Performance management is a very important aspect of organizational management. This is the thrust of the article reviewed in this paper. The article looked at the place of performance management in the current business climate. This article examined the issues emanating from performance management. The role of the Specifically, this paper provides a summary, a critical analysis, and an examination of the potential application of performance management.
The article under review had the following objectives. First, it sought to prove that the business world was experiencing a performance measurement revolution (Neely, 1999). Secondly, the article sought to explore the reasons underlying this phenomenon. Thirdly, the article looked at the current state of the performance measurement and future direction for the development of performance measurement systems.
The article stated that a lot of work was ongoing in academic circles as well as in business in the field of performance management (Neely, 1999). The article further stated that the rate of publication of articles between 1994 and 1996 was one article every five hours (Neely, 1999). In addition to this statistic, the article listed the increasing number of conferences related to performance measurement as further evidence of increasing use of performance measurement (Neely, 1999). The article also demonstrated the growing prominence of performance management based on the exponential growth in the number of members in professional associations (Neely, 1999).
The seven reasons presented in the article regarding the growing interest in performance management were as follows. First, the nature of work was changing rapidly making older performance measurement systems ineffective (Neely, 1999). The main factor in this change was that labor costs accounted for less than ten percent of the overheads compared to historical figures of over fifty percent (Neely, 1999). Secondly, there was increasing competition from both local and international firms due to globalization and increasing specialization (Neely, 1999). The third element was the proliferation of specific performance improvement initiatives in work places (Neely, 1999). The fourth aspect was the obtaining of awards locally and internationally. The fifth contributor is changing organizational roles, while the sixth element is changing external demands from business associates, regulators, and clients (Neely, 1999). The seventh reason presented in the article was the growing power of information technology, which was making it easier for companies to track performance (Neely, 1999).
The main issues of interest in the discussion of the state of affairs and future direction of performance management included a clarification of the issues that influence business performance. In addition, the discussion on business performance led to the conclusion that the design and development of a performance measurement system required an evolutionary approach because of changes in the operating environment. Issues affecting performance management keep changing with time hence the need to keep revisiting these issues. It is also imperative to keep developing parameters for use in business performance measurement. A similar issue is the determination of how to manage performance measurement systems.
One of the issues that come out very clearly in the arguments presented in the article is the evolutionary nature of performance management. In the last one hundred years, the methods used for performance management have changed. One of the illustrations of this change is in the discussion presented is the change in overheads due to labor. In about fifty years, methods of controlling the processes of labor cannot rely only on the financial system to control the performance of an organization. This change illustrates the fact that performance management is still evolving as new ideas and systems come into play. Research is still ongoing. Therefore, new approaches to performance management will evolve.
The second important issue relating to performance management is its significance to the success of any organization. Organizations exist as a means of achieving certain aims (Mark, 2004). In the current business environment, failure to implement performance management systems would cause a business to lose its competitive advantage. Therefore, a business must establish and develop its sources of competitive advantage (Porter, 1998). Performance management can be an important source of competitive advantage. In this sense, an organization that is able to optimize its output using performance management measures is able to achieve better results compared to a company that has a weak performance management system. Competitive advantage is the basis of the success of any organization.
The third aspect of performance management is that it can be a source of strategic advantage for a business unit (Mark, 2004). If an organization develops robust performance management systems, then it can use this system to leverage its performance for future benefits. Another perspective in this idea is that the implementation of performance management systems requires strategic forethought (Mark, 2004). This means that performance management should form part of the strategic management efforts of every organization. The article shows that the evolutionary nature of performance management requires an evolutionary approach. The best way to achieve this is by including performance management initiatives as part of the strategic plan.
The fourth aspect in the issue of performance management is the development of performance management systems for future use. It is vital for organizations to develop organic performance management systems in order to improve current practice. This calls for an iterative development of a performance management system. This will allow the organization to develop a system that improves with time. Static systems soon become obsolete.
The information gleaned from the article reveals three ways of implementing performance management. The three ways include the use of performance contracts, use of motivation techniques such as performance contracting, and the application of performance planning in strategic planning.
Performance contracts are one of the tools used for performance management. A performance contract outlines an employee’s performance criteria, making it possible to determine the output of the employee based on objective factors (Colquitt, LePine, & Wesson, 2009). The use of performance contracts make it possible to reduce the managerial work required to keep employees in check. It allows each employee to determine his or her optimal work rate because of a clearer understanding of how performance will be measured. Performance contracts allow an entire organization to predict or plan for its performance based on the expected output from each employee. The beauty of performance contracts is that they can apply to work teams such as project management teams as well as special work groups to increase collaboration.
Another performance management approach from a motivational angle is performance-pay (Colquitt, LePine, & Wesson, 2009). This approach aims at maximizing output by rewarding hard workers. Money can serve as a motivator in certain jobs. It is common for employees to receive bonuses at the end of a year based on their productivity. This requires the company to put in place performance management systems to measure the productivity of each employee. The presence of a performance related bonus in the employee motivation system of an organization can serves as a performance management system.
Money is not the only way to motivate employees in the context of performance management (Colquitt, LePine, & Wesson, 2009). It is also possible to extend certain benefits such as a fully paid vacation to top performing employees. In addition, it is possible to give prizes such as special cash prizes or other forms of recognition to high performing employees. These methods are ideal for jobs where employees can increase their work rate to improve their productivity.
The third option in applying the concepts laid out in the paper is during the strategic planning process for an organization (Mark, 2004). As explained earlier, the best time to infuse performance management in an organization is during strategic planning. During this stage, it is easier to include aspects of performance planning in the make-up of the organization. An organization has a better chance of performing well in the market if issues related to performance planning form part of the strategic management process. In conclusion, there are indeed several ways of applying performance management principles in an organization. They range from personal commitment such as performance contracting, to full-scale organizational initiatives.
In conclusion, every organization needs to develop strong performance management systems in order to survive change. Performance management systems need to be responsive to changes in the operating environment. Static performance management systems cannot survive long-term use. Performance management systems also need to bear a strategic focus. Interweaving the performance system with an organization’s strategic focus gives an organization immense power to determine its future.
Colquitt, J., LePine, J., & Wesson, M. (2009). Organizational Behavior: Essentials for Improving Performance and Commitment. New York: McGraw-Hill.
Mark, D. (2004). Strategy: A Step by Step Approach to the Developement and Presentation of World Class Business Strategy. New York, NY: Palgrave Macmillan.
Neely, A. (1999). The Performance Measurement Revolution: Why Now and What Next? International Journal of Operations & Production Management , 205-228.
Porter, M. E. (1998). Competitive Advantage: Creating and Sustaining Superior Performance. New York: Simon and Schuster.