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Recognising unique aspects of business model and culture
By Ravin Jesuthasan, CFA and the global practice leader of Towers Watson’s talent management division
July 3, 2014 4:10 by kippreport
Key business model and cultural elements should influence different aspects of performance management.
Three of these elements — work variability, authority delegation and individual versus team orientation — require careful consideration. It is important for companies to understand the range of characteristics (eg ‘one size fits all’ versus customization) associated with each element and decide on a segment-by-segment basis, where they want to be on the continuum of choices associated with each element. These decisions have significant implications for performance management.
Work variability: It encompasses a broad continuum as shown in Exhibit 3, ranging from standardised work with little or no variation from one performance period to the next and a large span of control, to highly variable work that changes with each performance period and typically has a limited span of control.
Performance management for work with little variability is relatively straightforward. Goals are standardised and there is no need to calibrate these goals to derive the intended value from this type of work. At the other end of the continuum, highly variable work requires more rigorous individual goal setting and performance calibration.
In addition, performance feedback will be much more qualitative and random. To derive full value from such a role, an organisation must calibrate performance expectations, as individual project requirements may shift frequently and establish unique feedback mechanisms.
Delegation of authority: The authority delegation continuum ranges from centralised authority, characterised by a one-size-fits-all mentality, to decentralised authority, featuring greater variability across functions and geographies. In organisations characterised by a centralised authority delegation, the same performance management processes and rating scales are used across geographies and business units. Salary and rewards budgets are set at the corporate level. And not surprisingly, there is corporate involvement in employee reviews (often through the use of forced or guided performance distributions).
At the other end of the spectrum, organisations that opt for a decentralised approach to authority delegation typically allow for greater customisation of performance management processes, tools and even ratings. In such cases, managers ‘own’ performance ratings and rewards recommendations. Among other benefits, such an approach enables companies to take into account changing local market conditions in their performance management systems.
Individual versus team orientation: In designing a performance management system, companies must also decide to what degree they want to adopt an individualistic, accountability culture, which has a heavy emphasis on near-term results and individual employee performance versus a team-oriented, coaching and development culture, which typically focuses on competency development and collective success. In an individualistic culture, there is a strong emphasis on individual pay for performance and a high degree of reward differentiation, while the team-oriented culture will promote a more egalitarian approach to performance management with fewer comparisons of employees against one another and a focus on team/organisational rewards that reflect collective success. Many companies adopt elements of both approaches to address the requirements of different segments and roles.
This approach to performance management will often require a wholesale change in mindset and process. Instead of being focused on achieving a targeted performance and reward distribution, a strategically aligned performance management system focuses on creating direct links between the decision-making process, and workforce segments and organisational attributes needed to drive company performance.
Organisations that embrace this approach will have the confidence to invest where it will make the biggest difference and, just as importantly, not to invest in areas where there is little or no possibility of economic gain. The result will be a more strategically focused performance management system with a much higher return on investment in the workforce.