Effective Performance Management Systems in Australian Organizations

Preamble

This report will focus on the strategies that organizations especially in Australia can use to improve the performance management system which should link employee activities with the organizational goals. It will analyze the existing managerial situation in Australia where firms are forming strategies that are meant to manage the performance of workers. The report will discuss the three general purposes of performance management and criteria for effective performance management systems which can be adopted in contemporary business organizations (Becker, 1993).

It will also propose the implementation of a performance management system in contemporary business organizations in Australia. Finally it will examine the sources of performance information that will adequately evaluate the performance of sales assistance.

Performance Management systems and human resources management

Performance management is a discipline that aims at promoting organizational performance by managing the human capital of an organization. The know-how, skills and capabilities that inherent and used by workers in an organization are referred to as human capital (Becker, 1993). Human capital is an integral asset of any business, company or organization and many of them have concentrated their investments of human capital. Why are organizations interested in the development management and promotion of human capital? Is human capital becoming more and more relevant to organizational performance?

Studies have indicated that there is a huge overt and covert influence of human capital on the performance of any organization and business and there has been intensive research on human capital as a factor in business and organizational performance. This is why organizations are increasingly empowering their human resource departments which deal with the human capital. It has been proved by various studies that any practice that promotes or enhances human capital influences organizational performance directly by molding organizational behavior and attitudes. Human capital also creates structural and operational values that improve efficiency.

According to most business executives, people are the most important assets in any organization because they are the ones that make the rest of the assets work. They have proved that investment in people often lead to improved revenue and profit margins. However the problem that arises from this assertion is that human capital as an asset is not tangible. It cannot be in any way captured in financial results and statement.

This puts a challenge on the business executives to empirically prove that investments in the human capital adds positive value to an organization that results to the growth of the organization and additional, value to the shareholders. There are some indicators that can measure the effectiveness of human capital in a business. They include the image of the organization, popularity with headhunters, experience, satisfaction and loyalty but these signals are not efficient because they do not put a real estimate on the added value to the company. In simple terms, the influence of human capital on the growth of a business is something that cannot be easily documented quantitatively (Bowles, 1975).

This is what challenges business executives in their claim that people are the most important asset in any business. The human resource management departments in organizations in Australia have realized that human capital needs additional support for the organizations to grow in terms of market share, competitive advantage and revenue base.

The emphasis on human capital by businesses and organizations in Australia is based not only on conventional ideals of human capital but also on the contemporary knowledge and information based world of organizations. In a society which is becoming revolutionized by technology, the concept of human capital cannot remain static. For businesses to remain competitive and productive in this digital age, the workforce must therefore be equipped with the relevant skills to keep them at par with the dynamics of technology. This will ensure that things to do with on job training must be emphasized.

Additional financial capital needs to be channeled towards the human resource departments to facilitate the training of the workforce. This presents another challenge for the human resource managers because they must empirically prove that the financial investment into the training of the workforce to acquaint it with new technology basics will result in the overall productivity of the organization.

Human capital and Performance

This section will identify three general purposes of performance management and criteria for effective performance management systems which can be adopted in contemporary business organizations. The focus will be on the Australian organizational structure. There are two theories that explain the relationship between human capital and performance. The first theory is the already introduced resource based view of an organization while the second theory is the motivational theory of expectancy (Keeley, 2007).

The expectancy theory operates from three platforms. The first one is the value that is linked to rewards, instrumentality and expectancy. In this model, the employees believe that they will be rewarded if they reach a certain class of performance and the management also believes that the employees will reach the same class of performance.

The link between performance and the human capital management can be enhanced through the use of the human resource management practices that promote high skills and capabilities. These include high class selection, high quality training and creation of a supportive environment for the investment of the knowledge and the skills that are inherent in the elected workforce (Keeley, 2007).

Early economists focused on the economic benefit that a firm can get if it invested in firm specific and general training of the workforce. There was a conventional assumption that the growth of the human capital translates into economic glory of a firm. This can be supported by the general trends of the relationship between the rise in levels of the education of a workforce and the corresponding positive economic growth of the company. There are those employees that invest their money in improving their knowledge and skills through continuous education.

As a result, when their skills are better, they earn higher income because the input that they bring into the company is better than that of the lesser skilled employee. If the same scenario was translated from the individual development of knowledge to the organizational development, then it can be evident that, just like the person who invested their money and education to improve the quality of their skills and thus get a better pay, a firm can also invest in the overall education and training of its staff (Keeley, 2007).

This will increase the quality of their output which will then translate into superior performance, increased competitive advantage, increased customer loyalty, higher revenue and added value for the shareholders of the firm.

The advantage of firm specific training is that the employees are motivated to remain in the firm and even if there are incentives that they may motivate the employee to leave, that employee may not be as effective elsewhere, because firm specific training covers the routines and the processes of the particular firm and not the general market. Therefore, the most important method of value creation in a firm is effective training of the employees (Fahey 2000).

Sometimes, companies reduce their investment on training by structuring their HR department practices in a manner that the selected and recruited employees do not require additional training. These employees come at a high cost but in the long run, they are cheaper because they company will have made massive savings on training costs (Keeley, 2007). The biggest headache for economists has been the accounting of the human resources. Human assets are different from capital asserts. One can measure the value of a capital asset because they are tangible but the contribution of the human assets cannot be measured empirically.

This brings in the perspectives of human resource accounting that determine the value of a worker by looking not at the value of the present and the past input, but also by looking at the individual relative to his or her role in the firm (Fahey, 2000). However, the issue of human resource accounting has of late being receiving waning interests from economists because accounting standards were not flexible enough to allow the estimation of the actual value of an individual in relation to the role they play in an organization (Dawson,1995).

If there is any tool that can measure the value of an employee with a lot of validity and reliability, then this could of greater advantage to the management of many organizations because its results could be used comparatively to advise the decision of investors on how much to put into the development and the promotion of human capital. In the analysis of the relationship between human capital and performance, economists have tried to look at the value of the independent human resource process to a business by linking them to performance.

The first human resource practice to be analyzed was training and all the studies conducted indicated that there was a positive correlation between the financial growth of firms and their training programs that adopted for their human capital (Keeley, 2007). The other human resource practice under study by the economists was the compensation and incentives schemes management and just like training, this human resource practice recorded higher scores when it as linked to the levels of performance of the human capital and the overall financial prosperity of the employees.

The other practice under study by these economists who were interested in establishing the relationship between performance of firms and the human capital management was the validity of the selection and the recruitment tools, plus the formal procedures of selection and recruitment. A positive link was found where selective staffing was seen as a positive factor that promotes performance in organizations (Keeley, 2007).

Performance appraisal practices also have shown to have an influence on organizational performance and the subsequent profitability of the company. However, focusing on individual human resource practice cannot create an affective framework of analysis. To get the competitive advantage that any firm yearns for, it must ensure that all the Human resource practices in the firm have been carried out effectively so that there can be accumulated gained from a combination of the outcomes of these human resource practices, which will have added value on the performance of the firm.

Performance management system in contemporary business

Organizations in Australia

Contemporary business organizations in Australia should take advantage of the opportunities created by performance management systems to improve organizational performance. The modern economy is knowledge based and the only carriers of knowledge are the people (Bradley, 2000). The main wealth and capability generators are the people who therefore make a market appeal through their performance and market appeal. This is why a new dimension has emerged in human resource management called strategic human resource management whereby the strategic plans of the business are aligned with the practices of the human resource department because of the recognition of the value of human capital in a business and organizational performance.

Contemporary research has documented that a competitive advantage is not all about the natural resources, economies of scale and technological advancements. This is because these are things that the competitors will be able to imitate as they try to keep in touch with the market leaders. Competitive advantage nowadays revolves around the rare, valuable and the hard to imitate resources that are within the firm and human capital is this invincible resource that cannot be imitated by the rivals (Estelle, 1999).

What has become increasingly apparent is the importance of the human capital of an organization to the strategic aims of the firm. This is why HR processes have become an integral part of the strategic direction of any firm. For a firm to acquire a sustained competitive advantage in the dynamic market, it must have the rare capability of acquiring the best talent that it needs for its own operations in a way the competitors cannot. This will ensure that the firm has the best human capital that the rivals do not have and this is enough to make all the difference if the human capital is given the right environment and resources.

The rivals may be able to copy any other thing that the firm does but the immutability of the human capital is very difficult because of the factors of path dependence and ambiguity that is causal. In fact it is very hard for the competitors in the market to grasp the actual mechanism by which the interlinked policies and practices of the human resources add value to the firm.

These policies therefore cannot in any way be imitated or even bought by the market competitors because these HR systems have been developed over time and they have become path dependent. Firms operate in idiosyncratic contexts which have high dependency on the human resource practices and this creates a high impediment to imitation. This makes the productive ability of the human capital a unique feature of a firm especially if the firm has secured talent that is exceptional (Sherwin 1987).

This creates the human capital advantage, which is the best form of competitive advantage a firm can get. The emphasis on human capital by forms and organization is therefore not an experimental gesture. There are some proven evidences that only through human capital can a company manage to utilize all its other resources to gain a competitive advantage in the business.

Some critics of the emphasis on the human capital by firms and organizations have claimed that there are many other things worth lying emphasis on. These include the role of the customers and the role of technology in securing a competitive advantage for a firm.

True, customers are very vital to a firm because without them, the products of the firm would be rendered redundant, meaning the work of attracting and retaining customers is central in determination of the competitiveness of a firm. However, the central question that arises in this case is, where will the customers come from? How will the firm attract its customers?

The firm will attract its customers through rigorous marketing campaigns, through intensive advertising and promotional activities, through positioning and segmentation of the markets, through design of high quality products and effective customer management. If a firm manages to do the entire aforementioned things effectively, it will without any doubt get the competitive edge that is brought by the customers.

For all the aforementioned things that attract and retain customers to take place, there must be one vital resource which is the human resource. The firm will need excellent marketers, advertisers, promoters, designers, managers and general workers for all the customer attraction and retention practices to succeed. This means that for a firm to succeed in the above practices it must have an able human capital pool, meaning that before the customers comes in, the human capital must be there.

It is the work of the human capital that will bring in these customers meaning that any competitive edge that a firm gets because of customer loyalty, attraction and retention practices; it is the work of the human capital pool of the firm. There are other critics that emphasize on technology as the key to the competitive advantage of a business or firm. Yes, it is especially at this time of digital revolution where any firm that wants to succeed in the competitive market must embrace the latest technology (Becker, 2000).

Apart from cutting costs, technology adds value to the products of a company and also makes work more than twice easier. However, there is no way technology can replace the human mind (Smallbone, 1995). This technology needs the input of a human being. It cannot drive itself meaning that there must be a human being behind. This implies that for the technology to give the competitive advantage a firm is looking for there must be the input of the human workforce which means that human resources are the backbone of any competitive edge that a company or any business is looking for.

Everything that brings the competitive advantage must have a human touch behind it. The critics of the emphasis on human capital therefore do not see the hand of the human resources in all the factors that bring the competitive edge (Sherwin, 1988). The evidence that human capital is the backbone of any advantage that a company can get in its effort to survive in the market is enough to justify why most firms have laid their emphasis on this tool. This underlies the importance of the resource based view where firms area promoting the management of the human resources and capital so that there can be a convergence of strategic planning and the human resource development. The resource based view of the management of the firm is what gave rise to what is commonly referred to as the strategic human resource management, which is the direction being taken by most companies in the contemporary world (Wiseman, 1995).

This has led to the emergence of the principle of human capital for resource management and performance sparked by the Japanese miracle of the 80’s where economic success was built on a distinguished from of human resource management. This was as a result of an amalgamation of the concept of the resource based view of the firm and the knowledge based concept which is newer in the contemporary basins world. Under these two concepts, more companies have become knowledge driven and this knowledge can only reside in the human resources of a company. Most companies are therefore emphasizing on the development of the knowledge by increasing the learning capabilities of the employees because the knowledge acquired will be shared and used to achieve a competitive edge.

Human capital and strategic planning

The integration of the HR strategy and strategic planning is one of the chief elements that contribute to entrepreneurial excellence. There are four main themes that underpin the integration of HR strategy and strategic planning (Bradford, 2000). The first theme or assumption is that excellence in business entails a wider scope than just the mere accumulation of practices that are excellent.

Secondly, achieving excellence in the corporate arena is the single most vital element that can be used by a business to achieve its missions, goals and visions (Bradford, 2000). Thirdly the aforementioned elements give the organization a holistic view where the focal point is the total organization and the totality of the team being the underpinning concepts. The fourth assumption is that people tend to do the things they consider important, the ones the boss regards as important of the ones they enjoy, well (Lusch, 1987). In recent years, organizations have been on the decline especially due to the external climate created by mergers and acquisitions.

There are strategies that are used by businesses that give them a completive advantage. These strategies include reengineering, management of total quality. Most businesses have become vulnerable to the external climate because they have not learnt the lessons of excellence (Bradford, 2000).

Organizations must in the modern business climate try to respond with speed to avoid the risks of the external climate and the internal complications. This is why most organizations are shifting from the traditional heavy economy to knowledge economy meaning that the human resources have become the single most important drivers of many enterprises. Global trading, information management and the selection and recruitment of people because of their knowledge and creativity have become the established norms in the modern entrepreneurial world (Bradford, 2000).

There is a lot of emphasis on the investment in the development of the organizational human resources where the traditional crude pay is being reinforced with rewards, retention and other HR practices that are strategic (Bradford, 2000).

HR departments must realign their functions in order to create a mindset that revolves around motivation of workers and mixing long term and short term strategies that underpin the strategic direction of the business (Seddon, 1995) This means that if the aspirations of the business are the major assets of the business, the only other asset that can work hand in hand with those aspirations, goals and objectives are the people.

The HR departments in many organizations have become strategic meaning that they are an integral part of the realization of the visions and missions of the organization. Various HR practices like Recruitment and selection induction and training, career development, succession planning, compensation management, outplacement and retirement are not being done in the conventional arbitrary method but they have to be in like with the strategic direction of the firm(Bradford, 2000).

Strategic decision making must precede the HR functions of the organizations because it is the strategic decisions made that will determine how the strategic functions will be carried out.

An organization must therefore identify its missions and visions which must be articulated to all the shareholders. Clear visions and missions are very fundamental for the development of HR strategies because they have to be relevant with the literacy levels and the competencies of the employees who will have to face the challenge of delivering it. One of the problems faced by organizations is the development of unrealistic strategic plans that completely destabilize the HR functions (Zairi, 1994).

This is because at times there is absence of leadership competence that does not understand that there is an umbilical cord that connects the strategies with their relevance to the people who will be supposed to execute it. This is why the HR department must also be part of the strategic decision making process and the best way of helping in the making of the strategic decisions is by using its competencies model where the competencies of the already existing employees are factored in such that while most of the visions and missions being planned will be planned around the competencies and the creativity levels of the existing employees. This will minimize the need to make a complete overhaul or a reengineering that would be occasioned by strategic decisions that do not factor in the competencies of the employees (Seymour, 2003).

Where the strategic decisions go beyond the competencies of the existing HR, external recruitment would be the most appropriate HR function otherwise, internal promotions based on competencies and performance would be the most viable option as long as the competencies and the performance of the existing HR is factored in during the strategic decision making process (Bradford, 2000).

The strategic plans can be easily realized using a HR team that is already acquainted with the practices of the organization meaning that the internal promotions would be the most viable HR practice especially when recruiting for middle level and top management positions. The use of the correct HR practices will enable an organization to adopt a holistic approach that will enable it to capitalize on the competitive market trends avoiding internal divisions and personal agendas that end up blocking the path to the realization of the strategic plans.

Evaluation of the performance management of a sales assistant

The evaluation of the performance of a sales assistant will depend on the sector in which the sales assistant is operating in. In this case study, I will look at a sales assistant in the Commonwealth Bank of Australia. The evaluation of the performance management in sales assistant will follow the competencies model of job design whereby performance of the worker is linked to the specific skills and competencies that the assistant have.

In sales assistance, the performance of a worker in this area is gauged using the volumes of sales and during any performance appraisal, the centre of focus is how much has the person brought to the company in terms of sales volumes. Another factor that is considered is the kind of relationship that is there between the assistant and the customers because this one also determines sales volumes.

Evaluation of the fairness of performance management

Performance management is one of the fairest human resource practices because it helps the HR managers in creation of job designs. One of the strongest points in performance management is the use of the competencies model. Competency is a combination of skills and knowledge that lead to better performance giving an organization a strategic advantage. For example, In the HR department of Freshtel, the leading retail chain in Australia, competencies are an integral part of its functions and the models used are always in line with the ones in the market.

Competencies in the line of performance management help in creating or designing jobs that are based on the knowledge and skills of the workforce, because it is easier to fit a job to a skilled person rather than fitting a skilled person to a job that may not need his or her skill. That is why there are continuous changes in the Freshtel job design to cater for the competencies of the workers especially after their performance has been gauged. This is because job designed through competencies and performance can help the individuals and the organizations to make an improvement in the results that they deliver.

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