The contributions of perfomance management systems

The need for effective performance management has grown in organizations for various reasons. Such reasons include providing appropriate employee rewards, managing employee competencies, indicating the degree, nature, acceptability or unacceptability of work and measuring extent and process of goal attainment (Shields 2007). To ensure an effective and efficient performance management, performance management systems (PMS) have been developed and implemented in many organizations today.

Linge and Schiemann (1996), de Waal and Coevert (2007) and Lawson et al. (2003) cited in de Waal and Counet (2008) agrees that PMS is a critical contributor to top class performance and quality output of organizations. Consequently, when critically assessing the main contributions of PMS to organizational and individual performance, the impact of such contributions on the organization and individuals will be considered as the measuring unit.

2.0 Contributions of Performance Management Systems

The nine main contributions of PMS to organizations and individuals includes: consolidating operational information to reflect a single meaningful picture of the organization, developing realistic performance and business goals, developing well-structured business plans with proper risk management measures, developing processes that change with the business environment, providing ease of information analysis, providing opportunities for performance improvement, enhancing trustworthy reporting, increasing confidence in business execution and improving the performance culture of the organization (Dresner 2008). Each of these contributions will be considered in details.

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An effective PMS pulls data from different organizational systems and presents the information in a “timely, accurate, relevant, consistent and controlled” manner. When relevant and critical information is stored away in individual departments, it becomes difficult for management at any level to see the performance of the entire organization. This hampers or degrades the quality of decisions made since relevant information is not available or is not available in a timely manner. Moreso, management reports about the different business units will not be accurate and consistent since the information is incorrect. When management is able to see the entire organization, it will be possible to determine the key performance indicators of the organization ascertain real performance drivers and produce consistent and reliable organization reports (Dresner 2008, pp. 141-2).

A good PMS helps management develop realistic performance expectations of the business units in the organization. When management lacks a basis for setting performance goals for the organization, the goals becomes unrealistic, irrelevant and meaningless and results in wasted resources, demotivation of employees and unnecessary refinements of business goals. Suitable performance management applications enable managers to develop appropriate business and performance goals on a sound basis (such as the organization corporate strategy), communicate appropriately these goals, take responsibility of these goals, and drive the success of these goals. These ensure managers align all the business units’ goals to the corporate focus of the organization (Dresner 2008, pp. 143-4; Johnson, Scholes & Whittington 2008).

A properly structured PMS enables an equally structured business plan. Such plans includes appropriate feedback mechanisms and appropriate performance measurement metrics. When management is knowledgeable of the key performance indicators of the business and the plan is properly structured to ensure negative conflict is reduced between the business units, business results can be reasonably forecasted. Additionally, when business plans are aided with “contextual information such as industry benchmarks, customer satisfaction surveys, call center reports, revenues, profit and cash flow reports”, management will measure relevant performance activities, demonstrate reasonable achievable results to stakeholders and reduce risks because the basis of the plan informs the relevant risks the organization should be concerned about (Armstrong 2006, pp. 48-52, 90-7; Dresner 2008, pp. 144-5).

A desired PMS assist organizations to adjust their strategic, tactical and operational plans when the business environment changes (Armstrong 2006; Wiesner & Millet 2001, p. 117). Such robust plans do not necessarily sacrifice core business priorities or primal intra-dependencies in the organization rather it is incremental depending on emerging opportunities or changes in business environment (Grant 2005). When managers at all levels develop plans with changing business conditions in mind, the need for a dynamic planning process begins to emerge. Such realization enables an organization to develop the culture of continuously matching corporate plans with current realities, refines previous forecasts based on current knowledge and aligns individual business unit activities to current happenings. As a result management is constantly abreast with the present, improves critical planning competencies and modifies communication across the organization. This competence leads to better performance and an organization that approaches the future with confidence (Dresner 2008, pp. 145-7).

A robust PMS presents information in a way that enables easy retrieval, comparison and evaluation of data. A PMS contributes more to an organization when it does not only pull information to a single point but compiles, compares, contrasts, evaluates and presents meaningful results from such data. Moreso, when actions are critical for the business, built-in prompts in the PMS alert for such critical actions to be carried out. Such automatic features increases the visibility of the organizations’ performance, ensures managers act efficiently and effectively and ensures the business remains competitive (Dresner 2008, pp. 147-8).

Interestingly, a good PMS provides individuals and business units across the organization with an opportunity to improve performance. This performance improvement begins with the performance accountability culture that results when a PMS is used daily in controlling and managing the organization. Hence, accountability enables employees and managers to be responsible for their performance and when mistakes are made, consequences observed, corrections made and positive results emerge from the corrections made, this improves learning and performance (Dresner 2008, pp. 148-9).

A functional PMS assures and ensures that organizations’ publications are trustworthy. When a PMS collates, analyses and consolidates information in a timely manner from all the business units into a single platform, managers at all levels can access, integrate and certify published reports since there is sound basis for its composition. The organization will be able to confidently report key performance drivers to the organization and stakeholders. When the PMS is built with suitable capabilities organizations can publish consistent, relevant and accurate reports in less time and with less effort (Dresner 2008, pp. 149-50).

An enterprise wide PMS ensures proper guide is provided for smooth execution of business plans across the organization. When a PMS has all the planning information, integrates all the changes and relevant refinements of business decisions and goals across the organization, incorporates all the resources required to achieve the set out objective of the business units, management will be able to provide clear direction on the execution strategy of the task. Managers at all levels will be able to carry out the business executions confidently, communicated appropriately and effectively the progress and status of the executions. When a PMS can provide an end-to-end operational support structure, managers can confidently decide, monitor and report real time impacts on business decisions which enhance top quartile performance (Dresner 2008, pp. 150-1).

A comprehensive PMS builds a generally performance-driven and accountable business organization. When a business operates a PMS that is used to control and manage the organization daily, enormous data of information gained from various business aspects would provide enormous insight into key performance criteria of the organization. An organization emerges that focuses and gains experience in performance-related information gathering, performance-related activity alignment, performance-driven business planning, performance-related analysis, performance-related monitoring, forecast and reporting and a general performance driven culture. These make an organization and employees of the organization more competent and perform better and manage the organization better (Dresner 2008, pp. 151-2).

The impact of the main contributions of PMS begins with the nature of PMS implementation in the organization.

3.0 Lessons learned from Performance Management Implementation

The article “Lessons learned from performance management systems implementations” reveals problems that are encountered during the implementation and use of PMSs. Serious problems with PMS implementations could mitigate the contributions expected to be derived from the use of PMS. The article records that fifty six percent of PMS implementations fail before organizations can realise any meaningful benefit from the system (de Waal & Counet 2008). In other words, PMS only contributes to organizational and individual performance forty four times for every hundred attempts at its use.

3.1 Causal factors

The consideration of the causal factors resulting in PMSs failing at the implementation stage or if implemented not effectively used in organizations is therefore significant. Identified problem areas contributing to this failure includes senior and middle level management paying less importance to the PMS implementation, prolonged, extended and unanticipated resource requirements during implementations, complete lack of resources for the PMS implementation, unfavourable environmental pressures during implementations, perceived lack of focus of the PMS implementation by employees, lack of or not long enough enthusiasm by senior and middle level management on the PMS implementation, mounting resistance or low commitment by employees to the implementation and use of the new PMS, lack of adequate information and computer technology (ICT) infrastructure to support the implementation and use of the PMS, poor use of the PMS by management (such as using it as a punitive tool for employees), incompatibility of PMS with the organizations main objectives, constricted use of PMS (such as only a reporting tool), poor definition and/or poor linkage of the relevant measurable key performance indicators (KPIs) to different individuals and departments of the organizations, lack of competence in the use of PMS, too many or wrong KPIs measured by PMS, lack of an organization change strategy for the use of the new PMS, lack of and/or poor motivation mechanisms for employees in the use of new system, poor performance culture in the organization, no single point responsibility of PMS, lack of or poor general maintenance of the system, difficulties in getting relevant data for performance calculations, no plan to embed its use in the organization beyond management changes and perceived lack of improvement in the organization after using the system for sometime (de Waal & Counet 2008).

The most important problem areas that had the severest consequences were a “lack of top management commitment; not having a performance management (PM) culture; PM getting a low priority or its use being abandoned after a change of management; management putting low priority on the implementation; and people not seeing (enough) benefit from PM” (de Waal & Counet 2008, p. 367). The enormity of the problems relating to PMS implementation and use reveals the seriousness of removing these impediments if PMS must have a chance to positively contribute to the performance of organizations and individuals.

4.0 Successful Performance Management Implementation

The assessment of a properly implemented PMS is important to the performance health of any organization. The American Productivity and Quality Center (2004) reveals the results of successfully implemented PMSs in five companies namely Bank of America, Crown Castle International, JetBlue Airways Corporation, L.L. Bean and Saturn Corporation. It highlights ten success factors that ensured such successful PMS implementation as including the organization measuring its important objectives, incorporating the performance system into its daily operations, reflecting the organizations’ maturity level in the PMS, making provisions for flexibility in the PMS, simplifying processes in using the PMS, creating successful change plans from the old PMS (if existent) to the new PMS, ensure transparent communication from the PMS to the organization, incorporates the PMS into the organizations’ culture, structure the PMS with organization structure and ensure a commitment to action based on the results of the PMS.

4.1 Analysis

Therefore, the successful implementation of the PMS impacted positively on the organizations. Since the use of PMS represented ninety-four percent of the organizations’ activities, it can be said that the PMS was applied to the daily operations of the organizations. The result is that business objectives were directly impacted positively. For example, the Bank of America recorded an increase in customers’ checking account and increase in earning per share. Crown Castle was able to improve their cash flow positively and in some cases beat market expectations for the company. Similar successes were recorded by the other organizations studied. Additionally, organizations were able to demonstrate these positive impacts easily since the use of the system makes all the organizations’ efforts visible and transparent. For example, Bank of America incorporated a customer performance analysis that enabled the bank demonstrate how and where it had to improve in relation to their customers. Similarly, L.L. Bean was able to demonstrate analysis of its normal activities in comparison to its seasonal engagements. Other organizations shared the same positive outlook. Subsequently, PMS contributed to the continuous improvement efforts in the organizations. The organizations were able to manage their corporate balance scorecard, manage improvements to the company process and develop future plans based on such improvements. For example, Saturn was able to improve their customer relationship by adapting its PMS to focus on six core values of “customer enthusiasm, retail partnership, passion to excellence, teamwork, trust and respect for the individual” which resulted in their retailers sharing the same system, consistency in reporting and measurement of criteria. The use of PMS ensured that all the levels of the organization were able to predict future impacts on the business which means that future strategic, tactical and operational plans will be easily broken down and aligned with the organizations departments. For example, L.L. Bean linked the lower level plans to individuals and the various expected individuals’ activities calculated to determine the corporate performance indicator. Another area of positive impact was the ease or review and reporting with the use of PMS. Unlike traditional staff performance appraisal that occurs at the end of the year, functional PMSs made it easy to observe, assess and report daily, weekly, monthly, quarterly or when required. If the PMS is not delivering on the intended objectives, amendments can be made with little disruption and impact to the business. For example, business performance in Bank of America and Saturn are inputted and analyzed daily to determine gaps, causes, corrective measures or changes in business approach (American Productivity and Quality Center 2004).

4.2 Lessons learned from successful Performance Management System Implementation

Hence, the key lessons from these successful implementations highlights the criticality of organizations’ leaders and employees maintaining commitment to the PMS, populating it, using it daily, embedding it into the organizations culture and training staff. Interestingly, this finding agrees with de Waal and Counet (2008) in the article “Lessons learned from Performance Management Implementations” in which lack of management commitment was among the severest detriment to successful PMS implementations. Moreso, the implementation revealed that when the organization is assisted by the PMS to be proactive and the organization feels that it is achieving its strategic plans, the PMS continues to remain relevant and effective to the organization. When the PMS is perceived as uncomplicated, provides information to the different departments when needed and enables rewards of hard working employees, the PMS will be easily maintained to provide the critical performance measurements needed by the organization (American Productivity and Quality Center 2004).

4.3 Assessment of the contributions

Therefore, a critical assessment of the impact of PMS on Bank of America, Crown Castle International, JetBlue Airways Corporation, L.L. Bean and Saturn Corporation based on successful implementations of PMS could be stated as ensuring business objectives are positively achieved, visible and transparent demonstration of efforts towards goal attainment, highlight of organization improvement areas and efforts applied, prediction of future impacts on the organization, ease of reporting and review of key performance criteria of the organization. Thus, it can be said that these organizations have been impacted positively through the use of the PMS. Therefore the author in its critical assessment is in favor of the argument that PMS delivers enormous value to both individual and the organization and its use should be sustained when implemented.

5.0 The Scorecard System

More specifically, a popular performance management system in use today is the scorecard system. Many companies have deployed the use of the scorecard system in strategic management of their organizations’ performance (Hatch, Lawson & DesRoches 2008, p. 7). The impact of using the scorecard system on Suzano Petroquimica Company is assessed next.

5.1 Application of Scorecard System to Suzano Petroquimica

Suzano Petroquimica Company (SPQ) is a Latin American industry leader producing polypropylene resins and a major producer of thermoplastic resins in Brazil. With a production capacity of 685,000 tons/year distributed across Latin America, SPQ continued to expand to consolidate its leadership position in the polypropylene business with the goal of being the second largest producer of thermoplastic in the region. SPQ advanced to becoming joint controlling shareholders in other companies that supplied them the raw materials for their business. In 2005, SPQ earned a gross income of $980 million representing a 126 percent sales increase with its 474 employees (Hatch, Lawson & DesRoches 2008). That same year SPQ was inducted into the Balanced Scorecard Hall of Fame due to its massive success in the use and application of the balanced scorecard framework in managing and improving its company performance.

To fully understand the impact of the performance management tool (scorecard system) used by SPQ, consideration of the process that resulted in such massive success is explored. To achieve their vision of industry leader in 2003, SPQ followed the process of change management, implementation and observation. During the change management phase, SPQ had to inform the employees clearly of the planned change to the use of the scorecard system, the reason for the change, benefits of employees embracing the change, develop a strategy for measuring, monitoring, assessing and correcting performance at all levels in the organization. During the implementation, SPQ dissected the corporate strategy and assigned actionable parts of the strategy to individuals and departments making the individuals and teams responsible for the outcome of their assignments. To align the entire perspectives of the organization, 650 measures were monitored by the scorecard system. Measures relating to finances were tied to the financial planning system and automated to enable real time cost monitoring. Short term, medium term and long term goals of the organization were also tied to the scorecard system wherein senior management would review the relevant measures to determine the performance and needed performance adjustments required for the different range of goals. Furthermore, to align employee actions to the scorecard system and ensure organization wide use and acceptance, SPQ “linked the remuneration system, bonuses, individual objectives and corporate team incentives to the scorecard system”. Apart from SPQ achieving industry leader status, it was observed that SPQ noted many benefits from its implementation of the scorecard system. Such benefits included improved and integrated communication between individuals and teams and between teams and management, corporate strategy communicated in a simplified manner, corporate goals performance were linked to remuneration, effect of performance on the measures monitored were visibly related to the corporate strategy, employee actions were aligned to corporate goals and strategy, entire organization worked as shareholders in the company and positive changes of employee behavior since rewards were tied to performance (Hatch, Lawson & DesRoches 2008, pp. 131-3).

5.2 Assessment

A critical assessment of the contributions of the performance management system – scorecard system – reveals many positive impacts on SPQ. Implementing the use of PMS in 2003 and within two years achieving the industry leader status as an organization is a massive feat. Additionally, the application of the PMS to individual performance in the organization is significant wherein individuals objectives were not only linked to corporate objectives but hardworking individuals would be rewarded accordingly based on their performance. The author agrees with the evidence that Performance Management Systems contribute positively to organizational performance. However, the author recommends that the linking of individual performance to remuneration and rewards should be categorized (years of experience, degree of training etc.) and with a reasonably fixed remuneration baseline. This is to ensure that new recruits are kept reasonably motivated to continue improving their performance since they will not necessarily be able to perform like the more experienced employees.

6.0 Criticism of Performance Management Systems

Notwithstanding the benefits of PMS, the current applications of PMS have been criticized on many grounds. Earlier scholars believed that there is too much emphasis on performance rather than individual learning embedded in the PMS. It is argued that a learning approach should be encouraged more in organizations than a performance-based approach towards employees. For example, Barrie and Pace (1999, p. 295) cited in Swanson and Elwood (2009) argues that “it is the performance perspective that denies a person’s fundamental and inherent agency and self-determination, not the learning perspective. All of the negative effects of training come from a performance perspective”. Moreso, Bierema (1997, p. 23-4) cited in Swanson and Elwood (2009) adds that “the machine mentality in the workplace, coupled with obsessive focus on performance, has created a crisis in individual development and that valuing development only if it contributes to productivity is a viewpoint that has perpetuated the mechanistic model of the past three hundred years”. Dirkx (1997, p. 43) cited in Swanson and Elwood (2009) decries that even the so-called learning that seems to be projected in PMS are defined “according to the perceived needs of the sponsoring organization and the work individuals are required to perform regardless of its contribution to the ultimate society’s economic competitiveness and therefore the learning is simply a market-driven education”.

Additionally, Smither and London (2009) criticises four aspect of PMSs namely performance appraisal, accountability, excessive goals and contesting priorities. The philosophy of the performance appraisal aspect of PMS have been criticised as often being poorly developed in organizations and which is usually ill-executed. Also, when there are external and overarching factors such as “effects of organizational structure, technology enablers or supply chain resources shortfalls”, even a high performer may fail to reach set goals of which these causes may not be discounted in the PMS. Moreover, the idea of performance appraisal usually disruptive conflicts that negatively affect teamwork and damage relationships. It also confuses workers who wonder if there should always strive for the highest rating or identify areas of personal development and risk low performance rating. Therefore employees are usually placed in a position to do what is expected to be done and not necessarily what is known to be right because of the fear of being called the low performer. In this context also, performance appraisal can lower self-esteem which can affect workers motivation (Davidson et al. 2009).

Accountability is an important part of the PMS. The competence of managers to truly analyse an individual enough to carry “a complex psychological process” of setting appropriate goals for many individuals, mentoring and coaching them is questioned. Moreover, the ability of managers in the performance management process to balance the roles of telling an employee that the employee is a low performer while at the same time he is expected to be the coach and mentor is questioned in the process.

Goal setting is critical to PMS. Locke and Lotham (1990) cited in Smither and London (2009) emphasizes that if there are many goals and enough time it can be accomplished but when there are many goals to be executed at the same time performance can be mitigated. Practitioners suggests seven goals (Smither & London 2009) but many organizations have much more goals and sub-goals designated to individuals and teams which is argued will be counter-productive explaining the reason PMSs are not effective.

Contesting priorities is a fact of business that draws on the competence of managers and employees. Managers have realised that in the normal course of business huge tradeoffs usually occur beyond the ability of the manager to control in order to achieve the most pressing goal. The application of the balanced scorecard (BSC) proposed by Kaplan and Norton (1996) focussing on assessing performance on four broad areas of the business has been criticised as unrealistic in measuring individual performance since due to tradeoffs, should not be expected to meet all the goals, hence PMS explained as ineffective (Smither & London 2009).

7.0 Conclusion and Recommendations

Conclusively, a critical assessment of the contributions of PMS to organizational and individual performance reveals that PMS delivers many benefits to the organization when properly implemented. However, organizations confirm that individual performance is improved when Performance Management Systems were deployed. While the debate continues as to the overall benefit of the PMS from an individual’s viewpoint, the author believes that Performance Management Systems should be implemented in a manner that satisfies the needs of the individual while satisfying the organizations objectives. While the balance of objectives between individual and organization will not be easy, organizations that make the effort will continue to benefit by retaining the best of workers in the industry.