Discuss the utility of theoretical models of change for executives looking to transform a MNE from a culture which has been based on having tight systems of performance management (heavily defined objectives and review/reward against these) to one in which employees are empowered to approach their work creatively and input to decision making.
Solution
Theoretical Models of Change: Organizational Culture and Performance Appraisal
Culture and Transformation
Culture essentially refers to a set of shared beliefs, norms, values, and practices by members of a certain grouping. Culture has several dimensions and important influences on organizations. This is because culture has to do with people, while business organizations are made up of people. It influences how people behave and react to situations, although this occurs subconsciously.
Culture is underpinned by various precepts, such as uniformity (Ismat & Bashir, 2011). Uniformity implies that individuals of a particular culture have similarities in their tendencies that are significantly different and distinguishable from those of others of a different culture. While this may lead one to perceive culture as the outcome of interactions, it is instead more than this, and actually regards the sum of their beliefs. As a part of their life, it is usually brought out in their day-to-day interactions. Culture is however not static, and in fact evolves based on interactions of members as well as due to the influences of the external environment. While there are many aspects of culture, some of the most important distinguishing features include language, values, attitudes, religion, customs, and norms (Rugman & Collinson, 2012). These factors form the basis of a cultural identity, and usually constituting the point of distinction and source of conflict.
There are various frames of reference of culture when considered from an organizational perspective. Johnson et al., (2013) highlight four principle frames of cultural reference for individuals working within an organization. These are national/regional, organizational, organizational field and functional/divisional. Each of these frames of reference acts as an influencer of culture, providing the individual with feedback, which leads to the outcomes associated with culture. The national/regional culture pertains to the nationality of the various organizational stakeholders, from managers, to employees and even the organization. It is an increasingly important area of focus for businesses today, as the multinational enterprise gains prominence. Organizations operating at the international level must, therefore, continually adapt their practices to suit the culture of the different locations in which they operate (Johnson, et al., 2013). Indeed, this is not just a recommendation to remain competitive, rather, in recent times; it is also a necessary legal prerogative. In an article assessing the cultural imperative Newcombe (2013) notes that if not properly addressed, cultural differences can result in criminal prosecution. This highlights the sensitivity of culture.
A second frame of reference for culture is the organizational field. Here, a culture develops around individuals of a certain professional or work-based groups (Johnson, et al., 2013). The frequent interactions between members of this group causes them to develop their own system of shared beliefs, which is exclusive of those outside the grouping. Organizational fields may encompass different organizations all operating within the field. The third frame of reference is the organizational culture. Johnson et al., (2013) identify four layers that comprise organizational culture. These are values, beliefs, behaviors, and paradigms. These correspond with the four components of culture identified earlier. Practices correspond to behavior, while norms are akin to paradigm. This is because organizational culture develops in much the same fashion as all forms of culture. The final frame of reference for culture is functional/divisional culture, also referred to as organizational subcultures. These subcultures are inherently present in an organization due to organizational structure or differences in business functions (Johnson, et al., 2013). The presence of organizational subcultures may be particularly manifest in the different strategies adopted by different business units.
Organizational culture, also commonly referred to as corporate culture has important influences on organizational strategy development. An assessment of culture provides vital feedback for the management of an organization. In terms of strategy development, culture is used by human resource practitioners in order to embed certain practices in the labor force, such as innovation and dynamism (Rugman & Collinson, 2012). This is important since according to Johnson et al., (2013), it is an unintended driver of change. What this implies is that by essence of its taken-for-granted nature, culture is able to bring about certain changes within an organization. Therefore, if those in charge of strategy are aware of this power, they can harness it to introduce change through cultural realignments. Indeed, one of the starting points of strategic change is analysis of culture through the cultural web.
The centrality of culture as a driver of strategic change can be attributed to its close association and moderating influence on a number of aspects of organizational behavior. For instance, it has been noted that culture can be used to drive and influence employee outcome. Moreover, culture is also related to change. However, the influence of culture is even more pronounced in areas such as communication and leadership. Communication is a vital component of any organization. Communication is key to the success of any business, whether operating locally or internationally (Businessculture.Org, 2014). Organizations derive from and thrive on relationships, whereas these relationships cannot be successful without the adept use of communication. The centrality of language as a facilitator of communication emphasizes its role in influencing the success of the organization.
Communication affects organizations, particularly those operating internationally through language and other avenues as well. This refers to the manner of communication, rather than the content and mechanisms. The concept that is used to distinguish between cultures is the extent of explicitness of the communication (Nguyen, et al., 2007). Within this framework, two types of cultures are distinguished. In the first, low context communication, there is a lot of meaning attached to the message itself, and as such, the communication is highly explicit. The examples of countries, which value low context communication, include America and Israel (Salacuse, 2004). However, high context communication does not attach a lot of meaning to the message itself (Nguyen, et al., 2007). Consequently, the audience or recipient of the communication must endeavor to read non-verbal cues. This type of communication is thereby highly implicit. An example of a country that values high-context communication is Japan (Salacuse, 2004). Interactions between these two types of communication contexts are a possible cause for conflict and disagreement. The Japanese might get easily offended by the overly direct communication of the American while the American on his part might become frustrated by the perceived slow response of the Japanese. For multinational entities, it is therefore essential that all cultural issues are addressed, through extensive awareness of the cultural differences that exist.
Systems of Performance Management
Performance management is an important aspect in any organization. It is the key process through which the work in an organization is actually accomplished, and as such, it is an area of prime priority for managers (Gruman & Saks, 2011). Usually, the essence of performance management is to ensure optimal employee performance. As a result, performance evaluation will usually tend to take center-stage and be at the heart of the process. Nonetheless, the process of performance management extends to other areas of the organization such as policy, practices, and design features, which in their interaction produce performance (Gruman & Saks, 2011). Through performance management, different HR strategies are integrated. In the performance management process, an integrated approach is adopted whereby managers, working closely with employees, set expectations, measure and review performance, and reward performance with the purpose of improving employee performance (Farndale, et al., 2011). The ultimate aim is to enhance organizational success.
Usually, the chief concern of performance management is to ensure that the organization is achieving the best outcomes from its employees. Under this perspective, people in an organization are viewed as an organizational resource (Johnson, et al., 2013). Performance management then endeavors to maximize the efficiency of this resource. One method of achieving this is by increasing the efficiency with which employees utilize other organizational resources. Here, the role of performance management is to provide employees with guidance on how best to utilize resources for the benefit of the organization (Farndale, et al., 2011). Thus, performance management is not just an evaluative tool, but also a directional instrument. In this sense, systems of performance management are used proactively.
The proactive utilization of performance management systems can lead to a diversity of outcomes on the organization. According to Gruman & Saks (2011), performance management can result in other outcomes preceding the attainment of increased performance. Such outcomes are cognitive, conative, and affective ones. A variety of factors mediates the reported level of performance by employees. For instance, cognitive variables have been found to mediate employee responses to feedback, whereas these variables also predict performance (Gruman & Saks, 2011). Moreover, the intrinsic motivation of employees has been identified as a mediating factor for the relationship between developmental goal setting and feedback, and the self-reported performance of employees. Consequently, the achievement of these proximal goals is an important aspect influencing the effectiveness of performance management systems.
Systems of performance management are as dynamic as there are organizations. An important framework to performance management that has emerged in recent times is strategic performance management (SPM). Strategic performance management is a process that begins with the definition of organizational mission, strategy, and objectives. These are then transformed into measurable form using critical success factors and key performance indicators, thereby enabling corrective actions aimed at keeping the organization in the right path (de Waal, et al., 2009). Strategic performance management differs from traditional approaches to performance management in several ways. For starters, traditional approaches were mainly based on financial indicators. In particular, traditional methods were more focused on performance measurement. Taticchi, et al. (2010) provide a review of the evolution of systems of performance management from those targeting performance measurement, to those aimed at improving organizational outcomes. Some of their findings are discussed.
Early systems of performance measurement included return on investment (ROI), return on equity (ROE), and return on capital employed (ROCE) (Taticchi, et al., 2010). These methods, much prominent prior to 1980, were particularly focused on the financial returns. Methods that followed soon after attempted to link strategies to operations, viewing the company as an integrated system. A completely new approach emerged in the 90s, which took on an entirely commercial standpoint to performance measurement. Recent models that have cropped up in the new millennium such as the dynamic performance measurement system have focused on building on the strengths of the previous models, while at the same time integrating information technology tools (Taticchi, et al., 2010). The shift in the performance management approaches aligns to changes in the global business environment, such as shifts in technology and human resource approaches.
Current performance management approaches focus on the use of a variety of tools to achieve performance management objectives. Yeoh, et al. (2014) discuss corporate performance management, terming it as an approach that combines performance management practices with business intelligence technologies. Technology use has become a pervasive phenomenon across all aspects of organization. The use of technology tools allows businesses to coordinate initiatives effectively in the rapidly evolving business environment, which is increasingly complex. Through the adoption and integration of business intelligence technologies, organizations then utilize performance management methodologies such as value-based management.
Systems of performance management when applied effectively allow an organization to remain competitive or to gain a competitive edge. As noted, today’s business environment is an increasingly complex one characterized by hyper-competitiveness (Yeoh, et al., 2014). In order to effectively cope and thrive within such an environment, organizations need to maximize on the efficiency of their resources, including the human resource. Johnson, et al. (2013) contend that organizations should endeavor to exploit their own performance management capabilities better than the competition. In so doing, organizations are able to harness a unique competitive advantage. Some of the benefits that organizations can harness from performance management systems include the effective execution of strategy and efficiency in the execution of process (Yeoh, et al., 2014). However, these benefits will only be harnessed if employees perceive that there is fairness and justice regarding both the process and outcome of the performance management endeavor (Farndale, et al., 2011). Consequently, organizations must ensure that employees perceive the presence of organizational justice while the transformation process is underway.
Employees Reviews against Reward/Empowerment
One of the outcomes of performance management is the review of employee performance. During the process, employee performance is rewarded, with the intention of encouraging performance. The use of a reward system is generally aimed at motivating employees and providing them with a greater incentive to achieve the organizational objectives. The use of reward systems is an important influencer of employee behavior (Johnson, et al., 2013). Reward systems allow an organization to direct employee’s behavior in a particular preferred direction. The use of rewards to drive behavior is an implicit feature of the transactional approach to leadership and management. This is an approach which focuses on the tasks being performed, rewarding positive performance while punishing failure to perform (Bass, 2008). Transactional leadership limits the ability of the employee to take action on his/her own. It has significant impacts on employee satisfaction and dissatisfaction.
An alternative approach is the empowerment approach. Employee empowerment involves the provision of greater levels of autonomy to the employee. It has been directly linked to performance, job satisfaction and commitment (Meyerson & Dewettinck, 2012). On the link between empowerment and commitment, Farndale, et al. (2011) indicate that practices enhancing empowerment significantly affect employee commitment. Employee empowerment has important contributions in engendering issues to do with innovativeness and effectiveness. This is especially significant in today’s highly competitive business environment. Employee empowerment corresponds to participative approaches to leadership. Such styles favor the input of employees in the managerial and decision-making processes. Moreover, empowerment, especially when viewed in the larger perspective of organizational dynamicity and continual transformation, conforms to transformational leadership ideals. Aspects of the approach such as the formulation of a persuasive vision and the inspiration of followers (Bass, 2008) contribute to empowerment tenets such as motivation (Meyerson & Dewettinck, 2012). Transformational leadership has numerous advantages such as employee satisfaction and its suitability in addressing uncertainty.
Employee satisfaction is essential for any business that plans to be successful. Employees can contribute to a company’s success through enhanced productivity and efficiency. However, an employee needs to be fully satisfied with their job in order to provide the optimal levels of productivity. Satisfied employees display a greater level of involvement with their employing organization (Yee, et al., 2008). They are also more dedicated to the delivery of higher quality services. According to Gregory 2011, high levels of employee contentedness have a direct link to lower turnover rates. Consequently, employers should have the career satisfaction of their employees as one of their priorities. Employee satisfaction leads to improved productivity, innovativeness, and loyalty. This further increases levels of customer retention (Leonard, 2014). For organizations, this is desirable since it reduces the costs associated with marketing while providing a guarantee of market response.
Employee dissatisfaction will usually lead to employees opting to leave the company. Gregory 2011 identifies a number of pitfalls that may contribute to employees being discouraged and consequently opting to resign. These include high levels of stress, poor, or lacking communication between staff and management, lack of recognition and lack of opportunities for career growth. One of the most basic issues with regard to employee satisfaction/dissatisfaction is the employee-job fit. Where there is a poor fit between the employee and the job, such an employee eventually finds the job routines are too mundane for their liking. Consequently, they experience a reduced desire to show up to work and to do their job well (Gregory, 2011). While such an employee may continue reporting to work, their productivity is stifled. An alternative scenario is that an employee may find the task requirements of the job too overwhelming and seek alternative opportunities.
Employee dissatisfaction may also arise from other issues such as perceived unethicalness of employers and an inflexible work environment. Poor communication or a lack of it altogether causes employees to feel disconnected from the organization. Employees are unable to identify their purpose in the organization or to determine how their performance compares to that of co-workers. With poor appraisal of employees, the results may be communicated in a manner that is demoralizing to employees (Gregory, 2011). Such employees end up feeling uncomfortable or discouraged rather than encouraged to improve. Additionally, when employees ideas are taken for granted, they end up feeling neglected and worthless. Another issue is disparities in compensation where employees who work harder may perceive that they are not being compensated fairly for their input.
Employee empowerment is therefore an important aspect when it comes to improving job satisfaction. Satisfied employees are usually more motivated and more committed to the organization. Dissatisfied employees, on the other hand, are likely to be unmotivated, noncommittal, and counterproductive to the organization. Employee satisfaction can be enhanced through employee empowerment.
Employee empowerment usually involves a variety of aspects. Klidas, et al., (2007) point out 4 antecedents of empowered behavior in the delivery of services. These are training, reward practices, organizational culture perceptions, and management style. Training begins with the careful selection and recruitment of candidates (Klidas, et al., 2007). As has been noted, good job fit is important in guaranteeing the diligence of an employee and where there is a poor job fit, dissatisfaction is most certain to follow (Gregory, 2011). Reward practices promote certain practices and attitudes such as responsibility, initiative, and creativity (Klidas, et al., 2007). The organizational culture and management style should empower the employee. Indeed, it has been noted that the management style adopted has significant effects on employee empowerment. Certain leadership approaches empower employees while others exceedingly empower the manager. Managers should strive for those styles that empower the employee.
Employee empowerment should also address employees’
perception. This is because employee perceptions of managerial policies and
practices affect their behavior and attitudes (Farndale, et al., 2011). Management should
be cognizant of the fact that employees do not necessarily experience
organizational actions in the same manner as the management of an organization.
The effects of employee perception have already been addressed with regard to
two issues: performance management and employee dissatisfaction. Finally,
employee empowerment ideally also involves appropriate communication. The role
of communication and the effect of culture has been noted. An organization
needs to ensure that its communication approach is effective in order to
promote employee empowerment and satisfaction.
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