Role of KRA/KPI in Performance Appraisal and How to set them for Employees

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In today’s disruptive world where change and innovation has taken the center stage of driving the business, organization performance is measured with a close lens for its sustenance and growth. It is in this context that the organizations are driving towards becoming a high performing organization and aligning all functions with measured KPIs and KRAs which are competing and collaborative in nature to achieve internal and external customer delight.

It is in this backdrop that Performance Management System is considered as the most critical component in the HRM map of organizations. I feel improving morale, creating loyalty and increasing overall productivity in employees through performance management is the key to an organization outperforming the competition. An effective performance management system, is at its best, when it establishes a high performance culture in the organization.

A first-rate performance management plan is the key to create an engaged and aligned workforce—the hallmark of all successful businesses to build a competitive edge. The only true competitive advantage is your people—and how well they perform. This opens up an excellent opportunity for an organization to be an employer of choice—one that the potential employee seeks out as a favorable place to work. Appraisal system needs to be dynamic. It should initiate and reinforce individual as well as group actions critical to organizational success. Being a system that is intended to bring to line individual, team and strategic level organizational performance, it should follow a cycle of interconnected activities involving the individual, supervisor and if required, significant others.

“The appraisal system must be sensitive and well balanced to attract, motivate and retain performing employees. To steer the whole organization into this ‘compass’ or “direction” would mean using effective appraisal systems which would help maneuver the organization both on the macro as well as micro scale”

An important indicator of the usefulness of an appraisal system is how well the goals set by the employees align with the strategic and operational objectives of the organization. The process of setting goals should be a collaborative process between an employee and his or her manager. Whether writing long- or short-term goals, the most widely-used framework is S-M-A-R-T.

Goal alignment is critical for business success. It ensures that each person within your organization can see the direction for the business and know how their job fits in with the “Big Picture”.

After setting the goals, it’s equally important for employees to track their progress on goals because they need to have the information available during the all-important review process. Additionally, managers need to be aware of progress on goals to step in with assistance or resources when it appears that goal targets will possibly be missed.

In the appraisal system the most important question remains “How well is an employee applying his or her current skills, and to what extent is he or she achieving the outcomes desired?” The answer has traditionally been found in the performance evaluation process, where managers look for hard data to tell how well an employee has performed his or her duties.

What is often missing from this evaluation, however, is the part about making sure that the employee is doing the right thing. After all, you may have a very hard-working and dedicated team member, but if he or she is not working on things that advance the organization’s purpose, what is the point?

This is where key performance indicators come into play, and they apply both at the organizational and individual levels. At an organizational level, a Key Performance Indicator (KPI) is a quantifiable metric that reflects how well an organization is achieving its stated goals and objectives.

KPIs are metrics that link organizational vision with individual action. If you think of strategic practice as a pyramid, with vision at the top and actions at the bottom, in the middle you find the KPIs that have been derived from the strategy, objectives, and critical success factors of the organization.

By monitoring this, you can directly measure how well your organization is meeting its long-term goal of providing outstanding customer service. When an employee’s goal is defined in terms of an organizational KPI, it ensures that what the employee is doing is well aligned with the goals of the organization. This is the critical link between employee performance and organizational success.

The Balanced Scorecard concept which is commonly used in the performance management system is much more than a collection of performance indicators in four perspectives. It allows organizations to translate their strategy into a set of interrelated objectives and performance indicators. Most significantly the overall template has moved from a four box model to a Strategy Map view as an essential component of a Balanced Scorecard. The balanced scorecard is not a template that can be applied to businesses in general or even industry-wide. Different market situations, product strategies, and competitive environments require different scorecards. Business units devise customized scorecards to fit their mission, strategy, technology, and culture.

The old performance evaluation methods were meant to be used in an environment where many people in a business performed identical tasks. Today’s workplace tasks are much more diversified and new evaluation methods need to be considered. Management by Objectives (MBO) and 360 degree feedback remain the two most popular processes as these can provide a more comprehensive as well as an objective evaluation of an employee’s performance.

An employee’s performance appraisal is often conducted without regard to corporate business needs and goals. Unclear goals and misalignment of enterprise efforts can limit both organizational and individual performance, resulting in reduced engagement levels.

Seldom do organizations cascade goals from the functional heads to the employees. Without this line of sight, companies struggle to manage overlapping accountabilities, workforce redundancies, and conflicting activities. It is not enough to simply conduct the annual strategic planning session and share these goals via team meetings. Organizations must align and cascade goals throughout the company to drive transparency, manage progress toward goals on a continuous basis, and evaluate overall strategy with individual performance. 

Today managers very well recognize the impact that these measures have on performance. Hence effective measurement is considered as an integral part of the performance management process. Performance management should be an ongoing conversation between the managers and employees that supports the accomplishment of strategic objectives. Rather than only considering the process once a year, managers should be using it year-long to set clear objectives evaluate results and deliver continual feedback to employees about their performance. Agreeing on the outcomes of the PMS, setting goals, and following up on employee feedback will set the right developmental process for both the individual and the organization. Modern performance management systems provide employees with feedback throughout the year. The system allows constant re-evaluation of goals, progress and performance. This process requires more interaction between the manager and appraisee and encourages the professional development of the employee to meet the organization’s changing needs. While this dynamic evaluation process is time-consuming, the increased productivity levels resulting from such evaluations have proven to be valuable to many organizations.

The future of the performance management system in the current VUCA world remains in moving from performance management as a HR silo instrument to a holistic approach to deal with different people challenges in an integrated manner, using broader tooling: engagement, talent management, learning and development, recruitment and retention, compensation and benefits, workforce agility and eventually improved alignment with business performance. It’s not the performance management system as such that counts, but the purpose it should serve: performance of people and business, so alignment with the business and integration with other people challenges should be the key focus for the HR function.

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Nadeem is currently CHRO at TIL and is responsible for Corporate HR, IR and business strategy role at TIL. He is a Post Graduate in Personnel Management & Industrial Relations from Xavier Institute of Social Services. He started his Human Resources career with Ballarpur Industries Limited in 1986. He moved to Tata Steel in 1991 and served them for 18 years in various capacities in IR, HR and L&D roles. He served Exide Industries Limited from 2009 till 2017 and was elevated as Director-HR and was a whole-time Director on the Board of the Company. He is a member in the National Executive Board of NHRDN as Regional President- East for 2017-19.

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