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"Performance management is a process for establishing shared understanding about what is to be achieved, and of managing and developing people in a way which increases the probability that it will be achieved in the short and longer term." (Armstrong, 1992, p.5) In order to meet the organisation goal, human resource managers will need to keep improving the quality of employee's performance. Reaching organisation expectation is the main objective for HR managers. If a HR manager fails to improve the quality of employee performance, this will result a failure in goal achievement. Therefore, performance management play an importance role in an organisation.
Performance appraisal can assist the managers to evaluate their employees' performance and developmental. It will help to develop more productive employees. According to Prowse (2009) performance appraisal provides potential employee's feedback which relates in increasing the motivation.
Management by objectives (MBO) is another effective system for setting a corporate's goal or expectation. Furthermore, it can guide and improve the employee's ability to reach the goals, job satisfaction and commitment at the same time. In general, performance management is beneficial to both organisation and employee. However, MBO system is not easy to use and need to be fully recognised
"Performance management is the process of identifying, evaluating and developing the work performance of employees in the organisation, so that organisational goals and objectives are more effectively achieved, while at the same time it provides benefits to employees in terms of recognition, feedback, catering for work needs and offering career guidance." (Rudman, 1995, p5) This is widely used in any industry such as non-profit and profit organisation as well as government department. Most of them implement the performance management systems to manage people performance for achieving better outcome. According to Rudman (1995), performance management system does not only able to improve the performance of a firm but it also assists employees to understand the objectives of the organisation. Harbour (2009) cited that organisational performance is usually viewed from a single dimensional perspective. It is not uncommon that organisational performance is measured by profit margins, market share, and return on investment. In general, most firms often only focus on financial perspective and fail to improve their employees. According to Hartel, Fujimoto, Strybosch, and Fitzpatrick (2007), organisational performance should not only measure on financial figures but also need to focus on corporate environmental and social company performance in order to conserve or improve the level of performance with the employees.
Dransfield (2000) also described the effectiveness of performance management which involves an understanding of needs in managing and developing people in a way to achieve the objectives. Dransfield (2000) also believed that a good performance management should include the following:
A statement outlining the organisation's values
A statement of the organisation's objectives
Individual objectives which are linked to the organisation's objectives
Regular performance reviews throughout the year
Training and counselling
In order to manage people performance, HR managers ought to understand the above elements to improve productivity and job performance. A well-developed performance management must not just concentrate on organisational goal but it should also provide training and engage the employees to accomplish the goal in more efficient way. Performance review should be held every year, thus the employees know the expectation of organisation. More importantly, it provides the employees a clear direction and responsibilities of the tasks. On the following table, Broad (2006) explained the basic performance management progress on how an organisation leads their employee to perform well and meet the goal.
The importance of performance management
Performance management become very essential to every organisation, therefore HR managers should treat performance management as their trump card to generate long term profits and great management to achieve high performance. Most companies set their goal once every year. Goal setting can easily affect workers' performance due to variable expectations which occur every year. Therefore, HR managers must ensure the employees to understand their responsibility and their tasks in order to reach the goal. According to Srinivas (2009), effective performance management is very difficult, but it is critical to an organisation's prosperity and survival.
McAfree and Champagne (1993) believed that performance management is a system which combines, clarifies, and strengthens the relationship between corporate goal setting and planning; and employee development programmes. This system helps HR mangers to have a good indication to design the employee development programmes and improve both morale and productivity of the organisation. Good performance management develops goodwill, healthy relationship between employee and organisation, and profitability to the organisation. Therefore it is important to maintain the performance level of the employees.
In addition, performance management can boost up employees' motivation and confident. Once the employees feel confident and motivated, they are more likely to accomplish their task on time. This can also avoid the communication gap and confusion during the process. Rudman (1996) believed that performance management is a total approach to managing people and performance. It involves setting performance aims and expectations for the organisation as a whole, for each business or operating unit within the organisation, and for work groups and individual employees. In every new project or objective, HR managers must seriously consider the whole process and plan an appropriate strategy to involve his subordinates in the organisation's business and operating issues. In this case, there are more possibility to increase their morale and motivation plus their loyalty to the organisation.
According to McAfee and Champagne (1993) research, Sovran plus Key Bank of Utah shows the benefits of implementing performance management on their branch. The benefits include following:
Managers know that work in their departments is focused on same goals.
Decisions are made lower in the chain of command.
Employees and managers feel better about performance reviews, because the evaluation process is highly involved in establishing his/her accountabilities, standards and personal development plans.
Communication among managers and between managers and employees has greatly increased.
Employees know that they are expected to improve their competences continually. They cannot become stagnant.
Performance Management also provides clear direction to all level of managers and employees which leads all of them toward the same goal or objective as a whole. Furthermore, it will develop tranquillity corporate environment at the same time the organisations will find it very effective to reach the goal.
Performance appraisal is one of a process of performance management. Performance appraisal can be defined as "the basic, yet baffling, process of determining how an individual employee is performing. This appraisal usually form the centrepiece of a much larger human resource programme such as promotion, career planning, salary administration, EEO, management development, redundancy planning." (Banner & Graber, 2007) The purpose of using performance appraisal is to give feedback to all employees and recommends them for future development. In addition, Prowse (2009) cited the key objective of appraisal is to provide employees with feedback on their performance provided by the line manager. There are several methods of performance appraisal which is useful for reviews. The methods of performance appraisal as follows:
Graphic rating scale - Allow each employee to be rated on a bipolar scale.
Grading - Rating an employee's overall performance at a specific performance level
Management by objectives (MBO) - Results-oriented method of performance appraisal, usually measureable goals.
Critical incident method - The documentation of highly effective or highly ineffective instances of performance in a journal designated for each employee.
Behaviourally anchored rating scales (BARSs) - Rating from very negative to very positive attributes of employee performance.
Behaviour observation scale (BOS) - Measures the desirable job-related behaviours observed.
Essay description - Managers state their opinion on each employee's performance, and recommends future improvement.
(Hartel, Fujimoto, Strybosch, and Fitzpatrick, 2007, p.353-354)
However it is very important for HR manager to consider which method of performance appraisal is best suit for their organisation. In this essay, management by objective is chosen.
Management by objective
"Management by objective is a results-oriented method of performance appraisal, where measurable goals or criteria are jointly established by the supervisor and the subordinate." (Hartel, Fujimoto, Strybosch, and Fitzpatrick, 2007, p.353) MBO is focus on goal as a way to improve organisational performance and increased profitability. MBO concentrates on achieving the corporate goal and objective as well as involve the employees in the entire process of goal setting and motivation. As the results, it is significant to increase the employees' job satisfaction and commitment. Furthermore, MBO able to clarify the corporate goal and objective which gives the employees a better sense of what are their major roles and what are the targets that they need to reach by the end of financial year. For instance, MBO is widely use by the automotive industries in order to reach highest car sales targets.
According to Pfeiffer and Jones (1998), MBO gains better control and coordination toward goal accomplishment by having subordinates that are able to manage and organize their own tasks because they know what will help them to achieve the goal. Wiese and Buckley (1998) also believes that MBO system focuses on employee's performance and organisation should hold the performance appraisal constantly as it will assists the employees to perform better as well as meeting organisation goals. Thus, MBO has a great potential to increase the total profits of the organisation while at the same time it able to motivate the employees.
Considerations for implementing MBO
Management by objectives is widely used in most business to reach corporate goals, especially in increasing the sales volumes. Although, MBO is a very good tools to reach the goals, but there are some drawbacks in the system if the organisation misuse it. Dinesh and Palmer (1998) claim that MBO system needs to be better educated, because it is very possible to have many misperceptions, such as many CEO mainly focus on the sales volumes without the concern of pressure to his subordinates.
In addition, it is often the case that CEO's expectation to be extremely high. As aresult, employees' motivation and confidence will decrease. For instance, Dahlsten, Styhre, and Williander (2006) cited the Volvo's new CEO expects to reach the sales target 600,000 thousands cars by the end of 5 years, the average of Volvo cars volume only 400,000 each year. New CEO has given an intangible pressure to his subordinates and without the proper planning whereas all the employees have different perceptions of those 600,000 sales volumes just unreachable. In the end, the new CEO failed to reach the targets. This Volvo case teaches us to have a better understanding of MBO and implement the system appropriately rather than setting the goals randomly that are not reachable. The organisation ignorance of the use of MBO will jeopardise the business.
Wiese and Buckley (1998) also stated the issue of MBO is the high level of management commitment and time required to reorient the thinking of employees. The system needs to be clearly recognised, because it is not easily used for administrative decisions. Although management by objectives is a useful tool for performance planning and feedback, the organisation needs to fully understand the whole concept of MBO rather than just focus on corporate goal. Eventually, it is essential for the company to support the employees' performance to fulfil their job satisfaction, commitment, and create a long term relationship between each other.
Organisations are finding it hard to increase their financial performance through many ways as well as managing large number of people in the organisation. Therefore, performance management is the key of reducing the chances of such unpleasant incidents and else it provides a good solution to ensure the employees able to understand their role and lead them to achieve the goal. Organisation should always give employees feedback and provide them future development. This action will help to improve the employees' quality and also increase the possibility of goal achievement. The more employees satisfaction the more revenue the company can make.
Good performance management should aims for employee performance as the first priority and provide them training if requires. Performance appraisal should be held at least once a year in order to keep the employees on the right track and meet the organisation's goal. Once the employees have clarified the goal, they are more likely to increase their confident and motivation which give them more possibility to perform well and meet the expectations.
Management by objectives (MBO) is a goal-oriental type of performance appraisal. If MBO system is implemented appropriately in the organisation, it is most likely the organisations will have significant success in the business as well as more employee satisfaction and commitment. On the other hand, MBO system is very difficult to be implemented. It requires high level of management commitment and time to reorient the thinking of employees. Further, if the manager misuse the MBO system it may result a failure to the business, and the system need to be clearly recognised by the manager in order to make administrative decision