Factors Influencing Performance Management Systems in Organizations - Literature review Example

Name: Instructor: Date: Factors Influencing Performance Management Systems in Organizations Introduction The contemporary organization has focussed on performance management systems by investing the ever increasing amount of resources, but as Gattiker & Goodhue (2004) argue, it is not yet clear what organizations can expect from these investments in return, or at least how they might affect or influence the probability of positive system outcomes. The bottom line objective of a business organisation is to optimise its performance, and this can be enhanced by optimising the performance management systems, which is probably why organisations keep investing more and more resources in PMS. This paper attempts to apply the information processing theory in an attempt to develop, test, and explain a model of environmental, technological, and organisational factors that different researchers have hypothesized to have an impact of PMS outcomes. The goal of this paper is to highlight and explain the critical PMS outcomes, which are information quality, usefulness, and effectiveness of the PMS to managerial decision-making. Theory application `Drawing from the extant literature on information processing, Ballou, Madnick & Wang (2003) propose a model that attempts to explain how the three aforementioned PMS outcomes (information quality, usefulness and effectiveness) may variously be influenced by different factors that affect an organisation’s information processing requirements, as well as capabilities. The perspective taken by this paper is to focus on the three major organisational/contextual and environmental factors that might affect information requirements in an organisation and they include the size of the organisation, the nature of the industry, and the geographical scope of the organisation’s operations. Technological factors also affect the capability of a given organisation to process information. O'Brien & Marakas (2007) point out that some of the organisational or contextual factors that are significant in the Performance Management Systems success include the decision-making style of the management (command and control versus collaborative) as well as the organisational structure. The technological factors include type of technology that is used in the performance management systems, for example, ERP; which constitutes specialised tools including DSS and EIS, and the generic tools such as Access, Excel and Lotus Notes. Other technological factors include the degree of use of internet technologies and e commerce. Model, Conceptual framework and application Performance Management systems, according to Premkumar, Ramamurthy & Saunders (2005), enable organizations to plan, as well as control their performance to ensure that decisions, activities, and resources are well aligned with the business strategies as a preliminary and important step in creating shareholder value and achieving other desired results. In order to investigate the factors (both internal and external) that affect the outcomes of PMS, this paper utilizes the model shown in fig. 1. Fig. 1 The choice of performance management systems affects the overall outcome of how work will be managed in a firm. It is up to the management to come up with ways and means that they can increase the efficiency of the management systems by taking several factors into account. Usefulness and effectiveness of a chosen system are critical factors decided by the managers in order to enhance performance. According to O'Brien & Marakas (2007), the usefulness is the extent to which a person believes by using a certain system; it will bring positivity and contribute to a good performance in the end. The usefulness of an information system or any other management system is believed to work accurately if it used voluntarily. The perception of the staff and management implementing the performance management systems towards the usefulness of the system also has a strong correlation to the success of that system, this means that if the management has a positive perception and believes that the system will be useful enough to work, then it is possible that there will be success. Besides usefulness, the effectiveness of the performance management system selected also determines the quality of the outcome. The effectiveness can be defined as the extent to which a system can perform its work and deliver the required output such as aiding organisations in planning implementing, controlling, measuring, and evaluating their performance on a regular basis. Effectiveness relates o information quality, which is a multi-dimensional concept of performance management. The effectiveness and usefulness of the performance measurement system outcome is influenced by factors such as technology, organisational requirements, as well as organisational capabilities. These factors are shown in the figure 1 above, and how these factors are related. The organisational requirements include the scope, size, and industry of that particular organisation. The industry is the sector to which a firm belongs, and it affects the outcomes of a performance management system because different industries have different requirements of having PMS. The automobile industry for example, has different requirements to the fashion and cosmetics industry when setting performance measurement standards. The scope includes the organisational mission, vision, and objectives of the future and the perspective a firm wishes to take. The size also matters because larger organisations have different performance measurement requirements compared o smaller or medium sized companies. The organisational capabilities include the company structure, the collaboration, command and control as well as the management style used. All these factors have to do with the type of leadership as well as organisational culture created. The ability of the management to organise and bring together employees in order to make sure that the culture created is convenient and realistic will allow better performance and a higher degree of collaboration amongst employees as well as between employees and the management. On the other hand, technology takes into account issues such as internet usage, ecommerce structures, use of green technology, and many others. Technology aids in creating a better outcome through faster and convenient work outputs (Premkumar, Ramamurthy & Saunders, 2005). Different researchers have put forth different hypotheses in an attempt to explain how both internal and external organisational factors affect PMS outcomes. Gattiker & Goodhue (2004) hypothesize that an industry with high levels of uncertainty will most likely have more information processing requirements and thus, would attempt to cope with them, and this would be by improving their respective information processing capabilities. This could be through technology, which constitutes the types of PMS technology, e commerce and internet, and organisational adaptation, which constitutes the structure and management style. Gattiker & Goodhue (2004), on the other hand, hypothesize that firms with a broad geographical scope of operations would have increased information processing requirements, and they would strive to achieve this by improving the information processing capabilities through organisational adaptation and technology. Ballou, Madnick & Wang (2003) reiterate that size is also an important factor, and larger organisations would generally need also to cope with increased information processing requirements. The further argues that the technological and organisational efforts put in place to increase information processing capabilities complement each other and thus, are not mutually exclusive. This implies that there is a positive relationship between technological factors and organisational or contextual factors. In an effort to ascertain the types of relationship that exist between some of the major determinant factors and PMS outcomes, different researchers have carried out empirical studies, and in that respect, O'Brien & Marakas (2007) found out that there is a positive relationship between PMS outcomes and contextual factors that enhance information processing. With respect to the various types of PMS outcomes, which include information quality, usefulness and effectiveness, Premkumar, Ramamurthy & Saunders (2005) found out that there is a positive relationship amongst them. The authors further state that information quality is the most important factor as far as explaining the other two PMS outcomes are concerned. Conclusion The overall purpose of this essay was to investigate the various factors that influence PMS outcomes, and further establish whether a model that is based on traditional informational processing theory could be applied successfully to a specific case of PMS. Most of the studies are put forth by different pundits have ascertained that the OIP (organisational information processing) requirements, which include organisational size, its scope of operations and industry are related to factors that significantly increase OIP capabilities and technological factors. Additionally, this paper deduced that technological and contextual efforts are not mutually exclusive, rather they complement each other. Generally, the application of the traditional information processing theory on PMS outcomes could be successful as established by this paper. References Ballou, D., Madnick, S. & Wang, R. (2003). Special section: Assuring information quality. Journal of Management Information Systems 20, 3, 9-11. Gattiker, T. F.& Goodhue, D. L. (2004). Understanding the local-level costs and benefits of ERP through organizational information processing theory. Information and Management 41, 4, 431- 443. O'Brien, J. A. & Marakas, G. M. (2007). Introduction to information systems. 13th ed. McGraw-Hill/Irwin, New York. Premkumar, G., Ramamurthy, K. & Saunders, C. S. (2005). Information processing view of organizations: An exploratory examination of fit in the context of inter-organizational relationships. Journal of Management Information Systems, 22,1, 257-294. Read More