The Performance Management Policy of Tesco - Case Study Example

? The Performance Management Policy of Tesco: A Critique Table of Contents Introduction 2 An Overview of Tesco’s Performance Management Policy 3 Analysing the Policy in Greater Depth 5 Theoretical Underpinnings of Policy Critique 7 Recommendations for Policy Enhancement 8 Implementation Plan 9 References 11 Appendix A 12 Introduction The current paper focuses on a critique of the performance management policy of Tesco, for which I work as a customer service assistant. Such policy is of critical importance, since it helps managers, supervisors and staff to achieve the following objectives: translate corporate strategies into actionable objectives and initiatives (Kulik, 2004); plan, monitor and evaluate performance to achieve the company’s strategic plans (Jackson, Schuler, and Werner, 2008); and to provide feedback on overall company, business units and individual performance with focus on what and how the results were achieved (Greene, 2010). Moreover, when effectively implemented, the performance management policy of the organisation may help identify training and development needs to improve performance of each employee and to further enhance their career growth in the company (Walters, 1995). It may also provide management a sound basis for review of personnel actions such as regularisation, promotions, recognition, staff training and development, career path and counselling, discipline and other personnel movements; salary adjustments such as performance merit increase, promotions and variable incentives; and for linking rewards and recognition systems to organisational, department, and individual performance (Kulik, 2004). An Overview of Tesco’s Performance Management Policy Having established the importance of a sound performance management policy, the paper proceeds with a description of the existing policy of Tesco. One main constraint is procuring an actual copy of the policy, since it is considered as a confidential document. I have not been able to get an actual copy; but instead, have validated its contents through an interview with an HR representative of the company. Along with such primary data, secondary data in the form of online sources have been consulted. There are various performance management frameworks from which an organisation may anchor its system on. Tesco essentially uses the Balanced Scorecard (BSC), but has succeeded in dovetailing the system towards the organisation’s peculiar needs. The company has reported marked increments in growth through the use of this performance management system (IBS Center for Management Research, 2005), although such growth has substantially plummeted just this year (Felsted, 2012). In its pioneering years, former CEO Terry Leahy made it a value retailer, and focused on the strategic realms of “company's core purpose, values, principles, goals and the Balanced Scorecard” (IBS Center for Management Research, 2005). Through the use of the BSC, it was able to meet the demands of financials, customer, operations, and people and development. In addition, it has added a fifth quadrant – “community” – to address the negative image brought about by the high carbon footprint it has incurred in the course of its operations (IBS Center for Management Research, 2005). One salient feature of the performance management policy of Tesco is its promotion of performance-based pay. Thus, employees, including managers and executives are granted rewards on the basis of their performance and their contribution to the overall performance of the organisation. This is attested to by Felsted (2012), who cites that Tesco’s managers’ bonuses have been slashed from 100% last year to a maximum of 16.9% this year. This has been finalized after the company garners poor results from the previous year. In addition, stock options have been replaced by one long-term incentive scheme, which is strongly performance-based. These changes to the performance management system, specifically those related to remuneration, have only been established by Chief Executive, Philip Clarke, last year (Felsted, 2012). Analysing the Policy in Greater Depth Availability and Clarity of the Policy. I occupy the position of Customer Service Assistant in a Tesco store. Having worked for the company for a significantly long period of time, I honestly have not read the verbatim performance management policy of the company. This is supported by the response of the HR representative I have interviewed, saying, “The policy is a confidential document, although we do disseminate copies to middle managers and executives” (Appendix A). While staff level employees do know the metrics that will be used to measure my performance within a given performance period, it may be more effective to have formal sessions through which a detailed discussion of the policy may transpire. The unavailability of the policy also makes it vague to employees at the rank and file level. As one colleague says, “It may be helpful for our managers to give us actual copies of the policy to help us better understand it.” This point though is not too alarming, as everyone in the Tesco organisation knows exactly what is expected of them in terms of performance metrics and/or deliverables. Only the technicalities of the policy remain vague, since not everyone has access to it. In essence, however, the policy is “alive” in the sense that members of the organisation at all levels take to heart their contribution to organisational performance. Fitness for Purpose. Through the promotion of the Balanced Scorecard in its performance management policy, Tesco was able to successfully drive the organisation’s phenomenal growth (Tesco, 2011). Each of the quadrants of the BSC model comes with a definite set of goals, plans, and strategic plan of action, addressing the competitive environment and the internal strengths of the organisation. The customer quadrant aims to achieve the indicators of customer loyalty, value, and service experience. At the action level, these strategic directions are enabled through loyalty cards, discount cards and other customer incentives. In addition, the operations quadrant has as its key indicators of effective operations, staff efficiency, and enhanced customer service. Various information technology systems are used to enable these indicators (Temporal & Lee, 2001). The learning and growth quadrant focuses on the end-goals of effectual management, people development, and retention. These are carried out through the availability of development initiatives, chances for moving up the ladder through promotion, and work-life balance. The financial perspective is governed by metrics such as sales growth, revenue, and hedging. As mentioned, Tesco has creatively added a fifth quadrant, Community, to address the unfavourable image it has gained because of the high carbon footprint levels (Tesco, 2011). Organisational Fit. One must note that the alignment of pay to performance metrics is a new move from CEO Philip Clark. For the longest time, the culture of Tesco has promoted home-grown ‘grocer’ practices than stringent, exacting performance management practises of a true multinational (Felsted, 2012). However, the recent challenges on growth and profitability make it imperative for Tesco to be more innovative and flexible as pointed out by past CEO Terry Leahy (Cree, 2011). It is most timely to adopt a performance management policy that strongly espouses performance-based rewards systems. Currency. According to the HR representative interviewed, the performance management policy of Tesco is up-to-date, reflecting the recent changes in rewards and its alignment to individual and organisational performance. Awareness and commitment. There is a need to further cascade the policy to the rank and file level. At present, actual policies are disseminated only till middle management level. Impact on Business. The performance management policy of Tesco would create a more effectual impact on the business if it were disseminated on a company-wide scale, down to the rank-and-file level. The policy is sound in its essence, as the BSC has proven effective in building Tesco as the biggest retailer in the UK; however, the recent decrease in profitability may be a signal for re-cascading the policy and making their performance contribution clearer to all employees. There are no apparent tensions between the performance management policy, as rewards have been clearly linked to it just recently. The training, promotion and succession policies of the company are also tightly anchored on performance. Organisational Development. The performance management policy plays a critical role in developing the Tesco business further. It is a key vehicle through which CEO Clark may formalize his business strategies to reinstate Tesco’s leadership in the UK retail industry. Spelling out clear strategic directions in the financial, customer, operations, people, and community perspectives shall make Tesco more profitable, efficient, and attractive to prospective employees. Theoretical Underpinnings of Policy Critique It is crucial for Tesco to enhance its performance management policy through clear cascade and dissemination at all levels. The main goal of the policy is to enable Tesco to attain its strategic goals through the achievement of objectives at the individual, unit, and organisational levels (Tesco, 2011). However, while the BSC concept has been in practise since the time of CEO Leahy, the actual alignment with the company’s rewards strategies is only a very recent development. The impact of this change on employee morale and performance must thus be closely monitored. It is critical for Tesco to have an effective change management plan towards this end. Thus far, the presence of a performance management policy has enabled Tesco to reach its strategic goals. There are certain constraints in growing the business, one of which is Tesco’s parochial rather than multinational culture and its outlook on business growth (Cree, 2011). The stringent alignment of performance metrics with rewards may be a good first step in sending the message that performance ought to be everyone’s job and that entitlement is a thing of the past. The policy also requires spelling out the key performance metrics that will help Tesco achieve its goals along all the perspectives of the BSC. Overall, while the BSC has proved to be of little value for majority of organisations (Walters 1995), it has at least proven effectual in the case of Tesco. Recommendations for Policy Enhancement Recascading of the performance management policy is recommended, to be able to manage the change that has been introduced by CEO Clark. This mainly involves the allotment of bonuses / rewards on the basis of individual and organisational performance. The performance rating from which such bonuses is determined must be clearly explained to all employees, not limited to midlevel and executive level incumbents only. For instance, the rating may be an aggregate of individual, department, and organisational performance, each with its respective weight in the total rating. This way, the rank-and-file employee clearly realises that monetary rewards are determined by: whether he has done his job; whether his department has done its job; and whether the organisation has successfully achieved its goals for the performance period. Clarity of the policy must be ensured during such cascade. The scope of the policy; the responsibilities of various stakeholders; the actual policy statement; and implementing guidelines must be thoroughly explained during the cascade. I also recommend that the linkage of the performance management policy to other HR / organisational systems be clearly discussed during the session. For instance, what performance rating average is required to merit a promotion? Or, what performance rating/s is/are necessary to be included in the organisation’s succession pool? Answering these questions necessitates a discussion of other HR policies. Tesco must measure performance in ways that both promote positive future results through competencies and reflect past performance through achievement of goals and objectives. Another recommendation is the appointment of a Performance Management System Council who shall oversee all concerns related to performance management. Since there are recent modifications to the system related to strategic rewards, such a Group may help in the smooth transition towards the new system. The shared responsibility between the Human Resource Department and line managers must also be espoused by the Council. The policy should ensure that each employee’s job functions and objectives are supportive of the overall company direction and strategies, and will involve evaluation of results against plans within a target period. Drafting of a curriculum that addresses competency gaps is also an option. Implementation Plan Step Schedule Cost Cascade of the modified performance policy to all employees Requires learning / cascade sessions of 4 hours each, delivered by 2-3 HR personnel 2 months ?30-35K Linkage of the performance management policy Requires man hours only: drafting of modified policies linked to the performance management policy 1 month ?5K Establishment of a Performance Management Council Will incur costs on the man-hours spent on meetings / addressing performance management related concerns 1 month ?5K Drafting of a development curriculum based on a competency framework from which gaps are identified (based on performance ratings) Requires funding the training initiatives to close performance / competency gaps 3 months ?60-100K References Cree, R., 2011. Sir Terry Leahy, CEO, Tesco. Director Publications. [Online] Available at: [Accessed on 7 July 2012]. Felsted, A., 2012. Tesco to slash bonuses after poor results. The Financial Times. [Online] Available at http://www.ft.com/cms/s/0/c255270c-9eab-11e1-a767-00144feabdc0.html#axzz1zwqZ4x8R [Accessed 7 July 2012[. Grene, R.J., 2010. Rewarding performance: Guiding principles, customs strategies. UK: Taylor and Francis. IBS Center for Management Research. 2005. Tesco’s steering wheel strategy. [Online] Available at [Accessed 7 July 2012]. Jackson, S.E., Schuler, R.S. & Werner, S., 2008. Managing human resources. UK: Cengage Learning. Kulik, C.T., 2004. Human resources for the non-HR manager. UK: Taylor and Francis. Temporal, P., & Lee, K.C., 2001. Hi-tech hi-touch branding: creating brand power in the age of technology. NY: John Wiley and Sons. Tesco. 2011. Tesco UK: A growth company. [Online] Available at: http://ar2011.tescoplc.com/business-review/growing-the-uk-core/tesco-uk-a-growth-company.html [Accessed 7 July 2012] Walters, M., 1995. The performance management handbook. London: CIPD. Appendix A – Interview with HR Representative Interviewer: Good afternoon. Thank you for allowing me to interview you regarding the HR Policy of the company. HR: You are most welcome. Int: Would you mind describing the policy in terms of its accessibility to staff? HR: Well, not all employees have access to the policy. It is cascaded only to executives and middle managers. It is their discretion on whether they will distribute hard copies within their departments. Int: What is your opinion on the clarity of the policy? HR: I think it is pretty clear, but there is a need to cascade it again because the recent implementation of the bonus cuts have to be reflected and documented in the policy. There are certain questions from managers which have arisen because of these bonus cuts. Int: How does the policy serve its purpose for Tesco? HR: It serves us well in terms of clarifying what each member of the organisation contributes to the overall performance of the company. It effectively helps us in terms of awareness of our objectives, and their time boundaries. Int: Are there conflicts in terms of the policy and Tesco’s culture, values, or purpose of business? HR: I wouldn’t call them conflicts. But yes, the recent strict implementation of pay for performance does have some impact on morale. We have been pretty laid back in recent years. I guess the numbers of late serve as a wake up call. We cannot be complacent about what we have achieved, and the performance management policy will be key in building a stronger performance-based culture. Int: Is the policy recent or updated? HR: Yes, but clear documentation on how bonuses are arrived at on the basis of performance has to be made more explicit. Int: Do the relevant stakeholders in Tesco know about the policy? HR: Yes, but more work has to be done at the rank and file level. Int: Is the policy accepted? HR: Yes, although as I’ve said, there may be issues on compensation and bonuses since our new CEO intends to make it clear to everyone that performance is everyone’s job. And that bonuses are strongly tied up to such performance. Int: Does the policy help or hinder Tesco in its goals? HR: The policy works since it has made us a leader in the industry. It just has to keep up with the recent changes, both from external sources and from within. Int: Are there tensions between this policy and other policies? HR: None. Tight alignment among these policies just has to be more clearly demonstrated. Int: Could this policy further develop Tesco? HR: Definitely. It’s the most effective culture building tool, at the moment, at least. Int: Will it make Tesco more efficient, profitable, attractive to staff? HR: Yes, specially since it addresses all business perspectives that are key to a viable business. Int: I think that would be all. Would you like to share anything else? HR: No, thank you. Int: Once again, thank you and have a great day ahead. Read More