Impacts of Performance Management Systems
The concept of performance management deals with the application of methods that manage both the results and the behavior of employees within an organization. It is usually based upon the agreement on the objectives, competence, skills and knowledge of the required workplace. The sustainability of an organization will depend upon the performance of the employees and how effective they are in carrying out the objectives to effect changes. Most of the organizations try to effect positive changes by studying the performances of individual employees, processes and teams to ensure that the objectives are met in an efficient and effective manner. Performance management systems assist in enhancing the performance of organizations. This will assist the organization in achieving a competitive position in the global market (Kovacic, 2007).
Business or organization owners need to address the problems faced by the employees to boost their capability at the work place to increase the output of the system. The productivity of any given company will depend on the individual employee’s input in the organization. The employees are the most important assets of any organization. This paper will look at the impacts of the performance management system, how employee performance is related to merit, employee morale and employee reviews.
Porter, Bingham, and Simmonds (2008) argue that performance management plays a great role in achieving the objectives of an organization. The outcomes are even amplified when the management of the organization incorporates appraisal in the system. According to the analyses the researchers carried out, 80% of successful organizations used performance appraisal in their performance management plans (Porter et al., 2008). Although the appraisal is usually carried out mostly on annual basis, the performance management is carried out continuously and is more comprehensive. The research found out that performance management assisted the managers and the employees to clarify mutual expectations and re-direct the workers’ efforts towards the attainment of the desired goals. The method is desirable to the managers who instead of making negative comments on the workers assist them to focus on the future of the organization as well as that of the employee.
A research study that was undertaken by Soo Hoo (2004) indicated that the traditional management systems such as the performance appraisal systems were ineffective. In the study, 90% of all the employees found performance management better than performance appraisal (Soo Hoo, 2004).
Miah and Hossan (2012) carried out an evaluative research on the UK retail industry, Sainsbury, aiming to try to investigate the impacts of performance management system on attainment of superior business goals. The research found out that the company was doing very well financially and this could be partly attributed to the sophisticated performance management system that they used. The employees were highly motivated to work harder due to the fact that the managers were close to them and assisted them in areas that required adjustments (Miah & Hossan, 2012). The employees feel they are valued because the performance measurements do not infringe on their morale to deliver in the company and the fact that holistic analyses are carried out as opposed to measurements targeting financial output.
The balanced scorecard, associated with the performance management system is 44% utilized across the whole world; 57% in the UK, 26% in Germany and 46% in the United States (Haugland, 2008). This is due to its capability to extend beyond the financial measurement systems. Organizations have identified myriads of advantages of the performance management method. For example, it assists companies in their communication strategies; costs reduction, business strategies review, effective monitoring of their productivity, control systems and assisting them in their compensation policies (Haugland, 2008).
Several survey studies that were carried out in the United States showed that integrated performance based management systems yielded higher results in organizations that used them than others. For example, one of the studies proved that the use of the system increases sales and profits and reduces production costs by 25% (Haugland, 2008). The results also showed that the system tends to increase employee communication and boosts their morale of accepting the strategic objectives of the organization. The employees’ sensitivity to the challenges they face daily is increased as their target lies in maximum productivity. They are able to raise awareness of the internal problems affecting the organization and by so doing, directly contribute to the companies’ success.
There are five significant outcomes in an organization that are influenced by performance management systems. Quality of products and services, job satisfaction among the employees, output or productivity, satisfaction derived by the customers and financial performance are some of the major results that depend on effectiveness of the method. However, the performance management systems need to be flexible and linked to the strategic objectives of the company.
Effective communication forms the vital platform in management of organizations (Harris, Brewster, & Sparrow, 2004). This is due to its capability to bring about satisfaction, foster commitment, enhance teamwork and promote collaboration between stakeholders. Communication between managers and employees plays a significant role in bringing about changes. Performance based management system ensures consistent communication between both the workers and the managers. If the managers find that the workers are deviating from the core business objectives of the organization, they can be able to establish uniform policies that bring the workers’ activities back into the course. If it is done on regular basis rather than on annual basis, underperforming employees will be compelled to work hard to be at the same level with others; thus improving their competencies.
Most of the organizations that utilize the performance management system also make use of the appraisal system. The appraisal system brings the employees closer to the organization’s objectives. Data concerning the performance of the employees can also be collected either on quarterly, semi-annually or annual basis. This helps to evaluate trends in improvement of performances. As a result, individuals who either fit or do not fit for the positions they hold are identified. Job rotation can then be implemented where necessary. Some of the companies grant employees awards or promotion taking into account the results of these performances (Rao, 2004). By evaluating the individual performances, the managers can identify the best positions that weak employees will be suited. Thus, it can be taken as a method of increasing the efficiency of workers whenever they are given positions that they can effectively manage.
The performance measures are mostly linked to informal or formal incentives. In this case, they are likely to bring about inappropriate behavior. Employees of an organization may be given incentives on certain level of performance. As a result, they create pressure to deliver the required results. Workers may concentrate on easily solved problems and ignore more challenging ones (Bruttel, 2005). This in turn is likely to create a long term challenge to the organization. Most of the times, the performance measurement standards concentrate on the short term results while ignoring the long term benefits. The benefits are sometimes uncertain. Organizations seeking for long term benefits usually concentrate on success based on strategy implementation. However, performance measurement may not be strategic. Besides, the managers will be required to invest a lot of financial resources to undertake the process. Effectiveness of the method demands that organizations invite external evaluators who need to be paid at the end of the exercise.
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The greatest challenge concerning the use of the performance based management system is that the managers focus more on the negative aspects of the employees’ performance at the expense of their positive contribution. Although highlighting these aspects to strengthen the arising weaknesses may help both the company and the worker, some approaches tend to demoralize the employees (Bruttel, 2005). Some of them might be affected to an extent that their level of duties performance declines. The process of the individual performances evaluation takes a lot of time because the manager has to examine the activities undertaken by the employees on daily basis closely to come up with a comprehensive report at the end of the evaluation period. This limits the time the manager has to attend to other duties.
A company whose aim is to succeed in a very competitive environment has to ensure that the activities undertaken in the performance management are aligned to the goals and objectives of the organization. The employees of the system have to be motivated and everyone should be aware of what is expected from them. The modern society encompasses an ever-changing business environment that requires designing an effective performance management system in organizations. Many companies have used substantial amount of resources in the last couple of years in an effort to come up with performance management systems. Some of the prominent organizations used the scorecards (Kovacic, 2007). Recently, most of the organizations have tried to adjust to the use of the performance management systems.
Performance management system used by the managers assists the employees in focusing their attention on the company’s objectives. This in turn improves the productivity of the business or organization. From another angle, it increases the customer’s satisfaction and also improves the employee’s satisfaction through series of amendments that tend to align them to the positions that they fit most. In addition, it aligns the behavior of the people within the organization towards consistent improvement. Furthermore, the activities undertaken in the organization are aligned to coincide with the overall company’s objectives. On the other hand, the process demands a lot of financial resources; in addition, it is time consuming, complicated, mechanistic and monotonous as managers will be continually demanded to re-visit the mode by which the performance is reviewed.
