UFHRD Europe 2012
The Future of HRD-2020 and beyond: Challenges and opportunity
23rd - 25th May 2012
Cover Page
Title: Evaluating Performance- based Management System for HPO: A Case study of PTT group Thailand
Name of author(s):Chiraprapha Tan Akaraborworn
Organization affiliation/position(s):
Program Director of the International of HROD
The School of Human Resource Development
National Institute of Development Administration (NIDA)
Address:The School of HRD, NIDAc
118 Sukhapiban 2, Bld. 9
Klongkum, Bangapi
Bangkok, THAILAND 10240
Email address:
Stream:Scholarly Practitioner Stream
Submission type: fully refereed paper
Evaluating Performance-based Management System for HPO: A Case study of PTT group Thailand
Abstract
Since 1995, the concept of Performance Management (PM) has initiated in PTT (Petroleum Authority of Thailand) Public Company Ltd. and it was called PBMS (Performance-based Management System). Then in 2005, the concept of High Performance Organization (HPO) was introduced to Thai organizations through the PTT. There are many private sectors has followed the PTT to become an HPO including the public sectors. However, these organizations have found that the performance management as their burdens rather than the organization performance improvement. Triangular analysiswas used as a research methodto evaluatethe PBMSfor HPO of seven companies under the PTT Group in 2011. The evolution of PM, the concept of HPO, Thailand Quality Award (TQA) criteria, and the PM as an OD intervention were used as a framework for this evaluation. The result found the PTT group was in the 3rd stage of PM Evolution, “Performance Management.”To comply with the TQA process (ADLI), PTT group had well designed (Approach) and used IT systems(SAP and Coach) and Strategic Thinking Session (STS) in cascading (Deploy) Corporate KPIs to departments and individual KPIs. The evident for Learning and Integration of PBMS were not clarified. In recommendation, PTT Groupshould reconfirm the objective of implementing the PBMS for organization development in order to become an HPO and enhancing the SPIRIT culture. The company should set the performance analysis as an important agenda in performance review in order to create the lesson learn or organization learning and also integrating the performance appraisal with other HR systems under the PBMS are needed. The conceptual model of PBMS should be drawn and used as a communication tool among the PTT group.
Key Words: Performance Management, Organization Development Intervention, High Performance Organization (HPO)
Introduction
PTT (Petroleum Authority of Thailand) Public Company Ltd. was established since 1978 and in 2001 it has been privatized and listed on the Thai Stock Exchange. The core businesses of PTT are gas, oil, petrochemicals and refining, and international trading. By 2005, it has announced the vision to become an HPO (High Performance Organization) and recently its vision is to become a Thai Premier Multinational Energy Company, using local strength for competing in the international arena. The company has in place a clear guideline for sustainable development by keeping a good balance among Corporate Social Responsibility (CSR), Corporate Governance (CG), and High Performance Organization (HPO) in order to lay a strong foundation for the long-term development of the organization.
To become an HPO, the PTT group has to prove with financial results which are better than those of its peer group over a longer period of time (Waal A. A., 2007, p. 180). Thus, an effective performance management system is needed to enhance not only the financial results but also to sustain the corporate result as a whole for a longer period of time. The concept of Performance Management (PM) has initiated in PTT since 1995 which was called PBMS (Performance-based Management System). At the beginning, PTT has implementedthe PM in the corporate level only by introducing BSC (Balanced Scorecard), KPIs (Key Performance Indicators) Designs and EVA (Economic Value Added) Concepts. Seven years later in 2002, PTT dissolved performance appraisal (PA) working group, transferred KPIs & EVA Ownership to business group, and set up PM System, Reporting & Monitoring. In 2006, PTT has transferred EVA Ownership to Operating Units and Training, deployed EVA to 19 profit centers in and developed IT System to derive EVA Data and drivers automatically from SAP (Software for Enterprise Resource Planning) R3 for Oil Business Group. Also, the result-based budgeting management has implemented in that year.
There are many private sectors has followed the PTT to become HPO as well as the public sectors.OPDC (Office of the Public Sector Development Commission) has formally introduced the concept of HPO to the civil servants in 2008 and in the same year, OCSC (Office of the Civil Service Commission) has announced the Civil Service Act B.E. 2551 (2008). In the Act, Chapter 4 (Efficiency Enhancement and Motivation-Building in the Performance of Official Functions) Section 76 stated that “A supervising official shall be under a duty to evaluate the performance of official functions of those under his/her charge as part of the considerations for appointment and salary increase, in accordance with the rules and procedures prescribed by the CSC. Evaluating results under paragraph one shall also be applied for the purpose of developing and enhancing efficiencies in the performance of official functions.”
The objective of this Act,developing and enhancing efficiencies in the organization performance, has applied for privatized organization like PTT Group as well. PasuDecharin, a Government PM consultant, reviewed the performance management tools that has been used in the public sectors and founded that they felt the management tools as their burdens rather than the organization development tools.Moreover, the objectives of using those tools were to response for the government policy rather than developing their own organization(Decharin, 2006).
However, there was no research done to review the PM in privatized organization like PTT Group who has played a leading role in PM system in Thailand. This researchwas conducted as a part of the consulting project “PTT Group HR Fundamental” to evaluate and strengthen seven HR systems for HPO in PTT group. The main objective of this project was to indentify the best practice of HR system under the groupand improve the practice of HR professional as a strategic partner. Only the evaluation results of the performance management (PM)are reported in this paper.
Literature Review
To evaluate the PBMS for HPO in PTT group, the evolution of PM, the PM system in HPO, and PM as an OD intervention were reviewed. The status of PM in Thailand was presented in the last session.
- Evolution of Performance Management
PM can be traced back for many thousand years since performance appraisal (PA) has been developed and stated in Bible (Wiese & Buckley, 1998). For the formal performance appraisal in organization, the American Army General has claimed its initiative in the early 1800s. Then, in the early 1900s the term “Performance Measurement” was introduced widely by Kaplan and Norton (1992). There were many criticisms that the word “measurement” might not always bring about change and better performance. “Performance Management” was used to replace performance appraisal and performance management in the late 1900s. In the last decade, the performance management was introduced as organization development intervention (Cummings & Worley, 2009). Lately, the concept of “Strategic Performance Management” is developed to take corrective actions and to keep the organization on track(Waal A. A., 2001, p. 19). Each stage of PM evolution has been discussed below.
1.1.Performance Appraisal (PA)
Performance Management (PA) was defined as a process to allow an organization to measure and evaluate an individual employee’s behavior and accomplishments (Wiese & Buckley, 1998) or employee’s performance in an organization (Grote, 2002) over a specific period of time.
In the paper, “The evolution of the performance appraisal process”, was claimed that formal performance appraisal begins in United States Industry since the early 1800s by the Army General submitting an evaluation to the U.S. War Department in 1813.In the 1840s and 1850s, Congress required efficiency ratings of clerks which contained information on competence, faithfulness and attention. However, these reports were not used for selection, retention or promotion. In 1912, to response to the public concern for economy and efficiency, a Division of Efficiency was created within the Civil Service Commission. Thus, in the late nineteenth and early twentieth century, PA were used primarily by military and government organizations due to their large size, hierarchical structure, geographic dispersal, and the necessity to promote the top performers to higher organizational levels. At that time, most private organizations used informal measures to evaluate individual performance and make subsequent administration decision.
Thus, the concept of performance appraisal (PA)in 1800s focused on performance of the individual level only and its resultwas used as a single system which was not linked with other HR systems. PA was considered as a very subjective tool for performance management. So PA was placed in the first stage of the Performance Management Evolution.
1.2.Performance Measurement
The second stage of the Performance Management Evolution can be called as “Performance Measurement” stage. The era of performance measurement has begun in the early of 1990s when the phase “What you measure is what you get” was stated in Kaplan and Norton’s Harvard Business Review paper, The Balanced Scorecard – Measures that drive performance (Kaplan & Norton, 1992, p. 71). The Balanced Scorecard (BSC)has spread widely as a practical tool for many organizations around the world, including Thailand(Akaraborworn, 2005). The concept of BSC was used as a tool to measure, capture, describe, and translate intangible assets into corporate goal. It has played a major role in performance measurement system.
Performance Measurementwas defined clearlyby Neelyas “the process of quantifying past action, where measurement is the process of quantification and past action determines current performance. Organizations achieve their goals by satisfying their customers with greater efficiency and effectiveness than their competitors. Effectiveness refers to the extent to which customer requirements are met and efficiency is a measure of how economically the organization’s resources are utilized when providing a given level of customer satisfaction. A performance measure can now be defined as a metric used to quantify the efficiency and/or effectiveness of a past action” (Neely, 1998). To increase the competitive advantage, the performance measurement was seen as a critical tool to drive corporate performance excellence.
1.3.Performance Management (PM)
Around 1995-2005, the term “Performance management” has come to replace the phrase “performance appraisal in many organizations” (Smither & London, 2009). Whereas PA emphasized the (usually annual) evaluation of an employee’s performance, “performance management” or PM refers to an ongoing process that includes setting (and aligning) goals, coaching and developing employees, providing informal feedback, formally evaluating performance and linking performance to recognition and rewards. The goal of this ongoing process is to enhance the employee’s performance (as well as job satisfaction and commitment to the organization) and the performance of the organization (Smither & London, 2009, p. xv).
Moreover, the term “measurement” is not quite correct because the process of performance measurement does not automatically lead to performance improvements (Waal A. A., 2007, p. 19). It should always initiate action through the use of appropriate measures. For this reason, performance management and performance system are preferred. Robert Behn, professor from Kennedy School, Harvard University, agreed that “Performance Management is more than performance measurement.” To produce real results requires performance leadership. Such leaders do need measures. But they also need strategies for motivating teams to close their performance deficit.” (Behn, 2008, p. 1). Thus, the performance management has defined broader than performance appraisal and performance measurement.
Herman Aguinis has stated in his book, Performance Management 2nd Ed., that we must distinguish between performance management and performance appraisal and he defined “performance management”as a continuous process of identifying, measuring, and developing the performance of individuals and teams and aligning their performance with the strategic goals of the organization (Aguinis, 2009, p. 2). The definition has two main components: continuous process and alignment with strategic goals. Kloot and Martin(2000)agreed that the strategic management literature suggests that there should be a strong linkage between strategic plans and performance measures. With this definition, the performance management was considered in HR field as an Organization Development Intervention which combined performance appraisal and performance measurement in the process of continuous improvement so it can be defined as the third stage of the Performance Management Evolution.
1.4.Strategic Performance Management (SPM)
In 2001, Strategic Performance Management (SPM)’s definition was introduced by Andre de Waal. He defined SPM as the process where steering of the organization takes place through the systematic definition of mission, strategy and objectives of the organization, making these measurable through critical success factors and KPIs, in order to be able to take corrective actions to keep the organization on track. (Waal A. A., 2001, p. 19).The SPM objective is quite critical for the HR role as a change agent in the organization. Moreover, Waal mentioned that SPM process consists of various sub-processes: strategy development, budgeting/target setting, execution/forecasting, performance measurement, performance review and incentive compensation of employees that is needed to become and stay world-class (Waal A. A., 2001) as presented below in Figure 1
.
Figure 1: The sub-processes of the strategic performance management process (Waal A. A., 2007, p. 20)
In the figure 1, two tasks of HR are included: Performance review and Incentive / Compensation. With his definition, performance management can be used as an OD intervention that links the HR systems tightly with corporate strategy in order to shape up the organization to become a world class company. Thus, the Strategic Performance Management (SPM) can be identified as the forth state in the Performance Management evolution.
In summary, the evolution of performance management can be presented in the Figure 2.
Figure 2: The summary of evolution of performance management
- PM for High Performance Organization (HPO)
Before the concept of High Performance Organization (HPO) was introduced in early 2000s, the HR practices considering performance enhancementare known as “High-Performance Work Practices” (HPWPs) (Huselid, 1995).The concept of HPO was defined in Andre de Waal’s Meta analysis research on the characteristics of a high performance organization. He definedHPO as “an organization that achieves financial results that are better than those of its peer group over a longer period of time” (Waal A. A., 2007, p. 180). From 91 literature sources, he identified eight factors influencing HPO: (1) Organizational design, (2) Strategy, (3) Process management, (4) Technology, (5) Leadership, (6) Individuals and roles, (7) Culture, and (8) External orientation. Three factors are related to the HR practices: leadership development, individual performance, and culture building.To become an HPO, the company has to prove with Performance Excellences which are better than peers (Waal A. A., 2007). So this is one of the reasons that every company under the PTT Group has been encouraged to apply for Thailand Quality Award (TQA).
TQA is considered a world-class award which got start in 1996 by the Foundation of Thailand Productivity Institute (FTPI) and the National Science and Technology Development Agency (NSTDA). It was initiated as a part of the 9th National Economic and Social Development Plan. FTPI has been the main organization in supporting the productivity and services sectors to adopt TQA criteria as an essential tool to improve their management capability. The TQA fundamental of the technical and decision-making processes are identical to the Malcolm Baldrige National Quality Award (MBNQA) introduced in the USA. So far, the MBNQA is being adopted by many countries around the world (Federal of Thailand Performance Improvement, 2010).
Adopting TQA, the organization has expected for “Performance Excellent” which means an integrated approach to organizational performance management that results in (1) delivery of ever-improving value to customer, and stakeholders, contributing to the organizational sustainability; (2) improving of overall organizational effectiveness and capabilities; and (3) organization and personal learning. The criteria provide a framework and an assessment tool for understanding organizational strengths and opportunities for improvement and thus for guiding planning efforts (NIST, 2009-2010, p. 61).
To assess the PM system, there are three out of seven items in TQA criteria are mainly related; Item 2 Strategic Planning (2.1 Strategic Development and 2.2 Strategic Deployment), Item 4 Measurement, Analysis, and Knowledge Management (4.1. Measurement, Analysis, and Improvement of Organization Performance and 4.2 Management of Information, Knowledge, and Information Technology), and Item 5 Workforce Focus (5.1.Workforce Engagement).The TQA criteria focus on result by encouraging the company to integrate the subsystems in holistic view. Four factors ADLI (Approach, Deploy, Learning, and Integration) used to evaluate process, while four factors LeTCI (Performance Level, Trend, Comparative information, and Integration) used to evaluate results. In this paper, only the four factors in process evaluation are used to evaluate the PBMS of PTT Group.
- PM as an Organization Development Intervention
McLean defined “Organization Development” (OD) as any process or activity, based on the behavioral sciences, that, either initially or over the long term, has the potential to develop in an organizational setting enhanced knowledge, expertise, productivity, satisfaction, income, interpersonal relationships, and other desired outcomes, whether for personal or group/team gain, of for the benefit of an organization, community, nation, region, or, ultimately the whole of humanity(Gary, 2006, p. 9). Thus, performance management is considered as an OD intervention because it involves the individual behavior that contributes to the individual, team, and corporate performances.
In the Organization Development & Change book, PM is an integrated process of defining, assessing, and reinforcing employee work behaviors and outcomes. Organizations with a well-developed performance management process often outperform those without this element of organization design. PM includes practices and methods for goal setting, performance appraisal, and reward systems. These practices jointly influence the performance of individuals and work groups (Cummings & Worley, 2009, p. 421).