Literature Review on Performance Management System


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Literature Review on Performance Management System

  1. 1. THE M.S.UNIVERSITY OF BARODA Literature Review on Performance Management System ( Final ) (Human Resource Management)  Study by DDI (1997), Performance Management Practices is the most recent performance management study. It proves that successful organizations realize that performance management is a critical business tool in translating strategy into results. The CEOs in the majority of the 88 Organizations surveyed say their performance management system drives the key factors associated with both business and cultural strategies. Performance management systems directly influence five critical organizational outcomes : Financial performance, productivity, product or service quality, customer satisfaction & employee job satisfaction. When performance management systems are flexible & linked to strategic goals, organization are more likely to see improvement in the five critical areas : team objectives, non- manager training, appraiser accountability & links to quality management are the specific practices most strongly associated with positive outcomes.  Watkins (2007) puts it, most public sector business organization like those in Delta State of Nigeria have not given adequate attention to performance management review as a tool for improving performance even when recent studies suggest that performance review benefit organizational performance in both private & public sectors. Performance management has been described as a systematic approach to the management of people, using performance goal measurement, feedback and recognition as a means of motivating them to realize their maximum potentials. Public sector business organizations that strive to deliver quality services at competitive prices are those that embrace various performance review practices to assess their employee performance & motivate them with incentives.  Robert & Angelo (2001), The success or failure of public sector business organizations depends on the ability to attract, develop, retain, empower & reward a diverse array of appropriately skilled people and is the key to improving organizational performance. The explanation therefore is that human resource managers in the public sector business concerns should embark on periodic performance management reviews of their employees in order to re-position their business organizations though owned by government for better performance & improved competitiveness.
  2. 2.  Study by Wm. Schiemann & Associates (1996), this national survey of cross-section of executives concluded that measurement-managed companies- especially those that measure employee performance- outperform those that downplay measurement. These research studied 122 organizations making between $27 million and $50 billion in sales. A higher percentage of measurement-managed companies were identified as industry leaders, as financially in the top third of their industry, and as successfully managing their change efforts. The research examined performance in six strategic performance areas deemed crucial to long-term success : Financial performance, operating efficiency, customer satisfaction, employee performance, innovation/change, community/environment. The findings revealed that the biggest measurement area separating successful from less successful firms is employee measurement. Successful industry leaders simply do a better job than non-leaders at measuring their workforce, which the study say is where real change won or lost.  Study by Hewitt Associates (1994), The impact of performance management on organizational success substantiates that performance management system can have a significant impact on financial performance and productivity. The study used the Boston Consulting Group/HOLT financial database to track the financial performance of 437 publically held U.S. companies from 1990 through 1992.The study results showed that: Companies with performance programs have higher profits, better cash flows, stronger stock market performance and a greater stock value than companies without performance management. Productivity in firms without performance management is significantly below the industry average, while productivity in firms with performance management is on par with the industry average. Companies with performance management significantly improved their financial performance and productivity after implementing performance management.  Williams (2002) identifies globalization, increased competition and the increasingly individualistic rather than collective employee relationship as some of the major drivers contributing to the increased visibility of performance management systems (PMS). Faced with fast moving and competitive environments, companies are constantly searching for unique ways in which to differentiate themselves from their competition and are increasingly looking to their “human resources” to provide this differentiation.
  3. 3. This has led to much interest in the performance of employees, or more importantly, how to get the most out of employees in order to sustain competitive success.  The study by Eleni T. Stavrou, Christakis Charalambous and Stelios Spiliotis utilizes an innovative research methodology (kohonen’s Self-organizing Maps (SOMs), Neural Network Analysis) to explore the connection between human resource management as a source of competitive advantage and perceived organizational performance in the European Union’s private and public sectors. While practices in these two sectors did not differ significantly, three diverse but overlapping HRM models did emerge, each of which involved a different set of EU member states. Training & Development practices were strongly related to performance in all three models and communication practices in two. These results show the usefulness of an innovative technique when applied to research so far conducted through traditional methodologies, and brings to the surface questions about the universal applicability of the widely accepted relationship between superior HRM and superior business Performance.  Sharmistha Bhattacharjee and Santoshi Sengupta (2011) studied that employees are the most valuable and dynamic assets of an organization. For achieving the strategic objective of sustained & speedy growth, managing human resource has been featured as a vital requirement in all organizations. It is a challenge to monitor the entire cycle of defining the competence requirement of the business, accessing existing competence in the organization and bridging the gap between the two. HR practices are crucial for any organization. Every phase from recruitment to exit interview is under the HR department. It is a challenge to monitor the entire cycle of defining the competence requirement of the business, accessing existing competence in the organization and bridging the gap between the two. In a manufacturing industry, with every technical advancement business opportunities can show up. These opportunities can be converted into business success only with performance alignment and competence management.  The research paper of Mohammad Tanvi Newaz (2012) provides an analysis and evaluation of the role of performance management system in shaping psychological contract at Sainsbury’s UK by a case study approach. Sainsbury’s has adopted the performance management system to utilize the potential of their employees but result of data analysis indicates that line managers have failed to achieve the objective of the performance management system. This research analysis reveals how the line managers of Sainsbury’s focus on short term goal i.e. financial success instead of long term goal i.e. employee development. However, the performance management system of
  4. 4. Sainsbury’s comprises all the necessary components to play a significant role in developing employees as well as facilitating the formation of a positive psychological contract. But partial and inattentive implementation of the system makes the situation unfavourable for the psychological contract to develop at Sainsbury’s UK.  The article of Javed Iqbal , Samina Naz, Mahnaz Aslam, Saba Arshad (2012), offers a survey of selected literature on performance management. Purpose is to identify key themes that govern the topic in the contemporary turbulent economic and business environment where employees are more uncertain that anything else because every day they face downsizing, volunteer retirement and “golden hand shakes’’ to get rid of them. Under these circumstances it is worthwhile to look into the ways by which they can be motivated to work under hard conditions. It is found that performance management processes, evaluation, its impact and factors are key themes. Researchers apply popular research approaches for data collection analysis and communication.  The paper of Akua Asantewaa Aforo and Kodjo Asafo-Adjei Antwi (2012) shows that academic libraries have a performance appraisal system comprising setting of goals, feedback, participation and incentives for performance. This study aimed at evaluating the performance appraisal system in the KNUST and GIMPA libraries in Ghana and give recommendations on improving the system. Questionnaires were randomly administered to 46 staff members of these libraries.  The aim of this study of Akinyele S. T. (2010) was to evaluate the effectiveness of performance appraisal system at private universities in Nigeria. The focus of the study was on the administrative staff of Crawford University. The study evaluated the purpose of performance appraisal in private universities and identifies relevant factors for achieving an effective performance appraisal. A cross- sectional survey was selected for this study because it was easy to undertake compared to longitudinal survey and the results from the same can be inferred to the larger population. The study population was for all the administrative staff of Crawford University. The whole populations of staff were selected as respondents. A structured questionnaire was used to collect the data for analysis. The effectiveness of performance appraisal systems in private universities are only based on training the members of staff involved in the rating/ appraising process and are multi- rating systems. Conclusively because the performance appraisal systems used in private universities are not effective and that they exist just as a matter of formalities, the private universities cannot measure
  5. 5. members of staff performance, hence making it difficult to achieve the intended human resource management objective.  The paper of Al Bento and Regina Bento (2006) proposes and tests a model to explain three critical outcomes of Performance Management Systems: information quality, effectiveness, and usefulness of the PMS to managerial decision-making. Drawing from Organizational Information Processing Theory (OIPT), we examined how those three outcomes may be influenced by factors that affect OIP requirements (industry, size, and geographic scope of operations) and by organizational and technological factors that affect OIP capabilities. Organizational factors included management's decision-making style and organizational structure. Technological factors included the types of technology used in the PMS (ERP; specialized tools such as EIS and DSS; and generic tools such as Excel, Access and Lotus Notes), and the degree of use of e-commerce and Internet technologies.  The study of George Ndemo Ochoti, Elijah Maronga, Stephen Muathe, Robert Nyamao Nyabwanga, Peter Kibet Ronoh (2012) investigated the multifaceted factors influencing employee Performance Appraisal System in the Ministry of State for Provincial Administration, Nyamira District, Kenya. A target population of 76 employees was surveyed. A structured questionnaire was self-administered to the employees to collect data. Multiple regression analysis technique was used to explain the nature of the relationship between PAS and the factors that influence it. Results of the study showed that all the five factors: Implementation process (X1), interpersonal relationships (X2), rater accuracy (X3), informational factors (X4), and employee attitudes (X5) had a significant positive relationship with the performance appraisal system (Y). It shows that if these factors are taken into consideration by the ratees, the raters and the government policy makers, the PAS can be a good performance management tool.  The paper of Jawaria Andleeb Qureshi, Asad Shahjehan, Zia-ur-Rehman and Bilal Afsar (2010) notifies that many organizations install Performance Management Systems (PMS) formally and informally in their organizations, with the motivation to achieve better organizational results. In practice, organizations have difficulty in implementing a performance management system because its different dimensions are not taken into considerations enough. This article describes the findings of a comparative analyses conducted between a standard performance management model and performance management systems as applied by Local Development Organization (LDO). Data was collected from 50 employees of the organization with a Cronbach Alpha (0.935). Results identified barriers to implementation of effective PMS, also recommendations and viable solutions are presented.  Research of Leena Toppo, Twinkle Prusty (2012) informs that performance appraisal and performance management were one of the emerging issues since last decade. Many organizations have shifted from employee’s performance appraisal system to employee’s performance management system. This paper has focused to study the evolution of employee’s performance appraisal system, critics the system suffered and
  6. 6. how the performance management system came to the practice. The main purpose of this paper is to differentiate these two systems, employee’s performance appraisal and management system. This paper uses a review of the literature to evaluate the development of appraisal system and argues the critic areas of appraisal system. Performance management eliminates the shortcomings of performance appraisal system to the some extent.  There are, however, several models which have attempted to explain how HR policies have an impact on firm performance, one such model adopted as a conceptual framework in this paper is the “People Process Framework” (Gratton 1996). This framework focuses on individual performance linked to organizational performance and is designed to deliver short term business objectives as well as long term sustainable success. The model clearly identifies a set of HR practices which have been designed to link individual effort to the overall objectives of the business and also strikes a balance between achieving short term goals and preparing the company for its future long term success. The major focus of the research will be on the processes which contribute to short term business success, given their direct relevance to PMS and the crucial role of line managers in their implementation. These short term processes are critical to the overall success of the business as they provide the foundations to encourage sustained performance through clear identification of objectives, continuous assessment of performance against those objectives, reward strategies that emphasize the required behaviors and the provision of training and skills which will improve performance. Implemented correctly, these processes should enhance the individuals confidence in themselves and their company creating an environment where employees “want to” perform rather than feeling like they “have to” perform. Long term success is only possible therefore when the short term processes generate this type of response.  Whittaker and Marchington (2003) found evidence in their study that line managers spent very little time on people management issues, preferring instead to concentrate on financial or business objectives. Hope Hailey et al (2005) report that line managers are only measured on their technical role and not their people management responsibilities. The appraisal process is therefore of secondary importance to them and the appraisal is generally approached with little preparation, training or enthusiasm (Cook and Crossman 2004, Holt-Larsen and Brewster 2003). To address this, Hendry et al (2000) argue that not only should line managers own the performance management process but that they should be involved in its design, and only by involving them at this stage will they “buy-in” to the process. Lack of management “buy-in” can potentially frustrate the whole purpose of a performance management system, leading to an inability to meet short-term goals as well as failure to address longer term developmental opportunities (Weeks, 2005).  Lohr (1981) had stated that even Abraham Taylor (1856-1915) widely regarded as the father of Scientific Management in his legendary thesis on performance improvement in organizations had recognized the negative influences of groups on performance and sought to break-up informal group activities through spatial and work-flow designs and individual piece rate systems of pay. Taylor had based his management system on production-line time studies. Instead of relying on traditional work methods, he analyzed and timed steelworkers’ movements on a series of jobs. Using time study as his base, he broke each job down into its components and designed the quickest and best methods of performing each component (Idemobi et al 2010). In this way he established how much workers should be able to do with the equipment and materials
  7. 7. at hand. He also encouraged employers to pay more productive workers at a higher rate than others, using a “scientifically correct” rate that would benefit both company and worker. Thus, workers were urged to surpass their previous performance standards to earn more pay. Taylor called his plan the differential rate system. Rather than quarrel over profits, both management and workers should try to increase production and by so doing, he believed, profits would rise to such an extent that labour and management would no longer have to fight over them.  Timmons (1992) had opined that competitiveness is a major issue in foreign competition, and if a country’s export promotion drive is to yield the desired results, competitiveness in particular must be optimized. He further posited that the declining productivity in business organizations which leads to un-competitiveness is a major cause of monetary problems and inflation, and governments obviously should be interested in the level of competitiveness arising from productivity improvement.  Although the use of goal setting is primarily used to improve performance, there are other benefits such as: to clarify expectations, to improve job satisfaction, to enhance self-esteem through attainment of goals and to improve quality of work (Locke and Latham 1984).Appraisal provides the mechanism to provide effective feedback on achievement of which is an important factor in improving performance (Williams 2002).  Fletcher (2004) describes it as a “high risk activity” for managers, given the many pitfalls associated with it and Newton and Findlay (1996) highlight the fallibility of appraisals as they are open to manager manipulation. Despite the criticisms, the use of performance appraisal is widespread and perceived to be an effective part of a performance management system (CIPD 2005a).  Many organizations have looked to improve performance by linking it to pay; performance related pay (PRP) can take many different forms (Williams 2002) and the type of reward and how it is linked to performance management varies by organization (IDS 2003). There are many differing views on the effectiveness of PRP (Williams 2002) and whether or not it contributes to improved performance. It has been argued that PRP is a process of control, rather than contributing to real development (Hendry et al 2000).  (Gratton 1996)There has been a change in scope of the appraisal process in recent years, with an increasing focus on employee development, as more and more businesses focus on how targets are achieved rather than just the achievement itself. This has led to a combination of both objectives (outputs) and competencies (inputs, Taylor, 2005) and the recognition that personal development planning (PDPs) are a fundamental part of a PMS. By offering employees the opportunity of enhancing their skills through training, levels of self-confidence will improve and performance will be enhanced (White 1999).  Willcoxson, (2000) High performance is considered to be achievable in different ways, two of which are the humanistic and rational process perspectives. According to proponents of the humanistic perspective, high performance is attributed to investment in the ‘softer’ people aspects of organizational life. Through valuing, trusting, developing and empowering employees, encouraging cooperative modes of operating and stakeholder engagement, organizations can achieve high performance. Emphasis is
  8. 8. also placed on organizational culture as a key element of success or failure (Willcoxson, 2000).  In essence the productivity of an organization is jointly determined by the efficiency with which the organization utilizes several available factors of production which invariably are scarce relative to the demand for them. As it were therefore, one can conceive of an equilibrium condition in productivity terms within given and stated constraints in an organization. Like the price scenario, several factors operate to make it difficult to optimize the use of human and other resources in the organization such that the equilibrium condition is not achieved easily. Ouchi (1981) clearly pointed this out when he addressed the issue of what he labelled “the organizational dilemma” meaning that the organization’s search for rationality (technological determinism) and the human beings search for happiness (as in the Doctrine of Hedonism).  Robert and Angelo, (2001) The success or failure of public sector business organizations hinges on the ability to attract, develop, retain, empower and reward a diverse array of appropriately skilled people and is the key to improving organizational performance The explanation therefore is that human resource managers in the public sector business concerns should embark on periodic performance management reviews of their employees in order to re-position their business organizations though owned by government for better performance and improved competitiveness.  Sung & Ashton,(2005)It is the business strategy that gives the high performance working practices their dynamism and provides the framework against which performance can be evaluated and improved. Thus, the concern is not with the specific type or number of practices employed, but the way they are linked to organizational performance.  Results from the Watson Wyatt Worldwide (2004) study suggest that PM systems should recognize high performers and confront poor performers as soon as possible, eliminate paper forms, and utilize a user-friendly automation. Researchers from Watson Wyatt Worldwide also assert that if PM systems are designed and implemented properly, they can lead to positive impact on individual performance as well as better financial results for the organization (i.e., improvement in shareholder value).  A common weakness in the implementation of performance management systems noted by de Waal (2004) is the focus only on the “structural side”, that is, “the structure that needs to be in place to be able to use performance management such as critical success factors & key performance indicators, possibly supported by a balance scorecard”. De Waal (2004) argues that successful implementation also requires attention to the “behavioral side” that is, the necessary performance-driven behavior required from organizational members to achieve the desired objectives. According to de Waal (2004), appropriate behaviors, including attitudes and beliefs, depend on a range of factors including management style, the perceived relevance of performance
  9. 9. indicators, the degree to which employees feel they can influence change, and the quality of communication within the organization. (Source : ).  A study conducted by McDonald and Shield of Hewitt Associates found that companies that used performance management programs had greater profits, better cash flow, stronger stock market performance and greater stock value than companies that did not. Not only performance management improved financial performance, but it also improved productivity; companies with such programs had higher sales per employees (Rheem, 1995). Nonetheless, performance management has been mistaken as performance evaluation. As a matter of fact, both performance management and performance evaluation are related but they are not exactly the same concept. Performance management is a systematic process for improving organizational performance by developing the performance of individuals and teams; it is a mean of getting better results from the organization, teams, and individuals by understanding and managing performance within an agreed framework of planned goals, standards, and competence requirement (Armstrong, 2006). While performance evaluation is a process of assess and rate past performance of individuals or groups (Oct 2004). Performance evaluation is just a part of performance management. (Prepared by Sem Shaikh) (Private circular only for academic purpose)