Performance Management Theory and Practice

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Managing People

Performance management theory and practice: successes and failures of implementing performance management systems

Many companies seek to design and implement successful performance management systems, hoping to improve their overall performance - countless fail whereas some outperform enormously. This paper critically evaluates available literature on performance management, revealing how it advantages companies. Outlining different performance management systems, I will then investigate reasons behind unsuccessful implementation and recommendations for future development of such systems.

Performance management (PM) systems are put in place in order to ensure goals and targets are consistently met in an effective and efficient manner. PM is used to determine corporation standards, distribute rewards and also to assign and evaluate work (Armstrong; Baron, 1998). The purpose of PM is to “improve organisational, team and individual performance and development” (McMahon, 2013). According to Thatcher (1996), performance management can be particularly useful for: reviewing and reflecting on past performance, improving current individual and company performance, setting objectives, determining bonuses, motivating staff and identifying training and development areas.

Boswell and Boudreau (2000), outline that performance management can be approached differently according to its two main functions - evaluative and developmental. Evaluative function takes place when managers use appraisals to aid them with decisions such as: salary, promotion, retention, recognition of individual performance as well as identification of poor performance. This function focuses primarily on differentiation between employees within the same company. On the other hand, developmental function of performance management is used to identify strengths and weaknesses of individuals, training requirements as well as providing feedback on past performance. This function relates to personal analysis of an employee, where the appraiser performs a role of a mentor (Brown et al. 2011). According to Baron (2004), both of the functions are important for effective performance management as “individuals may demand a career where there is scope for development and progression” whilst “organisations need to ensure they have the right people in the right jobs” in order to compose an effective talent pool for the future (McMahon, 2013).

According to McMahon (2013), effective performance management could be the most important feature of a successful organisation. It is also essential for businesses to recognise the potential in their human resources, in order to gain competitive advantage over their rivals. Campbell and Garfinkel’s (1996) study reveals that based on financial and non-financial measures, companies which have an effective performance management strategy usually outperform those without such systems. Furthermore, research carried out by CIPD (2009) revealed that performance management systems can be used as a powerful tool for communication, particularly between managers and employees.

Grund and Sliwa (2007) argue that from a practical perspective, the main and fundamental aim of enforcing performance management is to improve overall performance. According to Brown et al. (2011) improving performance can be achieved through implementing systems that will authentically motivate employees through goal-setting, constructive feedback, recognition and development. This therefore reveals that the key, often unspoken objective of all performance management systems should be to increase employees’ motivation (McMahon, 2013) With relation to this theory, CIPD’s (2005) “Performance Management Survey Report” concluded that “75 per cent of surveyed companies agreed that the practice motivated staff”.

In addition to this, a study carried out by Rodgers and Hunter (1991) outlines that performance management can increase employees’ goal achievement by around 30 per cent, whist businesses which implement performance management systems such as appraisals achieved an average productivity increase of over 56 per cent.

Theories outlined above demonstrate that performance management can have a positive effect on the company’s performance through increasing staff motivation and morale, encouraging staff through setting goals and highlighting areas of improvement as well as developing employee’s skills to suit the company’s goals, targets and corporate culture (Brown et al. 2011). This demonstrates that through effective PM, companies can benefit from full use of human resources potential (McMahon, 2013). So why do companies fail to effectively implement and successfully use performance management systems to their advantage?

Research carried out by CIPD (2009) revealed that “only 20% of surveyed employees believe performance management has a positive impact on individual performance, with the majority (59%) remaining neutral on that subject and 21% disagreeing that performance management has a positive impact on individual performance”. This demonstrates that although vast majority of companies use performance management systems (McMahon, 2013), successful implementation is not acconmplished as employees feel that the systems do not achieve its purpose.

According to Armstrong and Baron’s (1998) study, performance management systems are disliked by employees and employers alike. McMahon (2013) points out that implementation of performance management systems makes employees feel like they are continuously observed which can have a contrasting effect to the main purpose of PM. Stark (2007) argues that the biggest issue with performance management is that often employees are unaware of how they are performing against their overall business strategy. This demonstrates that in some cases, even though performance management can aid developmental function, it will not advantage the company in any other way.

In addition to this Forbes (2013), also suggests that there are many other issues associated with implementation of performance management. For instance, systems such as appraisals should be regular and continuous in order to track progress and development, therefore once a year appraisal is often not good enough to achieve the purpose. In addition to this, once a year meeting does not give the managers enough information and empowerment to judge the employee’s performance and areas of development. Appraisals are also used to identify individuals who underperform in their role – such issues should be addressed immediately. This demonstrates that some performance management frameworks fail to achieve its purpose when not carried out regularly, as companies need to maintain alert and agile. Evidencing this point, Armstrong (2009) argues that in order to be effective, performance management systems should be a systematic process of development for individuals and teams, which will then lead to improving organisational performance.

Subsequently, Redman and Wilkinson (2009) point out that appraisals schemes, which may have been useful during the past decade may not be applicable to any further extent. Following this observation, McMahon (2013) suggests that companies shift towards practices such as coaching, mentoring and 360-degree feedback. Armstrong (2009) argues that contrasting to standard appraisal systems, coaching and mentoring allows fast recognition of underperformance and also enables staff to adapt to on-going changes and to rise to the range of challenges posed by the industry they operate in.

On the other hand, CIPD (2009) research reveals that distinguishing between performance management systems and choosing the right one for the company is not the main point of successful implementation. CIPD also outlines that over the years, companies will need to be able to redefine the purpose of PM systems to reflect changing values, needs and efforts to drive a performance culture. Furthermore, Bae (2006) argues that in order to achieve better organisational performance, chosen performance management systems need to involve three key elements: “the setting, evaluation and feedback of performance”.

Bourne et al. (2003) also claims that there are general problems with all PM frameworks when vision and strategy is not actionable, strategy is not linked to the business, teams or individual goals and also when feedback is not constructive and tactical. Moreover, Redman and Wilkinson (2009) point out that performance management systems have to be carefully designed and adapted to cater for a company’s characteristics and culture. This reveals that businesses will have to implement and transform a PM strategy, which best suits the company’s goals and tactics whilst also making sure they overcome main pitfalls by implementing successful management of chosen strategies.

Bourne et al. (2003), argues that it takes several years to obtain full benefit from performance management. This suggests that many companies may be implementing performance management systems successfully, however; they have not yet realised the full benefits. Armstrong (2009) outlines that failure to achieve effective performance management within a company can demonstrate general management incompetence. With relation to this, McMahon (2013) suggests that managers are often not trained properly to perform an efficient performance management activity, thus outlining that realising the potential, companies should put pressure on effective use and delivery of PM systems. Davila and Elvira (2008) share McMahon’s view as they reveal that “professional training programme is recognised as central to the attainment of a successful performance management system”.

Literature and vast research demonstrate that unsuccessful implementation of performance management systems can be caused by management incompetence and lack of training. This then also leads to the argument that unsuccessful implementation of performance management can have an opposing to its purpose - negative effect on the company’s performance if not implemented correctly (Bourne et al. 2003). According to CIPD (2009) poor performance management practises can in fact disengage and demotivate staff, foster unproductive activities and waste effort.

Conversely to the theories outlined above, a contributor at Forbes - Wakeman (2013), suggests that managers are not entirely to blame for undesirable outcomes of performance management systems. In opposition, she suggests that employees should be held responsible for their own development. This can be achieved by initiating conversations about their objectives when they see fit, requesting regular feedback and making course adjustments as necessary to keep themselves on track. Wakeman (2013) argues that results of this approach will include employees’ own reflection of their hard work in comparison to managers’ point of view on their skills and achievements, which can have a better effect on their performance.

Similarly, Lawler (2013) argues that performance management systems need to be transformed in order to fulfil their purpose within current rapid-changing business environment. He outlines that it is critical for PM systems to start focusing on skills needed to be successful in the future also highlighting that bonuses and/or pay increases should be based on the level of new skills acquisition. Furthermore, Lawler outlines that clear performance goals are a strong motivator and thus should be the major focus of effective performance management systems. More importantly, Lawler (2013) argues that employees should be awarded for taking a risk, even if sometimes the outcomes are not successful.

Elaborating on Lawler’s research, McMahon (2013) suggests that in order to ensure continuous learning and adapting to rapid-changing business environment, appraisals should be held every three months instead of once a year. With the implementation of Lawler’s suggestions, this will ensure review and feedback on the skills gained since the last appraisal, setting current, clear goals as well as identifying and rewarding taking risks.

Research concluded by CIPD (2009) revealed that performance management is to evolve over the next years to overcome the main problems and pitfalls. Furthermore, the research also outlined that performance management will grow to become more integrated with other business processes, such as career and talent management, individual and team development as well as curtail decision making. This may make it easier for businesses to effectively implement performance management systems to gain full advantage of human resources and therefore further benefit the company.

On balance, literature analysed throughout this paper reveals that effective performance management contributes to the successful management of individuals and teams in order to achieve high levels of organisational performance. Realising the reasons behind failure of successful implementation of performance management, this paper also exposed ways of ensuring effective application and functioning of such systems, these include: choosing the right performance management system and adapting it to suit the company’s goals and culture, making the process clear, concise and easily understood by everyone involved, and finally ensuring everyone is able to understand how the outcomes will be used and the benefits for themselves and their organisation. Most importantly, literature analysed in this paper outlined that the major problem behind unsuccessful implementation of performance management systems can be general management incompetence and lack of feedback. Conversely, other sources outlined that current PM systems may be out-dated and thus suggest a shift towards self-appraisals and PM systems, which are more adapted to the rapid-changing business environment. All in all, this paper outlines that effective implementation of performance management systems contributes to achieving high levels of organisational performance and companies should seek ways to implement such systems successfully.


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