. (2005). Performance management best practices. Retrieved 18 September 2012 from http://www.leadership-vancouver.ca/resources/documents/PerformanceManagementBestPractices-Kwela.pdf Human Resource Executive online: Maximizing your HR spend. (2011). Retrieved 19 September 2012 from http://www.hreonline.com/HRE/story.jsp?storyId=533338466 Kandula, S. (2006). Performance management: Strategies interventions. New Delhi: Prentice-Hall of India Private Limited. Mitcklitsch, C. & Ryan-Mitlying, T. (1996). Physician performance management: Tool for survival and success. Connecticut: Medical Group Management Association. Montebello, A. (2003). Pitfalls and best practices in performance management. Retrieved 18 September 2012 from http://www.communicare.com/dt/pdf/Pitfalls&BestPracticesPerformanceManagement.pdf Paley, N. (2008). Mastering the Rules of Competitive Strategy: A Resource Guide for Managers. Florida, USA: Auerbach Publications. Salas, E., Weaver, S., Rosen, M., & Smith-Jentsch, K. (2009). Managing team performance in complex settings. In J. Smither & M. London (Eds.), Performance management: Putting research into action (pp. 197-232). California: John Wiley & Sons, Inc. Schiemann, W. (2009). Aligning performance management with organizational strategy, values, and goals. In J. Smither & M. London (Eds.), Performance management: Putting research into action (pp. 45-88). California: John Wiley & Sons, Inc. Sobek, D., Liker, J., & Ward, A. (1998). Another look at how Toyota integrates product development. Retrieved 18 September 2012 from http://hbr.org/1998/07/another-look-at-how-toyota-integrates-product-development/ar/1 Tangen, S. (2004). Performance measurement: from philosophy to practice. International Journal of Productivity and Performance Management, vol. 53, no. 8, 2004, 726-737. doi 10.1108/17410400410569134 Read More