Performance Management & Organizational Effectiveness

Tasks of performance management. However, in my opinion, the general concept version of performance management should be defined by the narrower definitions, such as performance appraisal or the 360-degree audit. These methods are the pure performance evaluation of a person in a past period of performance (e.g. financial year) together, but not the immediate focus on a group performance in terms of performance enhancements. Performance management encompasses the entire spectrum of tasks in the field of strategic, financial, marketing and operational management of the company and includes the use of management techniques such as modeling strategy, balanced scorecard, activity-based planning and value analysis, budgeting, business modeling, consolidated management reporting and analysis, as well as monitoring key performance indicators, associated with the strategy. It should be mentioned that performance management involves three main activities (in all the areas of management): setting goals; analysis of the values of parameters, which describe the how organization will achieve its goals; control actions of managers on the results of analysis, aimed at improving the future of the organization to achieve its goals. Typically, managers use balanced scorecard to organizational goals, which make clear to employees how to determine and monitor the achievement of goals and to implement a mechanism that signals the need to make to the organization of corrective actions. It should be noted that the balanced scorecard is most often used as a foundation for performance management systems in an organization. As a fact, with the usage of performance management techniques, owners tend to bring the strategy to all levels of the organization to transform strategy into action, metrics that measure these actions, and usage of the analysis to find causal relationships, which, if meaningful, can help in making informed decisions, according to J. Boudreau, P. Ramstad (2006).

Methodologies of performance management. There are different methodologies for the introduction of performance management. Their usage enables companies to structure (top-down decomposition), which are linked with the planning and execution, strategy and tactics, the objectives of the enterprise and its business units. The existing methodologies may include a Six Sigma strategy, balanced scorecard, activity-based costing, total quality management, economic value added, integrated strategic measurement theory of constraints. However, balanced scorecard is the most widely used methodology for performance management usage. It is extremely important to note that the concept of effective performance management considers a cycle of feedback control, which involves the “movement” of information with two ways: “top-down” and “bottom-up”. Top-down variant considers that a guide begins by defining strategy, which should be translated into some executable concepts (planning phase), which, in turn, should be re-translated into the operational environment: what action should be taken?, how often?, etc. As a rule, these concepts are implemented through the budgeting process. In turn, bottom – up variant considers that performance management needs to see the results of company’s activity. The results must be converted to assess the real costs and profitability, and in the end, put the results in the context of the strategy so that they can be interpreted in terms of achieving their goals, according to J. Boudreau, P. Ramstad (2006).

Levels of performance management

It is essential to note that, according to B. Kotey, A. Sheridan (2004), there are following functionally different levels of performance management, among them are:

1. Levels on the descending branch of the loop include:

a. Modeling strategy and communication;

b. Defining performance objectives (strategy map) and key performance indicators of the functioning of the organization (financial and nonfinancial indicators);

c. Business modeling processes to identify factors of profitability, resources and constraints;

d. Decomposition of the top-level tasks in lower levels of trust units;

e. Target setting: strategic goals, expressed in concrete numbers;

f. Process-oriented planning;

g. Determine how to achieve the objectives: the formation of scenarios, the calculation of the volume of resources (material, human, financial), the calculation of the planned cost and overheads;

h. The alignment of operational and financial balance of resources;

i. Accounting of resources usage (shortage / surplus);

j. Connecting the analysis modules to meet the challenges of forming predictions of optimization problems;

k. Budgeting;

l. Organizational functions (budget harmonization process) and the function of forming a set of budgets for individual departments, business units, segments;

m. Versioning of budgeting, scenario analysis;

2. Levels in the ascending branch of the cycle:

a. Consolidation, reporting and analysis;

b. Collecting data, forming a regular reporting for internal and external users, the transformation of accountability in the various standards;

c. Monitoring of budget execution and recording of abnormalities and determining their causes;

d. Detailed analysis of financial results and condition of balance, segment reporting, reporting of responsibility centers;

e. Value analysis;

f. Separation costs using activity-based costing of responsibility centers, transfer costs and provide the basic processes, the formation of costs by product, by categories of customers, sales channels;

g. Profitability analysis in the context of products and services, branches, centers of responsibility;

h. Analysis of transfer operations, serving costs and settlements;

i. Identify inefficient processes, a comparison of cost performance with historical and reference;

j. Scorecards and feedback;

k. Presentation of actual performance in compressed, aggregated form, required to compare the planned target values of key performance indicators with actual achieved;

l. The calculation of key performance indicators, the normalization of the values, the calculation of summary.