Performance Management System

Unit-01
Introduction to Performance
Management System

Semester-03
Master of Business Administration 1
 UNIT

Introduction to Performance Management

System

Names of Sub-Unit
Introduction to Performance Management, Performance Management, Characteristics of
Performance Management, Objectives of Performance Management, Principles of Performance
Management, Challenges to Performance Management, Performance Management System
(PMS), Characteristics of Effective PMS, Functions of PMS

Overview

In this unit, you will study the concept of performance management, its objectives, characteristics,
Challenges and principles. Towards the end, you will study the concept of Performance
Management System (PMS) Characteristics of Effective PMS and Functions of PMS.

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 Learning Objectives

In this unit, you will learn to:

 Explain the concept of performance management

 List the characteristics of performance management
 Discuss the objectives of performance management
 Describe the principles of performance management
 State the importance of Performance Management System (PMS)

Learning Outcomes

At the end of this unit, you would:

 Assess the importance of performance management
 Evaluate challenges in performance management
 Examine the role of PMS

Pre-Unit Preparatory Material

 https://www.ntpc.co.in/sites/default/files/downloads/PMS.pdf
 https://www.gfsis.org/media/download/cbgl_training/PERFORMANCE_MANAGEMENT.pdf

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Table of Topics

1.1 Introduction
1.2 Performance Management
1.2.1 Characteristics of Performance Management
1.2.2 Objectives of Performance Management
1.2.3 Principles of Performance Management
1.2.4 Challenges to Performance Management
1.3 Performance Management System (PMS)
1.3.1 Characteristics of Effective PMS
1.3.2 Functions of PMS
1.4 Conclusion

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1.1 Introduction
In today’s business environment, organisations need to manage with fewer resources and
at the same time survive in tough competition. Such an uncertain business environment calls
for more performance-oriented human resource management practices. Implementation of
these performance-oriented practices progress in the same manner as that of motivational
frameworks.
Performance management is a set of motivational tools that are aimed at obtaining
superior performance of employees. To put in simple words, performance management is a
continuous process by ensuring that organisational business goals are met through
improved performance of human resources. The main aim of performance management is
to transform the latent potential of employees into tangible and contextual performance.
Traditionally, the concept of performance management was used by organisations purely
for authenticating the wage determination process. Also, organisations used performance
management to drive specific employee behaviours in order to get specific outcomes.
However, such reward- oriented approach to performance management cannot be
continued in knowledge-intensive business environment. Thus, organisations have shifted
their perception of performance management from a reward-driven approach to promoting
the continuous development of employees in order to remain competitive.

1.2 Performance Management

Performance management, a subset of the human resource (HR) function of an
organisation, is all about supporting employees towards individual and organisational
development. In other words, performance management is a process that involves
designing and executing various motivational strategies, interventions and drivers
aimed at transforming the potential of human resources into performance.
Traditionally, organisations used to exercise command-and-control methods in order to
drive the desired level of performance from employees. However, modern organisational
practices have changed the scenario of performance management. Now, employees are
regarded as assets, like any otherasset, that has the potential to add future value. In this
way, performance management has become a long-term and strategic function of
organisations. Performance management is strategic in nature as aligning individual
performance with the business objectives of organisations ultimately results in the
achievement of strategic intent. Also, effective performance management helps
organisations to focus with the continuous development of human resources and remain
competitive.
Performance management is always confused with performance appraisal as they both are
used synonymously. However, they both are different from each other. Performance
appraisal is a one-time activity that is performed to assess an employee’s performance for a
pre-determined period of time on a set of pre-decided parameters. On the contrary,
performance management is a continuous, integratedeffort towards improving employees’
performance with an aim to accomplish long-term objectives ofan organisation.
To develop a performance culture, it is crucial for organisations facilitate continuous
learning. Continuous learning involves upgrading the skills and knowledge of
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employees, sharing experience through structured knowledge management approach,
communicating information through a transparent communication mediums and so on.
The main of continuous learning is to make employees prepared for change and attain their
commitment towards the accomplishment of organisational goals.

1.2.5 Characteristics of Performance Management

Typically, successful performance management has the following features:
 Effective alignment: Performance management is closely aligned with the
organisational context and culture without being influenced by passing fads and
strategically linked to clearly defined organisational objectives. Therefore, the
performance measure is based on the critical success factors derived from the
corporate and business strategy.
 Inclusiveness: Performance management is intertwined with other human resource
management systems, specifically career planning, succession, and training and
development. However, its relationship to compensation is a topic of debate. Many
experts believe that there should be a clear demarcation between reward-driven
practices and development practices so as to prevent resentment among employees.
 Continuity: Performance management is a continual process of monitoring and
feedback rather than an annual one-time event, and employees are included at all
stages of the design, implementation, and review process through focus group
interviews, surveys, and other means.
 Flexibility: Performance management is a flexible method that can readily
respond to rapidly changing work environment.

1.2.6 Objectives of Performance Management

As discussed earlier, performance management is a continuous process that aims at
improving employee performance towards the accomplishment of long-term goals of an
organisation. The following are some important objectives of performance management:
 To allow employees to focus on what’s important by aligning individual objectives
with the businessobjectives
 To enhance the individual performance of employees by identifying the key result
areas and working upon improving them
 To establish expectations from employees by clearly defining who is responsible for
whom
 To develop an effective communication mechanism within the organisation
 To build a workforce with varied skills using various techniques, such as
continuous feedback,coaching, performance reviews, 360-feedback, and so on.

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1.2.7 Principles of Performance Management
Performance management can be effective in organisations only when certain basic
principles of tenets are followed. The following are the principles of performance
management:
 Integration:
Performancemanagementshouldbeviewedasanintegratedapproachbyorganisations. It
involves aligning the needs, aspirations and goals of an organisation and individuals
towards overall effective performance. Also, performance management also
requires the integration of different subsystems of HRM to achieve organisational
goals with optimum performance. These subsystems include people management,
task monitoring, job design, motivation, appraisal andreward systems, and training
and empowerment.
 Commitment: Performance management requires the contribution of top management
towards performance improvement. Top management plays a crucial role in driving the
performance of employees to a large extent. Any leniency or casual behaviour of top
managers may adversely impact the commitment of employees towards the
achievement of organisational goals.
 Transparency: To ensure the effectiveness of performance management, it is important
that decisions related to performance improvement and measurement such as planning,
work allocation, guidance and counselling, performance review, etc., should be clearly
communicated to employees by their superiors.
 Feedback: Employees can only perform effectively if they are given feedback from time
to time. It helps them identify their weaknesses and work upon them; thereby enabling
them to resolve issueswith their own.

1.2.8 Challenges to Performance Management

Performance management is the lynchpin that connects employees to an organisation’s
entire strategy from compensation and succession planning to mentoring, recognition, and
career development. Any misalignment in the performance management process can
lead to severe results on the business performance of the organisation. Some of the main
challenges in managing overall performance areexplained as follows:
 Wrong design: Sometimes, organisations are unable to set clear goals and milestones.
Without clear goals, employees will not be able to understand what is expected from
them. Thus, it is important for an organisation to determine specific goals that
employees are required to achieve in a certain timeframe and clearly communicates the
same to employees.
 Absence of integration: Many a time organisations fail to maintain coordination in
different human resource practices like succession planning, performance appraisal,
etc., which may lead to failure of the performance management process.
 Lack of leadership commitment: In an organisation, it is the leaders who set examples
for others. Nowadays, leaders are no longer responsible for strategic direction rather
they also contribute to monitoring and reviewing overall organisational

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 performance.
 Lack of feedback mechanism: Without timely feedback, performance management
cannot be done effectively. Sometimes organisations focus on annual reviews; however,
these reviews only address recent issues and accomplishments. Instead, organisations
should adopt the evaluation of the employee performance and feedback as a regular
feature. This boosts motivation, ownership of problems, and productivity.

1.3 Performance Management System (PMS)

A performance management system (PMS) refers to a mechanism designed for tracking the
employees’performance in a consistent and quantitative manner. It automates the manual
processes related to performance management; thereby saving a lot of cost and time. It
allows an organisation to determine whether employees and departments across the
organisation are working effectively towards achieving strategic goals. Successful
businesses gain an advantage from having employees better aligned with corporate goals.

1.3.3 Characteristics of Effective PMS

The following are the characteristics of effective PMS:
 Synchronisation: PMS must be lined up with the overall business goals of an
organisation. It ought to additionally pay heed upon the departmental as nicely as man
or woman dreams assigned to the employees. For the universal enhancement of the
overall performance of an organisation, each and every single recreation is aligned with
the goals of that organisation. Therefore, letting PMS be synchronised with
organisational goals will be quite advantageous in empowering the goals.
 Administrative features: The overall PMS is ought to encompass administrative
functions. PMS is likewise the central thing for identifying the promotion, rewards,
demotion, termination, increment, etc. An effective PMS enables managers to identify
top performers, underperformers and nonperformers.
 Verbal exchange channel: The PMS should act as an energetic conversation channel in
the organisation. PMS should have the capability to communicate objectives, work
duties, key expectations and overall performance benchmarks to employees.
 Improvement channel: PMS consists of the method for conveying high quality inputs,
developmenttechniques and other elements that can play an imperative function in
creating the overall performance and outputs of the organisation. HR managers
and supervisors can make use of exceptional PMS techniques such as learning,
training, tutoring, and development, so the performance of each and every unit of an
organisation is directed toward the basic improvementof the organisation.
 Overall performance standard: PMS additionally acts as the measuring stick of
estimating the overall performance of the employees, supervisors, departments
alongside the accomplishments of the organisation. PMS is additionally accountable for
assessing the gaps in the overall performance by means of the use of exclusive methods.
So, all in all, the PMS of an organisation is accountable for identifying the overall
performance requirements for individuals, departments and the organisation overall.

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 Periodic maintenance: A PMS has to deal and control an extensive range of overall
performance audits, reviews, inputs, remarks forms, overall performance databases, etc.
that ought to be documented.

1.3.4 Functions of PMS

The following are the functions of PMS:
 Improved consistency: PMS is designed with a carefully selected set of parameters that
are in sync with organisation’s stated objectives. This system is equally applicable to all
departments; thereby giving rise to a consistent set of expectations required to be met
on the part of employees.
 High performance and training: PMS is an effective tool for recognising talent and
determiningtraining requirements per time.
 Effectiveness of training: A training programme’s degree of effectiveness can easily be
ascertained from the level of growth and development in organisational staff.
 Motivation tool for employees: PMS is a path to encourage employees by celebrating
their win.
 Employee retention: A key metric of a PMS is seeing to the satisfaction and fulfillment of
employeeswhich automatically results in retention.
 Saving time: The process which is procedural and has stages gives rise to feedback which
can lead toa mid-course correction. This saves the time management, which could have
been lost due to errorsonly discovered at an advanced stage.
 Full performance reviews: This gives an overall impression which is often very accurate,
about the true position of things on the ground with respect to employee interpersonal
relationships.
 Performance appraisal fairness: The objective and structured manner in which an
appraisal document is prepared to serve to create a level playing field for all staff as
numerous factors aretaken into consideration.
 Automated performance reviews: The advent of human resource-related software has
greatly helped to automate the process.

1.4 Conclusion
 Performance management, a subset of the human resource (HR) function of an
organisation, is all about supporting employees towards individual and
organisational development.
 To develop a performance culture, it is crucial for organisations facilitate continuous
learning. Continuous learning involves upgrading the skills and knowledge of
employees, sharing experience through a structured knowledge management
approach, communicating information through transparent communication
mediums and so on.
 Performance management is a continuous process that aims at improving employee
performance towards the accomplishment of long-term goals of an organisation.

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 Successful performance managementhasvariousfeatures suchaseffective alignment,
inclusiveness, continuity and flexibility.
 Integration, commitment, transparency and feedback are the principles of performance
management.
 Challenges in performance management include wrong design, absence of integration,
lack ofleadership commitment and lack of feedback mechanism.
 Performance management is the lynchpin that connects employees to an
organisation’s entire strategy from compensation and succession planning to
mentoring, recognition, and career development.
 PMS should have the capability to communicate objectives, work duties, key expectations
and overallperformance benchmarks to employees.

1.5 Glossary

 Management: A process of planning and organising the resources and activities of

a business toachieve specific goal
 Performance: An ability of an individual to complete job well
 Integration: A way of uniting the part to find a whole
 Human Resource Management: A strategic approach to the effective and efficient
management ofpeople in a company

1.6 CASE STUDY: PERFORMANCE MANAGEMENT SOFTWARE

Case Objective
The case study sheds light on appropriate Performance Management System.
Samantha loved designing clothes. She started her brand when she was 19 years old. She names
it ‘Bizarre Fashion’. Slowly and steadily, her start-up organisation grew and became a global
brand thatwas showcased all over the world at various fashion events.
Bizarre started offices in different countries and hired teams of designers. Each continent
requireda separate team of HR, Finance and Sales & Marketing. CHRO – Tom – based out of Paris
office recommended setting goals for all employees and then evaluating results. Tom called this
performance management system – PMS for Bizarre. Each designer was given a set of standard goals
and then at the end of the year, based on results achieved, performance was evaluated.
However, after initial year of its launch, employees started complaining about the unfair goals
and evaluations. Samantha asked Tom to relook at the processes and change as required. Tom
hired a consultant and after initial analysis realised that what he was considering a PMS was
actually just performance appraisal. And since the robust steps of planning, cascading vision-
mission and developinga strategy were not taken; the whole process was a failure. After appropriate
help from the consultant, Tom re-set the robust PMS and then linked goals to roles and also defined
performance standards. He also has a development strategy in place. All people managers were
trained to set goals, communicate, review and share critical feedback, develop an action plan and
coach.

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 New PMS motivated employees to perform better and achieve desired results. Many also aspired to
achieve more. Two years since a new PMS, Samantha and Tom are happy leaders.

Questions
1. Why was PMS failure initially in the
organisation? (Hint: PMS was actually just
performance appraisal.)
2. How resetting of PMS helped the organisation?
(Hint: Motivated employees to perform better and achieve desired results)

1.7 Self- Assessment questions

B. Descriptive Questions:
1. Define performance management.
2. Explain the principles of performance management.
3. What are the challenges in performance management?
4. Discuss the features of PMS.
5. What are the functions of PMS?

1.8 Answers for Self- Assessment questions

A. Hints for Essay Type Questions

1. Performance management is a process that involves designing and execution of various
motivational strategies, interventions and drivers aimed at transforming the potential
of human resource intoperformance. Refer to Section Performance Management
2. Performance management can be effective in organisations only when certain basic
principles of tenets are followed. Integration, commitment, transparency and feedback
are some principles of performance management. Refer to Section Performance
Management
3. Any misalignment in the performance management process can lead severe results on
business performance of the organisation. Wrong design, absence of integration, lack of
leadership commitment, etc. are some challenges in performance management. Refer to
Section Performance Management
4. Synchronisation, administrative features, verbal exchange channel and improvement
channel are the characteristics of PMS. Refer to Section Performance Management

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 System (PMS)
5. Improved consistency, high performance and training, effectiveness of training, etc. are
some functions of PMS. Refer to Section Performance Management System (PMS)

1.9 Post Unit Reading Material

 https://head-light.co.uk/wp-content/uploads/2014/01/WT-Addressing-the-
challenges-of- Performance-Management.pdf

1.10 Topics for Discussion Forums

 Imagine you are a Human Resource Manager. What actions do you think will be best to
increase theproductivity of your employees?

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