CHAPTER TWO 2. 0 LITERATURE REVIEW 2. 1Introduction Over the last two decades, Performance Information, its implementation and presentation to the end users which directly refers to the subject of performance measurement (PM) has gained increasing interest and recognition in the general management literature, leading Neely (1999), when referring to the many contributions on the subject, to talk about the Performance Measurement Revolution.
He demonstrated that between 1994 and 1996 a mere 3615 articles on performance measurement were published. During that period, there has been a sustained attention for PM within the financial industry. This section intends to make an expository on the PM literature by explicitly considering a variety of performance measurement systems (PMSs). We look at existing systems for measuring overall business performance, and look how they could be used in the financial industry in general and CENO international bank in particular.
The researcher deliberately cast his net wider than the popular Business Balanced Scorecard and its many variations and adaptations. The research aims to contribute to practice by drawing out the strengths and weaknesses of different performance measurement systems for the financial services institutions, as well as discussing the main issues relating to the implementation of performance measurement systems. In this chapter, first of all, performance management will be defined.
Then, the evolution of PMSs will be described. This is followed by a discussion of the functions and elements of an effective PMS. Then, we present five existent PMSs: the Balanced Scorecard (Kaplan, Norton, 1992), the Tableau de Bord (Epstein, Manzoni, 1998), the Performance Prism (Neely and Adams, 2000), the Performance Pyramid (Lynch, Cross, 1991), and the Productivity Measurement and Enhancement System (Pritchard, 1990). A review of 360 degree feedback was done as well as its drawbacks.
Finally, the researcher shall explore how poor performance can be managed putting into the process some ethical considerations. 2. 1. 1 Performance Management A key impetus for the development and recognition of the importance of performance management has been the more competitive environment with which organisation now operate (Bach, 2005). With market globalisation and increased competition increasingly from third world countries organisations became under increasing pressure to increase productivity and reduce costs.
During the 1980s a more holistic view was adopted considering all the influences on performance with a shift from simply performance measurement of outcomes to a more sophisticated performance management approach (Bach, 1998), developing a more strategic HRM approach to resource management (Marchington & Wilkinson, 2005) linking the aims of the organisation to the performance of the individual (Mwita, 2003). Performance management is a structured method of review which aims to link together individual goals, departmental purpose and organisational objectives (Marchington & Wilkinson 2007).
In this there is a clear strategic link between employee behaviour and the performance of the organisation. A useful definition of performance management was provided by Verweire and Van Den Berghe (2004,p7) as a ‘.. ,comprehensive management process framing the continuous improvement journey by ensuring that everyone understands where the organisation is and where it needs to go to meet stakeholder needs. ’ Ultimately, the goal of performance management is to achieve human capital advantage recognising that the individual is the most important source of the capital advantage to the organisation (Armstrong & Baron, 2007).
This was also described by Boxall (1996) as a human resource process of ensuring that the results of recruitment strategy were to ensure that the organisation employed people with competitively valuable knowledge and skills. In this Boxall reaffirms the link between the performances of the organisation with the performance of the individual. The overall aim of performance management is to establish a high performance culture. In this employees would visualise as part of their function the requirement to continually assist in improving the performance of the organisation.
They will also perceive that they can influence important aspects of overall performance (Robson, 2004). This was described by Horton and Farnham (1999) as a process of maximising the value added through the performance management such that the initial costs are exceeded by the subsequent benefits. To achieve this, individuals and teams take responsibility for the continuous improvement of the business developing their own skills and effectiveness (Armstrong, 2006). By harnessing and developing the potential of the individual the organisation will be best placed to achieve the strategic goals.
In addition to this, the underlying principles of performance management have been described as one of collaboration in which the system deployed should be one which encourages development and one which allows team members to move on to strategic development within the organisation (Egan, 1995). The principles of performance management have been summarised as follows (Information Data Services 1997), 1. Translates corporate goals into individual team, department and divisional goals 2. It helps to clarify corporate goals 3.
It is a continuous and evolutionary process in which performance improves over time 4. It relies on consensus and cooperation 5. It creates a shared understanding of what is required to improve performance and how this will be achieved 6. It encourages self management of individual performance 7. It requires a management style which is open and honest and encourages two way communications between superiors and subordinates 8. It requires continuous feedback 9. It measures and assesses all performance againstjointly agreed goals 10. It should apply to all staff 1. It is not primarily concerned with linking performance to financial reward. These again point towards the development of the individual to become high performers who will help achieve the strategic aims of the organisation. Employees are therefore the most important economic factor in achieving corporate aims of the organisation (Armstrong, 2006). But the development of employees or performance management in general is not a one off occurrence. The important message is that effective performance management is a continuous cycle and not a single event.
Most performance management cycles are similar in that they link together strategy and planning with employee monitoring as well as reinforcing performance standards (Marchington & Wilkinson 2007). The Deming cycle links the various elements of the performance management process into a continuous process. The different elements can be analysed as follows: 1. Plan is agreeing the objectives and competence requirements for the organisation. This will also identify the behavioural requirements, objectives and performance plans Agreements for meeting, personal development enhanced knowledge and skills will also form part of the plan 2.
Act is the actual carrying out of the work to achieve the objectives 3. Monitor is the process of continually checking on progress toward the desired objectives and responding to new demands 4. Review is holding regular meeting to ‘stock take’ and assess progress and take action where required for competing the cycle by moving into the planning stage (Armstrong & Baron, 2007). Performance management is therefore considered as a process and not single event. As Deming’s model shows, it operates as a continuous cycle.
The corporate strategic goals provide the starting point followed by agreement on performance and development leading to the drawing up of plans between individuals and managers with continuous monitoring and feedback supported by formal reviews (CIPD, 2008). Once an organisation has determined upon a performance management framework it is then the function of managers to put the principles into effect. The determination of successive governments has been to improve the efficiency of the public sector, mirroring private sector expectations and reduce costs.
Therefore the performance management cycle is equally important for organisations such public sector as those in the private sector. For the bases of this study the most important element is the review and appraisal of performance which, as Armstrong (2004) has stated, is the fundamental element of performance management being the human interface between the management aspirations and strategic goals and service performance delivery from the individual. However, in order to define performance we need to determine exactly what will constitute performance and how will this be measured.
If managers are to engage with staff and provide feedback on performance then both parties need to be aware of what constitutes good performance or bad performance within their organisation. It is difficult for Local Authorities to think of performance in terms of simply outputs given the complex nature of these multi dimensional service delivery organisations (McLaughlin & Coffey, 1990). However, for the performance model to operate clear goals and objectives must be established in order to be measured. Rouse and Putterill (2003) define PM as “the comparison of results against expectations with the implied objective of earning to do better”. In their view, the main reason for setting up a PMS is the objective of becoming better. This is supported by Dumond (1994), who considers “performance measures to be established to support the achievement of goals with the intent to motivate, guide and improve an individual’s decision making”. That is the reason why many authors refer to a Performance Management System rather than a Performance Measurement System. In the eyes of Lebas (1995) and Amaratunga and Baldry (2002), measurement is not an end in itself, but a tool for more effective management.
Results of performance measurement indicated what happened, not why it happened, or what to do about it. In order for an organisation to make effective use of its performance measurement outcomes, it must be able to make the transition from measurement to management. The evolution of performance measurement Financial measures have long been used as the sole criteria to evaluate performance of organisations. According to Lebas (1995), the traditional managerial accounting model of the firm is focused on product-costing and defines performance as income, that is, the difference between sales and costs.
Bourne and Neely (2003) state: “Traditional accounting based performance measures have been characterised as being financially based, internally focused, backward looking and more concerned with local departmental performance than with the overall health or performance of the business”. Also within purchasing, the traditional approach to performance measurement is an efficiency-based PMS, focused on minimizing costs and maximizing functional operating efficiency (Dumond, 1994).
In the early 1980s, however, several academics and practitioners realised that due to increased complexity of organisations and the markets in which they compete, it was no longer appropriate to use financial measures as the sole criteria for assessing success. Johnson and Kaplan (1987), for example, highlighted the failure of financial performance measures to reflect changes in the competitive circumstances and strategies of modern organisations. While profit remains the overriding goal, it is considered an insufficient performance measure, as measures should reflect what organisations have to manage in order to profit.
Kaplan and Norton (1992) show that traditional financial measures fail to provide information on what customers want and how competitors are performing. This is one of the reasons why a Performance Measurement Revolution started in the early 1990s. Many authors started to design and implement PMSs, which were able to overcome the shortages of the traditional PMSs. According to Neely (1999), there are seven main reasons for the ‘performance measurement revolution’: 1. The changing nature of work, making traditional accounting systems with their emphasis on direct labour obsolete. 2.
Increasing competition, driving a need for measures of quality of service, flexibility, customisation, innovation and rapid response. 3. Specific improvement initiatives that rely on performance measurement, such as Total Quality Management, Lean Production or World Class Manufacturing. 4. The establishment of national and international quality awards. 5. Changing organisation roles for performance measurement from accounting to human resource managers. 6. Changing external demands on performance accountability, such as the demands from regulators in newly deregulated industries. 7.
The power of information technology, making the capture and analysis of data far easier, and opening up new opportunities for data review and subsequent action. During this ‘performance measurement revolution’, many PMSs were developed such as the Balanced Scorecard (Kaplan, Norton, 1992), Performance Pyramid (Lynch, Cross, 1991), and the Performance Prism (Neely, Adams, 2000). The objective of such systems is to help organisations define a set of measures that reflect their objectives and assess their performance accordingly. These systems are usually multidimensional, explicitly balancing financial and non-financial measures.
A wide range of criteria has also been developed, indicating the functions and elements of effective performance measures and measurement systems. Functions and elements of effective performance measurement systems Depending on the organisational context, the organisational culture and managerial intentions, performance measurement systems can fulfil different functions. There are, however, five main functions, which all PMSs should address: 1. Assessing, managing and improving performance, on all relevant factors (financial and non-financial) that drive profitability (Butler et al. , 1997). 2.
Strategy formulation and clarification (Kaplan, Norton, 1996b; De Haas, Kleingeld, 1999). 3. Enhancing strategic dialogue (De Haas, Kleingeld, 1999; Bessire, Baker, 2004; Neely, 1999). 4. Improving decision making and prioritising (Kennerley, Neely, 2002). 5. Stimulating motivation and learning (Dumond, 1994; Rouse, Putterill, 2003). Besides these functions, a wide range of factors have been developed that distinguish effective performance measurement systems from less effective PMSs. First of all, the performance measures on which the system is based, should be relevant, balanced, and related to the company’s strategy.
Performance measurement should be based on financial as well as non-financial PI’s, because quality or other non-financial goals are often part of a company’s strategy. According to Evans (2004), one of the limitations of traditional accounting measures is that they are often not able to translate strategy into measures that uniquely communicate an organisation’s vision. Measures need to be related directly to the organisation’s mission and objectives in order to reflect the company’s external competitive environment, customer requirements and internal objectives (Kennerley, Neely, 2002).
Performance measures need to be balanced in terms of financial and non-financial measures, related to internal and external stakeholders, and consisting of leading and lagging indicators (Evans, 2004). In order to ensure that PMSs remain relevant, they should be reviewed periodically (Lynch, Cross, 1991). Yet few organisations appear to have systematic processes in place for managing the evolution of their measurement systems (Kennerley, Neely, 2002). Bititci et al. (2000) propose audit tools that enable organisations to identify whether their existing measurement systems are appropriate given their environment and objectives.
Many authors point out that a proper organisational and information system structure is a prerequisite for an effective PMS. According to Amaratunga and Baldry (2002), a proper organisation structure includes involved leadership, open communication, and a reward system that is linked to performance measures. A highly developed information system is also an important part of the organisation structure. Bourne et al. (2000) show that performance measurement systems requiring regular reporting are best automated. Bititci et al. 2000) point out that the main benefit of using an IT platform for managing the PMS within an organisation is that the maintenance of the information contained within the systems becomes much simpler. They also set up some requirements for an IT platform, which is suitable in such a situation. Finally, effective PMSs are linked to elements of human resource management, such as competence management; goal setting and sharing; feedback; and reward (Neely, 1999). Especially reward has been a hot topic recently and there is considerable debate as to whether performance measures should be linked to reward.
According to Dumond (1994), providing feedback to individuals with regard to where they stand on the performance measures is essential. This can enhance performance by providing motivation or information about the correctness and adequacy of work behaviour, and can also provide workers with a sense of accomplishment, competence and control. Five performance measurement systems in practice During the Performance Measurement Revolution, many Performance Measurement Systems have been developed to overcome the drawbacks of traditional performance measurements systems, described earlier in this paper.
According to Frigo and Krumwiede (1999), survey data suggest that between 40 and 60 percent of companies significantly changed their measurement systems between 1995 and 2000. In this paper, we review five influential PMSs, and assess their suitability as performance measurement system for purchasing: the Balanced Scorecard (Kaplan, Norton, 1992), the Tableau de Bord (a French approach developed in the 1930s), the Performance Prism (Neely, Adams, 2000), the Performance Pyramid (Lynch, Cross, 1991), and the Productivity Measurement and Enhancement System (Pritchard, 1990). The Balanced Scorecard (BSC)
The best known performance measurement system is undoubtedly the balanced scorecard (BSC), developed by Kaplan and Norton (1992; 1996a; 1996b). Kaplan and Norton (1996b) define the BSC as “a multidimensional framework for describing, implementing and managing strategy at all levels of an enterprise by linking, through a logical structure, objectives, initiatives, and measures to an organisation’s strategy”. The balanced scorecard provides an enterprise view of an organization’s overall performance: it complements the traditional financial performance measures with key performance ndicators (KPIs) in three non-financial areas. The four building blocks of the BSC are: • Financial Perspective. This perspective answers the question: “To succeed financially, how should we appear to our shareholders? ” and is typically related to profitability. It is measured, for example, by the Return on Investment (ROI), Return on Capital Employed (ROCE), and Economic Value Added (EVA). • Customer Perspective. This perspective answers the question: “To achieve our vision, how should we appear to our customers? . It includes several core or generic measures of successful outcomes from the company, like, customer satisfaction, and market share in targeted segments. • Internal Processes. In this perspective, the following question is answered: “To satisfy our shareholders and customers, what business processes must we excel at? ”. This perspective focuses on the internal processes that will have the greatest impact on customer satisfaction and on achieving the organisation’s financial perspectives. • Learning and Growth.
The question: “To achieve our vision, how will we sustain our ability to change and improve? ” is answered in this perspective. The infrastructure the organization has to build and manage to create long-term growth and improvement through people, systems and organizational procedures, is identified in this perspective. The BSC is not a static list of measures, but rather a logical framework for implementing and aligning complex programs of change, and, indeed, for managing strategy-focused organizations (Abran, Buglione, 2003).
The scorecard translates the vision and strategy of a business unit into objectives and measures in the four different areas. This is also depicted in Figure 1. Figure 1 – The four perspectives of the BSC [pic] Source: Kaplan and Norton (1996a) The execution of this strategy is then monitored through an internal performance measurement framework with a set of goals, drivers and indicators grouped into each of the four perspectives (Abran, Buglione, 2003). According to Norreklit (2000), a good balanced scorecard should have a mix of outcome measures (lag indicators) and performance drivers (lead ndicators). An example of a lag indicator is increased turnover, while order execution time is a lead indicator. Each of the four strategic areas in the BSC should have both lead and lag indicators. Many authors, including Kaplan and Norton (1996b), assume the following causal relationship: improvements in organizational learning and growth precede improvements in internal business processes, which precede improvements in the customer perspective, which in turn precede improvements in financial measures.
The measures of organizational learning and growth are therefore the drivers of the measures of the internal business processes. This allows the measurements in non-financial areas to be used to predict future financial performance. Although there is some criticism on the BSC (e. g. , Norreklit 2000) it has, according to Abran and Buglione (2003), the largest market penetration of all PMSs and tackles performance at several levels, from the organizational level to the small business unit, and to the individual level.
Butler et al. (1997) state that it has been adopted by many companies and its format and content appear to meet several management needs. Silk (1998) estimated that 60% of Fortune 1000 companies in the USA have had experience with Balanced Scorecards. In Europe, however, the BSC seems to be less popular. Speckbacher et al. (2003), in a study conducted in Germany, Austria and Switzerland, find that only 26% of their sample of 174 firms used some form of a BSC, and then usually only a limited or incomplete version.
Also in France, the BSC has not received a particularly warm welcome, where the Tableau de Bord has been used for at least 50 years. According to Bourguignon et al. (2004), the BSC was known to only 41% of the responding firms and only 3% aimed to implement one. The Tableau de Bord is in many ways similar to the BSC, and some authors have even suggested that, being a precursor of the Balanced Scorecard, it may have inspired its development (Chiapello, Lebas, 2001). The Tableau de Bord is discussed in the next subsection.
From a purchasing perspective, a supplier, or organisational input, perspective is noticeably lacking in the BSC. In practice, this has lead many purchasing organisations to adding a fifth, supplier perspective to the BSC in order to make it useable for purchasing (e. g. , Aich, Fiedler, 2002). As purchased inputs may account for 60-80% of business turnover, it is in fact rather difficult to understand that the BSC is so widely used as a performance measurement system for the total business. The Tableau de Bord (TdB)
The Tableau de Bord (TdB) has gained widespread acceptance throughout the French business community. The TdB was introduced in France in the 1930s and was described as “being similar to a “dashboard” (i. e. the literal translation of “tableau de bord”) used by “pilots” (i. e. managers) to guide organisations to their destinations” (Bessire, Baker, 2004). It was first developed by process engineers who were looking for ways to improve their production process by better understanding cause-and-effect relationships (the relationships between actions and process performance).
The same principle was then applied at the top management level, to give senior managers a set of indicators allowing them to monitor the progress of business, compare it to the goals that had been set, and take corrective actions. According to Epstein and Manzoni (1998), this initial objective – giving managers a brief and to the point overview of key parameters to support decision making – has two important implications: First, the TdB cannot be a single document applying equally well to the whole firm; because each sub-unit, and in fact each manager, has different responsibilities and objectives, there should be one TdB for each sub-unit.
These “dashboards” should be integrated in a nested structure, as illustrated in Figure 2. In this context, the firm’s overall TdB would be translated into a series of documents supporting local decision making (cf. Chiapello, Lebas, 2001). Secondly, the various TdBs used within the firm should not be limited to financial indicators. Operational measures often give better information on the impact of local events and decisions, and thus on cause-and-effect relationships, than overall financial indicators.
From its origin, the TdB was conceived of as a “balanced” combination of financial and non-financial indicators and many authors have emphasized the need to use non-financial indicators (e. g. , Epstein, Manzoni, 1998). The development of a Tableau de Bord involves translating the unit’s mission and vision into a set of objectives, from which the unit identifies its Key Success Factors, which then get translated into a series of quantitative Key Performance Indicators (KPIs). According to Epstein and Manzoni (1998), the TdB should primarily contain KPIs that are largely controllable by the sub-unit.
At the same time, sub-units often need to collaborate on interdependent tasks and projects. Such areas of interdependence should be identified, and then reflected by choosing indicators that capture the interdependence and encourage sub-units to collaborate more effectively. Furthermore, Bourguignon et al. (2004) state that most authors insist on including a learning perspective in the TdB, according to which the measures represent a basis for learning about the cause-and-effect relationships of actions.
The basic idea is that, if realised performance does not meet the standard, the cause for this should be found and the problem solved (single-loop learning), but the path should also be questioned (double-loop learning). Figure 2 – The nested structure of the Tableau de Bord [pic] Source: De Guerny et al. (1990) The TdB is mainly used in France, the country where it has originated. Although there are clear similarities between the TdB and the BSC, there is a considerable French reluctance to the BSC. They state that the practice of the TdB has been far more developed in 60 years than the BSC, which only exists for 10 years.
Also, reluctance is created by translation problems, caused by the French translation of BSC into Tableau de Bord Prospectif, which likely creates confusion (Bourguignon et al. , 2004). The biggest drawback perhaps of the TdB is its undefined structure. Because of its lack of predefined performance areas, there is a risk of managers implementing the TdB with a set of performance indicators that is not balanced in terms of financial and non-financial, lead and lag, strategic and operational, and related to effectiveness and efficiency. The Performance Prism (PPR)
The Performance Prism (PPR), developed by Neely and Adams (2000), is a PMS organised around five distinct but linked perspectives of performance: stakeholder satisfaction, strategies, processes, capabilities, and stakeholder contributions (see also Kennerley, Neely, 2002). These perspectives are visualised by a three dimensional model in the shape of a prism, which can be seen in Figure 3. Figure 3 – The Performance Prism [pic] Source: Neely & Adams (2000) The top and bottom facets are stakeholder satisfaction and stakeholder contribution respectively and the three side facets are strategies, processes and capabilities.
These five distinct, but logically interlinked, perspectives on performance have been identified by Neely and Adams (2000) together with five key questions for measurement design. – Stakeholder Satisfaction. The key question in this perspective is: who are the key stakeholders and what do they want and need? Those organisations aspiring to be successful in the long term within today’s business environment have an exceptionally clear picture of who their key stakeholders are and what they want.
This perspective is deliberately broader than the balanced scorecard view of stakeholders, which encompasses only shareholders and customers (Neely et al. , 2001). – Strategies. The key question here is: what strategies do we have to put in place to satisfy the wants and needs of these key stakeholders? These organisations have defined what strategies they will pursue to ensure that value is delivered to these stakeholders. The Performance Prism’s strategy measures monitor whether goals are being met and provide the data for informed executive decisions. – Processes. What critical processes do we require if we are to execute these strategies?
Companies have to understand what processes the enterprise requires if the strategies defined before are to be delivered. – Capabilities. The main question in this perspective is: what capabilities do we need to operate and enhance these processes? Capabilities are the combination of people, practices, technology and infrastructure that together enable the execution of the organisation’s business processes (both now and in the future). Companies must consider which capabilities are needed to execute the processes defined before. These are the fundamental building blocks of a corporation’s ability to compete. Stakeholder contribution. What contributions do we require from our stakeholders, if we are to maintain and develop these capabilities? This facet has been included as a separate component since it recognises the fact that not only organisations have to deliver value to their stakeholders, but also that organisations enter into a relationship with their stakeholders, which should involve the stakeholders contributing to the organisation. In essence, organisations should have a clear business model and an explicit understanding of what constitutes and drives good performance.
The PPR distinguishes itself from other PMSs by not only taking into account shareholders like customers and employees, but also suppliers, regulators, local communities or pressure groups, who are nowadays essential stakeholder groups to consider. Especially suppliers are important because companies become more and more dependent on their suppliers since they outsource non-core business. Regarding experience of companies with the PPR, there is only little evidence the PPR works in practice. Neely et al. (2001) present three case studies. They conclude that the feedback of the companies involved was overwhelmingly positive.
It seemed that the PPR’s principal appeal lies in the logical interrelationships between the five perspectives; its comprehensiveness and adaptability, allowing different entry points; and the fact that stakeholders are addressed in a wholly original and radical way (Neely et al. , 2001). Performance Pyramid System (PPS) The Performance Pyramid System (PPS) was one of the first “new” PMSs, developed by Lynch and Cross (1991) during the Performance Measurement Revolution. In short, it is an interrelated system of different performance variables, which are controlled at different organisational levels.
Strategic objectives flow down through the organisation with a reverse flow of information flowing upwards. Lynch and Cross use a pyramid-shaped “map” for understanding and defining the relevant objectives and measures for each level of the business organisation. The four levels of the PPS embody the corporate vision, accountability of the business units, competitive dimensions for business operating systems, and specific operational criteria. This is illustrated in Figure 4. Figure 4 – The Performance Pyramid [pic] Source: Lynch and Cross (1991)
According to Laitinen (2002), the purpose of the PPS is “to link an organisation’s strategy to its operations by translating objectives from the top down (based on customer priorities) and measures from the bottom up”. According to him, “the development of a firm’s performance pyramid starts with the definition of an overall corporate vision (the highest or first level of objectives), which is then translated into individual business unit objectives at the second level. At the second level of objectives key market and financial measures are identified as ways of monitoring performance in achieving the vision.
In order to attain these market and financial objectives, key measures of customer satisfaction, flexibility and productivity are also derived. These key measures at the third level are further converted into specific operational measures, which form the base of the pyramid. These measures (quality, delivery, cycle time and waste) relate to individual departments”. Lynch and Cross (1991) claim that the performance pyramid is useful for describing how objectives are communicated down to the operational level and how measures are conveyed back up to higher levels.
They also identify the use of the PPS in a feedback context, whereby it is used explicitly to monitor organizational performance. Finally, they argue that this model is equally useful for monitoring performance at the corporate, the SBU, the Business Operating Systems, and the departmental and work-centre levels of the organization. Although the original version of the PPS was not designed to cope with performance measurement at the individual level, later adaptations do specify its potential for measuring the performance of individuals and teams.
Stakeholders other than customers and shareholders do not feature prominently in the PPS. The user will have to make sure that measures at the different levels of the pyramid relate to other principal stakeholders, such as suppliers in the case of purchasing performance. Productivity Measurement and Enhancement System (ProMES) The productivity measurement and enhancement system (ProMES) was originally developed by Pritchard (1990). ProMES is a participative development method for performance management systems, designed to be a practical method of measuring organisational productivity.
In essence, ProMES is a formal, step-by-step process that identifies organisational objectives, develops a measurement system to assess how well the unit is meeting those objectives, and develops a feedback system which gives unit personnel and managers information on how well the unit is performing (Pritchard et al. , 2002). As can be seen in Figure 5, the ProMES system is built up around the concept of motivational force. Figure 5 – ProMES [pic] Source: Pritchard (1990) According to Pritchard et al. 2002), ProMES is based on the theory of work behaviour (see also Naylor et al. , 1980). Motivation in this theory is seen as a resource allocation process where the resource is a person’s time and energy, which is allocated across possible actions or tasks. Motivational force is defined as the degree to which a person believes that changes in the amount of personal resources in the form of time and energy (effort) devoted to different acts (tasks) over time will result in a change in anticipated need satisfaction (Pritchard et al. , 2002).
Pritchard et al. (2002) declare that the motivational force of a person is the result of his acts, products, evaluations, outcomes and need satisfaction (see Figure 5). An act is the “doing” of something, for example running or talking, which is characterized by amplitude and direction. Products are the results of acts and often the person’s output. When products are observed and evaluated, this results in evaluations where an evaluator places the measured product on a good to bad evaluative continuum. After evaluations are made, outcomes occur.
These are intrinsic such as a feeling of accomplishment from writing a good paper, or extrinsic such as forms of recognition. Outcomes get their motivating power because of their ties to need satisfaction. Positive affect occurs when needs are satisfied and negative affect occurs when needs are not satisfied. Between each of these elements determining motivational force, relationships consist called contingencies (see Figure 5). These contingencies can be linear as well as non-linear. The ProMES system can be developed and implemented with the following seven step process (Pritchard et al. 2002): – Form a design team, composed of those who will be measured, one or two supervisors, and one or two facilitators who familiar with ProMES. – Identify objectives for the unit. – For each objective, identify one of more quantitative measures, called indicators, that measure how well these objectives are being met. Indicators have to be largely under control of the people being measured. – Define contingencies. A contingency is a function that defines how much of an indicator is how good for the organisation. – Design the feedback system. – Give and respond to feedback. Monitor the project over time and adjust if needed. Although ProMES is not as popular as the BSC, up to 2002, about 120 ProMES projects have been executed in various types of organisations in nine different countries (Pritchard et al. , 2002). One of the most interesting features of ProMES is the bottom-up approach. People are really involved in the design of the system which increases the acceptance of the system. Another interesting feature of the system is the use of contingencies. By using these contingencies, priorities for improvement can be set.
Also, non-linearity can be captured between an indicator and the amount of contribution that level of indicator makes to the overall functioning of the organisation (Pritchard et al. , 2002). However, these contingencies make the system more difficult to develop and more effort has to be put into explaining the system. Another disadvantage of ProMES is that the indicators do not necessarily need to be balanced if the objectives are not balanced. Because of its bottom-up approach, operational purchasing is really involved in the design of the system.
The risk of this bottom-up approach however is that vertical consistency can not be taken for granted (Algera, De Haas, 2002), which could result in a Business Unit’s PMS being not in line with the company’s PMS. 2. 2 360 degree feedback An alternative to the traditional feedback mechanism is the 360 degree feedback which according to Fletcher (1997) has been adopted at remarkable speed. This is not an entirely new concept as pointed out by Bemardin eia/(l993) some companies such as IBM have been using subordinate appraisal since the 1960s.
But as Garavan et al(1997) states it may be old wine in new bottles but it the increased use by organisations which makes it a new process. This appraisal system was described by Ward (1997, p4) as “… the systematic collection and feedback of performance data on an individual or group, derived from a number of stakeholders on their performance”. One of the main drivers for the introduction of this appraisal process within the public sector was Sir Richard Wilsons report on the civil service (Cabinet Office 1999) which identified key criteria for good leadership was self awareness.
The report suggested was a fundamental strength of the 360 degree feedback appraisal system. This process differs from the traditional appraisal systems in that it recognises the complexity of modern management and the value of input from different sources (Garavan et al, 1997). It gives the opportunity for managers to rate themselves in a variety of performance domains and through subordinate and peer feedback can evaluate how their self assessment compares to the assessment of others (Van Veslor et al, 1992).
Performance feedback plays an important role in organisational activities such as career development, job satisfaction and performance management (DeNisi & Kluger, 2000). The assessment works on a voluntary basis and uniquely allows the employee to choose his or her own raters. The advantages of this type of feedback mechanism were highlighted by Armstrong and Baron (2004), I. Individuals get a broader perspective of how they are perceived, 2. More aware strengths and weaknesses, 3. Feedback is more reliable as it is a multi rater, 4.
Individuals receive new insight about their performance, 5. The process will highlight key development areas, 6. Managers become more aware of their impact on others. These elements possess both individual and organisational benefits. The complexity of organisations has made it increasingly difficult for line managers to fully appreciate all the dimensions of any one individual’s role. The 360 degree process provides individuals with tools and techniques to receive more comprehensive and meaningful feedback from a broader range of responders.
This then enables the production of a better development and training plan for the individual (Armstrong & Baron, 2006). Further, it is suggested that it can also be used to reinforce the organisation’s core values and business strategy by providing feedback on how well managers adhere too and communicate the core values of the business (Tornow, 1993). The mechanism for 360 degree feedback is primarily based upon the questionnaire which Bracken (1994) considered should contain the following elements; 1.
It should focus on the behaviour and not just general traits. The questionnaire should ask if the manager does or does not do something rather than concentrate on personal characteristics, 2. The behaviour should flow directly from the organisations vision and values, 3. The system should reflect the present and the future in describing expected behaviours The data received from the feedback should be fed back to the participant in a way that is intended to result in acceptance of the information and formulation of a development plan (Ward, 1997).
The process is claimed to offer several benefits over the more simplistic appraisal system. O’Reilly (1994) claims that it enhanced two way communication and opportunity for employee involvement. He further considered that the process can demonstrate respect for employees by showing that their opinion counts and can create a better working relationship with the organisation. 2. 2. 1 Drawbacks of the 360 degree feedback There is little empirical research evidence on the benefits to the organisation of the 360 degree feedback process. Brutus el a! 1999) argues that there have been few attempts to investigate the impact on individual behaviour despite the expense in time and money to the organisations which have deployed the system. Armstrong and Baron (2004) also noted several potential problems with the process including people not giving honest feedback, lack of action following feedback and an over reliance on technology. However, they do go on to say that most of the identified problematic issues can be minimised or even eliminated by careful design, communication and training.
A further identified weakness which can result in confusion is the excessive number of surveys required for each worker (Tornow, 1993). It has also been argued that were the feedback fails to involve the internal or external customer then it cannot be described as 360 degree feedback but rather 270 degree feedback. This according to London and Beatty (1993) is a major weakness as the customer is an invaluable source of data which can add value to the organisation and increase its competitive advantage.
However, their research showed that very few organisations that currently deployed the process included the customer as part of the feedback loop. When 360 degree feedback is used for development purposes scores from raters are remarkably similar. However, when used for performance evaluation, friends will ‘pump up’ the score and rivals will become remarkable lukewarm (O’Reilly, 1994). Bernardin et al (1993) highlighted concerns associated with upward appraisal as part of the process; 1. Managers tendency to please subordinates to get higher appraisals 2.
Subordinates may lack the ability , training or information to provide valid ratings, 3. Subordinates may be reluctant to give bad ratings for fear of reprisal which may inflate ratings, 4. Managers may also be confused on how to interpret subordinate appraisal relative to rating from senior managers. The overall conclusion drawn by Bernardin and Beatty (1996) is that staff attitudes towards the appraisal system on its ultimate effectiveness and the extent to which managers express pessimism regarding subordinate appraisal can undermine the process.
Mabey (2001) also pointed out that there has been very little investigation into the experience of the participants which is a concern as the success or failure relies to a large extent rests on how far individuals accept the process. Geake and Gray (200 l,p3) further remarked on this in saying ‘the specifically individual focus on the 360 degree feedback would suggest a very real need to evaluate the fall out in respect of how individuals react to the process. ’ In this they also consider that unless follow up action is performed to determine individual perceptions then the process will swiftly lose credibility. . 3 Management of poor performance The management of those staff who fail to meet the identified and communicated performance standards expected by the organisation is one of the most challenging aspects of management particularly in service organisations who deal directly with the customer(Goodhew et aI,2007). The overall performance and standing of the organisation is to a large degree dependent upon the staff employed. The literature identifies two specific themes which appear in the management of poor performance 1. The reluctance of managers to deal with poor performance, (Hutchinson & Purcell, 2003) 2.
The lack of consistency in dealing with poor performance. (Cunningham, 2001) The need in particular for consistency is vital as organisations invest time and money into upward and multi assessor appraisal systems. There has been some debate as where the responsibility for the management of poor performance should rest within the organisation. Some consider that this should be a strategic HR function, as stated by Renwick (2003) who considered the front line managers can often be ‘unwilling conscripts’ finding their role problematic which may undermine the organisation.
However, Armstrong and Baron (2005) have taken a different stance believing that the role of the front line manager is vital for people management and organisational performance. It is the ongoing appraisal system which managers use to influence behaviour which plays a key role in performance management. However, it is the reluctance of managers to deal with the issue of poor performance that can undermine organisational effectiveness and compromise the integrity of the appraisal system. Goodhew and Hamilton (2007) identified three reasons for this.
Firstly, that it can involve giving bad news which ultimately may mean the termination of a contract. Secondly, it can carry the risk of litigation against the manager or at the very least an Employment Tribunal. Thirdly, it can place the manager in an ethical dilemma of having to make a choice between dismissal and development, or more fundamentally justice and mercy for which they may be ill equipped to deal with. Armstrong and Baron (2005) suggested that this calls for a level of personal fortitude which is not required in other areas of frontline management.
They further went on to outline five steps which should be identified as part of the appraisal process for managing poor performance: 1. Identify and agree the problem, 2. Establish the reasons for the underperformance, 3. Decide and agree on the action required, 4. Resource the action via training as required, 5. Monitor performance and provide feedback. If performance continues to be below the standards agreed, then the process can be repeated and the ultimate sanction of dismissal applied if required.
This in most organisations is the role of the front line manager through the proper application of the appraisal performance management process (Armstrong & Baron,2005). There is however, as identified by Cunningham (2001), a chronic niceness in not applying the negative consequences that discipline for poor performance would attract. This in part is due to the reluctance of managers as identified by Marchington and Wilkinson (2005) to give negative feedback to staff. It is important for managers to understand the impact on other employees of not tackling this sensitive issue.
The Labour Relations Agency (August 2008) stated that as well as the negative impact on productivity it is also a cause of resentment from employees whose work is satisfactory. 2. 4 Ethical Considerations Within the scope of the performance management agenda which may seek at times to challenge employee behaviour, ethical considerations between the stakeholders within the process need to be built into the process. It is argued that for a performance management approach to be meaningful and worthwhile four ethical measures need to be in place (Winstanley, & Stuart —Smith, 1996); 1.
Respect for the individual 2. Mutual respect 3. Procedural fairness 4. Transparency of decision making. The literature in the critique of performance management identified a number of distortions which may give bias or unfair results within the appraisal process. Building procedural fairness and transparency within the appraisal system helps to reduce the more subjective elements of the process. Armstrong and Baron (2004) considered that careful planning and feedback at an early stage of the process will give more confidence to all stakeholders and the ability to refine the process.
Participants will feel more engaged and willing to take an active role in the process. The rights and respect for the individual also need to be considered as part of the process. The right to privacy of findings and the protection of some personal information should be set within the structure. The individual should also have the right to comment about the findings of the performance appraisal. An interesting ethical question is raised by Winstanley & Stuart-Smith (1996) in that as part of the appraisal process, staff should consider that they are an ‘ends in themselves’ and not merely a ‘means to an end’.
This is to say that it is the individual who is the most important part of the appraisal process and not the process itself. In part this will be achieved by the appraiser seeing the appraisal process as a valuable development tool and not being as Barlow (1989) suggested hostile or ambivalent to the process. There must also be mutual respect and a shift from seeing organisations as purely performance or profit motive driven and more as communities of mutual interest.
All stakeholders’ interests should be taken into consideration. This is true within the appraisal process were both the apprai see and appraiser should have a mutual respect and understanding of each other’s role. A critique of the performance appraisal process is that it can act more as a further element of management control than as a process for motivation and development (Bach 1998). This leaves another ethical consideration in doubt and that is the element if trust between the parties.
If the process has the design and is communicated as an honest two way communication for the development of the individual then it should not be used for as a further foundation of management power. These elements of the ethical considerations should be built into the performance appraisal process to ensure that fairness and equality are maintained. This is an important element of the research as it contributes to the effectiveness of the performance appraisal process in providing the appraised with confidence in the appraiser. 2. 5 Conceptual Model
This research is based primarily on the value of the appraisal system and how it is designed to help the organisation meet their strategic goals. The appraisal system has a number of dynamics in the more traditional one to one system and the multi rater that feed into the process which needs to be understood in order to understand and measure the impact they have upon the outcomes of the organisation. In this it is the examination of the appraisal system and the benefits they potentially bring to the organisation in terms of improved performance and employee engagement which the research examines.
In addition it is the attitudes of the managers delivering the appraisal and the experience of the staff who receive the appraisal which is also considered. Primarily we need to understand what we are measuring in order to build appraisal systems which can capture this information. In this respect Rogers (1994) argues that performance should simply be measured on outcomes as this directly links to the strategic success of the organisation. This would appear to be somewhat of a limiting description particularly considering that in public service organisations outcomes can e difficult to measure. It may be more appropriate within this construct to look at measurement which encompasses knowledge, behaviour and skills as well as outcomes as a multi dimensional aspect of performance measurement as mentioned by Mwita (2003). We still need to be clearly focused on the strategic aim of the organisation and how the appraisal system will help in the achievement of these aims. Kaplan and Norton’s (1995) balanced score card approach brings together the elements of the organisation which capture the overall performance.
This gives an overall strategic point of measurement but for the benefit of studying the appraisal system deployed by Liverpool Direct it is important to understand how the strategic aims of the organisation are communicated to staff and their understanding of those aims. Armstrong (2006) considers that an essential element of the appraisal system is the development of staff, motivation and behavioural change in becoming a success driven organisation. It is important to understand if these elements of successful performance appraisal system are present in the current model redeployed by Liverpool Direct.
The model has drawn together what is considered to be from the literature and information from LDL the most important elements for the performance appraisal leading to the strategic aim of the organisation, An element which needs consideration as part of the process, as mentioned by Beatty (1993), is the feedback which can be received by involving the customer within the process. This undoubtedly would have benefit in understanding if the changes made within the organisation have a positive change in the customer experience.
However this would require a development of a customer relationship manager system which is beyond the scope of this study. The feeding elements with the model above are all key criteria within the literature. To implement a successful appraisal system it is necessary to ascertain if the attributes of such a system are a part of that deployed by LDL. These are applicable as being; I. Behavioural change is the process whereby the behaviour of the individual is one which is performance driven.
Here Daniels (1989) gives a note of caution in that if the organisation has not pinpointed the desired behaviours from the beginning of the performance process it will impossible to objectively measure and determine whether the changes are performance driven or system change driven. It is therefore vital that the desired behaviours for the success of the organisation are known and communicated. If these behaviours are achieved then they can be measured against the performance of the organisation. 2. Motivation of the individual.
As Foster (1989) suggests, this can be achieved through the setting of goals and positive feedback, 3. Measurement of performance is critical to the success of the appraisal system. Unless we are able to accurately measure performance in this multi dimensional construct then it will be difficult to ascertain our success criteria, 4. Employee development is a further function of the appraisal process. The training requirement must be identified and agreed and deployed as soon as practical, 5. Communication of the strategic aims of the organisation.
In order that staff and managers understand the strategic goals of the organisation it must be clearly communication and reinforced as part of the performance appraisal procedure(Lee,2005). These elements will form the basis of the conceptual model in an investigation to see how they are embedded within the current process. Further to this, the ethics of the performance management and regularity of feedback also need to be present within a successful model. Harris (2001) noted that the attitude and training of the appraiser will determine the success of the process.
It is important that the appraiser has the required skills to undertake the feedback process and that that they do not view the process as simply a ‘necessary evil which they are required to undertake’. The appraiser attitude is an important element particularly given the responsibilities within the appraisal process of dealing with poor performance. The benefits of the 360 degree feedback must be understood and how this would fit into the organisation. If we consider some of the stated weaknesses of the appraisal system there needs to be consideration if these may be overcome by deployment of a 360 degree feedback solution. . 6 Conclusion on Review of Literature The literature review has drawn together an overview of performance management with a concentration on the performance appraisal elements of the process. This has been identified by the CIPD (2004) is the cornerstone in many organisations of the performance management cycle. This bears resonance with the process deployed by most target driven organizations including CENO International Bank, who has placed the most influence on performance as being the performance appraisal. The criteria mentioned by Armstrong (2006) s the elements required for a successful performance appraisal process are those which would fit the CENO model. However, the difficulties with the process are ones which the research seeks to identify. Certainly, the ambivalence of managers identified by Barlow (1989) is one which was of primary concern and an identification of bias and distortions mentioned by Bach and Grint(op. du. ) above is also a consideration for this study. The 360 degree feedback process has only had a limited trail within CENO International Bank with unpublished and therefore unknown results.
But the criticism of this process as being too complex, expensive and reliant on too many reportees are those expressed at the time of the deployment of this process. The literature has enabled the research to be focused on those elements which are closely aligned with the research question. Identification of the difficulties identified with performance appraisal form an important part of both the quantitative and qualitative research undertaken as part of this study