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Critical success factors to support the management of performance in public and private sector organisations

Critical success factors to support the management of performance in public and private sector organisations


1. Introduction

Since the late 1980s, most of the 26 member states of the Organisation For Economic Cooperation And Development (OECD) of which South Africa is now an associate member have been engaged in human resource management reforms at the national and local government levels.

In 1996 the OECD published a report that detailed the changes occurring in human resource practices in both the developed and developing member countries’ public sector organisations. These trends can thus be viewed as emerging best practices in human resources in the public sector. The practices listed below are critical supports for the human side of re-engineering the performance management process of any local authority, as no performance management strategy is capable of implementing or delivering itself. Only human beings can do this.

Human Resources is increasingly becoming a line manager function with human resources staff repositioning themselves as internal consultants to line. Progressive human resource functions are realigning themselves to becoming active ‘business partners’ of line and not merely a ‘pair of hands’ that implement change for line. This creates an obligation to become good human resource system designers and managers of change. Once the basic reform and change framework is in place, the task becomes one of persuading managers and staff that performance enhancement changes are beneficial for the operations of local government and encouraging their active involvement in the reform process.

A number of human resource management issues that will require attention in the short- and medium-term. While it is explicitly acknowledged that there are no uniform solutions to people management or human resource management reforms in the public sector, the results of the OECD assessment suggest a number of human resource management principles that contribute to developing more flexible, efficient and responsive local authorities.

2. Develop a strategic approach to managing people and performance

Policies and practices for managing people in should be clearly aligned with overall strategies for ensuring the quality, effectiveness, and efficiency of local government. Comprehensive strategies for improving the management of people should recognise the linkages and interdependencies between different areas of human resource management should be developed and promoted as a matter of priority.

Human resource management policies and systems should be sufficiently flexible to be capable of being tailored to the particular needs of individual local authorities. In this context the employer body will need to define which are the core elements that should be standardised (across all municipalities) and which elements should be open to increased flexibility. Rules and regulations affecting the management of people should be reviewed and streamlined where necessary to ensure that they are contributing to and not inhibiting managerial efficiency and effectiveness.

High priority should be given to finding ways of integrating human resource management with the core business of each municipality, ways that may differ from case to case depending on local circumstances, budgets, and management capacity. Similarly, line departments should have sufficient freedom to develop their own strategies for integrating human resource management with their own core business activities. Human resource management should be an integral part of corporate planning and management processes.

Devolved budgeting and tight accountability and resource frameworks are an essential part of any meaningful devolution of authority to line managers, allowing them to manage their staff, determine appropriate staff size and allocate resources within an agreed resource base and a framework which sets out basic budgetary principles to which they must adhere.

3. Articulate and promote key human resource management principles and values

The key principles and values underpinning the management of people in local government should be clearly articulated and communicated across the service. Executive management, change management units, and other influential groups have a critical responsibility in this area. The continuing validity of traditional principles, for example, equity, ethical conduct, and political fairness should be emphasised, alongside values such as efficiency, accountability, and flexibility.

Public officials need to be aware of the standards of conduct expected of them, especially where they are operating in a more discretionary management context. To this end, codes or guidelines on the conduct of public officials may need to be developed or reviewed. Particular attention should focus on how best to ensure the application of such codes or guidelines across the service.

Human resource management policies and practices should adhere to principles of equal employment opportunity (EEO), and progress in improving the employment situation of EEO target groups should be monitored regularly against agreed standards. Attention should be given to developing members of EEO target groups into line and senior management positions, particularly where management structures are being flattened and opportunities for advancement are limited.

4. Raise the profile of training and development as a key element of strategic human resource management

High priority should be given to developing strategies and actions for improving skills and competencies of staff in all types of organisations. Particular attention should be given to the development of effective programmes to foster the leadership and management skills required for the effective use of strategic approaches to the management of performance. Departments and agencies should develop their own programmes for training and development and should integrate the allocation of resources for these activities into corporate strategic development (such as strategies for improving the quality of service) and budget planning.

5. Ensure conditions of employment and working arrangements support the goals of high performance management

Staffing practices such as recruitment and selection, promotion, performance appraisal, and training and development should be clearly linked to organisational goals and priorities. Pay systems and conditions of employment should be reviewed to ensure that they are consistent with and contribute to increased productivity and efficiency.

In the interests of promoting labour market flexibilities, more flexible working and employment arrangements should be introduced. It is important, however, to consider the interests of part-time, temporary, and other non-traditional workers to ensure they are treated fairly and have adequate benefits.

6. Invest in monitoring and evaluation of human resource management practices and programmes of reforms

Human resource management practices must be monitored and evaluated on a regular basis to ensure that they are contributing to more efficient and effective management of people and the achievement of desired programme outputs.

7. Human Resource Management capacity constraints

The above findings should make it abundantly clear that the ability of municipalities to introduce and sustain processes for the management of performance will be tempered by the quality of available human resource expertise. A combination of many human resource disciplines that currently do not exist or are underdeveloped at local government and probably national government levels, are required to support performance management initiatives on an ongoing basis.

8. Performance Management defined

Since this article is about the management of performance contained a realistic definition of performance management must be the departure point that guides the creation of the development principles that underpin the system.

Performance management is a business process that links what individuals and teams do on a daily basis with the larger goals, values and cultural practices of the organisation and the needs of its customers; it is a process for establishing a shared understanding about what is to be achieved and how it is to be achieved; it is an approach to managing people that when done well, contributes to an enduring and healthy organisation.

9. Key elements of the performance management process

> It is a business process

It is about the everyday actions and behaviours people use to deliver the goals of the organisation to meet customer needs, improve performance and themselves. It cannot be divorced from the management and business processes that pervade the organisation. Performance management is not about a set of forms, the annual appraisal ritual, or the merit or bonus scheme.

> It creates a shared understanding about what is to be achieved and how it is achieved

Individuals and teams need to have a common understanding of how their roles connect to the business mission and goals of the organisation. To improve performance they also need to know what superior performance looks like, and how to achieve it. Performance can be described as a set of tasks, goals, behaviours or results or any combination of these elements. The goals and tasks must be formalized into a performance agreement.

> It is an approach to managing people

The focus of performance management is on connecting people to one another and to the larger organisation and its values. The main emphasis is on how to get people to work together and support one another to achieve shared aims. In particular it puts the responsibility on managers to work effectively (through coaching and motivating) with those for whom they are accountable.

> It increases the probability of organisation health and durability

Performance management has a clear purpose. It is about delivering success for individuals, teams, and the organisation. By establishing a continuous management process that delivers clarity, support, feedback, and recognition to all, leaders take a major step in sustaining performance, the performance management process, and organisational life span.

> It is driven by competencies

There are as many definitions of competency as there are competency authors. The term as used in this report refers to the key personal skills and knowledge that enable individuals to perform their work.

The reason why competencies have been included as a key element in a proposed performance management system is that competencies are the only common denominator that can be used across human resource systems consistently. This assists both line managers and human resource professionals to measure and manage jobs and performance in an integrated way. What this means in practice is that a set of competencies used to define any (specific) job would be applied consistently to all individuals in that specific job or job category for all human resource applications such as performance management, training, selection, remuneration and so on. This makes comparisons and measurements of individual (performance) consistent, reliable, and legal.

Competencies always have a clear definition and a list of key actions and behaviours to create consistency for the purposes of measurement and integration across people management systems.

10. Best practices for the design and development of a performance management process

The definition adopted for performance management has been used to guide the search for the best practices to give practical expression to an envisaged performance management system.

Very few structured studies have been undertaken to validate the effectiveness of performance management systems or to establish best practices. The management and human resource literature, on the other hand, is littered with anecdotal case-study reports by writers and consultants about the success of various approaches and techniques used by various organisations. This chapter will present only the findings of formal questionnaire and action research projects conducted by professional associations in conjunction with globally respected consulting organisations.

# Development Dimensions International and Society For Human Resource Management Research

Studies in 1995 and 1997 by Development Dimensions International (DDI) and the Society For Human Resource Management (SHRM) researched best practices for integrated performance management systems. Their studies showed that:

> Team objectives,

> Non-manager training,

> Appraiser accountability,

> Links to total quality management were the specific practices most strongly associated with positive outcomes.

# American Compensation Association with Hay Group, Hewitt Associates, Towers Perrin and William Mecer Inc.

This 1995 study researched the use and effectiveness of competency-based human resource practices and systems. Two areas of their findings have bearing on performance management: how competencies are used throughout the performance management process; and how competencies relate to the employee compensation/reward element of performance management.

The findings from this study reveal the following about the performance planning, review, development, and administrative components of performance management systems:

> Formal performance (management) processes are widespread

Performance management respondents indicated which activities are formal parts of their organisation’s performance management process. Large majorities of respondents have formal process for performance appraisal/measurement (93%), performance planning (75%), employee development discussions (75%), and performance coaching or feedback (73%).

> Competency-based performance planning is much less prevalent

Respondents indicated which performance management activities are competency-based.

About eight out of ten respondents have competency-based performance appraisal/measurement, employee development discussions, and performance coaching or feedback at their organisations. In contrast, about 57% of respondents have competency-based performance planning at their organisations. This finding may indicate that: competency-based job descriptions and models are simply not available in theses organisations; that organisations with existing well established human resource systems are reluctant to spend the required money to change and update systems.

> Competencies and results are rated in performance appraisal programmes

Respondents indicated what is rated and which elements are included in performance appraisal programmes. Nearly 56% of respondents said they rate competencies and results. Smaller percentages indicated the rate one or the other. The most common elements for performance appraisal are competencies (85%); preset result-orientated goals/objectives (68%), and job or role accountabilities (60%). Somewhat less common elements are preset development goals/objectives (43%); adherence to policy such as punctuality, attendance and safety (29%); and time in job (9%). About 13% of respondents use competencies only.

> Competency data are used for employee development, pay, promotion, and training decisions

Nearly nine out of ten respondents use competency-based data for employee development, and nearly seven out of ten include competencies as a factor for salary increase decisions. More than half use it for promotional decisions and training needs analysis.

> Organisations are split on whether they use overall ratings for competency based performance appraisal

Respondents indicated how their overall competency ratings- if these are used- is determined. For organisations with competency ratings, just under half emphasise both competency growth and improvement and competency level achieved. This is the most prevalent practice among respondents. Four out of ten respondents do not use overall competency ratings. Three out of ten use management judgements only (i.e. no multilateral assessment data), and about 22% rely on management interpretation of multi-rater data.

> Management judgment is still the most important factor in determining competency ratings

Respondents indicated which sources provide information on an employee's demonstration of competencies for purposed of performance appraisal, how multi-rater input is weighted, who is involved in formal competency appraisal discussions with employees, and how multi-rater input is weighed, who is involved in formal competency appraisal discussions with employees, and how competency appraisal information is collected and processed.

The manager/supervisor is involved in formal competency appraisal discussions with employees for more than 95% of respondents’ organisations. Only 3 to 5% of respondents include peers/team members, human resources, or another third party in such discussions and only 3% of respondents have no formal discussions.

> Paper based appraisal systems still predominate

Respondents indicate how they collect appraisal information. Nearly six out of ten respondents collect appraisal information on paper and process it manually. Nearly 22% collect information on paper and process it with a computer.

> Formal individual competency assessments are conducted widely

Respondents indicated how often formal individual competency assessments are conducted. Nearly 82% if respondents conduct these assessments at regular intervals, as opposed to conducting them on an "as needed" basis. The mean interval reported is 11 months.

> Respondents indicated how competency development is addressed

According to 74% of respondents, managers and employees establish specific competency development plans and objectives, and/or they discuss how competencies can be improved. Most often, these employee development plans are separated from the performance appraisal. For about 37% of respondents, there is no formal competency development plan in place.

The following findings about the compensation aspect of performance management reveal that:

> Competencies are used most often for salary increase determination

The two most common applications are 1) salary increase determination only (42%); and 2) both work/job evaluation and salary increase determination (42%). Only 15% of the organisations have work/job evaluation only. Very few respondents presently use competency-based incentive pay programmes.

Other factors also drive pay increase decisions.

> Competencies are factored into annual salary adjustments

> Competencies are used with other factors in job evaluation

> Competencies drive structure position and movement

> Competency-based compensation tends to be the last application to be developed

The research did not explore why this is the case, but there are several possible reasons.

Due to the newness of competency-based pay and the lack of data on this issue, the research team offers the following possible explanations:

>> Compensation tends to be similar, and often centralized, across an organisation. This makes it more difficult to change parts of an organisation’s pay programme

>> Often, both senior managers and employees want to maintain consistency to support the perception of "fair"

>> Senior managers typically are very cautious in exercising their control over the company’s financial resources.

>> Redesigning pay usually is seen as a significant organisational change, and it can take a major effort to convince senior managers to do it. Moreover, in many companies, the biggest controllable cost is compensation, and there is often concern that competency-based pay will raise compensation costs (this concern could be raised by any proposed pay system changes)

>> Very often, effective performance management needs to be in place first to support competency-based pay. Also, change to competency-based pay may require that other support systems be created, including communication and competency administration systems.

>> There is still difficulty in assessing pay competitiveness when using competencies. Market pricing information remains job-based. Additionally, some organisations see competency-based pay programmes as incompatible with job-based pay.

>> There are still few tried-and-true models for competency-based pay. Given lack of data, knowledge and experience with competency-based pay, many prefer to wait until more is known

# Linkage Inc., Development Dimensions International and American Productivity and Quality Centre (APQC)

The latest benchmarking and best practices research was conducted in 1999 by Linkage Inc and sponsored by Development Dimensions International (DDI) and The American Productivity and Quality Centre (APQC).

Academics, consultants, and practitioners respect these organisations for their cutting edge research, consulting, and products used across many work environments, include performance management in the public sector.

The preliminary findings of this study support the findings of the OECD work on reinventing human resource practices. The linkage study supports the OECD study. The major difference between this study and other studies two is that the Linkage study goes beyond general recommendations. This study provides a combination of solid human resource and organisation management guidelines that underpin the development of performance management processes.

A common theme that emerged from the study was that best practice organisations see performance management as a dynamic, ongoing process that helps them achieve business goals and helps individuals focus on high-payoff activities that improve performance. The study also showed that performance management is used to establish and reinforce the importance of competencies for the development of performance. The study's key findings focused on three areas:

1.Structuring the performance management system for success

2. Building commitment to the system

3. Assessing results

# Focus Area 1: Structuring for success

Actively align work unit, team, and individual goals with organisation goals. The starting point is always the organisation’s strategic goals. Establish and reinforce the importance of core competencies and job competencies. Support line managers to use performance management across a variety of people applications i.e. to reward high performing groups and individuals, to target poor performers for improvement and/or termination and to steer special development initiatives such as employment equity planning. Use performance management to ‘encourage’ line managers to take responsibility for both the technical and people component of their role i.e. consolidates their primary role and deliver their people management responsibilities

Use electronic and information technology-based systems in the administration of performance management. Administer a performance management process that is reliable, objective, and fair with performance ratings.

# Focus Area 2: Building commitment to the process to assure proper execution

Actively transfer the responsibility for the initial development and ongoing administration of the system from the human resource function to the line organisation. The role of Human Resources becomes one of maintaining policy and quality standards for the system. The demand for effectiveness now comes from line and not the Human Resource function.

Increase the amount of employee involvement in the operation and administration of the performance management process, particularly at the beginning and end of organisational cycles such as planning, budgeting, and programme evaluation.

Provide ongoing training support for executives, managers, and employees to implement and maintain the performance management process.

# Focus Area 3: Assessing Results

Take a balanced view of measuring the benefits that flow from the use of performance management as a contributor to organisational effectiveness. Use a ‘balanced’ scorecard of criteria to monitor and fine-tune performance management processes. Involve all relevant stakeholders in the evaluation process.

The best practices study undertaken by Linkage clearly supports the view expressed above that performance management is more than an administrative process that revolves around a single event at performance appraisal time. Performance management is an approach to managing people and performance that recognises the fluid, dynamic and ever changing nature of the world of work. Organisations have to rapidly respond to the multiple pressures from various stakeholder groups who may or may not be customers. Local government organisations are particularly vulnerable to the demand from this type of context.

The assumptions that guide the use of performance management are that customers, stakeholders and context are the chief drivers of performance management practices. The word practice is the operative word here. Practices can and must be adapted to suite a particular context at a particular time. Practices can also be more rapidly changed than can systems, which rely on mandates and precedent. Local authorities will in future have to rapidly deliver service to customer segments who have conflicting needs and ‘wants’, with reduced resources and where ‘innovation’ is called for. Performance management in this scenario is very much an ongoing communication process, co-determined and undertaken in partnership, between employees, managers, supervisors, and customers.

11. Conclusion: Culture - the force that determines performance change

Redrawing organisation charts, issuing new mandates, setting up utilities, decentralising some powers and centralising others may stem the flow of ‘red ink’ (on balance sheets) for a while in some public and private sector organisations. However performance levels may not necessarily change significantly relative to the variable costs to be incurred to effect these performance changes at both the organisational and employee levels.

Organisational life is paradoxical! The systems and procedures that are in place mould people’s perceptions of what is ‘superior’ behaviour and performance. The leaders who cause these systems and procedures to be created and managed in a certain ‘management style’ also have mental paradigms that drive choices and decisions about how to manage (workforces, systems and performance).

Leaders more often than not opt for systematic change as their paradigms drive them towards this choice. They ‘avoid’ the radical and often messy culture changes that are needed to break the mould and escape the trap of constantly reinventing the wheel of structure and system changes that do little or nothing to influence the discretionary performance under the control of managers and employees. The message here is clear: If culture change is not proactively incorporated as part of the change process used to implement performance management then performance management will fall victim to the power of the organisational culture that currently exist.

Unfortunately, culture is viewed by leaders and managers as a ‘soft’ issue that is difficult, if not impossible, to articulate. It will be increasingly difficult for executives (who come from functional organisations as is typical in public sector life) to reach consensus on how to change it. However, if culture is examined solely as any other organisational concept, culture can be measured, managed, and (over time) changed like any ‘hard’ business component. Understanding culture is the ‘missing link’ that connects strategy to the important people management systems, processes and programmes that ultimately unlock discretionary performance without excessive costs over the longer term.

The task of detailing how culture is designed, modelled, and managed is beyond the scope of this report. However, readers are urged to take the issue of culture and its effect on strategy and performance very seriously. The link and interaction between these organisation concepts are well proven. The most important idea is that culture helps people make sense of work life. Culture acts is the filter through which people’s perception of job requirements pass. Thus, if leaders and managers who are largely responsible for creating culture espouse the value of, say superior performance and the customer, but neglect to (re-) design work systems and relationships that positively reinforce employees’ perception of this value, nothing much will change and the scenario painted in the preface will become the reality.

The implications of the power of culture for Human Resource leaders are just as real. Human Resource leaders will be seriously challenged to examine their own paradigms about the management of performance and workforce systems and procedures for which they are accountable. They will need to re-invent those systems and procedures that do not help line managers reinforce the desired cultural values and behaviours that impact performance and invent those that do not exist. Human Resources will need to become the model for managing change processes, designing performance management (administration) systems that support managers in managing the varied cultural environments they are paid to be accountable for. The tug of war between Human Resources’ need for administrative information and line managers' need to manage performance must not be fought at the expense of a local authority's strategic needs. Human Resources will rapidly need to become the partner of line managers to help them deliver worthy performance through the deployment of context-appropriate performance management tools, techniques and processes.

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Gary Watkins

Gary Watkins

Managing Director


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