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Performance management key to success - Local companies begin to look at Human resources as a serious issue

Internal operations are hardly ever identified as a problem, even though in many instances the executives desperately need improving

The fate of most local firms is worrying. Empirical evidence suggests that the vast majority are struggling to stay afloat. Poor market conditions and an unfavorable regulatory framework are usually cited as the main culprits - and justifiably so.

However, internal operations are hardly ever identified as a problem, even though in many instances the management desperately needs improving.

Rather than introduce management changes, many companies, because they are under pressure to reduce overheads, dismiss essential staff members.

"This leads to unsustainable business," said Youssef Salam, managing partner of the consulting firm Team International."It is important to develop talents to keep customers happy and therefore maintain a cycle of continuous business growth."

The basic problem is that far too many local companies fail to realize that human resources management is vital to achieving business goals. Salam said they abided by the traditional approach to human resources management, whereby this function was consigned to the "periphery" of the organization.

Indeed, for most local firms the human resources department is solely responsible for handling transactions related to staff - namely, payroll and vacation. Salam said the modern approach placed human resources management at the "heart" of an organization."Employees are not considered a cost, but an asset to be continuously developed to achieve business objectives," he said.

The crucial point here is that human resources are closely linked to company strategy. This is something that multinational corporations have long understood. To this end, they employ a simple system called performance management, which enables organizations to achieve their goals by assigning each employee - including managers - specific objectives.

"Through our performance management system, we identify what objectives need to be accomplished for the year," said Junaid Allie, human resources manager at Eli Lilly. He explained that each year the pharmaceutical giant and other multinational corporations set corporate objectives on a worldwide level, and these were cascaded into regional and country objectives.

"The people in each country would then have individual objectives, which are outlined in a performance management document," Allie said. "An objective is usually something that can be quantified or measured after a period of time."

The way in which Eli Lilly's performance management system works is straightforward enough. Allie said that in January managers and their employees jointly determine individual objectives, and six months later there was an "interim review" to ascertain the progress made. At the end of the year, there was a "final review" and each employee - including managers - was given a performance rating.

Managers appraise performance ratings, which are then discussed by a committee that agrees on them to ensure objectivity. "It is not one person that makes the final decision," Allie said, adding that higher committees rate the managers.

Rating systems are in effect schemes designed to get the most out of employees, because it translates into potential salary increases every year. In fact, Eli Lilly's positive performance ratings "usually equal a certain salary increase," Allie said. "Employees with the highest performance ratings get the highest increase."

It is sustainable to have salary increases subject to performance, because whenever employees meet or surpass their targets, this ultimately generates more revenue for the company. What's more, performance is incremental.

"An employee's performance level is expected to increase from year to year," Allie said.

Obviously, employees who receive a negative performance rating do not enjoy a salary increase. But, because of the importance placed on human resources development, they receive regular coaching from their managers with the hope that their performance improves.

Eli Lilly refers to dismissals as separations, "because we emphasize respect for people and put a lot of responsibility on the managers," Allie said.

Indeed, the performance management document for managers states that their primary objective is to "recruit, manage, develop and retain people effectively." "If we are not successful in managing people, then we are not going to be successful as an organization," Allie said.

He added that the performance management system is a retention tool for Eli Lilly, and that the company had a "healthy" turnover of employees. "If you are losing good people to other companies, you need to do something to retain them," Allie said.
Improving salaries is not sufficient in itself, said Muriel Garaud, recruitment and staffing manager at Eli Lilly.

"Research indicates that what really motivates people is not the salary; it is more job satisfaction. If somebody is dissatisfied, the easiest thing to do is increase their salary, but three months later they would still have the same problems," she said. "There is an old adage - people don't leave companies; they leave managers."

Systematic and impartial performance rating systems that are applied across the board would pose a serious challenge for local firms, because most are family-owned and have an entirely different approach to human resources management.

First of all, employees are not seen as key to profitability. Secondly, managers are not subject to scrutiny because they are usually owners or family members.

The vary nature of family-owned businesses make introducing performance management systems difficult - but not impossible, said Victor Khouri, manager of the management development division at Team International. "In a way it is easier for them to implement performance management systems because they are more flexible - and they are much more worried about the bottom line," he said.

Khouri added that proactive local companies were showing a genuine interest in introducing management changes because of intensifying competition brought on by globalization. Khouri added that his company had conducted countless seminars on human resource development for local companies as well as public institutions. "This is the first step to introducing performance management systems," he said.

"The intentions are there, but the problem is the implementation," Salam said. "That requires management changes and the tools that would help affect change."

"The way is already established," said Misbah Mokadden, a consultant with Team International. "Companies are looking to change. They are asking what to change and how to make that change. When to change? It is now. Why to change? Because they are struggling."

Beirut,05 04 2004
Natasha Tohme
The Daily Star
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