PERFORMANCE MANAGEMENT SYSTEM

Meaning:

A performance management system is a predetermined set of guidelines for individuals

employed by a company. The system is used to describe the current position to the employee
and layout the expectation of company management for the employee. It describes in details
the required duties for a position and allows management to set rewards and bonuses for the
position. So the company gains the maximum potential of the employee. It also helps the
employee to understand his responsibilities towards the company. Performance management
is a whole work system that begins when a job is defined as needed. It ends when an
employee leaves your organization.

Definition:

In simple words Performance Management System is defined as,

1. Is the process of creating a work environment or setting in which people are

unable to perform to the best of their abilities.

2. Is the systematic process by which the department of Commerce involves its

employees, as individuals and members of a group, in improving organizational
effectiveness in accomplishment of mission and goals.

Performance Management Process:

1. Includes results, actions and behaviours – help employees in understanding what

exactly is expected of their jobs and setting standard in eliminate those jobs no use
any longer.

2. Regular feedback and coaching, provide advantage of diagnosing the problems at

early stage and taking corrective actions.

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 OBJECTIVE PERFORMANCE MANAGEMENT SYSTEM

The main objective of performance management is continuous improvements in performance

with a view to attaining organizational goals. The performance improvements need to be seen
in terms of achievement of the objectives and goals of the organization.

According to Lockett (1992), “performance management aims at developing

individuals with the required commitment and competencies for working towards the
shared meaningful objectives within an organizational framework”. Performance
management framework are designed with the objective of improving both individuals and
organizational performance by identifying performance requirements, providing regular
feedback and assisting the employees in the carrier development.

Performance management aims at building a high performance culture for both the
individuals and the teams so that they jointly take the responsibility of improving the business
processes on a continuous basis and at the same time raised the competence bar by upgrading
their own skills within a leadership framework. Its focus is on enabling goal clarity for
making people do the right things in the right time. It may be said that the main objective of
PMS is to achieve of the capacity of the employees to the full potential in favour of both the
employees and the organization, by defining the expectation in terms of roles, responsibilities
and accountabilities, required competencies and the expected behaviours. The main goal of
the performance management is to ensure that the organization as a system and its subsystem
work together in an integrated fashion for a accomplishing optimum results for outcomes.

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The Objectives Performance Management System:

• To enable the employees towards achievement of superior standards of work

performance.

• To help the employees identifying the knowledge and skills required – perform
job efficiently, this would drive their focus towards performing the right task right
away.
Boosting the performance of employees- encouraging employee empowerment,
motivation and implementation of effective reward mechanism.

• Identifying the barriers to effective performance and resolving those barriers

through -constant monitoring, coaching and development interventions.

• Promoting a two way system of communication between the supervisors and the
employees for clarifying expectations about the roles and accountabilities,
communicating the functional and organizational goals, providing a regular and a
transparent feedback for improving employee performance and continuous coaching.
•
• Creating a basis for several administrative decisions strategic planning, succession
planning, promotions and performance based payment.
•
• Promoting personal growth and advancement in the career of the employees by
helping them in acquiring the desired knowledge and skills.

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The key concerns of a performance management system are:

ü Concerned with the output (the results achieved), outcomes, processes required for
reaching the results and also the inputs (knowledge, skills and attitudes).
ü Concerned with measurement of results and review of progress in the achievement of
set targets.
ü Concerned with defining business plans in advance for shaping a successful future.
ü Striving for continuous improvement and continuous development by creating a
learning culture and an open system.
ü Concerned with establishing a culture of trust and mutual understanding that fosters
free flow of communication at all levels in matters such as clarification of
expectations and sharing of information on the core values of an organization which
binds the team together.
ü Concerned with the provision of procedural fairness and transparency in the process
of decision making.

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 EVOLUTION PERFORMANCE MANAGEMENT SYSTEM

The evolution of the concept of PMS as a new human resource management model reflects a
change in organizations command and control system towards a facilitation model of
leadership. This change has being accompanied by recognition of the importance to the
employee and the institution of relating work performance to the strategic or long-term and
overarching mission of the organisation as a whole.

The term performance management gained its importance from the times when the
competitive pressures in the marketplace started rising and the organization felt the need of
introducing a comprehensive performance management process into their system for
improving the overall productivity and performance effectiveness.

The Performance Management Process Evolved In Several Phases:

1. First Phase: The origin of performance management can be traced in the early 1960’s
when the performance appraisal systems were in practice. During this period, Annual
Confidential Reports (ACR’s)which was also known as Employee service Records
were maintained for controlling the behaviours of the employees and these reports
provided substantial information on the performance of the employees.

Any negative comment or a remark in the ESR or ACR used to adversely affect the
prospects of career growth of an employee. The assessments were usually done for ten
traits on a five or a ten point rating scale basis. These traits were job knowledge,
sincerity, dynamism, punctuality, leadership, loyalty, etc. The remarks of these reports
were never communicated to the employees and strict confidentiality was maintained
in the entire process. The employees used to remain in absolute darkness due to the

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 absence of a transparent mechanism of feedback and communication. This system had
suffered from many drawbacks.

2. Second Phase: This phase continued from late 1960’s till early 1970’s, and the key
hallmark of this phase was that whatever adverse remarks were incorporated in the
performance reports were communicated to the employees so that they could take
corrective actions for overcoming such deficiencies. In this process of appraising the
performance, the reviewing officer used to enjoy a discretionary power of overruling
the ratings given by the reporting officer. The employees usually used to get a formal
written communication on their identified areas of improvements if the rating for any
specific trait used to be below 33%.

3. Third Phase: In this phase the term ACR was replaced by performance appraisal. One
of the key changes that were introduced in this stage was that the employees were
permitted to describe their accomplishments in the confidential performance reports.
The employees were allowed to describe their accomplishments in the self-appraisal
forms in the end of a year. Besides inclusion of the traits in the rating scale, several
new components were considered by many organizations which could measure the
productivity and performance of an employee in quantifiable terms such as targets
achieved, etc. Certain organizations also introduced a new section on training needs in
the appraisal form. However, the confidentiality element was still being maintained
and the entire process continued to be control oriented instead of being development
oriented.

4. Fourth Phase: This phase started in mid 1970’s and its origin was in India as great
business tycoons like Larsen & Toubro, followed by State Bank of India and many
others introduced appreciable reforms in this field.

In this phase, the appraisal process was more development driven, target based
(performance based), participative and open instead of being treated as a confidential

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 process. The system focused on performance planning, review and development of an
employee by following a methodical approach.

In the entire process, the appraise (employee) and the reporting officer mutually
decided upon the key result areas in the beginning of a year and reviewed it after
every six months. In the review period various issues such as factors affecting the
performance, training needs of an employee, newer targets and also the ratings were
discussed with the appraise in a collaborative environment.

This phase was a welcoming change in the area of performance management and
many organizations introduced a new HR department for taking care of the
developmental issues of the organization.

5. Fifth Phase: This phase was characterized by maturity in approach of handling

people’s issues. It was more performance driven and emphasis was on development,
planning and improvement. Utmost importance was given to culture building, team
appraisals and quality circles were established for assessing the improvement in the
overall employee productivity. The performance management system is still evolving
and in the near future one may expect a far more objective an a transparent system.

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 PROCESS OF PERFORMANCE MANAGEMENT SYSTEM

Planning work and setting expectation

Monitoring performance

Developing the capacity to work

Rating the performance

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 COMPONENTS OF PERFORMANCE MANAGEMENT SYSTEMS

1. Performance Planning: Performance planning is the first crucial component of any

performance management process which forms the basis of performance appraisals.
Performance planning is jointly done by the appraisee and also the reviewee in the
beginning of a performance session. During this period, the employees decide upon
the targets and the key performance areas which can be performed over a year within
the performance budget, which is finalized after a mutual agreement between the
reporting officer and the employee.
2. Performance Appraisal and Reviewing: The appraisals are normally performed
twice in a year in an organization in the form of mid reviews and annual reviews
which is held in the end of the financial year. In this process, the appraise first offers
the self-fill up ratings in the self-appraisal form and also describes his/her
achievements over a period of time in quantifiable terms. After the self-appraisal, the
final ratings are provided by the appraiser for the quantifiable and measurable
achievements of the employee being appraised. The entire process of review seeks an
active participation of both the employee and the appraiser to analyse the causes of
loopholes in the performance and how it can be overcome. This has been discussed in
the performance feedback section.
3. Feedback on the Performance followed by personal counselling and performance
facilitation: Feedback and counselling is given a lot of importance in the performance
management process. This is the stage in which the employee acquires awareness
from the appraiser about the areas of improvements and also information on whether
the employee is contributing the expected levels of performance or not. The employee
receives an open and a very transparent feedback and along with this the training and
development needs of the employee is also identified. The appraiser adopts all the
possible steps to ensure that the employee meets the expected outcomes for an
organization through effective personal counselling and guidance, mentoring and
representing the employee in training programmes which develop the competencies
and improve the overall productivity.

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 4. Rewarding good performance: This is a very vital component as it will determine
the work motivation of an employee. During this stage, an employee is publicly
recognized for good performance and is rewarded. This stage is very sensitive for an
employee as this may have a direct influence on the self- esteem and achievement
orientation. Any contributions duly recognized by an organization helps an employee
in coping up with the failures successfully and satisfies the need for affection.
5. Performance Improvement Plans: In this stage, fresh set of goals are established for
an employee and new deadline is provided for accomplishing those objectives. The
employee is clearly communicated about the areas in which the employee is expected
to improve and a stipulated deadline is also assigned within which the employee must
show this improvement. This plan is jointly developed by the appraise and the
appraiser and is mutually approved.
6. Potential Appraisal: Potential appraisal forms a basis for both lateral and vertical
movement of employees. By implementing competency mapping and various
assessment techniques, potential appraisal is performed. Potential appraisal provides
crucial inputs for succession planning and job rotation.

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 BENEFIT OF PERFORMANCE MANAGEMENT SYSTEM

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 BALANCE SCORECARD

Definition

Is a management system aimed at translating an organization's strategic goals into a set of

performance objectives that, in turn, are measured, monitored and changed if necessary to
ensure that the organization's strategic goals are met.

Concept of Balanced Scorecard

ü Was first published in 1992 by Kaplan and Norton, a book followed in 1996.

ü Traditional performance measurement that only focus on external accounting data are
obsolete.

ü The approach is to provide ‘balance’ to the financial perspective.

A key premise of the balanced scorecard approach is that the financial

accounting metrics companies traditionally follow to monitor their strategic goals are
insufficient to keep companies on track. Financial results shed light on what has happened in
the past, not on where the business is or should be headed.

Aims to provide a more comprehensive view to managers by complementing financial

measures with additional metrics that gauge performance in areas such as customer
satisfaction and product innovation. The framework was laid out in a 1992 paper published in
the Harvard Business Review by Robert S. Kaplan and David P. Norton, who are widely
credited with having developed the balanced scorecard system. Here is how Kaplan and
Norton began their 1992 paper:

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e.g; Senior executives understand that their organization's measurement system strongly
affects the behaviour of managers and employees. Executives also understand that traditional
financial accounting measures, like return on investment and earnings per share, can give
misleading signals for continuous improvement and innovation -- activities today's
competitive environment demands. The traditional financial performance measures worked
well for the industrial era, but they are out of step with the skills and competencies companies
are trying to master today.

REASON OF USE BALANCED SCORECARD

² Improve organizational performance by measuring what matters

² Increase focus on strategy and results

² Aligns organization strategy with workers on a day-to-day basis

² Focus on the drivers key to future performance

² Improve communication of the organization’s vision and strategy

² Prioritize projects/ initiatives

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 FOUR BALANCED SCORECARD PERSPECTIVE

The balanced scorecard approach examines performance from four perspectives.

• Financial analysis, which includes measures such as operating income, sales growth
and return on investment.

• Customer analysis, which looks at customer satisfaction and retention.

• Internal analysis, which looks at how business processes are linked to strategic
goals.

• Learning and growth analysis, which assesses employee satisfaction and retention,
as well as information system performance.

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Balanced scorecard examples

1. In their 1993 paper, "Putting the Balanced Scorecard to Work," Kaplan and Norton offered
examples of how the scorecard was applied at several companies, including Rockwater, an
underwater engineering firm listed as a wholly owned subsidiary of Brown &
Root/Halliburton; Advanced Micro Devices; and Apple.

2. The Apple case study is especially interesting in retrospect. According to the authors,
Apple (then known as Apple Computer) developed a balanced scorecard to expand the focus
of senior management beyond metrics such as gross margin, return on equity and market
share. A small steering committee, versed in the strategic thinking of executive management,
chose to include all four scorecard categories and to develop measurements within each
category. For the financial category of the scorecard, Apple emphasized shareholder value;
for customer perspective, it emphasized market share and customer satisfaction; for internal
processes, it emphasized core competencies; and for the innovation and improvement
category, it stressed employee attitudes.

Among the highlights of Apple's balanced scorecard planning are the following:

• Apple wanted to shift its classification from a technology and product-focused

company to a customer-centric company. Recognizing that it had a diverse customer
base, Apple decided to go beyond the standard customer satisfaction metrics that were
available at the time and develop its own independent surveys that tracked key market
segments around the world.

• Apple executives wanted employees to focus deeply on a few key competencies,

including user-friendly interfaces, powerful software architectures and effective
distribution systems.

• Apple wanted to measure employee commitment and alignment with the strategic
goals. The company deployed comprehensive employee surveys, as well as more
frequent, small surveys of employees selected randomly, in order to measure how well
employees understood the company's strategy and whether or not the results they were
asked to deliver by managers were consistent with it.

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• Market share was important to senior management, not only for sales growth, but also
as a factor in attracting and retaining top software developers.

Apple also included shareholder value as a performance indicator, even though this measure
is a result, not a driver of performance, Kaplan and Norton wrote. The emphasis on
shareholder value was intended to offset the previous emphasis on such short-term metrics as
gross margin and sales growth, with a focus on investments that could impact long-term
performance.

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 BUILDING A BALANCED SCORECARD

In their 1993 paper, Kaplan and Norton offered guidance on how to build a balanced
scorecard. The process they discussed applies to business units and describes what they refer
to as "a typical project profile" for developing balanced scorecards. In brief, here are the eight
steps they list.

1. Preparation: The organization identifies the business unit for which a top-level
scorecard is appropriate. Broadly defined, this is a business unit that has its own
customers, distribution channels, production facilities and finance performance measures.

2. First round of interviews: A balanced scorecard facilitator interviews senior

managers for about 90 minutes each to obtain input on strategic goals and performance
measures.

3. First executive workshop: Top management convenes with the facilitator to start
developing the scorecard by reaching a consensus on the mission and strategy and linking
the measurements to them. This can include video interviews with shareholders and
customers.

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4. Second round of interviews: The facilitator reviews, consolidates and documents
input from the executive workshop and interviews each senior executive to form a
tentative balanced scorecard.

5. Second executive workshop: Senior management, their subordinates and a larger

number of middle managers debate the vision, strategy and the tentative scorecard.
Working in groups, they discuss the measures, start to develop an implementation plan
and formulate "stretch objectives for each of the proposed measures."

6. Third executive workshop: Senior executives reach a consensus on the vision,

objectives and measurements hashed out in the prior two workshops and develop stretch
targets for each measure; once this is complete, the team agrees on an implementation
plan.

7. Implementation: A newly formed team implements a plan that aims to link

performance measures to databases and IT systems, to communicate the balanced
scorecard throughout the organization and to encourage the development of second-level
metrics for decentralized units.

8. Periodic reviews: A quarterly or monthly "blue book" on the balanced scorecard

measures is prepared and viewed by managers. The balanced scorecard metrics are re-
visited annually as a part of the strategic planning process.

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 KEY IMPLEMENTATION SUCCESS FACTOR

1. Obtaining executive sponsorship and commitment

2. Involving a broad case of leaders, managers, and employees in scorecard development

3. Choose the right scorecard champion

4. Beginning interactive (two-way) communication first

5. Viewing the scorecard as a long-term journey rather than a short-term project

6. Getting outside help if needed

SCORECARD POTENTIAL PITFALLS & CRITICISMS

n Lack of a well-defined strategy

- The balanced scorecard relies on a well-defined strategy and understanding of linkages

between strategic objections and metrics. Without this foundation the implementation could
fail

n Too much focus on the lagging measures

- Focusing on only the lagging measures may cause a lack of priority / opportunity for the
leading measures

n Use of generic metrics

- Don’t just copy metrics from another firms. Identify the measures that apply to your
strategy and competitive position.

n Self-serving managers

- Managers whose goal is to achieve a desired result in order to obtain a bonus or other self-
reward

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