Performance Management and Strategic Planning

 

3.1.

Definition And Purposes Of Strategic Planning Strategic planning is a process that involves describing the organization’s destination, assessing barriers that stand in the way of that destination, and selecting approaches for moving forward. The main goal of strategic planning is to allocate resources in a way that provides organizations with a competitive advantage. Overall, a strategic plan serves as a blueprint that defines how the organization will allocate its resources in pursuit of its goals. Strategic planning serves the following purposes: First and foremost, strategic planning allows organizations to define their identities. In other words, it provides organizations with a clearer sense of who they are and what their purposes are. Second, strategic planning helps organizations prepare for the future because it clarifies the desired destination. Knowing where the organization wants to go is a key first step in planning how to get there. Third, strategic planning allows organizations to analyze their environment, and doing so enhances their ability to adapt to environmental changes and even anticipate future changes. Although knowledge of the environment does not guarantee that an organization will be more likely to change and adapt, knowledge is the first step toward possible adaptation. Fourth, strategic planning provides organizations with focus and allows them to allocate resources to what matters most.   Strategic Plan : Purposes Helps define the organization’s identity Helps organizations prepare the future Enhances ability to adapt to environmental changes Provides focus and allows better allocation of resources Produces an organizational culture of cooperation Allows for the consideration of new options and opportunities Provides employees with information to direct daily activities   In turn, the improved allocation of resources is likely to stimulate growth and improve profitability. Fifth, strategic planning can produce a culture of cooperation within the organization given that a common set of goals is created. Such a culture of cooperation can gain organizations a key competitive advantage. Sixth, strategic planning can be a good corporate eye-opener because it generates new options and opportunities to be considered. New opportunities to be considered may include expanding to new markets or offering new products. Finally, strategic planning can be a powerful tool to guide employees’ daily activities because it identifies the behaviors and results that really matter.

3.2.

Process Of Lingking Performance Management To The Strategic The mere presence of a strategic plan does not guarantee that this information will be used effectively as part of the performance management system. In fact, countless organizations spend thousands of hours creating strategic plans that lead to no tangible actions. Many organizations spend too much time and effort crafting their mission and vision statements without undertaking any concrete follow-up actions. The process then ends up being a huge waste of time and a source of frustration and long-lasting cynicism. For example, consider a recent study including more than 350 individuals in firms in India in the following eight sectors: textiles, staple fiber, chemicals, cement, insulators, aluminum, mining, and services. Examples of companies included in this study are Grasim Cement, Jayashree Textiles, Birla NGK Insulators, Essel Mining Industries, and INDAL (Indian Aluminum Industries). Results indicated that although there was a good strategic planning process in place in most firms, there was no clear relationship between firm-level and individual-level goals. Thus, to ensure that strategy cascades down the organization and leads to concrete actions, a conscious effort must be made to link the strategic plan with individual performance. Figure 3.1 provides a useful framework for understanding the relationship among an organization’s strategic plan, a unit’s strategic plan, job descriptions, and individual and team performance. The organization’s strategic plan includes a mission statement and a vision statement as well as goals and strategies that will allow for the fulfillment of the mission and vision. The strategies are created with the participation of managers at all   Part I • Strategic and General Considerations

Figure 3.1 Link Among Organization and Unit Strategic Plans, Job Descriptions, and Individual and Team Performance

levels. The higher the level of involvement, the more likely it is that managers will see the resulting strategies favorably. As soon as the organizational strategies have been defined, senior management proceeds to meet with department or unit managers, who in turn solicit input from all people within their units to create unit-level mission and vision statements, goals, and strategies. A critical issue is to ensure that each unit’s or department’s mission and vision statements, goals, and strategies are consistent with those at the organizational level. Job descriptions are then revised to make sure they are consistent with unit and organizational priorities. Finally, the performance management system includes results, behaviors, and developmental plans consistent with the organizational and department-level priorities as well as the individual job descriptions. As a concrete example, consider the case of Key Bank USA, a financial services company with assets of $92 billion that provides investment management, retail and commercial banking, consumer finance, and investment banking products and services. Key Bank of Utah successfully developed a performance management system that is aligned with the strategic plan of the organization. To do this, the bank first involved managers at all hierarchical levels to develop an organization mission statement. Next, it developed goals and strategies that would help achieve Key Bank’s mission. The mission statement, goals, and strategies at the organizational level served as the foundation for developing the strategies for individual departments and units. To develop these, senior managers met with each department manager to discuss the organization’s goals and strategies and to explain the importance of having similar items in place in each department. Subsequently, each of the departmental managers met with his or her employees to develop the department’s mission statement and goals. One important premise in this exercise was that each department’s mission statement and objectives had to be aligned with the corporate mission statement, goals, and strategies. After organizational and departmental goals and strategies were aligned, managers and employees reviewed individual job descriptions. Each job description was tailored so that individual job responsibilities were clear and contributed to meeting the department’s and the organization’s objectives. Involving employees in this process helped them to gain a clear understanding of how their performance affected the department and, in turn, the organization. Finally, based on the key responsibilities identified, the performance management system included behaviors, results, and developmental plans. For example, each employee record included information on various responsibilities, standards expected, goals to be reached, and actions to be taken to improve performance in the future.

	What happened after Key Bank of Utah implemented this system? In general terms, Key Bank was able to enjoy several positive consequences of aligning corporate, departmental, and individual goals. After the implementation of its new performance management system, Key Bank found several meaningful benefits, including the following :
	-	Managers knew that employees were focused on meeting important goals
	-	Employees had more decision-making power.
	-	Lower level managers had a better understanding of higher-level managers’ decisions.
	-	Communication increased and improved (among managers, between managers and employees, etc.).

	3.2.1.	Strategic Planning The development of an organization’s strategic plan requires a careful analysis of the organization’s competitive situation, the organization’s current position and destination, the development of the organization’s strategic goals, the design of a plan of action and implementation, and the allocation of resources (human, organizational, physical) that will increase the likelihood of achieving the stated goals. There are several steps that must be considered in the creation of a successful strategic plan. These include (1) the conduct of an environmental analysis (i.e., the identification of the internal and external parameters of the environment in which the organization operates); (2) the creation of an organizational mission (i.e., statement of what the organization is all about); (3) the creation of an organizational vision (i.e., statement of where the organization intends to be in the long term, say, about 10 years); (4) setting goals (i.e., what the organization intends to do in the short term, say, one to three years); and (5) the creation of strategies that will allow the organization to fulfill its mission and vision and achieve its goals (i.e., descriptions of game plans or how to procedures to reach the stated objectives). After each of these issues has been defined, organizational strategies are created so that the mission and vision are fulfilled and the stated goals are met. The strategic planning process is not linear, however. For example, there may first be a rough draft of the organization’s mission and vision and then the conduct of an environmental analysis may follow to help define the mission and vision more clearly. In other words, the mission and vision may be drafted first and the environmental analysis may follow second. The important point is that there is a constant interplay among these issues: the vision and mission affect the type of environmental analysis to be conducted, and the results of an environmental analysis are used to revise the mission and vision. By necessity, we need to discuss them one by one; however, keep in mind that they affect and inform each other on an ongoing basis. Let’s begin with a discussion of environmental analysis.
		3.2.1.1.	Environmental Analysis The first step in conducting a strategic plan is to step back to take in the “big picture.” This is accomplished through what is called an environmental analysis. An environmental analysis identifies external and internal parameters with the purpose of understanding broad issues related to the industry where the organization operates so that decisions can be made against the backdrop of a broader context An examination of the external environment includes a consideration of opportunities and threats. Opportunities are characteristics of the environment that can help the organization succeed. Examples of such opportunities might be markets not currently being served, untapped labor pools, and new technological advances. On the other hand, threats are characteristics of the external environment that can prevent the organization from being successful. Examples of such threats range from economic recession to the innovative products of competitors. For example, consider the case of Frontier, which is currently the second largest jet carrier at Denver International Airport with an average of 250 daily departures and arrivals. Frontier is an affordable-fare airline which provides service to 60 cities, 50 in the United States, 8 in Mexico, and 2 in Canada. Frontier commenced operations in July 1994 given two key opportunities in the external environment. First, a major competing airline engaged in a dramatic downsizing of its Denver operations, leading to service gaps in various major markets that Frontier filled. Second, the city of Denver replaced the heavily congested Stapleton Airport with the much larger Denver International Airport.8 In February 2004, United Airlines, the largest carrier operating out of Denver International Airport, made changes in the environment that may have had a direct impact on Frontier’s strategic plan: United Airlines launched its own low-fare affiliate. The new affiliate, Ted, is going toe to toe with Frontier. Peter McDonald, vice president for operations for United Airlines, reported that Ted’s cost per available seat mile is in the ballpark of Frontier’s 8.3 cents.9 So, what had been an opportunity for Frontier may no longer remain one, given the launching of Ted.

			The following is a nonexhaustive list of external factors that should be considered in any environmental analysis :
			-	Economic. For example, is there an economic recession on the horizon? Or, is the current economic recession likely to end in the near future? How would these economic trends affect our business?
			-	Political/legal. For example, how will political changes in domestic or international markets we are planning on entering affect our entry strategy?
			-	Social.  For example, what is the impact of an aging workforce on our organization?
			-	Technological. For example, what technological changes are anticipated in our industry and how will these changes affect how we do business?
			-	Competitors. For example, how do the strategies and products of our competitors affect our own strategies and products? Can we anticipate our competitors’ next move?
			-	Customers. For example, what do our customers want now, and what will they want in the next five years or so? Can we anticipate such needs?
			-	Suppliers. For example, what is the relationship with our suppliers now and is it likely to change, and in what way, in the near future?
			Although an examination of external trends is important for all types of organizations, this issue is particularly important for multinational organizations because they are concerned with both domestic and international trends. In fact, monitoring the external environment is so important in the strategic planning of multinational organizations that a survey of U.S. multinational corporations showed that 89% of departments responsible for the assessment of the external environment report directly to a member of the board of directors. An examination of the internal environment includes a consideration of strengths and weaknesses. Strengths are internal characteristics that the organization can use to its advantage. For example, what are the organization’s assets and the staff’s key skills? At Frontier, several key executives from other airlines were recruited, an important strength that was considered before launching the airline in 1994. These executives created a senior management team with long-term experience in the Denver market. Weaknesses are internal characteristics that are likely to hinder the success of the organization. These could include an obsolete organizational structure that does not allow for effective organization across units and creates the misalignment of organizational, unit, and individual level goals

			The following is a nonexhaustive list of internal issues that should be considered in any environmental analysis :
			-	Organizational structure. For example, is the current structure conducive to fast and effective communication?
			-	Organizational culture. Organizational culture includes the unwritten norms and values espoused by the members of the organization. For example, is the current organizational culture likely to encourage or hinder innovation and entrepreneurial behaviors on the part of middle level managers?
			-	Politics. For example, are the various units competing for resources in such a way that any type of cross-unit collaboration is virtually impossible? Or, are units likely to be open and collaborative in cross-unit projects?
			-	Processes. For example, are the supply chains working properly? Can customers reach us when they need to and receive a satisfying response when they do?
			-	Size. For example, is the organization too small or too large? Are we growing too fast? Will we be able to manage growth (or downsizing) effectively?

		3.2.1.2.	After the environmental analysis has been completed and the gap analysis reveals an organization’s leverage, constraints, vulnerabilities, and problems, the members of the organization must determine who they are and what they do. This information will then be incorporated into the organization’s mission statement. The mission statement summarizes the organization’s most important reason for its existence. Mission statements provide information on the purpose of the organization and its scope. Good mission statements provide answers to the following questions :
			-	Why does the organization exist?
			-	What is the scope of the organization’s activities?
			-	Who are the customers served?
			-	What are the products or services offered?
			Consider the mission statement for the Coca Cola Company. Everything we do is inspired by our enduring mission:
			-	To Refresh the World ... in body, mind, and spirit.
			-	To Inspire Moments of Optimism ... through our brands and our actions.
			-	To Create Value and Make a Difference ... everywhere we engage
			Presumably, this mission statement was preceded by an environmental analysis examining internal and external trends. We do not have information on this. What we do know is that this mission statement provides some information regarding the four questions noted earlier. Based on this mission statement, we have information about why the company exists (i.e., “to refresh the world”) and the scope of the organization’s activities (i.e., “to create value and make a difference”). The mission statement does not, however, include information about who are the customers served and what are the products and services offered. Also, there is no information about specific products (e.g., Sprite, Minute Maid, Powerade, Dasani) More specific and detailed information is needed if Coca-Cola’s mission statement is to be used by its various units to create their own mission statements. More detailed information is also needed if both the organization and unit mission statements will be used as input for individual job descriptions and for managing individual and team performance. In general, thorough mission statements include the following components :
			-	Basic product or service to be offered (does what?)
			-	Primary markets or customer groups to be served (to whom?)
			-	Unique benefits and advantages of products or services (with what benefits?)
			-	Technology to be used in production or delivery
			-	Fundamental concern for survival through growth and profitability
			Mission statements also typically include information about the organization’s values and beliefs, including :
			-	Managerial philosophy of the organization
			-	Public image sought by the organization
			-	Self-concept of business adopted by employees and stockholders

		3.2.1.3	Vision
			An organization’s vision is a statement of future aspirations. In other words, the vision statement includes a description of what the organization would like to become in the future (about 10 years in the future). Vision statements are typically written after the mission statement is completed because the organization needs to know what it is and what its purpose is before they can figure out who they will be in the future. Note, however, that mission and vision statements are often combined and, therefore, in many cases it is difficult to differentiate one from the other. In such cases, the vision statement usually includes two components: a core ideology, which is referred to as the mission, and an envisioned future, which is what is referred to as the vision per se. The core ideology contains the core purpose and core values of an organization, and the envisioned future specifies long-term objectives and a picture of what the organization aspires to. Spectrum Brands (formerly Rayovac Corporation) provides an example of combining mission and vision into one statement. Spectrum Brands is a global consumer products company and a leading supplier of batteries, kitchen appliances, shaving and grooming products, personal care products, pet supplies, and home and garden products. Originally founded in 1906 as the French Battery Company in Madison, Wisconsin, and renamed Rayovac Company during the 1930s, the company changed its name to Spectrum Brands in 2005 to reflect its diverse portfolio and position as a publicly held company which employs 10,000 individuals worldwide. Spectrum Brands’ combined mission and vision statement is the following : Spectrum Brands is a rapidly growing, global, diversified, market driven consumer products company. We will continue to grow our company through a combination of strategic acquisitions and organic growth. We will strengthen our brands and generate growth through emphasis on brand strategy/marketing and innovative product technology, design and packaging. We will leverage IT infrastructure, distribution channels, purchasing power and operational structure globally to continue to drive efficiencies and reduce costs. We will profitably expand distribution in all served markets
			This statement includes components of a mission statement (i.e., “a rapidly growing, global, diversified, market-driven consumer products company”) as well as components of a vision statement (e.g., “will strengthen our brands and generate growth through emphasis on brand strategy/marketing and innovative product technology, design and packaging”). This statement combines the present (i.e., who the company is, what it does) with the future (i.e., aspirations). Other organizations make a more explicit differentiation between the mission and vision statements. Consider the vision statement for Greif, a global company headquartered in Delaware, Ohio, with approximately 16,000 employees providing industrial packaging products and services in more than 55 countries in Africa, Asia, Australia, Europe, the Middle East, North America, and South America. Greif reported US$ 3.5 billion in net sales for the fiscal year that ended October 31, 2010. Greif’s vision statement is the following :   Vision Statement One Company Though we encourage and embrace our diversity of language, location, business and origin, we are one company: Greif. One Mission  We provide the packaging that gives ultimate value to our customers.   One Vision  We will be the best packaging company in the world, working in true partnership with our customers, our suppliers, and among ourselves.   Our Core Values  Our people are our past, present, and future We will honor The Greif Way, building upon our rich history as a special place to work. We will operate within a culture of integrity, character, and respect. We will maintain a safe working environment. We will attract and cultivate a responsible, competent, efficient, and empowered workforce. We will provide opportunities to excel. We will communicate. We will listen.   Our customers are our reason for being  We will keep our promises to our customers. We will be synonymous with quality and service. We will solve their packaging challenges. We will prove the value of our relationship by being the best at what we do.   Our products are our livelihood  We will be a low-cost manufacturer and the high value supplier in our business segments. We will innovate, using our ingenuity and creativity to provide better solutions. We will maintain our focus on where we can be the best and apply our expertise to do it better.   Our shareholders are our support  We will conduct our business ethically and with transparency. We will establish rigorous financial goals that will drive our business decisions and measure our progress. We will strive to attain a superior rate of return and maintain trust with our investors.   Our stage is the world. Our communities and the environment are our backdrop  We will be a conscientious global citizen, a responsive community neighbor, and a responsible steward of the earth’s natural resources.

			Greif’s vision statement is clearly future oriented. It provides direction and focus. In addition, it includes several features that are required of useful vision statements. First, it focuses attention on what is most important and thus eliminates unproductive activities. Second, it provides a context from which to evaluate new external opportunities and threats. For example, the vision statement indicates that new opportunities for profitable growth in the industrial packaging and services business should be pursued. In addition, good vision statements have the following characteristics, not all of which are present in Greif’s vision statement
			-	Brief. A vision statement should be brief so that employees can remember it.
			-	Verifiable. A good vision statement should be able to stand the reality test. For example, how can we verify if Greif indeed becomes “one of the most desirable companies to work for in our industries, focusing on establishing a work atmosphere in which our employees can excel”?
			-	Bound by a timeline. A good vision statement specifies a timeline for the fulfillment of various aspirations.
			-	Current. Outdated vision statements are not useful. Vision statements should be updated on an ongoing basis, ideally as soon as the old vision is fulfilled.
			-	Focused. A good vision statement is not a laundry list of aspirations, but rather focuses on just a few (perhaps not more than three or four) aspects of an organization’s performance that are important to future success
			-	Understandable. Vision statements need to be written in a clear and straightforward manner so that they are understood by all employees.
			-	Inspiring. Good vision statements make employees feel good about their organization’s direction and motivate them to help achieve the vision.
			-	A stretch. Consider Microsoft’s vision statement of “putting a computer on every desk and in every home,” which was the vision when CEO Bill Gates started the MS-DOS operating system in the 1980s. This vision statement was such a stretch that it was considered ludicrous at a time when the mainframe computer still reigned supreme and the first minicomputer models (now PCs) were being made and sold. But that vision is now a reality. Microsoft has come up with a new vision: “putting a computer in every car and every pocket

		3.2.1.4.	Goals After an organization has analyzed its external opportunities and threats as well as internal strengths and weaknesses and has defined its mission and vision, it can realistically establish goals that will further its mission. The purpose of setting such goals is to formalize statements about what the organization hopes to achieve in the medium- to long-range period (i.e., within the next three years or so). Goals provide more specific information regarding how the mission will be   Characteristics of Good Vision Statements   Brief Verifiable Bound by a timeline Current Focused Understandable Inspiring A stretch   implemented. Goals can also be a source of motivation and provide employees with a more tangible target for which to strive. Goals also provide a good basis for making decisions by keeping desired outcomes in mind. And, finally, goals provide the basis for performance measurement because they allow for a comparison of what needs to be achieved versus what each unit, group, and individual is achieving. Consider the case of Harley-Davidson, Inc., the motorcycle manufacturer. In January 2004, Jeffrey L. Bleustein, chairman and chief executive officer, said that the expectation was to continue to grow the business. Specifically, he said that the new goal was to satisfy a yearly demand of 400,000 Harley-Davidson motorcycles in 2007. Moreover, he also said that he was confident that Harley Davidson, Inc., would be able to deliver an earnings growth rate in the mid teens for the foreseeable future. These goals provide a clear direction for Harley-Davidson. In fact, they provide useful information to guide unit-level goals as well as individual and team performance. The entire organization has a clear sense of focus because all members know that there is a goal to deliver 400,000 motorcycles in 2007.
		3.2.1.5.	Strategies At this point, we know what the organization is all about (mission), what it wants to be in the future (vision), and some intermediate steps to follow to get there (goals). What remains is a discussion of how to fulfill the mission and vision and how to achieve the stated goals. This is done by creating strategies, which are descriptions of game plans or how to procedures to reach the stated objectives. The strategies could address issues of growth, survival, turnaround, stability, innovation, and leadership, among others. Linking Performance Management to the Company’s Vision at Loop Customer Management At Loop Customer Management (http://www.loop.co.uk) a new direction and a new company vision statement included the alignment with an effective performance management system. Loop Customer Management is part of the United Kingdom-based Kelda Group. The company provides clients with managed customer services, contact centers, and collection services. In 2001 the company moved from being part of a utility company to becoming an outsourced provider of services. With this change, a new vision was created which centered around the phrase “great customer experiences through great people.” The company then sought to create a performance management system that would align the staff skills and behaviors to this new vision. Based on the need to focus on customer service as primary to success, Loop sought to define, measure, and reward the best service behaviors. The process meant identifying the specific behaviors that create a quality customer interaction and incorporating those behaviors into performance appraisals and reward systems. Creating behavioral statements allowed employees to have a clear understanding of how their work linked directly to the company’s vision. In summary, Loop Customer Management provides an example of how a performance management system can align with a vision statement to bring about organizational change and execution of a business strategy The human resources (HR) function plays a critical role in creating and implementing the strategies that will allow the organization to realize its mission and vision. Specifically, the HR function can make the following contributions :
			-	Communicate knowledge of strategic plan. The HR function can be a good conduit to communicate the various components of the strategic plan (e.g., mission, vision, and goals) to all the employees.
			-	Outline knowledge, skills, and abilities (KSAs) needed for strategy implementation. The HR function, through job analyses and the resulting job descriptions, serves as a repository of knowledge regarding what KSAs are needed for a successful implementation of the strategic plan. Thus, the HR function is in a unique situation to provide information about whether the current workforce has the KSAs needed to support the strategic plan and, if not, to offer suggestions about what types of employees should be hired and what types of plans should be put in place to develop the needed KSAs internally.
			-	Propose reward systems. The HR function can provide useful information on what type of reward system should be implemented to motivate employees to support the strategic plan.

	3.2.2.	Developing Strategic Plans at the Unit Level The organization’s strategic plan has a direct impact on the units’ strategic plans. The case of Key Bank of Utah described earlier illustrates how the branch administration division had a mission statement that was aligned with the overall organizational mission statement. Similarly, the vision statement, goals, and strategies of the various units need to be congruent with the overall organizational vision, goals, and strategies. Consider the case of Microsoft Corporation’s mission statement. Our Mission At Microsoft We work to help people and businesses throughout the world realize their full potential. Our Values As a company, and as individuals, we value :
		-	Integrity, honesty, openness, personal excellence, constructive self criticism, continual self-improvement, and mutual respect.
		-	We are committed to our customers and partners and have a passion for technology.
		-	We take on big challenges, and pride ourselves on seeing them through. We hold ourselves accountable to our customers, shareholders, partners, and employees by honoring our commitments, providing results, and striving for the highest quality.

	3.2.3.	Job Descriptions This description provides information about the various tasks performed together with a description of some of the KSAs required for the position. But what is the link with the organization and unit strategic plans? How do the specific tasks make a contribution to the strategic priorities of the transportation division and the organization as a whole? This description includes only cursory and indirect information regarding these issues. For example, one can assume that the proficient handling of bills of lading, expense accounts, and other papers pertinent to the shipment contributes toward a smooth shipping operation and, therefore, makes a contribution to the transportation division. However, this link is not sufficiently clear. On the other hand, consider a job announcement describing the position of Performance Solutions Group Manager in Microsoft’s training and education unit (see the accompanying box). This job description makes the link between the individual position and MSTE quite clear. First, the description includes MSTE’s mission statement so that individuals become aware of how their specific roles fit within the overall mission of the department. Second, the job description includes language to the effect that the work must lead to an “industry leading” product, which is consistent not only with MSTE’s mission but also with Microsoft’s overall mission. Third, in the needed qualifications section, there is a clear overlap between those needed for this specific position and those mentioned in MSTE’s as well as in Microsoft’s overall mission. In short, the person working as Performance Solutions Group Manager has a clear sense not only of her position but also of how behaviors and expected results are consistent with expectations about MSTE and Microsoft in general
	3.2.4.	Individual and Team Performance Finally, the performance management system needs to motivate employees to display the behaviors and produce the results required to support the organization’s and the unit’s mission, vision, and goals. Developmental plans need to be aligned with unit and organizational priorities as well. Well-designed performance management systems define a clear path from organizational mission, vision, and goals to individual and team performance. This is critical because organizational success is a direct function of the alignment between collective and individual objectives. Knowledge of the organization and unit vision and mission allows the HR function to make informed decisions about design choices. More detailed information on each of the factors guiding each of these design choices is provided in subsequent chapters. For now, as one illustration, assume an organization is producing a mature product in a fairly stable industry. In this situation, an emphasis on behaviors rather than results may be preferred because the relationship between processes and outcomes is well known, and the top priority is that employees display reliable and consistent behaviors in making the product. Regardless of the type of criteria used, be it behaviors or results, these must be observable (i.e., the person rating the criteria needs to have the ability to observe what is rated) and verifiable (i.e., there needs to be evidence to confirm the criteria rated). As a second example, consider the actual case of Dell computers. Dell is one of the top players in the personal computer industry through its mode of online direct selling. Dell’s main strategic business strategy is to be a low-cost leader in an industry that deals with a product that is increasingly regarded as a commodity. However, in addition to a low-cost strategy, Dell has a customer relationship business strategy of maintaining customer service at a high level, while reducing costs. Dell’s performance management system provides a strong link between individual goals and organizational performance by including a results component (i.e., cost) and a behavioral component (i.e., customer service).21 At Dell, both low cost and high levels of customer service (for both internal and external customers) are important dimensions of the performance management system. Also, the system is strongly linked not only to the strategic objectives (i.e., low cost and high levels of customer service) but also to the organization’s “winning culture” (i.e., achievement of personal and business objectives through its focus on interaction between managers and team members).
3.3.	Building Support Given the many competing projects and the usual scarcity of resources, some organizations may be reluctant to implement a performance management system. Primarily, the reason is a lack of any perceived value added to a system that requires many resources (particularly time from supervisors) and that seems to produce little tangible payoffs. The need to align organization and unit priorities with the performance management system is one of the key factors contributing to obtaining the much needed top management support for the system. Top management is likely to ask, “Why is performance management important?” One answer to this question is that performance management is the primary tool that will allow top management to carry out its vision. The performance management system, when aligned with organization and unit priorities, is a critical tool to (1) allow all employees to understand where the organization stands and where it needs to go and (2) provide tools to employees (e.g., motivation, developmental resources) so that their behaviors and results will help the organization get there. Fundamentally, the implementation of any performance management system requires that the “What’s in it for me?” question be answered convincingly. In the case of top management, the answer to the “What’s in it for me?” question is that performance management can serve as a primary tool to realize its vision. Bankers Life and Casualty realized that a better link between strategy and individual and team performance could be established by improving its performance management process. The HR department, therefore, proceeded to overhaul the performance management system so that the three areas of strategic importance just outlined would be part of everyone’s performance evaluation and improvement efforts. The design and implementation of the new system was a joint venture between the HR and the communications departments. First, the HR and communications team spoke candidly with the CEO about his expectations. The CEO responded with overwhelming support, stating that the performance management system would be implemented for every employee on preestablished dates, and that he would hold his team accountable for making this happen. Then, to implement the performance management system, each unit met with its VP. During these meetings, each VP discussed how his or her unit’s goals were linked to the corporate goals. Next, HR and communications led discussions surrounding goal setting, giving feedback, and writing developmental plans. Managers were then given the opportunity to share any feedback, concerns, or questions that they had about the program. During this forum, managers exchanged success stories and offered advice to one another. These success stories were then shared with the CEO. The CEO then shared these stories with those who reported directly to him to strengthen the visibility of his support for the program. In short, the performance management system at Bankers Life and Casualty helped all employees understand their contributions to the organization’s strategic plan. This was a key issue that motivated the CEO to give unqualified support to the system. This support gave a clear message to the rest of the organization that the performance management system was an important initiative. The support of the CEO and other top executives, combined with a high degree of participation from all employees and their ability to voice concerns and provide feedback regarding thesystem, was a critical factor in the success of the performance management system at Bankers Life and Casualty.