Ch. 5 The Loose Coupling

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1 UNIVERSITY OF PAVIA Performance Management Ch. 5 The Loose Coupling Performance Management System Chiara Demar=ni Master in Interna+onal Business and Economics

2 Assump=on Tight v Loose PMS Flexibility of the components of the system deals befer with changing condi=ons Loose coupling areas PMS: Results controls PMS: Ac=on controls PMS: Personnel (cultural) controls Op=mal degree of =ghtness in PMS Educa=on, public administra=on and private organiza=ons Extent to which budget is detailed, targets are difficult to achieve, and challenging targets are related to financial incen=ves Extent to which control makes people more involved in performing ac=ons that are consistent with organiza=onal objec=ves Intended (mission statement) v emergent (clan control) Rela=onship between the metrics and the opera=onal response C. Local Demar=ni customiza=on Performance of the Management product 2

3 Ac=on Controls 1. Behavioural Control Physical or administra=ve constraints reduce the area of possible ac=ons employees can perform 2. Preac=on reviews Observing the work of others before the ac=vity is complete (direct supervision, formal planning reviews, and approvals on proposals for expenditures) 3. Ac=on accountability Feedback control system by which employees are held accountable for their ac=ons 3

4 Ac=on Controls: Pros & Cons Pros Cons They are well suited for high risk- reated task They curb eccessive innova+veness Not effec=ve in higly uncertain contexts They reduce employee s mo+va+on and willingness to improve 4

5 The diamond structure Ch 6 VALUE SHARING IMPLEMENTATION Ch 8 Ch 7 FORMULATION PERFORMANCE MEASUREMENT Ch 9 Ch 10 REWARDING SCHEME EXECUTION Ch 11 5

6 The diamond structure VALUE SHARING IMPLEMENTATION FORMULATION PERFORMANCE MEASUREMENT REWARDING SCHEME EXECUTION It is grounded on the assump=on that performance management mechanisms do not work in isola=on, instead they interact with one another. 6

7 The diamond structure PMSs can be defined as loosely coupled when they either directly or indirectly AFFECT each other, share some COMMON COMPONENTS, but may differ in USE, FOCUS and CONTROL EMPHASIS. VALUE SHARING IMPLEMENTATION FORMULATION PERFORMANCE MEASUREMENT COORDINATION and FLEXIBILITY REWARDING SCHEME EXECUTION 7

8 Coordina=on & Flexibility Characteris=cs of the Loose Coupling PMS Coordina=on Reciprocal influence when they directly or indirectly affect each other Sharing of the same cons=tuent components N. Of shared measures Changes in measures Performance measures or KPIs FORMULATION REWARDING SCHEME VALUE SHARING Flexibility EXECUTION IMPLEMENTATION PERFORMANCE MEASUREMENT Different use (more diagnos=c or interac=ve) of the mechanisms Different focus on subjec=ve or objec=ve measures Different emphasis of control on either an ex- ante (vs. ex- post) control mechanisms Subjec=vity: personal judgment in the assessed measure Ex- ante: feedforward Ex- post: feedback 8

9 UNIVERSITY OF PAVIA Performance Management Ch. 6 The Values Sharing Mechanism Chiara Demar=ni Master in Interna+onal Business and Economics

10 Defini=on Values sharing is a performance management mechanism that summarizes the process of gathering, communica=ng and sharing the organiza=onal values VALUE SHARING IMPLEMENTATION The most widespread expecta=ons among the group members are those cultural values, which everyone is expected to a<end to in order to be part of that group in the future. FORMULATION PERFORMANCE MEASUREMENT REWARDING SCHEME EXECUTION 10

11 Microsok Organisa=onal Values As a company, and as individuals, we value integrity, honesty, openness, personal excellence, construc:ve self- cri:cism, con:nual VALUE self- improvement, and mutual respect. We are commi>ed to our SHARING customers and partners and have a passion for technology. We take IMPLEMENTATION on big challenges, and pride ourselves on seeing them through. We FORMULATION PERFORMANCE hold ourselves accountable to our customers, shareholders, MEASUREMENT partners, and employees by honoring our commitments, providing REWARDING results, and striving for the highest quality." SCHEME EXECUTION 11

12 Linux Organisa=onal Values Open Technology Community VALUE SHARING Freedom IMPLEMENTATION FORMULATION Respect PERFORMANCE MEASUREMENT REWARDING SCHEME Diversity EXECUTION 12

13 Organisa=onal values and na=onal culture Na0onal culture is a specific kind of culture of a group and it has been defined as the collec=ve programming of the mind that dis=nguishes the members of one human group from another VALUE SHARING Na+onal culture can also affect organiza+onal values IMPLEMENTATION FORMULATION REWARDING SCHEME PERFORMANCE MEASUREMENT Chinese owners orienta=on was to align employees and organiza=onal values through cultural control EXECUTION 13

14 Consequences of lack of Organisa=onal Values Values sharing mechanisms provide the image that senior management wants the organiza=on to represent VALUE SHARING Without such a mechanism, the organisa=on might waste managerial effort FORMULATION IMPLEMENTATION PERFORMANCE MEASUREMENT Pauperises the organiza=on, by using organiza=onal resources REWARDING SCHEME EXECUTION Undesired outcomes 14

15 Individual, organisa=onal and stakeholder objec=ves c a. Individual s set of objec=ves b. Organisa=on s objec=ves d a b c. Stakeholder objec=ves area d. Desirable objec=ves managers are asked to achieve 15

16 Values sharing process Sharing Influencing Long- las:ng TESCO S GREAT SCHOOL RUN is looking for five to 11 year olds to slip on the trainers for a 2 km fun run. Ask your school to sign up <h>p://...> Exercise can be a fun part of everyday life and we hope to get one million children on the move. To be one in a million, find out more here <h>p://...> and Hi, I work at Tesco Express in Eastbourne. I m doing a parachute jump to support Tesco s current Charity of the Year, the Alzheimer's Society, as part of their Leap Year Challenge Follow my nervous build up to the big day HERE <h>p://...> YOU can take a giant leap for people with demen:a and sign up for a parachute jump or abseil Find more details HERE 16 C. Demar=ni Performance <h>p://...> Management Values clearly communicated and periodically reinforced Values should be able to address managerial behaviour The =me span of revision for a company s values should be considerably long

17 Values sharing process Sharing Influencing Long- las:ng Values clearly communicated and periodically reinforced Values should be able to address managerial behaviour The =me span of revision for a company s values should be considerably long One of JetBlue Airways s Value is fun. The Behaviours they have defined for FUN include: Exhibits a sense of humor and ability to laugh at self Adds personality to the customer experience Demonstrates and creates enthusiasm for the job Seeks to convert a nega=ve situa=on into a posi=ve customer experience Creates a friendly environment where taking risks is okay 17

18 Values sharing process Sharing Values clearly communicated and periodically reinforced Influencing Values should be able to address managerial behaviour Long- las:ng The +me span of revision for a company s values should be considerably long Culture eats strategy for breakfast (Peter Drucker) Culture drives performance by unleashing human poten:al 18

19 Design of the value sharing Building cultural strenghts: mechanism They amplify the effect of both closing and opening drivers through leadership, selec=on and socializa=on processes. REINFORCING DRIVERS Defining cultural dimensions for control: CLOSING DRIVERS mix OPENING DRIVERS Drivers that shape organiza=onal culture Sharing of employees by limi=ng the values, which are opinions in order to improve conceived as acceptable internal control 19

20 Types of value- based and cultural controls Symbol- based control Clan Control Value statement, credos Humanity factors Vision Factors Adherence to conven=on BoFom- line values Flag, Pin, Smiley, Dressing code, Awards Kinship rela=onship Rules and rou=nes of the clan are not easily available Champion Values courtesy, considera=on, coopera=on, fairness, forgiveness, morality integrity Development, ini=a=ve, crea=vity and openness Obedience, cau=ousness and formality Logic, economy, experimenta=on and diligence. 20

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