Performance Management in Multinational Companies - Report Example

Report: Performance Management in MNCs Executive Summary Companies across different countries continuously develop and improve their performance management practices in order to stay competitive on the global arena. Expanding globalization and fierce competition has switched focus of many MNC’s on the knowledge, competence, abilities and skills of the employees as on one of the key competitive advantages. In order to increase the performance of multinational organizations, many HR managers work hard to identify and actively promote talents with the organization. Even though talent management is an important part of corporate performance, management development is recognized to be even more important aspect for corporate, national and international competitive performance. Therefore, many MNC should to put in place effective training and development programs for executive management. However, the HRM strategy of MNC should not be limited to the employment and development of Parent Country Nationals as the organization of such type usually employs and manages diverse workforce. It might be quite challenging to manage diversified teams, varying by age, cultural, geographic location, race, religion, values, education levels and other characteristics. Further, MNC might struggle with finding a balance between global and local/regional performance strategies. In order to overcome this and some other challenges associated with cross-cultural, legal, social, and other differences, MNC are recommended to employ both Parent Country Nationals and Host Country Nationals to the overseas subsidiary. Some other recommendations include: leveraging customer‐facing processes; setting up effective communication between corporate and local office; providing a foundation of HR practices that can meet country-specific requirements; leveraging benchmarking and comparative methods, and developing performance culture. Introduction Multinational companies are the organisms operating with global workforces, and their “state of health” usually is heavily dependent on their capabilities to manage diverse operations in diverse environments (Schuler, Fulkerson & Dowling, 1991). The management of employee’s performance, also known as “performance management” has become one of the important strategic elements in many MNC’ HRM (Lindholm, 1999). Companies across different countries continuously develop and improve their performance management practices in order to stay competitive on the global arena. Expanding globalization and fierce competition has switched focus of many MNC’s on the knowledge, competence, abilities and skills of the employees as on one of the key competitive advantages (Sheehan, 2012). The aim of this report is to provide an overview of the principles of a performance management in MNCs, to identify key challenges faced by the company in introducing/implementing a performance management scheme (PMS), and based on this information to develop a performance management scheme for XXX Company supplemented with relevant recommendations necessary for ensuring effective introduction of PMS. The remainder of this report is structured in the following way: Section I provides of the theoretical framework of performance management in MNCs and the key principles; Section 2 defines challenges which the MNC’s are more likely to face while introducing PMS; Section 3 provides recommendations of effective implementation of PMS. The Conclusion section summarizes the issues covered in the report and defines the limitations of the study. Section I: The Principles of Performance Management in MNCs Practically all types of businesses strive to improve their performance by integrating various practices and strategies. This practice is called “performance management”, which enables organization to get better results from the individuals, teams, and organizations by understanding and managing performance in accordance with set strategy, goals, objectives, and standards (Chaneta, 2014). The term “Business Performance Management” has many different alternative names, such as: Enterprise Performance Management, Business Process Management and Corporate Performance Management (Scheer, et al., 2006). The concept of Business Performance Management in MNC is slightly different from the general definition of Performance management, and is defined as a “strategic HRM process that enables the MNC to continuously evaluate and improve individual, subsidiary unity, and corporate performance against clearly defined, preset objectives that are directly linked to company strategy” (Lindholm, 2000: 45). The definition of PM by itself stresses that strategic international human resource management is specifically crucial for performance management in multinational corporations (Schuler, Fulkerson & Dowling, 1991). Therefore, in order to increase the performance of multinational organizations, many HR managers work hard to identify and actively promote talents with the organization (Muntean, 2014). Performance Management is an important process, which enables organizations to influence on understanding and perception of job tasks among the employees, and thus, to increase their motivation and job satisfaction (Lindholm, 2000). As Lindholm (1999) explains, effectiveness of performance management implementation and employee’s attitudes towards it are two highly correlated factors. There were carried out many studies and researches investigating the association between enhanced corporate performance and effective talent management (Sheehan, 2012a). Subsidiary performance in MNC is closely interrelated with the management development and requires certain HR initiative and efforts (Sheehan, 2012a). While talent management is an important part of corporate performance, Management Development is recognized to be even more important aspect for corporate, national and international competitive performance (Sheehan, 2012a). The main argument here is referred to the fact that managers, being a key resource to the firms and therefore, are the people who drive the organization towards positive performance. As Sheehan (2012b: 2492) explained “managerial capital is of particular importance in the context of organisational performance, reflecting its potentially higher value, rarity, inimitability and non-substitutability when compared to non-managerial employees”. Therefore, it is important to put in place effective training and development programs for executive management, which will enable them to provide direction, work with different stakeholders, use effectively resources, facilitate change, manage self and personal skills, and achieve results (Sheehan, 2012b). In addition to recognizing HRM as one of the key principles of Performance Management, there are some other principles which also should be taken into consideration: The company should emphasize its future-oriented goals and coaching rather than refer to the short-term results and past mistakes; The company should find a balance between its long-term, team oriented goals and short-term, specific objectives; Management’s time should be increased for addressing personnel matters on a daily basis; There should be introduced timely and honest communication with each ermployee; employees should be more actively involved in defining performance standards and goal setting processes (Chaneta, 2014). Many studies indicate that Performance Management approach in MNC is subject to cultural differences influence and therefore it cannot be transferred or duplicated for 100% from one country to another one. Therefore, it is important to recognize the need of adapting management practices to the local culture and environment (Lindholm, 1999). Despite this theory of cultural divergence, many MNC tend to implement standardized Performance Management practices and policies in both home country and international subsidiaries (Lindholm, 2000). However, many studies indicate that cultural differences may influence the elements of Performance Management (Lindholm, 1999). This, MNCs often face with a challenge of adjusting their global performance strategy to the local subsidiary. Below is provided more detailed overview of the challenges, the MNC’s face while introducing PM practices and policies. Section II: The Challenges Faced by the MNC in Introducing a Performance Management Scheme While introducing a performance management scheme, MNC might face a variety of constraints and challenges. Some of the key challenges, which are discussed in this report, include the following: Managing diversified teams MNC by the nature of its strategy have to manage diversified teams, varying by age, cultural, geographic location, race, religion, values, education levels and other characteristics. One the one hand, MNC has to meet the needs of diverse consumer groups, and on the other hand it has to focus on maximizing productivity and commitment of the workforce (Agrawal, 2012). Thus, it might be challenging for MNC to manage the diversified teams and to adjust to various management styles, philosophies, approaches and human resource systems (Agrawal, 2012). Whole versus Part or “Institutional duality” Global competitive strategy of a MNC is usually comprised of two elements: regional market performance or subsidiary market performance and global performance. However, long-term performance for the MNC as a whole might vary significantly comparing to short-term local profit maximization strategies (Schuler, Fulkerson & Dowling, 1991; Xiaowen and Slocum, 2014). Thus, foreign subsidiaries are often under the pressure of two parties, one from the host country and the other from the parent company (“institutional duality”) (Ando & Paik, 2014:86). It might be extremely challenging to find a balance between global and local/regional performance strategies (Schuler, Fulkerson & Dowling, 1991; Xiaowen and Slocum, 2014). Noncomparable Data There might be difficulties in obtaining data from one subsidiary that would be applicable to another one. Partially this depends on the international context and external factors varying among countries (Schuler, Fulkerson & Dowling, 1991). Weakness of legal institutions and difference in labour legislation might have negative impact on subsidiary performance (Ando and Ding, 2014). For example, in order to adhere to local labor legislation, it might be difficult or impossible the company’s subsidiary to reduce employees whose performance is below performance standard or capacity (Schuler, Fulkerson & Dowling, 1991). Separation by Time and Distance Physical distance, different time zones, different cultures are all the factors that complicate the process of communication between the corporate head office staff and subsidiary management. The key challenge here is to ensure understanding between two key teams (corporate and local), and to set up effective communication (Schuler, Fulkerson & Dowling, 1991). Variable Levels of Market Maturity Market immaturity might slower significantly the performance of a foreign subsidiary as there is more likely to be weak/no brand recognition, lack of supporting infrastructure and capabilities for supporting new products, etc. Therefore, it achieving of expected plans of company’s performance might require more time, resources, and efforts (Schuler, Fulkerson & Dowling, 1991). Section III: Recommendations for Ensuring Effective Introduction of CPM In order to ensure effective implementation of corporate performance management there were developed many different recommendations and tactics. Paladino (2013) has developed a set of core best practices which included the following: prioritization of improvement projects, leveraging customer-facing processes; leveraging process improvement methods; leveraging benchmarking and comparative methods; development of performance culture. These and some other recommendations are summarized and presented below: Prioritization of improvement projects - it is critical to identify and prioritize strategic and then operational initiatives referred to performance improvement (Paladino, 2013) Effective staffing on key positions in foreign subsidiaries – the MNCs will be able to find an optimal balance between external and internal legitimacy if there will be appointed “right” people on key positions (Ando & Paik, 2014). It is recommended to appoint Parent Country Nationals (PCN) to the overseas subsidiary so that the headquarter office had effective control over the subsidiary’s activity and performance. PNC will pressurize the subsidiary to introduce policies and practices of the parent firm (Yaping 2003; Ando & Paik, 2014). However, it is also recommended to appoint Host Country Nationals who has knowledge of the local environment and therefore is aware of economic, legal, political, social, and cultural aspects. Taking into consideration the fact that many MNCs have suffered from serious failures as they have neglected cultural differences, HCN with local cultural knowledge and understanding is critical to success (Chich-Jen, Wang, & Fu-Jin, 2009). Also, employment of HCN will help the company to reduce the costs of employing and relocating managers from the home country (Chich-Jen, Wang, & Fu-Jin, 2009). By implementing personal diversification strategy, the company will be able to respond timely and effectively to the requirements of the host country (Ando & Paik, 2014). Great example of MNC who has done this is Panasonic, where the President of the Panasonic Company in Japan has initiated implementation of personnel diversification in senior management (Chich-Jen, Wang, & Fu-Jin, 2009). Leveraging customer‐facing processes – it is necessary to develop and establish corporate processes and adjust it around changing preferences and needs of customers. This is specifically important for MNC’s whose products and services are sold worldwide, and operations are performed in different geographical locations (Paladino, 2013). Setting up effective communication between corporate and local office – it is important to ensure effective communication. For this purpose, HR managers might be required to travel a lot to the subsidiary locations (Schuler, Fulkerson & Dowling, 1991). Leveraging process improvement methods – it is important to develop and maintain continuous process of improvement methods and encourage problem solving within the company/affiliate. By doing so, the senior management will be able to keep abreast of all issues and problems and thus, eliminate the root causes of issues (Paladino, 2013). Providing a foundation of HR practices that can meet country-specific requirements – it is important for MNC to develop a coordinated but decentralized approach to the improvement of individual and organization performance (Schuler, Fulkerson & Dowling, 1991). It is recommended to ensure that MNC managers at the corporate offices develop international strategy in line with market conditions in host country and had enough flexibility to adjust this strategy when necessary (Xiaowen and Slocum, 2014). Pepsi-Cola International has successfully implemented this decentralization strategy in order “to match the demand for high standards of individual performance with the needs of a globally diverse workforce” (Schuler, Fulkerson & Dowling, 1991:372). Leveraging benchmarking and comparative methods – this practice will help managers to monitor and regularly improve the processes within the organization (Paladino, 2013). Development of a performance culture – as people are often the key asset to corporate performance, it is important to create a performance culture within all affiliates of the MNC (Paladino, 2013; Chich-Jen, Wang, & Fu-Jin, 2009). Culturally diverse workforce will more likely produce creative and better decisions, making MNC more competitive on the market due to its human resource capital (Agrawal, 2012). Conclusion This report provides an overview of the principles of a performance management in MNCs, identifies key challenges faced by the company in introducing/implementing a performance management scheme (PMS), and provides relevant recommendations necessary for ensuring effective introduction of PMS and overcoming the previously identified challenges. Undoubtedly, performance management plays an important role in any organization focused on achieving its corporate and financial objectives. Performance management in MNC has its peculiarities as the company employs and manages diverse workforce. MNC should adjust its global strategy to the local conditions present in a host-country. This might be quite challenging as it is necessary to manage diversified teams, varying by age, cultural, geographic location, race, religion, values, education levels and other characteristics. Further, MNC might struggle with finding a balance between global and local/regional performance strategies. In order to overcome this and some other challenges associated with cross-cultural, legal, social, and other differences, MNC are recommended to employ both Parent Country Nationals and Host Country Nationals to the overseas subsidiary. Some other recommendations include: leveraging customer‐facing processes; setting up effective communication between corporate and local office; leveraging process improvement methods; providing a foundation of HR practices that can meet country-specific requirements; leveraging benchmarking and comparative methods, and developing performance culture. References: Agrawal V, 2012,"Managing the diversified team: challenges and strategies for improving performance", Team Performance Management: An International Journal, Vol. 18 (7/8), pp.384 – 400. Ando, N. & Paik, Y. 2014, "Effects of two staffing decisions on the performance of MNC subsidiaries", Journal of Global Mobility, vol. 2, no. 1, pp. 85-101. Ando, N, and Ding D, 2014, ‘An integrative institutional approach to MNC performance in China’, Asia Pacific business review, 20 (4), p. 541. Chaneta, I, 2014, ‘Performance Management’, International Journal of Management, IT and Engineering, vol. 4, no. 2, pp. 277-288. Chich-Jen, S, Wang, I, & Fu-Jin, W 2009, The Relationships among cross-cultural management, learning organization, and organizational performance in multinationals, Social Behavior & Personality: An International Journal, 37, 1, pp. 15-30. Lindholm, N, 1999, "Performance Management in MNC Subsidiaries in China: A Study of Host-country Managers and Professionals". Asia Pacific journal of human resources (1038-4111), 37 (3), p. 18 Lindholm, N. 2000, "National culture and performance management in MNC subsidiaries", International Studies of Management & Organization, vol. 29, no. 4, pp. 45-66. Muntean, SN 2014, ‘Talent management and its contributions to the performance of the multinational organizations’, Revista Academiei Fortelor Terestre, 19, 3, pp. 300-306. Paladino B., 2013, ‘Corporate Performance Management Best Practices: A Case Study Approach to Accelerating CPM Results’, John Wiley & Sons, Inc. 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