Managers’ Performance: Conceiving and Measuring

Literature review

An article by Anglin and his friends (1990) suggests that team performance is one of the methods used in the measurement of a manager’s performance. He asserts that managers are at the core of success in any organization and their roles are similar in every other organization only that their work definitions differ. According to the neoclassical school of thought, the main task handled by the managers is ensuring that the businesses are operating in technical and economic efficiency.

“They are expected to derive maximum output from the available input while minimizing the cost a” (82). They, therefore, conclude that the managers differ only when it comes to the factors at their disposal including the inputs and the available technology. Owing to this, therefore, the best way to determine the performance of managers is by evaluating their strategies as far as market inefficiencies are concerned.

According to this article, the most effective manager is one who “takes advantage of the market inefficiencies or discovers previously undiscovered niches” (85). Despite them not being the entrepreneurs, they possess entrepreneurial characteristics and they even perform better than the entrepreneurs because they are not allowed to develop new products but only to work with the available input. A good example of a successful manager according to this criterion is Jack Welch who converted GE by transferring the focus from the manufacturing sector to the financial department and ended up making the organization one of the best in those times when most of the manufacturing sectors were collapsing.

He goes on to explain that the economic research conducted on managers recognized that this role was widespread across most of the managerial desks in today’s companies. It was also concluded that managers have a strapping influence on policy development in their respective firms. This is because they are the main implementers of these policies and so they have to be at the core of making them as well. The profitability of the firm also depends entirely on them since they determine any activity that is carried out in the organization. These conclusions, however, came about through the interactions of several successful managers and so can be considered to be biased.

Economic studies have in the past been focused only on the evaluation of the entrepreneurs as the major force behind the success of a business. It was however recently discovered that this is a misplaced assumption as managers contribute directly to the success or failure of an organization. The economists, therefore, set out to identify the measures that can be used to point out a successful manager. To develop this study, they set up a data collection system that identifies the profitability and financial performance of a firm under different management as well as the impact brought about by different managers in the companies they have worked with before. This method ensures that the analysts can put a line between the impacts of the managers and the natural performance of the company.

Some companies have strong goodwill such that it is never possible to tell whether the success is brought about by the managerial efforts or the company just runs well by itself. It is only by evaluating the performance of the manager in different organizations that a more accurate conclusion can be arrived at.

The main bottleneck in this method is the fact that managers leave organizations for many reasons amongst them, conflict with the business owners. In such a case, they might try to tarnish his reputation hence tampering with the evaluation of his performance. Another hindrance is that most managers operate with a team and so they move to the new organization the whole lot of them. It, therefore, becomes hard to know whether the improvement in the organization is due to the satisfactory performance of the manager or the efforts of the team members.

Another manager’s evaluation criterion is provided by Merchant in his article Evaluating General Manager’s Performances. He indicates that the process of monitoring the performance of managers is an important aspect to the success of any organization supporting the common saying that what you measure is what you get. Merchant explains this by illustrating that if an organization is evaluated in terms of the profits it makes, then, the management is most likely to concentrate more on making profits. In other words, what is measured is usually what motivates the management; hence, measuring their performance will ensure that they work towards the improvement of it which includes the general workplace ethics and conduct.

Merchant classifies the management performance measures into three extensive classifications. The first one is “the market measures which includes direct reflections of an entity’s change in value” (895). Second is the measure based on the accounting records and this is characterized mainly by the residuals or the ratios of the organization. The third measure involves a combination of several measures both in the financial and non-financial categories. A good example of this combination is the balanced scorecard framework which is an evaluation framework consisting of several other measures depending on the organization’s priority.

This article goes ahead to provide several standards against which the most effective performance evaluation criterion should be measured. First, it should be congruent implying that it should be in harmony with the objectives of the organization. The general objectives of most organizations are usually that of profit-making and maximizing the value of the shareholders.

Therefore, the measures used in the evaluation of the manager’s performance in these organizations should be one that increases with an increase in value and decreases with a decrease in value. The second standard is that the managers who are being evaluated should be in a position to control the measures. This is because uncontrollable measures provide very minimal or completely no information on the performance level of the organization, hence, lacks motivational effects.

Third, the measurement criterion should be timely in the sense that the management should be receiving a report on their performance say annually accompanied by rewards for good performances. Fourth, it should be accurate, that is, with minimal measurement biasness. The next one is understandability as measurement techniques that are complex to the understanding of the people they influence have little or no motivational effects. Finally, it should be cost-effective in the sense that it should accrue more benefits to the organizations than the cost of implementing them.

According to Merchant, the most congruent measurement criteria are the market measures. He states that “they provide direct indications of the amount of value that has been created or destroyed” (899). As a result of this, managers are rewarded concerning the gains that have been accrued from the business as a consequence of the management efforts. Besides being congruent, market measures are also timely in the sense that they can be available even daily. They are also definite and the managers under evaluation are unable to manipulate the report in their favour. It is easy for any person in the managerial position to understand this measurement criterion and at the same time, it is cost-effective as the organization does not have to incur the measurement expenses.

The market measures, however, have several shortfalls, the first one being grave feasibility limitations. Merchant reveals that “market measures are never available for the privately owned corporations or wholly-owned subsidiaries and they cannot be applied to the nonprofit making organizations” (900). The only way to conduct performance appraisals in these organizations, therefore, is through the assessment of value changes though these can be cost-ineffective, less timely and less accurate. Second, market measures have controllability defects because they can only be controlled by those in top managerial positions and have the power to make major decisions. This renders these measurements useful indicators of the performance of majorly topmost management.

Another problem with this is that there are several factors affecting market prices and which are beyond the control of the managers. Some of these factors include “changes in the macroeconomic activity, interest rates, factor prices, exchange rates as well as the decisions of the competitors” (902). It is difficult for example to evaluate the performance of the manager based on the stock prices since these are affected by the market forces and not the organization’s performance. Market valuations also happen not to be correct most of the times. At times, they overreact to the development of the earnings both negatively and positively and this poses a difficulty in the explanation of the market valuations when putting into consideration the non-economic factors.

The other article addressing the issue of measuring the performance of managers is The people who make organizations go or stop by Cross and Prusac. It asserts that “performance measurements consist of the quantitative or qualitative information on the input, output or level of activity of an event or process” (104). The requirement s in this process includes, first, identifying the most relevant performance indicators and second, implementing them.

A report on the performance of the managers should consist of an analysis of the input level, the activities surrounding the input and the resulting output. This information is usually evaluated in comparison to a predefined standard determined either by the owners of the organization or set by the previous management whose performance was excellent. In the latter case, the effectiveness of the manager will always be determined by how close they are to attain the standards set by the previous management.

According to these two; “performance management comprises of consistent workplace systems and processes that are designed to assist people to perform to the best of their abilities through feedback, development and a supportive work environment” (106). In this, the performance of managers is determined by the ease of evaluation which in this case enables an effective feedback system to be developed. The problem with this system, however, is the fact that the management can alter the results since the system runs directly from their areas of work. This means that it cannot be relied on as the managers can always alter the analysis in their favour.

The need to improve on the validity of this measure has however been an object of study in many performance measurement types of research. The outcome in this has always been to integrate a performance monitoring and evaluation department in the organization that works independently from the management office and one that undergoes frequent audits to ensure that there is no interference from the management. The main reason behind the implementation of such a strict policy according to Leggatis because the management appraisal process determines people to be rewarded, get a pay rise and to be promoted and any false presentation would be unfair to the other people in the organization.

The next article, Measuring Managerial Efficiency is a discussion paper which deals with whether the managers can evaluate their performances in a way that is fair and accurate. This research indicates that those managers who can monitor themselves and provide a report that cannot be doubted have a spectacular performance. Porter and Scully (1982) describe a self-monitoring manager as, “one who, out of concern for the situational and interpersonal appropriateness of his or her social behaviour, is particularly sensitive to the expression and self-presentation of relevant others in social situations and uses these cues as guidelines for self-monitoring (that is, regulating and controlling) his or her own verbal and nonverbal self-presentation” (645).

This measure is however flawed since it mainly depends on the experience gained by an individual in the management position. Managers with more experience are more likely to evaluate their performances better than new members in the management work. Some of the experienced members usually appear to be performing better than others not because they develop the best outputs but because they have developed the skills of presenting their output in a way that appears to be perfect. New managers could have the best ideas but lack the presentation. This explains why experienced managers can hold on to a job while new and inexperienced ones are in the tendency of quitting when things go the wrong way.

Finally, is A Field Study of the Impact of a Performance-Based Incentive Plan by Banker and his colleagues (1996). These articles explain a measure of performance in which the “” individuals performance is aligned with the goals of the organization and the resultant performance evaluation linked to the total rewards system” (195). This method seems appropriate since it divides the managerial team into either high performing managers or low performing managers. In this case, the progress of all the managers is monitored using “a survey that is specific to the performance management initiative, an institutional management opinion survey, and manager’s performance review and merit data” (196).

This article mainly focuses on the healthcare sector and to effectively examine this, the research conducted in other industries is incorporated in the health care industry. Here, performance cannot be measured using financial analyses but by the quality of services offered to the customers and the resulting cost of offering these services. The high performances are then rewarded accordingly since this being a sector that handles human life, underperforming management should be highly discouraged.

One of the most effective measures, in this case, is the survey with six questions which has been used in the past to “assess the effectiveness of the pay for performance program after clinical operations and programs transitioned to the SPR period immediately preceding merit distribution” (198). These questions are framed using the five-point Likert scale which ranges from one standing for ‘strongly disagree’ to five standing for ‘strongly agree’. The main domain in this research was the effectiveness and efficiency of the institution under the management system being reviewed. The best thing about this measure is that it could be revised to cater for improved performance instead of having to carry out another complete survey to accommodate this.

Report

From these articles, it is important to note that none of the measures of a manager’s performance is perfect. This explains why most organizations do not have a system for evaluating the performance of the managers. This, however, is an important system as it ensures that the managers are not oblivious of their duties when the owners are not around. Managers can develop the habit of self-monitoring and responsibility which is beneficial to the owners in the sense they reward good performance and not just increased profits. Profits in organizations could be as a result of increased market demand for the product or services and not necessarily as a result of improved managerial performance.

All these measures of managerial performance are effective in their way. There is no specific measure that can be considered to be ultimately correct because organizations operate differently and so do different industries. From the last article, we can note that the performance measuring methods used here are different from the rest and can only apply in the health sector where managers are expected to provide affordable services and at the same time ensure that the institution does not run into losses. The performance evaluation in such a case is, therefore, stricter than in the organizations dealing with products and services not directly related to human life.

References

Anglin, Kenneth A., Jeffrey J. Stolman, and James W., 1990.The congruence of Manager Perception of Salesperson Performance and Knowledge-Based Measures of Adaptive Selling. Journal of Personal Selling & Sales Management, 10 (Fall), pp81-90.

Banker, R., Lee S., and Potter G. 1996. A Field Study of the Impact of a Performance-Based Incentive Plan. Journal of Accounting and Economics 21 (2): pp195-226.

Cross, R., &Prusac, L. 2002. The people who make organizations go or stop. Harvard Business Review, 80(6), pp104-112.

Merchant A. K., 2006. Performance measuring. Measuring General manager’s performance, 19(6), pp 893-917.

Porter, P., & Scully, G. 1982. Measuring managerial efficiency. Southern Economic Journal, 48(3), pp642-650.