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Performance management systems

Another challenge for managers within KIF’s is to establish the appropriate climate and procedures to encourage both organisational learning and knowledge sharing. Stewart (1991) argues that the greatest challenge for the manager of intellectual capital is to create an organisation that can share knowledge. Factors such competition among professionals, the tendency of each professional or expert to regard itself as an elite, along with the difficulty in assigning credit for contributions can all inhibit knowledge sharing. Where procedures to encourage organisational learning and knowledge sharing are not established, there is the risk of employees behaving in a manner similar to old paradigms, which taught ‘knowledge is power’ implicitly leading people to hoard knowledge, as the more you know what others don’t, the more valuable you are to an organisation.

How might these management challenges and problems be tackled? Performance management systems in KIFs can help to stimulate knowledge sharing. In their study of a KIF, Robertson and Hammersley (2000), highlight how management used performance revenue targets (PRTs) for employees to promote knowledge sharing within the organisation.

In order to achieve PRTs, consultants worked on a small number of projects at any one time commanding a percentage of the overall fee from each one.

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Consultants were expected to achieve PRTs consistently over time and were ranked annually on their achievement of both PRTs and their contribution to overall sales. Percentage increments were added to the consultant’s salary based on their annual ranking for their achievement of PRTs.

These measures worked not only as a catalyst for employees to share their knowledge, but also created an internal market for expertise as consultants had to promote their potential contribution to projects as widely as possible. This was to ensure that they could be included in projects and secure project revenue, which contributed, to monthly PRTs, which serves as a major determinant of performance increments. Echoing this, Teece (2000), notes that performance pay can ensure that employees work for an organisation rather than against it. Providing clear performance-based metrics facilitates high autonomy and the potential for congruence. In the case of project- based teams, it encourages people to work together and share knowledge.

Similarly, knowledge sharing and organisational learning are being recognised as one dimension of an employee’s performance. Hansen et al (1999), cite Ernst & Young as a company that rewards and recognises formally and informally employees who utilise and contribute to the corporate knowledge base. They also use this is a basis for performance reviews. The effect of recognising employee’s contributions reinforces their desire to share. Similarly, McKinsey & Co realised that employees naturally like to compete with fellow workers. Seeing this they pursued a strategy of promoting people who were knowledge builders and made it a conscious part of their evaluation process. By making heroes of them, employees began to learn they got ahead in their careers if they focused on knowledge building.

Alvesson (2000) highlights that a crucial part of management in KIFs is to manage loyalty in order to avoid the unwanted exit (leaving) of employees. Avoiding unwanted exit could involve creating obstacles for defection. Some companies have rules preventing the use of ex-employees as consultants for some time after they have left, preventing them from exploiting the use of commercially sensitive information they may have about their ex-employer. This rule may also prevent some people from leaving, as the ex-employer may be the most significant potential client. Contracts may also be used to prevent employees taking clients with them when leaving.

Management of exit may also involve telling negative stories about people leaving in disloyal moves, showing the immorality of the betrayers and the harm done to the firm (Alvesson, 2000). In contrast, where a KIF wishes to get rid of older employees, Alvesson (1995) highlights a case where a KIF launched the slogan ‘Happy exit’ as a signal to older employees that it was a good thing to consider other career possibilities when one starts to get older. However, the risk here is that if people do not accept the idea of changing jobs when getting older, than this may decrease commitment to the firm.

The challenge to management is to avoid over managing these types of workers. This requires a corporate culture that allows knowledge to flow freely, which means breaking down hierarchies and scrapping rules that stifle new ideas. One way of achieving this is by inverting organisation structures using former line hierarchy as a support mechanism. This type of organisational structure allows experts a high level of autonomy, and is also a more efficient way of utilising their resources, as they do not become bogged down with bureaucracy and administrative duties. Granting employees a high level of autonomy also contributes to “redundancy”, allowing project team members to engage in activities that outwardly appear to be unconnected with the task in hand (Robertson and Hammersley, 2000). Adding to this redundancy is considered to be fundamental to the process of innovation (Nonaka and Takeuchi, 1998).

Where tensions exist between managing experts and line managers, Sveiby (1997) states that a “distinction should be made between leadership of the organisation and leadership of experts.” He relates this to the tandem leadership systems that evolved in the publishing and performing arts, whereby a director or conductor is appointed to oversee the artistic side of the business, while a producer, manager or publisher looks after the administrative staff. This allows for creative freedom with control.

Conclusion

To conclude, many of the management challenges and problems in KIFs can be related to people management issues. This may stem as a result of not only the uniqueness and scarcity of these workers in the labour market, but also the nature of the environments that KIFs operate in, which are characterised by volatility and ambiguity. Therefore, owing to their uniqueness and the considerable levels of autonomy required by these workers, it follows that traditional paradigms of people management are not suitable, and a different approach needs to be taken when managing these workers. Managing KIFs requires a delicate balancing act on the part of management. The goal is to manage the tensions that exist within KIFS, such as freedom and control, finding a suitable balance between them and not leaning overtly to one way.

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