Link between Performance Management and Business Strategy

The business strategy drives the development of the organization. It sets the limits for the HR Strategy. HR Strategy should define the status of Human Resources within several years in the organization. It identifies gaps in Human Resources, and it identifies gaps in the human capital in the organization. The performance management system is a powerful tool to close the gap within a reasonable time and costs.

The business strategy defines the strategic agenda for the organization. The executive management should not focus on a daily operation of the company. The executives have to focus on the strategic agenda and strategic issues. The modern organization faces many issues, and the top management has to find and approve right answers.

The top management needs to spread the unified message across the organization. It needs managers and employees to understand the business strategy in a detail. The executives need managers and employees understand the challenges from the market, environment and competitors. The performance management can support the common understanding.

The performance management is about setting goals, assessing employees against corporate values and identifying gaps in the organization. Employees have development needs. The organization should develop employees in the full alignment with the business strategy.

The executive management has to define goals for the line management on the yearly basis. The goals have to be linked to the strategy and the strategic agenda of the organization. The executives should make many presentations and Q&A sessions for employees explain the strategic position of the company. They have to use the goal-setting process to spread the business strategy among employees.

The goals connected to the business strategy are a strong motivator for employees. They do not see the individual goal; they can see the complete result. They are part of the big success story; they do not have a small goal without a connection to the success.

The business strategy has to be supported by corporate values. The change of the business strategy changes values of the organization slightly. The top management should change the performance management system in cooperation with Human Resources. The updated performance management should support the development and enrichment of new corporate values. The system helps to support the change as managers and employees are appraised against the values.

The values have the same importance as goals in the performance management. The top management should use the values part as the space for the human side of the business strategy. The position of the organization on the market is not based just on hard numbers; it is based on emotions, as well.

The business strategy helps HR to identify the ideal profile of skills and competencies in the organization. HR can prepare the overall development plan for the top management. The performance management helps to monitor the progress of the plan against expectations of executives.

The top management and HR can spread information about the expected profile of the employee fulfilling the new business strategy. Each employee can assess his/her skills and competencies against the expectations. HR can estimate total costs of developing employees.

The performance management supports the business strategy. It is a strong HR tool to build the common understanding and the top management can monitor the progress of the organization.