Performance Management

Performance Management

Human resource managers play an important role in managing different aspects of employee performance. Whereas these functions can be executed by both employees and line managers, it is the function of HR managers to ensure that various methodologies and management practices are established to help the organization achieve its objectives. This essay seeks to compare different performance management models and tools; analysing their various advantages and disadvantages for both employers and employees. Furthermore, the essay will identify various performance management methods, techniques and tools that are useful in an organizational environment. Therefore, the essay will take up the following structure: the first section will define, evaluate and analyse different forms of performance management models including their advantages and disadvantages. The next section will identify theories, approaches and practices that organizations can use to manage and drive high-level performance. Lastly, the essay will identify an organization (in this case Mercedes Benz) and use it as a case study to illustrate how organizations can prepare and implement a performance management strategy.

Denisi & Murphy (2017) defined performance management as an ongoing process of communication between HR and employees to facilitate the achievement of organizational objectives. This communication process, according to Franco-Santos & Otley (2018), includes setting objectives, providing feedback, identifying performance goals and reviewing employees’ performance results. On the other hand, according to Schleilcher et al (2019), performance management tools refer to the use of various tools and techniques used by HR managers to evaluate and improve employees’ performance through an already existing human resource system.

Most of the existing performance management tools were coined by scholars to suit their managerial contexts but have so far been adopted by various organizations as a means of managing their employees’ performance. However, some of the models including the balanced scorecard, the performance pyramid and the performance prism have different advantages and disadvantages as discussed here below:

Developed by Kaplan and Norton, the balanced scorecard is one of the first performance management tools ever invented (Heger et al, 2017). According to Heger et al (2017), the Balanced Scorecard is a strategic management tool that is fully integrated to set and measure performance objectives across various sectors of the organization. According to Richards et al (2019), the balanced scorecard takes a multidimensional approach in the evaluation of organizational performance, analysing how the organization performs in various key performance indicators such as quality of customer service, financial performance, human resource, the effectiveness of internal processes, and organizational capacity (Aguinis, 2019).

One of the most significant advantages of the balanced scorecard is that it connects individual staffs to organizational goals by helping employees to keep their eyes on the organizational objectives. According to Grossi et al (2019), individual employees might find it useful to see a greater purpose behind organizational objectives and goals they are aiming at. Similarly, as cited by Kroll & Moynihan (2018), the holistic approach of a balanced scorecard can help employees find a purpose in the organization, thereby keeping them engaged in their work.

However, one disadvantage of the balanced scorecard is that it requires employees and managers to constantly report information, which means constant data recording. According to Beeri et al (2018), many HRs do not like this aspect of a balanced scorecard because they find it tedious and can get in the way of doing other important things.

The other popular performance management model that HR managers can make effective use of is the performance pyramid model. According to Gorman et al (2017), the performance pyramid is an organizational model that helps to define the relationship between objectives and performance measures at different organizational levels. It is designed to ensure that every organisational department, business unit and system support the overall organizational vision (Beeri et al, 2019).

Situated at the top of the pyramid is the organizational vision, which describes the means of achieving long-term success and competitive advantage (Bruskin et al, 2017). The second level of the pyramid is occupied with critical market-related factors (e.g. finances) that need to be achieved to measure the general organizational success. The third level of the pyramid entails the business operating system, which entails measures related to internal systems of control as well as the systems necessary to meet customer needs (Pugna et al, 2019). Lastly, at the lowest level of the pyramid are the departments and other sectors of the organization that represent the daily operational measures that can be used to monitor the performance of the level three measures (Bellisario et al, 2018).

On the left side of the pyramid are the performance measures, which have an external focus and are mainly non-financial. Alternatively, on the right side of the pyramid are the measures that focus on internal organizational efficiency and are majorly financial.

A significant advantage of the performance pyramid framework is that it allows organizational objectives to cascade from the top down while information flow and performance measures flow from the bottom up (Lee, 2019). However, according to Van Dooren & Hoffmann (2018), the performance pyramid framework tends to focus only on two major forms of stakeholders – shareholders and customers.

The other popular performance management model that can be useful to HR managers is the Building Block Model developed by Fitzgerald and Moon. According to Bauwens et al (2019), the building block model is a framework for designing and analysing organizational performance management systems that have largely been used in the service industry. However, as cited by Levy et al (2017), the model has also been applied in the retail and manufacturing sectors to evaluate organizational performance.

Believers in this model see competitiveness and financial performance as the ultimate results while other outcomes are detriments to organizational success (Anjomshoae et al, 2017). That said, Fitzgerald and Moon suggested that an organization’s key performance measures could be evaluated through six major dimensions namely: profitability, competitiveness, resource utilization, flexibility, innovation, and quality issues (Akhtar & Sushil 2018).

This implies that a manager would know an organization’s state of performance by evaluating whether the organization is experiencing successful financial growth and performance, whether the organization is facing competitive threats, whether it is applying an optimum use of scarce resources, and whether it is minimizing defects and errors (Bruskin et al, 2017). Furthermore, according to Denisi & Murphy (2017), an organization’s performance could be evaluated through its level of product development and the ability to respond to changing industry needs.

Apart from the six dimensions of organizational performance, the other building block of the model is the organizational standards. According to Denisi & Murphy (2017), organizational standards are the measures to be used by managers in determining the performance levels. Here, as Franco-Santos & Otley (2018) pointed out, organizations can ensure success by making employees understand how the standards are fair and achievable. Thus, employees must take ownership of those standards.

The last building block of the model rewards. According to Franco-Santos & Otley (2018), the Building Block Model suggests that motivating employees to meet performance standards is a key element of organizational performance management. It includes the setting of clear targets and linking those targets to controllable factors (Aguinis, 2019). Nonetheless, a major advantage of the Building Blocks Model is that it measures all major dimensions of success and ensures that performance targets are set in such a way that staffs are motivated to take ownership and achieve (Anjomshoae et al, 2017). It considers an employee reward system to create clearly understood performance metrics that connect individual performance to the general organizational objectives.

Performance management is an ongoing process that involves the systematic coordination of both human and non-human resources. Whereas existing research has identified various prerequisites of an effective performance management system, there are also many decisions to be made at a different level of the organization to ensure that those systems align with organizational needs.

According to Franco-Santos & Otley (2018), one of the most significant decisions that must be made is the objective the system will serve. For example, a performance management system can be meant to support workforce reduction, employee development, or pay decisions. That said, a performance management system that has too many objectives may not achieve much success due to a lack of focus. Because there are no objectives or systems that are suited for all organizations, managers should determine the purpose of the objective of a performance management system by considering various aspects of the organization including organizational culture, organizational needs and the extent to which the performance management systems can be integrated with other systems of the organization (Aguinis, 2019).

The performance management system is coordinated through a cyclic process to achieve an intended purpose. At the beginning of the cycle is the performance planning, which entails reviewing with employees their performance expectations including the behaviours they are supposed to exhibit and the results they expect to achieve by the next rating cycle (Bruskin et al, 2017). According to Denisi & Murphy (2017), behaviours are an important element of performance because they determine how an individual goes about performing their roles – how they communicate, support teams or mentor others.

During the performance planning, the results and behavioural expectations must be tied to the overall organizational goals and strategic objectives. Denisi & Murphy (2017) pointed out that if performance management systems are well-planned and implemented, employees are driven and motivated to meet organizational objectives. That said, performance planning entails the establishment of various behavioural standards that are agreed upon by and discussed with employees. On the other hand, results expectations should also be tied to organizational goals, and are targeted at either preparing the employee for career improvement or improving their current performance (Bruskin et al, 2017).

Against this backdrop, Franco-Santos & Otley (2018) argued that both performance and behavioural planning cannot be successfully achieved without a clear definition of the results. Therefore, to the extent that is possible, the performance and behavioural goals should have a direct link to the overall organizational goals (Aguinis, 2019). Additionally, Franco-Santos & Otley (2018) suggested that while the goals should be difficult, they should be achievable to motivate employees. But, to bring in the element of focus, Denisi & Murphy (2017) recommended that the goals should not be set in more than three areas because trying to achieve too many goals at ones may hinder success.

By the time the managers are done with the performance planning, they should have clearly defined behavioural and results expectations. However, the performance in both areas should be discussed with the rest of the organization and feedback provided on an ongoing basis (Bellisario et al, 2018). Apart from providing feedback on any ineffective or exceptional performance observed, it is also helpful to give day-to-day feedback on performance. Unfortunately, though, as cited in Denisi & Murphy (2017), this does not happen in most organizations because many managers lack the skill for providing effective feedback. Ideally, according to Denisi & Murphy (2017), managers tend to avoid giving feedback because they fear the emergence of employee defensiveness if they fail to delivery it productively.

Existing research show that for feedback to be effectively delivered, it must be delivered immediately or almost immediately after the event because, for example, it might not be helpful to deliver feedback nine months after the event (Bruskin et al, 2017). Franco-Santos & Otley (2018) also observed that apart from giving immediate feedback, asking for the employee’s view on what they could have done differently can also enhance the effectiveness of the feedback. Moreover, Franco-Santos & Otley (2018) stated that effective feedback in the context of performance management can be achieved when managers are specific about what behaviours were ineffective or effective.

The other important element of the organizational performance management system is employee input. It sometimes takes the form of asking staffs to undertake a self-rating on their performance standards, which would then be compared with the members’ rating and discussed (Bellisario et al, 2018). However, according to Denisi & Murphy (2017), this approach may instigate employee disagreements, defensiveness or even bad feelings between managers and employees especially if managers rate employees lower than they rate themselves.

Based on this, Denisi & Murphy (2017) suggested that the alternative way of seeking employee feedback is to ask employees to identify and write down the statements of their performance or their most impressing accomplishment at the end of the rating period. Nevertheless, employee input has various benefit to the organization’s performance management system including the fact that in the process of gaining employee input, managers can enhance their ownership (Aguinis, 2019). Similarly, Franco-Santos & Otley (2018) observed that employee input facilitates identification and memorization of employees’ achievements and how they did it.

The success of organizational performance management practices relies on the involvement and commitment of various stakeholders including top managers, line managers, HR consultants and employees. Bearing this in mind, line managers have as much role in performance managers as their counterparts in line management. According to Franco-Santos & Otley (2018), line managers play a crucial role in the implementation of human resource policies, and therefore, by default, they are key personnel in the performance management system. This implies that line managers must have the right attitudes towards the approaches to performance management as well as the right skills for implementing it.

Based on the observations made by Denisi & Murphy (2017), line managers tend to consider performance management as a mere bureaucratic process in the organization and are therefore likely to dismiss it as a form of time wastage. Furthermore, Franco-Santos & Otley (2018) pointed out that some line managers lack the expertise and skills for providing employee performance feedback, reviewing employee performance or identifying objectives that go along with them. But research has suggested some approaches to managing these shortcomings.

One of the solutions to line managers’ incapacity to engage in performance management activities is to provide leadership from the top. According to Franco-Santos & Otley (2018), line managers are more likely to develop the skills and engage in performance management activities if they see top managers give it a priority. Furthermore, Franco-Santos & Otley (2018) noted that developing effective communication with line managers about the importance of performance management and the necessary competencies for facilitating it can promote their engagement in it. Likewise, Franco-Santos & Otley (2018) wrote that developing and maintaining simplicity within the entire performance management system can encourage line managers’ participation in the process.

With the increasing use of digital devices, the boundaries between work and personal lives have increasingly been blurred – amid the adoption of remote working occasioned by covid-19. Consequently, employees have developed the desire to create a boundary between work life and personal life, with some countries even going as far as passing laws that enable this right. However, there have been concerns that remote working has changed the way employee performance can be measured, necessitating the need for new KPIs.

According to Denisi & Murphy (2017), HR managers in charge of organizational performance management systems must recalibrate KPIs to reflect a working environment that is increasingly growing to be flexible and less blurry boundaries between work and private life. In this regard, Franco-Santos & Otley (2018) argued that HR managers must cultivate trust between managers and employees – whereby managers trust employees to work efficiently and effectively, while employees trusting managers to behave more supportively and ethically. Moreover, Franco-Santos & Otley (2018) suggested that to effectively manage the performance of remote employees, managers must give feedback more frequently and adopt more impromptu reviews.

One organization that has established effective performance management for its remote workers is Mercedes Benz, operating under its parent company – Daimler. According to Walter & Helman (2020), the company has prepared its employees for home working by developing effective capacities for organizational performance management. For example, one of the strategies that Mercedes has adopted is to set targets and expectations for employees. According to Nobanee et al (2020), this informs employees of what is expected of them and therefore perform accordingly. With the understanding that remote workers are likely to face the challenge of understanding the parameters, and that remote workers cannot just learn from observing what their colleagues do, Mercedes developed clearly defined performance expectations through effective communication of what their daily schedules should look like and how flexible they can be (Kaushik &Arora, 2020).

The company has also scheduled a more regular one-on-one meeting to ensure that employee sand managers are updated on various expectations and progress. Observations by Kin et al (2021) indicate that apart from the annual reviews, Mercedes has used modern technology (e.g. Teams and Zoom) established a performance review system that is characterised by more frequent performance reviews to keep employees updated and to allow them to communicate their problems and successes.

Mercedes has also adopted regular one-on-one meetings as an opportunity for providing a status update, giving employees something to refer to (Kaushik &Arora, 2020). through regular status updates, according to Walter & Helman (2020), employees at Mercedes have managed to keep track of work done and that which must be done within a specific time frame. Even if they do not maintain a weekly time frame, the regular status update adopted by Mercedes enables both HR and employees to evaluate progress.

More than ever, Mercedes has managed to equip its employees with the tools they need for achieving success. For example, because the company recently adopted a virtual meeting, it went a step ahead to ensure that employees have adequate cameras. By availing of collaborative tools to most of its employees, Mercedes ensures that employees have what it takes to meet the performance expectations (Kaushik &Arora, 2020).

The other strategy that was recently adopted by Mercedes to facilitate effective performance management is the increase in employee recognition activities. According to Walter & Helman (2020), Mercedes increased its recognition activities not only to motivate employees but also to signal other employees on the behaviours they should emulate. By adopting both monetary and non-monetary (e.g. tokens and development opportunities), Mercedes provides development opportunities for employees who lack capacity.

To conclude, performance management is a multifaceted managerial practice that requires human and non-human resources. The practice of performance management has grown even more complex with the increasing rate of employees’ adoption of remote working – enabled by new technology. In response, HR managers must be innovative enough to adjust various aspects of performance management, including KPIs to suit the current work environment.

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