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Measuring Business Excellence Rediscovering performance management: systems, learning and integration Aurel Brudan



Article information: To cite this document: Aurel Brudan, (2010),"Rediscovering performance management: systems, learning and integration", Measuring Business Excellence, Vol. 14 Iss 1 pp. 109 - 123 Permanent link to this document: http://dx.doi.org/10.1108/13683041011027490 Downloaded on: 10 May 2015, At: 22:11 (PT) References: this document contains references to 77 other documents. To copy this document: [email protected] The fulltext of this document has been downloaded 4591 times since 2010*



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James Kagaari, John C. Munene, Joseph Mpeera Ntayi, (2010),"Performance management practices, employee attitudes and managed performance", International Journal of Educational Management, Vol. 24 Iss 6 pp. 507-530 http://dx.doi.org/10.1108/09513541011067683 Amir M. Sharif, (2002),"Benchmarking performance management systems", Benchmarking: An International Journal, Vol. 9 Iss 1 pp. 62-85 http://dx.doi.org/10.1108/14635770210418588 André A. de Waal, Harold Counet, (2009),"Lessons learned from performance management systems implementations", International Journal of Productivity and Performance Management, Vol. 58 Iss 4 pp. 367-390 http://dx.doi.org/10.1108/17410400910951026



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Rediscovering performance management: systems, learning and integration Aurel Brudan



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Aurel Brudan is a PhD Candidate at The University of Melbourne, Melbourne, Australia.



Summary Purpose – This paper sets out to explore performance management as a discipline and propose an integrated performance management model. Design/methodology/approach – This conceptual paper aims to clarify what performance management is and how it emerged as a discipline by tracking its evolution at strategic, operational and individual levels. Structured as a review, it enables the rediscovery of performance management and the identification of several key dichotomies, brought together under an integrated performance management model. Findings – Three emerging approaches to performance management are presented as potential catalysts to accelerate the evolution of this discipline: systems thinking, learning and integration. An integrated performance management model is also proposed. Research limitations/implications – The paper draws on the consultancy and research experience of the author. The generated model is conceptual in essence and needs to be tested. Further research on the history of performance management as a discipline and the integration approach between organisational levels is needed. Practical implications – The paper makes suggestions for improving performance management governance – the introduction of the Performance Management Office. It also suggests a higher emphasis on learning and integration during the implementation and usage of performance management systems. Social implications – By outlining the importance of systems thinking in managing organisational performance, this paper highlights the need for encouraging its applicability and implementation through systemic thinking. A higher emphasis on including elements of systems thinking in educational curricula may be a possible step forward. Originality/value – The paper is relevant to both practitioners and academics, as it clarifies the existing body of knowledge and provides a platform for future research Keywords Performance management, Learning, Integration Paper type Conceptual paper



Introduction Compared to the natural sciences, such as physics and chemistry, human organisation or administration is more loosely defined, some considering it a science and others an art. However, both proponents of management as a science and as an art agree on its ultimate role – getting things done, or accomplishing desired goals. Hence performance management has emerged over time as a discipline that assists in establishing, monitoring and achieving individual and organisational goals. The premise of this paper is formed by empirical observations of today’s performance management practice that outline several areas of imbalance and tension. Exploring these is important especially since performance management is a relatively young, emergent discipline.



DOI 10.1108/13683041011027490



VOL. 14 NO. 1 2010, pp. 109-123, Q Emerald Group Publishing Limited, ISSN 1368-3047



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One of these areas is the fragmented body of knowledge of performance management as a discipline. The lack of standards regarding the definition, classification and usage of specific tools make both research and application of performance management principles difficult. Tension between the command and control style of thinking and systems thinking in organisational managerial practice is another possible area of imbalance. The suitability of using twentieth century command and control thinking in the interconnected world of the twenty-first century is debated by many. A third area of tension in performance management practice is the dominance of the measurement and rewards ethos as opposed to learning and improvement. The focus on target achievement and rewards gave performance management a negative halo effect, to the detriment of its knowledge and improvement role. Clarifying and addressing such areas of imbalance and tension is necessary in order to enable the establishment of more solid foundations for performance management as a discipline.



1. Rediscovering performance management Reviewing the emergence, definition and evolution of performance management at strategic, operational and individual level is necessary as it would not be prudent to make recommendations for the future of this discipline without analysing the past. Downloaded by FUDAN UNIVERSITY At 22:11 10 May 2015 (PT)



1.1 Definition of performance A key expectation from management, at both organisational and individual level, is measuring and managing performance. From idea to action and achieving desired results there is a journey to take. Perhaps the most used term in everyday life to reflect the progress of this journey and its results is ‘‘performance’’. This is in line with the systems thinking view that each system needs to fulfil a purpose. A system that achieves its purpose is considered a system that ‘‘performs’’ as planned. However, ‘‘performance’’ is a difficult word to define, due to the various interpretations of its meaning. As in the case of management, the term performance can be used at various levels (personal performance, individual performance, team performance, organisational performance), to express general achievement (such as performance in sport), or to reflect a benchmark against peers. The current meaning of the word ‘‘performance’’ as abridged from the Merriam-Webster’s English Dictionary (n.d.) reflects its polyvalent nature: 1a: the execution of an action; b: something accomplished: deed, feat 2: the fulfilment of a claim, promise, or request: implementation 3a: the action of representing a character in a play; b: a public presentation or exhibition , a benefit performance . 4a: the ability to perform: efficiency; b: the manner in which a mechanism performs , engine performance . 5: the manner of reacting to stimuli: behaviour 6: the linguistic behaviour of an individual: parole; also: the ability to speak a certain language — compare competence.



The first entry in this list provides the most common use of the term in today’s management research and is closely related to the second entry. An interesting parallel can be drawn between the third entry ‘‘a public presentation’’ that is commonly associated with performance arts (i.e. a concert or a play) and a similar ‘‘performance’’ in a business, political or social environment. In a way, corporate senior executives are ‘‘actors’’ performing a ‘‘play’’ (managing), based on a script (‘‘corporate strategy’’) and using tools/instruments such as the Balanced Scorecard (BSC), under the direction of the CEO. 1.2 Performance in management research literature Management research literature contains at least three in-depth articles that analyse the term ‘‘performance’’ and its use. Lebas (Lebas, 1995) characterizes performance as future oriented, customized to reflect particularities of each organisation/individual and based on a



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causal model linking inputs and outputs. A ‘‘performing’’ business is one that will achieve the objectives set by the managing coalition, not necessarily one that has achieved the objective. Thus, performance is about both capability and the future (Lebas, 1995). For Wholey (Wholey, 1996), measurement is necessary as performance is not an objective reality, out there somewhere, waiting to be measured and evaluated, but a socially constructed reality that exists in people’s minds, if it exists anywhere at all. It has diverse interpretations and it may include: inputs, outputs, outcomes, impacts and relate to economy, efficiency, effectiveness, cost-effectiveness, or equity. Both these articles consider performance as being subjective and interpretative and ultimately linked to cost related headings (Lebas, 1995; Wholey, 1996). The meaning and content of the term performance in business performance research is comprehensively discussed more recently in an article that outlines three priorities or governance objectives of performance (Folan et al., 2007). First, performance needs to be analysed by each entity in the boundaries of the environment in which it decided to operate. For example a company’s performance needs to be analysed in the markets the company operates and not in the ones that are not relevant to its operations. Second, performance is always linked to one or more objectives established by the entity whose performance is analysed. Thus, a company is evaluating its performance based on the objectives and targets set and accepted internally and not by the ones used by external bodies. Third, performance is reduced to characteristics that are relevant and recognisable. For example, characteristics such as ‘‘the ability to use office stationary’’ are irrelevant and unrecognisable. To create optimal conditions for the achievement of desired performance, these priorities need to be interrelated and well aligned. 1.3 Performance management and measurement In scientific management, performance is associated with two key processes: performance management and performance measurement. These two key processes cannot be separated from one another and performance management both proceeds and follows performance measurement. Performance management is the overarching process that deals with performance. It reflects the approach one entity has towards performance and it includes sub processes such as: strategy definition (planning/goal setting), strategy execution, training and performance measurement. Thus, performance measurement is a sub process of performance management that focuses on the identification, tracking and communication of performance results by the use of performance indicators. Performance measurement deals with the evaluation of results, while performance management deals with taking action based on the results of the evaluation and ensuring the target results are achieved In management research the lines between performance management and measurement are not clear, as various authors use their own criteria to define these terms and even use them interchangeably. After reviewing over 300 documents, a team of researchers from the Cranfield University found only 17 definitions of the business performance measurement (BPM) concept, this suggesting that authors do not generally define what they are referring to, when they use the phrase BPM system (Franco-Santos et al., 2007). The authors go on to analyse these definitions, the elements of BPM systems, characteristics, features and roles, outlining the importance of having a clear understanding of performance management as a discipline for the generalisability and comparability of research in this field.



2. A comprehensive picture of performance management 2.1 Evolution of performance management Performance management as a discipline contains elements that closely link it to a multitude of other disciplines and organisational capabilities: Strategy Management, Project Management, Human Resources Management, Accounting and Psychology, to name a



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few. It is used in almost all scientific disciplines, as it is a subset of almost all human activities. To explore these associations and to get a better understanding of the polyvalent nature of performance management it is necessary to analyse its various facets in practice by identifying the organisational levels of its use. Traditionally, performance management in an organisational context has been divided into three levels: strategic, operational and individual performance management. For a better understanding of the differences between these various levels of performance management an analysis of their evolution in time is necessary. The aim of such an analysis is to illustrate their background, their common evolution milestones and put into context the current status of performance management in management research.



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Administrative science is a fundamentally subjective enterprise (Astley, 1985). Hence the evolution of management in time was not linear, but constructivist, the key drive being conceptualisation based on practice. Further, traditionally management research uses nominalist ontology, supported by a social constructivist epistemology approach. As performance management is considered to be a subset of administrative science, Astley’s notes on the evolution of the body of knowledge in this discipline are perfectly applicable to the evolution of performance management at all levels. The corollary is that management in general and performance management in particular evolved in time under the umbrella of constructivism.



2.2 Individual performance management evolution The traditional level at which performance management is used in organisations is the individual level. Individual performance management is perhaps the level with the longest evolution in history, as it mirrors the level of organisational maturity. The precise origin of performance appraisals is not known but the practice dates back to the third century when the emperors of the Wei Dynasty (221-265 AD ) rated the performance of the official family members (Banner and Cooke, 1984; Coens and Jenkins, 2000). In early times, organisations were loosely defined and their performance management focus was based on individuals performing tasks as part of a group. Performance appraisals in industry were most likely initiated by Robert Owen in the early 1800s (George, 1972). Owen monitored performance at his cotton mills in Scotland through the use of ‘‘silent monitors’’. The monitors were cubes of wood with different colours painted on each visible side. They were displayed above the workstation of each employee (Banner and Cooke, 1984; Wiese and Buckley, 1998). In time, more complex approaches emerged, mainly driven by the military, public administration and industrial companies. They all needed a system of monitoring the performance of numerous individuals to ensure a streamlined progression in the organisational hierarchy. The main drivers in the evolution of individual performance management were industrial psychologists, human resources managers, organisational development and organisational behaviour consultants. Development of performance appraisals in US industry began with early work in salesman selection by industrial psychologists at Carnegie-Mellon University, who used trait psychology to develop a man-to-man rating system. The army used this system during the First World War to assess the officer performance. After the war, business leaders, impressed by the achievements of the army researchers, hired many of the men who had been associated with the work in man-to-man appraisals (Scott et al., 1941; Wiese and Buckley, 1998). In the 1970s in the USA and the 1980s to 1990s in Britain it was government legislation concerning such things as equal opportunity, civil rights, etc. which compelled organisations to adopt some sort of system. Performance management systems (PMS) were used in the 1980s and 1990s as powerful tools for change to try to bring about change in public sector culture and ethos (Furnham, 2004).



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In the 1990s individual performance management was reshaped by two key trends. The first was the increase in popularity of self-assessment of performance, sometimes followed by feedback sessions with line managers. The increase in performance self-assessment was natural as economies were dominated by knowledge workers, more independent in regards to decision making and management of work processes (Drucker, 1999a). The second key trend in recent years was the integration between strategic performance management and individual performance management facilitated by the introduction of tools such as the BSC. Organisational goals became reflected in individual goals and individual measures became aligned with organisational performance measures, in an effort to increase the accountability of all employees to the execution of the organisational strategy.



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2.3 Operational performance management evolution Performance management at operational level is linked to operational management, as its focus is the achievement of departmental or group objectives. Although it is aligned with corporate strategy, its focus is more functional. Scorecards and Dashboards are some of the key tools used. For example Human Resources (HR) Dashboards are used to collect and analyse a variety of HR management indicators that guide the management decisions of HR departments. Only a handful are generally represented in the strategic performance management system, at organisational level. Similar tools in other functional areas are Marketing Scorecards, Portfolio Dashboards and Supplier Scorecards. A wide variety of operational performance management tools are also used by Finance departments, where management accountants generate a financial reports used to guide performance management decisions at operational level. The evolution of operational performance management is linked to the evolution of accounting and management. This is due to the fact that operational performance is traditionally evaluated in terms of efficiency and effectiveness. And the easiest way to do this is by using financial indicators, provided by the accounting function in organisations. For example in the thirteenth century, the performance of a Venetian sailing expedition used to be defined as the difference between the amount of money invested by the ship owner(s) and the amount of money obtained from selling all the goods brought back by the ship’s captain (Lebas, 1995). However it was only in the early nineteenth century when the distinction between the function of owners and managers arose, setting the stage for management processes as an identifiable and separate activity (Dainty and Anderson, 2008; Johnson, 1972, 1975, 1978, 1981). Thus in the first decade of the twentieth century, Frederick Taylor developed the concept of scientific management (Drenth et al., 2001). This was based on the analysis of existing work methods through observation and measurement. Taylor’s ideas were advanced by many others including Frank and Lillian Gilbreth, who developed the concept of time and motion studies, which required the measurement of every single movement undertaken by a worker in the course of their work (Radnor and Barnes, 2007). The ‘‘tableau de bord’’ has been quite popular in France ever since its introduction in 1930s, as a ‘‘dashboard’’ used by managers to monitor the operational performance of their organisations (Bessire and Baker, 2005). Although the majority of the large companies in France were using it, due to the limited availability of translated literature it had a minimal overseas diffusion (Bontis et al., 1999). Over time, as internal and external operating environments became more complex, organisations started to look at non-financial indicators of performance. This made the connection with operations management and other aspects of the general management discipline. The Japanese quality management philosophy emerged in early 1950s to form the roots of today’s performance management theories and rules (Busi and Bititci, 2006). Statistical techniques were based on the work of a number of Americans – most notably Deming (Deming, 1982), Juran (Juran and Gryna, 1980) and Shewhart (Shewhart, 1980) – who had been largely ignored by their compatriots, but whose ideas had been enthusiastically taken up in post war Japan. The advent of total quality management (TQM) increased operations management’s concern to improve effectiveness and responsiveness. This, in turn, lead to the introduction of customer-based measures. Such



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an example is the General Motors system of performance measures, the development of which culminated in the 1970s (Johnson and Kaplan, 1987). It included several non-financial indicators and can be seen as the forerunner of the BSC approach. In the late 1980s and early 1990s, this dissatisfaction (with traditional backward looking accounting based performance measurement systems) led to the development of ‘‘balanced’’ or ‘‘multi-dimensional’’ performance measurement frameworks (Bourne et al., 2000). The rise of business intelligence software products over the last ten years had a profound impact on how companies manage their operational performance. Enterprise resource planning software (SAP, Oracle, etc.), combined with business intelligence software (Business Objects, Hyperion, Cognos, etc.) enabled companies to reach new levels of data integration, by making the data gathering and reporting process more streamlined. Availability of performance reports widened to employees across the organisation and not just to a limited number of employees, as it was before. Reporting becomes more complex, with data streams enabling live reporting via dashboards and scorecards of performance indicators. Users of such performance reports are able to customise them by slicing and dicing the reported data. 2.4 Strategic performance management evolution Downloaded by FUDAN UNIVERSITY At 22:11 10 May 2015 (PT)



At strategic level, performance management deals with the achievement of organisational objectives. Practitioners refer to it as corporate, business or enterprise performance management, this being the highest and most complete level of usage of performance management principles in organisations. Corporate performance management as a term was born to differentiate between the individual and organisational levels of performance management (Bourne et al., 2003). The key processes related to strategic performance management systems are strategy formulation and execution, both subsets of strategic management. The most popular tools are the BSC and the Performance Prism (Neely et al., 2002). There are, however, numerous other frameworks and quality awards, such as the Baldrige Award and the European Foundation for Quality Management (EFQM) Excellence Model, used to guide the achievement of organisational goals. At strategic level, performance management as a discipline has a short history becoming established only in the twentieth century. It was driven mainly by strategic management and organisational behaviour practitioners. A turning point in the evolution of strategic management and strategic performance management was Drucker’s publication of Concept of the Corporation (Drucker, 1946). Interest in strategy as an area of management study followed the diffusion of strategic planning (‘‘long-range planning’’) among large companies during the 1950s and 1960s. Articles on long-range planning began appearing in the Harvard Business Review during 1956-1961 (Ewing, 1956; Wrap, 1957; Payne, 1957; Platt and Maines, 1959; Quinn, 1961). By 1965 the first systematic, analytically based frameworks for strategy formulation appeared (Ansoff, 1965; Learned et al., 1965). In 1951, Ralph Cordiner, the CEO of General Electric, commissioned a high-level task force to identify key corporate performance measures. The effort had only a modest effect because the measures believed to determine the company’s stock price, to which incentives were tied, were all financial: earnings per share, return on equity, return on investment, return on sales, and earnings growth rate (Eccles, 1991). As strategic management developed as an area of academic study, interest in companies’ strategic planning practices waned. By the 1980s empirical research in strategic planning systems focused upon just two areas: the impact of strategic planning on firm performance and the role of strategic planning in strategic decision making (Grant, 2003). The first area spawned many studies but no robust findings: The results of this body of research are fragmented and contradictory (Ramanujam et al., 1986).



A survey-based research concluded: The overall effect of planning on performance is very weak (Boyd, 1991).



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The mid-1990s witnessed a ‘‘performance management revolution’’ (Eccles, 1991; Neely, 1998, 1999), lead by the introduction and metamorphosis of the BSC. Kaplan and Norton popularised the BSC, presenting the concept as a performance measurement tool, used by organisations at to capture besides the financial measures, the value-creating activities from an organisation’s intangible assets (Kaplan and Norton, 1992). A year later, in a new article, they made the first references about the connection between performance metrics and strategy (Kaplan and Norton, 1993). By 1996, the BSC was labeled as a strategic performance management system, which formed the basis of a rallying framework for strategic processes, resource allocation, budgeting and planning, goal setting and employee learning (Kaplan and Norton, 1996). The shift towards a more strategic use of the BSC was confirmed in a new article published in 2000 (Kaplan and Norton, 2000). The following year, their second book (Kaplan and Norton, 2001) shined more light on the move to use the BSC as an all encompassing strategic management and control system. By 2008, the BSC is clearly positioned as a tool used as part of a wider management system used to drive strategic planning, operational execution, feedback and learning (Kaplan and Norton, 2008). Thus, over a span of 16 years, the BSC evolved from a measurement tool, to a management tool, to a system and then to a tool within a system, thus completing a full circle. This demonstrates that the separation between performance measurement and management in a research context must be carefully considered for each research article on these topics and filtered through the most recent changes in this field as some literature is outdated. Some authors use performance measurement to refer to what by today’s standards is considered performance management and vice versa. Overall, the BSC, as the most popular system used for strategy execution is today the icon of strategic performance management. An emerging systems-based approach to strategic performance management is represented by strategy dynamics. Strategic management dynamics is concerned with understanding and managing performance through time, focusing on the factors that explain why performance is as it is today, and how it might be managed into the future (Warren, 2008). The vital tenet of this resource based performance management system is the suggestion that the only way management can affect strategic performance is by actions that affect resource flows (in or out). Thus informed actions require tracking of resource levels, flows and performance over time. Such changes in the way in which performance management systems are perceived and used require a shift in the mindset of performance management practitioners from command and control thinking to Systems Thinking, from measuring for rewards to measuring for learning and from dispersed organisational performance management to an integrated approach.



3. Key directions for the future of performance management 3.1 Command and control and systems thinking Analysing the history of performance management illustrates that its evolution for most of the twentiethh century was driven by command and control and mechanistic thinking (Seddon, 2008). This type of thinking emerged as simple solutions to respond to the needs of the social, technological and economical environment of those times. A mostly uneducated workforce and ever-increasing demand from customers focused priorities on volume, standards and control through product standardisation, work process specialisation and the use of targets. This approach suited both the profile of the workforce, which contained a low number of educated agents and the limited understanding of organisations as entities, enabling considerable increases in productivity. Managers set targets for employees and monitored their achievement using a command and control approach. Performance management was mostly driven by financial indicators and production quotas, used for checking if people were completing their tasks as assigned by managers. Environmental conditions today are very much different. Customer needs are more diverse and work is more complex. The workforce is more educated, more mobile and has different aspirations. Also, the concept of organisation/corporation has matured beyond the initial presentation of the concept in mid-1950s by Peter Drucker. The nature of work has changed



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from mechanical work in most of the production facilities to knowledge work in the services industry. In this regard, at the beginning of the twentieth century the majority of industrial workers were involved in the production of sub-components and their assembly in a finite product (Ackoff, 1993). Automation of industrial work and the growth of the services sector dramatically transformed the socio-economic landscape. Thus by the beginning of the twenty-first century the vast majority of the workforce is active in technology intensive, services industries, which involve human interactions, stakeholder management and regular, fast decision making made by each employee (Drucker, 1999b). Performance management frameworks have been slow to adapt, most of them still emphasizing financial measures and a command and control approach, based on monitoring the achievement of targets. There are numerous instances in organisations of conflicting priorities and targets within the same organisation and ineffective performance management due to too much emphasis on managerial control. Command and control thinking sees organisations as top-down hierarchies, where managers make decisions using budgets, standards and targets. Work is specialised in functions that complement each other, however are not completely integrated. Workers are controlled with an ever increasing array of management tools and practices – rules, specifications, procedures, inspections, performance management reviews, etc.



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An alternative to command and control/mechanistic thinking is systems thinking which became popularised by The Fifth Discipline (Senge, 1990). Systems Thinking promotes a holistic approach to managing organisations. Organisations managed as systems and not as functional hierarchies put people at the heart of the enterprise, in control, enabling them to contribute, rather than being controlled (Seddon, 2008). If staff members control the work, they need managers to be working on the things beyond the control of the workers which affect the system conditions – ‘‘the way the work works’’. A systems thinking approach to performance management focuses on the definition of the system, its purpose and the measuring of how its purpose is achieved. Instead of an isolated approach, the focus is on integrating all components of the system and mapping the relationship between them in addressing and satisfying demand. Systems thinking places more focus on the learning and human relationships in organisations, in line with Theory Y of Douglas McGregor (Eccles et al., 2003). Such an approach requires new personal and professional skills from a workforce already entrenched in a command and control mentality. This is one of the reasons why a direct shift from command and control to systems thinking will be difficult for organisations. Depending on organisational capabilities and the internal/external conditions, command-and control might be more appropriate for some organisations (such as the army and the public service, as they are slower to change), while systems thinking for others (such as the ones operating in manufacturing and ecommerce). Alternatively, an approach that balances both might be a suitable first step towards improved organisational performance management systems.



3.2 From performance management for control to performance management for learning Traditionally, organisational performance management has been concerned with control, by setting and monitoring achievement of targets at strategic, operational and individual levels. Measurement has its benefits, as it provides valuable information and measuring in itself stimulates higher performance. The Hawthorn effect and the Westinghouse effect or ‘‘Observer’s paradox’’ (Cukor-Avila, 2000) demonstrate the delicate nature of the measuring process and the impact that measurement itself has on the results. However, measurement for rewards leaves room for interpretation in the process of setting targets and measuring results and quite often leads to abuse. Using targets for control and linking the achievement of these targets to individual performance has the risk of staff members manipulating the system to their benefit and the expense of other teams and even the entire organisation. Further, proponents of the knowledge management/intellectual capital school of thought argue that:



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the main problem with all measurement systems is that it is not possible to measure social phenomena with anything close to scientific accuracy (Sveiby and Armstong, 2004).



They invoke Heisenberg’s uncertainty principle to illustrate the inherent imprecision in measurement that exists even in ‘‘exact’’ sciences such as physics. The principle states that uncertainties, or imprecision, always turn up if one tries to measure the position and the momentum of a particle at the same time (Cassidy, 1993, 1998). Neils Bohr famously stated that:Accuracy and clarity of statement are mutually exclusive (for further details see Pais, 1994).The alternative proposed to measurement for control is measurement for learning, as illustrated in Table I. Empirical evidence shows that the focus on measurement for control in the context of performance management has started to diminish in the 1990s, driven by the increase in popularity of the BSC, knowledge management and systems thinking (Neely, 1999). As illustrated above, even the BSC was first presented in 1992 as a measurement tool, promoted by the management accounting school and having roots in the quality movement. The first Balanced Scorecard was developed in 1987-1988 at Analogue Devices, by their Quality and Productivity team (Schneiderman, 1999). However it gradually evolved to become a complete management system supporting strategy execution as a core competency. As a performance management tool, the BSC enables not only measurement and control, but also communication and learning. Downloaded by FUDAN UNIVERSITY At 22:11 10 May 2015 (PT)



Thus the systems thinking approach to performance management, coupled with the emphasis on learning, highlight the need for an integrated approach to performance management. Effective performance management requires more than measuring and reporting in isolation. 3.3 Integrated performance management Practice shows that communication and integration between the three levels of organisational performance is limited. Personal empirical observations illustrate that in general, strategic performance management efforts are lead by the executive team, operational performance management by group managers and individual performance management by the HR department, mostly with limited interaction between them, if at all. This can be attributed to various constraints, both general to the discipline itself and specific to organisations. Management does not see performance management as an integrated discipline used at various organisational levels, but as a subcomponent of strategic, operational and HR management respectively. An integrated approach, linking together all levels of performance management becomes a necessity for both research and practice to facilitate the understanding and usage of performance management systems. The typology analysis of performance management levels is outlined in the Table II. Table I Measurement for control compared to measurement for learning Characteristic



Measurement for control



Measurement for learning



Measurement drivers Measures development Measurement role



Management Top-down commands Measuring and managing work in functional activities. Productivity output, targets, standards: related to budget Restricted Budget/political aspirations Rewards, punishment and action to improve results Single loop Link to individual rewards and recognition system



Employees Process-oriented bottom-up approach Measuring and managing the flow of work thought the system Capability, variation: related to purpose



Measurement focus Results communication Target driven by Follow-up to results Learning cycle Link to rewards



Open Understanding achievement versus purpose Dialogue and improvement Double loop learning Group rewards, based on improvement



Source: Author (2009)



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Table II Grouping of performance management levels Grouping by organisational responsibility



Grouping by measurement focus



Grouping by direct visibility and impact



Organisational mandate



Organisation



Indirect personal impact Direct personal impact



Strategic operational individual



Strategic operational Individual



Individual



Strategic Operational individual



Source: Author (2009)



Integration between the three organisational performance management levels thus needs to extend to the theory that supports them. Their analysis is important for clarifying the relationships between each performance management level. Performance management research is multidisciplinary, being informed by a varied group of complementary disciplines and corresponding theories. Strategic Management, Operations Management, Human Resources Management, Organisational Behaviour, Information Systems, Marketing, Management Accounting and Control are all contributing to the field of performance measurement. Table III groups levels and theories in two different views, supported by corresponding themes: Downloaded by FUDAN UNIVERSITY At 22:11 10 May 2015 (PT)



First, there is a macro view, whose corresponding theme outlines a systemic approach to organisational management. This is supported by organisational theory (Jones, 1995), contingency theory (Fiedler, 1964; Donaldson, 2001) and systems theory (von Bertalanffy, 1973) as interrelated theories covering the structural aspects. Systems theory, includes a series of variations such as General Systems Theory (Von Bertalanffy, 1956), Dialectical Systems Theory (Mulej, 1976), Critical Systems Thinking (Flood and Jackson, 1995), or Viable Systems Theory (Beer, 1984 and 1985). Goal setting theory (Locke, 2004), also supports the organisational performance aspect. Second, there is a micro view, whose corresponding theme is behavioural and methodologically individualistic. One theory informing this micro view is principal-agent theory or agency theory (Eisenhardt, 1989; Laffont and Martimort, 2002). Underlining the learning aspects of performance management is social learning theory (Bandura, 1977, Ormrod, 1999). The main theory informing individual performance management is goal-setting theory (Locke and Latham, 2002), one of the most effective motivational theories. While goal setting theory is generally analysed at individual level, its principles are considered relevant at organisational level, being effective for any task where people have control over their performance (Locke, 2004). Research in this field currently explores goal setting theory at both individual and organisational level. In organisational context, personal empirical observations highlight that the goals of individuals, teams and the entity as a whole can be in conflict. Goal conflict can motivate incompatible actions and this has the potential to impact performance. Thus, alignment between individual goals and group goals is important for maximising performance. By Table III Performance management levels, corresponding theories and themes Level



View



Theory



Theme



Strategic performance management



Macro



Organisational theory Contingency theory Systems theory Goal setting theory Goal setting theory Agency theory Social learning theory



Systemic approach to organisational management



Operational performance management Individual performance management



Micro



Source: Author (2009)



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Behavioural and methodologically individualistic



linking the three levels of performance management and the theories informing them, an integrated view of performance management emerges as a model for both research and practice (see Figure 1). This proposed integrated view to performance management has the potential to assist individuals and organisations to better understand and align these levels and create a complete, holistic picture of performance that outlines the relationship between organisational and individual performance. Grouping organisational performance management levels in an integrated model has implication not only for the theory, but also in practice. The ‘‘Office of Strategy Management’’ is promoted in the BSC literature as a central point of coordination of the strategic control processes in organisations (Kaplan and Norton, 2001). However, if operational and individual performance processes are not brought under the control of such an entity, an integrated approach is difficult to realise. A Performance Management Office, similar to the Project Management Office may be a more robust approach to integrating and aligning performance in organisations.



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Conclusions Performance management is a ubiquitous term in today’s business environment. It is embedded in the body of knowledge of various disciplines and it is used at all organisational levels. However, due to the constructivist evolution of performance management theory and practice and its multidisciplinary nature, there is a high degree of fragmentation in this field. While performance management continues to evolve as a discipline, it is important that in parallel with proposing new ideas to the academic and practitioners’ community, researchers reanalyse past assumptions and the soundness of the existing body of knowledge. This paper has illustrated that clarity around definitions, taxonomy, scope and historical evolution are important pillars for performance management research and practice. Reviewing performance management from its origins enables the rediscovery of this discipline and the identification of several key dichotomies, brought together under an emerging integrated approach, as illustrated in Table IV. As a conceptual research paper, the focus of enquiry is on identifying patterns in a vast set of data and proposing new ways to look the discipline of performance management. Further research is required to identify if and how this improved understanding of performance Figure 1 Integrated performance management model



Relevant theories



Organisational theory Contingency theory Systems theory Goal setting theory



Organisational theory Contingency theory Systems theory Goal setting theory



Agency Theory Social learning theory Goal setting theory



Organisational levels



Strategic/Organisational Performance Management



Bridging the gap New approach to Performance Management: • Integrated • Systems thinking focus Intervention at organisational level • Learning as a key driver Integrated Performance Management Approach 1. Performance Management for learning and goal achievement 2. Performance education 3. Use of the Performance Management Office for integration and alignment 4. Combination of systems and command and control approach to performance



Operational/Functional/Team Performance Management



Individual Performance Management



Source: Author (2009)



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Table IV Current and emerging approach to performance management Element of analysis



Traditional dominant practice in performance management



Emerging approach to performance management



School of thought



Dominance of command and control thinking



Main focus Definition/levels integration



Focus on measurement, motivation and rewards Unstructured approach to definition and levels of performance management



Organisational governance



Fragmented organisational approach to performance management



Discipline of study



Performance management studies dispersed in a multitude of disciplines



A balanced approach, combining systems thinking with command and control Focus on learning and improvement Integrated approach to performance management, with clear definition and alignment of strategic, operational and individual levels Unified approach to organisational performance management by using the Performance Management Office as a centre of organisational expertise Aggregation of the performance management body of knowledge in a coherent, independent discipline



Source: Author (2009)



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management and emerging integrated approach can be translated into better outcomes for organisations. It needs to address questions such as: B



How is performance management defined in today’s business environment?



B



What are the patterns in the evolution of performance management as a discipline at strategic, operational and individual level?



B



What is the value and what are the implications of integrating the governance for strategic, organisational and individual performance in organisations?



B



What are the results of using a command and control framed performance management system compared to a systems thinking based one?



B



What are the key value drivers of implementing and using a performance management system in an organisation?



B



What are the main obstacles in implementing sustainable performance management systems in organisations? How can they be overpassed?



The internal and external integration of performance management and the holistic view of its interrelations with other disciplines and entities are key drivers of future research, on the path consolidating its status as a standalone discipline.



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About the author Aurel Brudan is a PhD Candidate at The University of Melbourne (Faculty of Economics and Commerce, Department of Management and Marketing). His research topic is: ‘‘Integrated performance management: linking strategic, operational and individual performance’’. Among his other research interests are areas such as: systems thinking, project management and information management. An experienced Performance Architect, Aurel has assisted organisations with their performance management initiatives for over eight years, developing customised solutions in a variety of industries and functional areas. Currently, he is the Managing Director of eab group, a management consulting company specialising in organisational performance management. Under his leadership, eab group has launched www.smartKPIs.com, an online database of performance measures and KPIs, supported by a knowledge base and a global community of practitioners. Aurel Brudan can be contacted at: [email protected]



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