Performance Management Approaches Used by O2 Telecommunication and Marks & Spencer - Example

Performance management approaches used by O2 Telecommunication and Marks & Spencer Introduction Modern business environment is getting highly competitive mainly due to the presence of numerous well-set market players and growing number of new market entrants. Price competition has become an integral aspect determining the market share of firms, and therefore firms take vehement efforts to improve their employee productivity and minimise production costs. In an effort to enhance employee productivity, today organisations use the tool of performance management or performance appraisal. This strategic management approach assists organisational managements to reward productive employees and motivate poor performing employees. However, the performance management approaches used by top managements may vary from organisation to organisation in accordance with their specific organisational goals. This report will compare and contrast the performance management approaches used by O2 telecommunication and Marks & Spencer. 1. Performance management 2.1 What is performance management? Performance management or performance appraisal or performance evaluation can be simply defined as the process of monitoring and evaluating different information concerning the performance of an employee, group, or organisation. According to one definition; “performance management is defined as a proactive partnership between employees and management that helps employees perform at their best and align their contributions with the goals, values, and initiatives of the organisation” (Caldwell, 2002, p.na). This managerial technique is beneficial for the top management to scrutinise the current status of the organisation in terms of employee performance and thereby figure out the areas of improvement. As performance appraisal is a potential tool to improve the overall organisational productivity and competitiveness, it can significantly influence the firm’s net profitability. 2.2 Importance of performance management The performance management tool is greatly helpful for the top management to gather and evaluate a range of reliable information which is inevitably relevant to the firm’s effective strategic management. This management technique is widely employed to evaluate whether an employee or a group meets their targets within the specified period of time (Holbeche, 2005, p.243). Furthermore, it is beneficial for individual employees to self-evaluate their job performance and to improve themselves constantly. As management professionals point out, score ratings obtained from the performance evaluation would assist the top management to frame various strategic decisions relating to employee training, promotion, retention, and termination. This strategic tool is particularly important for the managers to exercise better control over their followers and ultimately regulate supply chain activities effectively. The most significant aspect of performance management approach is that it helps the management to align its employee performance with the stated organisational goals (Successfactors, n.d.). This management tool is also assistable to identify individual employee skills and potentials, and thereby allocate various tasks and job responsibilities among the workforce. Since every employee hopes to achieve potential and fast career growth, the performance management tool can motive employees to perform better. Finally, better succession planning is another strategic importance of the performance evaluation method. 1.3 PM of O2 telecommunication and Marks & Spencer Telefonica UK Limited, trading as O2, is UK based provider of internet, telecommunications, and financial services headquartered at Slough. The company is the UK’s second largest mobile telecommunications provider. During the 2005-07 period, the Spanish telecommunications company Telefonica acquired the O2 plc previously owned by the BT Group. With the takeover of O2 plc by Telefonica, the O2 telecommunications pays particular attention to performance management strategies because the O2 top management believes that better PM is a key technique to improve market competitiveness. However, performance management practices of O2 are not much comprehensive as of Marks and Spencer. It seems that O2 management greatly relies on PM techniques to identify and reward its potential employees and to deal with succession planning effectively. The organisation strongly thinks that this strategic management tool can have a great influence on the operational efficiency of O2 telecommunications. Marks and Spencer plc, colloquially known as Marks and Sparks, is a leading British multinational retailer of clothing, home products, and luxury food items. The company is headquartered in the City of Westminster. The organisation is listed on the London Stock Exchange and it is also a constituent of the FTSE 100 Index. Marks and Spencer increasingly relies on the performance management approach to gather needed information relating to its employees. Using this information, the organisation practices different tactics to improve the skills and abilities of its workforce. The Marks and Spencer depends on performance management technique to determine when training must be given to employees. This management tools extremely aids M&S to deliver improved services to its clients by maintaining a potential workforce that work to their full ability and calibre. M&S management views performance management as a joint process between the manager and employees that help workers to identify the shared goals and to link them to the goals of the organisation. 1.4 Understanding of the conceptual framework As noted already, today companies greatly rely on performance appraisal results to make crucial employee-related decisions like promotion, salary increases, compensation and other benefits, job assigning, and termination. Hence the practice of performance management can significantly motivate employees to remain productive. In other words, employee motivation is the key aspect that underpins performance management. Herzberg’s theory of motivation or two-factor theory can better explain the concept of performance management. Herzberg’s two-factor theory or dual-factor theory states that there are certain factors in the workplace causing job satisfaction whereas some other factors causing dissatisfaction. The central idea of the two-factor theory is that two sets of factors, including motivators and hygiene factors, can greatly affect employee motivation (Hodgetts, 2005, p.375). Motivators can provide positive satisfaction to employees and they mainly include challenging work, recognition, responsibility, and personal growth. Although hygiene factors do not give positive satisfaction to employees, their absence may lead to dissatisfaction. Hygiene factors mainly include job security, salary, job status, fringe benefits, and work conditions (Nelson & Quick, 2007, p.128). In short, it can be stated that motivators should motivate employees to improve their performance whereas hygiene factors are essential to make sure that employees are not dissatisfied. The Herzberg’s two-factor theory promotes the concept of performance management, which is really important to ensure the strong presence of motivators and hygiene factors in the workplace. 2.5 Achievement of strategic alignment Better strategic alignment or a clear line of sight is inevitably important to bridge the gap between strategy development and execution. The term strategic alignment can be defined as the “systematic process of bringing the actions of each business unit and employee into line with the organisation’s strategic objectives” (Solyp). In order to achieve strategic alignment, it is essential for companies to promote better workforce collaboration and teamwork. Better communication of the strategy at all levels of the organisation is also vital to enhance strategic alignment because this practice is inevitable to deal with issues like employee resistance to change. Markos and Sridevi (2010) indicate that better employee participation is important to achieve strategic alignment as it is easier to motivate and manage the workforce when they have the feeling that they have a crucial role to play in decision making. By linking employee performance goals to strategy, companies can enhance the achievement of strategic alignment. For this, managements may use tools like financial incentives. Free upward and downward flow of information across the organisation is really significant to keep personnel and the top management informed of different issues and to have a clear line of sight (Issa-Salwe, et al. 2010). 2. Critical evaluation 3.1 State of the reviews of both companies While analysing the way the Telefonica UK Ltd gives feedback to its workforce, it seems that the organisation emphasises individual performance. The organisation has designed improved mechanisms to deal with employee training and career development programmes. According to Telefonica’s Annual report 2011, this employee development process starts with target-setting, continues with performance appraisal, and ends with providing proper career development opportunities. The O2 telecommunications’ performance assessment is based on some well defined criteria and its major attributes include alignment with business strategy, consistent and global, differentiating, integrated and action oriented, and encouragement of manager criteria (Annual report 2011). Telefonica UK Ltd sets periodical goals and targets for its individual employees in order to keep its employees highly productive. To measure the level of employee performance, the firm evaluates whether an individual employee has met his/her target for a particular period. The organisation particularly encourages a culture of feedback because the O2 believes that it is vital to stimulate personal and professional growth (Ibid). The Marks and Spencer always pays specific attention to giving feedbacks to employees as the organisation aims to achieve improved employee performance on a constant basis. The firm has framed a set of written performance exceptions to use as a basis for providing individual employees with potential feedbacks regarding their performance. The M&S tries to provide feedbacks based on individual as well as team performance with intent to inspire employees to compete with other teams and within the team. Considering the nature of project the company has undertaken, the M&S management sets specific targets for both individual employees and teams. The company considers these targets as a key for measuring the employee performance on individual as well as team basis. According to M&S top management professionals, the firm’s performance management system is extremely potential to keep its employees competitive and to improve the overall productivity of the organisation. 3.2 Reward system While analysing the financial and non-financial reward system of Telefonica UK Ltd, it seems that the organisation gives great importance to performance recognition and fair pay. The major objective of the firm’s compensation policy is to frame compensation packages capable of attracting, motivating, and retaining potential personnel. With this compensation policy, the company aims to meet its strategic targets in spite of an increasingly competitive global business environment. The O2 management claims that this particular pay policy assists the company to keep costs under control. The organisation periodically performs market salary surveys to ensure that its salary rates are competitive and capable of meeting the growing employee needs. Currently the company pays a fixed monthly compensation, which is well above local minimum wages under all circumstances. According to Telefonica’s annual report 2011, “in addition to fixed basic pay, our professionals’ compensation packages include an annual bonus tied in part to attainment of specific business targets that are readily quantifiable and aligned with the corporate value creation imperative and in part to individual job performance” (annual report 2011). These targets are reviewed by the top management ever year to ensure their optimal fit with the stated strategic business priorities. M&S has also a monthly salary payment system whereas it distributes bonuses in every three months (Your M&S). In an effort to improve its overall employee productivity and market competitiveness, the organisation follows a performance-based pay system (Marks & Spencer, n.d.). Under this system, payment to employees increases in accordance with the extra amount of work they put in. When employees successfully meet their targets, they are awarded with a bonus. To illustrate, if an M&S store makes a higher profit than what was expected, they will receive a bonus. In addition, the company also offers gift vouchers for hardworking employees and a staff discount scheme. It is identified that M&S pays its employees based on individual performance. 3.3 Team performance The organisational culture of Telefonica UK Ltd greatly changed following its takeover by the Spanish telecommunications company Telefonica. Recently, the organisation pursued Oracle and SAP strategies to manage its workforce to get the work done through them. Today the O2 follows an active Workday strategy, which gives particular focus to individual workers. The director of HR solutions and strategy at Telefonica Digital Anthony Shaw said that the company has a gradeless workforce and therefore the management maintains a single grade for all of its employees (Preez, 2013). Shaw added that the organisation follows a high performance culture and hence the company runs a performance management process every four months (Ibid). As the company already had a large existing workforce when it was acquired and there is no common system in place to manage the complex workforce needs, the O2 management currently sets short term tasks for individual employees. When it comes to performance management, the O2 telecommunications evaluates the individual performance of its employees. The Marks and Spencer has a more comprehensive strategy to evaluate its employee performance and to give out job tasks. The organisation runs a performance appraisal process annually to analyse employee productivity and rewards them accordingly. Under the performance management process, the Marks and Spencer management arranges discussions with staff members to identify what is going well and what needs to be improved. The key aspect of Marks and Spencer’s performance management system is that it gives particular focus to feedbacks and suggestions from workers. M&S managers organise confidential meetings with their employees to gather fair opinions and suggestions (King, 2011). Referring to Anthony et al (2013, p. 5), better employer-employee relations may encourage employees to complete their tasks timely and effectively. The firm’s performance management system evaluates individual as well as team performance because the organisation greatly entertains teamwork. M&S management sets short term and long terms tasks for its workers so as to meet short term financial goals and long term objectives of the organisation. 3.4 Managing performance management roles Both O2 telecommunications and M&S have developed improved policies to deal with the performance management roles of HR and line manager and also under performance. The O2 pays particular attention to the PM roles of HR and line manager because combined efforts of HR and line manager are inevitable to run a performance management process successfully. The organisation requires its HR department and line managers to work together to measure the employee performance effectively and to distribute compensation and other benefits accordingly. In order to manage under performance issues, the O2 management increasingly relies on tools like training, motivation, and counselling. Since the M&S practices a performance-based pay system, it is important for the company to measure its employee performance accurately so as to reward/improve them appropriately. Any pitfall in the performance management roles of HR or line manager would lead to a false performance evaluation, which in turn would result in unfair distribution of compensation and other benefits. So as to prevent this situation of employee dissatisfaction, the M&S has clearly defined the roles and responsibilities of HR and line managers with regard to performance management. M&S’ performance-based pay system appears to be the most powerful weapon to fight under performance of employees because under-performers will be paid minimum under this payment approach. 3. Conclusion From the above discussion, it is clear that both O2 telecommunications and M&S have realised the significance of performance management in motivating and retaining potential employees. When the O2 management deals with employee evaluation on the basis of individual performance; the M&S measures both individual as well as team performance. Both the organisations set specific targets for their employees so as to ensure best utilisation of employee skills and capabilities. When the O2 telecommunications offers fixed compensation plus other benefits, the M&S follows a performance-based pay policy to keep its employee motivated and productive. The Telefonica UK Limited runs a performance management process every four months whereas it is run by M&S annually. References Anthony, G. et al. ((Eds.). 2013. Work and Employment in the High Performance Workplace. US: Routledge. Annual report 2011. Telefonica. [online] available at: http://annualreport2011.telefonica.com/pdf/employees.pdf [accessed 5 May 2014]. Caldwell, C. M. 2002. Performance Management. AMACOM Div American Mgmt Association. Holbeche, L. 2005. The High Performance Organization: Creating Dynamic Stability and Sustainable Success. UK: Routledge. Hodgetts. 2005. International Management: Culture. Tata McGraw-Hill Education. Issa-Salwe, A. et al. 2010. “Strategic Information Systems Alignment: Alignment of IS/IT with Business Strategy”. Journal of Information Processing Systems. 6 (1): 121-128. 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Solyp. “How to achieve strategic alignment?” [online] available at: http://www.solyp.com/en/news-and-alerts/blog/item/544-how-to-achieve-strategic-alignment.html [accessed 5 May 2014]. Success Factors. “The Incredible Power of Company-Wide Goal Alignment & Organizational Business Goals”. [online] available at: https://www.successfactors.com/en_us/lp/articles/corporate-goal-alignment.html [accessed 5 May 2014]. Your M&S. [online] available at: http://help.marksandspencer.com/support/company-website/loyalty-terms [accessed 5 May 2014]. Read More