Performance Based Management Synthesis

With the operational environment becoming ever more competitive, and against the backdrop of austerity in resource management, the importance of performance-based management (PBM) cannot be overemphasised. Indeed, PBM has increasingly become a common practice in organisations of different sizes -- small and large -- and in diverse sectors -- manufacturing and service, as well as public and private sectors (Ploom & Haldma, 2013; Lutwama, Roos & Dolamo, 2013; Rivenbank, Fasiello & Adamo, 2016; Wierzbinski, 2016). Organisations now rely on performance data to make decisions relating to various organisational processes, including strategic planning, internal management, resource allocation, reporting, as well as monitoring and evaluation.

Defining PBM can be quite problematic, with the term being often confused with performance measurement (Rivenbank, Fasiello & Adamo, 2016). In addition, performance management is often thought to involve only personnel management processes such as employee performance appraisal (Turk, 2016). Furthermore, contention exists over whether it should be considered an art or a science, or whether or not it is a discipline on its own (Brudan, 2010). Also referred to as results or outcome-based management, performance management is an umbrella term which includes a number of ongoing organisational processes: setting and clarifying objectives, establishing performance indicators, gathering and analysing data, reporting outcomes, and learning from the outcomes (Woerrlein & Scheck, 2016). This means that performance measurement is an element of PBM. Brudan (2010) describes performance measurement as a sub-process of PBM, which focuses on identifying, monitoring, and communicating performance outcomes, and taking action based on those outcomes. PBM processes are ultimately aimed at driving performance. Based on management control theory, PBM is about evaluating outcomes with the aim of creating value for the end consumer and other important stakeholders (Pihl-Thingvad, 2017).

PBM processes relate to not only individuals or employees, but also organisational processes (Brudan, 2010). Indeed, performance-based management means that all organisational processes, internally and externally, are pegged on performance or results -- from personnel management to supply chain management. Selviaridis & Wynstram (2015), for instance, demonstrate the relevance of PBM in supplier management. PBM determines aspects such as supplier payment, incentive design, performance specification, and risk allocation. For instance, Rolls Royce, a manufacturer of aircraft components, is paid for providing maintenance services on the basis of engine availability in flight hours as opposed to labour and spare part cost. In the service context, logistics providers are increasingly being paid based on the performance of the client's supply chain. In essence, PBM is about outcomes. The organisation first determines the outcomes it desires to achieve and then determines the means for achieving those outcomes. This is unlike the conventional approach, wherein means lead to outcomes.

A major focus of PBM research relates to the impact of PBM on employee and organisational outcomes. Focusing on higher education institutions, Turk (2016) demonstrates that performance management is important for improving staff performance, especially during organisational change. It achieves this by aligning performance management processes with the organisation's strategic goals and objectives, laying the foundation for quality improvement, and creating a learning organisational atmosphere. Panda & Pradhan's (2016) study further reports a positive association between PBM and job satisfaction. However, as evident in four case studies of job centres in Denmark, PBM may not have positive impacts on employee outcomes, especially in terms of perceptions of shared goals, autonomy, accountability, and communication (Pihl-Thingvad, 2017). This occurs when the implementation process diverts from results to process objectives.

Whereas PBM may have an impact on employee outcomes, it is imperative to note that PBM is not limited to employee performance as depicted by Turk (2016) -- it is an organisation-wide process, meaning processes and activities are also important aspects. Brudan (2010) as well as Ploom & Haldma (2013) amplify this assertion, arguing that PBM has three dimensions: individual (improving employee performance); operational (improving efficiency and effectiveness at the department or functional level); and strategic (achievement of the organisation's overall goals and objectives).

Being an organisation-wide process, PBM may positively influence organisational outcomes. It may enhance both financial and non-financial performance (Wierzbinski, 2016; Panda & Pradhan, 2016). Indeed, by positively influencing employee outcomes, PBM can enhance organisational productivity and performance as satisfied employees are more likely to remain committed to the organisation and its goals and objectives. In their survey of 164 public schools in Estonia, Ploom & Haldma (2013) demonstrate the positive association between PBM and school performance. PBM positively affected school performance by increasing pupils', teachers', and parents' satisfaction with the school. Though this study may not be readily generalised beyond public schools in the context of study, it provides valuable insights about the usefulness of PBM in enhancing organisational performance.

PBM literature also focuses on antecedents for the implementation of PBM as well as key success factors. One antecedent is leadership (Rivenbank, Fasiello & Adamo, 2016). PBM implementation is often thought to be exclusive to large organisations, which are perceived to have the resources and capacity necessary for undertaking PBM. This is not necessarily true. Smaller organisations can as well implement and benefit from PBM if they have proper leadership in place. Indeed, the importance of leadership in the success of PBM cannot be understated. PBM is likely to succeed when the leadership of the organisation provides the required support, resources, and commitment. Though resources are important, leadership is arguably a more important antecedent. Effective and committed leadership, however, may not amount to much in the absence of some factors. Key success factors for PBM implementation include clear definition of performance targets and outcomes, effective performance management planning, clear and regular communication of performance indicators and standards, and proper rewarding mechanisms (Lutwama, Roos & Dolamo, 2013). Other important success factors include strict adherence to performance measurement schedules, frequent communication of performance feedback, and provision of opportunities for career progression (Selviaridis & Wynstram, 2015; Woerrlein & Scheck, 2016).

As most studies in this area focus on defining PBM and its impact of employee and organisational outcomes (e.g. Selviaridis & Wynstram, 2015; Turk, 2016; Panda & Pradhan, 2016; Rivenbank, Fasiello & Adamo, 2016; Pihl-Thingvad, 2017), there is scarcity of scholarly attention to the implementation of PBM. This conveys the sense that PBM is generally a straightforward process organisations can undertake without difficulty. This is not necessarily true. It is important for organisations to have an understanding of how to undertake the process. Wierzbinski (2016) provides valuable guidelines for PBM implementation. Indeed, PBM implementation often presents a moment of organisational change, meaning the right guidelines ought to be followed if the change is to generate the desired outcomes. PBM implementation generally involves three major steps: assessment (evaluating the organisation's internal and external environment); formulation and planning (determination of performance measures, indicators, outcomes); and implementation (actual execution) (Wierzbinski, 2016).

Overall, the value of PBM in today's world cannot be understated. Organisations, small and large, in the public and private sector, must focus on outcomes. Outcomes constitute the core of PBM, which involves continuous measurement of performance, definition of performance objectives and outcomes, communication of the outcomes, and taking action based on those outcomes. Indeed, implementing PBM can be viewed as implementing organisational change: it requires assessment of the status quo, defining the organisation's desired future state, and undertaking action to achieve that state. For this to be achieved, however, a number of factors are important. These particularly include leadership commitment and organisational culture changes. The leadership of the organisation must provide the necessary resources and support, and change the organisation's way of doing things, especially in terms of setting performance targets and outcomes, measuring performance, communicating performance feedback, as well as engaging employees. More fundamentally, attention must be paid to individual, operational, and strategic dimensions. On the whole, adopting PBM can positively influence employee and organisational outcomes: it can increase employee productivity and satisfaction as well as organisational performance.