Performance Management System Research Paper

Performance Management Systems and

Individual and Organizational Performance

A Performance Management System (PMS) is a tool, or framework, by which an organization manages the goals set for employees in accordance with the organizational goals, and measures effectiveness in the achievement of the goals. The ultimate goal of performance measurement is to ensure and increase organizational performance. The impact of a PMS on organizational level, can be measured in terms of external effects such as financial metrics (e.g. turnover, profit), tangible business results (e.g. market expansion, number of customers) and intangible achievements (e.g. reputation, net promotor score), as well as internal effects such as operational excellence, culture

The control mechanisms aim at creating focus regarding results that are desired by the organization. The Balanced Scorecard approach, as suggested by (Kaplan & Norton, 2001), addresses this aspect of performance measurement by breaking down an organization’s business strategy and objectives into a number of key performance indicators (KPIs). Depending on the business context and functional responsibilities, a KPI may represent a goal to be achieved in terms of financial objectives, customer relationship, internal processes/operational excellence, and more individual targets involving personal growth and learning. As part of the Balanced Scorecard approach, the authors also strongly suggest the importance of including a clear cause-effect based description of the outcome measures and the performance drivers of the outcomes, in order to quantify not only the effectiveness of the action addressed by an KPI but also the efficiency of it (Neely, et al.,

As established by (DeNisi & Pritchard, 2006), current appraisal practices, and literature thereof, mostly focus on developing reliable and valid measures of performance, and also a little on improving performance, but not so much on the frequency of appraisals and the motivational function that appraisals may play. In many organizations appraisals are conducted once or twice a year. However, as (Kluger & DeNisi, 1996) have pointed out in their work where they introduce the Feedback Intervention Theory, more frequent appraisals and feedback improves individual motivation as they help the employee to see how he/she is improving and how the activities are progressing. Next to evaluating performance and progress, the authors also emphasize the importance of including information on areas of potential improvement, and how to improve performance. Additionally, following a simple and transparent methodology in appraisals is suggested to result in assessments that are easily explained and understood, and avoid the feelings of injustice and unfairness (DeNisi & Pritchard,