Introduction
Steel Co. have been struggling in recent years due to poor trading conditions and financial performance this has resulted in cost saving strategies being implemented which had caused hard Human Resource Management.
There are approximately 65 people working within the firm on a full time and permanent basis as well as employees who are unskilled. The business is split into two departments the sales and manufacturing team. The divisional director came up with a suggestion to increase efficiency in Steel Co. by dividing the employees into four groups each with a team leader. Lastly, the divisional director also created a staff forum for employees to give them the space to raise their points of concern. The divisional director expected that the strategies would be successful and the manufacturing rate would increase. However, one year on the divisional director examined the situation. He was disappointed to see no change in the productivity of the employees. Therefore as a business advisor this report will outline recommendations for the divisional director on how to successfully implement performance management processes.
Performance management is a “process, which contributes to the effective management of individuals and teams in order to achieve high levels of organisational performance” (Armstrong and Baron, 2004 p.19).
1. Structuring individual performance targets so as to maximise the firm’s performance.
Steel Co.’s employees were demotivated which resulted in low productivity and commitment. The freeze in pay that was implemented made the motivation and productivity levels fall further. The introduction of the bonus schemes by division of work among different teams also failed. Again efforts failed, as despite introducing a forum for employees, this did not successfully increase performance. To maximise performance Steel Co. need to implement a HR strategy that enables goals to be integrated through performance management in each employee.
According to Boye Kuranchie-Mensah and Amponsah-Tawiah (2016)
Individual performance is determined by:
- “Motivation to carry out the job by rewards schemes, bonuses, etc.”
- “The ability and capability to do the job (know how to do their job)”
- “The working environment”
To effectively structure individual performance targets so as to maximise the firm’s performance Steel Co. need to start with vertical integration which is “a merger or takeover between firms at different stages of the production process”(Worthington and Britton, 2006 p.221). Steel Co. also needed to look to match business strategy, team and individual targets with employees skills. Steel Co.’s main goal is to have a competitive advantage. Teams, which need to be fairly appointed representatives and individuals, should guide the organisation’s annual corporate, team, and individual goals. Teams need to be responsible monitoring their own and individual members’ performance, with the organisation’s strategy and vision. “Unfortunately, in many organizations that connection between the organization’s goals and individual contribution is either weak or missing altogether. This has the potential to impact detrimentally on both the performance of the individual and that of the organization” (Ashdown, 2014 p.13).
Another way in which Steel Co. could structure individual performance targets so as to maximise the firm’s performance is through Key Performance Indicators (KPI’s). According to Aguinis (2009) the individual targets should be connected to individual responsibilities and aligned with the strategic goals in order to encourage desired behaviours. One way Steel co. can evaluate the relevance of a KPI is to use the SMART objectives they have set out. KPI’s can be used in Steel co.’s sales team and they can use KPI’s to indicate positive and negative sales growth.
2. How a performance management system can be used to improve employee development and communications.
Performance management systems are vital in evaluating individual performance and optimising productivity. All these processes were missing in Steel Co. Employees worked in an environment, which had an autocratic style of leadership from the owner/manager. He imposed decisions of employees rather than viewing them as an asset to the business. “He regarded them as a cost to business and so he invested little in them
To improve employee development and communication Steel Co should align employee development plan with business goals. They need to have face-to-face conversations with each team to gain an understanding of their expectation and aspirations. They should identify what skills their employees need to develop in their career and accordingly develop an action plan. Mentoring skills is an important process to influence and inspire employees. They should consider investing in employee’s betterment to achieve better profitability and reputation. Performance management often focuses on assessing employees’ past performance and linking it to pay this is a mistake. If the ultimate aim is to improve performance, there should also be a strong focus on how employees need to develop. Performance conversations should thus help employees to learn from their experiences and identify other relevant learning and development opportunities. A number of organisations use personal development plans (PDPs), which are “learning plans to achieve learning goals for which individuals are responsible with the support of their managers and the organization” (Armstrong, 2015). “Performance appraisal is evaluating an employee’s current and/or past performance relative to his or her performance standards”(Dessler, 2013). A review of employees’ potential and development needs is often linked with performance appraisal and known as a performance development review (PDR).
3. The need to integrate performance management systems with other human resource.
Human Resource management at Steel Co has been eliminated from a previous autocratic approach, where employees were viewed as cost to the business and little was invested in them, to a newly developed participative approach where employees are seen as assets whom the firm can develop and maintain a competitive advantage. However a performance management scheme operating by it self will not increase the motivation of employees. “Performance management should be a shared process between managers, individuals and teams in which objectives are agreed and jointly reviewed and in which corporate, individual and team objectives are integrated” (Foot, Hook and Jenkins, 2016 p.210).
The new participative approach should encourage investment in employees however this idealistic practice has not been put in place as it is evident that employees have not received training other than the mandatory basic health and safety training and the attitudes of the employees towards the business remains the same.
In 2009 a survey carried out by CIPD (2009) stated that 69.6% of individuals surveyed felt that performance management should be aligned with at minimum four other human resource processes.
The performance management system used by Steel Co. was target-focused meaning that the emphasis of employees was based on quantity rather than quality. Due to this, employees were aiming to meet a specific numerical output target to receive their bonus and so their priority was on receiving the reward they were entitled to and not exceeding management output expectation. Employees feel belittled and under appreciated by their managers due to the autocratic management style. The culture of the business should be a supportive and a positive focus network and not one which undermines employees. Steel Co. could improve this by linking performance management with other HR processes such as career development, coaching and mentoring.
4. The effectiveness of linking performance to financial reward.
It is important for management at Steel Co. to decide on whether or not they should back an individual approach or a group approach to pay and reward.
When employees were organised into four teams they were assigned a team leader in an attempt to overcome the dissatisfaction due to a pay freeze. A scheme was then introduced in which team performance was compared against targets. If these targets were met a bonus was allocated to each team member making the focus of each member their individual pay instead of the quality produced. They became disgruntled and dissatisfied within the working environment. This is evident as the majority of employees received bonuses 7 out of the 12 months however employee commitment remained low and no improvements were made to quality.
It is evident that linking performance to financial reward on a team basis has been ineffective. Instead, Steel Co. should elect to introduce a tailored broad range of incentives that employees can choose from. The idea behind this being that no two people in an organisation are the same and so employees are likely to pick a reward unique to them depending on their stage/position in their career path. Steel Co. could link appraisal with pay rewarding employees individually for their efforts. “The objective of performance related pay is to improve productivity by rewarding those who best assist in achieving this goal” (Mondy and Martocchio, 2015 p.251). However, Steel Co. would continually have to review this system as “focusing on individual performance goals can undermine team spirit and cooperation” (Salaman, Storey and Billsberry, 2005 p.178).
Conclusion
In conclusion it is clear Steel Co. have a variety of issues they need to resolve before their performance improves.
The managers and the employees at Steel Co have little to no connection, which has resulted in a poor communicative relationship. These elements are the basic factors for operating a business effectively achieving their productivity goals depends on this. The salary system which was put in place was unsuccessful and caused little change for employees and therefore the director did not get the expected results. The Divisional Director needs to analyse this report to help improve the work efficiency of their employees and the production levels of the organisation.