Introduction – Performance Management

Performance management is one of the most important core functions under human resource management, which aim at optimising the performance levels of individuals, departments, teams and the organisation on the whole. It is an approach that can be used by business organisations to plan, monitor and analyse the performance levels of the human resources and taking necessary steps to achieve an increase in their performance levels (Buckingham & Goodall, 2015). Performance management involves setting performance objectives for employees, teams and departments and assessing their actual performance levels to identify gaps in performance. Performance management systems can be greatly beneficial for business organisations as they help in fostering a competitive and a performance oriented work environment and can also help the managers in identifying those areas where the workforce lacks competencies. Further, human resource managers have also started to implement performance appraisal systems along with performance management systems that are aimed at awarding the employees who demonstrate excellent performance and taking necessary steps against those who fail to meet the performance objectives decided by the management (Kane, et al., 2013). 

The present day business world is highly complex and competitive and only the fittest companies can survive the market competition in the longer run. In such tough times, business organisations are finding it tough to achieve market competencies as resources and processes can be replicated easily be competitive firms. To achieve competencies, the best resources available to a business are its human resources. Having a talented pool of human resources can prove to be a huge plus point for any business organisation as they are the ones who can make maximum contribution towards the achievement of organisational goals and objectives. To maximise the productivity and efficiency of the human resources, business organisations are investing billions of dollars to manage them properly and to provide them with appropriate workplace environment that can enhance their performance. In such a scenario, performance management system plays a vital role in ensuring proper management of human resources and in fostering a workplace environment that is performance oriented. Thus, performance management systems have become increasingly important and at present, all companies have their own performance management systems in place and are trying their best to enhance the performance of their workforce through performance management systems.

The theory of management by objectives was coined by Peter Drucker in 1954. Management by objectives, also known as MBO, is one of the most efficient performance management techniques that aims at enhancing employee performance levels by providing them with a clarity of objectives, which are agreed upon by the management as well as the employers. The theory of management by objectives proposes the importance of involving employees in the design phase of a performance management system by taking their feedback for goal setting, so that the employees can feel engaged and can become more committed towards the plan. The theory of management by objectives has achieved a lot of success in the business world because of its association with S.M.A.R.T goals method. Peter Drucker, in his MBO theory, proposed the importance of having S.M.A.R.T goals in a performance management plan.

Management by Objective

The first stage in an MBO process is to define the performance objectives in the organisation. Peter Drucker suggested that the managers should formulate S.M.A.R.T goals right in the very first step. In S.M.A.R.T goals, S stands for specific – which implies that the performance objectives should be specific in defining the results that are desired to be achieved, M stands for measureable – which implies that the goals being set are measurable or should be quantitative, A stands for achievable – which means that the performance objectives being set should be practically achievable, R stands for realistic – which means that the performance objectives should be challenging but no much that it becomes almost impossible to achieve success and T stands for time based – which implies that the performance objectives should be time bound (Bogue, 2005). The advantages of Management by objectives theory are discussed below: 

First of all, using a management by objective approach can help an organisation in setting up better performance objectives for the employees and different departments and allows the managers to exercise a better control over the entire performance management system. Secondly, management by objectives can allow a business organisation in providing a better clarification of organisational roles and structures. It helps in defining key result areas and assigning them to different individuals. Thirdly, using management by objectives can allow business organisations in engaging the employees in the performance management system and ensuring better commitment from them. In absence of MBO, employees are just individuals who do their work, follow instructions and wait for annual performance reviews without having a clarity of their won performance objectives (Chand, n.d.). Lastly, following management by objectives theory to manage employee performance levels can allow business organisations in communicating their performance expectations to the employees in a better way and also helps the employees in having a clarity about the performance levels that the employer expects them to show. 

There are also certain disadvantages associated with management by objectives. Some managers argue that management by objectives can be time consuming as a lot of time is required in setting up performance objectives. Further, some people also argue that MBO focuses more on short term goals.

360-Defree feedback system is one of the most talked about performance management system in the modern day business world. Of late, a lot of companies have started shifting to new and unique system of performance management systems because a number of multinational firms have identified that performance rating systems have been having a negative effect on the employee morale and were failing to achieve their purpose. As a result, 360-Defree feedback system has been gaining a lot of important because of its capability to help business organisations in achieving higher performance levels.  

360-Degree Feedback

In a 360-Defree feedback system, employees receive confidential and anonymous feedback from the people who work around them. The people who provide a feedback of an employee’s performance are his or her manager, peers and direct reports. In this system, around 8-12 people fill in a questionnaire that contains questions related to the performance of a particular employee (Karkoulian, et al., 2016). 360-Defree feedback has a number of advantages, which are discussed below:

First of all, a 360-Defree feedback system can help in getting performance feedback of an employee from different perspectives. It is important to assess the performance of an individual from different perspectives because he or she deals with different people differently. Secondly, the fact that multiple sources are used in a 360-Defree feedback system, the information received becomes more accurate and reliable. Thirdly, a 360-Defree feedback system focuses more on competencies and the contributions that an employee has actually made towards the success of an organisation. Fourthly, a 360-Defree feedback system also helps in identifying development opportunities for the employees. A detailed feedback from different resources can help employees in identifying areas where they are less competent and finding out ways to work on those areas and become more competent. Lastly, a 360-Defree feedback system can increase an employee’s engagement level as they can become more aware about their own performance levels and what others think of them at work (connectusfund.org, n.d.). 

The disadvantages of a 360-Defree feedback system are discussed below:

First of all, there are chances that the respondents in a 360-Defree feedback do not provide an unbiased feedback about the performance level of an employee. The performance feedbacks might not have been honestly filled, which can cause trouble for the managers. Secondly, a 360-Defree feedback system can be time consuming as all the employees have to be reviews by multiple employees. Thirdly, a 360-Defree feedback can not only be time consuming but can also increase the operational cost of a company because it increases the work load for the employees (Reddy, n.d.). Fourthly, a 360-Defree feedback can sometimes become personal and the employees might start targeting employees to spoil their performance ratings. Lastly, for certain job positions, there are not much people from whom a feedback can be taken because they do not have to work around or with a lot of people. Thus, a 360-Defree feedback system might not work for a certain job positions.

Advantages and Disadvantages of Management by Objectives

Cohesiveness, in relation with teams, is defined as the extent to which the team members are closely knit to each other. In simple words, it defines the extent to which the members of a team are ready to work with each other in the pursuit of common goals and objectives (Molnau, n.d.).

Cohesive teams are those teams where the team members are ready to work in a team oriented environment and work towards the achievement of common goals and objectives. On the other hand, non-cohesive teams are those teams where the team members are not closely knit to each other and give more importance to personal goals than common goals and objectives (Levi, 2015). The strengths and weaknesses of high cohesiveness teams are discussed below:

Strengths:

First of all, members of a cohesive teams, over a period of time, develop share values and loyalty towards each other. The familiarity between the team member helps in creating a smoother and a greater effective channel of communication within the team. Working in a team is never easy as it seems to be but cohesive teams have a competitive edge as they have certain ground rules. These ground rules are measured in terms of common interests and people who want to join such teams have to abide by the ground rules. Thus, team members of a cohesive group have common interests and can create synergies to contribute more towards the achievement of organisational goals and objectives. 

Secondly, effective communication is of great importance in a business setup and also in teams. Group members of a cohesive team are always ready to work with each other and prefer open communication, which helps them in achieving better organisational results.

Thirdly, a group of members that have similar interests and are openly communicating with each other can produce a better cooperation amongst each other (Sravani, n.d.).

Fourthly, cohesive groups tend to take collective responsibilities for all their job duties and responsibilities. Members of a cohesive team are always standing with each other and take collective responsibility of a failure. Such teams can also save time by fulfilling job duties and responsibilities collectively and not leaving things for others to do.  

Fifthly, cohesive teams can have a huge impact on the overall organisational performance. By working collectively with each other, members of a cohesive team are able to develop synergies and due to the existence of diversity in the team, they can also offer diverse services and can provide innovative and unique solutions to organisation problems. Thus, the overall performance of an organisation can increase because of cohesiveness amongst the team members.

Advantages and Disadvantages of 360-Degree Feedback

Lastly, a lot of studies have identified that members of a cohesive team are more satisfied with their jobs than the members of a non-cohesive team. Cohesive team members are able to enjoy a better social life and can also fulfil their need to belong to a certain group. Therefore, they tend to have greater job satisfaction levels and are also motivated while at work because of their needs being fulfilled.

Weaknesses:

First of all, one of the greatest weaknesses of a cohesive team is that it can result into group conformity. Group conformity is a case when the team members try to adapt similar behaviour like the other team members so that they can fit into the team. The set of behaviour becomes a norm for the group and it becomes very difficult for the management to introduce changes in such groups. Further, team members that demonstrate group conformity can also bring down the productivity and innovation levels in an organisation.

Secondly, another weakness of cohesive teams is that it can sometimes lead to a condition that is known as group-think. In such a condition, the team members of team lose their ability to think and take decisions and become highly dependent on other team members for taking important business decisions (Frenz, n.d.).

Thirdly, cohesive teams are the ones that offer the maximum resistance to change. While working with each other for a considerable period of time, the members of a cohesive team can develop a comfort zone of their own. They have a high tendency to get emotionally attached to each other and are not able to work properly when a change is introduced in their team or they are asked to work somewhere else. 

Fourthly, another weakness of cohesive teams or groups is that they can take a lot of time in coming to a collective agreement. The time taken by an entire time to agree to something can delay the decision making process which would otherwise be much faster if an individual has to take a decision. 

Lastly, another weakness of cohesive teams is that such teams might find it difficult to take a firm decision. In cohesive teams, the accountability of business decisions is collectively shared by all the group members, which can make it difficult to take decisions. On the other hand, if in an individual has to take a business decision, the accountability of consequences is clear and the process of decision making can be much quicker and effective. 

On the overall, cohesive teams and non-cohesive teams have their own advantages and disadvantages but the effectiveness of a team in achieving organisational goals and developing synergies generally depends on the workplace environment.

There are a number of performance management strategies that can assist business organisations in managing the performance of their workforce. Among various approaches, Control theory, also known as feedback control or cybernetics, is another efficient theory that is widely used in the business world to manage the performance of a workforce. Control theory is an approach that helps business organisations in imposing control mechanism at all levels of an organisation. To achieve the desired performance objectives, the control theory suggests three types of controls, which are organisational structure, policies of an organisation and behavioural norms and performance management mechanisms (Dwivedi & Giri, 2016). Using behaviour control mechanisms, the management can monitor and evaluate the behaviour of the employees on a regular basis and then rewarding them on the basis of their behaviour. In case of output control systems, the management of a business organisations aims at controlling the performance of employees using rewards and sanctions after conducting a performance evaluation. Using input control systems, the management of a business organisation can control the selection and training of employees. Using control theory, human resource managers can manage the performance of their workforce by evaluating the output of the system against some pre-defined organisational standards. 

Control theory in performance management is one of the many personal motivation theories. The theory has been derived from the thinking of mechanical systems rather than being derived from human behaviour. The idea of the theory first came to Norbert Wienner’s mind back in 1948 and was related with cybernetics but it was only in 1980s that Kline was able to use this theory and find its application in a business setup. The theory suggested by Kline makes several assumptions. Its first assumption is that the humans and societies behave like a system. The second assumption in the theory is that the systems are self-regulating and have tendency to re-establish equilibrium whenever a change occurs. Further, the theory breaks down these systems into smaller pieces to study the relationship between components and interactions. 

The fundamental concept of the theory is that the employees will continuously look for and receive a feedback on all their actions, which they can use to set goals. Further, the goals set by the employees can help them in directing their behaviour. The strengths and weaknesses of control theory are discussed below:

Strengths:

First of all, a major strength of control theory in performance management is that it provides the employees with a self-regulated system of performance feedback. Using this system, the employees can themselves search for feedback on their actions and can use the received feedback for designing future strategies. 

Secondly, the control theory provides a framework that allows the employees to regulate their behaviour and motivational attitudes themselves. Most of the performance management theories are aimed at understanding the behaviour of employees and then using external factors to control their behaviours. Control theory, on the other hand, is one such theory that allows employees to modify their own behaviour to increase their motivation levels. Further, as it is a theory that compares the human element of an organisation with a mechanical system it provides a number of control systems and loops that can be used by human resource managers to derive motivation amongst employees even further. 

Lastly, as the control theory offers a feedback driven system for managing performance, employees do not offer any resistance to this approach as they understand the concept of feedback and are themselves influenced by employees. Such a system of performance management can prove to be highly beneficial in a technical based organisation where the employees are experts in technical fields and have a greater understanding of feedback. 

Weaknesses:

First of all, many managers have contradicted that the Control theory is impractical as a viable model for work motivation. Managers believe that the control theory for performance management is too mechanical and fails to incorporate human behaviour and emotions into account while trying to enhance performance. 

Secondly, the control theory lays a greater focus on letting the employees take the front seat and become accountable for their performance levels. It also assumes that the employees have the ability to regulate their own motivation levels, which sounds too good to be true. If it was that easy to enhance employee performance and motivation levels by empowering them to regulate their performance levels and motivation level on their own, there wouldn’t have been any requirement for human resource managers in business organisations. 

Thirdly, empowering the employees to monitor and assess their own performance levels using self-regulatory actions leaves little or almost no power with the management to exercise their control over the employees. Further, the employees might take the whole concept lightly as there won’t be any individual or department that would be assessing their performance levels and would take necessary actions to improve it. 

Fourthly, all other theories of performance management basically aim at improving the workplace environment and fostering a performance oriented environment to enhance performance levels amongst the employees. The control theory lacks efficiency as it might not be able to foster a competitive environment in the workplace and might fail altogether in achieving its objectives.

Fifthly, control theory fails to involve all the stakeholders in the process of performance management. Involving the stakeholders provides a better approach to plan performance objectives and design S.M.A.R.T. goals. Thus, the overall efficiency of the performance management theory is considerably low as it focuses more on letting the employees manage their own behaviour, performance levels and motivational levels. 

Lastly, there have been a number of studies that were conducted in the field of performance management to check the validity and reliability of control theory in managing workplace performance. Most of the studies have failed in establishing a firm ground and the validity and reliability of the control theory is still arguable.

A balanced scorecard approach is another efficient and famous performance management approach that is used in strategic management to bring about an improvement in the internal functions of a business to achieve higher performance (www.investopedia.com, n.d.). The concept of balanced scorecards was introduced by Dr. Robert Kaplan and Dr. David Norton. The principle behind the concept of balanced scorecard approach is to reinforce good behaviour in an organisation. The balanced scorecards for a business are prepared by assessing its functions, such as learning and growth, business processes, customers and finance. These were also the four legs that were chosen by the pioneers that introduced the concept while the present day business organizations have come up with different legs that are associated with the business (Coe & Letza, 2014).

In order to implement a balanced scorecard approach in an organisation, companies have to prepare a list of key performance indicators that are associate with its business operations. To define key performance indicators, it is a measurable value that demonstrates how effectively an individual, team, department or an entire workplace is achieving its key business objectives. Most business organisations are using key performance indicators to measure their success at reaching their performance targets. Some examples of key performance indicators, for various business operations are listed below:

Finance:

• return on investment
• cash flow
• return on capital employed
• financial results 

Internal Business Process:

• number of activities per function
• duplicate activities across functions
• process bottlenecks
• process automation
• process alignment 

Learning And Growth:

• employee turnover
• employee training and development programs
• job satisfaction
• retention rates

Customer:

• delivery performance to customers
• quality performance for customer
• customer retention rate
• customer loyalty
• customer satisfaction rate 

Using such key performance indicators, it can become easier for the management to assess the performance of the employees using quantifiable data and by breaking down the performance objectives into small measurable targets (Kaplan & Norton, 2007). The strengths and weaknesses of a balanced scorecard approach are discussed below:

Strengths:

First of all, a balanced scorecard approach can allow business organisations in identifying the performance of their employees in different business operations, such as customers, learning and development, financial, internal operations. Even though these four components of a balanced scorecard approach were fixed by the founders of the concept, balanced scorecards are highly flexible and can be designed to contain the core functions of a company as its components (Hoque, 2014).

Secondly, using a balanced scorecard approach for performance management allows human resource managers to look at a bigger picture of the organisation and check whether the organisation is meeting its business objectives or not. For example, it might be possible that an organisation is preforming well financially but is not being able to satisfy its customers or is not providing enough training and learning opportunities to the employees. Thus, balanced scorecards can help in analysing the strengths as well as weaknesses of a business organisation (Bowen, 2011).

Thirdly, a balanced scorecard approach helps an organisation in evaluating its performance over a longer period of time. The approach of balanced scorecard is not just limited to short or medium term objectives. As a result, viewing and assessing the long term performance levels of a company allows a company to formulate long term as well as short term strategies.

Fourthly, using a balanced scorecard approach for performance management also allows business organisations to align their business strategies with performance objectives in a more effective way. By assessing the performance of individuals, teams and organisation using key performance indicators, organisations can identify particular areas where the performance levels are low and can design and implement strategies that can target specific performance areas.  

Fifthly, key performance indicators are a huge plus point in balanced scorecard approach. Using key performance indicators, organisations can make performance objectives achievable by dividing them into small and measurable targets. 

Lastly, using balanced scorecards and key performance indicators, it can also become easier for companies to assess the effectiveness of their strategies. When a company implements a strategy to improve employee performance, it can monitor the changes in key performance indicators to assess whether the strategies are providing fruitful results for the company or not.

Weaknesses:

First of all, a major weakness of using a balanced scorecard approach is that it is costly and time consuming. Many managers are of the view that even though the approach is highly efficient in managing employee performance and as a strategic planning tool but it can prove to be very costly and time consuming for a company that lacks sufficient knowledge about the approach.

Secondly, implementing a balanced scorecard approach for performance management requires a lot of data mining. To increase the effectiveness of balanced scorecard approach, the human resource managers have to conduct extensive research and gather information from department heads and leaders to design a balanced scorecard. The overall effectiveness of a balanced scorecard approach is vulnerable to the value of the information that is used in the designing phase.

Thirdly, balanced scorecard approach has been found to receive poor support from the employees. A major reason behind employee resistance to balanced scorecard is because of the complexity of the approach as it requires a lot a time and training to completely understand it. This can foster a negative workplace environment as the employee productivity can suffer because of negativity (greengarageblog.org, n.d.). 

Fourthly, an improperly designed balanced scorecard can prove to be a disaster for a company. It is not always necessary that an organisation design and implements the most effective balanced scorecard. Sometimes, the balance scorecards implemented by an organisation can lack certain metrics that are important to its business and will ultimately fail to assess the performance of the employees in these metrics.  Further, there can also be certain instances where the key performance indicators designed by the management are dysfunctional. Selecting dysfunctional key performance indicators for constructing a balanced scorecard can foster a negative behaviour in the workplace as it might assess the wrong performance metrics. For example, in evaluating the training effectiveness, it might be important to assess the quality of training program offered rather than the total number of employees receiving the training. An organisation involving number of employees receiving the training program as a key performance indicator in the balanced scorecard might altogether shift the focus of the management from quality of training program to the number of employees being trained (Richards, n.d.).

Conclusion

The information presented above provides a detailed account of the importance that performance management systems can have for business organisations. The information provided a detailed account of almost all performance management theories and models along with their strengths and weaknesses. 

In the present day business world, theories and models like Management by objectives, 36-Degree feedback and balanced scorecards have their own advantages. Even though they have certain disadvantages too, a company with ample amount of knowledge about the theories and models and have a competent pool of human resource managers can easily use these theories to enhance the performance levels of their workforce. Further, the report also provided a detailed account of cohesiveness in teams and how it can be beneficial for the companies. On the whole, cohesive teams do have certain advantages and can help companies in increasing performance but it is important for human resource managers to continuously introduce changes in teams so that they do not develop a comfort zone. By bringing constant changes in teams, human resource managers can deal with the darker side of team cohesiveness and can make full use of the benefits that a cohesive team can have.

Another important piece of information provided by the information presented above is that the control theory of performance management is the only ineffective theory as its reliability and validity is yet to be proven. The control theory focuses more on empowering the employees to regulate their performance levels, motivational levels and behaviour, which can prevent a company from fostering a positive and competitive work environment. Thus, the control theory of performance management is not as effective as other theories of performance management.

Ultimately, the choice of performance management theory for enhancing workforce performance totally depends on the management of an organisation. It is important for the human resource managers to carefully analyse their abilities and skills to design each one of the theories and implement the one which they think will best suit the performance objectives of the organisation.

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