Implementing Performance Management Systems: A Strategic Tool
for Human Resource Management
Dr Aditya Gautam* and Ms Sameeksha Jain**
Since the era of liberalization, privatization and globalization, attracting potential candidates
for a particular job and retaining the key employees in order to have better and highly motivated
workforce has become imperative for an organization to be effective and competitive. These
days, in an industry, whether small or big, there is a paradigm shift in the roles of human
resource management. Besides its traditional roles the HRM has expanded its dimensions to
assess its employees’ performance and manage it with the help of well defined systematical
approach that has evolved due to new developments in the field of HRM. This systematic
approach is known as PERFORMANCE MANAGEMENT SYSTEM or PMS in short.
Performance management is the buzzword and has emerged as a need of the hour for the
organizations to excel their competitors. The process of performance management starts when a
new employee joins the organization and ends when an employee quits. Performance
management is considered to be systematic process through which the overall organizational
performance can be assessed, described and improved by improving the performance of its
This paper will make efforts to describe the theoretical aspects of effectiveness of PMS in an
organization, review the common problems encountered and challenges while implementing
PMS, and provide recommendations for implementing PMS effectively within an organization.
The result shows that if implemented effectively performance management system acts as a
strategic tool and a powerful foundation for the employees to achieve their aspirations and
organizations to achieve their financial goals.
Keywords: Liberalization, Privatization, Globalization, Performance Management System
*Director, Shri Ram College of Management, Muzaffarnagar
**Research Scholar, Uttarakhand Technical University, Dehradun
Performance has been the key focus of an achiever, but in this competitive scenario and era of
LPG Model, competitive advantage has become more critical for any organization. This has
forced them to review and revise their old strategies and develop new and unique ways and
means to enhance employee’s performance. Performance Management system is a solution to the
Human Resource remains neglected in the traditional scheme of management system, but it has
gain its due share in Performance Management System, because of its infinite potential for
managing and improving performance. It was realized that all other resources are equally
available to all such competitors. HR is the only resource which, if made committed, can make
the difference and help an organization to gain a competitive edge over others.
Many companies rely on performance management system to remain ahead in the race. Because
performance management system helps employees to know that what exactly is expected out of
them and assure managers that employee’s behavior will be aligned with the organization’s
goals. In order to create an effective Performance Management System, it is required that each
employee should be fully aware of their duties and responsibilities in the organization. Knowing
about what is expected of them and what fundamental roles do they play in achieving the vision,
mission and strategy, the employees’ contribution can be maximized. Under the global economic
crisis, continuously improved performance has become a major challenge for every organization,
in one way or the other.
Historically, the concept of performance management was limited only to determine the wages
and salaries of their employees. Organizations traditionally used performance management to
shape the behavior of employees so that specific outcome can be achieved. However, such a
rewards-driven approach to performance management is not sustainable for most of the
organizations. Moreover, traditional organizations have also started becoming knowledge
intensive for technology-intensive manufacturing processes. The focus of performance
management has gradually shifted towards promoting the learning and development of the work
environment. Such perceptive change in performance management was more evident in
organizations worldwide from the 1980s. At this point of time the organizational performance
became a major challenge for achieving productivity and it became necessary to think in the
direction of optimum utilization of human resources.
In recent decades, however, managing people has become more challenging so the process
adopted to manage people needs to be specialized. Performance Management developments in
recent years are talent management, coaching and counseling, reward management, career
planning, management by objectives and continuous monitoring and review etc.
1.2 Literature Review
According to Coleman 2009, It is unrealistic to expect that when a PMS is implemented, the
performance of employees will be improved immediately and all the performance related issues
will be immediately resolved. To realize the full potential benefits from the PMS, the
organization must be prepared to invest resources to make sure that the managers and other
employees own the system and should be accountable for the performance management system
implemented, otherwise it will be taken as a compliance activity. The employees will not get any
from such system. Even the organization also will not gain success by such system. No PMS can
ever be perfect or complete as soon as it is implemented, i.e. the PMS evolves as the organization
According to De Waal and Counet’s 2009, the implementation of performance management
systems improves the performance and overall quality of the business.
Peters (2008) suggested that performance management systems will not be effective in
implementation without adequate management. This arises another research question about the
implementation of PMS in the public sector: If information is imperfect and there are political
complexities in outcomes based performance management systems, through adequate
management they can still provide effective guidance and a means of control which can
improves program results.
According to Du Plessis (2007), the implementation of performance management
systems encounter resistance at certain points throughout an organization. But in order to ease
the resistance one has to focus carefully on the implementation of its sub projects which should
include all the cultural and environmental issue in concern so that the PMS can be carefully
Simons (2000) stated that a PMS cannot be effectively designed and implemented without
considering the human behavior. So behavioral aspects should be considered while implementing
the PMS in an organization.
1.2.1 Challenges in Implementing Performance Management System
In reviewing other studies, it is indicated that there are a number of possible problems that affect
the successful implementation of a performance management system (Rademan and Vos, 2001).
According to a survey on PM conducted in 2010 top three challenges faced by the organizations
in implementing PMS are as: a) Managers lack courage to have difficult performance
discussions; b) Performance Management is viewed as an HR process instead of a business
critical process and; c) poor goal setting.
De Waal and Counet (2009) identified thirty-one problems faced during the implementation of
performance management systems. It is indicated that one of the problems which affects the
implementation of a performance management system is that management put low priority on
the implementation because of work pressures and time constraints. It was also observed that this
slows down the speed of implementation of PMS.
It is indicated that where there is change of management especially where old management is
replaced by new management who do not support the system, the implementation of a PMS
hardly gets any priority and many a times it is abandoned. One of the problems experienced in
implementing the performance management system is that it might require more time and effort
than the organization planned or expected.
According to De Waal and Counet (2009), this makes the organization members discouraged by
a lack of short-term results. They then spend less time and energy in implementing the
performance management system, which contributes to the slow implementation of the
performance management system.
De Waal and Counet (2009) also noted that there can be insufficient resources and capacity for
the implementation of a performance management system. This happens often because
organizations cannot free enough resources and capacity to implement the system. This implies
that if an organization wants to succeed in implementing the performance management system, it
should possess sufficient resources and capacity for implementing the performance management
system. This has implications for this study as it takes into account other factors, like resources,
which impact on the implementation of the performance management system.
According to De Waal and Counet (2009) another problem of failure to implement the
performance management system is caused by the fact that an organization is either in its
unstable phase as it is busy with major projects or is facing some serious financial problems.
De Waal and Counet (2009) observed that one of the key reasons for failure to implement the
performance management system is the lack of clear goals for the implementation of the
performance management system and this is further complicated by the lack of a clear and
understandable strategy, mission and objectives for the organization. This finally leads to the
development of key performance indicators which are not relevant, and thus it is found that some
organizations measure the wrong performance indicators.
Ohemeng (2009) also indicates that other problems associated with the implementation of
performance management systems include institutional fragmentation whereby decision making
is fragmented among different departments instead of one, and this create a problem of
accountability and responsibility. These problems form the foundation for the development of
research questions for this research and understanding of problems associated with the
implementation of performance management systems.
De Waal and Counet (2009) note that lack of knowledge and skills in performance management
are some of the constraints on successful implementation of performance management. This
usually results in a performance management system not being properly implemented or just not
being implemented at all. It is also stated that the rater (manager or supervisor) must plan to use
a problem solving approach rather than a tell and sell approach before interviewing employees.
De Waal and Counet (2009) note that in the case where the performance management system is
not used for daily management of the organization, this also serves as a constraint on the
implementation of a performance management system. This reflects a situation whereby results
of performance measurements are not discussed, the case where there are no corrective measures
and because of that the organization fails to meet its target
According to the authors , although earlier studies have shown that the use of, and satisfaction
with performance management systems remain challenging, there is every indication that
increasing use and integration of the available framework and theories will encourage more
strategic links between individual, team and organizational results oriented outcomes. When
organizational goals are linked to individual employee objectives and goals, the performance
review reinforce the behaviors that are consistent within the organizational culture and the
attainment of its goals. Even if individual goals and objectives are not achieved, it serves as a
basis for management to concentrate on the crucial business initiatives and come up with
efficiency modalities to arrive at its strategic goal. However, in spite of this, performance
management systems are not always successful and do not always helps in getting the desired
results. Some of the reasons of poorly managed PM systems are as follows:
a) Ineffective communication
Ineffective communication between employee and manager and failure to agree on objectives to
suit continuing changes in conditions and priorities are likely to lead to a poor performance
management system. (Aguinis & Pierce, 2007)
b) Misleading information
Non- availability of a standardized system in any organization may lead to multiple chances for
the fabrication of information and a high level of subjectivity in the performance decisions of
employees. It also leads to feedback being provided in an ineffective and inappropriate manner
leading to employee resentment (Aguinis 2009,).
c) Damaged relationships
Relationships between colleagues, subordinates and supervisors can become estranged causing a
deficiency in the system. Rahman (2006) indicates that a team which prides itself on power
distance is likely to be more cohesive than teams that behave counter-dependently and will
always avoid interaction with each other. According to him, if interactions took place, the
appraisers could give feedback to their managers. Anytime feedback is conveyed, it could be
perceived as either a source of social facilitation, which would invariably help to improve
employees’ performance, or social interference that could adversely affect their performance.
d) Unfair standards and rating system
Poorly implemented PM systems can vary across units and departments resulting in unfairness
and non-standardized systems across the organization. Due to poor communication, employees
will not be able to get actual decisions about their performance ratings and what are the criteria
of getting rewards. Within any organization, there are many opportunities for managers to
directly influence the performance of their people and therefore their business contribution. By
addressing the specific behaviors identified above, managers can encourage every employee to
personally reach for the exceptional performance and have confidence and belief in the rating
system. (Aguinis, 2009)
1.2.2 Successful Implementation of Performance Management System
According to Ochurub and Bussin (2012), organization cannot introduce PMS successfully
without the involvement of all employees and a strategy to develop HR so that everyone must be
clearly able to understand the benefits of change initiatives to the employees and organization.
Implementing such systems requires change and the success of these changes depends on the
readiness of the organization.
Rao (2008) has proposed the following as certain critical aspects for improvement of
performance management systems' in Indian context: 1. Greater focus on contribution,
improvement and transition from appraisal to management of employee performance. 2. Need
for recognition of the complexities of multi-dimensional PMS. 3. Decentralization of PMS by
making it a responsibility of the line managers. 4. Rigorous implementation of the system and
giving it the seriousness.
DeNisi and Pritchard (2006) in their expectancy based motivation model for individual
performance improvement presented a number of implications for the design of an 'ideal' PMS.
These are as follows: 1. the system should be simple and transparent so that performance ratings
can be easily understood by employees. 2. Performance standards and expectations should be
clearly stated so that everyone involved (appraisee, appraiser and HR) understands what is
expected and what is rewarded. 3. Separate appraisals for feedback and decision making
purposes (administrative) would make the process easier to explain and understand. 4. Besides
formal appraisals (which happen once or twice a year) informal appraisals and feedback must be
a part of the system and frequency of feedback should be increased.
De Waal (2003) identified 18 individual behavioral factors that are important in the successful
implementation of a performance management system. These can further be divided into the
managers understanding about the nature of performance management, manager’s attitude, the
alignment of the system to the manager’s responsibilities, organizational culture as well as the
focus of the system on internal management control. These behavioral factors have an impact on
the fairness of a performance management system. Employee’s perceptions about the fairness of
the performance management system are often governed by the idea of how they perceive their
manager’s attitudes, culture of the organization and how the system is applied in the
Bourne et al. (2000) stated that PMS needs to be reviewed and developed at different levels with
the change in situation. According to Bourne et al; PMS should include a mechanism to 1)
review and revise targets and standards, 2) develop individual measures as performance, and 3)
periodic review and revision of the entire set of measures which are in use. They also stated that
the main problem in implementing and using a performance management system is the use of
measures for which very few techniques are available and very few researches had been
conducted in that area by that time.
As per Armstrong and Baron, (1998), a performance management system which is only
concerned with what objectives employees should achieve without concerning itself with how
those objectives are going to be achieved is bound to fail. A good PM system requires that
organizations note and reward good performance which may be monetary or non-monetary.
Where performance related pay exist, a valid connection between employee performance and
employee pay must be established.
McAfee and Champagne (1993) identified the following as certain key aspects for successful
PMS implementation: 1. Supervisor must chart out the critical competence areas, discuss and
work them out with employees to establish a viable action plan. Further, organizations must
establish a norm for self development i.e. employees should be able to understand that they are
expected to enhance their job skills continuously. 2. The goals must be mutually developed and
should be specific, measurable, attainable, relevant, time framed and challenging. 3.
Supervisors/managers must be provided with training to explain them the purpose and specific
methodology of performance management. 4. The organizations need to establish specific
follow-up procedures to help ensure that employees are achieving their goals as defined in the
action plan. To facilitate this, managers must be prepared to follow through and must have a
number of meetings with employees during the review period.
The findings indicates that there are enterprises which are generally intolerant to adopt formal
PMS practices, including goal setting, reviewing performance, proper feedback mechanism and
performance evaluation practices. Similarly, they usually pursue traditional means of basic HR
functions such as employee recruitment, training and compensation. However it has also been
analyzed that employees do not have a clear understanding of what is the purpose of
implementing performance management system similarly a large number of employees consider
that performance management system is not aligned with organizational goals and strategies and
it do not give importance to employee career planning or progression.
It was found that various problems and challenges were faced by an organization while
implementing performance management system in an organization. It could be as follows: lack
of senior management commitment, lack of employee involvement, lack of necessary knowledge
and skills, absence of a natural leader, lack of resources, lack of formal PM environment,
misleading information, poor communication, lack of goal clarity etc.
To be effective, performance management systems tend to be complex, require significant
amount of resources and entail a redefinition of the roles of managers. PMS fulfill a strategic role
in the organization and their implementation requires paying attention to the establishment of
performance goals, efficient performance measurement techniques, work evaluation and
appraisal methods and fair and transparent feedback process.
It has also been found that organizations have realized the importance of strategic Human
Resource practices to gain a competitive edge over the competitors. A well designed and
effectively implemented performance management system can play a crucial role in aligning the
activities of the employees to that of corporate objectives that helps in attaining organizational
objectives.. By clearly defining both individual and team responsibilities in the form of Key
Responsibility Areas (KRAs) as well as by creating an understanding about shared mutual
responsibilities, a good performance management system facilitates the development of
The post-liberalization era has been witnessing significant changes in the structure and activities
of the organizations. Arrival of foreign enterprises has given a cause to existing enterprises to be
more effective, competitive, and innovative in their approach. There is a need to have a strong
and effectively implemented performance management system in each and every organization to
achieve better performance. This can help an organization to distinguish between Performers and
Non performers. The performers can be rewarded with promotions or increments and the Non
performers can either be trained or replaced with new employees. Thus it helps to improve per
employee performance in an organization. Moreover it also helps to integrate individuals and
Performance management can be better understood as assessing the individual's performance in a
planned and systematic way. Firstly it should be clearly defined what performance is and how
performance management system can enhance the performance in the organization i.e. it should
be able to address both the aspects of performance: what people achieve and how they achieve it.
Moreover there is a need for the involvement of managers, team leaders and their representatives
to be fully involved in designing the PMS for the organization to ensure that they meet the needs
and resolves if any doubt arises. Performance Management System also requires skills that need
to be developed among managers and individuals to be implemented in an effective manner.
Performance management has attracted the attention of many firms and it is expected that in the
near future its importance will still grow as this process is integrated with other HR processes
like pay based on performance, career management and talent management etc.
Performance Management System is the vital key in Human Resource Management (HRM). In
other words, PMS is a crucial business driver that helps to achieve business result. An efficient
PMS can boost the firms to maximize the employee performance. While concluding, it can be
summarized that the performance management system is not only a mean of knowing that if the
employee’s' behaviour is consistent, but also an important and strategic organizational tool to
link the employee activities with the goals of the organization.
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