THE M.S.UNIVERSITY OF BARODA

Literature Review on Performance Management System(M.com Final ) (Human Resource Management)

Study by DDI (1997), Performance Management Practices is the most recentperformance management study. It proves that successful organizations realize thatperformance management is a critical business tool in translating strategy into results.The CEOs in the majority of the 88 Organizations surveyed say their performancemanagement system drives the key factors associated with both business and culturalstrategies. Performance management systems directly influence five criticalorganizational outcomes : Financial performance, productivity, product or servicequality, customer satisfaction & employee job satisfaction. When performancemanagement systems are flexible & linked to strategic goals, organization are morelikely to see improvement in the five critical areas : team objectives, non- managertraining, appraiser accountability & links to quality management are the specificpractices most strongly associated with positive outcomes.

Watkins (2007) puts it, most public sector business organization like those in DeltaState of Nigeria have not given adequate attention to performance management reviewas a tool for improving performance even when recent studies suggest thatperformance review benefit organizational performance in both private & publicsectors. Performance management has been described as a systematic approach to themanagement of people, using performance goal measurement, feedback andrecognition as a means of motivating them to realize their maximum potentials. Publicsector business organizations that strive to deliver quality services at competitiveprices are those that embrace various performance review practices to assess theiremployee performance & motivate them with incentives.

Robert & Angelo (2001), The success or failure of public sector business organizationsdepends on the ability to attract, develop, retain, empower & reward a diverse array ofappropriately skilled people and is the key to improving organizational performance.The explanation therefore is that human resource managers in the public sectorbusiness concerns should embark on periodic performance management reviews oftheir employees in order to re-position their business organizations though owned bygovernment for better performance & improved competitiveness.

Study by Wm. Schiemann & Associates (1996), this national survey of cross-sectionof executives concluded that measurement-managed companies- especially those thatmeasure employee performance- outperform those that downplay measurement. Theseresearch studied 122 organizations making between $27 million and $50 billion insales. A higher percentage of measurement-managed companies were identified asindustry leaders, as financially in the top third of their industry, and as successfullymanaging their change efforts. The research examined performance in six strategicperformance areas deemed crucial to long-term success : Financial performance,operating efficiency, customer satisfaction, employee performance, innovation/change,community/environment. The findings revealed that the biggest measurement areaseparating successful from less successful firms is employee measurement. Successfulindustry leaders simply do a better job than non-leaders at measuring their workforce,which the study say is where real change won or lost.

Study by Hewitt Associates (1994), The impact of performance management onorganizational success substantiates that performance management system can have asignificant impact on financial performance and productivity. The study used theBoston Consulting Group/HOLT financial database to track the financial performanceof 437 publically held U.S. companies from 1990 through 1992.The study resultsshowed that: Companies with performance programs have higher profits, better cashflows, stronger stock market performance and a greater stock value than companieswithout performance management. Productivity in firms without performancemanagement is significantly below the industry average, while productivity in firmswith performance management is on par with the industry average. Companies withperformance management significantly improved their financial performance andproductivity after implementing performance management.

Williams (2002) identifies globalization, increased competition and the increasinglyindividualistic rather than collective employee relationship as some of the major driverscontributing to the increased visibility of performance management systems (PMS).Faced with fast moving and competitive environments, companies are constantlysearching for unique ways in which to differentiate themselves from their competitionand are increasingly looking to their “human resources” to provide this differentiation.

This has led to much interest in the performance of employees, or more importantly,how to get the most out of employees in order to sustain competitive success.

The study by Eleni T. Stavrou, Christakis Charalambous and Stelios Spiliotisutilizes an innovative research methodology (kohonen’s Self-organizing Maps (SOMs),Neural Network Analysis) to explore the connection between human resourcemanagement as a source of competitive advantage and perceived organizationalperformance in the European Union’s private and public sectors. While practices inthese two sectors did not differ significantly, three diverse but overlapping HRMmodels did emerge, each of which involved a different set of EU member states.Training & Development practices were strongly related to performance in all threemodels and communication practices in two. These results show the usefulness of aninnovative technique when applied to research so far conducted through traditionalmethodologies, and brings to the surface questions about the universal applicability ofthe widely accepted relationship between superior HRM and superior businessPerformance.

Sharmistha Bhattacharjee and Santoshi Sengupta (2011) studied that employees arethe most valuable and dynamic assets of an organization. For achieving the strategicobjective of sustained & speedy growth, managing human resource has been featuredas a vital requirement in all organizations. It is a challenge to monitor the entire cycleof defining the competence requirement of the business, accessing existing competencein the organization and bridging the gap between the two. HR practices are crucial forany organization. Every phase from recruitment to exit interview is under the HRdepartment. It is a challenge to monitor the entire cycle of defining the competencerequirement of the business, accessing existing competence in the organization andbridging the gap between the two. In a manufacturing industry, with every technicaladvancement business opportunities can show up. These opportunities can beconverted into business success only with performance alignment and competencemanagement.

The research paper of Mohammad Tanvi Newaz (2012) provides an analysis andevaluation of the role of performance management system in shaping psychologicalcontract at Sainsbury’s UK by a case study approach. Sainsbury’s has adopted theperformance management system to utilize the potential of their employees but resultof data analysis indicates that line managers have failed to achieve the objective of theperformance management system. This research analysis reveals how the line managersof Sainsbury’s focus on short term goal i.e. financial success instead of long term goali.e. employee development. However, the performance management system of

Sainsbury’s comprises all the necessary components to play a significant role indeveloping employees as well as facilitating the formation of a positive psychologicalcontract. But partial and inattentive implementation of the system makes the situationunfavourable for the psychological contract to develop at Sainsbury’s UK.

The article of Javed Iqbal , Samina Naz, Mahnaz Aslam, Saba Arshad (2012), offersa survey of selected literature on performance management. Purpose is to identify keythemes that govern the topic in the contemporary turbulent economic and businessenvironment where employees are more uncertain that anything else because every daythey face downsizing, volunteer retirement and “golden hand shakes’’ to get rid ofthem. Under these circumstances it is worthwhile to look into the ways by which theycan be motivated to work under hard conditions. It is found that performancemanagement processes, evaluation, its impact and factors are key themes. Researchersapply popular research approaches for data collection analysis and communication.

The paper of Akua Asantewaa Aforo and Kodjo Asafo-Adjei Antwi (2012) showsthat academic libraries have a performance appraisal system comprising setting ofgoals, feedback, participation and incentives for performance. This study aimed atevaluating the performance appraisal system in the KNUST and GIMPA libraries inGhana and give recommendations on improving the system. Questionnaires wererandomly administered to 46 staff members of these libraries.

The aim of this study of Akinyele S. T. (2010) was to evaluate the effectiveness ofperformance appraisal system at private universities in Nigeria. The focus of the studywas on the administrative staff of Crawford University. The study evaluated thepurpose of performance appraisal in private universities and identifies relevant factorsfor achieving an effective performance appraisal. A cross- sectional survey wasselected for this study because it was easy to undertake compared to longitudinalsurvey and the results from the same can be inferred to the larger population. Thestudy population was for all the administrative staff of Crawford University. The wholepopulations of staff were selected as respondents. A structured questionnaire was usedto collect the data for analysis. The effectiveness of performance appraisal systems inprivate universities are only based on training the members of staff involved in therating/ appraising process and are multi- rating systems. Conclusively because theperformance appraisal systems used in private universities are not effective and thatthey exist just as a matter of formalities, the private universities cannot measure

members of staff performance, hence making it difficult to achieve the intended humanresource management objective.

The paper of Al Bento and Regina Bento (2006) proposes and tests a model toexplain three critical outcomes of Performance Management Systems: informationquality, effectiveness, and usefulness of the PMS to managerial decision-making.Drawing from Organizational Information Processing Theory (OIPT), we examinedhow those three outcomes may be influenced by factors that affect OIP requirements(industry, size, and geographic scope of operations) and by organizational andtechnological factors that affect OIP capabilities. Organizational factors includedmanagement's decision-making style and organizational structure. Technologicalfactors included the types of technology used in the PMS (ERP; specialized tools suchas EIS and DSS; and generic tools such as Excel, Access and Lotus Notes), and thedegree of use of e-commerce and Internet technologies.

The study of George Ndemo Ochoti, Elijah Maronga, Stephen Muathe, RobertNyamao Nyabwanga, Peter Kibet Ronoh (2012) investigated the multifaceted factorsinfluencing employee Performance Appraisal System in the Ministry of State forProvincial Administration, Nyamira District, Kenya. A target population of 76employees was surveyed. A structured questionnaire was self-administered to theemployees to collect data. Multiple regression analysis technique was used to explainthe nature of the relationship between PAS and the factors that influence it. Results ofthe study showed that all the five factors: Implementation process (X1), interpersonal relationships (X2), rater accuracy (X3), informational factors (X4), and employeeattitudes (X5) had a significant positive relationship with the performance appraisalsystem (Y). It shows that if these factors are taken into consideration by the ratees, theraters and the government policy makers, the PAS can be a good performancemanagement tool.

The paper of Jawaria Andleeb Qureshi, Asad Shahjehan, Zia-ur-Rehman and BilalAfsar (2010) notifies that many organizations install Performance ManagementSystems (PMS) formally and informally in their organizations, with the motivation toachieve better organizational results. In practice, organizations have difficulty inimplementing a performance management system because its different dimensions arenot taken into considerations enough. This article describes the findings of acomparative analyses conducted between a standard performance management modeland performance management systems as applied by Local Development Organization(LDO). Data was collected from 50 employees of the organization with a CronbachAlpha (0.935). Results identified barriers to implementation of effective PMS, alsorecommendations and viable solutions are presented.

Research of Leena Toppo, Twinkle Prusty (2012) informs that performance appraisaland performance management were one of the emerging issues since last decade. Manyorganizations have shifted from employee’s performance appraisal system toemployee’s performance management system. This paper has focused to study theevolution of employee’s performance appraisal system, critics the system suffered and

how the performance management system came to the practice. The main purpose ofthis paper is to differentiate these two systems, employee’s performance appraisal andmanagement system. This paper uses a review of the literature to evaluate thedevelopment of appraisal system and argues the critic areas of appraisal system.Performance management eliminates the shortcomings of performance appraisalsystem to the some extent.

There are, however, several models which have attempted to explain how HR policieshave an impact on firm performance, one such model adopted as a conceptualframework in this paper is the “People Process Framework” (Gratton 1996). Thisframework focuses on individual performance linked to organizational performanceand is designed to deliver short term business objectives as well as long termsustainable success. The model clearly identifies a set of HR practices which have beendesigned to link individual effort to the overall objectives of the business and alsostrikes a balance between achieving short term goals and preparing the company for itsfuture long term success. The major focus of the research will be on the processeswhich contribute to short term business success, given their direct relevance to PMSand the crucial role of line managers in their implementation. These short termprocesses are critical to the overall success of the business as they provide thefoundations to encourage sustained performance through clear identification ofobjectives, continuous assessment of performance against those objectives, rewardstrategies that emphasize the required behaviors and the provision of training and skillswhich will improve performance. Implemented correctly, these processes shouldenhance the individuals confidence in themselves and their company creating anenvironment where employees “want to” perform rather than feeling like they “haveto” perform. Long term success is only possible therefore when the short termprocesses generate this type of response.

Whittaker and Marchington (2003) found evidence in their study that line managersspent very little time on people management issues, preferring instead to concentrateon financial or business objectives. Hope Hailey et al (2005) report that line managersare only measured on their technical role and not their people managementresponsibilities. The appraisal process is therefore of secondary importance to themand the appraisal is generally approached with little preparation, training or enthusiasm(Cook and Crossman 2004, Holt-Larsen and Brewster 2003). To address this,Hendry et al (2000) argue that not only should line managers own the performancemanagement process but that they should be involved in its design, and only byinvolving them at this stage will they “buy-in” to the process. Lack of management“buy-in” can potentially frustrate the whole purpose of a performance managementsystem, leading to an inability to meet short-term goals as well as failure to addresslonger term developmental opportunities (Weeks, 2005).

Lohr (1981) had stated that even Abraham Taylor (1856-1915) widely regarded as thefather of Scientific Management in his legendary thesis on performance improvement inorganizations had recognized the negative influences of groups on performance andsought to break-up informal group activities through spatial and work-flow designsand individual piece rate systems of pay. Taylor had based his management system onproduction-line time studies. Instead of relying on traditional work methods, heanalyzed and timed steelworkers’ movements on a series of jobs. Using time study ashis base, he broke each job down into its components and designed the quickest andbest methods of performing each component (Idemobi et al 2010). In this way heestablished how much workers should be able to do with the equipment and materials

at hand. He also encouraged employers to pay more productive workers at a higherrate than others, using a “scientifically correct” rate that would benefit both companyand worker. Thus, workers were urged to surpass their previous performancestandards to earn more pay. Taylor called his plan the differential rate system. Ratherthan quarrel over profits, both management and workers should try to increaseproduction and by so doing, he believed, profits would rise to such an extent thatlabour and management would no longer have to fight over them.

Timmons (1992) had opined that competitiveness is a major issue in foreigncompetition, and if a country’s export promotion drive is to yield the desired results,competitiveness in particular must be optimized. He further posited that the decliningproductivity in business organizations which leads to un-competitiveness is a majorcause of monetary problems and inflation, and governments obviously should beinterested in the level of competitiveness arising from productivity improvement.

Although the use of goal setting is primarily used to improve performance, there areother benefits such as: to clarify expectations, to improve job satisfaction, to enhance self-esteem through attainment of goals and to improve quality of work (Locke andLatham 1984).Appraisal provides the mechanism to provide effective feedback onachievement of which is an important factor in improving performance (Williams 2002).

Fletcher (2004) describes it as a “high risk activity” for managers, given the manypitfalls associated with it and Newton and Findlay (1996) highlight the fallibility ofappraisals as they are open to manager manipulation. Despite the criticisms, the use of performance appraisal is widespread and perceived to be an effective part of aperformance management system (CIPD 2005a).

Many organizations have looked to improve performance by linking it to pay;performance related pay (PRP) can take many different forms (Williams 2002) and thetype of reward and how it is linked to performance management varies by organization(IDS 2003). There are many differing views on the effectiveness of PRP (Williams2002) and whether or not it contributes to improved performance. It has been arguedthat PRP is a process of control, rather than contributing to real development (Hendryet al 2000).

(Gratton 1996)There has been a change in scope of the appraisal process in recentyears, with an increasing focus on employee development, as more and morebusinesses focus on how targets are achieved rather than just the achievement itself.This has led to a combination of both objectives (outputs) and competencies (inputs,Taylor, 2005) and the recognition that personal development planning (PDPs) are afundamental part of a PMS. By offering employees the opportunity of enhancing theirskills through training, levels of self-confidence will improve and performance will beenhanced (White 1999).

Willcoxson, (2000) High performance is considered to be achievable in different ways,two of which are the humanistic and rational process perspectives. According toproponents of the humanistic perspective, high performance is attributed to investmentin the ‘softer’ people aspects of organizational life. Through valuing, trusting,developing and empowering employees, encouraging cooperative modes of operatingand stakeholder engagement, organizations can achieve high performance. Emphasis is

also placed on organizational culture as a key element of success or failure(Willcoxson, 2000).

In essence the productivity of an organization is jointly determined by the efficiencywith which the organization utilizes several available factors of production whichinvariably are scarce relative to the demand for them. As it were therefore, one canconceive of an equilibrium condition in productivity terms within given and statedconstraints in an organization. Like the price scenario, several factors operate to makeit difficult to optimize the use of human and other resources in the organization suchthat the equilibrium condition is not achieved easily. Ouchi (1981) clearly pointed thisout when he addressed the issue of what he labelled “the organizational dilemma”meaning that the organization’s search for rationality (technological determinism) andthe human beings search for happiness (as in the Doctrine of Hedonism).

Robert and Angelo, (2001) The success or failure of public sector businessorganizations hinges on the ability to attract, develop, retain, empower and reward adiverse array of appropriately skilled people and is the key to improving organizationalperformance The explanation therefore is that human resource managers in the publicsector business concerns should embark on periodic performance management reviewsof their employees in order to re-position their business organizations though ownedby government for better performance and improved competitiveness.

Sung & Ashton,(2005)It is the business strategy that gives the high performanceworking practices their dynamism and provides the framework against whichperformance can be evaluated and improved. Thus, the concern is not with the specifictype or number of practices employed, but the way they are linked to organizationalperformance.

Results from the Watson Wyatt Worldwide (2004) study suggest that PM systemsshould recognize high performers and confront poor performers as soon as possible,eliminate paper forms, and utilize a user-friendly automation. Researchers fromWatson Wyatt Worldwide also assert that if PM systems are designed andimplemented properly, they can lead to positive impact on individual performance aswell as better financial results for the organization (i.e., improvement in shareholdervalue).

A common weakness in the implementation of performance management systems noted by de Waal (2004) is the focus only on the “structural side”, that is, “thestructure that needs to be in place to be able to use performance management such ascritical success factors & key performance indicators, possibly supported by a balancescorecard”. De Waal (2004) argues that successful implementation also requiresattention to the “behavioral side” that is, the necessary performance-driven behaviorrequired from organizational members to achieve the desired objectives. According tode Waal (2004), appropriate behaviors, including attitudes and beliefs, depend on arange of factors including management style, the perceived relevance of performance

indicators, the degree to which employees feel they can influence change, and thequality of communication within the organization.(Source : http://eprints.jcu.edu.au/26275/ ).

A study conducted by McDonald and Shield of Hewitt Associates found that companiesthat used performance management programs had greater profits, better cash flow,stronger stock market performance and greater stock value than companies that did not.Not only performance management improved financial performance, but it alsoimproved productivity; companies with such programs had higher sales per employees(Rheem, 1995). Nonetheless, performance management has been mistaken as performanceevaluation. As a matter of fact, both performance management and performance evaluationare related but they are not exactly the same concept. Performance management is asystematic process for improving organizational performance by developing the performanceof individuals and teams; it is a mean of getting better results from the organization, teams,and individuals by understanding and managing performance within an agreed framework ofplanned goals, standards, and competence requirement (Armstrong, 2006). While performance evaluation is a process of assess and rate pastperformance of individuals or groups (Oct 2004). Performance evaluation is just a part ofperformance management.

(Prepared by Sem Shaikh)(Private circular only for academic purpose)