There are a number of definitions for the term ‘performance management’ and many of these are incredibly complex however they all share the same basic tenet that it involves identifying desired outcomes and the standards that need to be met along the way to achieve this. Budgeting, reporting, communication and accountability are all key features of the process
The key about performance management is that it is not just about improving one area of the business but more about involving a multitude of areas in order to improve a process or deliver a project.
O’Herron (2005) says that performance management is all about analysing a large amount of data and that the best way to manage this data is to use performance management software which will interpret work-derived statistics into useable performance driving information and targets. To this end, O’Herron argues that performance management is effectively a business strategy as it is a means of driving the business forward along a set route.
However, managers are responsible for identifying which data it is that they want to use. This can only be done by first identifying the performance goals that the performance management process is designed to achieve.
O’Herron (2005) suggests that for effective performance management managers should be committed to improving four specific areas:
Firstly they should empower employees with the right level and quality of information on which they can make autonomous decisions that are fuelled by the data they have. Performance management is a company-wide initiative and requires the commitment of all staff.
Secondly, they should encourage and stress accountability of actions so that individuals are aware of the repercussions of their actions and are encouraged to make the best possible decisions with strong data that backs their decision,
Thirdly a culture of continuous improvement should be prioritised. The best way of achieving this is for management to show their commitment to this process of continual learning through constant review and restructure. Quinn, (2005) argues that the most important role of the manager introducing performance management is in their ability to inspire others. Encouraging a continuous improvement culture is central to this inspiration.
Finally managers should be willing and committed to experiment. Performance management is a constantly evolving process that strives for best practice and results whilst recognising that this can never be attained. Managers are empowered with the responsibility to find newer, more efficient and more effective solutions to working practices.
In support of the view that managers are being held more accountable under the existence of a performance management system (and therefore for the success of the system also) Fleisher (2005) claims that if managers are not held accountable for their actions and the actions of the performance management model, the system will definitely cause more inefficiencies than were in place before it was introduced. Fliesher argues that, to prevent accountability problems, managers should have ownership of the performance management process and are therefore motivated by its success. Only through ownership will they truly care about the process and the quality of the results it produces.
The commitment to a performance management ‘strategy’ seemingly requires a great deal of effort and cooperation throughout the organisation. Since performance management is about setting and meeting targets on the way to a final goal, it is hard to measure the advantages of performance management over the opportunity cost of not doing so. However, a 2005 article in the journal Supervision provides some insight. The article claims that “Organizations with strong performance management systems are nearly 50 percent more likely to outperform their competitors according to a Development Dimensions International (DDI) study” (Supervision, 2005; p19)
O’Herron (2005) warns that the gathering of the data is the simple part of the process leading to performance management. More difficult is determining the results you are looking to prove or improve from this data. If the aim of your performance management appraisal is ambiguous then the danger is that too much information will end up becoming overwhelming. This uncertainty regarding the collection of data is, according to O’Herron, a common early failing in the performance management process and will lead inevitability to an unsuccessful or unfulfilled working model. Many businesses are guilty of acquired a great deal of internal data and trying to make assumptions from the data that fit what they would prefer to find (O’Herron, 2005).
Once the correct data set has been identified and analysis has been conducted, the resultant performance management strategy is, like any plan, only as good as the commitment of employees to it. Fleisher (2005) warns that although an increasing amount of technological help (e.g. specialist computer software) is available for managers and employees alike to govern the performance management process, all these new developments do is provide organisations with the tools to implement change. How that change is implemented is ultimately characterised by the managers and employees involved.
It may appear easy to commit to a plan however performance management has previously been identified as an evolving process that can never be fully completed. There is no start and end to the process and continual experimentation and change will always be required. Without the willingness to do commit to future changes, performance management will ultimately result in very little improvement and little contribution to organisational effectiveness.
A recent article in the Corporate Board Journal focused on the strengthening link between the salary of large number of CEOs in the United States and the performance of their respective companies. Increasingly the level of salary year-on-year is often directly determined by the yearly performance of the business. The trend shows a decrease in set salary levels for top CEOs whilst reflecting an increase in the size and frequently of large bonuses. This suggests a change in overall corporate payment structure and a growing recognition of the importance of improving performance standards Central to this whole shift has been the growth in popularity and belief of the role of performance management (Corporate Board, 2005).
Further evidence of the growing importance of performance management as a driver for company strategy is provided by statistical evidence from a survey conducted by the Supervision Journal. Companies are increasing the number of reviews of employees and performance they conduct but not so in a bid to closely scrutinise the actions of their workers but more in a bid to allow employees to better assess their own performance. The results of a large national survey in the United States revealed, by Supervision, that in 1997, 78% of all companies carried out performance reviews once a year.
The same survey, conducted in 2003, revealed that while 50% of organisations continued to conduct yearly reviews, 40% now carried them out at least twice a year.
One could argue from the evidence cited from contemporary business trends that the more dynamic companies have embraced and utilised the benefits of performance management and have committed to the process by demonstrating the change required to do so. Country-wide shifts in executive pay structures and increasing frequency of employee process reviews are testament to this dynamic movement.
The growing use of performance management is not limited to North American private sector business, the Public Sector has long advocated the use of performance management techniques with public sector management typically characterised by targets - this is symptomatic of performance management. Moynihan (2005) asserts that now is the era of performance management government as this is the best way to assess government performance year-on-year. However, Moynihan also argues that – as with the private sector – performance management techniques are only effective in government where skilled managers are in charge of the process. Here again, where software and other tools are available to facilitate the process, it is the human element that determines the outcome of performance initiatives.
The role of managers in creating the requisite company, department or team culture, set clear measurable and attainable goals, and empower their subordinates to make autonomous and responsible decisions are all key managerial skills that are central to organisational effectiveness through performance management (Moynihan, 2005).
So far we have largely argued that performance management is a positive manifestation of management theory and is ever-growing in popularity and scope in both public and private sectors and at all levels within organisations. It has been warned that performance management does rely on skilled and effective human management to create the conditions under which it will be effective and to show and encourage commitment to the process among the staff involved. However, Moyer (2005) argues that the process and theory of performance management is not without its faults.
In an article in the Harvard Business Review this August (and therefore extremely contemporarily) Moyer argues that too many performance measures can have a negative influence on the performance and activity of large companies. He argues that “numbers and measures can distract businesses from setting priorities” (2005, p196). There is strong public sector evidence that concurs with this in the UK. There has been widespread and frequent dissatisfaction amongst clinical staff in the National Health Service at the overwhelming reliance on figures and targets to assess health care performance.
In this case it is often argued that the figures detract from the human element of the health-care process which is arguably as important as the treatment itself in a great number of cases. Those in the teaching profession are also often critical of the use of statistics, targets and league tables in the assessment of their profession. The use of such performance measures ignores other influences such as demographics, individual students, class sizes, etc.
Robert Kaplan and David Norton concur with the work of Moyer in their research in "The Strategy-Focused Organization"(Moyer, 2005). They argue that the best performing companies look externally to assess their own success and are not governed as much by internal figures and target setting. By monitoring the changing activity of their rivals and the markets they are continually question their own performance and try and improve upon it. The questions they find cannot be answered through statistical methods such as targets (Moyer, 2005).
Having said that statistics are not as crucial as performance management advocates would claim, the use of statistics makes good business sense when it is always numbers that drive the business in terms of profitability and productivity. Regardless of sector or industry, statistics are the bottom line of business. Therefore even in ‘human’ fields such as healthcare and education, managers failing to pay – at minimum – equal attention to the statistical evidence do so at the risk of the future of the business. The crucial point here is that the numbers matter but they can also distract from the major financial issues which often are left unrecognised (Kaplan and Norton).
Performance management is a business strategy rather than a managerial tool used to improve performance. Like any successful strategy it requires total and long-term commitment if it is to be effective. Importantly it also requires talented managers who are able to inspire the idea of performance management, produce measurable criteria on which performance will be assessed and who will empower their employees will the knowledge and responsibility to make their own decisions that will impact on the success of the business.
Part of the job description of a successful performance management manager is, as Moyer argues, the necessity to determine which numbers matter.
If too many targets are set or too many inputs considered then focus will be lost and the impact may well be negative. However, if the correct performance indicators are identified and consequently a performance scale is established, performance management has the potential to contribute significantly to the organisational effectiveness of any business, in any sector, in any industry in any market. From this point of view, performance management is a technique that all successful and aspiring businesses must utilise if they are to remain competitive.
Regardless of business size, sector, industry or any other determinant factor, the success of performance management is about posing the right questions (Fleischer, 2005).
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