Performance management is a process which is designed to improve organisational, team and individual performance and which is owned and driven by line managers – Michael Armstrong (Dransfield R, 2000: 69) In recent years, challenging economic conditions have stressed organizations, some to the breaking point. Rather than waiting for external improvements, such as market growth or technological advances, many organizations are looking internally for performance and productivity gains (Buchner, Thomas W, 2007: 59).
Performance appraisals are an important factor in performance management. In Australia performance appraisals are widely being used to evaluate the performance of the professionals, managers and technical employees (Kramar R et al. 2014, p322) Human Resources Management has two aspects. Firstly it consists in motivating people to work, valuing and allowing them to open up. Secondly it consists in achieving organizational objectives including the value creation and the obtaining of a sustainable competitive advantage (Hamid J, 2013, Vol. , Issue 2, p184-201).
With the implementation of the second purpose the organisations has the advantage to differentiate themselves from their competitors. In order to do so the organizations have to look in to the strategic dimension and in elaborate on this we will look in to the strategic human resource management (SHRM) when linking the HRM with the strategic business objectives (Hamid J, 2013, Vol. 5, Issue 2, p184-201).
A performance management system can have three purposes: (1) Strategic, which links employee activities with the organization goals, (2) Developmental, develop employees who are effective at their jobs, (3) Administrative, Performance management information (performance appraisals, in particular) is used to make many administrative decisions: salary administration, promotion, retention and termination ((Kramar R et al. 2014, p328-330) Relevant literature review There aren’t any HRM best practices that could be considered as strategic in an organization.
However, there is a direct relationship between HRM practices and firm’s performances. Huselid’s (1995) ground breaking study established that a set of human resource practices, also known as high performance work systems (HPWS) were strongly related to turnover, accounting profits and firm market value (Loo-See Beha, 2013, Vol. 8 Issue 2, p156). There could be several theories as to how performance management appeared. Morgan (2004) believes that modern performance measurement appeared in Venice in the fifteenth century, with the appearance of the double entry accounting whereas Johnson and Kaplan 1987) believe that the performance measurement appeared during the industrial revolution (Pintea, Mirela-Oana, 2012, Vol. 21 Issue 1, pp753-758).
Either way we could reasonably conclude that performance measurement was dominant from the early 50’s, when the academics were interested measuring performance and measurement consequences. The paradox of theory and practice in performance management is multi-causal, and in many ways reflects the inherent contradictions in strategic human resource management theory and practice as a whole.
Conceptually, there is a natural desire and logic to suggest that SHRM generally, and performance management specifically, should be aligned with organizational objectives and outcomes, whether formally in large companies or informally in small ones (Pauline Stantona and Alan Nankervis, Vol. 17, No. 1, January 2011, 69). It is also noted that Information Technology (IT) or otherwise known as information management is also linked to the performance management system of the organization.
Having an advanced information management system (IMS) would provide data and information to users with the appropriate levels of accuracy, timeliness, ability to develop appropriate monitoring, evaluation, and control systems, customer management capability and guiding manufacturing, supply chain, software development, financial, and other important activities (Mithas, Sunil, Ramasubbu, Narayan, Sambamurthy, V. 2011, Vol. 35 Issue 1, p238) It is also an acknowledged fact that human resources management is seen as the most important wealth in any organisation.
This is important when the organisation has to create a successful and a knowledge management environment so that it could develop it resources timely and efficiently so that it would assist the knowledge professional who are characterized by their multiple cultures and multi nationalities, attitudes and opinions. Knowledge management is an important aspect to the organization since it successfully acquires the knowledge in the operations management and uses it to impact the organization innovation.
The most effective path of the knowledge management is the organisation culture because it determines the values and beliefs and works systems that could either encourage or hinder the knowledge creation and knowledge sharing. Thus exploring the effect of HR practices on the organisational performance, and investigating the role of intermediate variables among them, and also analysing the relationships among these mediator variables are significant issue.
With the development of information and communication systems the organisations are forced to develop new tools and strategies to measure and understand the performances in their organizations. Effective measurement, however, must be an integrated part of the management process. The balanced scorecard provides executives with a comprehensive framework that translates a company’s strategic objectives into a coherent set of performance measures.
The balance score card is much more than a measurement exercise, it is a management system that can motivate breakthrough improvements in such critical areas as product, process, customer, and market development (Dumitrescu, L & Fuciu, M, 2009, Vol. 14 Issue 2, pp37-38). Identifying best practices or issues and problems Paladino, B, (2013, pp16-22) describes five key principles of corporate performance management (CPM) and core best practices model.
He believes that an organization should: (1) Establish and Deploy a CPM office and an officer; this would be the centre of the five CPM principles and facilitate and develop the rest of the four principles. (2) Refresh and communicate strategy; the organization should have the capacity to effectively communicate its strategies to its employees. (3) Cascade and manage strategy; using the balance scorecard methodology translating the output from the principle in to strategic objective and measures that are actionable by employees. 4) Improve performance; focusing on improving customer and competitor intelligence, and business improvement processes. (5) Manage and leverage knowledge; focuses on capturing and reusing enterprise-wide intellectual property to leverage the organisation’s best minds, best practices and innovations.
Edwin, A, & Gary, P (2013, pp 3-29) believes that goal setting theory is a theory of motivation that causes some people to be more effective in their work related matters compared to their other team members. The process of establishing goals, including stretch goals has also been indicted for failing to recognise how independent most employees are upon one another and denying meaningful influence in to the process by peers and subordinates these problems do exist, but are not inherent in the process. As an example if the sales department in the organisation informs the management that they anticipate an increase in sales then the manufacturing division needs to reconfigure the requirement of the raw material and order them in advance so that they could meet the demand of the anticipated increase in sales.
However, for some reason if the anticipated sale doesn’t materialize then the question arises as to who would bear the added manufacturing cost? Does this mean that these costs would be transferred to sales? Now the question is whether the stretch goals set by the sales office was realistic? As is often the case, these types of problems do appear when setting goals, but if the organisations do not take these risks then they also run the risk of not doing so.
Most of the organizations do not have readily available alternatives that promote risk taking, catalyse innovation, and stimulate people to come up with startlingly different ways to get things done. ‘Performance measurement and management can resolve certain problems but also can create new problems. Having a range of new management practices in place with inadequate or even counterproductive performance measurement and management systems may be worse than having had no reform at all.
Implementing an inadequate system of performance management can provide a false sense of security and accomplishment and in the process will misdirect resources and activities. Paradoxically, therefore, inadequate performance management can become the Achilles’ heel of the modernization process itself’ (Bouckaert, G & Peters, B. 2002, Vol. 25 Issue 4, p359). On average the single largest operating cost for any organisation is the employee compensation such as the wages and the other entitlements. As such organisations strive hard to the maximum from this investment.
Thus one could argue that Pay for Performance (PFP) is directly linked to each other. Thus there are 03 general issues related to the PFP mechanism. (1) Conceptual mechanisms by which PFP influences performance? (2) What programs do organizations use to implement PFP and what is the empirical evidence on their effectiveness? (3) What perils and pitfalls arise on the way from PFP theory to its execution in organizations? In the conceptual mechanism it is said that psychologists and economists has offered variety of theories to explain the impact of the pay in the organisations.
They theories have mentioned that pay operates on motivation and performance via two different mechanisms which is incentive effects and sorting. Basically with respect to the incentive effect it shows how the pay affects the individual’s intensity while the sorting effect also produce a higher performance via different types of pay systems may cause different types of people to apply to and stay with an organization. With respect to point number (2), organisations need to be clear as to how the PFP program is been designed so that it could clearly measure the performance.
In some cases the organisations would either use behaviour-based (subjective) versus results-based (objective) measures to measure the performance. With respect to point number (3), while the potential pitfalls of individually-based PFP are important, it is quite clear that group-based plans also have their own potential drawbacks. One is that most employees prefer that their pay be based on individual rather than group performance while another would prefer the section on sorting, suggesting that group-based PFP might, on average, be prone to unfavourable sorting effects.
In summary many organisations would wish to have their own PFP plans that combine different type of performance measures in the hope of positively motivate the employees. However, too much complexity in a PFP plan could also bring negative results to the organisation (Gerhart, B, Rynes, S, Fulmer, I, 2009, Vol. 3 Issue 1, p251-259) Having a good reward system based on performance also motivates employees to be efficient. To get the best out of the employees the reward system should be linked to the performance and employees should be aware that poor performance has their consequences.
Appraisals without consequences are not effective since a poor performer is not penalized for his/hers actions or inactions. The organisations should also take in to account that the rewards should be equal to the employees who carries out the same work and have received the same score so that none of them would be demoralised due to unfair rewards system. Discussion and analysis In a competitive global environment organizations in order to survive and succeed need optimise the usage of their available resources.
This means that the organisations need to align their finance, marketing and operations etc. (functional activities) towards the achievement of its strategic objectives. To achieve this, the HR manager initially should be able to provide input into the firm’s strategy in order to ensure that the firm has the human resource capabilities to implement it and secondly it needs to ensure that HR programs and practices are in place to effectively implement the strategy.
An increasing number of studies have attempted to assess the linkage of HR and strategy processes. One of the duties that HR department have is to provide input to the strategic decision makers regarding the strengths, weaknesses, opportunities, and threats (SWOT) pertaining to the firm’s human resources, and the strategic decision-making team uses this information in formulating the strategy. Once the strategy is been formulated, then the HR Manager would align the HR policies, programs and practices in a way that it would implement and support the strategy.
In most of the organisations the HR manager is part of the decision making team participating in the strategy formulation process and playing an integral role in the firm’s competitive advantage (Wright, P, et al, Spring98, Vol. 37 Issue 1, p18). Another powerful new model for employee assessment and performance improvement is the 360 degree feedback method. If the 360 degree feedback process is well designed it would be a more powerful performance appraisal tool in terms of both reliability and fairness.
In order to understand the unique contribution that 360 feedback can play in enhancing performance management it is important to distinguish between two types of performance in organizational settings that drives the bottom line of the organization and mainly been the “What & How”. In general it has shown that properly implemented 360 feedback process, installed across a whole organization can provide a number of benefits, including enhancing the quality of the performance management process.
In brief the benefits are; (1) Alignment; employees from a performance management process has a clear understanding of what the organization expects of them. (2) Agility; today, 360 feedback is almost exclusively technology driven and therefore, the process can quickly reach a wide range or leaders and managers in an organization. (3) Validity; it usually at least starts with requiring that we are measuring the right things in a reliable way. When done correctly, do produce information that is appropriate to use for decision making (including performance management). 4) Accountability; this has been called the Achilles heel of 360 feedback and is arguably one of the most important factors in ensuring the success of any 360 process. (5) Consistency; inconsistent administration and use, leading to real and perceived unfairness in the process (Bracken, D, Church, A, 2013, Vol. 36 Issue 2, p34-40) (refer appendices on page 10) Performance management systems–including performance appraisals or evaluations-are critical for human resources management.
Appraisal ratings may be criteria in decisions to retain employees during layoffs, to assess the quality of training programs, to measure equitable treatment of different groups of employees, to increase employees’ pay, and to promote or terminate employees. Appraisals may help poor performers improve performance by giving specific feedback about needs for development and appraisals may help employees who excel continue to excel by giving positive reinforcement.
This type of feedback is essential to improve performance of employees at all levels and to assess the accomplishments of the organization overall (Mani, B, Summer 2002, Vol. 1 Issue 2, pp141-142). On the contrary if the organization is lacking a proper performance appraisal system then it would be confronted with costly litigations when they have to terminate or lay off employees. It should also be noted that in the absence of an appraisal system, when the employer decides to promote an employee and grant a salary increase it may happen that it is been given to the wrong employee resulting in frustration among the employees and thereby the organisation running the risk of losing the good workers.
On some occasions the employers in the absence of an appraisal system could invest heavily on advanced technology by re-designing the workplace in order to improve the efficiency of the organisation instead of investing and focusing on human performance systems that determine productivity (Keegal, T, May2013, Vol. 23 Issue 4, p31-38). It is also important that Managers or supervisors deal with poor performances sooner rather than later. When allegations of poor performance have been made, circumstances need to be investigated in a consistent manner to collect evidence, and a timeline of events and actions should be created by the manager.
Once gathered, the evidence must be reviewed objectively to ensure there is a case to answer, and that colleagues are not creating a scapegoat to vent their frustration with the system. Wherever possible this review should be undertaken with an impartial management colleague or member of the HR team. When the management identifies a poor performer they should not wait until the annual appraisal to evaluate the employee. The appraisal system should be developed in a manner that poor performers would be evaluated as soon as practicable.
Confidentiality also needs to be maintained with respect to these poor performers throughout the appraisal process. The poor performer should not be intimidated nor should the other employees in the work place be hostile towards the poor performer. The manager conducting the enquiry should adopt a professional approach so that the employee would be comfortable throughout the process. This will enable the employee to explain themselves and the possible contributing factors.
After identifying the reasons for the “poor performance” the management needs to take necessary steps to assist the employee so that adequate training and support would be provided to improve the performances. In most occasions if the employee is carefully guided it will not be required to confront a similar situation in the future. If the employees are well managed whose members perform as a team then the team would be more productive and less stressed. Performance management is time consuming but, if carried out in a structured manner, it will reward with improved performance or sufficient evidence for formal proceedings
Conclusion Performance management is the total process of observing the employees/team’s performance in relation to the job requirements over a period of time and using the appraisal system of the organisation to evaluate the employee’s performance. As discussed in this report the organisations require having their appraisal systems properly defined so that all employees are aware of the system. A performance appraisal system cannot be effective if the proper documentations are inappropriate. Furthermore, performance appraisals should be carried out frequently and not be limited to once or twice a year.
If performance appraisals are carried out more frequently, then the organisation would have the possibility of identifying the poor performers and take appropriate steps to educate and support them which in turn the organisation could increase their productivity. Traditionally the performance evaluation was viewed as one way (downward) communication. However with the development of technology it is recommended that organisations use the 360 degree feedback process where different sources could confirm an assessment instead of one or two people carrying out the assessment.
This system also supported a greater team work and a participative management. The organisations also should have an effective rewards system in place so that the employees are aware that their performances are linked to a reward system. This reward system needs to be just and equitable so that all employees would be aware that their performances would be evaluated periodically and would be rewarded or penalized based on their performances. Thus poor performers would know that due to their poor performance they would have to face consequences.