Strategic Management of

Performance
Lecture slide for Chapter 12

Strategic HRM: Pulak Das 1

 Objectives
• Objectives of this lecture is to understand
why strategy oriented performance
assessment needs to be done at many
levels and how such assessments could
be done.

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 What is meant by strategic
management of performance?
• It deals with tools and techniques of linking a company long
term business strategy with its performance by way of business
and in many others areas.
• A long term business strategy is generally spelled out through
its mission and vision statement.
Outcome
Action
Vision & Outcome
Strategy
Action
Outcome

Outcome

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 How does the long term strategy
of a company look like?
• The Mission and Vision statement of BEML read like this
• Maintain a dominant position in design, development and manufacture of … earth
moving equipment
• Diversify and grow;
• Provide total engineering solution to customers;
• Internationalize operations;
• Improve profitability;
• …………..
• Develop skill and competencies to bring about effective management succession.
• Inference:
– Most goals are general statement of purpose. Doable actions require short term goals.
– From a general statement of long term business strategy one may not be able to draw any
analytically correct inference on short term results. Analytically perfect inference on short
term outcome can not be drawn from a long term strategy.
– Most companies set there short term targets experientially rather than analytically.
– It requires political consensus among key stake holders to arrive at short term results that
may not appear directly related to long term goals.
– It requires high managerial skill to sell those short terms results to stake holders.
– Same strategic goal and similar organizational system may set different short term goals if
the teams are different.

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 Multidimensionality of
measurements
• Instrumental perspective of a business organization;
• A business organization exist because it serves the
purposes of
– Investors;
– Customers;
– Suppliers;
– Partners;
– Employees;
– Ordinary citizens;
– Future generations;
• ……..
• Inference: Strategic performance assessment must
necessarily be done in many dimensions.

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 Multilevel assessment
• An organization serves the interest of its stake
holders through various smaller units and sub-
units. This means strategic assessment of
performance must be done at many unit and
subunit levels.
• Since units and sub-units work for the common
goal of the company, the measurement or
outcomes at different unit and sub-units are
likely to be related both contemporaneously as
well as inter-temporally.
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 Linking Strategy to results at
different levels
Individual
goals
Group
goals

Divisional Group
goals goals

Corporate
goals

Divisional Group
goals goals

Group
goals

Annual Revenue Target

Report, Share, Achieved,
Growth, Cost Results,
Time
image share Cost,
Strategic HRM: Pulak
takenDas 7
behavior
 Assessing Performance at
Corporate Level
• Common Assessments:
– Profit;
– Asset stock;
– Rate of return to investment;
– Market share;
– Annual growth of business;
– Market image.
• Though these measurements are most
commonly used but they are not very useful as a
diagnostic tool.
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 Balance Score Card method of
performance management
• Conventional Performance Measure
– Profitability;
– Rate of return to fixed capital investment;
– Growth of sales turnover.

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 Goal of Traditional Financial
Accounting Systems
• It is geared for measuring mainly completed
transactions that were entered as an arm length
contract. Assessment is driven more by the
value of tangible assets.
• Information age companies need accounting
system that are dominated by intangible assets.
• Assets such as products in pipe line, process
capabilities, employee skills, and motivation,
customer loyalty, data bases and systems need
valuation and presentation in the balance sheet.

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 Balance Score Card
• The measurement method complements
financial measure of past actions with
measure of the drivers for future
performance.
• Financial perspectives;
• Customer perspectives;
• Internal process perspective;
• Learning and growth perspectives;
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 Inter-relationship between the
assessments of different perspectives

Financial
perspective

Customer
Vision & perspective
Strategy
Internal process
perspective

Learning &
Growth perspective

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 Choice of Drivers and their metrics
• Drivers: This means what should be assessed to
understand performance in that perspective. It is that
characteristics that is indicative of success in a particular
dimension. Example: Customer satisfaction is a driver
for performance in customer perspective
• Choice of metrics: How do we assess customer
satisfaction? We may do a survey of customers; we may
ask the dealers stocking our products etc. For each
perspective, one should assess performance using a
number of such metrics. This choice of metric should be
such that they are related inter-temporally with metrics in
other dimensions and contemporarily with metrics in the
same dimensions. Example: if you use number of new
product introduced as a metric for assessing internal
process efficiency then it should be strongly related to
metrics used in financial perspectives.
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 Choice of Drivers and their metrics
• Drivers: This means what should be assessed to understand
performance in that perspective. It is that characteristics that is
indicative of success in a particular dimension. Example: Customer
satisfaction or customer orientation of the employees is a driver for
performance in customer perspective
• Choice of metrics: How do we assess customer satisfaction? We
may do a survey of customers; we may ask the dealers stocking our
products etc. For each perspective, one should assess performance
using a number of such metrics. This choice of metric should be
such that they are related inter-temporally with metrics in other
dimensions and contemporarily with metrics in the same
dimensions. Example: if you use number of new product introduced
as a metric for assessing internal process efficiency then it should
be strongly related to metrics used in financial perspectives.

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 Key Learning
• Strategic performance management deals with tools
and techniques of linking a company long term
business strategy with its performance by way of
business and in many others areas.
• It is a multidimensional assessment.
• It is done at many levels e.g. total company level,
division level, group level and individual level.
• At corporate level, from a diagnostic point of view, the
common measurements e.g. profit, rate of return,
market share etc. are not very effective measures.
• Assessment metric is generally chosen experientially.
• Since strategic outcome may happen at many levels,
strategic measurements at many levels are expected
to be related both contemporarily as well as inter-
temporarily. Strategic HRM: Pulak Das 15