Woolworth's Good Performance Management System - Case Study Example

Running Head: HR Performance Management Name: University: Course: Contents Contents 2 Executive summary 3 Introduction: Woolworths’ business environment 3 Woolworths’ Business strategy 5 Woolworths’ culture 6 Good performance management system 6 Woolworths’ performance management system 8 Evaluation of Woolworths’ performance management system 10 Improvements that can be made to the system 12 Contingency factors that can ensure that the system is dynamic to suit strategy and changing environment 12 Conclusion 14 References 15 Executive summary Performance management is the creation of a work setting which enables people to perform to the best of their abilities. The financial performance of Woolworths and remuneration policies are delivered in consultation with all employees. The remuneration policy committee of Woolworths is aligned with the firm’s financial and strategic business goals. Woolworths has people policy committee which helps in reviewing Woolworths’ remuneration policies, sourcing for HRM advice and represents shareholders in matters related to HRM. Woolworths also has a culture of recognizing high achievers. The remuneration program at the firm targets the top management only while lower cadre employees are recognized through promotion. There is need to have a balanced scorecard for evaluation of both financial and non financial performance at the firm. The reward system and remuneration need to include all employees. Introduction: Woolworths’ business environment A business environment refers to both internal and external environment. Internal business environment analysis is essential for strategic decision making in any firm. It helps a firm to have a greater understanding of itself by evaluating their resources and capabilities. Woolworths limited is one of the two largest chain supermarkets in Australia. It is referred to as “Woolies” in Australia (Woolworths, 2011). It was founded in 1920s. According to Armstrong & Appelbaum (2003), the Woolworths limited supermarket also has branches in New Zealand. Woolworths limited leads in the retailing business of food, take away liquor, poker machine operation and hotel machine operation in Australia (Woolworths, 2011). Woolworths limited has over seven hundred and seventy seven branches in Australia. It operates under different brand names such as Big W, Woolworths supermarkets, Dick Smith electronics, Woolworths Liquor, Caltex/Safeway, Tandy, Dick Smith PowerHouse, Caltex/Woolworths, Dan Murphy’s, BWS and Safeway liquor (Woolworths, 2011). The commitment of Woolworths limited to serve its customers has enabled it to remain outstanding in terms of market capitalization in Australian chain stores business. Its customer base is ever increasing due to different strategies employed by the management. Fifty eight percent of Australian retail market is owned by Woolworths limited and Coles supermarket. Woolworths control prices of many consumer goodies in Australia. Many one stop stores are operated by Woolworths in Australia (Woolworths, 2011). Most products sold by Woolworths are branded by itself hence its customers are assured of qualitative products. The firm has a diverse workforce with a diverse background which is talented. The firm is also reputable for its ability to teach its employees and prepare ist for more challenging roles at the firm (Armstrong & Appelbaum, 2003, p. 32). The firm provides its employees with competitive packages that enable it to attract and retain talented workforce. Since they have disabled people as part of their workforce communication sometimes can be a great problem. The firm has an opportunity of expanding into new markets because of their reputation in Australia and New Zealand. The also has an opportunity of attracting and hiring new employees from different parts of the world. The firm is however, threatened by competition. Woolworths’ has several competitors in Australian markets. Efforts of Woolworths’ competitors influence how customers perceive various products offered by Woolworths through comparison of various products attributes such as quality, pricing and presentation in the stores. Woolworths’ main competitor in Australian market is Coles supermarkets. Delery & Doty (1996) considers external environment analysis entails analysis of factors such as political, economic, social, technological, legal and environmental factors that may impact of the business. Woolworths’ operates in Australia and New Zealand which are politically stable. The recent economic downturn that has hit the world and ever rising fuel prices have impacted negatively on the purchasing power of Australians. As a consequence, Coens, Jenkins, & Block, (2002) says many people have turned to buying essential commodities alone. This is bound to lower the general performance of Woolworths in terms of profitability. Socially Woolworths has embraced diversity in its workforce which it sees, as a strength rather than a weakness (Woolworths, 2011). It employs talented employees from diverse Australian communities including the disabled ones (Grote, 1996). This has become one of Woolworths’ competitive strategies because customers see the firm as one which promotes cultural and social tolerance in Australia. Woolworths has embraced technology in most of its operations which enables it, to offer its products through online shopping at a reduced price (Sandler & Keefe, 2005). Legally the firm has previous engaged in legal battles related to adoption of policies which violates competition rules. Finally, Woolworths helps in advancing programs which go towards, protection of the environment. Woolworths’ Business strategy The main strategy of Woolworths is delivery of the right shopping experience to its customers each and every time they visit it. To attain this, the firm has adopted a vision that ensures that its customers receive quality products and services. This vision is attained through human resource strategies, price strategies and fresh food strategies. The firm is aiming at increasing efficiency and becoming a cost effective in transacting its business. Since 2007, Woolworths adopted the “Good business journey” strategy (Woolworths, 2011). The strategy was aimed at transforming the way the firm transacts its business and integrating various challenging targets and commitments which are centered on transformation acceleration, enhancing the firm’s focus on environment, driving social development and addressing climate change (Delery & Doty, 1996). The strategy was largely influenced by the world best practice and the firm’s customers in addition to global reporting initiative, guidelines and legislative requirements. The firm uses integration and implementation of various strategies in order to ensure it becomes more efficiency and cost effective (DeMers, 2002). Project strategy and daily low price strategy are some of the strategies that the firm has integrated. The project strategy helps the firm to drive down the cost of transacting business as the price strategy enables that firm to offer its customers products at reduced prices as stated by Coens, Jenkins, & Block (2002). The implementation and integration of strategies at the firm are enabled by the organizational structure, stakeholders and staff leadership. The success at the firm is built on the basis of tactful, innovative and profitable strategies. Woolworths’ culture Woolworths is known for being committed to training and developing internal capability. This cultural strategy has been the foundation upon which the firm has been able to change, grow and maintain excellence performance (Woolworths, 2011). The firm is also committed to diversity and is aiming at having 33% women representation at its senior executive group and board level by 2015. External recruitment at the firm mainly serves the purpose of acquiring specialist. These specialists are sourced through various channels which enable, the firm to acquire talented experts who are best suited for jobs in question. The firm has diverse operations which enable its employees to have a wide range of career. The firm promotes internal talent via offering its employees work experience in various divisions that allows them to develop their careers. All activities at the firm are underpinned by safety (Fisher, 1997). This has seen the firm adopt “Destination ZERO” safety strategy which aims at protecting its employees, the community and the environment at large. Good performance management system Performance management refers to the creation of a work setting which enables people to perform to the best of their abilities. It entails various dimensions. First is the development of clear job description. It also involves selection of best fitted persons following an appropriate selection process. Another dimension is negotiating requirements and accomplishments on the basis of performance measures, outcomes and standards. It also entails the provision of effective induction, training and development of employees. Furthermore, performance management requires the provision of continuous coaching and feedback. Performance management also involves conducting regular performance development discussions and designing effective compensation and recognition systems (Falcone & Sachs, 2007). It also entails the provision of promotional/career development opportunities for employees and assisting with exit interviews in order to understand reasons why talented staff leaves the firm. A good performance management system should be beneficial to employees in four ways. First, a good performance management system ought to provide employees with a clear understanding what is expected out of them. Second, it ought to provide regular feedback about the performance of the employees (Woolworths, 2011). In addition, the system should be able to provide employees with advice and steps that can enable them improve their performance. Finally, the system needs to outline reward for good performance. Thus, a good performance management system ought to be able boost the performance of employees and at the same time increase the productivity of the firm. An effective performance management has updated the job description; performance standards and measures; evaluator training; guidelines for improvement; employee input; and compensation and rewards. Job description provides employees with the roles they are expected to carry out and what the firm expects out of them in terms of performance. Job description in the system should clearly and specifically define the job function, deadlines, goals and required skills. It needs to delineate expectations for the relationship between the employee and customers and peers. The job description should at all times be kept current. Performance standards need to be developed once a job description has been developed. This allows the firm to define what is seen as above average, standard and below average performance. Once this has been defined a firm needs to determine how the expectations outlined in job description will be measured. An effective measurement system employs both objective and subjective methods for assessment purposes. Thus, guidelines need to be developed to aid in measurement of performance in things that are hard to quantify such as customer service skills. For a performance management system to be successful, managers need to have good communication and interpersonal skills. Studies have shown that managers with deficient communication skills or interpersonal skills often results in the downfall of performance management systems. Thus, managers in evaluation of employees’ performance need to undergo training to improve their communication skills and to learn how to conduct appraisals in a fair, consistent and non-judgmental manner. Prior to the first performance, reviews managers need to be trained to enable the performance system to be effective. For the system to be effective, it ought to provide guidelines for improvement. The firm needs to put in place policies that allow it cope with weaknesses and poor performance of employees. Such policies may include training or mentoring of employees who consistently perform below average. The guidelines should outline time frame that an employee is required to improve and the necessary steps that will be implemented if the employee does not improve. An effective performance management system also requires the input of employees. Prior to design and implementation of the system, the firm needs to involve employees in its design by soliciting for their suggestions. The suggestions provided should be incorporated into the system to enable it to be acceptable to all employees. Finally, a good performance management system has compensation and rewards for employees who perform well. This helps to keep the morale of employees high and fosters additional improvement, in addition to generating employee loyalty. Employees thus need to be consistently rewarded for their hard work (Grote, 1996, p. 63).. Woolworths’ performance management system The financial performance of Woolworths and remuneration policies are delivered in consultation with all employees. The remuneration of the firm are competitive in the market and are developed in such a way that enables it to retain its talented workforce. The firm knows that remuneration is an important factor in attracting, motivating and retaining talented workforce in addition to additional people management factors. To ensure maximum output in terms of performance, Woolworths offers its employees training and development at Woolworth’s academy. This allows the firm’s workforce acquires the needed skills to succeed in their roles and to develop employee’s skills in order to realize their full potential. The firm ensures effective succession planning via internal promotions and appointment of employees to new positions within the business. The remuneration policies of the firm promote and support achievement and performance related culture. Over 40,000 of Woolworth’s employees are shareholders in the firm. This enables them to share in the firm’s success and to align their experience with that of other shareholders (Swan & Wilson, 2006, p. 16). The remuneration policy committee of Woolworths is aligned with the firm’s financial and strategic business goals. The policy takes note of the importance of workforce in sustained improvement of Woolworth’s performance. For the case of Woolworths’ executives, their remunerations are structured in a manner that is competitive in the market that allows the firm to attract and retain talented executives. Short term performance measures of executives are linked to both financial and non-financial measures while long term performance is measured via the creation of value for shareholders. The firm ensures that is protected and that its workforce is stable via agreements which are established prior to being employed. This limits the termination fees and provides restrictive agreements on any future employment by competitors (Lloyd, 2009, p. 91).. The firm currently has a remuneration structure that has two components. The first component is the fixed remuneration. This includes basic salary, superannuation contribution and in some cases a fully maintained motor vehicle. This is usually based on the role of the position and the prevailing market rates. In most cases, it is the median of the prevailing market rates. The other component is the variable component that is based on performance. It comprises of both short term incentive plan and long term incentive plan (Collins, 1994, p. 61). Woolworths has people policy committee which works in conjunction with the management, in reviewing processes and programs which ensure that Woolworths’ remuneration policies are implemented. The committee also sources for advice externally pertaining remuneration policies and acts as a representative of the board and shareholders in reference to the firm’s human resources. It is responsible for the establishment and implementation of HR strategy. This ensures that the firm has access to talented and trained workforce to enable the firm attains its business strategy. The committee is also responsible for undertaking an appropriate performance management and succession planning. It is also charged with provision of remuneration policies which are effective at creating value for the firm’s shareholders. The people policy committee at Woolworths is also responsible for providing a safe working environment for people working at the firm. The committee is also expected to comply with all principles of good governance and legal and regulatory requirements (Sandler & Keefe, 2005, p. 93). Apart from remuneration, Woolworths has a culture of recognizing high achievers. High achievers and outstanding contributors to the firm’s business strategy are recognized in various ways. First, the firm has an annual Woolworth’s program which, recognizes 27 outstanding contributors to the Woolworth’s business, community and environment. These heroes are nominated by their division and are allowed to attend the firm’s conference where they are recognized for their outstanding contribution. The firm also has Paul Simmons award where development of young people is recognized from all divisions of the firm. The firm also has Joe Berry award which is an external competition that recognizes outstanding young achievers in retail. In addition to these awards, Woolworths has a range both financial and non-financial employee benefits. They include flexible work options, parental leave and remuneration as discussed above. The firm has flexible work options which are designed to fit the needs of different individuals. This has been instrumental in retaining talented workforce at the firm. The firm offers six weeks paid maternity leave to its employees, a two week return to work bonus and up to 104 weeks parental leave. Another benefit bestowed to employees at Woolworths is staff discount. Both permanent and casual employees at the firm are entitled to a staff discount while shopping at the Woolworths retail stores. The firm also has an employee assistance program which offers assistance to employees who might have encountered some adversity or difficulty while working at Woolworths. The firm also has Woolworth’s employees’ credit union which offers employees a wide range of financial products and services. The products and services offered by the union include loans, savings, investments, foreign currency, insurance and electronic banking facilities (DelPo, 2007, p. 97). Evaluation of Woolworths’ performance management system Prior to be hired, top executives are involved in negotiating and signing the firm’s requirements and accomplishments on the basis of performance measures, outcomes and standards. This allows the firm to retain this workforce that in most cases is difficult to attract and retain. The fact that, the training and development of employees at Woolworths enables them to realize their full potential shows that a good performance management system is essential for the general performance of the firm and its workforce. New employees at Woolworths are oriented and prepared for their roles to deal with customers at Woolworths’ academy. This enables them to learn what is expected of their positions (Coens, Jenkins, Block, 2002, p. 88). One of the best parts of the performance system at Woolworths is the promotion of internal staff. This has seen many employees realize their full potential, since their capabilities are evaluated from time to time and promoted to new positions. During training employees are told what is expected of their positions. However, the firm lacks a regular system that provides employees with regular feedback about their performance. The system lacks formal procedure of how to deal with employees who perform below average or even how to improve on output of such employees. The reward system at Woolworths is not clearly outlined. Only few outstanding employees are rewarded from various divisions in the firm (Delery & Doty, 1996, p. 212). Even though, Woolworths has a performance management system, it still faces the challenge of attracting and retaining the talent and skills they need to attain their business strategy. Woolworths is differentiated in terms of innovation and quality. To attain this goal the firm needs top quality manpower. The remuneration strategy employed at the firm seems to be partial since it targets top executives only (Collins, 2001). They are the one who are given the chance to be recognized for their personal efforts. The rest of the employees seem to rely on the nomination by their respective divisions to get some awards from the firm based on their performance. Although the remuneration strategy has been successful in retaining top executives at the firm, the same is not replicated among employees holding lower positions at the firm. The top executives have a well defined measure of their performance, unlike other employees (Falcone & Sachs, 2007, p. 66). In spite, the discrepancy in the way top executives of the firm are treated and other employees, the performance system at Woolworths has contributed to some extent to its success story. The recognition of high achievers at the firm is enabling it to attain its business strategy of being accountable to its shareholders, the community and the environment in general. However, improvement on the current system can see the firm succeed even more. Improvements that can be made to the system The firm needs to come up with an all inclusive remuneration system. This is because lower cadre employees are of great importance especially in retail business since they are the ones who interact with customers on a daily basis. By not valuing such workforce, there is a likelihood of employee high turnover and customers who prefer being served by certain attendants may end up following such employees when they move to work for competitors in the market. The firm also needs to develop guidelines for evaluating performance of its employees and how to reward those who perform above average. In addition, Woolworths need to develop guidelines for helping employees who perform below average (Collins, 2001). This is because only a few employees who have outstanding performances are rewarded by the firm. Since this system is not inclusive average performers and those who perform slightly above average are not rewarded, and this might often reduce their morale of attaining their filly potential. The firm for instance needs to implement a balanced scorecard. This will enable it to integrate both financial and non financial performance measures (Collins, 2001). Thus, the firm will be able to measure outcomes that can enable the firm to perform better in the future. This is because a balanced scorecard is designed to align strategic actions and strategic plans in a control system that is coherent. By implementing a balanced scorecard, Woolworths will be able to deduct measures such as customer, financial, internal and learning and growth from the firm’s vision and strategy. Contingency factors that can ensure that the system is dynamic to suit strategy and changing environment Globalization, increased competitive pressures worldwide and advance of information technology are making business environment very dynamic. This requires firms to constantly improve their performance in order to remain competitive (Collins, 2001). The markets have become more unpredictable and more diverse and businesses are required to cope with this dynamic business environment. Traditionally, performance measurement relied on accounting and finance related systems of performance measurements. The ability to remain dynamic and to change continuously enables firms to remain competitive in the turbulence business environment. A firm, which employs a performance measurement system that is related to its size, culture, external environment and technology is also likely to survive in such environment. Contingency theory implies that one thing is dependent on other things and that the effectiveness of firms is based on goodness of fit existing between their business environment and their structure. This implies that performance management system adopted by a firm ought to conform to its contextual factors. This theory, according to Collins (2001), assumes that the firm’s effectiveness results from the fit between the characteristics of the firm and contingencies which reflects the firm’s situation. When fit, is found the firm improves its performance. The firm aligns with its contingencies in order to create an association between contingencies and the firm’s contextual characteristics. Collins (2001) views learning culture as one of the contingency factors that can ensure that the performance management system at Woolworths is dynamic. The knowledge acquired through learning is likely to influence the performance management system (DelPo, 2007). This is because learning culture will influence Woolworths to emphasize on information technology to improve performance of employees and the firm at large. Technology is also likely to make Woolworths to adapt to changing business environment. Currently technology is less utilized in the performance management system at Woolworths. Technology will be essential in monitoring the performance of each employee at the firm and providing quick feedback on employee performance. This will necessitate necessary measures to be undertaken on a timely basis. Compatible compensation and reward system that need to be introduced to support the performance management system According to DelPo (2007), Studies have shown that many people are motivated by financial rewards fro some time. This kind of motivation resulting from monetary rewards however, wanes with time. Swan & Wilson (2006) states that research has shown that many people can be motivated for long by the work they do and the environment in which they work. Woolworths needs to implement an incentive compensation programs such as goal sharing and profit sharing especially to upper management level employees. This will enable the firm to easily align its business strategy to performance (Lloyd, 2009). Woolworths also needs to introduce competency based pay. This will enable the firm to attract and retain competent workforce that can enable it attain its business strategy. The firm also needs to introduce acknowledgement of people for their good efforts. In addition, the firm should introduce celebration of the firm’s success in order to enable employees to feel part of the firm. Conclusion Woolworths has a performance management system that mainly targets its upper employees. this involves remuneration packages that are negotiated prior to being hired. This is a rigid system that does not change. In the changing business environment, everyone needs to be recognized. Even though, the firm has benefits for other employees such as maternity leave and various awards, these are not all inclusive. Only outstanding performers are awarded and the firm has no formal way of identifying best performers. Recommendation The firm needs to introduce a balanced scorecard to measure the performance of its employees. it also needs to draw guidelines for rewarding performers above average and for helping employees who perform below average. The firm also needs to introduce pay incentives, acknowledgment of its people, celebration of success and an inclusive pay reward. References Armstrong, S. & Appelbaum, M. 2003. Stress-Free Performance Appraisals: Turn Your Most Painful Management Duty Into a Powerful Motivational Tool. Sydney: Career Press. Coens, T., Jenkins, M., Block, P. 2002. 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