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Performance Management in Tesco

Research Paper (undergraduate) 2011 26 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of content

1. Executive Summary:

2. Introduction:

3. Literature Review:
3.1. Performance management vs. Performance appraisal:
3.2. Performance management should be an ongoing progress:
3.3. Important aims of Performance management:
3.4. Performance management models:
3.5. Balanced Scorecard approach:

4. Background of Tesco:
4.1. Tesco’s Strategy and workforce size:
4.2. SWOT Analysis:
4.3. Tesco’s Steering Wheel:

5. Conclusion:

6. References:

1. Executive Summary:

Traditionally, corporate performance is defined in financial terms (Verweire et al, 2004). Therefore, one of the main aspects of corporate finance is to measure and collect proper financial measures in order to assess the corporate performance. Such as Sales, Return on Investment (ROI), Economic value added (EVA) and Return on Common Equity (ROCE) that all of them are widely used by small companies and large organisations.

Performance is explained superficially, which is the achievement of quantified objectives. Performance has an important connotation that is the way that people choose to achieve the objectives. Therefore, performance means process and manner of functioning and operating (or behaviours) to attain beforehand desirable goals (or results) (Brumbach, 1988). The mixed model of performance management is suggested by Armstrong (2006) which is based on these simultaneous elements of performance that are behaviour and result.

The considerable aspect of organisational performance management is to maintain the goal congruence. Performance management aligns the organisation’s objectives with the individuals’ goals. Many performance management theories apportion this alignment as a main endeavour of the performance management process such as Balanced Scorecard. Besides, performance management could converge to strategic development by some modification of its methods and facilitates indirect control of employees by giving a clear target (Otley and Fakiolas, 2000; Hemmer, 1998; Egan, 1995).

Organisations usually utilise two main theories to be competent firms in their markets. Those theories are Porter’s theory (1980, 1989) and resources and competences theory. Despite of which theory is deployed, ongoing performance management could facilitates to achieve significant results and produce prosperous business. Besides, the obligation for continuousness of performance management is argued in details on the proper sections.

Multifarious performance management frameworks are available that usually they are divided into three corporate, business unit and, functional levels. Among those various frameworks balanced scorecard is used abundantly. It “helps companies to look and move forward instead of backward” (Kaplan and Norton, 1992). It has been proposed that the utilisation of balanced scorecard leads to ameliorate financial performance compared to traditional financial performance measures (Davis and Albright, 2004).

The advocators of balanced scorecard argue that a consequent cause-and-effect relationship exists among the perspectives of balanced scorecard. Cohen et al (2008) mention “The proponents of balanced scorecard claim that lead factors interrelate and their improvement ultimately leads to increased financial performance”.

Tesco is a giant broad chain supermarket which had been disorientated and in need of direction due to the new globalised environment. Consequently, in the late 1990s, Tesco developed a new company strategy to align the organisation around its strategy and communicate the strategy broadly. Tesco developed the “Tesco Steering Wheel” that is similar in many aspects to balanced scorecard designed by Kaplan and Norton (1992) for performance.

Finally, Executing this method of utilising Balanced Scorecard, which is contrived to improve the performance, has tremendous results in growth Tesco in the UK, monumental expansion into new product lines, new geographic markets, and unorthodox retailing formats. Figure 4.3.2 shows the rise of Tesco during the implementation of Steering Wheels since 1997 when Sir Terry Leahy lead the organisation to become UK’s leading supermarket.

2. Introduction:

Performance management is defined as systematic progress to ameliorate organisational performance with improving individual’s effectiveness and team’s efficiency for the purpose of achieving or surpassing craved results within a planned structural strategy. Performance management is established within the organisations to aim employees to do their tasks efficiently in a meticulous manner by elucidating goals (Armstrong, 2006).

Traditionally, corporate performance is defined in financial terms; therefore, financial information is the most widely available information source on companies (Verweire et al, 2004). Maltz et al (2003) assert that organisations may have difficulty of determining what specific measures are critical to their firms in real life situations; therefore, many of them choose solely financial measures, such as Sales, Profit margin, Revenue growth, Cash flow, Net operating income, Return on Investment (ROI), Revenue per employee, Profit per employee, Stock price / market capitalization, Economic value added (EVA), Earnings per share (EPS), Return on Common Equity (ROCE), and 5 year growth in common equity.

In fact, the proper compendium of measures depends on the organisation’s size, technology, strategy, and the industry and environment. For example, stock price/market capitalization is normally not an important measure for small and private firms while it is one the most significant measures that is given the public’s interest in large public listed companies (Maltz et al, 2003).

3. Literature Review:

To understand the concept of performance management, defining the meaning of performance is compulsory in order to profoundly comprehend the elements that performance management leans to amend them.

Performance is explained superficially, which is the achievement of quantified objectives; it has an important connotation which is the way that people choose to achieve the objectives. Therefore, performance means process and manner of functioning and operating (or behaviours) to attain beforehand desirable goals (or results) (Brumbach, 1988). Armstrong (2006) agree with the above hypothesise that behaviours and results need to be considered simultaneously because competency should be included in the process to achieve results, which he describes it as the mixed model of performance management.

The other important aspect of organisational performance management is to maintain the goal congruence. Performance management aligns the organisation’s objectives with the individuals’ goals. Armstrong (2006), Fletcher (1993) and many other scholars assert that aligning employees’ goals and organisation’s objectives is the most fundamental purposes of performance management that can be attained by interpreting corporate level objectives to lower-levels’ goals. Armstrong (2006) also argues that the goals of lower-levels should not be set, but an agreement is prerequisite on targets that should be reached through the open dialogues that take place between managers and employees.

Otley and Fakiolas (2000), Hemmer (1998), and Egan (1995) suggest that performance management could be one of the main parts of control system. In general, the majority of employees expect directions and motivation from the top managers at their work, and at the same time, they want freedom without direct control. Therefore, performance management could provoke developments by its methods. It also could converge to strategic development by some modification of its methods and facilitates indirect control of employees by giving a clear target.

3.1. Performance management vs. Performance appraisal:

It is worth bearing in mind that performance appraisal is not the same thing as performance management. This difference reveals the fulcrum of performance management that is in contrast to performance appraisal, which is an ongoing approach in performance management.

Performance appraisal has a penchant backward looking, and it is focusing on what had gone wrong, rather than eagerly expecting or anticipating to future development demands. Performance appraisal is the formal assessment to rate employees by their managers during annual review meeting. In contrast, performance management is a continual, broad, and comprehensive with focus on the future (Armstrong, 2006).

To sum up, Armstrong and Murlis (1998) and Armstrong and Baron (2004) declare that performance appraisal provides “a dishonest annual ritual” and apprise eight major differences between performance management and performance appraisal. Table 3.1.1 demonstrates eight major differences between Performance appraisal and Performance management.

illustration not visible in this excerpt

Table 3.1.1 differences between Performance appraisal and Performance management (source: Armstrong, 2006)

3.2. Performance management should be an ongoing progress:

Fletcher (1993) mentioned that one of the most rudimentary purposes of performance management is to create a shared perspective and widespread accepted goals to comply the organisation’s desire and employees’ perceptions. Besides, it is attempting to enhance the performance of both the firm and its staffs.

There are two main theories exist to assist organisation being success that they have contrasts with each other in their recommended methods. Organisations usually utilise them to be competent firms in their markets. Those theories are Porter’s theory (1980, 1989) and resources and competences theory. Despite of which theory is deployed, ongoing performance management could facilitates to achieve significant results and produce prosperous business.

Porter (1980, 1985) mention that organisations must acclimate to theirs fickle environment. The Porter’s theory suggests an outwardness perspective in order to obtain gratification from what is outside the organisation. The environment consists of capricious political aspects, unstable economic situations, variable social frameworks, and diurnal technological developments are known as PEST factors that were originally asserted by Learned et al. (1965). To respond to unstable environments and to become success during organisational endeavours, organisation’s objectives should be amenable and changeable in order to sustain in volatile milieu.

On the other hand, resources and competences theory suggests an inwardness perspective in order to obtain gratification from what is inside the organisation. The theory asserts that approaching the firm’s objectives is tied to organisation resources, which are composed of tangible and intangible assets. Intangible assets, such as firm’s management skills, organisational processes and routines are more significant than tangible ones because it is an arduous attempt for rivals to imitate them (Wernerfelt, 1984; Prahalad and Hamel, 1990; Barney, 1991; Barney et al., 2001).

Finally, Brumbach (1988) and Armstrong (2006) argue that performance is simultaneously dependent upon behaviours of employees and results of their attempts. Each of these two elements of performance, behaviour and result, is considered by one of those theories. Acclimatising to varying environment (Learned et al. 1965; Porter 1980, 1985) is supposed as changeable organisations’ expected results. Meanwhile, establishing unduplicated processes and expertises (Barney, 1991; Barney et al., 2001) is assumed as efficient employees’ behaviours.

In consequence, by juxtaposing those ideas, it is clear that performance management should be an ongoing progress because of uncertainty of environment that needs new shared objectives, which is mentioned the main attempt of performance management by Fletcher (1993), and necessity of inimitable processes and expertises, which could be achievable with unprecedented in progress performance development.

To conclude, performance management is an ongoing process to distinguish performance, to measure it, and to ameliorate capabilities of individuals, teams, and the whole organisation in order to align efficient exertions with organisation’s vision and strategic objectives (Aguinis, 2009).

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Figure 3.2.1: Performance Management cycle (source: Armstrong, 2006)

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Details

Pages
26
Year
2011
ISBN (eBook)
9783656032793
ISBN (Book)
9783656032915
File size
975 KB
Language
English
Catalog Number
v180233
Institution / College
University of Derby
Grade
Tags
performance management tesco Balanced Scorecard steering wheels Performance appraisal

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Title: Performance Management in Tesco