How Performance Management Contributes Towards Maximizing Profits

Critical Evaluation of issues in Performance Management

Discuss about the Performance Management Contributes Towards Maximizing Profits.

Currently, organizations present a high degree of dedication towards the reinforcement of reward system, which are aligned with other HRM practices used to attract, retain and motivate employees (Cook, 2009). Efficient performance management practices helps in attracting result driven workers who can succeed and thrive in the performance based working environment (Johnson, 2006). Hence, performance management is a crucial business strategy to motivate the employees and make the workers contribute their available talent to enhance the productivity of the firm, if implemented effectively. Hence, a question arises that how does performance management contribute towards maximizing profit.

The study has been developed to answer the question by arguing the best way to implement performance management system within the operations of the firm to maximize profit. A critical evaluation of the performance management issues have been presented along with the impact of performance management on the organization. Finally, the paper presents an argument on the ways in which performance management contributes towards maximizing profit in an organization.

In the contemporary business environment, performance management can be identified as the order of the day. Performance management is a significant process to assess the efficiency and productivity level of the subordinates attached to the organisation. Precisely, the ultimate objective of performance management will be to increase the potential efficiency of the target employees so that the firm can make more profitable deals (Brown, 2016). There are a number of tasks included in performance management such as defining latest business actions, monitoring the performance standards of the viable activities, and investigating the leading measures to meet the outcome of the firm. Moreover, there are some issues in performance management to be discussed herein below:

• Lack of Reliability: Performance Management System (PMS) has been created on the basis of trusting relationship between managers and subordinates. In the most of the cases, lack of reliability towards the supervisors may lead to a poor outcome of the performance management metrics as employees are reluctant to follow the metrics. Meanwhile, inexperienced management, biasness of the managers, and poor communication skills of the supervisors can lead to a lack of credibility (Gliddon, 2014). As a result of the scenario, employees are skipped the PMS without making substantial efforts.
• Lack of Consistency: Lack of uniformity from the supervisors’ side may lead to ineffective PMS. Most of the occasion, inconsistent feedback from the managers and supervisors can create confusion among the employees. Therefore, employees are started to distrust the outcome of the PMS. Such inconsistent communication can backfire on the ultimate objective of the firm as employees will reluctant to be engaged in a substantial way (Khan, 2010).
• Lack of Proper Objective: Decisively, lack of clear objectives in the PMS will reduce the efforts of the subordinates. A well-developed PMS must clearly specify the goals and objectives for the employees establishing communication (Cohen, 2013). For instance, PMS must deliver significant targets to the employees to be achieved. If targets are not set correctly, the productivity, as well as profitability of the company, will be reduced.
• Lack of Comprehensible Strategy: Lack of precise strategy can hamper an organisation to achieve the goals that have been defined through PMS. Most importantly, some of the entrepreneur businesses have found it difficult to provide significant guidance and targets to be reached. Therefore, lack of comprehensive strategy can be identified as one of the biggest challenges in performance management.

Performance management can be termed as one of the fundamentals in developing significant HRM practices and policies leading to organisational success. A well-structured performance management system can connect the organisational target and objective with the performance standards of the employees. Precisely, effective performance management theories will stimulate the workforce to put the best effort for firm’s success (Carmeli, 2008). By setting challenging goals and objectives through PMS, the management will encourage the subordinates to apply the repertoire of knowledge and skills.

By applying control theory, the management of an enterprise can influence the behaviour of the subordinates through positive feedbacks. Moreover, the feedbacks will help out the subordinates to make any alteration in the performance standards to meet the requirement. Precisely, such performance management theory will turn the employees to be engaged with the firm (Kourti, 2017). In this way, the loyalty of the subordinates will be enhanced. As a result of the consequences, efforts from the employees will increase the profitability and earnings of the firm.

Impact of Performance Management on an organization

Alternatively, the social cognitive theory has influenced the self-efficiency standards of the employees. By increasing the self-belief of the subordinates, performance management can deliver strengths to the employees to make a positive impact. Moreover, expectancy theory of performance management has delivered high-level o motivation to the target audience to achieve the objective in terms of reward (Denton, 2006). Such performance management theory changes the motivational behaviour of the target subordinates to expect a reward on the basis of performance. Instrumentally, such concept of reward will motivate the team to put the best effort at the workplace.

Understandably, performance management will lead to employee motivation, employee engagement and employee retention at the highest level. By offering the motivation, the productivity of the workforce will be increased at a substantial order. Therefore, performance management leads to motivation while motivation leads to output (Gliddon, 2014). Clearly, performance management has inspired the employees to achieve the target so that the profitability of the firm will be magnified. Motivational behaviour change of the employees will ultimately increase the business potentials and profitability, to say the least (Mone & London, 2014). Broadly speaking, performance management has utilised the opportunities of motivating employees to make a positive impact on sales and profitability of the firm.

After creating a reliable source of performance management information, a clear picture can be drawn about the value adding factors of the firm that can be communicated to every individual in the value chain of the business. The productivity of the organization relies on its workforce. The employees perform well when they are acknowledged about the results of the work performed by them (Li, 2016). The performance management system provides the workers with an ability to act on the information to generate a greater value and a measurable and clear stake in the future results.

In the earlier period, it was difficult to measure the performance of the local decision makers and compensate their actual contributions (Li, 2016). Information was not available for verifying the work and performance of the workers. But, with the development of information system and implementation of technology in the performance management system, the reliability, validity and accuracy of information has improved to actually compensate the workers for their job (Jeong & Choi, 2015). Hence, performance management has emerged to be an effective motivation tool for the management of a large organization.

It is important to note that profit maximizes by doing better work. In other words, enhancement of the productivity is the key to increase the profitability of the firm. There are several organizations that use the performance measurement approaches to improve the compensation models (Li, 2016). Furthermore, when an individual has a better understanding of the organization’s goals and has trusted information to use the available resources in the best way, they can enhance their overall contribution to the organization to make more profit. An effective performance management system motivates every individual in the organization to get keenly vested in the operations of the firm (Jeong & Choi, 2015).

Argument and Discussion

The performance management system is the ultimate way of dividing the functions of a large company into small ones by providing power and information to every contributor to act as a small owner of the firm and work for the best interest of both the company and themselves (Jeong & Choi, 2015). According to the above discussion, performance management helps to maximize the efficiency of the operations. On the other hand, knowledge can be best used when it is driven into the operations of the firm, when individuals are empowered to act motivationally and have personal interest in the final results (Mone & London, 2014). The development of information technology in performance management has helped to vest the employees with knowledge, while governing the operations of the business.  Hence, performance management can be identified as the key factor for motivating the employees and enhance their productivity to maximize profit.

Conclusion

By considering the above discussions, performance management is the key to motivate the employees. It acts as a medium to inform the workers regarding the goals and objectives of the firm. On the other hand, performance management helps to evaluate the current performance gaps to develop new strategy to improve the productivity. Furthermore, the effectiveness of the compensation packages aligned with the performance evaluation processes can be helpful in making the employees take interest in the operations of the firm for the benefit of the firm as well as themselves. Conclusively, performance management is the key to enhance productivity that finally leads to maximization of profit.

References

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Denton, D. (2006). Using intranets to make virtual teams effective. Team Performance Management: An International Journal, 12(7/8), 253-257.

Gliddon, D. (2014). Effective performance management systems current criticisms and new ideas for employee evaluation. Performance Improvement, 43(9), 27-34.

Jeong, D. & Choi, M. (2015). The impact of high-performance work systems on firm performance: The moderating effects of the human resource function’s influence. Journal Of Management & Organization, 22(03), 328-348.

Johnson, R. (2006). Effective performance management (1st ed.). Victoria, B.C.: Trafford.

Khan, S. (2010). Impact of Authentic Leaders on Organization Performance. International Journal Of Business And Management, 5(12).

Kourti, I. (2017). Effective performance management of inter-organisational collaborations through the construction of multiple identities. International Journal Of Business Performance Management, 18(2), 236.

Li, P. (2016). The impact of the top management teams’ knowledge and experience on strategic decisions and performance. Journal Of Management & Organization, 1-20.

Mone, E. & London, M. (2014). Employee Engagement Through Effective Performance Management (1st ed.). Hoboken: Taylor and Francis.