Performance Management in Tesco Plc - Case Study Example

PERFORMANCE MANAGEMENT ………………………….. College ……………………………… ……………….. Words- 2346 Table of Contents Table of Contents 2 Introduction 3 Performance Management in Tesco Plc 3 Strategic ways of managing performance 6 Performance Appraisal 7 Balanced Scorecard Approach to managing performance 8 Strengths and Weaknesses of the Steering Wheel Scorecard System 9 Evaluative Conclusion 11 Summary of major findings 11 References 13 Introduction Human resources with higher levels of knowledge, talents, competencies and skills are the key assets in assisting organisations to sustain competitive edge. Globally competitive companies depend heavily on the uniqueness of their human resources and strategic systems for managing their human resources. Managing performance of the human resources has become a vital issue in this regard (Schneier, Shaw and Beatty, 1995). Tesco Plc is one of the Fortune 500 and globally competitive companies that have practiced an effective performance management system and have found significant outcomes of profitability, high-performance work culture and organizational success. This paper will evaluate employees’ performance management with reference to the strategic HR practices adopted by Tesco for managing its employees’ performance. Performance Management in Tesco Plc Tesco Plc is Britain’s leader in food retailing industry and the third largest retailer just behind US Wal-Mart and France’s Carrefour (Davey and Maidment, 2012). Tesco operates 6234 large scale retail stores worldwide, out of which 2979 stores are in UK and 1719 are in Asian countries (Annual report, 2012). Tesco employs more than 500,000 people (Tesco Plc, 2014). After Terry Leahy joined Tesco as its Chief Executive in 1997, Tesco has been undergoing transformational change in its strategic way of managing people’s performance. Under Terry Leahy’s leadership, the management decided to create a performance management framework that would help the organisation provide a map and outline key strategic objectives of the company. The fundamental objective behind this move was to help steer the organisation to its ultimate success. Tesco decided to name this performance framework as Corporate Steering Wheel (Marr, 2009). Tesco has long been practicing the Balanced Scorecard approach to managing people’s performance. This was ‘Balanced Steering Wheel’ at Tesco. This strategy has been developed as Tesco’s very own customized balanced scorecard (Bach and Edwards, 2012). Tesco has been using balanced scorecard approach to management through its ‘Steering Wheel’ program, whereby its management has been monitoring customers, operations, people and finances. Monitoring and evaluating employees’ performance is one of the four quadrants of the Steering Wheel (Jack, 2012). Each quadrant in this Steering Wheel approach involved certain set of objectives. Customer loyalty, employee turnover, percentage out-of-stock, profit targets etc are some of the most important metrics appeared in each quadrant. Each store of Tesco has placed a large Steering Wheel in a way that every employee sees it, and each one has a traffic light next to it. Green represented that the employee is right on target, and red represented that he is not achieving the target. Yellow represented that the employee is danger of missing the target. Based on the metrics involved in this Steering Wheel, performance is reported quarterly to the board, and a summary of the performance metrics was sent to the top 2000 managers in Tesco with a view to cascade on to employees. Senior management at Tesco has been using clear formats of performance metrics that were considered as base for reviewing and measuring the performance of employees (Williams and Curtis, 2008). The management team in Tesco is well aware about the basic requirements for performance management. Failure to attract, retain, develop and motivate the best people with right capabilities at all levels could limit Tesco’s ability to meet its targets (Annual Report, 2012). Key Performance Indicators (KPIs) represent an important way to monitor how successful the company is meeting its organisational targets. The steering wheel model plays significant role in managing and measuring its business performance, through four segments namely operations, people, finance and customer. Following extract from Tesco’s website shows how the company has monitored the performance of its employees. There are two indicators, one for showing that Tesco could meet its target, and the second is to show that it missed its target. The percentages of these indicators are also outlined in Tesco’s website. Strategic ways of managing performance There is a clear positive correlation between embedding effective performance management and improved organisational results. The basic logic behind the increased need for practicing an effective performance management is that employees in organisations represent significant resources, and therefore, oversight of this investment through HRM practices represents a vital financial commitment (Scharaeder and Jordan, 2011). Managing employee’s performance helps the organisation increase returns on human capital investments. Most organisations consider training, development and other strategic HR functions as significant part of their budget. Measuring and managing employees’ performance is an important requirement for measuring the returns on human capital investment. Performance is the degree of accomplishment of the tasks that make up the job done by an employee. Performance management is an attempt to reflect on how well an employee has fulfilled the requirements of the job (Byars and Rue, 2008). In relation to managing performance, human resource management is responsible to take following actions. 1) Design a strategic framework of performance management by choosing an appropriate technique for assessing employees’ performance, 2) Arrange effective training and development programs for conducting performance appraisal. 3) Maintain reporting system so as to ensure that appraisal is carefully carried out, and 4) Maintain performance appraisal record for individual employees (Byars and Rue, 2008). As Noe, Hollenbeck and Gerhert (2003) noted, human resource management takes strategic actions to ensure that employees’ activities and outputs match the goals of the organisation. This is at the very heart of managing performance. Functions of performance management include specifying the tasks and outcomes of a job that contributes to organisation’s success. Various techniques are used to compare employees’ performance over some time with desired outcomes or desired performance. A systematic approach to managing performance of employees begins with defining appropriate skills, knowledge and abilities required, by classifying the acceptable behaviours and identifying how the results can be appraised (Becker, Antuar and Everett, 2011). Saks and Gruman (2011) viewed that performance management is as much about managing the contexts in which performance occurs. They argued that performance management is about managing the ‘performance’ itself, and for this purpose, management has to manage the workplace contexts that determine the degree of performance. Tesco has been following its Steering Wheel framework for managing performance, but the difference was that this model was used not only for managing the employees’ performance, but performances of finance, customers, and operations. It was a kind of balanced scorecard approach. The steering wheel framework has provided the company with a systematic technique for performance appraisal. Performance Appraisal The system of performance management is immensely influenced by performance appraisal. Most organisations carry out performance appraisal as an effective way to managing performance. Performance appraisal is criticized due to the way it is carried out in some organisation, but still, it is considered as a key element of performance management by 80 percent of organisation (Miah and Hossan, 2012). It is often believed that both performance management and performance appraisal are same thing, but there are significant differences between them. In performance appraisal, managers assess and evaluate employees’ performance in an annual review meeting, whereas performance management is more comprehensive and continuous process of management where managers clarify the mutual expectations and they play roles of coaches rather than judges and they thus focus on future. Performance appraisal is related to evaluating and communicating to employees regarding how they perform in their job and establishing a plan for helping their improvement. Performance appraisal helps organisations make employees aware about how well they perform as well as influencing their future level of efforts and tasks direction. Performance appraisal is used for various purposes. One of the most common uses is that performance appraisal helps organisations make administrative decisions regarding promotions, fringe benefits, layoffs and merit pay increases (Byars and Rue, 2008). The Steering Wheel framework used by Tesco Plc also involved a systematic performance appraisal, because, Tesco’s senior management has been using performance metrics to convey proper messages to employees regarding how they perform and how can they improve in performance. Balanced Scorecard Approach to managing performance The Steering Wheel framework used by Tesco to evaluate and manage performance is typically a Balanced Scorecard approach. Balanced Scorecard system is one of the most effective and widely used techniques of performance management. A balanced scorecard is a combination of performance measures directed towards the long term and short term goals of the organisation as basis for promotion and awarding incentives (Noe, Hollenbeck and Gerhert, 2003). The balanced scorecard, or popularly known as HR scorecard, that was originally described by Robert Kaplan and David Norton in 1992 and that has been further described by writers such as Becker, Huselid, and Ulrich (2001) is a HRM system that involves certain measurement systems to be linked to strategic aims and values of an organisation (Scarbrough and Elias, 2002). The HR scorecard is basically a modified version of the Balanced Scorecard. The balanced scorecard system is measurement and control system that uses both qualitative and quantitative measures to evaluate employees’ performance (Byars and Rue, 2008). It provides a framework that helps the HRM assess the effectiveness of an organisation in terms of its performance and the performance of its employees. This is carried out basically from four perspectives- financial, customer, internal or operational and strategic or organisational learning perspective (Fisher, Schoenfeldt and Shaw, 2008). In this regard, the Steering Wheel model has incorporated all the requirements for adopting a HR scorecard framework. In order to provide guidance in moving the organisation in the direction of future success, Tesco has implemented the Steering Wheel approach as an approach to the HR scorecard and the company has been depending on the same framework till date. According to the view of Kaplan and Norton, balanced scorecard is more than an ad hoc collection of financial and non financial measures in which both measures are part of the information system for employees at various levels of the organisation. According to their view, managers are required to view the business from four perspectives, customer, internal, innovation and learning (Miah and Hossan, 2012). This approach has been revised and modified in Tesco’s case of Steering Wheel framework. Strengths and Weaknesses of the Steering Wheel Scorecard System Strengths 1- Business strategy is defined: With the Steering Wheel model of balanced scorecard, the management strategy as well as HR strategy of the company is Cleary defined. It provides strategic focus by communicating what matters the most in the organisation in simple and easy to understand framework. The Steering Wheel includes 20 corporate objectives, out of which, 4 objectives are related to measuring the performance of employees (Paauwe, 2004). 2- Directing towards future targets: The Steering Wheel model adopted by Tesco is not only for measuring the performance in comparison and contrast to the desired outcomes, but also to provide employees with guidance and support to meet desired goals and objectives in terms of their productivity and performance. 3- A strategy map: With the implementation of the HR scorecard system in Tesco, the organisation was able to describe how its ultimate financial and other goals are linked to the key success factors in relation to the performance of employees. For this purpose, Tesco has designed Key Performance Indicators (KPIs). 4- Identifying required workforce competencies: The Steering Wheel model helps the company is assessing and identifying the requirements of the people involved in the strategy and measuring their competencies for ensuring who are appropriate for certain tasks. Weaknesses 1- There is no evidence to show how the Steering Wheel model is able to link to the high-performance work culture. It is a system in which an organisation is able to make most appropriate fit between its social system- comprising people and interaction- and technical system- comprising of equipments and processes (Noe, Hollenbeck and Gerhert, 2003). As a service oriented firm, it may be less likely to be important for Tesco, but still it seems that high-performance working culture has been becoming more imperative in recent years, and is expected that Tesco should need to incorporate high-performance working with its organizational goals. 2- In order to improve the results expected from adopting a balanced scorecard system, it is important to constantly provide employees with proper training and development apart from other HR strategies such as organisational learning, team work, leadership orientation and collaboration. Evaluative Conclusion Human capital represents highly valuable assets in the organisation, but it is important to follow a systematic performance management to analyze and evaluate how human resources perform. It is merely about measuring the outcomes of resources by analyzing how the resources have performed in comparison to what have been truly targeted. This paper discussed the Steering Wheel approach adopted by Tesco as an HR balanced scorecard system to measure the performance of its people. Various literatures in the field of human resource management have been reviewed to apply to the practical examples of Tesco in adopting its Steering Wheel framework. Summary of major findings Tesco Plc, being the leader in retail market in UK, has been adopting a unique performance and talent management system especially after Terry Leahy joined the company as Chief Executive in 1997. Balanced Scorecard approach is a strategic system to managing employee’s performance. Tesco practiced Balanced Scorecard approach through its Steering Wheel model, that has been placed in areas employees would easily view to see performance metrics, and it followed an effective reporting system as well. In order to attract, retain and develop best fit people for right capabilities at Tesco, the company used Key Performance Indicators that have been linked to the Steering Wheel model. The Steering Wheel framework has also been linked to the practice of performance appraisal, because it involved a systematic performance appraisal. By adopting steering wheel approach as a system of balanced scorecard, Tesco gained advantages such as an effective HR strategy, directing towards future targets and identifying required workforce competencies. This paper also suggested that the Steering Wheel model needs to be linked to the High performance working culture and employees need to be provided with proper training and development programs. 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