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The purpose of this paper is to provide readers with a perspective on the importance of performance management processes in the modern organization. At the lowest level, different organizations might be perceived to be following unique performance management strategies. However the core philosophy and activities that make up the most effective performance management strategies remain essentially the same. We take a look at these activities and explore some of the research that they have been subjected to in the past. We then examine in more detail the current organizational view of performance management and finally delve into some of the most interesting and relevant areas of performance management which, if subjected to further research, can contribute to the increase in effectiveness of performance management systems.
DeNisi (2000) defines Performance Management as "a range of practices an organization engages in to enhance the performance of a target person or group with the ultimate purpose of improving organisational performance"
Performance management is one of the most important human resource functions of an organization and an effective performance management strategy can contribute significantly to the success of an organization as well as provide a major competitive advantage to the organization over others. According to Armstrong (2009), performance management can be instrumental in driving cultural change and creating a high-performance culture in organizations.
This paper explores some of the key best practices that are being used to facilitate effective performance management by high performing successful global organizations. It does not attempt to focus on any particular industry or sector, rather taking a general approach which could be relevant to any industry. Additionally it looks at the current view of performance management systems and the scope for future research in this field.
Performance Management Process
The traditional method of assessing employee performance in an organization is to use the performance appraisal, which is just the systematic evaluation of an employee's strengths and weaknesses. In contrast, the performance management process is a more holistic approach which includes an organization's strategic business concerns. Unlike the appraisal process, the performance management process also provides continuous and extensive feedback to employees. Also, the appraisal process is generally undertaken once-a-year and driven by the HR department, whereas the performance management process is driven by managers and is viewed as a year-round business function (Aguinis & Pierce, 2007).
Some of the key performance management activities are performance planning, performance and development agreements, continuous monitoring of performance and formal review and assessment of performance (Aguinis, 2007; Armstrong, 2009). The following sections review the current literature surrounding these activities.
The performance plan is the result of interactions with employees around goals, roles, performance standards, behavioural standards and their capability development needs. Several theories have been proposed regarding an efficient goal and objective setting process. Locke & Latham (1990) identify five important principles in goal-setting that can motivate employees. These are Clarity, Challenge, Commitment, Feedback and Task Complexity. Many organizations also successfully use the 'SMART' mnemonic (Specific, Measurable, Achievable, Relevant and Trackable) as proposed by Blanchard (2009) to define desirable characteristics of objectives.
According to the Harvard Business Review (2008), almost 40 percent of employee activity in organizations in not aligned to its business goals. A key feature of the planning process is the cascading nature of the planning from a firm's strategic plan to the business plan and then to the employee's individual performance plan. This ensures alignment between these levels and provides clarity to each employee about their individual work and the "strategic" goals of the organization (source: "Best Practices - Planning and Developing Employee Performance", 2010). Linking individual goals with organizational goals can also reinforce behaviours that are consistent with organizational goals (Cleveland, Murphy & Williams, 1989; Aguinis, 2007).
Performance and development agreements
The performance planning process results in a performance agreement. This agreement formally documents the role definition, goals, objectives and standards that were discussed during the performance planning process. In addition it records the methodology by which performance will be measured and the key factors that will be considered while determining the levels of competency. The agreement of this methodology and factors is essential as these can then be consistently used by employees as well as managers to monitor achievements and demonstrate performance. Development agreements can document the various capability development needs of an employee and the development plan to follow in order to meet those needs (Armstrong, 2009).
Continuous monitoring of performance
Constant engagement and motivation of employees is imperative in a high-performing organization. According to Aguinis & Pierce (2007), performance management is changing from being a once-a-year consideration to being an ongoing dialog between employees and managers. Armstrong (2009) elaborates on the advantages of managing performance throughout the year. He lists the following three benefits of this process:
It can lead to sustained improvements in employee performance
It can facilitate the continuous development of employee competencies and skills
It emphasizes the organization as one that is dynamic i.e. it constantly leverages the learning gained from past experiences which have led to increased performance
Aguinis & Pierce also cite the example of Merrill Lynch, which transitioned from using a traditional annual performance appraisal system to using a more holistic performance management system thus establishing a regular conversation between managers and employees regarding performance. This also facilitated a regular feedback process, an ongoing discussion on the progress of personal development plans and the identification of any coaching and training needs during the year.
Review and assessment of performance
Performance assessment is the process of evaluating the extent to which desired results have been achieved and whether the employee has been able to display desired behaviours. It involves both the supervisor as well as the employee. Although performance information can be collected from many sources like subordinates and peers, it is usually the direct supervisor who provides the information. The process also involves an assessment of the extent to which the employee has been able to achieve all capability development goals stated in his/her development plan. The performance review stage involves a meeting between the supervisor and the employee to review their assessments. Commonly called the appraisal meeting, it is important because it provides a setting in which the employee is formally provided with feedback on his/her performance (Aguinis & Pierce, 2007). Many performance management cycles include some kind of a rating process that can be done during the performance review stage. The rating scale is supposed to help organizations make decisions around employee promotion and pay (Armstrong, 2009).
According to Den Hartog Et Al. (2004), performance measurement plays an important role in the performance management process and this stage also provides some interesting challenges for future research. For instance modern performance appraisals do not just stop at measuring task performance, instead they also go on to incorporate contextual performance (Fletcher, 2011). One example of such a shift is the impact of changes in organizational performance indicators on those of an employee (Molleman and Timmerman, 2003).
Current view and way forward
Previous research shows that there are many proponents of performance management like Armstrong (2000) and (Molleman and Timmerman, 2003) who have provided evidence that firms with employee performance management processes outperform, on a wide range of productivity and financial measures, firms without such processes. However there are a number of detractors of performance management who have also provided evidence of the lack of any concrete success due to performance management systems (Biron Et Al., 2011). For instance, Coens and Jenkins (2000) have found that even though 80 percent of firms in the United States use performance management processes, 90 percent of these firms are not satisfied with them.
There also seems to be a general consensus among researchers about the "strategic" role of the performance management processes i.e. integrating organizational and employee performance management (Cleveland, Murphy & Williams, 1989; Fletcher, 2001; Den Hartog Et Al., 2004; Aguinis, 2007).
The current performance review processes have come in for strong criticism from some quarters. For instance, Samuel A. Culbert in his article titled Get Rid of the Performance Review!, argues that the way in which performance reviews are currently practiced actually hamper their potential benefits as an effective feedback tool. Kimberly Thompson is her article titled The Dreaded Performance Review also takes a similar view. In her opinion, most performance review processes tend to de-energize employees rather than energizing them. In this context, she says that employees perceive performance reviews as giving a sense of "going to the principal's office".
Scope for further research
According to Fletcher (2001), the context of performance management as an organizational function is changing. He mentions the impact of technology and cultural differences as emerging areas of research that are emerging in this field. As organizations broaden their international scope, there is a sharp increase in the coordination and collaboration between persons from different nationalities, often in the form of global work teams. Since persons in such teams will have diverse sensibilities regarding rewards and recognition, task evaluation and training and development, it creates additional complexities in performance management. In such cases it might even become important to evaluate the use of performance management practices against their legal implications in different countries (Den Hartog Et Al., 2004).
According to Armstrong (2009), the use of technology is also impacting the performance management processes in organizations. Internet-based performance management systems can provide several benefits. They have the ability of eliminating existing time-consuming performance review practices as the amount of time and effort spent on administrative tasks is reduced dramatically. They also make it much easier for employees to access their performance history as it develops through the year, instead of needing to rely on memory. Armstrong uses the case of Raytheon, a company that effectively incorporated a web-enabled performance management system which integrates a performance and development summary along with the tools and details about the company's 360-degree assessment and compensation system. Employees have the ability to initiate their goal-setting process through the system and to document their accomplishments directly on the performance screen.
Aguinis & Pierce elaborate upon some of the other areas and theories that can potentially produce knowledge directly applicable to the design and implementation of performance management systems. These are:
Social, power, influence and leadership: If an employee believes that his/her supervisor can influence important outcomes like rewards and recognition, then the performance management system can be more meaningful. Similarly, leadership can play a part in the general acceptability of a performance management system in an organization. For example, former GE CEO Jack Welch was well known for endorsing and in fact personally involved in the design and implementation of GE's performance management system.
Trust: Future research could try to understand the conditions under which group and organizational factors could enhance employee trust and consequently increase the effectiveness of the performance management system.
Group dynamics and close interpersonal relationships: Almost all organizations organize their functions around teams. Thus many organizations include a team component in the performance review process i.e. the performance assessment criteria includes individual performance as well as an individual contribution to the overall team performance. Thus there is a need to explore how interpersonal relationships and group dynamics could create conflicts of interest that can influence the implementation of performance management systems.
Negotiation and Communication: The performance management process includes negotiations and interactions between supervisors and employees regarding goals, objectives and performance assessment criteria etc. Therefore it will be helpful to conduct research that can provide guidelines around the appropriate form of communication to use in different stages of the performance management process.
Mentorship: As noted earlier, feedback and coaching form integral parts of performance management systems. Research that can provide knowledge regarding the successful integration of performance management and mentorship can potentially contribute to increasing the effectiveness of performance management systems.
Performance management is currently seen as critical for the survival and growth of organizations. An effective performance management process provides a mechanism to continuously measure and manage employee and organizational performance with the ultimate aim of improving organizational efficiency.
In contrast to the traditional once-a-year method of evaluating employee performance via employee appraisals, performance management is a year-round continuous process which also aligns employee performance goals with the strategic business goals of an organization.
While the core set of activities in a performance management cycle remain the same across most contemporary organizations, research shows that there is still a vast scope for improvement in most stages of the cycle. As discussed, there are many areas and theories which if researched further could aid in increasing the effectiveness of the performance management process. With the help of technology, organizations can implement web-based performance management systems that provide a platform for the performance management process that requires lesser time and effort from both managers and employees.