Effects Of Performance Management System On Organization Commerce Essay

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In 21 century organizations have been facing challenges like globalization, high level of increasing competition, time management, work force diversity, technology etc in both small and large organizations. In order to compete in this new challenging era the performance of employees, teams, and processes and even of the organizations itself are being managed. A good performance management system contribute to improve the overall productivity and profitability of organization by managing performance of individuals and teams that can work together smartly to achieve goals, objective and ambition. (Etsplc, Nov 2008)


Armstrong and Baron (1998) defined Performance Management (PM) as "planned and incorporated approach to increase the effectiveness of organizations by improving the people performance who work there and by increasing the capabilities of teams and individual contributors". (Armstrong and Baron, 1998)


Wayne Eckerson of the Data Warehouse Institute defines Performance Management as "a series of organizational processes and applications designed to optimize the execution of business strategy". (Wayne Eckerson, 2008)

Performance Management is the process of creating an environment or setting in which people can present to the best of their abilities to obtain the organization objectives or PM includes the activities that ensure the achievement of goals and objectives in effective and efficient way. (Susan M, 2012)


Performance Management Objectives are:

Improving two way communications between employees and supervisors.

Giving clear directions about mission, vision, goals, responsibilities, priority and expectations.

Identifying and resolving performance problems.

Recognizing quality performance.

Providing a basis for promotion, succession, strategic planning and pay for performance.

(Lockett, 1992)

Performance Management vs. Performance Appraisal

Most of the organizations used the term Performance Management for performance appraisal system, performance analysis and performance assessment but the PMS is quite different from the performance appraisal system.

Performance management is ongoing proactive approach and a continuous process for managing employee's performance and under that they should achieve set targets in a given time period without reviews at some point in future. There is only judgment of past performance of the employees which has been conducted by most of the organizations annually.

On the other hand performance appraisal is limited and reactive approach for evaluating past performance which occur once or twice a year. It is different staff activity with no direct interference to the employee's day to day work.

In short we can say that a performance appraisal (annual review, employee review) come under performance management and doesn't result in great gains in performance/productivity and is least important part of PM. (N. Nayab, May 2011)

Organization should shift from performance appraisal to performance management system because performance appraisal does not provide something extra to organization and organizations that awarded the employees on the bases of performance appraisal are unable to get the required results. The individual who works only for reward, the reward does not change his/her performance. On the other hand it can de motivate the other employees due to unequal distribution of rewards based on performance appraisal and can develop a cold war between employees and employer. (Shah,F.T & Aslam,M.M, Nov 2009)

Application of Performance Management

Performance management is applicable in places where people interact like schools, meetings, colleges, banks, hospitals, factories, business organization, sports team, political settings and even in households. PM can be functional by organizations, single department inside an organization, as well as by individuals.

Performance Management System

Performance Management System (PMS) is an organized process in which organization involves its employees in improving organizations efficiency by achieving mission and strategic goals of the organizations. The basic purpose of PMS is to implement strategy and to ensure that performance happens by design not by chance.

In organization measuring and evaluating the performance of employees is a part of the concept of performance management system. There are at least three different types of performance management systems: the managing of organizational performance, the managing of employee performance, and the integrated managing of both organizational and employee performance (Williams, 1998). The concept of performance management system is wide, covering management of performance at all levels within the company and incorporating several components. Two of these components are performance measurement and performance evaluation. Sometime these concepts are combined under the theory of performance measurement, as defined by (Maria Hogman and Andrea Molden, May 2007): "PM systems are information systems that transform performance data into assessments of organizational and individual performance."

Performance management begins when an employee started job and it ends as an employee leaves the company. During this time period a performance management system includes following step wise actions. (SMR HR Group)

1. Developing clear job descriptions:

Job description is the written statement that includes the responsibilities, functions of the job, the working conditions, material and equipment. Some time it also includes the qualifications and skills needed for the job or a salary range. A job description should not be limited to explain the work that is currently expected, it may also include goals that might be achieved in future. It is the first step in choosing the right person for the job. It does not mean common job descriptions that ended with and no matter what else you are assigned by the administrator. Job descriptions provide a structure so the applicants and new employees are aware of the prospect for the position.

2. Hiring a suitable person for the job by an appropriate selection process:

Every job has different requirements. Every person is different from others having different skills, education, expertise and interest. Hiring or recruitment is the process of corresponding the skills and interests of a person to the requirements of a job. Well defined job descriptions make it easy to hire a right person for the right job.

3. Setting goals and settle requirements, performance standards, objectives, outcomes, and measures:

After hiring the next important step is setting goals for individual and then negotiates them with employee and also tells them about job responsibilities. Sometimes employees fail to meet the expectations of the employer. The reason behind this is they do not know what they were supposed to do.

4. Provide orientation and instruction:

A person can perform the best job when he has necessary information's related to company, nature of job, position, product, and procedures. He must have complete understanding regarding customer's needs and requirements.

5. Provide coaching, on-going training and feedback:

In order to identify the strengths and weaknesses of the performance; people need constant feedback that is very much essential to help the people improve their strengths. It may be positive or negative but the employees should take it objectively. They should provide with special training and coaching from the boss or seniors and try to improve themselves and do not feel hesitation to ask for the help from seniors. Feed back is very important part of the performance management without feedback performance management is incomplete.

6. Design effective recognition systems that reward people for their contributions:

Recognition is a reward that motivates the employees to put their maximum efforts to accomplish the organization objectives. It may be praise or in the form of some monitory rewards. It may be oral or in written form like recognition letter or in the form of medals or by announcing the employee of the month. Praise should be timely and publically then it would be more effective. Employee morale\confidence will be high so the performance level of the employee would increases.

7. Provide promotions and developmental opportunities for subordinates:

The supervisor or manager should provide an environment that helps the employees to develop their abilities. It can be done by giving them challenging tasks and interesting job assignments. Give them different trainings and effective workshops that contribute to their career development. Should create an environment in which people feel comfortable to take initiatives and experiencing mistakes as person cannot learn new things without these.

8. Try to understand why valued employees leave the organization:

When employee decide to leave the organization it is necessary to understand why the valued person is leaving the organization. Should interview the person and ask the reasons about leaving the organization. The feedback of the person will give the important information that would be beneficial for the organization to improve its working environment. The improved work environment for people would results in the maintenance of valued staff. If the working environment of an organization would allow and encourage the discussions and feedback, the organization would be able to take the corrective measures before the resigning of valued employees. (Susan M. Heathfield, 2012)

The affect of the Human Resource Experts/Managers on Performance Management System

The affect of the Human Resources expert/ managers on the performance management system is significant. We can push managers and supervisors to take accountability for managing performance in their organizations.

We can encourage the thoughtful that even if one individual's work area, branch, or section is booming, this will not result in a well served client. Because all gears of organization are inter related and the part of a system that creates value for customer. All sections must be working effectively for the success of the organization. An organization is like the human body in which there are different sub systems that are inter dependent upon each other. Same is the case with organization sale department is dependent upon marketing department and production is dependent upon finance etc.

So in performance management system, all departments of the organization should work to create worth for each member of staff and also for the organization. (McNamara, Carter, 2008)

The Three Phases of Effective Performance Management

The three phases of effective performance management discussed below are vitally important in ensuring that your employees' performance is in association with your organization's needs and in alignment with your expectations as a leader.

The things that occur before the assessment (Preparation stuff),

The things that occur during the assessment.

The things that occur after the assessment. (Dr. Ollie Malone, Jan, 2009)

Tools of Performance Management

PMS consists of three important tools:

Work planning and performance review system

It is a mutual effort of two people who work together as they plan the work to be done over a selected period of time between supervisor and a staff member.

Guide for developing performance objectives

It shows about employee's performance objectives (component and criteria) that are linked with the goals of organizations.

Guide for developing job description

It gives outlines about the purposes of job descriptions and their parts. (Planning Manager's Toolkit, 1998)

Other General Tools are:

Chris Herrmann in his article Poor Performance and Recognition stated that coaching is the most effective tool for dealing with poor performance. Coaching does not mean just screaming at them. Not just supervising them from sitting on the top, giving them instructions and telling them about rewards but tell them what are the causes of problem. If you want to find out the reasons of problem and building the strengths of the workers you should work with them at their level.

Balance scorecard is another performance management tool. It is a strategic tool used for monitoring the organization performance and aligns the activities of the business to the vision and strategy of the organization and improves the external and internal communication. This is used in govt. business, nonprofit organizations and industry. It increases the focus on strategy and results rather than on behavior and measure the organization performance on day to day basis. The work started in 1988 but it was originated by David Norton and Drs. Robert Kaplan (HBS). In 2011 45% Indian organizations using this card and 65% USA.

In Pakistan traditional performance Appraisal System is used which have many drawbacks like lack of communication of performance assessment criteria, lack of clear reward, poor feedback etc. (Chris Herrmannn, Oct 2012)

Benefits of Performance Management

An effective PMS has given benefits to organizations, managers and employees in different ways

Benefits for Organizations: (Improve organizational performance, loyalty and employee retention, improve productivity, and reduce communication barriers.)

Benefits for the Managers: (It saves time, minimizes conflicts, and ensures efficiency and regularity in performance.)

Benefits for employees: (It clarifies expectations of the employees and gives self assessment opportunities. It shows career paths and promotes job satisfaction.)

Other General Benefits include:

Performance Management focuses on consequences, rather than behaviors and actions:

A common belief of supervisors is that behaviors and actions are the same as outcome. Thus, a worker may appear very busy, but not be contributing in the goals of the organization. An example is from the public sector like in banks and government offices an employee do the manual work rather than he is provided with such technology like different software that make his work more easy. The manager, administrator or supervisor may conclude that employee is hard worker and dedicated to the organization, so he deserve a very high performance score. This is a misconception of the supervisors. Performance management measures their day to day performance and focus on the results rather than the behavior of the employee.

Compare organizational activities to the objectives of the organization:

Performance Management makes the organizational objectives very clear, identify the results needed to accomplish those objectives, procedures of success (outcomes) toward the objectives, and it also identify the way (drivers) to attain the objectives. This sequence of measurements is used to guarantee the association with overall results of the organization.

Provide long-term view of the organization:

Performance management system provides long term view of the organization. As it make it possible to align the strategies, activities or short term goals with the long term objectives of the organization. Otherwise, the effort may result in a wrong direction. For example, lying off people can generate short-term earnings. However, the organization may ultimately experience decrease output that result in long-term profit loss.

Increase employee commitment:

As the performance management system provides the actual performance of the employees on the bases of which fair rewards are distributed among the employees. Corrective feedback and equal and fair rewards will increase the employees commitment and motivate them that indirectly increase the productivity of the organization.

Increase employee morale and communication:

Performance management focuses on on-going process of feedback and dialogue about organization objectives and communication. It increases the communication between supervisor and employee. As the supervisor discuss with employee their performance in respect of organization objectives, give them feedback and suggestion to correct if any deficiency. This will increase the employee morale and if there is any good suggestion in the mind of employee he share with the supervisor without any hesitation.

Cultivate system thinking:

Performance management system focus the exchange and relationship among the subsystems e.g., process, team, employees and departments so cultivate system thinking that all the parts of the organization are interrelated. So the employees focus on themes and patterns in the organization rather than specific events. If there is deficiency or low performance in one department this will directly affect the overall productivity of the organization.

Help to correct some misconceptions or myths:

As it focus on the day to day performance, analyze it and compare it with the goals so it helps to correct myths e.g. if an employee is satisfied his productivity will also increases etc.

Retention of valued workers and increase profitability:

Performance management system also focuses on the rewards and proper recognition so the employees have feelings of accomplishment and then they become more loyal with the organization. An employee who retain within the organization for a longer time period they develop good relationship with the customers and it will increase the productivity of the organization. (Management-Study-Guide, 2012)

Principles of Performance Measurement

All important work activity must be measured and which is not measured can't be managed as there is un-availability of objective information so unmeasured work should be eliminated.

Establish the desired performance outcomes for all measured work as outcome provides basis for accountability, work evaluation and meaningful performance appraisal.

To evaluate organizational performance a time phased performance baseline must be developed and includes all organizational operational, financial and scheduled performance outcomes)

operating and financial performance reporting must match with the same reporting periods and reporting frequency and it should be consistent with time phased performance baseline

For effective management control frequent and timely reporting is needed.

If performance is not measured than the question that may arise are:

Where to improve, where to allocate resources both money and people, how to make comparison, how to make judgment whether we are improving or declining and which methods are efficient and cost effective.( Dr. Ollie Malone, Jan, 2009)

Challenges of Performance Management Systems

Following are the challenges faced by performance management systems:

Existing Financial System Limitations:

Chart of accounts used to structure the budget development and financial reporting is not supporting operational analysis in many organizations.

Organizational Fears:

Department and agencies are hesitant to implement PMS as they have fear about how result will be interpreted and are unclear how it will affect the department and employees.

Elected Official Fears:

Elected officials may have fears about how the performance data will be used, analyzed or interpreted by the public.

Performance Management is too Hard:

Performance management can be great undertaking for some organizations and can be viewed complex, time-consuming, and require efforts for implementing it in organization culture.

Strategic Planning Process Overload:

Some public officials and managers believe that the process of PM is not large and doesn't impact organizational results. An initial implementation period for performance management, a so-called "honeymoon phase" can be unnecessary extended and not give results for appointed officials.

Regular Review and Use:

Agencies need to develop policies on how performance results will be used for operational and fiscal decision-making as if data is not being used for decision making it loses its value and question may arise for what purpose its being collected.

Looking to Software as the Solution:

Now organizations depend on software's for implementation of PM without knowing that it doesn't change behaviors' as government has recently started using software.

Believing this too Shall Pass:

Managers hesitate to invest money, time and energy to support the success in PM as they think it will not work. (M. F. Brown, 2011)


The term Performance Management is used to improve the overall performance of individuals, teams, groups and organizations which are based on principles of measurement, appraisal, and action. There are factors that will impact the efficiency of an organization's PMS. Most important of them are:

1. System needs to be aligned with critical success factors that support organizations direction and significant success factors.

2. To make the system comprehensible and well received by organizational members; there is need to make well developed, efficiently administered tools and processes.

3. Managers and employees must use the system in a way that brings visible, value added benefits in the area of performance planning, performance development, feedback and achieving results. (Elaine D.Pulakos)