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This report is aimed to provide the information about the concept of performance management and its tools, to the management of 'Well Fit Club'. However, Performance measurement, being one of the most important elements of performance management system, will be the subject of excessive investigation in this report. This report will start with defining the concept of performance management, which is then followed by defining the concept of performance measurement and its two (out of several) models which are Balanced Scorecard and Performance Prism. After analysing models of performance measurement, suggestions will be made, followed by identifying the potential barriers and their solutions. In the end of this report a checklist will also be provided which will help the management to design, implement and manage a system of performance management/measurement more effectively.
2) What is Performance Management?
"Performance management is a strategic and integrated process that delivers sustained success to organizations by improving the performance of the people who work in them and by developing the capabilities of individual contributors and teams" (Armstrong 2002, p. 1). Performance management is strategic in the sense that it is about broader issues and long term goals and the word integrated refers to the concept that it should link business strategy with the performance of individuals, team, and organization (CIPD 2008). Armstrong and Barron (1998) also argue that performance management helps to improve the capabilities of individuals and teams and contributes in the success of organizational goals. Many authors (Armstrong and Baron 1998; Cheng, Dainty and Moore 2007; Marchington and Wilkinson 2002) present the same concept in their own ways but the main theme of all those definitions presents performance management as a process which uses different tools and techniques to improve the performance of individuals, teams and organization. These techniques include Learning and development, coaching, performance reviews, competencies and competences, setting performance standards, performance measurement, pay and rewards, team building, succession planning etc (CIPD 2008). But implementing a system of performance management is not as easy as it seems to be and many organisations fail to implement it successfully as it presents severe challenges during its design, implementation and management phases (Bourne et. al. 2000). In the following lines the concept of performance measurement, an important tool of performance management, is being presented to help the management of Well-Fit to understand, design, implement and manage it as a contribution toward its performance management system.
3) What is Performance Measurement?
"Performance measurement provides the basis for an organization to assess how well it is progressing towards its predetermined objectives, helps to identify areas of strengths and weaknesses, and decides on future initiatives, with the goal of improving organizational performance".( Amaratunga and Baldry, 2002). In other words performance measurement is a process that helps to develop measureable indicators to assess how well an organization is moving towards its pre-set goals(Najmi, Rigas and Fam, 2005). Many authors (Dixon et al., 1990; Lynch and Cross, 1991; Maskell, 1989; Azzone et al., 1991; Wisner and Fawcett, 1991; Goold, 1991; Kaplan and Norton, 1992) have defined the concept in various ways but the main idea of all definitions lie around the identification and measurement of success indicators. They also argue that these measures must be derived from strategy. Since 1980 there is a massive increase in the number of publications and research on this subject and emphasizing the need of more "relevant, integrated, balanced, strategic, improvement oriented and dynamic performance measurement systems" which has resulted in development of various frameworks for measuring the performance such as balanced scorecard, performance Prism and SERVQUAL (Bititci, Turner and Begemann,2000). In the following lines we will see what these models are, how they contribute towards performance measurement and what are the challenges of performance measurement system.
3.1) Challenges of Performance Measurement System
Powell (2004), while interviewing Andy Neely explored the challenges of a performance measurement system. He argues that there are four fundamental processes which every company must follow in order to have a good performance measurement system. These processes are Design, implementation, managing and refreshing the measurement system. During the design phase challenge is to choose the right measures, and now a days challenge is excessive measures. Hence it not about measuring everything, it is about measurement of the only things a company needs to measure. While implementing the measurement system, main problem lies with the access of right data and resistance from people inside the organisation. In the phase of managing, problem area is that managers are left independent with the data to draw their own conclusions which may lead to a time consuming exercise and unreliable or contradictory conclusions. To avoid these situations in implementation and managing phase proper training and education for managers is recommended. However the refreshment phase refers to a dynamic environment which never remains constant and always need some enhancements and modifications in it, in order to work perfectly in an ever changing situation.
3.2) Frameworks of Performance Measurement
3.2.2) Balanced Scorecard
In 1992 Robert Kaplan and David Norton developed Balanced Scorecard, a framework to measure organisational performance (Atkinson, 2006). According to Kaplan and Norton (1996), "the Balanced Scorecard translates an organization's mission and strategy into a comprehensive set of performance measures and provides the framework for strategic measurement and management". Balanced Scorecard views an organization's performance from four different perspectives i.e. financial perspective, customer perspective, internal business perspective and learning/growth perspective (Lee and Ko, 2000). Financial perspective emphasises on the value that stakeholders want from the business such as growth, ROI, share value, market share etc. Customer perspective emphasises on basic customer concerns such as quality, cost, and service. Internal business perspective refers to all critical internal processes that are necessary to achieve the basic customer concerns. Whereas learning and growth perspective defines the skills and competencies that are needed to perform those critical internal processes (Atkinson, 2006). There is a clear link between all four perspectives of Balanced Scorecard, and an indication as to how organisations can link their strategies with the internal processes and set of skills which are required to carry out the positive results towards its strategy. However there are some criticisms associated with Balanced scorecard such as Atkinson, Waterhouse and Well (1997) argue that Balanced scorecard "often fails to effectively address issues relating to employee and supplier contributions and/or the role of the community and is biased towards shareholders". Another criticism is that most organizations find it difficult to align its strategies with their budgets and hence balanced scorecard leaves the organization with no obvious benefits (Otley, 2001).
3.3.3) Performance Prism
"The Performance Prism is a second generation measurement framework designed to assist performance measurement selection - the vital process of picking the right measures." (Neely, Adams and Crowe, 2001: p-1). One advantage of using performance prism is that it covers the needs of all stakeholders of the organization such as employees, suppliers, shareholders, customers, investors, regulators, community and covers a very wide variety of stakeholders unlike Balanced Scorecard. It also considers the needs of an organisation from stakeholders.
The process of performance prism starts with thinking of who are the Stakeholders, and setting priorities of stakeholders on the basis as to which of them can help satisfying organization's needs in order to gain competitive advantage, and this is the first facet of performance prism followed by four more facets which includes Designing Strategies to satisfy the needs of those stakeholders, Critical Processes that are needed to execute these strategies, and the Capabilities to enhance these processes. In the end performance prism seeks for what Contributions from its Stakeholders a company might need in order to enhance and maintain these capabilities (Powell, 2004). This consideration to all stakeholders provides managers a broad view of what are the needs of different people associated with business, which helps them to design the best strategies to satisfy the needs of business and stakeholders as well.
3.4) Disadvantages of Performance Measurement
There are several disadvantages of performance measurement such as some organisations become too obsessed toward their specific goals that they neglects innovation and setting standards, and goals may stop many people in the organisation to work properly (Google Book). This situation often discourages employees to apply their discretionary behaviour, and also affects the opportunity element of AMO model. Another disadvantage is that improper implementation of models or tools of performance measurement can lead organisation to an even worst performance (Atkinson et al, 2001).
4) Vertical and Horizontal Integration
The concept of vertical integration emphasises on the link between HRM and business strategies, whereas horizontal integration is the fit between HR policies and practices (Marchington and Wilkinson, 2002). This concept can also be viewed in the studies and research of many scholars (Neely, Adams, and Crowe, 2001; Atkinson, 2006; Kaplan and Norton, 1996) where they argue that PMS of an organisation must closely be aligned with the strategies of business or performance measures must be designed in such a way that they result in the form of enhanced performance, directly or indirectly (such as individual's performance appraisals may lead to the rewards or identification of training needs which may result in the form of enhanced performance eventually), to support the accomplishment of other HRM needs. Alignment of business strategy with performance measurement system will help the management of Well Fit to identify the most crucial indicators of performance whereas horizontal integration will help them to identify and perform the better policies and practices in a better way.
5) Proposed Framework & Recommendations
After analysing frameworks to measure performance, it is recommended that Well Fit should implement a system based on the concept of Performance Prism Model, as there is no consideration for all stakeholders in balanced scorecard. For a service organisation like Well Fit which is aiming to growth and increase in its total income by 10% per year it is not possible without considering all the stakeholders.
There must also be a provision to review and revise targets on regular basis in order to always have an up-to date system, and continuously improving the performance.
Responsibility of delivering information to employees regarding performance indicators must be delegated to the line managers as they are the closest individuals to the employees.
6) Barriers & Overcoming Barriers
Following is the extract of various studies which shows what potential barriers an organisation might face while implementing a new performance measurement system.
Hansson et al. (2003) argues that declining commitment from senior management is often observed because of lack of understanding of objectives and methodologies. Another barrier to implementation which is most common and observable in all organizations is the resistance from different stakeholders (Neely, 2004). To overcome these barriers Stanleigh (2008) suggests that the reason many organizations fail to implement change is because they do not involve people who are likely to be affected as a result of the changes. Hence it is recommended that proper information must be delivered to all stakeholders and especially senior management, and the participation of senior management must be assured before starting the process of implementation.
In the end of this report, after analysing frameworks of performance measurement and several advantages and disadvantages of using a performance measurement system it is concluded that despite of some disadvantages associated with performance measurement concept, advantages heavily influence the performance of a company to help management to achieve their targets faster. Hence there is need to apply a measurement system within Well Fit. Recommendation made for Well Fit is to use a Prism framework as it seems to be a better approach than any other framework and considers all stakeholders at the same time.
8) Guidelines: To effectively design, implement and manage a PMS
After analysing above models and concepts of performance measurement, the management of well fit is advised to follow the guidelines given below in order to design a good PMS, implement it successfully and effectively manage it to make sure that they get what they want.
During design phase
it is advised not to extend the list of measures by including all measures, but to choose only the ones that can contribute maximum in adding value to the business and are most important.
objectives must be SMART
management must make keep in mind the needs of all stakeholders
performance indicators must be aligned with strategy
mechanism of evaluating performance must be incorporated in the strategy
During Implementation phase
Training programs and seminars must be conducted to make people aware about change initiatives, purposes and their rights and safety to avoid conflicts or resistance to accept new system (Cheng, Dainty and Moore, 2007)
Positive involvement of top management must be assured to support the new system(Cheng, Dainty and Moore, 2007)
While managing the system
there must be a provision of reviewing and revising targets periodically as well as after irregular intervals
all managers must be fully trained to interpret data and obtain useful conclusion out of it
data must be evaluated by multiple sources in order to verify its reliability and integrity
in case of conflict (some people may think that performance is not evaluated in the way as it should be) there must be committees to handle these kind of issues