Performance Measurement and Rewards Management - Fabian Advertising Company - Case Study Example

Performance Measurement and Rewards Management: A Case Study of Fabian Advertising Company Name: Institution: Course Title: Instructor: Date: A report on Performance Measurement and Rewards Management: A Case Study of Fabian Advertising Company Executive Summary Business organisations exist to make profit. This can only be achieved through rolling out products that create value to customers. This calls for organisations to engage in best practices that give them lee way to lock in customers while locking out competitors and thus, market leadership. One critical success factor of an organisation is human resources. They are in charge of creation and implementation of ideas. To ensure that employees are motivated so that they can create value, there is need to motivate employees and pay them according to their contribution to the organisation. This report outlines the concepts of performance measurement and reward systems (PMRS). The report explores elements of PMRS, its roles, limitation of PMRS in Fabian Co. and resulting dysfunctional behaviours. The outcome of the evaluation showed that while the company tried to implement PMRS, it has not been much successful since other critical factors were ignored. The issues that emerged are over concentration on meeting budget costs thereby causing strains and reduction in quality. This means the process is not value based and not customer oriented. Consequently, this report recommends that Fabian’s advertising should incorporate other factors so that the firm could service their target market with value based products. The first recommendation is to adopt value based approach in implementing PMRS instead of focusing on cost, time and ROI as the measurements parameters. This then mean that the firm as to domesticate systems approach to management and managing by objective so that a collaborative effort can be created. Contents Executive Summary ii Contents iii 1.0 Introduction 1 2.0 Elements of PMRS 1 3.0 Role of PMRS 3 4.0 Discussions on Fabian’s Implementation of PMRS 4 4.1 Limitations of PMRS in Fabian Company 4 4.2 Dysfunctional Behaviours 4 5.0 Conclusion 5 6.0 Recommendations 6 References 7 Appendices 8 Appendix 1: Fabian’s advertising Strategic Focus and Key Success Factors 8 Appendix 2: Analysis of Fabian Advertising Performance in Context of PMRS Implementation 9 1.0 Introduction The sole aim of any business organisation is to get higher returns from its investments. This can only be achieved when that organisation is able to produce goods and or services that meet the dynamic needs of the customer. These needs can only be met by creating value to the ultimate consumer. The beauty of this is than once an organisation is able to meet the needs of the target market, it is able to lock in customers and lock competitors thus, achieving market leadership. This will in turn guarantee continued sales and hence, higher returns. The path towards the later is through strategic planning where organisation exploits its key competencies, resources and success factors. Most of these desired ends are met through streamlining of internal operations through best practices like cost reduction, employees motivation, systems approach to management, managing by objective, total reward management, proper organisation structure & culture, industrial relations and total quality management among others. One way of streamlining internal operations and ensuring higher productivity is through performance measurement and reward systems (PMRS). This report outlines the same in the context of Fabian’s Advertising mission, new business strategy and key success factors (KSF); (Appendix 1). 2.0 Elements of PMRS According to Armstrong and Murlis (2007, p. 99) employees ought to be paid according to their skills and contribution to the organization. The current human resource practices are based on balancing efficiency, effectiveness and marketplace viability so as to ensure “value exchange” between employer and employee. In the 1970s and 80s, most organizations acknowledged that “strategically designed compensations and benefits programs could give them edge in a rapidly changing environment”. Moreover, in 1990s companies experienced numerous challenges this pushed the need to have “alignment of pay and performance, tighter control on benefits costs and more relevant and valued employee reward programs” (Alliance for work-life progress, 2006). The basis of this is that a well rewarded employee will have improved performance. However, corporate managers should be able to determine if they are getting the value for their money based on this approach. This then calls for having various parameters that can be used to measure performance of an employee or department. Elements which are critical to PMRS and can be used to measure performance include cost, time and return on investments (ROI). Cost of production and operation is an important element in company’s operation. Employees and all head of departments are critically in ensuring that company reduces its operation and production cost. Burrow (2008, p.34) explores the concept of pricing as basis of competitive strategy based on reduction of internal costs associated with production. The underlying belief is that once a company is a low cost producer, the same can consequently be transferred to consumers. This if well combined with value creation, would guarantee a platform of attracting & retaining customers and thus, the whole idea of market leadership and increased returns. Time is another important element in measuring performance of an individual and departments. Performance contracting demands that employees should meet their targets of delivering products within the specified or even less time while maintaining the same quality or even high. Time management in business process is a critical element of attaining competitive adage. One factor that highlights the need for this is how Japanese companies were able to adopt the concept of lean manufacturing through just-in-time production. This system advocates for doing things on timely basis so that they can be delivered to customer on timely basis (Sohal, Keller & Fouad, 1989, p.16). The last is return on investment. This concept underscores the fact that businesses exist to get returns on their investments. Shareholders expect returns from their investment. This means that employees should work towards the same. 3.0 Role of PMRS Reward PMRS has directional influence on behaviour. Koontz and Weihrich (2008, p.92) notes that one way in which commercial organisations can increase the output of their employees is to manage by objectives. This kind of approach to managing people stresses the need of creating a collaborative effort between the management and employees in participatory manner. To addresses the objectives outlined in the process, it is prudent for organisations to employee approaches like performance management. The process ultimate end is to synchronise the organisation’s goal with human resources so that the employees knows what is expected of them. The route of achieving this is to minimise obstacles that derail the performance of employees (Bacal, 2012, p.3, 4 & 5). This argument is encapsulated in the theoretical context of goal setting. Edwin Locke (1968) postulates that if people are allowed to set the goals they want to achieve, they feel motivated to work towards the same. The advantage of this is that the employees will strive to attain what they outlined in their goals as it was done without coercion and in enabling environment. The hall mark of this approach would be that even if the employees would have not reached the required benchmarks, they have given their best, hence contributing to improved output. Hence, the organisation shall have addressed the need for improved performance. Moreover, Brim (2012, p.3) notes that human beings performs well when they have goals and objectives set out for them. On the other hand, expectation theory looks at performance in relation to anticipated satisfaction of valued goals set by them. According to Victor Vroom (1964), people adapt their behaviour in certain way so as to attain desired goals. In another perspective, PMRS has motivational influence on behaviour. Social learning theory acknowledges the fact that behavioural patterns are acquired by links or contingencies established between the behaviour and its consequences. Further, it acknowledges that, when behaviour is followed by desired results (reward), that behaviour is ‘reinforced’ (made more likely). On the other hand, when behaviour is followed by undesirable or aversive consequences the behaviour is made less likely (Coleman, 1994). Thus in this case if good performance is rewarded then the person is likely to keep it up and if not he is likely to give up or quit. Implementation of PMRS by Fabian advertising attests the same in some extents. Apart from the company not being able to meet its performance target in terms of return on investments, each department made huge strides in certain areas. One critical are that each department was able to attain was reduction in budget cost. All the three departments were able to deliver the final products at lower cost that the budgeted one. The next was the ability of all departments to deliver the adverts on specified or even before the specified. Exhibit 1 provides a clear picture on this. For instance, the average time to create a story board was 3.2 weeks in 2011 while the target time was 3.5 weeks. 4.0 Discussions on Fabian’s Implementation of PMRS 4.1 Limitations of PMRS in Fabian Company Based on the analysis done on appendix two in relation to normative expectation of PMRS the following were noted limitations. The whole process is pegged on cutting cost and meeting timelines alone and nothing else. The process lacks the drive to create value to the ultimate customer as the principal goal. This has lead to mismatch in strategic focus. The second limitation is best understood from the perspective of systems approach to management. While the organisation has set goals and provided reward, this is not done in synchronised manner. The competing interest is hindering the functioning of the organisation as a unit. For instance accounts department in their bid to meet their budget constraints reduce allocations to other departments for crucial services like employee training and acquisition of capital equipments. 4.2 Dysfunctional Behaviours As a result of these limitations, the three directors have engaged in certain dysfunctional behaviours. The first dysfunctional behaviour that has resulted out of the limitations is that the directors had set high budget cost that can easily be met so that they can get their bonuses. The reason for stating this is because they can’t justify to the proprietor the sudden increase in cost apart from change of strategy. This means the process is NOT VALUE BASED. Secondly, accounting department is focused on cutting cost so as to fit within the limits specified in the performance contract. This is affecting capital investment. Capital investments are means of meeting KSF of innovation and quality products. In addition, to fall within the budget, accounting director has forced production director to ignore factors like employee development in terms of training which is crucial for the organisation. The question of focussing on numbers and not quality is still highlighted when one of the director confesses that some story boards they had developed were not of high quality. The over focus on cost is further underlined when they cannot treat their high end customers in a manner that creates a long lasting positive perception as outlined in their KSF. Accounts director states that the clients expect to be treated to good lunch yet what they can offer is a sandwich. One negative impact of this is reduced brand value in terms of perception. This shows the mismatch between their strategy, KSF and strategic focus. 5.0 Conclusion Performance and reward management is important internal streamlining approach that can help an organisation attain competitive advantage. This is only possible if a firm is able to align its human resource goals with the business and corporate plan. The approach contributes to value creation to owners while employees get rewarded. The building block is on reward, performance and market leadership. Cost reduction, timely delivery and return on investment are key elements of the process. However, over focus on cost reduction can be a failure as seen in Fabian Company. The process should be value driven and customer centred. To attain the above, management and directors should embrace systems approach to management so that the whole thing is done in unison and not in isolation that makes each department operate and pull in different directions. 6.0 Recommendations For PMRS to be more effective and serve Fabian Company very well, they should implement the following: The company should adopt value based approach rather than over concentrating on reducing cost as a measure of performance. Secondly, the process should be collaborative instead of having each department pursuing their own agendas. This means there is need for systems approach in making the process functional. The next is to have total quality management in place so that quality and value from customer point of view is entrenched. References Alliance for work-life progress (2006). Work and life: what is total rewards? Retrieved on 27 August, 2012 from: http://www.awlp.org/awlp/about/html/aboutus-whatis.html. Armstrong, H. and Murlis, M. (2007). Reward management: a handbook of remuneration strategy and practice. London: Kogan Page. Bacal, R. (2012). Performance management. New York: McGraw-Hill. Brim, R. (2012). A history of MBO, and recommendation for today’s manager. Retrieved on 27 August , 2012 from: www.managePro.com. Burrow, L. J. (2008). Marketing. London: Simon and Schuster. Coleman, J. S. (1994). Foundations of social theory. Harvard: Havard University Press. Koontz, H. and Weihrich, H. (2008). Essentials of management: an international perspective. New Delhi: Tata McGraw-Hill. Sohal, A. S., Keller, A. Z., Fouad, R. H. (1988) A Review of Literature Relating to JIT. International Journal of Operations & Production Management, Vol. 9 Issue: 3, pp.15 – 25. Appendices Appendix 1: Fabian’s advertising Strategic Focus and Key Success Factors Appendix 2: Analysis of Fabian Advertising Performance in Context of PMRS Implementation “I’ve found this year very stressful. Several times I’ve almost felt like giving up. I mean, we change our strategic direction significantly. We know we’re targeting a much smaller market for our commercials, but does my performance measurement reflect this? No it doesn’t. As to my ROI target, I tried to meet it, but it was never going to happen. At least I got under my client cost budget. Mind you, some of our clients weren’t happy. They expect to be taken out to expensive lunches and dinners for the prices we charged them. Instead they got a sandwich lunch in the Boardroom. I’ve done some things I’m not proud of this year, I admit, but I felt I didn’t have a choice. I don’t want to work for free you know.” Peta Svenson, Executive and Accounts Director. Analysis (Strategy of focusing on high end and few clients does not reflect on organisations culture. For instance, they are not able to treat their clients accordingly/ CLIENT PERCEPTION AND CUSTOMER SERVICE charter in KSF is ignored). Recommendations on PMRS at Fabian (VALUE BASED, COLLABORATIVE OBJECTIVE SETTING, SYSTEMS VIEW AND TOTAL QUALITY MANAGEMENT THAT IS DEMAND ORIENTED AND CUSTOMER DRIVEN). Read More