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30th June marks closing of business year for many companies. It is an important occasion because the previous year is closed and the new one is started. Closure involves business and many other things. Annual increments and promotions are announced, new year targets are declared, and new budgets are approved. Performance Review is an activity which is run through the entire organization, and which is usually linked to the increment/promotion decisions. Even for companies which follow calendar year, June marks half yearly closing and is an important milestone.
Our topic is Performance Review or Performance Appraisal. In Pakistan, formal process of appraisal is not as old as the developed countries. We had some semblance of it in the government sector as ACR – Annual Confidential Report for decades. For a long time, the ACR was truly confidential: it was written by the boss confidentially and the subordinate did not know what was written in it. Later, some companies caught on with the MBO – Management By Objectives. The MBO was a reasonably good tool considering that it was rather straightforward. The Objectives were set in the beginning of the year and relative weights were allocated. The progress was monitored every quarter and then there would be a final assessment at the end of year. Scoring would give a certain number which would be used to grade performance.
The handicap with MBO was that it focused on individual’s performance but did not connect it to the overall performance of department/ division/ or corporate. We saw many cases where the individual performance was very high, but the overall function was going down. The defense was that even in an ailing function, some people could perform greatly. Granted, but it promoted individualism, rather than collectivism.
Then the finance people came up with the tool of KPIs – Key Performance Indicators. It was designed by finance and its execution was supposed to be overseen by finance. However, HR claimed part of its territory and took over execution.
KPI tool is complex, and in most organizations, it is still not fully understood even after some years. In its architecture, it links KPIs of individuals to corporate performance. From this point of view, it is an excellent approach. However, the issue is not with the architecture, it is with understanding and applying it in the correct sense.
Let us look at any organization which has fairly developed culture. The test of success for the organization is in achieving business targets and profitability targets. Now, ask someone in Accounts as to how would she/he contribute towards achievement of target, and they will draw a blank face. Ask the procurement, and you will get a similar response. Ideally, everyone from security guards to the highest officer, should understand their role in achieving corporate objectives. This is, however, a huge grey area, where most people are unable to relate to corporate objectives. KPI tool can be an effective remedy to fill the gap if it is understood and applied correctly.
The individual KPIs connect to the department KPIs, which then connect to division’s and then corporate objectives. The KPI setting is complex and herein lies its weakness. True that more and more corporates are opting to use KPI tools for performance, but it does not mean that it is being used entirely with the wisdom it needs.
To be Continued……
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