Performance-Based Management: Literature Review & Key Findings

Introduction

For the public sector, performance management is a valuable process. Organizations increasingly rely on performance data to make decisions relating to various organizational processes, including strategic planning, internal management, resource allocation, reporting, as well as monitoring and evaluation. This is what performance management is all about: continuous measurement of performance, definition of performance objectives and outcomes, communication of the outcomes, and taking action based on those outcomes.

As demonstrated by the literature, implementing performance-based management (PBM) can be viewed as implementing organizational change: it requires assessment of the status quo, defining the organization's desired future state, and undertaking action to achieve that state. For this to be achieved, however, a number of factors are important — strong leadership commitment, organizational culture changes, as well as attention to individual, operational, and strategic dimensions. If effectively implemented, PBM can positively influence employee and organizational outcomes.

This paper presents a brief review of literature relating to performance management. The review is based on various types of sources, including conceptual articles, systematic reviews, as well as primary studies (case studies, surveys, and mixed-methods studies). Following a comprehensive definition of PBM, attention is paid to the impact of PBM on employee and organizational outcomes, as well as PBM implementation, antecedents, and key success factors.

What Is Performance-Based Management?

Defining PBM can be quite problematic, as the term is 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 it is a discipline in its own right (Brudan, 2010). Also referred to as results- or outcome-based management, performance management is an umbrella term that encompasses a number of ongoing organizational processes: setting and clarifying objectives, establishing performance indicators, gathering and analyzing data, reporting outcomes, and learning from those 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 that 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 not only to individuals or employees, but also to organizational processes (Brudan, 2010). Indeed, performance-based management means that all organizational 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 example, Rolls Royce, a manufacturer of aircraft components, is paid for providing maintenance services on the basis of engine availability measured in flight hours, as opposed to labor and spare-part costs. 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 organization first determines the outcomes it desires to achieve and then determines the means for achieving those outcomes. This contrasts with the conventional approach, wherein means lead to outcomes rather than the other way around.

PBM and Employee and Organizational Outcomes

A major focus of PBM research concerns the impact of PBM on employee and organizational outcomes. Focusing on higher education institutions, Turk (2016) demonstrates that performance management is important for improving staff performance, especially during organizational change. It achieves this by aligning performance management processes with the organization's strategic goals and objectives, laying the foundation for quality improvement, and creating a learning organizational 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 centers in Denmark, PBM may not always have positive impacts on employee outcomes, particularly 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 important to note that PBM is not limited to employee performance — it is an organization-wide process, meaning that processes and activities are also important aspects. Brudan (2010) as well as Ploom & Haldma (2013) amplify this point, 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 organization's overall goals and objectives).

Being an organization-wide process, PBM may positively influence organizational performance. It may enhance both financial and non-financial performance (Wierzbinski, 2016; Panda & Pradhan, 2016). By positively influencing employee outcomes, PBM can enhance organizational productivity and performance, as satisfied employees are more likely to remain committed to the organization and its goals. In their survey of 164 public schools in Estonia, Ploom & Haldma (2013) demonstrate a 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 generalized beyond public schools in that specific context, it provides valuable insights about the usefulness of PBM in enhancing organizational performance.

References

Brudan, A. (2010). Rediscovering performance management: systems, learning and integration. Measuring Business Excellence, 14(1), 109–123.

Lutwama, G., Roos, J., & Dolamo, B. (2013). Assessing the implementation of performance management of health care workers in Uganda. BMC Health Services Research, 13, 355.

Panda, S., & Pradhan, P. (2016). Sense, essence and essentiality of performance management system — an analysis. Journal of Contemporary Research in Management, 11(2), 71–81.

Pihl-Thingvad, S. (2017). The inner workings of performance management in Danish job centres: rational decisions or cowboy solutions? Public Performance & Management Review, 40(1), 48–70.

Ploom, K., & Haldma, T. (2013). Balanced performance management in the public education system. Baltic Journal of Management, 8(2), 183–207.

Rivenbank, W., Fasiello, R., & Adamo, S. (2016). Moving beyond innovation in smaller local governments: does performance management exist? Public Administration Quarterly, 763–788.

Selviaridis, K., & Wynstram, F. (2015). Performance-based contracting: a literature review and future research directions. International Journal of Production Research, 53(12), 3505–3540.

Turk, K. (2016). Performance management of academic staff and its effectiveness to teaching and research — based on the example of Estonian universities. TRAMES: A Journal of the Humanities & Social Sciences, 20(70/65), 17–36.

Wierzbinski, M. (2016). Performance management in a water and sewerage company. Research Papers of the Wroclaw University of Economics, 434, 190–202.

Woerrlein, L., & Scheck, B. (2016). Performance management in the third sector: a literature-based analysis of terms and definitions. Public Administration Quarterly, 220–256.