Performance Management System - Etihad Airways - Research Proposal Example

PERFORMANCE MEASUREMENT SYSTEM AT ETIHAD AIRWAYS Name Institution Tutor Date TABLE OF CONTENTS TABLE OF CONTENTS 2 INTRODUCTION 3 RESEARCH QUESTIONS 4 LITERATURE REVIEW 4 METHODOLOGY 6 Etihad Airways’ Performance Report 7 DATA ANALYSIS 8 Etihad’s Balanced Scorecard 9 The Performance System Automation at Etihad 11 RECOMMENDATIONS 14 REFERENCE LIST 16 INTRODUCTION Modern day organizations both in the public and private sectors usually find themselves operating in a volatile business environment (Zizlavsky 2014). They are particularly faced with sharp competition, evolution of business processes and the adoption of new technologies as a way of keeping up (Peng 2016). In this process, effective management of human and capital resources is a major issue in any effective organization, and this suggests the significance of performance management as just like any activity, management is only effective if well-measured, otherwise it is impossible to know whether the firm is on track (Zizlavsky 2014). Etihad Airways is an airline fully owned by the government of Abu Dhabi, and its analysis therefore draws focus to the industry to which it belongs (Etihad Airways 2017b). The airline industry is among the most challenging, considering the trends in globalization, with many challenges, ranging from environmentally conscious travelers who demand minimal carbon emissions, to frequent fluctuations in prices of petroleum, economic downturns that impact on leisure travel, stiff pricing competition and the threat of terror (Belobaba et al. 2016). Meanwhile, the number of players in the industry is large, making competition even stiffer as everyone struggles to uphold service quality while minimizing cost (Kim 2013). Performance measurement is therefore a significant component of strategy in the airline industry, particularly in the United Arab Emirates. Aim of the Study Considering that performance management has to be based on what has been measured, this study analyzes the system used at Etihad Airways, pointing out its possible strengths, weaknesses and appropriateness. At its end, it also offers recommendations on what needs to be done to ensure maximized effectiveness of the system. RESEARCH QUESTIONS a. How is performance measurement done at Etihad Airways? b. What is the basis of Etihad’s approach to performance measurement? c. What are the strengths and weaknesses of the approach to performance measurement? d. What needs to be done to ensure further success of the approach? LITERATURE REVIEW Performance refers to the outputs and outcomes that are gained from products, services and processes which enable comparison and evaluation against set goals or standards (Cardy & Leonard 2011). Measurement involves numerical information which quantifies outputs and outputs inputs in comparison with set standard dimensions of organizational processes (Zizlavsky 2014). Performance measurement is essential in strategic management, as it offers a picture of the firm’s past and possibly future productivity, hence the need to create standards against which it will be evaluated (Al-Raisi et al. 2011). Performance measurement is essential in ensuring successful implementation of organizational strategies through monitoring the fulfilment of goals (Cardy & Leonard 2011). A business should therefore be able to report performance in terms of quality, cost, value, flexibility and other types of dimensions, as when this will enhance the overall competitiveness of the firm is enhanced. Every organization has to conduct some degree of performance management. However, there are differences across the measures utilized by different organizations, although many of them mainly focus on financial indicators (Zizlavsky 2014). Initially, performance management was based purely on financial metrics for instance cash flows. However, since the 1980’s there has been a considerable shift from the financial emphasis, and presently, performance management has changed to a focus on multi-dimensional and non-financial measures (Cardy & Leonard 2011). Deficiencies in the financial measurement focus have led to adoption of new techniques and frameworks over the years, with the most popular being the Balanced Scorecard, founded on internal process, financial, learning and growth and the customer (Yilmaz 2013). When performance measurement is done, the company is very likely to benefit. This includes improved control and decision-making. Effective decision-making requires proper understanding of performance. A BSC for instance will ensure an improved decision support at every level, ranging from employee output to top leadership strategic resolutions (Stefanovska & Soklevski 2014). Performance measurement also promotes accountability, as the process will offer a tool for seeking organizational and employee-level reporting, especially due to being subjected to a uniform, set standard (Jantz et al. 2015). In a government-owned business, this would therefore also involve government accountability in public resource utilization. Performance measurement facilitates targets and strategy. When well measured, more meaning is given to the goal-setting and strategic plan formulation process (Zizlavsky 2014). A proper performance measurement system is also able to elaborate the link between different staffing levels, hence decisions arrived at are able to easily align strategy with control and other activities within the firm (Jantz et al. 2015). Additionally, performance measurement helps to enhance communication as when everyone’s input is used in goal-setting, the support and understanding of strategy by stakeholders and staff increased, therefore promoting knowledge sharing that will facilitate long-term positive performance (Cardy & Leonard 2011). From the analysis, organizations always need to align and match business strategy with performance measures, corporate culture and existing structures. They also have to consistently balance the costs and merits of new measures, and find ways of deploying them in a way that will ensure the results are acted upon. The purpose of this study was therefore to investigate the performance measurement used by Etihad airways in its corporate strategy. METHODOLOGY The study involved a descriptive, qualitative content analysis. A variety of materials were sourced, particularly books and journal articles relating to performance measurement and the Balanced scorecard as a measurement tool. Recent corporate reports and websites were also used to provide background information on Etihad airways and its strategy. These were applied and appropriately cited in the report. Etihad Airways is a fully government-owned company, and the national airline of the United Arab Emirates. It was created through a royal decree issued in July 2003. It is headquartered in Abu Dhabi, and operates a fleet of at least 66 aero planes and makes over 1300 flights weekly, with an international network comprising of 55 countries and 87 cargo and passenger destinations across the globe (Peng 2016). Its main corporate goals are: Establishing an airline which will project the UAE’s national image Providing airline guests with what truly qualifies to be Arabic hospitality The company’s main operations are in international passenger transport, through the flagship Etihad Airways brand. It however also has subsidiaries, namely Etihad Cargo, Etihad Global Contact Center and Etihad Holidays, making up the Etihad Aviation Group (Etihad Airways. 2017a). Etihad Airways’ Performance Report Etihad airways has maintained a positive performance history throughout, and this has been notable since its founding in 2003, after which it has managed to rise and become among the most successful airlines worldwide (Belobaba et al. 2016). In 2015, the net profit of the airline stood at $103 million. It maintained a sustained growth that is supported by rising cargo and passenger volumes, and in this year revenue stood at US$ 9.02 billion. Partnerships grew further and added 5 million new passengers to the airline’s network leading to revenues of $1.4 billion. In a fifth year of consecutive profitability growth, Earnings before tax were $259 million, with Earnings before tax of $ 1.4 billion. 17.6 million Passengers were carried, an 18.9 increase from the previous year. Passenger volumes have continuously exceeded the airline’s capacity, and has been above the market growth of the region (Etihad Airways 2016). In 2016, Etihad posted a sustained growth that was guided by improvement of flight frequencies, purchase of new, efficient aircraft and continuous introduction of new products that for instance 6% increase in passengers to 18.5 million above 2015. In 2016, 109, 000 scheduled cargo and passenger flights in 112 destinations and growing its capacity by 9%, with passenger traffic increasing by 8%. Etihad’s 119 aircraft comprise one of the youngest and reportedly environment-friendly fleets worldwide. The company further had the best credit rating within the aviation industry globally, which illustrates its business model success internationally. Etihad cargo managed to move 592,700 tonnes, and more than 3 million new members patronized the company, with loyalty programmes showing growth to a community of almost 20 million members. By 31 December 2016, there were 26,635 employees drawn from 150 nationalities and through its Future Leaders Programmes and Emiritization efforts, continued showing its commitment to people development (Etihad Airways 2017c). DATA ANALYSIS With pressure to deliver on quality, Etihad Airways recognizes the fact that whatever has to be done has to be measured (Bamber et al. 2013). For this reason, it has always applied a Balanced Scorecard (BSC) performance measurement system. The company’s corporate strategy function is in charge of defining, governing and reporting every BSC throughout the Etihad Aviation Group. Etihad’s strategy also acknowledges that to cope with existing challenges within the industry, it has to take up communication technologies in dealing with the oversight of performance, hence profitability, as the economic environment has increasingly changed from one of tangible assets to one of intangible assets (Etihad Airways 2014). As from 2011, the company has therefore been implementing an E-performance management system, meaning that the BSC will be more automated (PROCOS 2011). The BSC and its automation are discussed separately in this analysis. Etihad’s Balanced Scorecard The company’s BSC is designed to enable all managers to convert the airline’s vision into well-defined and clarified Key Performance Indicators (KPIs) which are relevant to respective roles. They also work together with employees to ensure that agreed objectives are well cascaded throughout the company in what is referred to as the iAchieve Success Factors system. The existing system offers a means for all stakeholders, ranging from top leadership to human resource practitioners, supervisors and employees to perform planning, monitoring and evaluation of the firm. The system supports metrics together with quarterly reviews that reveal employee ratings that determine promotions, development opportunities and assignments aimed at attaining adequate workforce diversity (Etihad Airways 2014). The BSC evaluates various measures that are supposed to be balanced in four perspectives. These include: a. Growth and learning. Here, there is assessment of whether the airline is developing in terms of capacity for the sake of the future b. Customers. This assesses how the airline appears to the customer c. Financial. This looks at how the airline appears to its owner, the government of the UAE d. Internal processes. This examines whether internal processes are being strengthened so as to deliver on the expectations of customers and the owner Reliance on the BSC is a good approach to performance measurement at Etihad. It offers a summarized report on key performance measures within the business, whether non-financial or financial, hence reveals what the business is trying to achieve and its degree of success (Yilmaz 2013). The BSC is traceable to the work of Robert S. Kaplan and David P. Norton. The measures that they outlined provide top managers with a quick, though comprehensive perspective of corporate performance, including measurement of processes and results (Zizlavsky 2014). Management therefore has to take a multiple perspective of performance simultaneously. There are certain aspects of the company’s operations that make the airline likely to benefit the most from utilization of the BSC, as it has excellent standards to uphold. First, the Etihad product comprises of offering guests a superior inflight and ground travel, upgrading its cabins and operation of premium lounges (Etihad Airways 2014). It is also keen on sustainability issues, aiming at a business that is responsible especially in terms of impact on the environment, through fuel efficiency and a reuse, reduce and recycle principle. On people, it employs staff from over 120 nationalities across the world, and pioneers the Emiratization Program. The company is also involved in corporate sponsorships, especially cultural and sporting events in line with its values of team spirit, hospitality and showcasing Abu Dhabi to the world (Etihad Airways 2012). The BSC presents a number of advantages, probably explaining the impressive corporate performance of Etihad Airways in the past. One of these is that it helps the company to get where it seeks to go. It enables a focus of the entire organization on the few measures that are required for it to achieve a breakthrough performance. The BSC is usually able to show the weaknesses of the organization, even if for instance in only a few areas, but creates a link between these and its inability to achieve overall success, hence a focus of every department and person on it and therefore improvement in the overall performance (Etihad Airways 2014). The BSC often helps in effectively integrating various corporate functions. For instance, in an airline, there is the integration of customer service and quality, both of which are the main competitive strengths that can enable it to survive a turbulent industry. The evaluation of different units from various perspectives is a good way of ensuring that everyone is aligned to the same purpose. If the BSC for instance indicates that the airline is not doing well in customer service, then having a new focus on how everyone delivers on the customer service objective will lead to improvements across all units, with an overall major improvement (Zizlavsky 2014). Generally, a BSC ensures a sustained focus on targets. When strategic measures are broken down, all managers and employees are likely to become more aware about what they need to do to create the needed change. For example, if the goal of the airline is to increase seat bookings by 10%, breaking down the components so that for instance cleanliness, marketing and employee motivation are required within the BSC will ensure that everyone has a clear target that will support the ultimate goal. A BSC is also likely to produce job satisfaction which may not be possible in other measurement techniques, and there is the likelihood of people being positively impacted on, because of clear identification of weaknesses and strengths. As a result, they are likely to feel more valued in ways that other measurements cannot. Meanwhile, the company can easily exploit the people’s strengths to the maximum while improving on noted weaknesses. The Performance System Automation at Etihad The company is engaged in a company-wide transformation program, in which it is implementing cloud-based, state-of-the-art business solutions across the finance, procurement and supply and human resource functions. The effort is aimed at enabling the airline to completely update its back-office processes, ensure standardization across all its subsidiaries including Air Seychelles which is its strategic partner, while scaling up so as to maximize growth (Paye 2015). The airline has particularly adopted an Integrated Strategic Planning structure that is founded of a competitive Execution Premium Process (XPP) system that seeks to deliver financial performance that is above the airline industry’s average at any given time. It has therefore been in the process of implementing an e-performance management system named the STRATandGO, aimed at helping to automate the previously manual performance reporting system. The STRATandGO system is cloud-based, therefore facilitating a rapid and agile implementation, which is intended to enable the company achieve its digital transformation objectives much faster (PROCOS 2011). With the new system, performance management is expected to grow from just reporting on past performance to being more analytical by examining drivers of certain factors and implementing as through integrating the current practices with business intelligence, it is expected that predictive analysis will be made much easier. The system will encourage smart working, and through leveraging the use of analytics, will enable strengthening of support for strategy execution and value for Etihad (Belobaba et al. 2016). Overall, in the new system a software may be used to collect the necessary amount of performance information to the right people in a timely manner. According to Etihad Airways (2012), this enhances discipline and structure in the BSC implementation and helps to convert disparate company-related data into knowledge and information, while further helping to communicate the performance-related information. Considering its current position, cloud-based performance measurement and management is a helpful approach for Etihad to monitor its strategies. This is because it will support operational management and key executives by offering relevant and timely information, whether from outside or inside the company. Its application brings about a more efficient application in knowledge management, external benchmarking, sharing or acquisition of best practice, measurement of corporate performance and coordinating improvement initiatives within. The e-performance management will help further in retention and motivation of top talent, by enabling access to information about the best performers in the organization. The system also brings the benefit of system integration. The measurement system that arises from technology will integrate all core data about employees, as a result of which there will be a conducive environment for timely training and development, precise pay for performance and succession or career planning, and the competency and performance data integration maximizes the effectiveness of communication. The system additionally brings the benefit of embedded intelligence, helping to improve the timeliness, quality and speed of employee feedback, therefore making the appraisal process more efficient. Through having the BSC web-based, the airline will further be able to cut costs as the improved functionality of the cloud-based system avails greater flexibility with its easily configurable templates, and therefore ability to tailor utilization processes into any group of employees so that both simple and complicated business strategies are made much easier (Al-raisi et al. 2011). Overall, the new automated system is likely to lead to greater business success. This is because it helps to enhance the identification of employees with the objectives provided by the BSC within a clearer process. The process makes the identification, planning, improvement, observation and rewarding of performance easier. It begins with the empowerment of the subjects with well-articulated targets and goals. With time, the company can observe and make changes to the goals and plans so as to be in line with employee abilities or external circumstances to the airline, for instance competitive threats or market conditions. CONCLUSION Performance management and therefore measurement is an important function in the effective management of resources, both human and capital. In dealing with the competitive pressures in a globalizing economy, firms including those in the airline industry have been forced to adopt more efficient systems in the monitoring of performance. Etihad airways has mostly relied on a Balanced Scorecard measurement system, and had recently opted to adopt a more efficient cloud-based system to support these efforts. The BSC and automation processes have the effect of aligning efforts to strategy, and making what is being done more efficient respectively. Therefore, Etihad is doing well in its performance measurement. RECOMMENDATIONS Etihad airways should proceed with implementation of the web-based performance measurement system. This is because it has clear value in enhancing the airline’s competitiveness. However there should be a lot of care to ensure that the information gathered is always complete. Considering that there will be no manual administration, management should remember that usefulness of the data depends on the information that is keyed in. for it to work therefore, selection of the elements to be reviewed should be accurate, and the responses must be relevant and accurate, dealing with what is being assessed. In addition, the airline needs to find a way of dealing with employee resistance, which might arise from the new, cloud-based system. This is because although many members of the organization might be in support of the move, just like any other change process there might be some who will not believe in it. This is especially if there will be some training required before its use, meaning that they have to invest additional time in learning it. To be effective, Etihad will therefore have to ensure that everyone is supportive of it, for it to be successful. REFERENCE LIST Al-Raisi, A., Amin, S., and Taahir, S. 2011. Evaluation of e-Performance Analysis and Assessment in the United Arab Emirates (UAE) Organizations. Journal of internet and Information Systems, 2(2), pp. 20-27. Bamber, G., Gittell, J., and Kochan, A. 2013. Up In the Air: How Airlines Can Improve Performance by Engaging Their Employees. Cornell: Cornell University Press. Belobaba, P., Odoni, A., and Barnhart, C. 2016. The Global Airline Industry. Chichester: Wiley. Cardy, R., and Leonard, B. 2011. Performance Management: Concepts, Skills, and Exercises. Armonk: M.E. Sharpe. Etihad Airways. 2017a. A Skytrax Certified 5-star Airline. Retrieved on 14 July 2017 from http://www.etihad.com/en-us/about-us/corporate-profile/ Etihad Airways. 2017b. Etihad Airway: Our Story. http://www.etihad.com/en-us/about-us/keep-the-skies-open/our-story/ Etihad Airways. (2017c). A Year of Sustained Growth for Etihad Airways in 2016. Retrieved on 16 July 2017 from https://www.etihad.com/en/about-us/etihad-news/archive/2017/a-year-of-sustained-growth-for-etihad-airways-in-2016/ Etihad Airways. (2016). Net Profit of US$ 103 Million for 2015. Retrieved on 16 July 2017 from http://www.etihad.com/en-us/about-us/etihad-news/archive/2016/usd-103-million-net-profit-for-2015/ Etihad Airways. 2014. Annual report 2013. Abu Dhabi: Etihad Airways PJSC Etihad Airways. 2012. Etihad Airways. Abu Dhabi: Etihad Airways. Kim, H. 2013. Service Quality with Satisfaction and Loyalty in the Airline Industry. International Journal of Tourism Sciences, 13(3), pp.31-50. Peng, M. 2016. Global Business. Cincinnati: Cengage Learning. Paye, T. 2015. Etihad Airways Deploys SAP Success Factors. Retrieved on 13 July 2017 from http://www.itp.net/604786-etihad-airways-deploys-sap-successfactors PROCOS. 2011. Etihad: Corporate Performance Management Raises the Bar. Retrieved on 14 July 2017 from https://www.procos.com/Home/LaatsteNieuws/tabid/654/ArticleId/152/language/nl-NL/Default.aspx Jantz, B., Christensen, T. and Laegreid, P., 2015. Performance Management and Accountability: the Welfare Administration Reform in Norway and Germany. International Journal of Public Administration, 38(13-14), pp.947-959. Stefanovska, L., and Soklevski, T. 2014. Benefits of Using Balanced Scorecard in Strategic and Operational Planning. Universal Journal of Management, 2(4), pp.165-171. Yilmaz, K. 2013. Balanced Scorecard. Westport: Greenwood Publishing. Zizlavsky, O. 2014. Balanced Scorecard: Innovative Performance Measurement and Management Control System. Journal of Technology Management and Innovation, 9(3), pp. 210-222. Read More