Performance-Based Management: Outcomes, Antecedents, and Success

Introduction to Performance-Based Management

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 overstated. PBM has increasingly become a common practice in organizations of different sizes — small and large — and in diverse sectors — manufacturing and service, as well as public and private (Ploom & Haldma, 2013; Lutwama, Roos & Dolamo, 2013; Rivenbank, Fasiello & Adamo, 2016; Wierzbinski, 2016). Organizations now 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.

Defining PBM and Its Scope

Defining PBM can be quite problematic, with the term 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 constitutes a discipline on its own (Brudan, 2010). Also referred to as results- or outcome-based management, performance management is an umbrella term encompassing 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). 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 in flight hours rather than 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 organization 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.

PBM and Employee and Organizational Outcomes

A major focus of PBM research relates to 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 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.

Being an organization-wide process, PBM may also positively influence organizational outcomes. 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 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 the satisfaction of pupils, teachers, and parents. Though this study may not be readily generalized beyond public schools in the context studied, it provides valuable insights about the usefulness of PBM in enhancing organizational performance.

Conclusion

Overall, the value of PBM in today's world cannot be overstated. Organizations, 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 those outcomes, and taking action based on them. Implementing 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, a number of factors are important — particularly leadership commitment and organizational culture change. The leadership of the organization must provide the necessary resources and support, and change the organization's way of doing things, especially in terms of setting performance targets and outcomes, measuring performance, communicating performance feedback, and engaging employees. More fundamentally, attention must be paid to individual, operational, and strategic dimensions. On the whole, adopting PBM can positively influence both employee and organizational outcomes: it can increase employee productivity and satisfaction as well as overall organizational performance.