Performance management systems - Essay Example

Tangible and intangible strategic value of performance management systems Contents Introduction 3 Literature Review 4 Implications on professional practice 9 Implications of findings 9 Future Developments 10 Conclusion 12 References 13 Introduction This study would highlight different components of performance management system. Performance management system helps to develop an environment where organizational performance can be enhanced. Competitive advantage can be gained through maintaining an effective performance management system. There are tangible and intangible values closely knitted with the concept of performance management system. Employees usually set performance indicators in order to improve performance level and challenge various set of strategic assumptions. Performance management system can be stated as an approach to implement, define, refine and assess organizational strategy. The causes and issues related to rewards and performance management system shall also be outlined in this particular study. There are two important components included within performance management system such as employee development and performance appraisal. It can be denoted as a mechanism to motivate employees so as to ensure that they perform well. In every organization there is a need to perform well and accomplish set organizational goals. To be more precise employees have to be highly motivated in order to reach targets and generate high profit margins for the company. Performance management system encompasses a wide array of activities required to address goals in most effective and efficient manner. This approach enables management to well align employees, resources and systems with strategic objectives. Performance management system comprises of multiple values like motivated workforce, improved control of management and generating high financial gains. Rewards or performance appraisal system ensures high degree of employee engagement. In this study, the first part will be literature review on performance management systems, its link to rewards and its possible strategic value. The second part shall be a reflective summary centered towards implications of findings on professional practice. Literature Review According to Zanko (2008), organizations basically witness various competitive conditions and this in turn requires continuous improvement in the workplace. Increase in employee productivity is essential in order to cope up with dynamic environmental conditions. Performance management system is incorporated within an organization to facilitate both tangible and intangible elements. Employees are effectively managed through such performance appraisals or rewards. This in turn helps to accomplish operational and strategic goals. Authors argue that there is a correlation between improved organizational results and performance management systems. The effects of this system usually vary across a scale from positive to negative. Characteristics of performance management system are solely responsible for success or failure of this system. Employee performance management mechanism which is maintained through specific software has return on investment in terms of indirect and direct sales benefits, improved employee potential and operational efficiency benefits. The tangible and intangible value of performance management system can be classified into three aspects such as motivated workforce, direct gains financially and improved managerial control. Financial gains can be considered as a tangible value acquired through performance management system. These financial gains obtained by an organization is in the form of reduced organizational costs, growing sales margins, stoppage of overruns in a project and communicating changes in order to achieve high profit margins. In overall context it can be stated that these financial gains or tangible value influence an organization to implement performance management system. Motivated workforce is regarded as intangible value created by performance management system. Incentive plans direct team members to set high performance standards in an organization. Employee engagement is also initiated through this system where team members can evaluate their contribution towards high level of organizational achievement. Transparency is also developed in a firm with the support of performance management mechanism. Bonus payment system or incentives or rewards incorporates high degree of confidence within team members. Employee development is the major intangible component associated with performance management system. Improved managerial control is also a form of intangible element (Zanko, 2008). Performance appraisal system helps in complying with legislative requirement. This technique simplifies level of communication and also contributes towards scenario planning. As per Chan, Shaffer and Snape (2009), performance management system is not only about providing rewards to employees but is directly linked with accomplishment of organizational goals. There are certain issues related to performance management system which eventually results into complete failure of the mechanism. Lack of integration is a common cause behind performance management system failure. There needs to be a proper integration between performance management system and organizational structure, culture, strategic planning and process of human resource management system. Design challenges usually arise when the process does not involve consultation from stakeholders for future purpose. Interactions or consultation is necessary to develop relationships and trust with stakeholders and employees. Any new performance management system needs to be tested initially so as to ensure effectiveness of the system. External consultants are basically hired for designing such system. However this indicates an expensive way of system development and lack of ownership. Performance management system failure results into loss of time, money, credibility, etc. Lack of leadership support is a key element behind failure of this system. These systems are basically driven by management and leadership. Leaders have to be capable enough to develop a shared vision, motivate employees to follow designed system of performance management and drive the entire organization towards a common goal. Implementation failure occurs when the system is unable to reduce biasness from the system and transform non-performers into high performers. Performance evaluation and feedback should be generated on a continuous basis. Performance management system is correlated with reward mechanism. Non-monetary and monetary rewards should be given to high performers of an organization (Chan, Shaffer and Snape, 2009). As stated by Arvey and Murphy (2008), there is a link between performance management system and rewards. Performance management system is usually implemented by supervisors for employee development. The major goal behind this mechanism is to communicate to employees that they have performed really well in relation to set organizational performance standards. This system helps to plan employee development mechanism in terms of improving skills, behavior or knowledge of employees. Rewards or compensation are vital components of a performance management system. Bonuses or incentives are provided to employees in order to upgrade their performance level and in turn align them with common organizational purpose. It also forms the basis of other related activities which is centered towards mobility. The mobility factor is directly associated with promotions and transfers. Authors have clearly stated that performance management system helps in developing a competitive workplace environment. It can be contradicted by denoting such systems to be a medium of organizational change. Change requires good communication skill so as to ensure that purpose behind performance management system is easily transmitted across team members (Arvey and Murphy, 2008). Issues related to such system are not only confined to communication skills but even encompasses lack of leadership skills. Boswell and Boudreau (2008) in their studies stated that there are some pre-requisites which should be incorporated by all organizations in order to eradicate causes or issues related to performance management system. It can be argued that performance management system is not only designed to enhance motivational level of employees but also to initiate high returns on investment. The first pre-requisite of the system is to clearly structure an organizational purpose. An organization needs to possess a clear idea regarding critical success factors. The culture of performance management system should also be emphasized on as it is accountable for individual results. This system has to be designed in such manner that it facilitates, track and identify succession planning and individual development. The culture of business performance management is the second pre-requisite. This indicates that senior management should have a clear knowledge in context of essential business factors which brings forth organizational success. Alignment is another necessary factor since it deals with aligning team members with organizational purpose and their effective contribution towards success or growth. Fairness is associated with comparisons. This is simply because employees compare their job performance level and pay structure with that of other team members (Boswell and Boudreau, 2008). Relatively fair pay structure can be developed by aligning compensation or rewards with individual or team performance. As per Schneider (2007), organizations in real world scenario implement performance management system in order to emphasize on flexible job structure, work integration and multi-dimensional workforce. Firms view performance management system as a framework to collect information, gain feedback about work groups or individual performance, and implement information for organizational effectiveness. HRD practitioners are inclined towards designing performance indicators on basis of organizational goals rather than on individual expertise. Skill development can be stated as an objective of performance management system. However majority companies focus on tangible value associated with such systems. There are often arguments raised in context of availability of intangible and tangible strategic values linked with performance management system. Issues or failures result when these values are not being addressed efficiently by an organization. Monitoring and continuous evaluation are undertaken by many firms so as to ensure that there is no form of biasness prevalent in the system. Failure in performance management system is handled by organizations through communicating need for change to all employees effectively (Schneider, 2007). According to Greguras, Robie, Schleicher and Goff (2010), performance management system is basically utilized differently by organizations. Technical and managerial employees as per Aberdeen Group Survey witnessed that 99% of service organizations incorporated some kind of performance evaluation system. Small enterprises, manufacturing firms or retail companies are less likely to implement any performance management system. Majority of the firms still is inclined towards paper based performance management system rather than computerized form. Performance appraisals in service industry are mostly exhibited once in a year. This in turn is followed by quarterly control and evaluation of employee performance. Many organizations, such as US based firms are focused on reinventing performance management mechanisms. Google is one of the renowned companies who have adopted an effective performance appraisal system. Employees are provided with flexibility to undertake strategic actions and performance targets are set both for individual or team performance. Rewards both in monetary or non-monetary form, or specific appraisals are given to team members who are able to accomplish set targets (Greguras, Robie, Schleicher and Goff, 2010). Implications on professional practice Implications of findings The literature review conducted on performance management and its strategic values clearly portray the loopholes prevalent in the system. It can be stated that strengths and weakness of performance appraisal is closely knitted with implementation procedure. Design failures often results into an ineffective performance management system. My desired future role shall be of a human resource manager. As a human resource manager I am supposed to structure a framework where individuals can be continuously motivated to perform well. Performance management system is a medium through which employees can be motivated in order to accomplish organizational goals. I would firstly communicate the need for setting up a performance management system. To be more precise good communication skills enable a leader to convey necessities or requisites associated with the framework. On the other hand, my professional practice as a human resource manager shall take into consideration both non-monetary and monetary rewards. It is essential for management to give importance to both types of reward systems. Non-performers can be motivated only when they feel it is valuable to achieve set performance standards or targets. I would eliminate all such factors that can lead to failure of performance management system. As per the findings, lack of integration is a major factor that contributes towards performance management system failure. I shall frame strategies for overall human resource management department and then align them with performance appraisal system. I have observed in the study that common issues are related to team members not being able to analyze need for performance management system. According to me, this aspect can be eliminated only when employees are involved while structuring performance indicators. These indicators would help management to evaluate and control individual performance. I feel that employee performance can be determined by measuring its degree of contribution towards organizational objectives. Many authors in literature review have emphasized on a single factor which indicates effectiveness of performance management system in context of day-to-day activities and business objectives. As a manager, I shall include both job outcomes and competencies in the framework. Employees need to possess sufficient skills or competencies so as to achieve set organizational objectives. These competencies would be enhanced with the support of performance management system. The findings of this study will help to retain best talent in the organizational system and encourage non-performers to improve upon their skill set or knowledge base. I would even update job description on a continuous basis as it shall provide clarity to employees regarding their specific job responsibilities. Employee feedback is another important aspect outlined in this study. I should gain employee feedback in terms of key elements to be included in the performance management system. This would incorporate a sense of ownership amongst my team members. Future Developments There are certain future developments necessary to improve upon performance management system. Employee motivation basically drives organizational growth and productivity. On the contrary, motivational element if not evaluated properly might lead to a base of unsatisfied employees. These issues can be avoided by focusing on future developments. I feel that there are three important aspects related to any performance management system such as setting objectives, evaluation and gaining employee feedback. Future developments would be in context of bringing forth integration amongst these three elements. Employee feedback needs to be taken into consideration so as to continuously alter objectives of performance management system. Design failure is a common phenomenon within this framework. This failure can be eliminated only when certain changes are incorporated in the system. I believe that key external or internal customers play a significant role to outline job performance standards. This would ensure that no performance is being evaluated irrespective of organizational goals, mission or values. Customers in any industry can be considered as an ideal person to judge performance level of employees. All performance management systems should be system-oriented. Work situations are the basis of evaluation of employee performance. These situations usually change from one organization to another but it will provide a platform where remedies for failure of performance management system can be discussed. I think manager should not only communicate objectives of the system to team members but emphasis shall also be given on collaborative work towards accomplishment of set goals. Work in collaboration basically indicates taking ideas from employees regarding further developments in performance management system. I believe that this shall help to remove barriers between manager and employees. In long run, I feel, success or growth of an organization is dependent on effective relationship building between employees and management. Evaluation of employees needs to be done on a fair basis and this in turn is an essential future development. Raters have to be included by all firms in order to facilitate accurate and fair evaluation of employee performance. These raters would be solely responsible for framing reward policy and rating employees for their respective performance. I believe it to be an essential aspect since it helps in following a standard reward policy. Apart from raters, I think that high level management should also be actively indulged in evaluation process. This area can be treated as a possible future development. High level management can work in collaboration with human resource department. Employee performance needs to be reviewed from multiple sources so as to ensure fair results. Team members should also take up responsibility in terms of their overall development. Feedback is a mechanism through which career development can be facilitated along with improvement in level of job performance. Conclusion As per this study, performance management system is an important framework that regulates overall employee performance and development. There are wide array of tangible and intangible elements associated with performance management system. Tangible elements mainly relates to financial gains and over achievement of set organizational goals. Profit oriented firms basically implement performance management system so as to ensure that employees are highly motivated. It has been observed that organizational productivity is closely knitted with employee competencies and motivation level. Team members perform well only when they feel a sense of ownership or they are awarded with monetary or non-monetary rewards. In this study, causes of performance management system have been appropriately highlighted. The study even comprises of issues related to performance management system. These issues result due to design failure, lack of communication, improper system integration, incompetence, lack of appropriate reward management system, etc. To certain extent these failures can be eradicated only when human resource management strategies are aligned with performance management system. Performance appraisal system needs to be designed in such manner that fair evaluation of employee performance is exhibited. Leaders need to possess effective communication skills in order to convey need and importance of performance management system. Communication is a critical factor in context of performance management system. There shall be continuous monitoring and evaluation of performance to prevent any failure of performance management framework. References Arvey, R. D. and Murphy, K. R., 2008. Performance evaluation in work settings. Annual Review of Psychology, 56 (1), pp. 141-168. Boswell, W. R. and Boudreau, J. W., 2008. Employee satisfaction with performance appraisals and appraisers: The role of perceived appraisal use. Human Resource Development Quarterly, 18 (2), pp. 756 – 781. Chan, L.L.M., Shaffer, M.A. and Snape, E., 2009. In search of sustained competitive advantage: The impact of organizational culture, competitive strategy and human resource management practices on firm performance. International Journal of Human Resource Management, 17(1), pp. 25-67. Greguras, G. J., Robie, C., Schleicher, D. J. and Goff, M., 2010. A field study of the effects of rating purpose on the quality of multisource ratings. Personnel Psychology, 63(1), pp. 21-56. Schneider, B. 2007. The people make the place. Personnel Psychology, 40 (3), pp. 437–456. Zanko, M., 2008. Innovation and HRM: Absences and politics. International Journal of Human Resource Management, 19(4), pp. 562-581. 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