Performance Management - Essay Example

? Performance Management The topic of performance management is a broad topic that has been considered in a large amount of literature. Whileit would be erroneous to speak of any one performance management system, it’s clear there are a number of overarching concepts that have been articulated by researchers as a means of getting at the root of what constitutes effective performance management systems. This research advances with a pragmatic understanding of effective performance management in that it considers a variety of critical perspectives and attempts to situate them within a context that attests to the nature of what constitutes an effective performance management system. It argues that there is no singular nature of effective performance management, instead effective performance management exists in a fluid and contextually specific reality. The essay also considers the nature of effective performance management within the real world context of service and consultancy firms. In considering the nature of effective performance management measures, one of the crucial elements is that of situating performance management in terms of a structural framework. This essay argues that in large part there are different levels of understanding that can be brought to performance management systems, with structural or overarching frameworks representing a general qualitative perspective on the nature of effectiveness, as well as defining the boundaries of performance management. One such framework is that proposed by Fitzgerald and Moon (1996) who broadly argue that there are a number of core competencies that must be implemented to achieve effective performance management. Within this context, they have outlined the most effective measures to be understanding one’s intentions, developing a range of performance standards, developing patterns of comparison, and implement a top down system. While Fitzgerald and Moon (1996)’s framework is powerful in its simplistic message, other researchers have articulated the characteristics of effective performance management from a different perspective. In these regards, Otley (2005) has advanced a notion of effective performance management from a more complex angle. In these regards, Otley states that performance management must heavily consider strategic measures, emphasize effectiveness or efficiency patterns, consider incentives, and follow a bottom down structure. The elements indicated by Otley and Fitzgerald and Moon constitute a broadly framed perspective on the nature of performance management. At this level of abstraction, the defining elements represent more of general overview of effective elements. One will note that the definitions contain contradictory elements. In these regards, it seems that the benefits of one method over the other are linked to the nature of the business system in which the measures are implemented. Another framework that articulates effective performance management is that which has been implemented by Otley (2007). In this research Otley examines previous conceptions of effective performance management, specifically those presented by Johnson and Kaplan (1987), as Otley argues that it is no longer relevant to consider performance management within the ‘management accounting’ paradigm. Ferreira and Otley (2009) considered the literature involving performance management systems and argued that traditional critical assumptions did not go far enough in articulating the essence of effective performance management. As such they proposed a new critical framework that examines the issue in terms of an extended framework of performance management systems. Within this framework, some of the critical assumptions regarding what constitutes effective performance management are articulated as a means of advancing past critical assumptions. The framework developed is referred to as performance management systems, and it incorporates a number of elements from Otley’s previous theoretical matrices, augmenting them through the inclusion of a number of more specific elements of effective performance management (Aldonio & Otley, 2009). Another perspective on the structural nature of effective performance management systems is that which has been articulated by Ericksson. This system is referred to as the Ericksson Management System. The Ericksson performance management system incorporates the balanced scorecard matrix into a structural format that considers a set number of vital perspectives. Among these perspectives include customer competition and internal efficiency, as well as financial and employee considerations. Within this framework, the balanced scorecard has been also implemented as a management tool to track progress through better articulation of goals. This includes aligning goals throughout the company under a single banner of corporate progress, and developing connections between short-term objectives and long-term goals. Within this context, it’s argued that one of the central aspects of all effective performance management systems is the articulation of a clear vision and mission for the company. Following this, understanding the key factors for organizational success are the next important elements. In addition to these factors, many of the traditional elements of effective performance management are included in this framework; for instance, the importance of developing strategic measures are well-established and articulated in much of the performance management literature. Yet, the augmented factors outlined in this new framework are believed to be essential for higher order performance management effectiveness. In determining the nature of what constitutes effective performance management in specific contexts, it’s necessary to consider more specific tenants of performance management. In regards to specific measures, Kaplan and Norton (1992) advanced the notion of ‘a balanced scorecard’ that outlined the various means by which individuals can qualitatively assess performance management systems. Within this framework, the core issues of time, quality, and performance and service are supplied to further articulate the assessment strategies. When examining what constitutes effective performance management then, Kaplan and Norton argue that one is greatly aided by considering this perspective from within this matrix. The balanced scorecard paradigm offers a variety of insights into effective performance management. In these regards, it’s argued that in terms of customer service, the matrix situates the following elements as constituting the results of effective customer performance, get standard products to market sooner, improve customers' time to market, become customers' supplier of choice through partnerships with them, and develop innovative products tailored to customer needs (Kaplan and Norton, 1992, p. 3) Clearly, the ‘balanced scorecard’ is somewhat slanted towards what constitutes effective performance management within a service organization over a consultancy or creatively focused organization. This reveals the shortcomings of any singular performance management structure. One can argue that the balanced scorecard also has a number of drawbacks, namely that it is largely geared towards the executive level over the organizational level, such that it is ineffective for organizational performance qualities. The balanced scorecard also does not address intangible aspects of performance, including leadership qualities. Even as this system is geared towards the service industry, it’s clear that there are a number of factors that pertain to a broad range of industries. For instance, this particular performance management system can be further broken down into four goals. Further research demonstrates that the internal/external matrix is one of the core conditions for effective performance management (Hope and Fraser, 2003). Just as external and internal factors constitute an important structural dimension, so does the dichotomy between financial and non-financial measures represent an important consideration; linking effective management to solely financial measures can create emphasis on short-term profit over long-term corporate development and profitability. As a means of further developing this system, the company in the hypothetical study considered the nature of external customer feedback. It is notable here that while the external input was surely effective in generating new insight for further business considerations, perhaps the most effective aspect of the external process was that it more accurately codified the nature of the customer’s semantic perspective. For instance, it’s noted that the external survey measures were effective in giving the company a more accurate understanding of what the customer’s understand as efficient time to market. While this seems an inconsequential point, it’s worth considering as it indicates the shortcomings of a performance management system that solely rests on internal measures of assessment. As the external elements have been articulated, this essay argues that companies must also consider how effective performance management systems implement these elements to improve internal functioning. In these regards, internal functioning can be implemented in a variety of ways including, “affect cycle time, quality, employee skills, and productivity, for example” (Kaplan and Orton, 1992, pg. 5). It follows that effective performance management systems must implement strategic measures as a means of improving overall efficiency. While this constitutes a broad range of categories, researchers have articulated a number of specific strategies within this matrix. It’s noted that success flows from strategic measures. One of the crucial elements of effective performance management strategy is the consideration from the stakeholder’s perspective. Within this context, stakeholders have traditionally indicated the core nature of strategic measures in management systems. This is further understood, including both financial and non-financial measures, as well as involving external and internal measures. One of the primary strategies companies must implement to achieve these goals is benchmarking. In regards to benchmarking strategies, performance management literature has considered their effectiveness for aiding in the production of performance systems in great ways. While the issue is complex, there are a number of features the literature has indicated is essential for effective performance management systems. Anderson and Petterson (1994) discussed preconditions that must be met in order for benchmarking activities to be successfully implemented. In these regards, the core assumptions are structural and cultural conditions, as well as understanding of the company’s business processes. In terms of structural conditions, effective performance management systems have been noted to have a number of preconditions set in place. These include the financial resources that allow for the implementation of these strategic measures. The time necessary for developing benchmarking measures through internal research and the necessary competencies for implementing benchmarking. This last point is complicated in that corporate entities can often accomplish this internally, or have the outside support necessary to achieve competent benchmarking activities. The final points necessary for effective benchmarking within the structural category includes having the competitive abilities and impetus for new development, along with the documentation of central processes. While structural measures are essential for effective performance management benchmarking systems, it’s clear companies must also incorporate the cultural aspect. Within the cultural aspect of performance management, companies must consider their strategic initiatives and mission and values when structuring effective benchmarking activities. In these regards, companies must include aspects of internal aspirations, as well as will to change. In addition to these factors, companies must include will to information sharing (both internal and external), management commitment, and participation of employees. Finally companies must be cognizant of the business process aspects of benchmarking. These involve process documentation, such as flow charts. The business must also have an understanding of how the different business processes impact on competitiveness and critical success factors. After benchmarking strategies have been implemented, it’s essential for effective performance management systems to consider the strategic nature of incentives and rewards. While much literature has addressed this aspect of performance management, this essay argues that there are a number of key issues that are emblematic of all performance management systems (Simons 1995). In these regards, it’s been indicated that incentives and rewards function to ensure the flow and productivity of workplace functioning. Fitzgerald and Moon (1996) suggest three factors for optimum performance management reward systems. They state that clarity, motivation, and controllability are core issues in these regards. It is essential then that companies develop reward systems that improve incentives through a generally well-articulated and developed platform. Ultimately, strategy in terms of incentives and rewards, and most other strategic measures must be considered in the specific business context. While there are a wide variety of performance management measures that can be implemented in an overarching manner in virtually all effective performance management systems, it’s also necessary to consider the means of developing performance management systems that are context specific. One of the most important distinctions in these regards is that between effective manufacturing and consultancy performance management systems. In terms of manufacturing corporations, part of the challenge is developing a working definition of what constitutes a service manufacturing type entity. In terms of performance management systems, Tyagi and Gupta (2008, pg. 1) state, “The service processes consist of interaction and transaction elements... services could be classified as traditional services, such as a retail setting or financial services, or as experiences such as theme parks.” Within this area of understanding then, the development of performance management systems can be differentiated from those in the consultancy industry. While overarching structural frameworks – such as those articulated by Fitzgerald and Moon (1996) and Otley (2005) – apply to the development of these systems in both the manufacturing and consultancy industries, it’s clear that there are measures within that must be considered to achieve effective performance management specifically within the manufacturing industry. In regards to a specific manufacturing firm, there are a number of elements that should be implemented in an effective performance management system. The first step taken must be for the corporation to review organizational goals and relate these goals to measureable performance outcomes. In terms of manufacturing firms this is understood in terms of quality, quantity, and timeliness. As production through performance is an essential feature, it’s argued that the firm must focus on desired results for the domain in question, as related to external and internal company needs. It seems that in large part performance management within the manufacturing industry is a matter of segmenting domains and then applying overarching principles to implement strategic measures to achieve optimal management. In these regards, manufacturing firms must identify first-level measures within the domain to evaluate the extent desired results were achieved. As these steps have been taken, it’s then necessary to develop a performance plan that articulates the corporate vision for performance management. This last point is notable, as scholars disagree on the order to which companies should take to performance management (Fitzgerald and Moon, 1995; Otley, 2005). The main area of contention being whether a top-down or bottom-up approach should be taken to developing the performance management system. This specific example argues that a bottom-up approach is more effective for the manufacturing firm as it allows the company to articulate its strategic vision and comprehend means of quantifying management practices from an abstract to a progressively structured corporate hierarchy. Ultimately, it is this steps and this progression that manufacturing companies must make when developing effective performance systems. While the manufacturing industry and the consulting industry share a number of similar elements in terms of what constitutes effective performance management, there are also further avenues that must be explored, as the diverging nature of these corporate bodies necessitates a divergent approach. The consulting industry is primarily concerned with measuring elements of client-value. In regards to client-value the consulting industry quantifies these factors in terms of number of clients and revenue contribution of clients. There have been a variety of measures proposed, some of which chart billing or client satisfaction. Effective performance management systems must then be more in-tune with these avenues of client feedback, as a means of developing effective business standards. In terms of performance management development, it’s argued that similar measures be taken to in developing and structuring the system with that of the company in the manufacturing industry. One such key differentiating element is that of comes in terms the top-down approach vs. bottom down approach to developing the performance management system. This research argues that for a consulting industry system, a top-down approach is more effective as it allows the corporate body to better develop a system to address client-value. In these regards, top-down benchmarking strategies are a core issue for the consulting firm. While benchmarking is an important feature in both industries, effective consulting industry performance management must consider the issue in terms of both the service itself, as well as the sense of satisfaction given to the customer. The later element is challenging as it is not a regularly quantifiable figure, but an abstract entity that effective performance systems find means of articulating. Indeed, articulating the abstract is one of the central challenges of performance management within the consulting industry. In other the more quantifiable aspects of performance management, including financial and inventory measures, a growing body of computer software exists as a means of successfully managing these features. Ultimately, it’s these specific elements, in conjunction with the overarching elements of performance management that companies must concomitantly implement to develop effective manufacturing or consultancy systems.  Conclusion In conclusion, it’s clear that there are a wide variety of perspectives on the nature of effective performance management. In taking a pragmatic perspective to the subject, this research has considered a variety of structural interpretations as an overarching approach to the management systems. In these regards, the competing management frameworks presented by Fitzgerald and Moon (1996) and Otley (2005) are contrasted to demonstrate conflicting perspective on effective performance management. Delving further into these frameworks various types of strategic measures are considered for their relevancy to the performance system; these measures include finances, benchmarking and reward systems. Various paradigmatic perspectives are also examined, including Otley’s balanced scorecard and the Ericksson model, with qualitative assessments being made of each. Finally, the nature of developing performance management systems within the real world context of manufacturing and consultancy firms is broached, indicating that the key differences are within quantifying service and client-value. Ultimately, the study reveals that there is no one effective performance management system, but fluid and site specific templates. References Aldonio, F.,Otley,D. 2009 ‘The design and use of performance management systems: An extended framework for analysis.’ Management Accounting Research 20 263–282 Fitzgerald and Moon, 1996 Performance Measurement in Service Industries: Making it Work, CIMA. Gupta, P., Tyagi, R., 2008. Performance Management and Scorecards. FT Press Hope, J. and Fraser, R. 2003., ‘Beyond Budgeting: How Managers Can Break Free From the Annual Performance Trap’, Harvard Business School Press, Boston, MA. Johnson, H. and Kaplan, R. 1987, ‘Relevance Lost: The Rise and Fall of Management Accounting’, Harvard Business School Press, Boston, MA. Kaplan, R. Norton, D. Linking the Balanced Scorecard to Strategy. California Management Review. Vol. 39, No. 1 Kaplan, R. and Norton, D. 1992. The Balanced Scorecard Measures that Drive Performance, Harvard Business Review, January/February. Otley, David. Performance Management: A Framework for Analysis Otley, David 2007. ‘Did Kaplan and Johnson Get it Right?’ Lancaster University Management School. Simons, R. 1995., Levers of Control: How Managers Use Innovative Control Systems to DriveStrategic Renewal, Harvard Business School Press, Boston, MA. Read More