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CHAPTER 2
THEORETICAL FRAMEWORK
2.1 Management These are the definition of Management based on the experts: Robbins, Stephen and Coulter, Mary (2012) according to them in the book “Management”, management consists of coordinating and overseeing the activities of others in purpose to make it done efficiently and effectively.
Stoner (1982) defines management as: The process of planning, organising, leading and controlling the efforts of the organisation’s members and of using all other organisational resources to achieve stated organisational goals
George R. Terry in a book entitled "Principles of Management" provides a definition: "Management is a process that distinguishes the planning, organizing, mobilizing the implementation and supervision, using both science and art, in order to complete the goals set before" So base on desinitions above, we can conclude that management is the process of planning, organising, leading and controlling using the resources (human) to complete the goals.
2.1.1 Management Functions There are 4 functions of management by Henri Fayol, a French Businessman
Figure 0-1 Four Functions of Management (Source: Robbins, Stephen P; Coulter, Mary. (2012) Management : 37)
- Planning A manager is responsible to create a plan to reach a specific goal and to manage the people so they can work toward the goal
- Organizing It is a manager responsibility to determine that the company needs, what to be done and how it will be done and who is to do it.
- Leading Direction and motivation are the key factors in directing. A manager should give orders and clear working instruction so the employees now exactly what needs to be done.
- Controlling Verifying whether everything is going according to plan and make sure that they are accomplished as planned. Those 4 functions are lead to achieving the organization’s stated purposes.
2.2 Human Resource According to M.T.E. Hariandja (2002,2) Human Resources is a very important factor in a company beside the other factors such as capital. According to Sonny Sumarsono (2003,4), human recources contain two meaning. First, it is a corporation or services that can be provided in the production process. In other respects, the effort given by a person in a certain time to produce goods and services. The second meaning, HR human concerns that can work to provide the services or work effort. Being able to work means being able to engage in activities that have economic activity, namely that these activities generate goods or services to meet the needs or the public. In the context of macro, human resources is a citizen who has entered the age of the labor force that has the potential to behave productively that is able to meet their own needs and their families, which affect the level of welfare in the nation or country. In the context of micro, human resource is the people who work in the environment of an organization called the employee, the employee personnel, leaders / managers, workers, labor, employers, and others.
- Employee welfare
- Payment and reward of employees
- Health and safety
- Discipline and dealing with grievances
- Dismissal redundancy HR function was therefore, expected to support the organisation in achieving high performance people management and managing the changes required to improve efficiency, even as many advocated a more strategic role for the function (Wright et al, 1998; Abella, 2004).
2.2.3 Strategic Goals of Human Resources Management Caliskan (2010;4) stated that HRM need to achieve its strategic goals in order for the company to gain and sustain competitive advantage. The following strategic goals are:
- To invest in people through the introduction and encouragement of learning processes designed to increase capability and align skills to organizational needs.
- To ensure that the organization identifies the knowledge required to meet its goals and satisfy its customers and takes step to acquire and develop its intellectual capital.
- To define the behaviors required for organizational success and ensure that these behaviors are encouraged, valued and rewarded.
- To encourage people to engage wholeheartedly in the work they do for the organization.
- To gain the commitment of people to the organization’s mission and value.
2.2.4 Challenges in Human Resources Management According to the Survey of Global HR Challenges: Yesterday, Today and Tomorrow, conducted by PricewaterhouseCoopers on behalf of the World Federation of Personnel Management Associations (WFPMA), there are several challenges that Human Resource Management face :
Figure 0-2 Challenges in Human Resource Management (Source: (Alliance, 2013))
The 3 major challenges in Human Resources Management:
- Change Management Change management represents a particular challenge for personnel management.
- Leadership Development HR professionals are faced with being expected to provide the essential structures, processes, tools and point of view to make the best selection and develop the future leaders of the organisation.
- HR Effectiveness measurement The job of the employee must be measure to know the result if they have bad or good influence to the company. The tools that can be used to measure the effectiveness are performance management.
2.3 Organization
2.3.1 Definition of Organization According to Daft, Murphy and Willmott (Daft, et al., 2010) organizations are social entities that are goal directed, are designed as deliberately structured and coordinated activity systems, and, are linked to the external environment.
2.4.1 The four legs of the scorecard This four legs of scorecard are very important for the managers to be able to plan, implement and achieve their business strategies. The four legs will make the difference between whether your business succeeds or fails. (Hannabarger, et al.,
Source: adapted from Kaplan & Norton (1996) Figure 0-3 Vision and Staregy of BSC
- Customer scorecard Measures your customers’s satisfaction and their performance requirements for your organization and what it delivers, wheter it be products or services
- Financial scorecard Tracks your financial requirements and performance.
- Internal Business Process scorecarrd Measures your critical-to-custom process requirements and measures
- Knowledge, Education, and Growth scorecard Focuses on how you train and educate your employees, gain and capture your knowledge, and how you use it to maintain a competitive edge whitin your markets.
2.4.2 Barriers of Balanced Scorecard According to the Balanced Scorecard Collaborative (Evans, 2002), there are four barriers to strategic implementation:
- Vision Barrier – No one in the organization understands the strategies of the organization.
- People Barrier – Most people have objectives that are not linked to the strategy of the organization.
- Resource Barrier – Time, energy, and money are not allocated to those things that are critical to the organization. For example, budgets are not linked to strategy, resulting in wasted resources.
- Management Barrier – Management spends too little time on strategy and too much time on short-term tactical decision-making.
2.5 Performance Management Every company needs to care about their employee. They need to know how the employees’ work. Not every employees can do their job well. That’s why performance management is needed. Performance management has gained more attention recently due to high competitive business environment. Performance management is a critical and neccessary component for individual and organizational effectiveness. Performance management is a process needed for improvement to occur. So there must be assessment and feedback to focus our effort to improve. (Cardy and Leonard, 2015: 3). Organisation use performance management to drive behaviours from the employees to get specific outcomes According to Brumbach (1998) performance management is a process for establishing a shared understanding about what is to be achieved, and how it is to be achived; an approach to managing people which increases the probability of achieving job-related success. We can conclude that performance management is a process of managing the performance of the employee to achieve the goals that is already set.
example, the number of clients served in a job training program, the number of clients served in a job training program, the number of emergency response calls, and the number of immunizations delivered are output measures. Outcome measures ideally focus on the true result of the service, for example, the percentage of participant in a job training program who reveive and keep employment, the amount of property damage or lives lost in emergencies would be considered outcome measures. While most people think it is better to track outcome measures than output measure, this is not universally true. The information tracked should match the situation to which it is applied. The public is probably more interested in outcome measures to evaluate the overall effectiveness of programs and services, but department managers who manage employee workloads or track efficiency in the department managers might be more interested in output measure. Performance information provides the answer to key questions. e Focus on change management Change management refers to developing an approach to managing the people side of the project. Every change inevitably faces some level of resistance. Change management provides a plan for recognizing that resistance, along with other risks to the project, and simplify their effects. Successful change management process include the following steps:
- Assess the organization’s capacity for change
- Assess implementation risks
- Assign responsibility for addressing change management
- Establish a process for cummunication
- Provide coaching and individual attention to participants
- Manage resistance by identifying areas of concern and developing specific to target those concerns
- Celebrate and communicate success f Evaluate your success and revise your approach Implementation of performance management in any government is an evolving process. No one establishes the perfect approach on the first attempt, nor would it be feasible for any organization to change that quickly, even if a perfect approach were designed. As staff competencies build, and as the culture of the organization changes to one that demands performance
information to support decisions, organizations should reassess efforts and identify ways to improve. Just as performance measures will be designed to provide feedback on government services, similar feedback should be evaluated on the performance management efforts.
2.6 Performance Appraisal Performance appraisal is a part of performance management to measure the employees’ work. Both performance management and performance appraisal entail setting performance targets, reviewing the achievement of targets and help the employee to meet the target.
Based on Harvard Business Essential, “Performance Management” book, Performance Appraisal is a formal method for assessing how well an individual employee is doing with respect to assigned goals. Longenecker (1997, in Ochoti et.al 2012) describes performance appraisal as the way for organizations to boost employee’s motivation and hone their competitive edge.
Another definition of Performance appraisal is defined by Snell & Bohlander (2004:362) as a process, typically performed annually by a supervisor for a subordinate, designed to help employees understand their roles, objectives, expectations, and performance success.
According to Randhawa, Gurpreet (2007), in the book Human Resource Management, Performance Appraisal refers to determine what areas of job the manager should be examining when measuring performance.
So based on definitions above, performance appraisal is continual process to assessing the employee’s progress when carrying an action to achive the goals.
2.6.1 The Purpose of Performance Appraisal There are 3 purposes of Performance Appraisal based on Employee’s Performance Appraisal System by P.B.S Kumar:
- To improve the performance by identifying the weaknesses and strengths of individuals.
- To set salary and promotion decisions on past performance
- To identify the potential of the employees.
- Step 4 : Prepare for performance conduct and the formal performance appraisal The common pratice is to have a formal performance review with the supervisor once or twice a year. (Robert N dan John R, 2012:286)
2.6.3 Performance Appraisal methods There are numerous methods to measure the quantity and quality of job performance. All the approaches to appraisal can be classified into past-oriented methods and future-oriented methods.
Figure 0-5 Performance Appraisal Methods (Source: Aswathappa, 2007,p 242)
2.6.3.1 Post Oriented Methods a. Rating Scales The simplest and most popular techniques for appraising employee performance. This system consist of several numerical scales, each representing a job-related performance criterion such as dependability, initiative, output, attendance, attitude, co-operation, and others. Each scale range from excellent to poor. b. Checklist
This method is about a checklist of statements on the traits of the employee and his job is prepared in two columns, ‘yes’ column and ‘no’ column. The rater or the supervisor should do is to toc the ‘yes’ column if the statement is positive and ‘no’ column if the answer is negative. At the end, the HR department will do the score. c. Forced Choice Method In this method, the supervisor or the rater will be given a seris of statements about an employee. These statements are arranged in blocks of two or more, and the rater indicates which statement is most or least descriptive of the employee. d. Forced Distribution Method The forced distribution method seeks to overcome the problem by compelling the rater to distibute the rates on all points on the rating scale. This method operates under an assumption that employee performance level conforms to a normal statistical distibution. e. Critical Incidents Methods This method has generated a lot of interest these days. This method focus on certain critical behaviours of an employee that make all the difference betweet effective and non-effective performance of a job. f. Behaviourally Anchored Rating Scales Behaviourally Anchored Rating Scales are rating scales whose scale points are determined by statements of effective and ineffective behaviours. The rater or the supervisor need to indicate which behaviour on each scale best describes an employee’s performance g. Field report method This method is done by people outside the department, usually someone from the corporate office or the HR department. The outsider reviews employee records and holds interviews with the rater or their supervisor. h. Performance tests and observation Employee assessment may be based upon a test of knowledge or skills. This method is used to measure potential more than actual performance. i. Confidential records
the primary measure which would provide a snapshot of the performance of an asset, systems, departments, branches or companies within a particular performance area (Mather, 2006). According to Bruce Clay, KPI can help organisations achieve organisational goals through the definition and measurement of progress. The key indicators are agreed upon by an organisation and are indicators which can be measured that will reflect success factors. Warren (2012:5) also explain KPI is a measurement which evaluates how a company execute its strategic vision. Griffin (2004) pointed out that there should be a direct link from KPIs to goals, from goals to objectives and from objectives to strategies. Whatever KPI are selected, they must reflect the organisation’s goals, the KPI must be the key to its success and they must be measurable. KPI ususally are long-term consideration. KPI can be a number or a ratio. Hursman (2010) defined the five criteria for effective KPIs:
- Specific
- Measurable
- Attainable
- Relevant
- Time bond So, KPI is a tool that help the company to measure how successful they are in accomplishing the goals. The data that must be used supposed to be the valid data. Before the KPI is done, the company needs to set the target that they want to achieve so they can focus on the target only.
2.7.1 The function of KPI The two functions from KPI according to Velimirovic and Sankovic (2010) are:
- Developing and guiding function because the present a base for formulating and implementation of the strategy of the organisation
- Motivation function : induce management to fulfill goals and motivate all stakeeholders to realize those goals and on even higher level. (Pesalj 2006; Stamatovic & Zakic, 2010)
2.7.2 The categories of KPIS Lind, Andersson, Bergstrom (2008) categorize KPI into 4 part :
- Quantitative KPIs Quantitative KPIs are set up to reach financial targets, such as cash reserves, head count, and financial risk limits
- Qualitative KPIs Qualitative KPIs are used to measure non-quantitative targets that will improve behaviour of the organisation
- Directional KPIs Directional KPIs are used to reach more ambitious or different target that previous, example when changing the group’s strategy or objective
- Actionable KPIs Actionable KPIs promote rapid and focused change usually during a limited period of rime such as system implementation or a company merger.
