Introduction
Globalisation has become one of the most significant forces affecting the success and strategy of companies in the contemporary world. Improved trade relationships between nations and increased opportunities for cross-border collaboration have prompted multiple companies to expand their business to new countries and continents. However, international expansion presents a variety of challenges for human resource management due to the need to develop policies, strategies and procedures supporting the functioning of different divisions of companies. Performance management in the international context is particularly challenging because HR managers have to create and align performance goals, as well as to design and support the implementation of processes to aid in meeting performance goals.
The purpose of the present literature review paper is to outline and discuss current knowledge in global performance management in order to identify gaps and gather insights that could help HR managers working in international companies. Each section of the work will thus focus on a specific aspect of global performance management discussed in available scholarly literature. Firstly, the background of the topic will be examined to highlight the key developments. Secondly, the review will assess the challenges of international performance management, as evident from the study of the literature. Thirdly, factors influencing performance management in the international context will be examined, including cultural differences, institutional factors and organisational characteristics. Strategies for global performance management will also be considered to provide suggestions for IHRM. The final sections of the paper will identify gaps in current research, the implications of the review and its conclusions. On the whole, it is expected that the report will benefit both the study and practice of IHRM by explaining the key aspects of the topic of global performance management and offering relevant suggestions.
Background
Performance management has been among the main concerns of human resource management for a long time since performance is directly related to the profitability and success of companies. As explained by Hellqvist (2011), “performance management (PM) is an organisational system that contains all aspects of employee performance” (p. 927). Performance management is deeply integrated into modern organisations since alignment with other organisational functions and processes is essential to its success (Hellqvist, 2011). Practices used in performance management may vary depending on their context and the goals of a given company. However, typical activities related to performance management can still be outlined, and they include performance measurement, goal-setting, identification of key metrics, the establishment of proper organisational controls and more (Brewster et al., 2016; Hellqvist, 2011). These processes help organisations to ensure that their workforces are used efficiently and that employees contribute to meeting organisational goals.
The main force that facilitated the development of global performance management as an aspect of research and practice in HRM is globalisation. Hellqvist (2011) argues that the need for global performance management arose in connection with the increased number of companies operating across borders. While modern businesses usually have headquarters that are tasked with core strategic functions, the implementation of strategy on a regional level and its execution impact company performance significantly (Brewster et al., 2016). Besides globalisation, international performance management was also driven by the increased level of competition in various global markets (Maley, 2012). Competition has a substantial effect on human resource management practices as it requires companies to monitor and improve their performance continuously (Brewster et al., 2016; Maley, 2012). Theoretical and technical developments in the study of human resource management have also assisted managers in understanding the factors impacting performance and designing tools to be implemented as part of local or international performance management initiatives (Brewster et al., 2016; Maley, 2012). Hence, globalisation, competition and improvements in HRM knowledge have all contributed to the development of global performance management as an area of study and practice.
Challenges of Global Performance Management
Research into global performance management has highlighted some of the critical challenges that HR managers might face. First of all, it is essential to acknowledge that the physical distance between headquarters and company branches decreases the level of control that strategic leaders and global HR managers have over the implementation of policies, strategies and management systems (Sekiguchi, Froese and Iguchi, 2016; Sparrow, 2010). Limited oversight and degree of control, in turn, may prompt the lack of compliance with organisation-wide efforts and strategies (Mellahi, Frynas and Collings, 2016; Sekiguchi, Froese and Iguchi, 2016; Sparrow, 2010). For this reason, the processes of designing and implementing performance management systems face significant barriers when applied in multinational companies.
Secondly, the structure and hierarchy of companies operating in the global context have also been identified as a significant challenge for IHRM functions, including performance management. Companies that operate within one country usually have a more straightforward organisational structure than multinational companies, even if they have several local branches. As a company expands into another country, its structural complexity increases due to changes in operations, needs and other factors (Celo, Nebus and Wang, 2015). For example, in companies that manufacture products, international expansion triggers an inevitable increase in production or logistics needs, and thus more people have to be hired. The complexity of multinational companies presents a challenge for performance management as it affects the chains of authority, responsibility and accountability within the company (Celo, Nebus and Wang, 2015). Consequently, HR managers might find it more difficult to collaborate, exchange information and establish oversight across borders even when these issues were absent before the expansion.
The third challenge faced by managers in global performance management is the need to balance local performance and global performance. According to Gaur, Delios and Singh (2007), “a key aspect of the management challenge is the trade-off between optimising subsidiary performance and optimising corporate performance” (p. 612). While the global performance of multinational companies largely depends on the performance of its individual subsidiaries, the needs of local divisions and branches might differ from those of the company at large (Gaur, Delios and Singh, 2007). For example, a multinational company attempting to implement specific metrics for performance measurement might find that the process halts the effectiveness of employees in a particular division instead of driving it, but inconsistencies in performance management could affect its implementation in other units, too (Claus and Hand, 2009). In this case and in similar situations, the management may be forced to prioritise regional needs over global or vice versa, and decision-making under these conditions is more complicated.
Another substantial challenge for global performance management is the increased number of employees and the vast differences between local workplaces. According to Sparrow (2010), the composition of international companies is largely diverse, which prompts cultural and language barriers that impact communication and collaboration. Furthermore, diverse people and workplaces mean that divisions of the company could react to performance management systems and processes differently, thus creating the need for customisation (Claus and Hand, 2009). The book by Varma, Budhwar and DeNisi (2008) highlights the variations in effective performance management systems across various locations, showing how various labour-related factors influence the success and implementation of different performance management systems. These forces make it challenging for international human resources managers to design, develop and improve approaches to performance management, as it is likely that at least some regional divisions will not yield any benefit from the methods used in the headquarters.
Factors Influencing Global Performance Management
Cultural Differences
With the increased diversity of global businesses, the topic of cultural differences and their impact on management strategies has been receiving substantial attention in research. Studies show that the performance management practices of international companies are influenced by their cultural composition (Slavić, Berber and Leković, 2014). For instance, Aljerjawi (2016) explains that the varieties in cultural dimensions affect employees’ preferences in terms of power distance, individualism, risk-taking and managerial behaviours. This is particularly relevant in the context of international businesses that operate in countries with significant cultural differences. Still, even in countries that are considered to be culturally related, performance management might face cultural issues. A study by Ovadje (2016) showed that even minor differences existing between two or more cultures could have a statistically significant effect on subsidiary performance. For this reason, developing an understanding of culturally-specific behaviours and practices is crucial to performance management. Research conducted by Gupta and Bhaskar (2016) revealed that multinational companies that fail to understand Indian culture before expanding to this country are more likely to face failure and performance losses, while those with well-defined management policies that take into account cultural differences are likely to succeed. A different study by Maley and Moeller (2014) suggests that failure to take into account cultural differences while designing performance management systems might affect country managers’ response to and role in the implementation of the system. Thus, cultural differences have a major impact on the success of performance management initiatives and should be taken into account by global businesses.
Institutional Forces
Differences between countries do not end with cultural and language variations. International businesses function in a highly complex institutional environment wherein their locations often differ in terms of laws, labour regulations, institutional protections of workers, privacy legislation and related characteristics (Najeeb, 2013). In fact, research by Vaiman and Brewster (2015) suggests that institutional variations have a more profound influence on HRM practices than cultural distance. Significant institutional differences might limit the extent to which performance management practices can be applied in international subsidiaries and thus influence the performance of global businesses. Research by Pattnaik, Choe and Singh (2015), which was based on a large sample of multinational production companies, shows that there was a significant relationship between subsidiary performance and institutional distance, mainly when the quality of institutions and their policies were strikingly different. A study by Ferner and Almond (2013) considered two institutional contexts with similar institutional quality but still found performance management to be influenced by minor differences, such as policies related to collective bargaining. This suggests that transferring performance management practice from headquarters to international subsidiaries is not always possible. However, Clark and Lengnick-Hall (2012) encourage managers to view this factor as an opportunity to develop better knowledge of various performance management practices and strategies, which could benefit the company in the long run. Therefore, research provides evidence of the influence of institutional factors on global performance management but offers various perspectives on the issue.
Organisational Factors
Organisational factors are also considered to have an impact on performance management, both in the international context and locally. A review of the NHS by Sheaff et al. (2004) suggests that various organisational factors, including but not limited to company size, structure, workplace environment, and communication channels, might influence the design, implementation, and success of performance management approaches and strategies. In multinational corporations, these differences might be significant due to cultural and institutional variations, as well as the company’s strategy. For example, international subsidiaries might differ in terms of their knowledge management practices, as suggested by Blomkvist (2012). This finding is supported by Andersen and Christiensen (2016), who found differences in the ways multinational companies can gather information and knowledge from their subsidiaries. Knowledge management and information transfer are instrumental in performance management due to the need for information exchange and organisational learning. The company structure was also found to be a significant factor in multinational companies, and Chung, Bozkurt and Sparrow (2012) found differences in regional managers’ social ties, values, level of authority and engagement with global strategic leaders. The local management structure was also found to differ in MNCs depending on the geographical area, which may contribute to organisational complexity impairing performance management efforts (Amann, Jaussaud and Schaaper, 2014). Therefore, organisational factors can play an essential role in global performance management and have to be addressed by international leaders.
Strategies for Global Performance Management
The research also provided some insight into various performance management strategies that could be used by multinational companies. First of all, research suggests that global performance management should be based on rigorous and continuous analysis of the internal and external environment in each host country (Cascio, 2012). According to Cascio (2012), this would allow ensuring that decision-makers have enough information to develop an effective performance management system and plan its implementation. From this recommendation, it follows that managers have to take into account the differences existing between two or more host countries and use them to tailor their approach to performance management (Cascio, 2012; Festing et al., 2012; Engle, Festing and Dowling, 2014). Consequently, modifications to performance management systems are often essential, and these might include a variety of adjustments ranging from the use of indicators to reward strategies (Cascio, 2012; Engle, Festing and Dowling, 2014). Some researchers also noted the need to establish mechanisms to overcome structural differences, such as effective two-way communication, frequent formal and informal reporting and more (Cascio, 2011; Cascio, 2012). Finally, despite advice to tailor performance management to local needs and concerns, researchers also point to the need to support the alignment between performance management activities and strategic plans of the company (Engle, Festing and Dowling, 2015). Therefore, strategic leaders should pay particular attention to the development and dissemination of strategy to international HR functions in order to ensure that performance management fits into the firm’s strategic requirements.
Gaps in Research
Although the research covers most areas of the issue of global performance management, there are some gaps in current knowledge. The most critical gap is the low number of research studies concerning organisational differences inside NMCs and their particular effects on performance management initiatives. While the research reviewed this topic from a theoretical viewpoint, it would be useful to have an in-depth understanding of the relationship between organisational characteristics and variations and performance management success.
Additionally, a major limitation of current research on the topic is that it rarely considers the practical determinants of global performance management success or failure. The articles gathered for the review provided a relatively good idea of the strategies that managers could use to support global performance management, but the description provided in resources on the topic is too vague to benefit practice. Consequently, researchers should focus on studying the benefits of specific methods for international businesses and compare them to gain more insight and provide relevant ready-to-implement recommendations.
Moreover, it can also be noted that the design of most scholarly inquiries into the topic considered either prior literature or a sample of multinational companies in specific locations. This marks the low number of large-scale studies of international businesses and the decreased interest in case study research. Both types of research would contribute to the body of knowledge on global performance management. On the one hand, large-scale studies including multiple countries, industries and companies could provide reliable evidence in favour of particular approaches or strategies for global performance management. In accordance with the principles of evidence-based management, the results of such studies can be generalised to other contexts and would thus benefit multiple companies operating in the global environment. On the other hand, case study research could provide in-depth information on the challenges faced by international companies in their performance management efforts and on the approaches they used to resolve problems and overcome barriers to performance. The data from such studies could also benefit practice in global performance management.
Implications
The information provided by scholarly articles and books on the topic of global performance management has significant implications for international human resource management. Firstly, the literature review highlights the growing relevance of global approaches to performance management, which could support businesses in the context of globalisation. Scholars suggest that ensuring adequate implementation of performance management throughout international companies could have a positive influence on their productivity, growth and financial performance. Hence, studying and applying global performance management strategies is essential to ensuring business development in international markets.
Secondly, the review also provided a discussion and explanation of the most pressing concerns in global performance management ranging from physical distance to increasingly complex company structure. For HR practitioners and employers alike, this information is valuable because it helps to understand the difficulties associated with international expansion and prepare companies for them in advance. Therefore, the current body of research and future additions to it could support companies seeking to grow internationally by helping them to anticipate threats and mitigate them promptly.
In addition, the research also allowed highlighting the main factors that could influence the success of international performance management. While organisational challenges offer businesses an opportunity to plan and prepare before expansion, the identification of factors that could damage performance management efforts can assist companies that are already operating in the global environment. For instance, leaders and HR managers in multinational enterprises could use scholarly information to analyse the gaps in their implementation of performance management and make adjustments that would support its effectiveness in the future. Alternatively, employees working in multinational companies could also benefit from this knowledge by gaining a broader perspective on their management’s initiatives and strategies.
Lastly, the research highlighted ways of addressing the issue in the context of international human resource management. Scholars suggest that global companies looking to improve their performance management would benefit from an in-depth analysis of their organisation and could use the findings to improve performance management strategies globally. Additionally, scholars also consider customisation to be essential in the context of global performance management but warn against prioritising divisions’ strategy over the general corporate strategy. This suggests that HR managers and leaders could yield the best results when defining how their company’s strategy could be applied in the cultural, institutional and organisational context of its subsidiaries. Although further research into the topic is required, these suggestions could assist global HR managers in addressing performance management challenges adequately.
Conclusion
On the whole, globalisation has had a significant influence on businesses all over the world by providing them with more opportunities to enter the global arena. The increased competition among global companies and improved capacity for organisational research and performance tracking has supported the emergence of global performance management in this context. Research studies highlight that multinational organisations face unique challenges in performance management due to increased physical distance between subsidiaries, growing structural complexity, competition between local and global interests and increased size and diversity of personnel. As a result, performance management efforts in multinational companies may be impacted by cultural, organisational and institutional factors. Addressing this challenge requires HR managers to develop new strategies and tools that fit the context of their organisations. Hence, the present critical review provides essential insights into the topic that could be used to improve practice and further research into the issue.
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