Continuing our theme of performance management topics, I would like to discuss another important issue regarding the selection of a performance management system. Over the last few postings I have looked at some of the issues related to common performance management practices, and suggested some possible ways to improve the systems by focusing on manager-subordiante relationships. But Bhave and Brutus (2011) suggest that there is more to it than that; performance management systems need to be aligned with both the organization's competitive strategy and it's internal HR practices.
Alignment with the organizations competitive strategy is best seen with a couple of examples. Take for instance GE, that is famous for its forced distribution rating system. This strategy has come under a lot of attack and some organizations, i.e. Ford, have tried it only to have failed miserably. But GE pulls it off wonderfullly. Why is that? Because GE utilizes a differentiation strategy to compete in the market segments it does business in; it seeks to design and produce innovative products and thus must make a distinction between high and low performers in order to promote and execute this strategy. This system is a human-capital enhancing system that emphasizes skill acquisition and development. Thus, GE uses a forced distribution rating system effectively because It's performance management system is aligned with its competitive strategy.
On the other hand, consider Walmart. Walmart's strategy is considered a cost leader strategy; sell high volume at low prices. It's performance management system is based on a ratings system that uses absolute benchmarks and standards rather than relative comparisons to other employees. This is in essence an administrative performance management strategy aimed at emphasizing efficiency and productivity. Thus, Walmart's performance management system is also aligned with its competitive strategy.
Walmart and GE are two of the most successful companies ever, and part of the reason this is so is because their performance management systems enhance their competitive strategy. But alignment with competitive strategy is not sufficient, according to Bhave and Brutus. In addition, for performance management systems to really shine, they must also be aligned with internal HR practices. These practices include in particular training and development, and compensation systems. When both external competitive strategy alignment and internal HR practices alignment are achieved, the performance management system can maximize its potential. And who doesn't want that?
BHAVE, D. P., & BRUTUS, S. (2011). A macro perspective to micro issues. Industrial and Organizational Psychology, 4(2), 165-168.