Performance Management System (PMS) implementation and HR
A critical component of organizational management is the utilization of performance management systems (PMS). It is contended by Adler (2011) that performance management systems are those set of organizational activities which management undertake in order to focus employees’ activities in the accomplishment of the organization’s strategic goals and objectives. As such it is further postulated by Anthony & Govindarajan ( cited in Adler 2011) that the performance management systems must assist the organization in their planning and implementation to ensure accurate and timely feedback and feed-forward on the performance of the organization, and encourage corrective behavior when necessary. The understanding of what exactly constitutes a performance management system is heavily influenced by several schools of thought that have been considered. In much earlier literature, it is the view of Anthony (cited in Adler, 2011) that it is primarily “management control”, which focus on acquisition and effective use of resources. Nonetheless, subsequent views expressed by Horngren & Datar (cited in Adler, 2011) suggest that performance management is more concerned with the gathering of data for the purpose of aiding in the planning and decision-making processes in the organization. I, however, recognize the more recent definition of Anthony and Govindarajan (cited in Adler 2011) as being closest in context to what a performance management system should reflect in a modern firm or organization. Anthony and Govindarajan argue that performance management is “the process by which managers influence other members of the organization to implement the organization’s strategy.” (Anthony and Govindarajan cited in Adler 2011). It is postulated by Aguinis that in many organizations there are processes undertaken to measure the performance of workers, which are referred to as “performance management” but which in effect falls short of a reasonable standard of what performance management really is (Aguinis, 2009, pp.2). Aguinis, therefore, proffers a definition, which recognizes performance management (PMS) to be a “continuous process of identifying, measuring, and developing the performance of individuals and teams, and aligning performance with the strategic goals of the organization” (Aguinis, 2009, pp.2).
There are some very significant elements of performance management identified in this definition. First, it is considered to be a continuous process. It is important to note that having an annual employee evaluation cannot necessarily be considered to be performance management. In order for this process to be effective it must be a continuous process of goal setting; identification of objectives and benchmarks; observation of practices and behaviors; and an engagement of feedback and corrective actions, between workers and supervisors. Secondly, this definition given by Aguinis, also points to the need to ensure that the individual and collective activities of the employees within the organization are aligned with the strategic goal of the organization. The author finds the views of Aguinis to be quite consistent with a body of research, for example, that of Niven (2002), regarding both the definition and importance of performance management systems. However, the author did note that while both Aguinis and Niven agree on the definition of performance management, Aguinis focuses his arguments on the qualitative value of performance management to the organization, while Niven recognizes and argues for the quantitative contribution it makes to the performance of the organization. Aguinis, for example, contends that an effectively implemented PMS contributes, amongst other things, to the “ increased motivation to perform; increased self-esteem; managers gaining insights about subordinates; organizational goals being made clearer; employee becoming more competent; and the facilitation of organizational change” ( Aguinis, 2009, pp.5). Niven, conversely argues that the PMS of any organization must provide the basis upon which the performance of its employees must translate into financially measurable outputs or economic value added (EVA) to the organization, hence his arguments seem to locate the concept of performance measurement as a key component of performance management. In essence, the argument proffers that “unless the profit of the firm exceeds its cost of capital, it is not creating value for its shareholders” (Niven, 2002). The author concurs that both theories are meritorious, and adds significantly to the literature on performance management.