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Performance Evaluation
CEO
From: Non-CEO
Re: Internal Performance Evaluation System
Purpose of the Evaluation System
For the company Whole Foods, an internal performance evaluation system should be in place to ensure that the company maximizes its success and profitability. A performance evaluation system is necessary in order to implement internal control on the managers who work within the company. There are several reasons for this. It is important to remember that with a formal performance evaluation system the company insulates itself against the risks posed by wrongful termination or discrimination lawsuits, since the company can support all personnel decisions with empirical data. Landy (1978) notes that performance evaluation can also help the company to identify goals, eliminate weaknesses and provide supervisors with accurate measures of subordinate performance, not to mention improving the perception of procedural fairness in personnel decisions.
The industry is the grocery retail industry, and there are a number of measures already in place. With electronic scanning, Whole Foods already has access to a substantial amount of data that can be used to evaluate performance of managers and front-line employees alike. For established stores, there is also longitudinal data that can be used to track performance over time, during periods where the store has different managers, or just in relation to the performance of nearby stores.
Gjerde (2007) notes that the value of a performance evaluation system lies in its ability to generate information that managers can use. Thus, it is critical that this system is designed with specific objectives in mind. The improvements that the company derives as the result of this system should relate entirely to ability of the system to deliver results that help managers to save the company money on operations, or earn it more money. Managers in particular need to be motivated by these two outcomes, so the performance evaluation system will provide Whole Foods with the opportunity to measure such outputs, and make these measures a part of the way that managers are motivated and incentivized within the company.
The objectives of the system therefore are going to be to find ways to...
Increasing profits is a key measure, but managers will also be evaluated on sales per FTE (full-time equivalent employee), sales per square foot, contribution margin per square foot, sales per dollar spent on employees, inventory turnover, and asset turnover at their stores. These metrics will help to orient our front line managers to the financial objectives that we seek.
It is also worth considering that there should be other metrics as well. The balanced scorecard is a managerial concept that weighs the need of the company to deliver financial results with the need of the company to excel in other areas, in particular the internal learning and growth area, customer satisfaction and internal business processes (BSI, 2014). Implementing a balanced scorecard will ensure that managers are not seeking to improve financial performance or operating efficiency in the short run only, at the expense of staff or customers. For example, we know that we can increase sales per employee but cutting back on staff, but this is short-term in nature. The balanced scorecard will point out the flaw in such a strategy, because the staff and customer dimensions will suffer, and eventually that will lead to reduced sales as well.
Metrics
Mudde and Sopariwala (2008) note that many industries have their own specific metrics. In the airline industry, they note, available seat miles and revenue per seat mile are two critical metrics, relating revenue to capacity. In the retail grocery industry, same store sales and sales per square foot are two good metrics that are frequently used. Same store sales tracks the performance of the company overall, not counting new stores. Thus, growth is measured without accounting for revenue growth through capacity growth. The revenue generated per square foot is important, because square footage represents not only a large cost, but a fixed cost. With a revenue/square foot measure, the company can also gather a cost per square foot measure, and conduct a contribution margin analysis with this information.
In…
References
BSI. (2014). Balanced scorecard basics. Balanced Scorecard Institute. Retrieved June 14, 2014 from http://balancedscorecard.org/Resources/AbouttheBalancedScorecard/tabid/55/Default.aspx
Cornett, J. (2014). The effects of employee appraisal on motivation. Global Post. Retrieved June 14, 2014 from http://everydaylife.globalpost.com/effects-employee-appraisal-motivation-39381.html
Gjerde, Kathy A. Paulson and Hughes, Susan B. (2007). Tracking performance: when less is more Management Accounting Quarterly. Retrieved from http://www.imanet.org/PDFs/Public/MAQ/2007_Q4/2007MAQ_fall_hughes.pdf.
Landy, F., Barnes, J. & Murphy, K. (1978). Correlates of perceived fairness of performance evaluation. Journal of Applied Psychology. Vol. 63 (6) 751-754.
Mudde, Paul A. And Sopariwala, Parvez R. (2008). .Examining Southwest Airlines' strategic execution: a strategic variance analysis. Management. Accounting Quarterly. Retrieved from http://www.thefreelibrary.com/Examining+Southwest+Airlines'+strategic+execution%3A+a+strategic...-a0190882936
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