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International Journal of Management (IJM)

Volume 11, Issue 5, May 2020, pp. 988-1000, Article ID: IJM_11_05_091

Available online at http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=11&IType=5

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ISSN Print: 0976-6502 and ISSN Online: 0976-6510

DOI: 10.34218/IJM.11.5.2020.091

© IAEME Publication Scopus Indexed

EVOLUTION OF PERFORMANCE

MANAGEMENT SYSTEMS AND THE IMPACT

ON ORGANIZATION’S APPROACH:

A STATISTICAL PERSPECTIVE

Dr. Mruthyanjaya Rao Mangipudi

Karvy Stock Broking Limited, Financial District, Gachibowli, Hyderabad, India

Dr. KDV Prasad

International Crops Research Institute for the Semi-Arid Tropics (ICRISAT), India

Dr. Rajesh W. Vaidya

Ramdeo Baba Engineering and Management Technology, Nagpur, India

Budumuru Muralidhar

International Crops Research Institute for the Semi-Arid Tropics (ICRISAT), India

ABSTRACT

The Performance Management System (PMS) in an important aspect of any

organization that being to measure the employees’ performance as against the vision,

mission, developmental goals of an irrespective of the sector or type of an

organization. The PMS is just not limited to performance appraisal system but also

includes learning and development, training requirement, to enhance communication

across the organization and its bridge between employee and employer for

organizational development. In the recent past behavioral aspect of an employee,

psychological wellbeing, employee performance deviations, performance

measurement and employee training needs to improve performance of organization as

a whole included in the performance management of an organization. This study

discusses an important aspect of the how to measure one of the performance

management system components— employee performance using performance

appraisal. This study also discusses various types of performance appraisal system

measurements and their merits and demerits and suggested solutions to relieve the

misery of untold stories. The study concludes providing meaningful suggestions on

measurement of performance appraisal system.

Key words: performance management system, performance appraisal, regression,

psychological wellbeing

Dr. Mruthyanjaya Rao Mangipudi, Dr. KDV Prasad, Dr. Rajesh W. Vaidya and Budumuru Muralidhar


Cite this Article: Dr. Mruthyanjaya Rao Mangipudi, Dr. KDV Prasad, Dr. Rajesh W.

Vaidya and Budumuru Muralidhar, Evolution of Performance Management Systems

and the Impact on Organization‘s Approach: A Statistical Perspective. International

Journal of Management, 11 (5), 2020, pp. 988-1000.

http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=11&IType=5

1. INTRODUCTION

The Performance Management System (PMS) is not a new concept and has been an active

subject that was first reported in 221 AD when Wei Dynasty emperors measured performance

of their family members. The PMS had actually originated from the workplace settings and

began to reach its active level during 18th

century. During this period Robert Owen started

observing the performance of his cotton mill workers in Scotland using ―Silent Monitors‖.

This method helped to measure the individual performance of worker, however could not

provide clear picture of PMS of the cotton mill as a whole. There was a tectonic shift during

1920 and 1930s and mostly the system as concentrated on operational efficiency and

effectiveness. During this period the concept of Return on Investment was introduced just to

increase the profits on company‘s investments.

Peter Drucker [1] a Management Consultant in his book— The Practice of Management,

described the concept the Management by Objectives (MBO) with an idea to management

business based needs and goals. It was during 1990s the companies linked the employee

performance— of individual, team, department against operational performance and goals of

the company. John Doerr [2] at Intel introduced the concept of objectives and key results

(OKR) with a vision to achieve aggressive goals. The OKR is now one of the components of

measuring performance in modern and technological world giving employees on expectations

from them, feedback between peer and employee, review and corrective measures for

improve performance and better employee engagement.

During early years, the performance appraisals first used by Scott WD prior to World War

I, but this system not widely accept till mid of the century when formal appraisal systems

started and implemented by several companies. A formal appraisal system developed during

mid 1950s, however without an element of self-appraisals and monitored only inherited

personality of an employee. During 1960s self-appraisal was given more focus and most of

the performance appraisal system concentrated on objectives and goals in relation to what an

employee can achieve in coming months/year. It is during 1960s the self-appraisal system was

developed and used. During 1970s several modifications were done on appraisal system, with

inclusion on psychometrics, and rating scales for performance measurement. During 1980s,

several new metrics were developed, including employee core competencies communication,

teamwork, initiative, self-awareness and emotional intelligence to assess employee

performance.

In the recent past traditional performance management systems was further refurbished,

with the training and development, multiple feedback sources—360-degree feedback getting

traction. Organization values, ethics, cultures, if included and one can sure that performance

appraisal system take further modification will continue to have a greater role in peer

assessment and assessment of peers by employees.

2. REVIEW OF LITERATURE

The two types of performance appraisal systems are to evaluate employee performance for

increments, promotion, employee retention, identify poor performance and plan training

needs. Another function of performance appraisal is to identify individual training needs,

performance feedback to do some SWOT analysis (Boswell and Boudreau, 2000) [3]. Coens

Evolution of Performance Management Systems and the Impact on Organization‘s Approach:

A Statistical Perspective


and Jenkins (2000) [4] recommended abolishing the performance appraisals because of

failures in development planning, setting up of correct objectives and perfect 360-degree

feedback.

The PMS focus should be on the core of the evaluation and development process,

improving the communication between peer and subordinate, with open and honest mindset

for a culture of creative learning organizations Gratton and Ghoshal (2002) [5]. Armstrong

and Baron (2004 & 2005) [6, 7] noted the shift from performance appraisal to performance

management is just terminology but actually Performance evaluation is as famous as a

punitive, top down monitoring tool, an unloved system. However, need a systematic,

comprehensive approach each and every employee in an organization in a continuous cycle,

improving employee‘s skills and their results, and therefore the success of the organization

and as whole. Cunneen (2006) [8] states that most of the managers are unhappy and the

dislike appraising subordinate because of the management restrictions and rules the away

employee need to be appraised.

The process of performance appraisal is too complex and time consuming with too many

conflicting objectives. The evaluation systems sometimes miss out the real objective of the

system and reduce the potential developmental aspects. In most of the organisations

performance appraisal under PMS has multiple objectives— targets, feedback, assessing the

potential of an employee, developmental needs and performance related pay increases

(Strebler, 2001) [9]. He further suggests these schemes require enormous resources and

considerable commitment from the employees. However, Murphy (2004) [10] opined no

performance appraisal system can meet all the objectives of feedback, training and

development, goal setting, pay, etc in single short.

The organizations are aiming to progress, motivate and enhance the employees‘

performance in various human resource operations (Gungore, 2011) [11]. In the recent past,

both the performance appraisal system and performance management are one of the focused

concerns of the organizations, and performance management system created to address these

challenges. Therefore, the performance of the organization is overall aggregate performance

of all the employees including management performance. The success of any business

dependents on the precise determination of performance of employees and optimize them as

imperative resource. The perfect and precise measurement of employee and organization

performance is needed to gain competitive advantage in the industry (Toppo and Prusty 2012)

[12]. The performance management system also deals with an accomplished and proficient

management system for organizations to evaluate performance outcome of organizations and

its employees (Babu and Suhasini 2017) [13].

A well-executed performance management system would result in high-level employee

engagement and more dedicated personnel. Employee engagement conversely has established

to have an important influence on the performance of an employee (Anitha 2014) [14]. The

managerial leadership, infrastructure, human resource practices, and workplace environment

are four different levels where in performance management system survives. To be more

effective, performance management system should entail communication from every groups

engaged in the system. In concentrates more on future performance scheduling more willingly

the retroactive performance appraisal system (Mahapa et al. 2015) [15]. Devarajan et al. 2016

[16] reported introducing performance management system the asessessment growth of sale

could be done in adequare manner. The assessment procedure is carried out in an adequate

manner the correct assessment of the different function related to the sales and revenue is also

done. This assessment procedure will inform the company whether there is any reduction in

costs in related to sale management. The performance management system was essential for



mobile commerce companies to know the performance levels of employees can be measured

in a better way (Sharma, Sharma and Rajasekgharan 2016) [17].

In future the next generation performance management system will focus on contribution

of an employee is directly related to employee job satisfaction with continuous evaluation of

employee performance not only with objectives and set of goals, but with the competitive

advantage of having an employee with the organization. The next general performance

management system will be learning and personal growth centric with forward focused

approach, outcome drive with frequent goal alignment with meaningful engagement of the

employees. The employee contribution, engagement, directly measured with increased

productivity and increased business outcomes (SABA 2018) [18]

2.1. Performance Measurement

Mruthyanjaya Rao et. al. (2019) [19] using multinomial logistic regression studies measured

the association between the performance management and factors that are responsible for

improve employee performance. The study measured employee competencies such as

personal competencies, job-knowledge competencies, communication and interpersonal

competencies carrying out a survey in m-Commerce companies. The study reported that

factors associated with improved employee performance, personal competencies,

communication and interpersonal competencies are significant predictors of employee

performance management system. This study also observes significant gender differences.

Radha Damle (2012) measured Employee using the scale based on -Taxonomy of Higher-

Order Performance Dimensions model proposed by Campbell (1990) [20], using a 22-item

with eight factors of employee performance. The researcher used a 9 point Likert type-scale,

with values ranging from +4 to -4, and these values were converted to a five-point scale.

Prasad et. al. 2016 [21] carried out a multinomial logistic regression analysis to predict the

employee performance among men and women at the international agricultural research

institute. The researcher measured six causal factors of performance absenteeism, loss of

interest in work, low morale, poor work relations, reduced productivity.

Prasad and Vaidya (2020) [22] measured the performance using six factors—Task

competence, Employee motivation, Commitment, Non-job assignments, Integrity and Co-

workers using multiple regression analysis to study the association among Covid-19

parameters, occupational stress and employee performance: An empirical study with reference

to Agricultural Research Sector in Hyderabad Metro. This study reported The Covid-19

parameters workplace isolation, lack of communication, family distractions, role overload and

occupational stress factors role ambiguity, role conflict, career, Job-control are statistically

significant and are good predictors of the performance.

Prasad et. al. (2015) [23] studied the factors effecting the performance management

system using multiple regression analysis. The researchers measured several factors of

performance management system like SMART Goals Vision Punctuality MBO Appraisals

Training Technology Leverage, etc. and reported the factors that effect the performance of an

employee. This study further reported that employee performance as function of performance

management system carrying out a study in IT enabled industry in Hyderabad. The measured

employee performance factors like SMART, MBO, appraisals are influencing the

performance management system.

Prasad et al. (2016) [24] in their study Evaluation of the Employee Core Competencies

Influencing the Performance Appraisal System using multiple regression analysis using a

study on Agriculture Research Institutes, Hyderabad. The researchers used six factors to

measure the employee performance like job execution, skill level, job knowledge, team work,

initiative, team work, and compliance to policies. The authors used 9 point liker type scale to




measure the employee prior to carrying out the analysis. Except client orientation all the

factors are significant predictors of the employee performance.

Prasad et al. (2016) [25] measured the performance of CBSE school teachers around

Hyderabad using the factors using the performance factors, work overload, Role overload,

role ambiguity, student behaviour, school environment, school policies ethics and social

support. This study reported that the social support is the significant predictor of employee

performance. An independent researcher Workfront narrated the history of performance

management systems [26].

Saleh AL-Sinawi et. al. (2015) [27] using a multiple regression analysis examined the

predictors of employees‘ service performance and reported training and performance

appraisal are the valid predictors of examining employees‘ service performance. the findings

suggested training and performance appraisal will significant influence the performance.

2.2. Summary of Research Reviews

After reviewing several research articles it was observed that the measurement of

performance appraisal varies from organization to organisation and sector from sector. The

researchers also surprised to observe different performance appraisals for different people

using different components. For example, in International Agricultural Research Institute,

Hyderabad different appraisal mechanisms were observed for managers, officers, and

scientists. In some organizations used 9-point Likert type scale to measure the employee

performance, and the supervisors were asked to rate employee on 9-point scale with an

average score of <4 is unsatisfactory, while measuring 9 factors. The outcome was in five

categorising like outstanding, excellent, good, satisfactory and unsatisfactory. In some cases,

the appraisal was measured on five-point categorical scale like Exceeded Expectations (EE),

Exceeded some expectations (AE), Met all expectations, Met some expectations and Below

expectations. In some cases, the employees were asked to fill self-appraisals narrating the

contribution to the organization during the year and comments of the supervisor included. The

researchers also surprised to note that in some cases some percentages were fixed for

appraisal ratings like outstanding. (15%), Excellent (20%), good (65), this means this

appraisal system is biased and cannot measure the employees actual performance because of

the rating restrictions. An employee may be performed outstandingly but rated Excellent or

Good because of rating restrictions.

After thorough review of the research articles it was observed that most the performance

measurements were done using statistical models like multiple regression, ordinal logistic

regression, multinomial regression analysis and results were reported. However, no article has

come across to the researchers that performance is simply measured using the performance

appraisal or performance appraisal contents. Therefore, the employee performance is not just

dependent on his contribution to the organizations purely on job assignments. It dependents

on external factors, social support, family support, organization environment, policies, ethics

and several other factors which vary organization and to organization. No organization

considered these factors seriously before evaluating the employee performance.

3. RESEARCH GAP

The researchers find a little gap in performance appraisal mechanisms in some of the

performance management systems that do not incorporate performance predictors such as

social support, family support, occupational stress factors and psychological wellbeing

factors. Almost all the organizations believe in only providing the objectives and outputs to

the employee that need to be achieved during the year. Further there are several sectors

common in India like banking sectors, IT sector, eCommerce Sector, Health Sector and



Education where there is a possibility to adopt a common or near common appraisal system

sector wise if the sector industry come forward develop protocol(s) to have a similar

appraisal. Another demerit in the present system percentage restrictions on ratings and this

lead to biased approach and this is against the natural law of justice. Another important to be

considered is how incorporate the external factors social support, family support, and internal

factors organizational climate, ethics embodied into the appraisals.

4. EVOLUTION OF PERFORMANCE MANAGEMENT

This research finds a tremendous change in the approach of PMS over a period of time. The

competencies have been changed and they attained a logical significance. The following

diagram (Figure 1) represents how the PMS have undergone major shifts through its

competencies.

Figure 1 This illustration shows the competencies on left side and their evolution on the right side.

One could see two bulleted rows out of which first one represents old model and the second one

represents latest form.

5. GENERAL FACTORS THAT IMPACT THE PMS

The researchers made an attempt to address these issues developing theoretical framework

focused upon the significant areas of performance management system, and tried to develop a

simple framework for at least at basic level that can be utilized by the managers across the

industries. The five factors that are found greatly impacted the performance management

systems are, i) defining the organizational goals by which the employees performance can be

gauged; ii) integration with the technology so as to keep the organization abreast of the latest

happenings around; iii) learning and development outcomes to assess whether the resources

are fine tuned to the roles and responsibilities that they are assigned; iv) succession planning

in ensuring the organization shall not depend on any individual however key the resource is,

and to sustain in the long run; v) maintain knowledge repositories as the works undertaken by

the individual shall form part of the intellectual properties of the organization, and these




knowledge repositories are to be archived to refer whenever there is a need to refer them.

These are the significant factors that affect the PMS in any organization irrespective of the

sector or business or function. This concept is represented through the following illustration

(Figure 2).

Figure 2 The fundamental idea of PMS is dependant on 5 core functions which, in turn influence PMS

and integrates, within organization without which PMS loses its significance.

6. METHODS OF DATA ANALYSIS

The researchers once the data gathering is completed, they organize and integrate the

collected data by appropriately tabulating, so the data will be reused if needed and it also

enhances the life of the data. In survey researchers it most common to remove the inaccurate

data where the respondents not answered to all the questions. Such type of situations the

researchers drop that particular record from analysis. Later the data grouping will be done

based on the study variables. The variables names will be given before grouping the data and

the organized data will be transferred to the systems or statistical packages like SPSS, SAS,

Excel, etc for further analysis. The researchers provide here the certain assumptions that need

to be fulfilled before measuring the performance of an employee or organization data will be

collected for running statistical methods like correlation, regression, multinomial logistic

regression and any other statistical methods. In the following we narrate the procedures need

to be followed once the data is organized

Normality of Data: The checking normality of data is needed before proceeding further

analysis. The two ways of checking normality of data is numerically and graphically. The

statistical methods can be applied to test the normality of the data for objective judgement,

however sample size should be adequate as low sample size will have sensitivity issues. The

subjective judgement most the of the researchers following viewing the plots/graphs and

graphical representation has advantage for good judgment.



Shapiro Wilk test of normality: The following table presents the results from Kolmogorov-

Smirnov Test and the Shapiro-Wilk Test. The Shapiro-Wilk Test is more appropriate for

small sample sizes (< 50 samples), and can also handle sample sizes as large as 2000.

Therefore, Shapiro-Wilk test is better test to assess the numerical means of normality. From

the table the categorising the dependent variable low, moderate and high, and the dependent

variable is normally distributed. This is evident from the significant value of Shapiro-Wilk

test >0.05 and the data is normal. If this .value is <0.05 it indicates that data has significantly

deviated from the normal distribution.

Table 1 Test of Normality

Stress Kolmogorov-Smirnova

Shapiro-Wilk

Statistic Df Sig. Statistic Df Sig.

Performance Low 0.187 100 0.200* 0.973 100 0.817

Moderate 0.166 100 0.200* 0.963 100 0.882

High 0.161 100 0.200* 0.965 100 0.827

Lilliefors Significance Correction

*This is lower bound of true significance

Normal Q-Q plots: To assess the normality of a data distribution graphically, an output of a

normal Q-Q Plot can be used. The data points close to the diagonal line indicate the data is

normally distributed. If the data points stray from the line in an obvious non-linear fashion,

the data are not normally distributed. From the following Q-Q plot it is evident that the data is

normally distributed.

Figure 3

Source: SPSS statistics, IBM Corporation [28]

Dispersion methods: The dispersion methods i.e. scatter or spread of the data to extent to

which distribution is squeezed can be assessed using the methods like standard deviation,

average, median and range.

Reliability and consistency of the survey instrument/questionnaire: The researcher need to

measure the reliability internal consistency using Reliability statistic Cronbach alpha

(Cronbach 1951) [29] or other reliability statistics spearman brown split-half statistic. This is




a psychometric reliability test but can work for performance appraisal type of questionnaire

(Spearman 1910 [30] ; Brown 1910[31]).

Performance measurement scales: The organizations based on the objectives and vision

decides how performance need to be measured. Taxonomy of Higher- Order Performance

Dimensions model proposed by Campbell (1990) [20] generally used by researchers to

measure the performance. It is common to use 5-point Likert type scale with measurements

Outstanding, Excellent, Good, Satisfactory and Unsatisfactory to assess the different traits of

an employee performance. Some organizations use EE, AE, ME, BE, NME; Exceeded most

of the expectations, exceeded some expectations, met all expectations, Below Expectations

and Not Met most of the expectations. The researchers observed some self-appraisal system in

the form of work plan where an employee fills his work plan for the year relating objectives

of his job and the outputs will be measured end of the year. However, individual performance

is not a measure of an organization‘s performance.

Dimension reduction— Principal component analysis: Principal components analysis (PCA)

is a variable-reduction technique that shares many similarities to exploratory factor analysis.

Its aim is to reduce a larger set of variables into a smaller set of 'artificial' variables (called

principal components) that account for most of the variance in the original variables.

Although principal components analysis is conceptually different to factor analysis it is often

used interchangeably with factor analysis in practice and is included within

the Factor procedure in SPSS Statistics (Laerd Stastics [32].

Performance management analysis: The general methods used are linear regression, ordinal

logistic regression, multinomial logistic regression to measure the organization performance

as the whole as the total employees aggregate performance is whole organization‘s

performance.

7. METHODOLOGY

Lacunae in performance appraisal ratings/methods: Prasad et al. (2019) [33] in their case

study reported some anomalies in assessing the employee performance. The anomaly is

restrictions/bar put on certain performance ratings like— outstanding can be only (15%);

Excellent (20%), and others (65%). The employee believes that because of the rating

restrictions the actual employee performance is not reflected in when final evaluation is made.

An employee may be performance outstandingly, however, because of the rating restrictions

he was rated Excellent or other. This anomaly can be removed modifying the rating scale to a

9-point rating scale where rating falls between 1 (low) and 9(high), and these ratings can be

summed up to moving employee into next level, keeping the yearly increment equal to all the

employees and the losses tangible/intangible can be covered when employee moved to the

next level. This method helps to move the employees to next level based on their 3 or 5 year

ratings and limits the bias.

One-fit for all performance appraisal and measurement for sector based industries: Prasad

(2018) [34,35] observed a peculiar situation while assessing the performance in a research

study occupational stress, coping vs employee performance. The author collected the data

from various companies from Information Technology sector. However, the performance

appraisals are differed from company to company. Some IT companies are provided the

appraisals and the researcher keyed in all the variables mostly which are near common and

run principal component analysis using SPSS ver 24. Apart from several variables (here

questions) retained only those variable with an eigen value of >1 and the variable accounts

maximum variance. This result further reveal there is a scope for one-fit all performance

appraisals for Information Technology industry/IT Enabled industries and so on.



Multiple Regression: Linear regression can be used to measure the continuous dependent

variable A multiple regression is used to predict a continuous dependent variable based on

multiple independent variables. Multiple regression also allows you to determine the overall

fit (variance explained) of the model and the relative contribution of each of the predictors to

the total variance explained. If any researcher wants to measure the performance with more

than one dependent variables the multiple regression analysis can be used

Multinomial logistic Regression: Multinomial Logistic Regression is the regression analysis

to conduct when the dependent variable is nominal with more than two levels. Similar to

multiple linear regression, the multinomial regression is a predictive analysis. Multinomial

regression is used to explain the relationship between one nominal dependent variable and one

or more independent variables. Here the variables are more than two categories. I an

organization wants to predict the aggregate effect of performance based on employee

performance based on categories low effect, moderate effect, high effect the multinomial

logistic regression can be used. The multinomial logistic regression results odds ratios and

effect of each predictor variable on outcome variable. Therefore, an organization can assess

the what traits/core competencies such job knowledge, team work, initiative, skill level etc are

influencing the outcome variable performance.

General linear model: The normal linear regression analysis and the ANOVA test are only

able to take one dependent variable at a time. So one cannot measure the true effect if there

are multiple dependent variables. In such cases multivariate analysis can be used. Thus,

multivariate analysis (MANOVA) is done when the researcher needs to analyze the impact on

more than one dependent variable. For example, if an organization wants to find the impact

two or more core competencies like job knowledge, skill level, team work and initiative in

this case the four said variables are 4 dependent variables that can be measured using general

linear models in SPSS against training and development, enhanced technology base, gaming

techniques.

A researcher can test all the dependent variable are affected by the above said 3

independent variables then MANOVA analysis can be opted. It helps to analyze three

things:

impact of change in independent variables on dependent variables,

interaction among the dependent variables and

interaction among the independent variables

8. DISCUSSION

The researchers had discussed in detail the performance appraisal measurement and demerits

and suggested appropriate measures to remove the miseries of untold stories. Several

researchers measure the performance appraisal based on the standard appraisals forms where

employee skills measured and rated. However, in most of the organizations performance

appraisals or performance management system not aligned to the vision, mission and goals of

the organizations. Further, performance of an employee is not just limited to the internal

environment of an organization and several external factors such as occupational stress,

psychological wellbeing of an employee, work place isolation, lack of advice, social support,

family support influence the outcome of employee performance. In Figure 1 the researches

emphasized on contemporary and convention models of evolution of PMS and figure 2

factors that effect the performance management system. In most of this model can be

generalized and is similar to the several model proposed by the past researchers. We have also

provided a list of statistical methods/test can be used for measuring the performance appraisal

of an employee. As the organization‘s performance is an aggregate of total employees these




techniques where needed, appropriately can be applied based on the data and performance

design model. There is a need to develop one-fit all performance appraisal system at least for

sector based like health sector, IT sector, eCommerce, Academic sectors etc. However, to

achieve this all the industry giant should come under one platform develop an ISO model of

performance management system to suit industry needs. The organization of company should

design a better system based on the feedback and the annual review to fuel improvement and

reinvent performance management. Steve Brooks‘s (2015) [36] will be useful literature for

studying the history of performance management and carry forward the legacies

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