MODERN APPROACHES TO LEADING AN ORGANIZATION WITH FOCUS ON HUMAN CAPITAL

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1 Journal of Information, Control and Management Systems, Vol. 6, (2008), No MODERN APPROACHES TO LEADING AN ORGANIZATION WITH FOCUS ON HUMAN CAPITAL Ivana TESAROVIČOVÁ external PhD. student of Silesian University in Opava Abstract The article discusses some of the modern approaches to managing an organization and its performance management. It includes the methodology of Balanced Scorecard in the context of the performance management, putting the stress on the perspective of learning and growth, as well as on following this perspective with action oriented measures. The relation between human capital and attaining the highest aims of the enterprise constitutes a starting point for modern methods in the area of human resources management Managing work performance. Throughout the 21 st century occurred some major changes in the way companies perceive its employees. Until then they were considered a cost for a organization but in the present they are often seen as one of the most vital assets of the organization. In this respect, it is essential for the companies to alter the way of managing their employees as well. Keywords: Performance management, balanced scorecard, human capital, performance, organization, management 1 INTRODUCTION In the times of rapid changes it is crucial for the organization to readily response to changes in the environment, especially those that pose a challenge to their abilities such as the ability to adapt their business and processes to ever changing environment. An instrument of bringing such changes into practice for their own benefit is the rapid innovation in all business activities, the development and implementation of new technologies, development of the potential of employees as well as strategic thinking. Development of new technologies, increase of the importance of information and knowledge moves the assets of the businesses increasingly from tangible to intangible assets, innovation, ideas and creativity. The importance of continuous development of human potential for achieving the desired objectives grows rapidly in relation to both the organization itself and to the competition.

2 134 Modern Approaches to Leading an Organization with Focus on Human Capital Investments in technology are more visible and easier to measure than investments in people, whose importance in the organizations is often underestimated and neglected. This is one of the reasons why we should pay more attention to the development of human potential in the businesses in terms of its impact on the achievement of corporate goals, as well as its importance in relation to the competition. To be able for the staff of the organization to effectively achieve these aims, it is necessary for them to reach certain level of personal and professional development. For a successful organization are undoubtedly important those ways of managing people that do stimulate and direct their initiative, creativity, motivation, skills, focus on the enterprise, accountability and others. It is also clear that the success of the organization lies mainly in its endowment with the right resources, as well as in their best possible use. Competitive advantage stems from valuable and to the organization specific resources which are difficult to emulate. Human factors that contribute to the success of the organization are related to the creation of strong management, well-motivated and skilled workforce, stable relationships with employees as well as an overall strategy towards the quality of working life. 2 APPROACHES TO MANAGING AN ORGANIZATION The method of management should enable the fulfillment of the requirements that are imposed on the organization in today's market environment. Today, ways of managing and leading an organization in today's dynamic business in a globalized environment are also very important, particularly in relation to increasing customer requirements and increased demands of the owners and shareholders of the companies, leading to pressure for increasing performance. Shareholders and owners require a higher return on the funds and increase of the value of the organization, customers require a higher value and quality of products. It is difficult to reconcile conflicting demands of individual interest groups. One of the ways of achieving this is to apply modern approaches to the management of organizations with an emphasis on their most important assets. This is the approach, which includes: Balanced Scorecard method method of balanced indicators strategic system of managing a business Performance management approach managing of work performance 2.1 Balanced Scorecard Balanced Scorecard (BSC) is a method that creates a link between strategy and operational activities with an emphasis on measuring performance. The method was created in response to the empirical findings that the strategic objectives have not been properly implemented into practice. Many businesses deal with a problem of linking strategies with operational activities in order to implement the strategy in all business areas in order to achieve strategic objectives.

3 Journal of Information, Control and Management Systems, Vol. 6, (2008), No BSC method is usually considered to be an instrument of controlling which focuses on the proper formulation of strategic objectives with the emphasis on their measurability. It does not focus only on the financial targets, it recommends using also other groups of objectives while identifying measurable indicators of success. It stresses the fact that the management and operation elements of an organization should be informed about the strategic aims of the organization as well as with the subobjectives that affect them directly. It is a balanced system of performance indicators derived from the organization's strategy, it's also a measuring system, system of strategic management, communication tool. Today BSC represents for many companies a key system for managing and method of implementation of a strategy to day-to-day operations of the business. Innovative companies use the BSC as a strategic management system, thus the management of its long-term strategy. Businesses use the measuring properties by the implementation of critical management processes as to clarify and to transfer vision and strategy into specific objectives, communication and connection of strategic plans and indicators, planning and setting objectives and achieving balance between strategic initiatives, improving strategic feedback and learning processes. BSC is a framework for the integration of indicators derived from the strategy. It maintains financial indicators and introduces the driving forces of future financial performance. These forces include customer perspective, the perspective of internal processes and prospects of learning and growth and are derived from the transfer of a strategy to concrete targets and indicators. The financial perspective and its objectives are the focal point for the targets and indicators of other perspectives. Perceptions of a strategy are linked with the long-term financial objectives and other perspectives, in order to achieve long-term economic performance. Even though the BSC puts emphasis on non-financial indicators and targets, the basis to which head all activities of the business is the financial perspective - the financial performance of the enterprise. Formulating a customer perspective has to give its makers a clear view of the target customers and market segments. The organization must know what customers actually appreciate and adjust its competitive value advantage accordingly. Among other things, in this perspective organization identifies customer segments on which will the organization focus, compete and that are a source of its profits. Customer perspective makes it possible to determine key customer indicators for the particular market segments and for the major customers. The lack of timely and correct understanding of customer needs can even lead to a loss of customers as well as the competitiveness of the organization. The perspective of internal processes characterises particularly those processes that are vital for fufilling the goals of customers and the owners of the organization. A significant advantage of BSC is the fact that the targets and strategies are based on fulfilling the expectations and wishes of the customers and of the owners. This will usually reveal new processes, in which an enterprise should achieve excellent results. All of this leads not only to catching up with the competition but also to overcome it.

4 136 Modern Approaches to Leading an Organization with Focus on Human Capital In the perspective of learning and growth are developed targets and indicators that support learning and growth of individuals but also of the enterprise as a whole. The objectives set in the financial and customer perspective as well as the perspective of internal processes determine where the organization has to achieve great results if it ought to result in a significant increase in performance. The objectives in the perspective of learning and growth constitute support, which will enable the organization to successfully achieve the objectives in the other three perspectives, and to proceed toward realizing its vision. Enterprise, to be successful and meet the expectations of owners and other interest groups must invest in infrastructure that is made by people, systems and procedures. When the organization does not improve the level of its employees, systems and processes, the negative impact may not surface immediately but when it does materialise, it is usually to late and management does not act as if it was an actual problem. Basic areas of the perspective of learning and growth include the abilities of employees, the level of systems, leadership, motivation, delegation, commitment, corporate culture and working environment. 1 FINANCIAL PERSPECTIVE What financial objectives do we need to reach 2 CUSTOMER PERSPECTIVE Which need of the customer do we need to satisfy 3 PERSPECTIVE OF INTERNAL PROCESSES 4 PERSPECTIVE OF LEARNING AND GROWTH Fig. 1 Elementary relations between the perspectives of BSC [2] As can be seen in Fig. 1, it is the people who are fundamental to the functioning of the organization as a whole and it is the human resources can be a base for the

5 Journal of Information, Control and Management Systems, Vol. 6, (2008), No competitiveness and position the organization in a modern market economy. The use of the methodology of balanced indicators as a strategic system for managing performance of the organization is, from my point of view, very appropriate for the organization mainly on the grounds that it provides management as well as all participants clear picture of the importance of their work for the achievement of corporate goals due to the clear cause and effect principle. Each employee then knows the meaning of their efforts in achieving the objectives in the terms of the whole organization and what is their contribution to the overall success of the enterprise. Representation of the basic principles of the Balanced Scorecard methodology, as shown on the figure above, clearly shows the causal relationship between human capital and the achievement of the highest objectives of the organization, which creates a basis for modern methods in the field of human resource-management performance. 2.2 PERFORMANCE MANAGEMENT MANAGING WORK PERFORMANCE The position of the organization on the market depends on a large extent of the quality of human resources in the organization. The ability to attract and retain competitive advantages is of crucial importance for growth and prosperity of the business. High performance, productivity, flexibility and the ability to provide customer services at the highest level - is why it is the people who make up a crucial ingredient in creating a competitive position of the organization on the market. People are the key to managing relationships between internal departments of the organization as well as to managing important external relations. Effective people management is one of the main competitive advantages of organizations which is hard to emulate. Organization personnel strategy, as well as corporate policy is a unique mix of processes, procedures, personalities, style, skills and corporate culture. One of the key competitive advantages is the ability to distinguish what the organization offers its customers, from what offers its competitors. In order to achieve this, we need to have better people than the competition. The organization can gain competitive advantages by both forming the basic skills of the workforce through traditional methods (such as staff remuneration, career management, staff development) as well as by the effective use of corporate culture, the development of managers and the type of management and organizational structure. When speaking about human capital and its significant role in any enterprise, the concept of human resource management is used gradually more often than personnel management. Human resources management represents an approach with an emphasis on understanding people as a future resource that we invest in rather than a cost item. Among the basic concepts in this area belong human capital, human resources and human potential. Human capital is characterized as a summary of congenital and acquired knowledge, experience, skills and habits that people have. Human resources can be characterized as people in the labor force who are holders of human capital and

6 138 Modern Approaches to Leading an Organization with Focus on Human Capital potential. We consider it to be a human potential when people deliberately activate their skills in the activities leading to the development of the enterprise and to its progress. Human capital can be regarded as the basis of human potential. Human resources represent, under the developed market conditions, the most valuable and usually the most expensive resource that regulates the prosperity and competitiveness of the organization. It is therefore essential that the human resources represent a core of the corporate governance [4]. Modern human resource management stresses the need for the creation of job tasks and jobs tailored for the capabilities of each worker and thus the optimal use of their skills. In order to improve work performance but also to increase satisfaction of each employee with the quality of working life at the same time, emphasis is placed on the continuous development of their skills. Developing job skills is seen as a part of their duties and as a component of their performance and is as such subject to evaluation of work performance and pay. These facts are the key principles of the modern approach to the work performance, the so-called management of the work performance. Performance management is a strategically oriented and integrated process that enables organizations to remain sustainable and competitive as a result of the continual improvement of the work performance of the employees and of continued expansion and development of skills of individuals and teams in the organization [1]. It follows that the Performance management in general, includes the improvement of individual performance, the performance of the team and the organization's performance, the development of working skills of the employees and their adaptation to the values of the organization. This must be adjusted to management, remuneration and development of effective management, and in fact it changes the whole culture of the organization and shapes the attitudes of managers. It is therefore necessary to convince executives about the need to change their approaches to managing people and convince them about the effectiveness of this approach. One of the possibilities of achieving this is to use the methodology of Balanced Scorecard. Management of work performance is a continuous and flexible process in which managers and their direct subordinate function as partners in the framework that defines how both parties should cooperate as to achieve the desired results. It is focused on planning and improving performance, rather than assessing the current performance. It provides the basis for regular and frequent dialogue between managers and workers about the needs of working performance and development. Management of work performance particularly concerns individual performance and development but can be applied to teams and corporate services as well. Management of work performance involves the improvement of individual performance, the performance of the team and the organization's performance, the development of working skills of workers and their adaptation to the values of the organization. This must of course be adapted to management remuneration and development of efficient management - it is necessary to shape the attitudes of

7 Journal of Information, Control and Management Systems, Vol. 6, (2008), No managers as well as the entire corporate culture. The principle of management performance, with an emphasis on human capital is represented by the following chart: Contract about work performance, learning and development MOTIVATING LEADERSHIP AND CONTINUOUS COMMUNICATION Work performance of the employee througout the year and its tracking The evaluation of the work performance and its factors The remuneration of staff Education and development of employees Fig. 2 Management of work performance ( [3] adjusted) Chart shows that the agreement on the performance, and the appropriate training and development of the employee is reflected in the determination of the remuneration agreed and enlisted performance as well as into education and development of staff in the organization, where it is necessary to ensure that the worker can acquire the necessary skills. The agreement therefore includes not only the obligations of the employee for the period, but also the obligations of the organization and manager who has made an agreement with the employee. It is particularly the manager who is required to ensure a motivating managing of the employee and continuously offer their feedback related to the work performance. In the end there is a formal review and

8 140 Modern Approaches to Leading an Organization with Focus on Human Capital evaluation of the work performance of the employee, which is linked not only with his remuneration, but also with the training and development. The main task of Performance management is the search for reserves in the performance and search for ways of further improving a good performance. With improving a performance is also closely connected personality of leader. Traditional requirements on leader are skills, talent, good work habits, leader should also be a team member and good organizer. But nowadays are new approaches which I strongly recommend welcomed because the leader role requires a diverse set of skills. As organizations embrace the teambuilding they must also stress the need for better leadership. Some individuals need a structured, controlled environment with a continuous feedback to feel secure and to be productive. Others need a flexible, open creative environment with little or no supervision. Traditional managers and leaders are reactive. They wait for problems to occur and then try to put out the fires. In the meantime, they take care of business as usual scheduling, assigning tasks, checking on employee activity and writing reports. Their vision is also short-term. They focus on immediate results. Modern managers and leaders are active. They do not wait for problems, they anticipate them. They do not sit around merely watching what the workers are doing. Instead, they take care of business as unusual developing their employees, both to do their current jobs as effectively as possible and to be in a position to do new jobs when change inevitably occurs. They do many things that the traditional managers gives scant attention to. They understand that inspiring and managing top peformance is a continual process, not something left to the occasional event such as a performance review. They seek opportunities to empower their direct reports and encourage personal responsibility and self-initiative rather than simply telling people what to do and monitoring the outcome. Modern leaders recognize these differences in themselves and others and then learn to adjust to optimize the performance of all individuals. Modern leaders are also highly motivated to achieve sustainable results. Their effort is oriented to improvement of the organization results and performance. The main tools of this effort are the 360 feedback, coaching, counseling and also competence. The feedback allows the employee to understand how well they work or what steps are needed to improve their work. In the case of problems, it aims to give reactions aiming to the corrections, in the case of good performance it helps to further improve the working performance. The concept of performance management uses so-called 360 feedback, which is actually a feedback from a number of observers and reviewers of the work performance. Feedback on work performance is usually obtained from the direct superior, direct subordinates, colleagues and internal customers. An important complement is selfreflection on the employee itself. 360 feedback is for the management performance of particular importance because it allows the worker to find out the difference between the way he sees himself and his work and how is this seen by the others. It is therefore an important source of information for the management and allows an improvement in worker performance.

9 Journal of Information, Control and Management Systems, Vol. 6, (2008), No Coaching is a way of helping the individual employee in improving his performance and in developing his skills. Individual character of coaching stems from the fact that it is an activity of a manager towards a particular individual in a particular situation, and based on information gathered during the day-to-day contact them. It is used, for example, with the delegation of various responsibilities but mainly with the provision of feedback to an employee. This is a significant part of coaching. Coaching is one way of helping the worker in improving his performance. A B C Present knowledgee New knowledge Hidden potential Fig. 3 Leadership by coaching uncover hidden potential of performance This figure shows the performance potential of coaching when is used by modern leader. Level A means present level of knowledge, skills and approaches known by employee in the organization. Level B represents new knowledge, skills and approaches which can be developed by education and training of the employees. The most important level is level C, which show hidden knowledge, skills, attitudes which can be uncovered by effective modern leaders who are able to use suitable kind of coaching acceptable by employees. Uncovering of hidden potential is challenge for our leaders. In my opinion, this shows that coaching is very important tool in everyday working life of our leaders. Counseling is a process with the aim of aiding the employee in managing and developing himself. The manager learns here to understand what people need, what they want and how they can assist in that. As in the case of coaching also in counseling it is a relatively difficult process with manager and his skills playing a vital role. The competence - English uses two terms derived from the word competence. Competence corresponds to the concept of qualification or professional capacity. Competency this term can be replaced with the ability to behave in a particular way, is thus seen as a kind of human behavior. Behavior as such is the result of complex internal processes. The behavior of a specific person in a particular situation is the result of the dynamics of his personality composed of attitudes, values, motives, knowledge, skills and capabilities. When talking about the competence of an employee, it should be noted that it is a behavior that should lead to the expected outcome. The competence represent the

10 142 Modern Approaches to Leading an Organization with Focus on Human Capital behavior of the worker, which must be used to successfully handle the tasks arising in his job. The competent employee must meet three basic conditions: 1. Has such characteristics, skills and knowledge needed to fulfill his tasks. 2. He is motivated to behave this way, he feels that such behavior is valuable and is willing to devote his energy to it. 3. Has the opportunity to use this behavirour in the enterprise environment. The notion of competence is directly linked with the fundamental objective of the strategic management of human resources, i.e. with recruiting and developing highly capable and qualified staff, ready to achieve the desired objectives and to maximize the benefit to meet the highest objectives of the organization. American and European authors look on the work performance from different angles. While American authors used the definition of performance assessment, European authors avoid this. In Europe, it is preferred to use the notion the review of performance, which suggests that it is not a unilateral process of the manager, but a common process of manager and a worker. European authors consider the management of performance to be a strategic matter, that is something which is oriented to the future, the further improvement of work performance and work skills of employees. American authors have focused on the past and to the already existing work performance. In my opinion and according to my past experience, the European approach to managing performance is better applicable to our conditions and is more oriented on the future and on the potential employee and can hence better help the efficiency of work management in our companies. Performance management can be summarized in brief as a process that contributes to the effective management of individuals and teams in order to achieve a high level of performance in the organization. As such, it provides access to the understanding of the objectives that the organization intends to achieve as well as access to the management and development of people who will ensure this. It also stresses that it is precisely the strategy that is related to any activity in the organization concerning human resources policy, culture and communication in the organization. In other words, performance management should be both strategic - on the longterm objectives of the organization and integrated - should bring together the various aspects of organizations, individuals and teams in the organization. Performance management is in fact about establishing such corporate culture in which individuals and groups take over responsibility for the continuous improvement of business processes but also for improving their skills, behavior, as well as increasing its contribution to the enterprise as a whole. It is about sharing expectations. Managers identify their expectations from the individuals and teams in the organization and individuals and teams communicate their expectations, as they see the management should work with them and what they need to carry out their work. Performance management is really about mutual relations and improving the quality of relations between managers and workers, as well as between managers and teams. It also

11 Journal of Information, Control and Management Systems, Vol. 6, (2008), No concerns planning and defining objectives and measurements because "what can not be measured can not be governed" says well known statement. This should be applied to all employees, not only to managers but also to teams and individuals and should constitute a continuous process and not just be a matter of fashion for only some managers of organization. 3 CONCLUSIONS In recent decades has changed not only the perspective of employees in a companies but also the characteristics and attitudes of the employees. They are more educated, informed and culturaly mature. They increasingly feel the need for more autonomy to decide on their working life and their work and also want to be equal partners in this decision-making process with their employers. They want to be perceived as individuals and not as a part of some formal mechanism. In connection with this attitude, it shows that it is needed to change the approaches to their leadership. One of these new and still developing concept is the management performance concept explained in this article. Acknowledgement This article is one of the outputs of VEGA 1/0495/08 REFERENCES: [1] Armstrong, Michael: Performance management, Kogan Page, London 2006, p.1-2, ISBN [2] Kaplan, R. S, Norton, D. P.: The Balanced Scorecard. Boston, Harvard Business School Press 1996, p. 18, ISBN [3] Koubek, J.: Řízení pracovního výkonu. Praha, Management Press 2004, p.21, ISBN X [4] Vodák, J., Kucharčíková, A.: Efektivní vzdelávaní zaměstnancú. Praha, Grada 2007, p.24, ISBN

12 144 Modern Approaches to Leading an Organization with Focus on Human Capital

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