Effective Performance Management - Research Paper Example

Effective Performance Management Abstract Performance management is a process employed by organizations to continuously improve their employee performance, enhance employee motivation and look for opportunities to innovate or further improve in order to gain as well as sustain competitiveness. This is a complex and critical process that has been researched immensely and has resulted in different methods. Performance measurement has been a universally adopted method of performance management. Considering the implications of performance measurement and also positive and negative aspects of different models, this topic explores the possibilities of integrating two models to arrive at one effective performance management process. The two modes include the Balanced Score Card proposed by Kaplan and Norton and Managing by Objectives by Peter Drucker. Performance measurement through these modes at individual, group and organizational levels has been explored keeping in mind their advantages and disadvantages. Based on critical views obtained from the existing literature as well as potential drawbacks of the present integrated model, implications for performance management have been explained. The paper concludes with main and critical inferences obtained from the entire research process. 1. Introduction to Performance management Performance management has gained increasing significance in organizations of all types. Unlike the scientific management principles or Taylorism and Fordism, which focused only on production through a planned approach, performance management not only focuses on productivity aspects, but also on overall efficiency of the organization and a continuous sustainability. The ever-increasing competition in the products’ and services’ markets has forced people to innovate newer products and features, come up with different types of services, and various other ways to improve profits for the organizations. These processes have, in total, refined or fine-tuned the way organizations function; all processes and methods aimed at improving organizational efficiency and also sustain the competition. As asserted by Kaydos (1999), improvement and control are the key essentials for the growth of any business. For this, knowledge of the goals and objectives is of utmost importance, which will, in turn, help organizations to strategically achieve their goals through measurable objectives. Almost 4 decades ago, McConkie’s (1979) work had reinforced the fact that goals and objectives should be specific, that they should be defined in terms of measurable results, and that individual and organizational goals should be linked to each other (cited by Scott, 1980; p.158). Halachmi’s (2005) work on performance measurement illustrates the significance of performance measurement as a way of performance management. The measurable objectives are regarded as measures of progress meant to keep the organization on path to achieve their ultimate goal. Overall, this measurement provides direction, dedication, determination, discipline and deadline to the employees (Khera, 2002). This research paper is focused on similar principle, based on existing performance measurement models that can be applied at various levels in order to achieve organizational goals. Significance of performance management: Measurement of performance at every level and in every function is a distinct activity, and cannot be combined. Although the organizational goal remains unique and single, different activities need to be performed in order to achieve that goal by different people having distinct skills and capabilities. Because the nature of work performed by these people contributing to achievement of organizational goal is different, they have to be measured differently, that is accurate and appropriate, in order to help in achieving the desired results. Strategically, performance measurement can be categorized into 3 main groups or levels, i.e. individual, group and organizational; however, at each level measurement system may be different based upon their nature of work. This research focuses on application of 3 distinct models of performance measurement to each of these levels and their integration and alignment with each other as well as with the organizational goal. 2. Performance management models: Recognizing the importance of performance management, numerous models and methods have emerged from various sectors of organizations on the basis of their strategies and objectives. To name a few, strategic planning, total quality management (TQM), International Standards Organizations (ISO), the Business Excellence Model (BEM), Managing by Objectives (MBO), the Balanced Score Card (BSC) etc. Some of these models, like the TQM, ISO and the BEM are a part of the quality management system; however, the tools and techniques are applicable to manage overall performance of the organization. What really matters is the scope of measurability and accuracy in the measures so obtained because these results provide the direction for further improvement. Halachmi’s (2005) comprehensive list of reasons for measuring performance provides a sensible base to performance ‘measurement’ (See Appendix 1.1) as a method of performance management. However, McNamara (n.d) argues that performance measurement is highly complex and almost an impossible task in contemporary organizations that are changing rapidly, thus making the results and measures outdated (cited by Halachmi, 2005). In addition to this, performance measurement has to be a recurring activity, enabling comparisons over time, and should be able to incorporate all activities related to the organizational functioning. As measurement is an activity requiring metrics and numbers, not all organizational activities will be eligible for measurement. On the contrary, Halachmi (2005) asserts that in order to advance performance there is a need to manage performance rather than simply measure any given aspect of it across the board. Management of performance can mean in some cases measurement of effectiveness and efficiency, in others it may mean management of important stakeholders or the organizational relations with them. In other cases, management of organizational culture and motivation may be the key to improve performance. Hence, an integrated framework incorporating different aspects of organizational functioning and their performance assessment needs to be developed. Based on this principle, this research focuses on possibilities of integration of different performance management models; for example, integrating the Balanced Score Card system created by Kaplan and Norton (1996) with Managing by Objectives proposed by Peter Drucker at different levels can be explored as an effective option. 2.1 Organizational Balanced Score Card System and its implications: The BSC system, as proposed by Kaplan and Norton (1996) provides a framework to illustrate how strategy links intangible assets to value creating processes. Besides retaining the financial measurement of an organization at a critical point, the BSC highlights more general and integrated set of measurements that link current customer, internal process, employee and system performance to long-term financial success (Kaplan and Norton, 1996). As stated by Kaplan and Norton (1996; p.2), ‘the BSC translates an organization’s mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system.’ The BSC measures organizational performance across four balanced perspectives: financial, customers, internal business processes, and learning and growth. It helps in capturing the critical value-creation activities of skilled and motivated employees. All activities that an organization needs to perform in order to achieve its goal can be categorized according to these perspectives (See Appendix 2.1). These activities form the objectives for specific function/division in the organization. 2.2 Group (departmental/functional level): Integration of Balanced Score Card with Management by Objectives and implications Paladino (2007) emphasized Managing by Objectives (MBO) as an effective tool to enhance organizational efficiency at all levels, and also a result-oriented managerial approach (Scott; 1980). Activities and measures linked to organizational goals form the base for departmental /functional performance. For this, intended outcomes of these objectives need to be translated to measurable outcome indicators. The outcome indicators should be able to identify specific numerical measurement that indicates progress towards an outcome. Integrating Hatry’s (2006) criteria for selecting outcome indicators/criteria for each of these objectives of the four aspects of the BSC can yield an apt and comprehensive measurement system (see Appendix 1.2). Based on one of the reasons outlined by Halachmi (2005),’ if they know you intend to measure it, they will get it done,’ MBO is effective in translating organizational goals individual measurable objectives at each level based on the responsibility. Creating objective accountability also helps in setting clear goals. For example, if learning and growth is one of the goals of the organization, activities related to this goal can be assigned to every department and level with performance indicators in order to ensure this goal is achieved. Activities may include training and skill enhancement to the learning and development team of Human Resources; identifying and promoting eligible employees to higher roles in every department; motivating activities such as rewards and recognition programs in every department; development of appropriate communication tools to share organizational information appropriately, to specific team in HR and/or individual departments; management of attrition in every department; safety and security of workplace to the administrative functions etc. However, what is more important is performance assessment of each of these activities in every department/function. For this, the objectives will have to be assessed on specific outcome indicators (see Appendix 2.2). Agreeing on specific targets and/or goals is the key to successful implementation of MBO (Odiorne, 1990). Managers will set goals for their teams and also for individuals. This process improves communication within the teams and with individuals; enhances knowledge through information sharing; and also surfaces concerns and hidden issues (Melkers & Willoughby, 2005). 2.3 Individual performance measurement Measurement of individual performance has received much debate from all sectors of management due to the objectivity and subjectivity factors associated with individuals’ performance. Individual performance measurements need to be aligned to organizational goals and objectives, and not to individual goals or expectations; this has a potential for conflicting issues with fairness in assessing, controllable and uncontrollable factors, differences in individuals’ potential and motivation and the type of work. Performance management will have to take into account these factors during measurement. Hence, performance cannot be measured on single entity and requires various combinations of metrics (Cleveland & Mayben, 1997). From the objectives’ perspective, appropriate metrics critical to quantity of work and quality of work are required to measure performance. Most commonly, quantity of individual’s work is measured as productivity, and can be measured in different ways, like, output/employee, overhead cost/unit of output, output/capital expenditure, output/asset etc (Duening & Click, 2005; p.86) depending upon the nature of work. In addition, quality of work has to be regarded as equally significant aspect of performance and can be measured in different ways, like number of defects/errors reported per unit volume of work. Other productivity indicators like scorecards, metrics, cycle times, standards etc can also be included in this list depending upon the objectives. In addition to these, individuals’ regularity to work, contribution to improvements, initiatives etc can be included as a part of objectives because these are a part of deliverables of the group/department as well. However, all the indicators should be credible, meaningful and significant to business, and most importantly ‘measurable.’ Individuals of a department cannot be held accountable for all objectives of a department/group. However, key objectives like operational efficiency, quality, attendance, initiatives etc can be measured. Non-accountable deliverables to an individual include management of attrition, motivational programs, feedback sessions etc, which form the accountabilities of managers or the group leaders. Goal-setting with every individual will help in assigning specific targets to every objective. The key performance indicators at an individual level have been illustrated in Appendix 2.3. 3 Critical evaluation: Performance measurement process at all levels has to be a continuous activity in order to ensure a sustainable organizational performance. However, the contemporary organizations’ challenges keep changing according to the customers’ expectations; ‘change’ has become the nature of business. This challenge either forces the organizations to enhance their performance to sustain competitiveness or venture into new streams of business to make profits (McGrath & MacMillan, 2005). These circumstances cannot permit organizations to stick to specific performance standards, targets and/or measurements. Kammerer (2009) has collected different critical views on BSC. For instance, the BSC is complex to implement and requires much time, maximum participation, high commitment of management as well as staff. In addition, the complexity in structure of BSC necessitates different types of measures to be incorporated, thus giving rise to potential dilution of goals and measures. Also, objectivity and subjectivity of the objectives make measurement extremely difficult. BSC requires consensus from all key divisional members of the organization and a high commitment to implement the strategies. Drucker’s classical proposition of MBO has received much criticism because it failed to produce a rationale to the principles it proposes. It is viewed as pseudoparticipative as it fails to take into account challenges such as superiority domination and possibilities of information manipulation. Very little evidence of goal-setting with participation from employees has been experienced. Moreover, self-control and discipline are the fundamental requirements of managers to employ MBO; although the latter seems practical and logical, the former has little significance from managers’ perspective. Attributed to these challenges, Fayol, Barnard and McKinsey advocated work against stated objectives (Halpern & Osofsky, 1990); model in the present context adopts this approach to an extent. Depending upon the type of challenge, organizations will have to tweak their objectives according to market behavior and/or customer expectations. At an organizational level, it may demand changes in organizational strategies and formulation of objectives accordingly. Assessment of effectiveness of the strategies is a critical aspect of performance management, yet difficult to measure in an integrated framework of the BSC and the MBO. This is because, ineffectiveness will surface only based on the type of results achieved; hence, these models require much time to help in assessment of strategic effectiveness. Modifications made to the organizational strategies will in turn require time to be assessed for effectiveness; however, modifications are critical in order to survive the changing and competitive industry demands (Corbett, 2004). Modifications in organizational strategies will have to be reworked in accordance with the changed organizational strategies. At an individual level, performance measurement system/process on the basis of productivity or efficiency can remain the same, but with changes to their targets. In such cases, managers usually face the challenge of motivating individuals towards higher performance, resistance and risk to departmental and even organizational performance. Changes in strategies may demand changes in performance measurement metrics and/or process, which is again time consuming and may face resistance. In such cases, performance management can suffer seriously, hampering organizational performance and also its sustenance. Besides the performance management process, practices employed for this purpose significantly impact its success. For example, whenever appraisal system has been used as a practice of managing performance, it has shown varying results on improving employee morale and future performance. One successful attempt noteworthy of quoting in this context is the 360-degree appraisal system used by GE (Levine, 2002; p.19). However, this practice has cultural implications because not all cultures encourage open or face-to-face feedback process. Besides this, MBO has received much criticism on the concept of integration of objectives with strategies. Advocating this concept, Odiorne (1990; p.xii) stated, ‘whether or not they do it well-its (MBO) scope and completeness of use varies widely-there is no doubt that MBO has become orthodox management theory.’ MBO has been successfully adopted by General Electric, as ‘Working Planning and Review; Consultant Ed Schleh as Managing for Results; at Kodak as Results Managing. The other challenge with MBO is the negotiation part between individuals and their managers on goals and targets in accordance with organizational goals, which can be highly frustrating to the individuals if he/she lacks awareness of organizational expectations. Moreover, implementation of MBO in the right manner, as designed, is a challenge especially when organizations have teams formed on the basis of similarity of work; managers tend to assign same goals to all team members while following MBO, and hence the whole essence of MBO will be lost (Odiorne, 1990). Bowen and Lawler’s (1992) work on integration of Total Quality Management (TQM) provides deductions that precisely fit this approach. Applying those inferences, it can be said that performance management based on BSC and MBO requires a strategic approach and demands changes in the way employees perceive their work, from a job-oriented performance to an organization-oriented performance. Working in teams can change their behavior and attitude in favor of the organization; minimal bureaucracy and flat organizational structure will help in encouraging participation in strategic planning and goal setting; most importantly, employees at all levels should embrace ‘change’ as the nature of job. Promoting these practices requires changes in organizational structure, design, systems and human resource practices; on the whole, a change in the organizational culture. 3.1 Advantages and Disadvantages of Performance Management: Through performance management, performance baseline in line with organizational goals can be established. The process of performance measurement helps in evaluating the effectiveness and sustainability of existing work processes. It also helps in surfacing warning signs and improvement opportunities as well as verifying the effectiveness of corrective actions. Performance management aids in comparison between organizations, processes and individuals thereby providing a path to improve or explore new opportunities for growth. The BSC also helps in facilitating cost and profit analysis. The BSC allows integration of integration of strategies into existing programs within the organization, with no changes required to the overall structure of organizational performance management system. It is implementable even at lower levels of the organization, and facilitates easy understanding of how individual performance can contribute to organizational achievements. The drawback of performance measurement is that it purely constitutes the accomplished numbers, and absolutely no work behavior. Halachmi (2005) pointed out that the disadvantages or dysfunctions of any performance measurement systems have to be considered because mandating performance measurement may be necessary to guide through improvement, however, may not be the sure way to improve performance. Besides these general disadvantages of performance measurement, distinct drawbacks according to the method or tool used also will have to be considered before implementing. For example, the BSC is very complex and requires too many measures; this may eventually dilute the clarity of measurement process. Considering the MBO approach, negotiating on goals and gaining commitment is a challenge. In addition to these, implementation of this integrated approach requires a thorough understanding of the models; knowledge and skills to design appropriate measurement methods; choosing appropriate outcome indicators; accuracy in performance measurement process and results obtained. 3.2 Impact of performance management on progress of organization and individuals: Implications and Recommendations. Every model has its benefits and disadvantages with respect to scope of application, accuracy of results and appropriateness to the objective. However, in combination with other models, they can be very effective in achieving the desired objectives. In combination of BSC and MBO, the drawbacks can be neutralized. For example, MBO will help in setting clear goals through appropriate outcome indicators; hence, every department/individual will be aware of their goals and how to achieve them. In turn, the BSC will help in providing an understanding of how individual/departmental goals relate to the organizational goals, thus educating the individuals of organizational objectives and importance of their (individual’s) role in achieving the organizational objectives. A combination of the BSC and MBO can provide a comprehensive and effective method of performance management that can, not only control and improve performance, but also help in enhancing motivation of employees. For instance, goal setting through MBO provides face time to every employee, which is actually essential for the managers to communicate organizational expectations and for the employees to express their views and concerns. Through the BSC model, clear objectives can be assigned to specific groups/departments and further to individuals, thus setting clear accountabilities. Such setting makes assessment of performance at all levels, individual, group and organizational, simple; nonperforming areas are easily recognizable and can be corrected. Measurements obtained from these models can be used for performance evaluation during appraisals of employees. However, translating the outcomes to post-appraisal compensation would require other approaches, and cannot be linked to performance measurement methods as such. Though this system is time consuming, it can be adopted as a promising approach in the long run as it focuses not only on the evaluation part, but also on directing the employees towards their goals, gaining commitment, instilling purpose and discipline of performance and setting deadlines. 4. Conclusions In conclusion, this work emphasizes the importance of performance measurement as an effective method of performance management; however, the way it is measured is also important. Instead of a mere performance evaluation, performance management should incorporate alignment of employee expectations and objectives with organizational goals and objectives. Use of pertinent tools and procedures enables individuals, groups, functions and organizations to remain competitive in their related sphere. Setting appropriate targets/goals aid in reinforcement of organizational performance and eventually sustain competitive position. These targets/goals should be able to provide strong foundation for further improvement, thereby resulting in overall organizational growth. These activities require goal clarity; knowledge and skills to perform the intended work; support, commitment and encouragement; and a disciplined and appropriate approach. The integrated framework of BSC and MBO provides a sound foundation for organizations to adopt performance measurement as an effective performance management process. This framework helps in identifying high and low performing areas and individuals; in comparing with other organizations, departments and individuals; and in benchmarking performable standards. It also helps in identifying what strategies and/or methods are effective and the ones that need to be changed. Importantly, this method creates a self accountability for the results achieved. Overall, this integrated approach focuses on achieving organizational goals through measurement of performance driven by strategies, yet it is not free from challenges and issues like its complexity and time-consuming nature. References Books Cleveland, B and Mayben, J. (1997). Call center management on fast forward: succeeding in today's dynamic inbound environment. FL: ICMI Inc. Corbett, M.F. (2004).The outsourcing revolution: why it makes sense and how to do it right. U.S.A: Kaplan Publishing. Duening, T.N and Click, R.L. (2005). Essentials of business process outsourcing. 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Total Quality-Oriented Human Resource Management. Organizational Dynamics. Vol.20, No.4, PP: 29-41. Halachmi, A. (2005).Performance measurement and performance management. Emerald Group Publishing. International Journal of Productivity and Performance Management. Vol: 54. No.7. p.500 Halpern, D and Osofsky, S. (1990). A Dissenting View of MBO. Public personnel Management. Vol.19, No 3, pp 321-330. Melkers, J and Willoughby, K. (2005). Models of Performance-Measurement Use in Local Governments: Understanding Budgeting, Communication, and Lasting Effects. Public Administration Review. Vol. 65, No. 2, pp: 180-190 Scott, D. (1980). The Causal Relationship Between Trust and the Assessed Value of Management By Objectives. Journal of Management. Vol.6, No.2, pp: 157-175. APPENDIX I Appendix 1.1 Source: Adopted from Halachmi (2005), Performance Measurement is only one way of managing performance. Vol.54, No.7. pp: 502-516. Appendix 1.2 Source: Adopted from Hatry (2006; p.62). Performance Measurements: getting results. APPENDIX II Appendix 2.1 Appendix 2.2 Appendix 2.3 Read More