The Impact of Globalisation and Cultural Differences on the Application of PerformanceMeasurementand Management - Essay Example

Financial Planning and Control In light of the previous quotation, show the impact of globalisation and cultural differences on the application of PMM. Overview The growth and impact of globalization has received much attention in the recent years by management and companies. It has been regarded that multinational companies are the engine to this globalization process and have been central to the process of globalization (Fiss and Hirsch, 2005; Scholte, 2005). As pointed out by Kristensen and Zeitlin (2005) studies in the field of examination of multinational corporations from the point of view their movement towards globalisation and the change in management practices are limited. The theoretical field also lacks largely on literature pertaining to globalisation and its construction, adaptation and circulation including the role of technology at the localised level (Barrett, Cooper and Jamal, 2005) Culture has been defined as a collective programming of the minds of individuals that sets apart members of one group from the other. Organisational culture is different in each country and each region. Such differences can be appreciated in workforce diversity and work patterns. Such differences can have positive or negative impacts on the company and its staff. Culture can also decide the future of a company and becomes a liability for management when it creates barriers to diversity, change and mergers. Groeschl (2003) had stated that it is extremely important for companies to settle with appropriate organization processes that focus on performance management based on the cultural aspects. This is because the cultural understanding is important to determine the reasons behind the success or failure of a project or a change. Internationalisation and the process of globalisation have brought about tremendous change in the business environment making them complex every day (Reddy, 2011). Performance management concerns with management style and the management of things within the company. Such things include supervision styles and pertain to power distance and individualism as per Hoftsede’s cultural dimensions (Reddy, 2011). Decision making strategy is concerned with centralisation and formalisation of authority at all levels within the organization. Patterns of communication relate to information flow within the company and its organization within departments. Control mechanisms refer to the mechanism for performance checking and result analysis. Paternalistic Orientations is the level of supervision and employee concern desired for issues unrelated to work. Lastly, relationship maintenance calls for maintenance of a certain degree of interrelationship between departments. Performance Appraisal in the Global Context Globalisation has itself posed a lot of challenges for performance measurements and management for companies and the human resources departments. Most of such focus entrails into performance appraisals. The case for international performance management encompasses variable like differences in value systems, cultures and task complications. Research had examined the difference between the Chinese and the Western performance appraisal systems and standards and found that Chinese performance appraisal systems were largely more superficial and restricted to communication and feedback. They were far less transparent than the western communications systems. It was felt that the performance management systems were lacking in multinational corporations primarily due to the geographic distance between the appraiser and the appraised. The suggested solution in this regard could be adoption of western standards of performance management by Chinese counterparts. The theories published almost unanimously agree on the importance of performance management systems and measurement techniques but there is widespread disagreement when it comes to the applicability and the best practices at the global level. It has been argued that international performance appraisals are difficult because there cannot be one correct way to do things or assess performance of individuals for a person who is distant from the appraiser. There are differences in cultures, norms, governing policies and legal compliances between people separated by geography. Globalization Patterns and Influences Availability and trade of foreign goods and services has gained momentum ever since the 1990’s. Domestic players are much in competition with large foreign multinationals and have to integrate their strategies in order to remain in the market and survive the competition. Globalization has brought about homogeneity in tastes and preferences of individuals due to increased international communication, transportation and access. Such huge expansion process brings in the problems of managing people and recruitment of employees in different parts of the world. Structure and strategy involved in such human resource management then becomes a problem and challenge for multinational corporations in a foreign environment. Environmental adaptation of the foreign subsidiary in its host country becomes a major problem for the MNCs and the parent concern. This brings in the dual pressure of adapting locally and integrating on the global level (Cooper and Ezzamel, 2013). Globalization of performance appraisals International demand brings forth similarities that promote product standardization for multinational corporations. Such standardizations in products lead to pursuit of additional economies in production activities. Higher standardizations of products and greater scale economies drive globalization and diversification of the multidomestic firm. As companies begin to expand and globalize, managers face decisions challenges pertaining to HR within the foreign country. Such challenges come forth with global strategies and HR managers cannot really find ways to implement the past processes in the new foreign context. This impacts recruitment, team selection, training and performance management. The subsidiaries also face legal and cultural differences and the HR has to consider standardization as well as local policies. Hence the primary challenges that the HR managers face are: 1. Legal or cultural challenge 2. Duality dispute 3. Performance tests 4. Team and leadership challenge An effective performance appraisal system and measurement technique encompasses a series of elements after the impact of globalization on firms. The primary element identified is the training process and tools for the purpose of efficient performance management (Piggot-Irvine, 2003). It is highly desirable that organizations train their employees and managers over performance appraisal so that managers are capable to set realistic goals for employees and employees are aware of company’s expectations from them during the year. Managers must also have sufficient knowhow on appraisal parameters, problem resolution, counselling and coaching aims, performance standards and providing adequate links for system to pay for sound employee feedback. Employees must also be trained for the purpose of effective performance and trust building. Challenges in performance management and measurement post globalization Performance management and measurement are extremely essential for management of complex businesses. It would be highly ineffective and unfair if not conducted properly and without due knowledge in the field of performance appraisal by the appraiser. Globalization has posed 3 major challenges for performance management within organizations (Applbaum, Roy and Gilliland, 2011). These can be highlighted as 1. Cultural differences as individualist and collectivists 2. Trusted & open relationships 3. Culture differences and the impact of leniency Individualist and collectivist cultures Studies conducted to analyze the impact of cultural differences in individualist and collectivist trends evaluated that individualist followers rate the performances more favorably for employees as opposed to the collectivist evaluators. Individualistic culture refers to the setting within which focus of members concentrates on the person and his immediate family. UK and USA tend to follow largely an individualist culture. Again, collectivist culture refers to people where they are rated for their membership to the group and the performance of the group within which they function. Countries which are largely collectivists in nature are Japan and China. Again the US and UK experiences stated that employees in UK tend to rate performance quantity and quality much lower than that rated in the USA. Such performance evaluation gaps bring in a dilemma in performance measurement and management within companies. Culture differences and the impact of leniency Leniency errors in performance measurement arise out of biasness of managers towards its peers. Such reviews do not present the real picture. Western cultures apparently have more impact on leniency and ratings for performance measurement are significantly high in these nations. A study conducted within the UAE presented the fact that the difference that employees in UAE have a better performance evaluation that that received by their supervisors. Arabic culture is highly individualistic and least transparent. The tradition is still historic in Arabic nations and the employee shall never know the reason for which he shall be punished when he experiences punishment. The problems pertaining to fairness and justice is similar to that experienced in Asian countries (Mohyeldin and Suliman, 2002). The need is to reduce such information gaps within the nation so as to allow more transparent performance management systems. The reduction in gap between the appraised and the appraiser brings in trust, coordination, communication and a sound relationship that shall contribute towards easing out the challenges posed by the global environment. Trust & open relationships Transparent relationship and trust building is important between the employee and the employer. Local setting easily allows for such trust building and openness in relationship because of lack of cultural differences. However, in a global setting, supervisor and the employee might be located in different countries altogether and lack of communication and interaction is quite a challenge for trust building. Again, culture here plays an important role in the speed of the trust building activity. Chinese nationals shall take a longer time in building trust between the appraiser and the appraised than the US counterparts. However, once the trust is achieved from China or Japan, the loyalty can be assured. Other differences that impact trusting relationships include gender barriers, language differences, social status disparity and time zone differentials. Such challenges slow down and even deter relationships between within the performance management framework. Conclusion Globalisation has hastened during the past decade and this has brought with itself, the ease in transportation as well as communication. In the light of such global movement, it becomes important for multinational companies to realise that they have to adopt strategies that shall be capable of operating within a multi cultural framework such that they can achieve maximum optimisation through bets and efficient practices. The HR strategy shall be influenced by the company strategy but the duality in terms of strategy shall in turn pose challenges and difficulties for both employees as well as managers. The management should focus towards training their staff with a view to develop leaders through skill development and functioning within a multi-cultural environment. Performance appraisals are nothing but a measure to provide feedback for managerial use. Such feedback in turn forms the basis for promotions, compensation, and termination, developing strengths and identifying weaknesses to facilitate change and development. Performance appraisal tools have enhanced employee performance which in turn contributes towards the performance improvement of the organization. However, appraisal types must be so designed that it suits the need of the organization and training must form an essential component of all appraising systems as well as companies. Performance appraisals in a globalised setting increase the problem for managers and he/she has to face greater number of issues that need resolution. The manager has to be aware of the cultural differences and legal disparity. The rating system so developed must be understood and comprehended by all to ensure clarity in dissemination of performance scores. Amongst these, the most important relationship between the appraiser and the appraised is that trust and healthy relationship. Managers have to continually work towards building relationships through constant contact. For this, one can leverage on information technology. Recommendations Rating an employee on his or her performance is an extremely onerous task that might often lead to sour relationships between the manager and his subordinate. For the resolution of this conflict, it is necessary that organizations are equipped with scientific measurement and management tools for performance appraisal. In addition to such tools, the performance measurement also requires continuous training on reducing or eliminating the possibility of errors in performance measurement. Research has proved that training is essential for manager to learn the use and functioning of global teams. Global team experience shall allow managers to develop self awareness on differences in culture and also the preferences of the group members. Culture knowledge is most essential in creating awareness on rating parameters and scales while appraising performances. In light of the previous quotation, show how modern performance measurement techniques (such as balanced scorecard) in comparison to traditional performance measurement will facilitate the application of PMM Introduction Business survival and sustenance in the long run is a function of value creation and adhering to market needs in the long term. In this context, the role of performance measurement systems comes forth to hold high importance in determining the sustainability framework for long term sustenance of business. In this regard, the traditional performance management systems were implemented but the fell short on being too narrow in their approach. The traditional approaches tend to lay high focus on the financial aspects of financial performance which in turn led them towards unfulfilling the long term lookout. For long run success of any organization, it is necessary that the non financial indicators are captured as well. The balanced scorecard is the unique tool that encompasses the non financial aspect along with the financial aspects and removes the narrowness in the traditional approach to make managers committed towards introduction of such measures. These scorecards in turn act to serve as platforms of business strategy and implementation and take away management decisions that are based on pure financial motives to more strategic and comprehensive ones. The dashboards presented through the BSC analysis presents an interesting framework for development of business profitability and better relationships between employees, managers, customers and the employing community or the shareholders. Traditional Approaches The value and also the need for reporting on performance measurement are gaining increased importance over the years. The pressure of managing and reporting corporate performance has also gained commensurate focus and attention. However, the traditional approaches have fallen short on most occasions for various reasons which are why there is continuous need of development in the field of performance measurement and management. The CICA which is the Canadian Institute for Chartered Accountants had reported that the traditional measures of performance measurement are based on historical records and lack the power to predict future results. Hence the traditional measure proved to be ineffective in improving company performance. Additionally, it was also said that traditional measure failed to capture important performance measurement indices and often ended up rewarding for incorrect behavior that was based on accounting results. These measures were often slow in capturing the indicators of effective performance management. Traditional approaches to performance management were focused more on historical accounting results which is why they could not assign proper weights to important resources such as the intellectual capital. It has been suggested that performance measurement tools should ideally account for financial as well as non financial indicators for proper predictive capability. It has been reported within the American Institute of Certified Public Accountants that the company should be disclosing the key non financial measures within its business process like the cycle time, employee satisfaction, product quality and innovation. It is a general belief that the performance measures achieve the best outcomes only when the indicators have been strategically linked to the strategy of the business. Additionally, the measures of performance should be well focused to encompass rewards to behaviors that contribute the best in attainment of business success. The extent to which developments have been made in the existing literature on the performance measurement tools, system and indicators has brought in more awareness among companies to issues that question the sustainability and reliability of their organizational performance management tools. Practitioners have also started to focus upon non financial indicators like innovation, customer satisfaction and employee happiness as indicators of increased performance. In this view, the balanced scorecard is deemed to be a comprehensive tool for performance measurement that overcomes the limitations highlighted by the traditional performance management tools and also investigates into the strategic linkages between business strategy and non financial and financial parameters important for business success (Sim and Koh, 2001). The Balanced Scorecard Approach The balanced Scorecard or BSC is the performance measurement tool that was initiated to measure the alignment of small scale operations with the large scale activities within a company. The focus was not simply the financial aspects but also the marketing, operational and development divisions. The balanced scorecard is said to give a more holistic view of the organization. The basis for developing the balanced scorecard measure is that organization are incapable of influencing the financial results directly and so the scorecard provides that lag measures to identify such areas where the management can influence and intervene. In was in 1993 when Kaplan and Norton published their study, The Balanced Scorecard, the framework was evolved with sound underlying philosophy. The field today has seen increased application and consulting practices. The balanced scorecard typically acts on four major constructs. These contribute together towards transformation of vision into goals of the operation, linking individual performance to vision by way of effective communication, allowing for feedback and associated learning for strategic improvements and adjustment and planning for the business. According to theorists, the balanced scorecard framework helps managers to develop and instrument competitive strengths and advantages that they need to develop for future sustainability and success. Hence it becomes particularly important for people to develop a strategy map for which the scorecard comes to a rescue. It is important to note that despite the extremely important role of being a facilitator of strategic formulations and implementations, the scorecard itself does not contribute towards making strategies in any manner. It simply brings managers and employees together in formulation success strategies. Hence, the balanced scorecard can be comfortably co-implemented within the strategic planning framework (Banker Chang and Pizzini, 2004). Advantages of the BSC The advantages associated with the balanced scorecard tool for performance measurement within organizations can be highlighted as below. Firstly, the tool brings in a complete picture of the company performance at the employee as well as the company level. Secondly the tool acts as a guide for conducting strategic reviews and evaluating organizational performance and capabilities. Thirdly, the BSC helps to determine the critical performance measures that are large contributors towards business success. It also acts as a useful measure to determine the indicators for such performance. Fourthly, the tool helps to determine the few key indicators and operations that are critical to implement a breakthrough performance for the firm. Lastly, the scorecard is a tool that integrates and directs the efforts and the performances towards the attainment of highest levels of organizational performance and to achieve overall excellence. The real improvement in performance might be the primary motive but sustainable improvement in performance is a much more important measure for organizational achievement. The real challenge comes in aligning people’s minds towards the attainment of such organizational goals and seeing increased performance and organizational goal fulfillment as a tool for attainment of their personal objectives. For this, it is important that deficits in performance are avoided due to ambiguity in goal attainment and direction. The main challenge here is to change the culture of the organization and cause some real improvement in the structure and functioning. Cultural challenge and change management have gained high importance in the recent times amongst management circles. Such change in culture forms direct linkages with high performance. BSC and Performance Measurement The balanced scorecard tool puts high importance on the measurement of business performance not on the financial results but on the strategic performance approach. However, the senior management is more concerned with the financial aspects and impacts that such measurement tool might have and not on the forces that drive such results. It is being argued that reliance on financial indicators is a backward approach where the results tend to look behind to search for areas of improvement. The balanced scorecard and such other performance measurement tools are, on the other hand, focused on the present and they give the power to managers to enhance and work upon present performance and thereby yield results in future. Use of balanced scorecard shall help managers to look into these areas that have been neglected due to high focus on the financial aspects. For the purpose of aligning strategy with the firm, the firms need to engage themselves in a two stage process. In the first stage, the company managers have to look into the variable that creates value within the firm. Once the step is achieved, the balance scorecard measures have to be designed as per the discretion of the managers. While designing the measures within the BSC, managers have to be careful in measuring performance drivers that is key to attaining company’s desired results. They also have to develop casual linkages between these key parameters and its link with the financial measures (Shodhganga.Inflibnet, n.d.). Once the scorecard is designed and performances are measures, it is also important that a proper flow of communication is ensured between the managers and the company’s top management as well as company employees. This way assures that each one within the company is aware of the process and the strategy that is being implemented in their performance appraisal. There is an increased level of transparency that brings in high amount of trust between the manager and the subordinate. The balanced scorecard also helps to determine the importance of the tangible and the intangible measure within the financial as well as the non financial categories. It also segregates and clarifies the complex linkages between the customers, suppliers, technology, employees and operations. The segregation between the leading and the laggard indicators is facilitated. In this way, the indicators that do not promise scope for making future improvements are eliminated. Drawbacks of the Balanced Scorecard approach Despite all advantages and the scientific nature of the performance appraisal technique, the balanced scorecard approach has been a disappointment according to many cases studied in the past. It has been argued that the balanced scorecard approach has been adopted in a majority of about 75% nations in US and Canada but few, about 10% of them have reported results that have yielded positive consequences. This resentment with the scorecard has often met suggestions on improvisations and also huge doubts on the applicability and effectiveness on financial performance improvement. It is argued that the BSC rarely lacks any contribution made towards learning and it does not have any scope to take the personal ambitions of the employee within consideration. It can be safely said that the balanced scorecard needs largely to align with the individual scorecards and only then can it measure up to being a powerful tool in continued organizational performance measurement and management. Conclusion Performance measurement has been gaining high focus in the recent decade, managers have realised the importance and criticality of estimating, measuring, monitoring and controlling non financial measures of performances that are critical to business operations in order to impact the financial results. The balanced scorecard has brought about a revolution in the strategic planning and profession. The traditional techniques of strategic planning have been either transformed or eliminated completely to incorporate the insights presented within the balanced scorecard. The balanced scorecard is a process that is important to business. It must have its inherent drawbacks and might be facing a decline in acceptance but the companies do not have a better alternative yet in the field of financial and non financial measurement technique. The scorecard is focused towards presenting management views and thereby holding employees accountable for the results obtained within the parameters that the management deems as important for business planning and strategy. It can also be viewed as an initiation towards the continuous process of organizational change. The reasons that support changes in the balanced scorecard are valid and it is good that firms have been paying increased attention to it. Such critical approach might bring in the desirable changes too. The balanced scorecard tool for performance management might have its drawbacks but this does not, by any means, make it less in terms of its importance. Also, the constructs that have laid the foundations of the tool are timeless. Reference List Applbaum, S. H., Roy, M. and Gilliland, T., 2011. Globalization of performance appraisals: theory and applications. Management Decision, 49(4), pp. 570-585. Banker, R. D., Chang, H. and Pizzini, M. J., 2004. The Balanced Scorecard: Judgmental Effects of Performance Measures Linked to Strategy. The Accounting Review, 79(1), pp.1-23. Barrett, M., Cooper, D. J., and Jamal, K., 2005. Globalization and the coordinating of work in multinational audits. Accounting, Organizations and Society, 30(1), pp. 1-24. Cooper, D. J. and Ezzamel, M., 2013. Globalization Discourse and Performance Measurement Systems in a Multinational Firm. [pdf] SSRN. Available at: < http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2222817> [Accessed 14 March 2014]. Fiss, P. C. and Hirsch, P. M. 2005. The discourse of globalization: Framing and sensemaking of an emerging concept. American Sociological Review, 70(1), pp. 29-52. Groeschl, S., 2003. Cultural Implications for the Appraisal Process. Cross Cultural Management, 10(1), pp.67 – 79. Kristensen, P. H. and Zeitlin, J., 2005. Local players in global markets. Oxford: Oxford University Press. Mohyeldin, A. and Suliman, T., 2002. Self and supervisor ratings of performance: evidence from an individualistic culture. Employee Relations, 25 (4), pp. 371-88. Reddy, A.,2011. Cultural dimensions & impact on performance management. International Journal of Multidisciplinary Research, 1(6), pp. 300-311. Scholte, J. A., 2005. Globalization: A critical introduction. Basingstoke (UK): Palgrave Macmillan. Shodhganga.Inflibnet, n.d. Modern Techniques of Performance Measurement. [pdf] n.p. Available at: [Accessed 14 March 2014]. Sim, K. L. and Koh, H. C., 2001. Balanced scorecard: A rising trend in strategic performance measurement. Measuring Business Excellence, 5(2), pp. 18-27. Read More