THE INTERNATIONAL JOURNAL OF BUSINESS & MANAGEMENT

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1 THE INTERNATIONAL JOURNAL OF BUSINESS & MANAGEMENT Analysis of Performance Management System Using Key Result Areas: A Comparative Study of New and Traditional Performance Management of a Power Sector Organisation Kaushik Handique Assistant Professor, School of Business Science, University of Science & Technology, Meghalaya, India Abstract: Performance Management system is basically a managerial process which consists of planning performance, managing performance through observation and feedback, appraising performance and rewarding performance. In order for the Performance Management System (PMS) to be effective the performance of employees has to be evaluated effectively. Key Result Areas (KRAs) based PMS have proved to be an effectively tool in quantifying the areas of outcomes or output for which a role is responsible. The objective of the paper is to compare the KRA based PMS with the traditional PMS done through self appraisal. An exploratory research was conducted which shows that the KRA based PMS being quantitative in nature is more suited in appraising performance of employees thus facilitating proper reward as well as taking corrective measures as required. It is observed that the KRAs are set in alignment with the Department and corporate objectives thereby helping in the overall achievement in the organisational goals. As compared to the Self appraisal, KRAs clarifies individual and departmental responsibilities and goals, thus making it an effective way of appraising performance. Keywords: Performance Management system, Key Result Areas, Traditional Performance Management System 1. Introduction Performance management is basically a managerial process which consists of planning performance, managing performance through observation and feedback, appraising performance and rewarding performance. The measurement of performance in an organization is at the core of any system of performance management. This is because, in order to evaluate and improve performance of employees efficiently their performance have to be measured, which can be done by formulating Key Result Areas or KRAs [4]. Key Result Areas or KRAs refer to general areas of outcomes or outputs for which a role is responsible. It captures a substantial amount of the department s work role. The KRAs define the key responsibilities of the individual, the core areas for which he is accountable for. KRA can be referred to as the key identifier of the main duties that have to be performed by the employees in the given position [3]. Each employee holding a position is an organization is responsible for performing certain duties pertaining to their job description, and to perform these duties they are vested with certain authority. The KRAs therefore can be instrumental in providing a clear picture of the job duties and roles to the employees, as the employees get to know what the functions they are required to perform in order to attain the identified KRA. Thus Key Results Areas enables individuals to take ownership of their job and to accept responsibility for those areas in which achieving results are their responsibility. KRAs are generally quantifiable and measurable, so using the KRA based performance appraisal method the employees can be easily rated. Therefore they are very effective in assessing the training and development needs of the employees and also deciding on the performance related pay (PRP) to be paid. The following are the determining factors in identifying the KRAs in an organization:- Vision Statement Mission Statement Corporate Objectives Corporate Strategy Corporate Business Units Departmental Plans/Strategy 1 Vol 2 Issue 12 December, 2014

2 2. Literature Review The term Performance Management refers to any integrated, systematic approach to improve organisation performance to achieve corporate strategic aims and promote its mission and values (Edis, 1995) [2]. This implies that a Performance Management System (PMS) aims at improving the results of people's efforts by linking these to the organization s corporate objectives. That is, PM is the means through which employees' performance can be improved by ensuring appropriate recognition and reward for their efforts, and by improving communication, learning and working arrangements as stipulated in the balanced scorecard model. Installing PM in an organization entails creating and supporting the achievement culture'' and thus ensures that effort is generated that results in performance which in turn results in real achievements. Achievement culture'', it means a combination of performance orientation and professional excellence (Edis, 1995) [2]. According to Lockett (1992), performance management aims at developing individuals with the required commitment and competencies for working towards the shared meaningful objectives within an organizational framework. Performance management is basically a managerial process which consists of planning performance, managing performance through observation and feedback, appraising performance and rewarding performance. The measurement of performance in an organization is at the core of any system of performance management. This is because, in order to evaluate and improve performance of employees effectively their performance has to be measured, and performance is measured by Performance Appraisal. Employee Performance Appraisal, whereby a superior evaluates and determines the subordinate s performance is one of the commonly used management tools in most of the organizations across the world. The formal Performance Evaluation report can trace back its origin to early 19 th century from the armed forces wherein the senior officer sent despatches to the headquarters regarding the characteristics of the subordinate officers. Thus, in a plain piece of paper the commanding officer would describe his subordinates [1]. With the rise of industrialization, managers and superiors of the companies wanted to evaluate the performance of individuals as a method of ensuring overall production qualities. It then changed to a method for income justification, and the entire process was linked with material outcomes like the Performance Related Pay (PRP) [1]. Many organization moved on from performance appraisal to performance management where targets, competence, behaviour, attitude, potential for future performance etc were combined together to assess the performance of an individual. Some of the most popularly used performance management techniques include 360 degree appraisal, Key Result Area (KRA)/Key Performance Area (KPA)/Key Performance Indicators (KPI) based Performance Management [1]. A performance appraisal is a formal discussion between a superior and a subordinate for the purpose of discovering how a subordinate is presently performing on the job and how the subordinate can perform in future for the betterment of organization and themselves. Performance Management System is the systematic process by which an organization involves its employees, as individuals and members of a group, in improving organizational effectiveness in the accomplishment of organisation mission and goals. A Performance Management System includes the following actions: Developing clear job descriptions and employee performance plans which includes the key result areas (KRAs) and performance indicators [4]. Selection of right set of people by implementing an appropriate selection process [4]. Negotiating requirements and performance standards for measuring the outcome and overall productivity against the predefined benchmarks [4]. Providing continuous coaching and feedback during the period of delivery of performance [4] Identifying the training and development needs by measuring the outcomes achieved against the set standards and implementing effective development programs for improvement [4]. Holding quarterly performance development discussions and evaluating employee performance on the basis of performance plans [4]. Designing effective compensation and reward systems for recognizing those employees who excel in their jobs by achieving the set standards in accordance with the performance plans or rather exceed the performance benchmarks [4]. Providing promotional/career development support and guidance to the employees [4]. Performing exit interviews for understanding the cause of employee discontentment and thereafter exit from an organization [4]. The Performance Management System sets the platform for rewarding excellence by aligning individual employee accomplishments with the organization s mission and objectives and making the employee and the organization understand the importance of a specific job in realizing outcomes. By establishing clear performance expectations which includes results, actions and behaviors, it helps the employees in understanding what exactly is expected out of their jobs and setting of standards help in eliminating those jobs which are of no use any longer. Through regular feedback and coaching, it provides an advantage of diagnosing the problems at an early stage and taking corrective actions. To conclude, performance management can be regarded as a proactive system of managing employee performance for driving the individuals and the organizations towards desired performance and results which will not only further the interest of the organization by increased productivity, but also open up avenues in the career development of the employees. It s about striking a harmonious alignment between individual and organizational objectives for accomplishment of excellence in performance. 2 Vol 2 Issue 12 December, 2014

3 ^Swarup,Ashok and Seena P.G. "Can performance be managed without performance appraisal?. Power People 5:1 (January 2012): Print ^Mwita, John Isaac. Performance management model: A systems-based approach to public service quality." International Journal of Public Sector Management 13:1 (2000) Jstor. Web. 10 June ^HR Management. humanresources.hrvinet.< web. 30 th June, 2012 ^Management Study Guide. < web. 5 th July, Objective of the Study To study the traditional and new system of Performance Management System. 4. Research Methodology The design of the research can be classified as exploratory. Primary and secondary data is used. Primary data is collected from the employees of an organisation based on their job duties and outcomes. The data for the study has been collected from the following categories of employees: Employees in the supervisory level. Heads of the various departments in the organisation. Employees in the executive level in the organisation. The primary data collected for this study has been done by survey method. Secondary data has been extensively used from various sources viz; research papers, articles, newspapers and internet as well. 5. Data Analysis 5.1. Study of the New and Traditional Performance Management System Traditional Performance Management System The traditional method of Performance management use in organisations consisted of an annual appraisal report, which included self appraisal by the employee and the brief comments and assessment by the reporting officer. The self appraisal of the employees consists of listing the main responsibilities and tasks accomplished. The appraisee also has to mention the tasks assigned to them by their supervisors, but which has not been completed and the reasons thereof. The assessment by the reporting officer consists of Brief comment on appraisee s job knowledge, cost consciousness, initiative, communication skills and commendable work done in Hindi, and also assessment of managerial traits such as organizing ability, team effectiveness, cost effectiveness, development of subordinates and judgment. This method can be considered to be subjective in nature, and hence create difficulty for the management in implementing the performance related pay. ^ Department of Public Enterprise. < >. web. 20 th June, New performance Management System Some features of the new Performance Management System are given:- According to the revised system of performance appraisal, the Key Result Areas (KRAs) has to be set after mutual discussions between the appraiser and appraisee at the start of the appraisal period. These mutual discussions facilitate a two-way communication between the appraiser (the reporting officer) and the appraisee and the management and employee. The new system includes Mid-year review, which involves recording of the actual achievement of the Key Result Areas after six months period and discussion between the appraiser and the appraisee. After the expiry of 6 month of the appraisal period a mid-year review will be done in the prescribed format to check if the performance is on the right track. If some external factors are found to be affecting the performance of the employees, the targets can be downsized. Accordingly additional KRAs if required can be added at this stage. KRAs are made objective with specific targets for completion. The target should be either in a Number/ Date/Days or Percentage. The revised appraisal system has the following core avenues- Performance, Competencies, Values, and Potential. The appraisee is rated on the basis of the score of the given parts. A comprehensive KRA directory is prepared, which lists all the areas of output for which the department s role is responsible. The KRA directory lists the result areas of the heads of the department, from which the KRAs of the subordinates of the department flows. The KRAs of the subordinates cannot be different from that of the superiors of his department. This process takes stock of the progress made on the annual plan and takes any corrective actions if required. At the end of the appraisal period the appraisee is required to fill in the actual achievements against each KRA. The appraiser discusses on the actual achievement of Appraisee at the end of appraisal period and records the contents of discussion. 3 Vol 2 Issue 12 December, 2014

4 Depending on the information gathered from the performance appraisal report, a course of action is decided on, which includes training, job rotation, and performance related pay, and also identifying training and development needs of the future. It also provides information to assist in the HR decisions like promotions, transfers etc. The KRA approach has the following main advantages:- Areas such as innovation, communication and staff development are included rather than being overlooked. It is the first step of objective setting. It makes it easier to access current performance. It evaluates if any extra measures is required to improve the performance of the employees to achieve the desired results. This system of Performance Appraisal has been found to be very effective in determining the role of the individuals in achieving the organizational objective. This system is very helpful in rating the employees using the Bell Curve Approach as directed in the Pay Revision Circular. ^ Department of Public Enterprise. < >. web. 20 th June, 2012 ^CHRMGlobal.com(2012).< Appraisal.html>. web. 26 th June, Comparison between the Traditional and New Performance Management System Difference between the New Performance Management System and Traditional Performance Management System has been detailed in the following table with respect to certain attributes Attributes New PMS Traditional PMS 1. Nature of Assessment The assessment is objective and The assessment is subjective quantitative in nature 2. Areas of rating Performance, competencies, values and Performance potentials 3. Ranking of Employees Easy, as it is quantitative Difficult, as the assessment is based on comments given by superiors, creating difficulty in comparison of employees 4. Interaction between superior and subordinates The mutual discussions between the appraiser and appraisee facilitate a two way communication among the management and employee Table 1: Comparison of New and Traditional Performance Management System System consist mainly of self-appraisal and hence there is very less interaction between the appraiser and appraisee The comparative study of the new and traditional system of performance management identifies the benefits of the new system of performance management over the old system and thereby fulfils the objective. 6. Findings 6.1. Objective: To study the new and traditional system of performance management By comparing the Traditional and New system of Performance Management the following findings have been derived Benefits Derived From The Existing System Of Performance Management: The assessment is objective in nature. The ratings or the marks clearly indicates which areas needs to be worked upon, and in which area the employee excels in, making it easier for the management to take corrective actions. The new Performance Management System facilitates feedback to all executives, with the objective of improving their performance. KRA based performance management is very useful in giving proper justification for performance related payment, as it quantifies the areas where the employees will be evaluated. The KRAs are set in alignment with MoU targets, thereby helping in the overall achievement of organizational goals. This system clarifies the individual and departmental responsibilities and goals right in the beginning of the appraisal period. The mid-year review checks if the performance is in the right track, and makes necessary changes in the KRAs, thereby making it specific, measurable, achievable, relevant and time bound. The revised format rates the employees not only on the basis of performance, but also on competencies, values and potential. 7. Conclusion The study provides a very comprehensive view of the topic. The topic involved the study of Key Result Areas which is an integral part of Performance Management; Performance on the other hand is instrumental in the development and fulfillment of the goals and objectives of the organization by measuring the performance of employees as an individual and the department as a whole. 4 Vol 2 Issue 12 December, 2014

5 The study also indicates the benefits derived from changing the Performance Appraisal System from a subjective system to a more objective KRA- based system. KRA based PMS being quantitative in nature is more suited in appraising performance of employees thus facilitating proper reward as well as taking corrective measures as required. It is observed that the KRAs are set in alignment with the Department and corporate objectives thereby helping in the overall achievement in the organisational goals. As compared to the Self appraisal, KRAs clarifies individual and departmental responsibilities and goals, thus making it an effective way of appraising performance. The insight gained during the period of the study will be very helpful in the further studies and understanding of management sciences. 8. References 1. ^ 2012 Power Grid Corporation of India Limited. About Us: Company Profile.< 12 th June, ^ 2012 Power Grid Corporation of India Limited. About Us : Mission and Vision. < 12 th June, Power Grid Corporation of India Limited. About Us: Milestones. < 12 th June, Department of Public Enterprise. < >. web. 20 th June, Management Study Guide. < web. 5 th July, HR Management. humanresources.hrvinet.< web. 30 th June, CHRMGlobal.com (2012).< Appraisal.html>. web. 26 th June, Malhotra, Naresh K. and Dash, Satyabhushan. Marketing Research: An Applied Orientation. 6 th ed. United States : Pearson Education P,2010. Print 9. Swarup,Ashok and Seena P.G. "Can performance be managed without performance appraisal?. Power People 5:1 (January 2012): Print 10. Mwita, John Isaac. Performance management model: A systems-based approach to public service quality." International Journal of Public Sector Management 13:1 (2000) Jstor. Web. 10 June Team Corporate Communications. POWERGRID Grid Flash (March 2012). Print. 5 Vol 2 Issue 12 December, 2014