In his preface to the course text Performance Management for the Edinburgh Business School at Heriot-Watt University, Dr. Herman Aguinis (2009) poses two questions: “So, what makes some businesses more successful than others? What is today’s key competitive
advantage?” (p. xiii). Anguinis’ (2009) answer is people. But people – whether as individuals or in small groups or as members of larger organizations – represent unique variables with varying skills, personalities, motivations, and interests. How does a department or organization not fall apart as a result of this diversity? The answer is performance management (PM) or performance management systems (PM systems).
Performance management systems, according to Anguinis (2009), are “the key tools to transform people’s talent and motivation into a strategic business advantage” (p. xiii). PM is most often the purview of human resources management, primarily because PM “implies an assessment of current or previous results or performance of the employee, team or the whole organization” (Slavić, Berber, & Leković, 2014, p. 46). In other words, PM is the way in which an organization assesses an individual or group of individuals (a unit, department, or the whole organization) to determine if it is performing in a way which promotes the success and well-being of the organization as a whole. It is an administrative or managerial process – that is, it is a top-down initiative. It is usually composed of several different steps or activities which are intended to acquire data regarding the performance of the individual, unit, or organization with the aim of using that data to improve the performance of the organization (Lee & Kim, 2012).
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There are several different approaches or plans with regard to PM. The three most frequently employed plans are the strategic plan, the administrative plan, and operational plan. The strategic planning approach focuses on external elements, seeking to “align the firm’s activities with its external environment” (Hoffman, 2007, p. 28). Strategic planning is intended to be long-range and usually features two aspects: “planning content or ends and planning processes or means” (Hoffman, 2007, p. 28).
Content refers to the end products such as goals and missions, while processes are how the planning is carried out (Hoffman, 2007). An administrative plan focuses on internal efforts, making the best use of its existing resources and assisting employees in the pursuit of their goals and the goals of the organization (Axson, 2010). An operational plan is intended to align “various Business Units within a company in order to ensure that those units are helping the organization achieve a global strategy and set of centralized goals” (Methys, 2012). A strategic plan may be thought of as a broader approach to PM, while administrative and operational plans are more focused.
The use of PM will without question have an impact, if not several, on both individuals with an organization and the organization itself. PM is thought to improve employee motivation, enhance organizational performance, promote organizational learning, and increase performance culture within the organization (Lee & Kim, 2012). With regard to individuals PM can enhance employee engagement and motivation (Gruman & Saks, 2011). In turn, the enhancement of engagement and motivation can lead to more productive and efficient employees. This in turn creates more engaged and motivated units with the organization, making units more productive and efficient. An organization composed of productive and efficient units becomes more productive and efficient itself. This may lead to increased sales or contracts (Hoffman, 2007) which in turn lead to increased profits and reputation/prestige for the company. On another level, a company which makes effective use of the data it gathers will see to it that employees receive training which will enhance their skill sets. Furthermore, while the training benefits them (and the organization) immediately, it also allows them to develop as professionals and through their careers (Gruman & Saks, 2011).
One of the ways in which performance management can be used with regard to individuals is in the form of compensation. In a general sense, because PM falls under the purview of HRM, it is inevitable that compensation would be connected to PM. While employees will receive base pay and usually benefits, reward systems which may be used in the context of PM may boost an employee’s pay. Incentives are usually applied in response to employee performance (Anguinis, 2009). The opposite is also possible; employees who fail to perform as expected will not receive rewards and, in some cases, may find their pay decreased.
Implementation is a crucial part of PM success. Lee & Kim (2012) report that uneven implementation affects the success, maturity, and efficiency of PM systems. PM and its successful implementation are affected by several factors. Jankulović & Škorić (2013) identify external environment, employee understanding/acceptance of the overall PM process, and the managerial skill of managers and supervisors in the organization. Communication and the sharing of information are also identified as crucial to the successful implementation of PM (Jankulović & Škorić, 2013).
It is clear from this exploration of PM that it is a complex but potentially beneficial system if implemented appropriately and effectively. It can help improve performance which in turn garners benefits for the organization as well as its constituents and units. There are several different plans which may be used with regard to PM – strategic, administrative, and operational. PM will have an impact on the organization and its employees. PM is tied to compensation in several ways. Finally, the success of PM systems depends on the succfessful implementation. Despite its complexity, PM is an excellent tool for improvement and enhancement.
