PART II SOLUTIONS FOR EMPLOYEE PERFORMANCE
II. DESIGN OF PERFORMANCE MANAGEMENT SYSTEM
1. AGM Objectives Development with Balanced Scorecard
AGM has got only its financial objectives years after years, which is just a short-term outcome. The company can be considered at the point that is uncontrollable whereas it has grown more and more. It is now get harder for AGM to be competitive and able to be profitable if it only focus on sales. It is obvious that we must think about long-term objectives that can generate more future growth, like creating values for our current and potential/ future customers, being excel in internal processes and enhancing internal capabilities.
The four perspectives of the scorecard (financial, customer, internal, learning and growth) will create the balance between short-term and long-term objectives. The scorecard provides a framework for us, translating our vision and strategy into actions, showing how to reach the objectives through measures. The reason I focus a lot on building the strategy map at organizational level is because it is the root, the foundation for many other aspects to be developed including objectives for departments, teams, and individual employees. Wrongly defining these strategic goals and objectives will lead the company to unexpected results.
Financial perspective
AGM is at the sustain stage where it is still investing and extracting money, trying to maximize returns on investment. Therefore, the financial objectives will be as follows:
Increase revenue growth & mix: meaning we will have to expand our products and service offerings, making them higher values to customers. Also, we will need to sell our products online, which is not new at all to the world but we are just very outdated in this point.
By that, we can provide more offers in convenient way to customers.
This objective is also to reduce risks for the company by having more revenue stream from e-commerce, and also risks from the deviation of forecast and actual.
Reduce costs: This is a big issue in Annam now. We have quite high costs that although our prices of products are quite high and we have high percentage of margin from our buying prices, the profit remains so low. Besides the operating expenses are high, the more important factor is that we are very inefficient and ineffective, so this ends up very costly to the business. Only focusing on reducing the supply of resources and level of expenses may affect the quality of many things. Therefore, reducing cost should be actually balanced by increasing efficiency and effectiveness of the company.
Increase profitability: As mentioned, AGM has low percentage of profit margin. We really need to maximize the profitability to improve our healthy financial growth.
Customer perspective
We understand that if we want to achieve our long-term superior financial objectives and be able to compete with other retailers, we have to be customer- oriented, and so have to create and deliver products and services that are value-added to customers. These are objectives for customer perspective:
Enhance customer satisfaction: it cannot be denied that customer satisfaction is the objective that every company want to achieve for their survival, growth or success. It is even more critical to us where the competition in Vietnam retail industry become increasingly fiercer. In order to compete with others, we will have to gain very high customer satisfaction with our products offer and service.
Increase customer loyalty: this objective is to maintain market share and revenue by retaining current customers.
Increase customer acquisition: to continue to grow the business.
Develop value-added relationship: We want to build very good relationship with customers where they feel that we provide so much values for them, as for we can gain more confidence, get more sales and more referred customers.
Noted that to achieve these customer objectives, we define our customer value propositions as these attributes:
Products offer: quality products, special or exclusive items selection offer;
Customer relationship: create perfect shopping experience for customers from speedy service, friendly and helpful employees who can give good suggestion, nice and cozy atmosphere, etc.;
Brand image: build the image of premium & trusted brand;
Achieving these attributes of value proposition are critical and are the drivers for the outcomes of customer perspective above.
Internal-business processes perspective
The biggest weakness of AGM now is having no well-established and well-linked processes. It is not at all system as it is supposed to be. This issue really affects adversely the company performance, customer satisfaction as well as employee retention.
Therefore, it is really critical to establish a complete internal-process value chain. The value chain will start from innovation process – then operation processes – and then service process. As a chain, we then identify the most critical processes that we must excel and the objectives that we must focus first in order to achieve the financial and customer objectives. They are as following:
Create effective innovation process: we are less competitive than before as many factors like customer demands, trends and competition change. So we must create a good process for how to identify and meet customer demands with our products and service
offers.
Understand & identify current & future customer demands: We are still very poor at collecting customer data and doing market research.
It is a must to create good customer database, make analysis to have a better understanding of our targeted customers even for now or for future in order to meet their needs, delight them and keep them loyal.
Create product offer (items selection) that is exclusive and surpasses customer needs: after identifying our targeted customer needs, we will have ideas for what kind of products to offer our customers, which satisfy them and be exclusive.
Develop unique service & marketing approach: it is to say “how we deliver” our products to customers is also very important besides the products themselves.
Improve operation process & productivity: as mentioned, we are currently quite inefficient & ineffective. This mainly derives from the fact that we don’t have good cross-functional processes especially among marketing, operations, and purchasing. They are not really coordinate with each other to make it more productive.
Combining of the process mapping to find the core processes, activity-cost analysis, and what to reach the objectives of financial and customer, it is clear that we need to be excel at: strategic sourcing, supply chain, and marketing to deliver superior products and services to its targeted customers.
Enhance sourcing leadership: definitely, the sourcing will affect our key success factors in terms of product offer. Our sourcing now is super slow, having no connection with marketing to have a good list of items that will amaze or at least customer, no supplier criteria/
performance evaluation, no supplier pools for back-up, etc.
Improve supply chain process: the fact that marketing, operations, and purchasing work separately cost so much time and money for wrong forecast, long time ordering, stock issues and product
availability, etc. We have terribly slow ordering lead time and many stock management problems. Stock information is not linked and computerized between warehouses and stores.
Improve Marketing effectiveness: marketing campaign remains low effectiveness, we really need to enhance it to have more customers and customer engagement.
Enhance service quality and customer care: as we define we are premium brand, meaning that we must have superior service and customer care, that currently quite bad. We would like to have responsive, speedy service in dealing with any requests. We also want to have customized customer care after they shop at our stores.
Learning & growth perspective:
This perspective is the infrastructure and drivers that enable us to achieve all objectives above on finance, customer, and internal business process. We define our learning and growth objectives as the followings:
Enhance employee satisfaction: AGM has terrible employee turnover rate (more than 50%), especially with store employees because of dissatisfaction. It is really harmful to company performance and service quality. It is saying that if you cannot satisfy your employees, you can never satisfy your customers. And I believe that it is the culture that makes the service high quality. Therefore, we must first satisfy our employees – our internal customers, not only for the sake of service, but business performance, costs, productivity and sustainable growth in the long run.
Improve employee competencies: competencies of employees must be improved to perform better, to boost productivity, to adapt with the changes of the company. Furthermore, employees tend to stay longer and have higher satisfaction if the company pay enough attention to their capacity enhancement and personal or career development. Employee competencies play a big part in whether company can improve or not.
Provide sufficient strategic information: Communication is another matter believed to be crucial for employees to perform well. They should be provided with enough information on the things they do.
Also, strategic information will engage the employees into the company’s common goals, and give them chances to give feedbacks, which is very useful for continuous improvement.
Increase employee productivity: there is still a big gap to a standard productivity of employee in AGM, and it plays a crucial role in company productivity. Other objectives of learning and growth above are supporting for this objective.
Create company climate for employee motivation: this would be an important driver for other objectives. As AGM now does not have such a culture that motivates employees, one of main reasons for high turnover. So to encourage employees work, contribute, improve, feedback, etc. we will need to create a good climate for them.
Objectives alignment: the alignment of objectives from departments, teams, and each employee is one of decisive factors that contribute to the company success where we gain the enormous power of consensus, integrity and unity.
This figure below is to sum up the strategy map and show the linkage.
Figure 8: Strategy Map & Objective linkage
Vision Mission Strategies
To facilitate a gourmet lifestyle and culture by bringing the World’s finest foods to our customers
To provide our customers with the best fine foods collection in a unique and extraordinary service & shopping experience
Quality and diversity of
product offer Unique good service Trusted
Brand Strong customer
relationship Strategic objectives
Perspective
Finance Increase revenue
growth & mix Reduce costs
Increase profitability
Customer
Internal-business
Increase customer loyalty Increase customer
acquisition
Enhance customer satisfaction
Learning & growth Enhance employee satisfaction
Develop value- added relationship
Improve employee competencies
Increase employee productivity
Create company climate for motivation
Provide sufficient strategic information Objectives
alignment Create effective
innovation process
Improve operation process &
productivity
Enhance service quality and customer
care
After this is established, a dashboard with targets, strategic measures and initiatives will need to be completed.
b. Individual level – Cascading and goals alignment
To tighten the link between strategic business objectives and day-to-day
actions, to employee work activities, properly cascading objectives from organization level is vital.
The cascading is done from organizational level to departmental/ unit level, to teams/ divisions and then finally to employee level. Cascading is most effective when the company focus and align around strategic objectives rather than on activities, initiatives, or projects. Without proper alignment, the works the people in company do can be focused in an entirely different direction than what it intends to go. And the goals and objectives should be set in the way that satisfies SMART criteria.
Figure 9: Scorecard Strategic Alignment Process
Organizational Goals/
Objectives
Departmental Goals/
Objectives
Departmental Goals/
Objectives
Departmental Goals/
Objectives
Teams & Individual Goals/ Objectives
Each department will collect strategic information from Organizational level scorecard (mission, vision, strategic objectives, strategy map, performance measures and strategic initiatives) to make its own missions aligning with these of the company. Then the department will have to identify its department objectives to meet the objectives of the company, and create its departmental scorecards with strategy map, targets, performance measures, and initiatives.
For instance, I take one of the strategic objectives in one of four perspectives to develop:
Figure 10: Linking Organizational Performance to Employee Performance
Objective:
Increase customer loyalty
Objective:
Find and purchase the products satisfied with customer demands
Measure: Customer retention rate Target: increase by 10% compared to
last year
Initiative: Define the strategic purchasing strategies Measure: % of customers satisfied
with the product offer Target: 90% of customers satisfied
with product offer
Initiative: Define detailed purchasing strategies to meet customer demands
Measure: * Number of new product launch
* sales of new products
* Customer satisfaction rate over new products
Target: * At least 5 new product launch/month
* New products sales increased by 2 billion/ month
* 90% of customers satisfied with new products
Initiative:
* Work with MKT to analyze and consolidate customer demands for
items/ selection development
* Find qualified suppliers for the types of products defined
* Increase the lead time of sourcing new products
Purchasing Department
Buyer/ Sourcing team AGM company
Objective:
Provide products offer satisfied customer
demands
We involve employees in this process to help them to gain the understanding of how their performance affecting and contributing to the department and the company. We communicate the company overall goals for the year or the period to employees and ask them to set objectives which support these goals, in conjunction with their managers. This also fosters two-way communication and makes employees more engaged and motivated when they are responsible to contribute to make their own goals. They will be more committed to achieve the goals rather than being assigned totally or forced by superiors. For this approach to work, AGM will need to ensure that your company goals are communicated in a language that corresponding employees will understand.
We will next need to identify:
The results measures and targets for required tasks and activities
The behavioral performance measures for the desired behaviors.
Behaviors measures are needed to see how the employees perform the work, especially when the link between behaviors and results is not obvious, or the outcomes occur in the distant future, not immediately, or in cases the results are due to causes beyond the employee’s control.
Therefore, it also includes the behaviors and competencies needed to perform and achieve the objectives, as well as employee development plan.
Individual performance will be measured in three perspectives: goals, competencies, learning and development.