The influence of performance management systems on employee engagement

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2014

THE INFLUENCE OF PERFORMANCE

MANAGEMENT SYSTEMS ON EMPLOYEE

ENGAGEMENT

By

Willem Christiaan Coenraad Brewis

Submitted in fulfilment of the requirements for the degree

of Masters in Business Administration to be awarded at

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December 2014

Supervisor: Professor Gert Pelser

DECLARATION

I Willem Christiaan Coenraad Brewis; Student number: 208 007 904, hereby declare that this thesis for student qualification to be awarded is my own work and that it has not previously been submitted for assessment or completion of any postgraduate qualification to another University of another qualification.

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ABSTRACT

This study focused on investigating different performance management systems and the possibility to introduce a performance management system (PMS) into the sales environment of a company. The company the researcher is working for does not have an official PMS and feel the need to investigate the possibility to introduce a PMS.

The study investigated an appropriate PMS that promotes engagement levels with employees that will be the ideal system for the sales environment in the company. Both the PMS and engagement impact on employees were addressed and the suitable PMS was selected.

Implementing a system within a selected division the researcher will compile a road map for implementing a PMS into the rest of the company with the background and learning done while implementing the system.

The employees participated willingly in a survey. The questionnaire assessed the employees understanding of what a PMS is. Further, the questionnaire assessed if the company does have a PMS system in place. The engagement levels of

employees were measured and this allowed management to make the appropriate changes to get the employees engaged in the workplace.

The results from the survey show that the employees understand and have a need for a PMS. They do understand how a PMS in the workplace work. The company has a system in place to compensate employees for work done. The company does not deal with underperformance and engagement levels are very low.

The factors of engagement tested were very low and it addressing the engagement factors integrated in a PMS will increase engagement levels with employees.

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ACKNOWLEDGEMENTS

It is with sincere appreciation that I thank the following persons and institution for their contribution and assistance in completing this thesis.

1. The Lord Jesus Christ that spared my life, cured me from Cancer during this time, and gave me the strength to complete this thesis.

2. My family, especially my wife Sonia. You suffered the most with me not being able to give you the attention you deserve and being moody most of the year. Things should go easier from now.

3. My Professor, Gert Pelser, you kept on pushing and pulling me to the end zone. Giving up time during the holiday, thank you.

4. Last by not least, the NMMU staff that gave me the opportunity to extend this over the time limits.

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Contents

1.0. INTRODUCTION ... 1

1.1. Background ... 2

1.2. Problem Statement ... 3

1.3. Sub-problems ... 5

1.4. Significance of this study ... 5

1.5. Aim of this study ... 5

1.6. Objective of this study ... 5

1.7. Research questions ... 6

1.8. Assumptions... 6

1.9. Format of this study ... 6

1.10. CONCLUSION ... 7

2.0 LITERATURE REVIEW ... 8

2.1. Introduction ... 8

2.2. History of Performance Management ... 8

2.3. Definition of Performance Management ... 10

2.4. Performance Management versus Performance Appraisal ... 11

2.5. The process and structure of performance management systems ... 11

Performance management systems ... 12

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Definition of Balanced Score Card ... 13

The evolution of the Balanced Score Card ... 13

Overview of the evolution of the BSC ... 13

2.5.6. The development of the BSC is summarised in table 1,2 and 3 ... 20

Summary of the evolution of the BSC ... 20

2.6. Characteristics of a good performance management ... 21

2.7. The measurement of performance of sales employees ... 23

2.8. Key performance indicators... 24

2.9. Employee engagement in performance management systems ... 26

Employee engagement factors ... 27

Expectancy theory of motivation ... 29

2.10. Factors that influence employee engagement in the workplace ... 30

The four factors that influenced employee performance the most were ... 32

3.0. METHODOLOGY OF THE STUDY ... 34

3.0. Implementing a PMS that will engage employees in the company ... 34

3.1. Rational of the study ... 34

3.2. Research design ... 36

3.3. Data collection methods ... 36

The research instrument ... 36

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Data analysis methods ... 37

3.4. Ethical considerations ... 37

3.5. Significance of the study ... 38

4.0. PRESENTATION OF THE DATA ... 39

4.1. INTRODUCTION ... 39

4.2. The table below is an overview of the research questions and the elements the questionnaire tested ... 39

4.3. Demographic profile of respondents ... 42

4.4. The interview process ... 42

Age groups ... 43

Years of service with company ... 44

4.5. What are the process and structure of the PMS ... 44

Understanding of PMS ... 45

Involvement of employees in performance management planning ... 46

4.6. How is the performance of sales employees measured? ... 52

How does the employee receive feedback ... 52

i. Performance feedback from management ... 52

ii. Negative feedback ... 53

iii. Recognition of work performance ... 54

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How does the employee feel about work and the environment he/she is working

in? ... 56

Inspired to reach goals set ... 56

Work environment ... 57

The work environment questions were questions 13, 14 and 17. ... 57

i. Employee feel absorbed in work activities ... 57

Leadership ... 61

The leadership questions were questions 26 to 27 ... 61

Team and co-worker ... 65

Wellbeing ... 71

5. CONCLUSION ... 75

5.1 Introduction ... 75

5.2.1 The processes and structures of PMS ... 75

5.2.3. What is the impact of a PMS on the engagement levels of employees? ... 76

Wellbeing ... 79

5.3 Recommendations ... 79

5.3.1. The processes and structures of the performance management systems .. 79

5.3.2. The impact of a PMS on the engagement levels of employees ... 82

5.3.3. Integrated recommendations ... 83

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5.5 Further research and lessons learned ... 84

ANNEXURE A: LETTER TO RESPONDENT ... 86

ANNEXURE B: Questionnaire ... 87

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TABLE OF FIGURES

Figure 1 Framework for an effective and efficient PMS (Clardy, 2013) ... 4

Figure 2 History of performance management 1990 till 2001 (Yadav, et al., 2013) .... 8

Figure 3 History of performance management 2001 to 2011 (Yadav, et al., 2013) .... 9

Figure 4 BSC usage and effectiveness among survey respondents (Darrall, 2013) 12 Figure 5 The Balanced Scorecard version 1.0 (Perkins, et al., 2014, p. 9) ... 14

Figure 6 Balanced Scorecard version 1.0.1 (Perkins, et al., 2014, p. 9) ... 14

Figure 7 Balanced Scorecard 1.1 (Perkins, et al., 2014, p. 9) ... 15

Figure 8 Balanced Scorecard version1.2 (Perkins, et al., 2014, p. 9) ... 15

Figure 9 Balanced Scorecard version 2.0 (Perkins, et al., 2014, p. 9) ... 16

Figure 12 Balanced Scorecard 3.1 (Perkins, et al., 2014, p. 9) ... 19

Figure 13 The performance management cycle. (KUMARI & MALHOTRA, 2012) .. 24

Figure 14 A Simple Illustration of Value Creation. (Kaplan & Norton, 1992) ... 25

Figure 15 Expectancy Theory of Motivation (Dublin, 2010) ... 30

Figure 16. Estimated model using PLS (Anitha, 2013) ... 32

Figure 17 Employees understanding of PMS ... 45

Figure 18 Agreement on targets set ... 46

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Figure 20 Employees knowledge of their KPI ... 48

Figure 21 Agreement reached on KPIs ... 49

Figure 22 Performance bonus and KPI ... 51

Figure 23 Performance feedback from management ... 52

Figure 24 Negative feedback only ... 53

Figure 25 Recognition of work performance ... 54

Figure 26 Employee inspired to meet goals ... 56

Figure 27 Employee feel absorbed in work activities ... 57

Figure 28 Employee excited about going to work ... 58

Figure 29 Effort employees put into work ... 59

Figure 30 Employee focus on work ... 60

Figure 31 Communication between senior management and employees ... 61

Figure 32 Decision-making power ... 62

Figure 33 Communication between employee and direct manager ... 63

Figure 34 Employees’ understanding of role in business ... 65

Figure 35 Employee resistance to change ... 66

Figure 36 Employee commitment to company ... 67

Figure 37 Employee proactive in identifying opportunities ... 68

Figure 38 Employees assisting others in workplace ... 69

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Figure 40 Compensation package ... 71 Figure 41 Safe work environment ... 73 Figure 42 Job security ... 74

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TABLE OF TABLES

Table 1.The first generation evolution of the Balanced Scorecard (Perkins, et al.,

2014) ... 20

Table 2.The second-generation evolution of the Balanced Scorecard (Perkins, et al., 2014) ... 21

Table 3.The third generation evolution of the Balanced Scorecard (Perkins, et al., 2014) ... 21

Table 4 Likert scale was used ... 39

Table 5. What are the processes and structures of the performance management systems? ... 40

Table 6.The impact of a performance management system on the engagement levels of employees ... 42

Table 7 Age group of respondents ... 43

Table 8 Distribution of years’ service... 44

Table 9 Understanding of performance management ... 45

Table 10 Agreement on targets set ... 47

Table 11 Employee participated in setting targets ... 48

Table 12 Employees knowledge of their KPI ... 49

Table 13 Agreement reached on KPI ... 50

Table 14 Performance bonus and KPI ... 51

Table 15 Performance feedback from management ... 53

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Table 17 Recognition of work performance ... 55

Table 18 Inspired to achieve goals ... 56

Table 19 Employee involvement in work activities ... 57

Table 20 Employee excited about work ... 58

Table 21 Effort from employee toward work ... 59

Table 22 Employee focused on work ... 60

Table 23 Communication between senior management and employees ... 62

Table 24 Decision-making power ... 63

Table 25 Communication between employee and direct manager ... 64

Table 26 Employees’ understanding of role in business ... 66

Table 27 Employee resistance to change ... 67

Table 28 Employee commitment to company ... 68

Table 29 Employee proactive to identify opportunities ... 69

Table 30 Employees assisting others in workplace ... 70

Table 31 Employee willingness to go the extra mile ... 71

Table 32 Compensation package ... 72

Table 33 Safe work environment ... 73

Table 34 Job security ... 74

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1.0. INTRODUCTION

The research that was conducted in a company, a leading international player in the automotive aftermarket for the past 30 years and has been the market leader with a market share in excess of 50% for the last 10 years. This dominant market

leadership position has put new challenges on management. Being the market leader requires a different strategy than gaining market share in the automotive aftermarket.

The national sales manager reached retirement and the researcher has taken up the position. The researcher had no prior experience of implementing performance management systems. During his work experience in those companies that had performance management systems, the responsibility to implement, execute and maintain the performance management system, was the responsibility of the human resource department.

The company does not have an official performance management system in place. With this background and the fact that the researcher lacks in depth knowledge of a PMS the thesis came about to enhance the knowledge and strengthen the team. Management did not apply any PMS during the past 25 years because the company was going through a rapid growth stage, when competitors in the business started to withdraw from the market the past 10 years or shifted their focus to more “easy sell” products. This made this company the market leader 10 years ago.

The company has now entered a period where it has to defend market share as the market leader and being market leader, the company faces different challenges. Growth in the current market conditions coupled with the high market share of the company, the need for an engaged sales force to maintain and grow market share has become extremely important.

An appropriate PMS could assist management to improve the company’s

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set goals and company vision and strategy. With the system implemented effectively for the sales force, management can be convinced to roll out the system to the rest of the company.

1.1. Background

Motivating a sales team is not easy an easy task, and to have access to the representatives only by way of conference calls or by cell phone increases the difficulties. Moreover, with the pace of business today, management does not have time to play "policeman" during the day to ensure that the salespeople are doing their work.

Motivating salespeople without a PMS is extremely difficult in today’s sales

environment. Management needs to think creatively to motivate sales teams. Simply asking salespeople to be motivated is not going to work. You need to involve them in the process and find out what drives them (Dohrn, 2013).

All the team members are working from home and have a set target of customers to visit daily. The salesperson does not have any control over price or discount. The only way they can influence the sale is by being better at the job than the opposition in the marketplace. The salesperson needs to understand the customer and his or her business, and needs to add value to the customer’s business.

To complicate matters, the company introduction of a second product to the sales team’s portfolio. The team members (who have an average of eight years’ service with the company), have sold only a single product that has captured the market for the last six years. At this stage they do not have to sell the product as the brand is extremely strong in the market place, they only defend market share and maintain good relations with their customers.

The new product needs "salesmanship". With this in mind, as well as the fact that the sales team need to be highly motivated in the field and “think out of the box”, a PMS need to be implemented to assist in this process. This might also help the

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Employees need to be engaged in their roles as salespeople. If the sales

representative is doing the work only because he or she is afraid of being dismissed or reprimanded, then the salesperson is not engaged and will not go the extra mile for customer; he or she is only working to earn a salary (Trevor, 2013).

Senior management at the company has been with the company for the past 26 years and do not see the need to implement any performance management tools because the company has been doing well for the past 26 plus years. The

salespeople’s performances is based on achievement of budget and the number of calls made daily.

This adds up to them receiving a quarterly commission and a monthly calling

commission. The company does pay a 13th_{and a 14}th_{cheque to all the employees,} provided the company meets its budget for the year. The “performance

management” that the company used to reward and manage employees worked for them because of the high market share they enjoy and selling has not been a very strong focus point. With the introduction of the second product category, which necessitate engaged sales representative a proper PMS has become apparent. The new product has a 1% market share and the competitors are extremely strong in the marketplace. There are only two main brand name competitors and between them, they have a 95% market share of the automotive aftermarket.

1.2. Problem Statement

The research problem identified is the absence of an effective PMS to measure the performance and engagement levels of the sales team at the company.

Performance management is not a new buzzword. “Performance management” was referred to in the late 1970s by Aubrey Daniels and has been a point of interest for scholars since the mid-1990s (O’Boyl & Hassan, 2013). “Business performance management encompasses all processes, information, and systems used by

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management to set strategy, develop plans, monitor execution, forecast performance, report results and make decisions.” (David, 2010)

PMSs are necessary, but unfortunately, the complexity and time-consuming nature of some systems results in a few dilemmas and challenges that need to be

overcome before a system that will bear fruit in the end and can be implemented (Collins & Bradford, 2013). The PMS needs to be taking into account the long-term goals with the vision and goals of the company.

A good performance measurement system is an interlocking system and not a stand-alone or “bolt on system” (Clardy, 2013). A good PMS should be more than a

mechanism to control the behaviour of the employee; it should lead to a better organisational performance (Clardy, 2013).

Figure 1 represents a general framework for an effective and efficient PMS.

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The alignment of the infrastructure of the organisation, the human resource policies and the working conditions are required as well as strong executive leadership.

1.3. Sub-problems

In order to evaluate if a PMS will have a positive effective in the targeted sales environment, the process and structure of PMS and the engagement of employees need more research and testing.

1.4. Significance of this study

This research will demonstrate to the rest of the management team the value that lies in a PMS if it implemented correctly. This study will also assist in identifying a PMS that can be implemented in the rest of the company and improve the

engagement levels of employees.

1.5. Aim of this study

The aim of this study is to identify and implement a performance management system that will assist the company to have more engaged sales employees. After the successful implementation in the sales division, the system full integration can commence.

1.6. Objective of this study

The objective of this study is to identify a standard PMS or to adapt an existing PMS for the sales team that will engage the employees and give them a sense of pride

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and responsibility towards the company. The PMS needs to motivate the employees to perform their duties at the maximum level (Mol, 2007).

1.7. Research questions

What are the processes and structures of PMS?

What is the impact of a PMS on the engagement levels of employees?

1.8. Assumptions

The assumptions regarding this study are:

The selected sample is representative of the population of the company. The

participants understand and have a clear understanding of the questions that asked to them. All the participants will answer the questions and participate in an honest and professional way, and will not use it to manipulate or further their own agendas within the company.

1.9. Format of this study

This study will identify a PMS that will be suitable for the company:

Chapter 2 will be the literature review, once the literature reviews is completed, a choice, based on which system appears to be the best fit for the company.

Chapter 3 explains the rational of this study and give an overview of the research design and data collection method.

Chapter 4 will be dealing with the presenting of the data that collected together with the interpretation of the data collected.

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Chapter 5 will be dealing with the recommendations and future research needed with regard to the thesis presented

1.10. CONCLUSION

The background provided about the company in this chapter indicates why a PMS is necessary. The successful implementation will take the company from being a good company to a great company with engaged and dedicated salespeople driving the sales not simply to earn more, but because they are proud to be associated to this company and have a feeling of belonging.

The next chapter will be a literature review of various PMS available in the market. One PMS will be identified from the literature will be adopted or a combination of systems will be created and implemented.

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2.0 LITERATURE REVIEW

2.1. Introduction

In this chapter, the literature required to address the research question, first there will be an introduction to the history and definition of performance management, with the emphasis on the differences between performance management and performance appraisals.

2.2. History of Performance Management

Performance management dates back to the early 19th_century.

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Figure 3 History of performance management 2001 to 2011 (Yadav, et al., 2013)

Figure 2 and 3 illustrates the history of the development of performance

measurement systems. Cost accounting and management accounting failed to be a reliable performance measurement or management system, as these two treated everything in isolation from one another and did not see the individual parts of the company as parts of one whole. (Yadav, et al., 2013)

The industry went through a phase in which the emphasis was on the quality of the products. Awards such as the Malcolm Baldrige Quality Award, European

Foundation for Quality Management and Deming were the order of the day. The focus away from cost accounting to the broader side of the business came about when Tableau de Bord started emphasising the relationship between financial and non-financial measures.

Other accounting-based measures supported the impetus to move away from pure accounting to more non-financial accounting measures. These were initiatives such as strategic management accounting, activity-based costing and social accounting.

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Performance measurement and management has changed over the past decade and the use of the Balanced Scorecard (BSC) has become one of the leading PMSs used in the world.

The BSC was developed and revolutionised the industry in 1992. Kaplan and Norton looked at the performance management of the company as a whole and did not focus on only one aspect of the company.

They identified the financial performance of the company as the lagging indicator and not the leading indicator, as it is important to get the company to work in synergy to produce the financial results desired. The leading indicators were customer

satisfaction, quality, innovation, and excellence and improvement activities.

Caution needed with the implementation of the BSC as a PMS. Neely and Bourne, pointed out that 70% of all BSCs fail due to inappropriate design and companies find it difficult to implement for various reasons (Neely & Bourne, 2000).

2.3. Definition of Performance Management

Armstrong defines performance management as “a set of interrelated activities and processes that are treated holistically as an integrated and key component of an organisation’s approach to managing performance through people, and developing the skill and capabilities of its human capital, thus enhancing organisational

capabilities and the achievement of sustained competitive advantage” (Armstrong, 2009, p. 59).

The ideal PMS is based on management reaching an agreement with the employee on how the work should be done, and not the employer commanding the employee to do the work in a certain way.

Performance management is a partnership between the employer and employee. Performance management cannot be a once-off encounter; it is continuous and flexible.

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2.4. Performance Management versus Performance Appraisal

Performance appraisal is a small part of performance management and not the same as performance management per se. Performance management has to do with the management of employees to achieve the goals and objectives of the company.

Performance appraisals have to do with what the employee has done in the past. The past is important because we learn from the past, but management needs to focus on the future. Management need to correct the behaviour of employees as it happens.

2.5. The process and structure of performance management systems

In today’s business environment, managements want to improve the performance of the business and the way to do this is to improve the individual’s performance. The best way of doing this is to implement an effective PMS that will not only increase the individual’s performance but also at the same time engage employees.

Performance management needs to address and improve employee engagement in the PMS. About 86% of companies worldwide are not happy with performance management as it is today. This is according information published in the academic journal People & Strategy 2013 (Rock, et al., 2013). The implementation of a generic PMS on its own will not achieve the desired results of employee engagement.

One of the major challenges faced by businesses today is to identify and adopt the most appropriate performance management and measurement system (Yadav, et al., 2013, p. 948). He reported that at least 56% of performance management implementation fails due to inappropriate design and implementation.

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Performance management systems

In May 2013, Bain & Company conducted research and found that the use of the BSC as a performance management tool was still relevant although declining but that the overall satisfaction was still very high.

Usage and effectiveness among survey respondents

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Figure 4 BSC usage and effectiveness among survey respondents (Darrall, 2013)

The Balanced Score Card

The balanced score card (BSC) was first developed in 1992 by Kaplan and Norton. Since then it came under scrutinised by various academics. The BSC has changed the way companies engage in performance management and is still the most widely used performance management measurement in the world. A survey done in 2011 found that more than 54% of the 1,230 global firms sampled reported to have used the BSC as a management tool (Perkins, et al., 2014).

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Definition of Balanced Score Card

‘A Balanced Scorecard defines what management means by "performance" and measures whether management is achieving the desired results. The Balanced Scorecard translates Mission and Vision Statements into a comprehensive set of objectives and performance measures that can be quantified and appraised’ (Rigby, 2014, p. 1)

The evolution of the Balanced Score Card

It is important to have a look at the evolution of the balanced score card during the past 20 years. A review of the BSC by (Perkins, et al., 2014) identified the changes made to the BSC by various authors, with the result that they classify the BSC in terms of the different revisions by different authors.

The BSC is one of the most influential concepts in the field of performance

management and measurement (Perkins, et al., 2014, p. 1). The BSC developed into a PMS that assists management in answering the question “How are we

performing?” (Perkins, et al., 2014, p. 19)

Overview of the evolution of the BSC

The first generation or the original BSC as published by Kaplan and Norton (1992) had four perspectives that management needed to focus on as one whole. Goals and objectives were not the focus points in this version of the BSC and were only touched on briefly. The four perspectives were described are set out in figure 5 below.

The number of measurements within each perspective needed to be equal; this was done so that managers did not focus on one part of the model more than another did. This version encouraged managers to focus on both financial and non-financial

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aspects of the organisation.

Figure 5 The Balanced Scorecard version 1.0 (Perkins, et al., 2014, p. 9)

In figure 6, the setting of objectives and the measurement of performance against the objectives became more prominent.

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The linkage with the goals of the organisation, business planning and feedback and learning was emphasised in a 1996 version (Figure 7 and 8)

Figure 7 Balanced Scorecard 1.1 (Perkins, et al., 2014, p. 9)

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The major changes or evolution of the BSC from the first generation to the second was the introduction of the strategy map. The BSC was designed top-down. The company overall objectives were set and goals were created to measure the achievement against set objectives

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BSC 2.1 included intangible assets into the BSC. The three intangible assets identified was, human capital, information capital and organisational capital. The focus shifted from top-down to bottom up. Here the intangible assets determine the performance of the internal organisational processes.

Figure 10 Balanced Scorecard version 2.1 (Perkins, et al., 2014, p. 9)

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BSC 3.0 is the third generation scorecard and the key difference here is the

“Destination Statement”. The statement is a picture in words of what the organisation want to or should look like in the future

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BSC 3.1 has a reduced number of perspectives. Outcome perspective replaces the financial and consumer. The activity perspective replace the learning and growth and internal processes.

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2.5.6. The development of the BSC is summarised in table 1,2 and 3 Summary of the evolution of the BSC

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Table 2.The second-generation evolution of the Balanced Scorecard (Perkins, et al., 2014)

Table 3.The third generation evolution of the Balanced Scorecard (Perkins, et al., 2014)

2.6. Characteristics of a good performance management

The performance management of employees is a process that needs to take into account the individual and his or her needs. Performance management cannot be a one-size-fits-all process. It takes time and effort from management to set up a PMS that will target the individual and assist the company to reach the goals. The

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Agreement Measurement Feedback Dialogue

Positive reinforcement

i. Agreement of performance expectations

The individual needs to be involved in the process and agree to the performance expectations that management has of the individual. There needs to be a dialogue and open communication between management and the employee. The expectation of the parties involved need agreement by both parties to create a win-win situation. (Armstrong, 2012)

ii. Measurement

After agreement on the performance expectations, the measurement instrument for each item needs to be set and agreed. This can also be the KPI measurement instrument. (Armstrong, 2012)

iii. Feedback and dialogue

The feedback sessions need to be consistent and done regularly. This is to make sure that the individual understands what is expected and to address any issues that might hinder the individual’s achievement of the goals. The formulating and

implementing of performance improvement plans can coincide in these sessions. The result needs to be that the employee has achieved the goals set and is more engaged in the work he or she is doing. (Armstrong, 2012)

iv. Positive feedback and personal development plan

Management, together with the employee, needs to identify the areas that need improvement to assist the employee to achieve the goals. The focus should be on the individual’s abilities and inabilities to do the specific task. This will differ from one individual to the next. The plan needs agreement by both parties (Armstrong, 2012).

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2.7. The measurement of performance of sales employees

The nature of the work that sales employees are doing makes it difficult to

standardise the way in which they get measured. The basics do apply but the KPI for every sales environment will change from one company to the next.

In setting the correct performance measures or implementing the correct

performance measures, all employees need to know what the employer expects of them and in turn, managers know if the desired output will deliver the required sales objectives. This means that poor performance can be identified and improved, and good performance rewarded.

Performance management needs to be the responsibility of the manager of the employee and not the human resource department. In making the manager responsible, the manager will be more involved and identify the KPI for each individual so that the manager can measure and improve performance in the division.

Performance areas identified and measured need to be relevant to the organisation’s strategic objectives and goals. Doing this will allow the PMS to facilitate the strategy of the company and to reach the goals set. This action ensures that all divisions are focusing their performance management on the same goals (Schneier, et al., 1987). Figure 13 below is a illustation the performance management cycle.

 Set clear objectives

The starting point need to be the setting of goals that is achievable and realistic to the employees. This need to be linked to the company objectives. (Kumari & Malhotra, 2012)

 Monitor goals

Magaging the performance throughout the year is very important. Employees need feedback and a opportunity to correct their actions if they have failed. (Kumari & Malhotra, 2012)

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 Coaching

Management has the responsibility to continuously coach employees. (Kumari & Malhotra, 2012)

 Monitoring Progress

Monitoring the progress of achieving set goals need to be done ongoing and not only at the end of the cycle (Kumari & Malhotra, 2012)

 Annual appraisal

The annual appraisal need to be a formality for the employee and not a eye opener. The performance management cycle should be a ongoing and not once off event. (Kumari & Malhotra, 2012)

Figure 13 The performance management cycle. (Kumari & Malhotra, 2012)

2.8. Key performance indicators

Measuring the employees’ performance is a critical part of any PMS. The

differentiating factor that can make or break a PMS is the identification of the KPI for each individual or group of individuals in the organisation.

The KPI need to be alligned with the company’s values and strategy. Without this the KPI will be just another measuring stick without any value to the company. The KPI becomes something that need to be implemented because of compliance issues.

1. Set clear, measurable performance goals and

make development plans 2. Monitor goals progress, undertake development 3. Choaching by supervisor throughout the year 4. Monitor goal progress, undertake development 5. Annual appraisal against goals. Adjust goals and plan for the

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Griffen (2004) identified that the KPIs need to be linked to the goals and the goals to the objectives of the company, and then in turn aligned to the strategy of the

company. Only a KPI that fulfils these criteria will be meaningful.

Kaplann and Norton (1996) suggest that the strategy map of a company should be used to represent the value chain of the company. The figure below illustrates the value chain that needs to be used to set KPIs for all employees (Iveta, 2012). Learning and growing leads to employees skills being developed and internal

processs are better undestood and apreciated. Understanding the internal processes will result in better customer satisfaction. All of this will result into financial gain for the company.

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2.9. Employee engagement in performance management systems Few of the expositions in the literature on PMS and performance management measurements focus on the levels of engagement of employees in these processes. The PMS rather focused on the company’s performance. A PMS does not include the measuring of employee’s motivation levels. Employees are one of the most important assets a company has and yet very few PMS measure how motivated the employees are.

Employees can be categorised in three different categories or levels of engagement. These are:

i. Engaged employees: These employees will “go the extra mile”. They are constantly striving to achieve excellence in their work and perform constantly at high levels

ii. Not engaged employees: These employees are the ones that will do what they are told to do, but they will not “go the extra mile”. They cannot be classified as negative but also not as positive toward the company. The not engaged employee does only enough not to get fired

iii. Actively disengaged employee: These employees find reasons to be

unhappy. They act out their unhappiness at work and are a danger to have in a workplace, as they tend to influence the other employees negatively.

(Sanford, 2002)

The question of what engagement is involves more than simply measuring staff turnover. Employees can have enjoyed long service with a company but this does not mean that they are motivated employees (Buhler, 2006). Staff turnover is one of the measures but not the ultimate decider. When an employee is engaged, he is aware of his responsibility to the business goals and motivates his colleagues alongside, for the success of the organisational goals (Anitha, 2013)

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If we look at the above statement, we can see that employees cannot be engaged if they are not part of the performance management process. Employees need to know where they fit into the organisation and their contribution to the success of the

organisation.

The terms of engagement of employees was conceptualised by Kahn (Kahn, 1990). Performance management structure need to be in such a way that all employees are motivated and engaged by the management system. If the company has a PMS that does not engage the employees the system will have the opposite effect of what a PMS should achieve.

Engaged employees are more productive and willing to go the extra mile for the company. Engagement of employees does not have to do with the perks the company has to offer; it has to do with the fact that employees are proud of what they are doing.” (Aarts, 2014)

Employee engagement factors

The three factors that need to be present to motivate and engaged employees, according to Arnold Moll in his book Creating Winners in the Workplace are (Mol, 2007):

i. An Experience of Success

If employees feel successful, they feel proud of what they do and this will motivate them to work even harder at being successful in the workplace. The question to managers is how to give employees this “Experience of Success” in the workplace. According to Mol, the best way to do this is to keep score of their work performance (Mol, 2007).

Keeping score is important for both motivating and PMS. If you do not “keep score” how can you measure success or failure in the workplace and how can you improve if you do not have a baseline to measure against?

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According to Mol, (Mol, 2007) management needs be careful that the scorekeeping is handled in a positive way and not seen as a tool to catch the person out. (Mol, 2007)

One method that Mol proposes to achieve success is to set lower goals. This is going totally against everything that management always wants to do. Mol argues that setting too high goals will in fact have the opposite effect if they fail, and the chance of failing is great because if the goals are too high the employees will not try to achieve this goal.

Mol’s argument is that in setting the goals “LOW” the employee will feel that this is achievable and will exceed the goals by a big margin. The employee will have the feeling of being successful and the employer will have achieved the goals he or she set out to achieve. (Mol, 2007)

ii. Responsibility

Employees are more motivated if they are responsible for the outcome of their work. This responsibility goes hand-in-hand with accountability and thus the onus is on the employee to make sure he or she achieves the targets that he or she has set, not what management has set. If management sets targets for employees then management is also responsible for those tasks.

Employees will be more empowered when they feel responsible for the task. With responsibility comes the fact that the employees are empowered to make decisions as he or she sees fit.

iii. Recognition of Achievement

The need for recognition is one of the most basic needs of a human being. Employees will go to great lengths to get the recognition from their employer. Employees want feedback from the employer on how they are doing.

Recognition of achievement is the simplest but also the most difficult thing for employers to do. In the book Creating Winners in the Workplace (Mol, 2007), Mol

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often asks employees how they know that they are doing a good job. The usual answer is that the boss does not complain, so he or she must be doing a good job.

Expectancy theory of motivation

Expectancy theory based on the principle that the amount of effort put into a task will depend on how much reward one expects to get in return. The theory contains three basic components (Dublin, 2010):

i. Valence

Valence refers to the value of attractiveness of the outcome. The outcome is anything that might stem from performance. Valence is based on a scale of -1.0 to 1.0. This means that the valence can also be negative to the employee.

A negative valence is what the outcome will be if the effort is very low. An example will be that the bonus will be zero rand if we do not achieve our targets. This is a form of motivating people because they know that this is a reality if the effort was absent. Thus, valence is anything that might stem from performance.

ii. Instrumentality

Instrumentality refers to as a “performance to outcome expectancy”. When people engage in a particular behaviour, they do this to achieve a desired outcome in the end. Instrumentality ranges from 0.0 to 1.0.

iii. Expectancy

The effort to performance expectancy has to do with the effort the person will put into the task. The desired performance depends on two other factors as well; one is the environment that the person is in and the second is the ability to do the task

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Figure 15 Expectancy Theory of Motivation (Dublin, 2010)

2.10. Factors that influence employee engagement in the workplace Several factors identified in a study published by the International Journal of

Productivity and Performance Management (Anitha, 2014). The seven criteria tested, to see the effect they have on employees’ engagement levels. Although all of these do in one-way or another influence the employees’ commitment or engagement levels, it found that some had a more positive or stronger impact than others. The factors that were tested were:

i. Work environment

Management can facilitate a positive and healthy work environment by displaying concern for employees’ needs and feelings. Management needs to provide positive feedback and encourage employees to raise their concerns without fear of

victimisation. Management needs to encourage employees to develop new skills and assist them in solving work-related problems.

ii. Leadership

Research studies (e.g. Wallace and Trinka, 2009) have shown the value of leadership to engagement levels in the workplace. Engagement occurs naturally

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when leaders are inspiring. Leaders are there to encourage and communicate to the employee the importance of the work they are doing and how they contribute to the success of the firm. Employees will be more engaged in the workplace if they have a sense of belonging and importance. This is the function of the leader.

iii. Team and co-worker relationship

Trusting, interpersonal harmony with other co-workers is extremely important in the workplace. This combined with a supporting team promotes employee engagement. The supportive environment encourages employees to try new things without fear of the consequences if they fail. Locke and Taylor argue that if employees have a positive interpersonal interaction with their co-workers, they should find greater meaning in their work and be more engaged in the workplace.

iv. Training and career development

Training eliminates mistakes and gives the employee a feeling of encouragement that management has enough confidence in him or her to invest time and money to train and develop him or her.

v. Compensation

Acceptable standards of remuneration are fundamental for employees.

Compensation is a combination of financial and non-financial rewards. Employees that receive recognition and rewards from their companies feel obliged to respond with higher levels of engagement.

vi. Organisational policies

Amiable organisational policies and procedures go a long way in assisting

employees to reach company goals, and when the goals reached, the engagement levels are higher. Policies and procedures that encourage employee engagement might include fair recruitment policies and fair promotional policies. Another factor that also has a positive impact is if the firm has a flexible work-life policy.

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vii. Workplace wellbeing

This holistic measure enhances employee engagement. Wellbeing definition: “all things that is important to how we think about and experience our lives”. Because of this wide definition of wellbeing, this factor becomes the most important measure for gauging the influence a firm has on its employees. Researchers of the Towers Perrin Talent Report (2003) found that if management is truly interested in employees’ wellbeing, this translates into an important driver of engagement.

Figure 16. Estimated model using PLS (Anitha, 2013)

The four factors that influenced employee performance the most were  Work environment

 Leadership

 Team and co-worker  Wellbeing

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There is a positive relationship between employee engagement and employee performance. Employee performance depends on employee engagement (Anitha, 2013, p. 314).

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3.0. METHODOLOGY OF THE STUDY

3.0. Implementing a PMS that will engage employees in the company The company on which this case study is based has a small sales force. It consists of eight external area managers and three internal sales administrators.

Although this is a small team, the salespeople, together with the internal sales administrators, call on customers in the whole of South Africa and neighbouring countries, including Botswana, Namibia and Zimbabwe.

The aim of this research is to test if the factors identified in the literature review hold true in practice. The factors contributing the most to the engagement levels of the employee were identified as being the work environment, leadership and team relationship (Anitha, 2013).

The distribution of the research questionnaire will be done in such a way as to get maximum feedback from all the sales employees. For this reason, the participants will receive the questionnaire before they are requested to complete it. A focus group with will also be held with all the participants to investigate further what the

shortcomings of the current PMS are. These methods will suit the situation the best because of the limited amount of people working for the company.

3.1. Rational of the study

i. The absence of a performance management system

The literature on the performance management process indicates that the system the company uses currently does not qualify as a PMS. With reference to the definition stated in chapter one point 1.2:

Business performance management encompasses all processes, information, and systems used by management to set strategy, develop plans, monitor

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execution, forecast performance, report results and make decisions. (David, 2010)

The system the company is using is based on the perception of management, which does not take into account the past few months. It tends to focus on the past few weeks. Personality also comes into play at this stage and this will influence any decisions regarding performance.

As noted in chapter 2, the balanced scorecard evolved over the past few decades and is still a work in progress. The foundation was set by Kaplan and Norton and this is still the most relevant and effective system, according to the respondent of a survey that was done (Darrall, 2013).

ii. The value of KPI in measuring sales performance

It was evident from the literature that the setting of KPI is extremely important and a key element in getting the PMS to work the way it was designed.

The identifying of the KPI is critical for the effectiveness of performance

management. To ensure that employees will be more engaged in their day-to-day activities.

Linking the employees’ KPI to the value chain of the company and the BSC is the most effective way to attain a coherent and uniform BSC for all the employees in the company.

iii. Engagement levels contribute to better performance.

The literature on the engagement levels of employees indicates that there are certain factors that have a significantly more positive impact on the engagement levels of employees.

The four factors that stood out more than the rest were work environment, leadership, team relationships and wellbeing. The rest of the factors were

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these factors, as well as exploring whether there are any other factors that influence the employees’ engagement levels.

3.2. Research design

The research design is defined as a plan according to which the researcher will obtain research participants (subjects) and collect their information. The researcher will measure the variables in the research questions and explore the relationships between a proper PMS and the engagement of employees.

The sales team consists of eight external salespeople and three internal sales administrators. With the population being so small, the entire population is used for this study.

3.3. Data collection methods The research instrument

The questionnaire handed to the respondent in a lecture room and they can complete the questionnaire without discussing it with fellow employees. Interviews held with each respondent after the analysis of the data is completed. The

employees filled in the questionnaire to determine their level of engagement with the current situation

Data collection procedures

Self-administered questionnaires given to the respondents by the interviewer but completed by the respondents with no interviewer involvement. Self-administered questionnaires ensure the anonymity and privacy of the respondents, thereby

encouraging more candid and honest responses. Questionnaires also help to ensure that information from different respondents is comparable.

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The interviews will be recorded and transcripts made to be used for the analysis and for describing the results. The interviews will be to clarify anything that is unclear to the respondent. The respondent will be asked to give his or her impression of the term “performance management” and examples of any from previous companies that they have worked for.

Data analysis methods

Data analysis for the study will comprise descriptive statistics. The researcher will use descriptive statistics to describe the basic features of the data in the study in quantitative terms and provide simple summaries of the measures.

The results from the open-ended questions and transcripts from the interviews will be coded to see if the coded data corroborates the findings and possibly sheds more light on the relationship that is being studied.

3.4. Ethical considerations

The respondents assured of the following:

 Analysis of the data will be done based on the questionnaire and interviews collected from respondents, and the researcher will be unbiased when analysing the data collected;

 The participants’ anonymity will be respected at all times;

 The researcher will accept accountability for the research and will act in a responsible manner;

 Integrity will be ensured by being fair and honest;

 Individuals’ participation in this research will be on a voluntary basis without undue influence; and

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3.5. Significance of the study

Apart from the practical value for the company, the relationship between performance management and engagement will provide useful information.

If a positive, relation exist between PMS and engagement, the use of engagement principles in PMS evaluation sessions will be stressed.

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4.0. PRESENTATION OF THE DATA

4.1. INTRODUCTION

This chapter deals with the interpretation of the results of the survey done on the sales team. The population used for the survey, it needs to be emphasised that the total number of respondents was only 11 employees.

The survey’s execution according to the specifications in the previous chapter, and a 100% response rate achieved.

With the exception of the questions regarding the demographic profile of the

respondents, the following Likert scale used to capture response to questionnaires.

4.2. The table below is an overview of the research questions and the elements the questionnaire tested

I know what a performance management system is Strongly

Disagree

Disagree Neither agree nor disagree

Agree Strongly Agree

1 2 3 4 5

Table 4 Likert scale was used

Table 5 Research question 1: What are the processes and structures of the performance management systems?

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Elements Number Questions

Understanding of performance management systems

1 I know what a performance is management system is Involvement of employees in Performance management planning

3 I have agreed on the performance targets set by management

4 I have been consulted on targets to be achieved 8 I know what my KPIs are

9 I have agreed on the KPI’s

10 My KPI’s are linked to my performance bonus

How does

employees receive feedback

6 I receive regular feedback from management with regard to performance

7 I only get feedback when I have failed

12 Management within my organisation recognises strong job performance

5 I have confidence in achieving the targets set 11 I am inspired to meet my goals at work

Table 5. What are the processes and structures of the performance management systems?

Table 6. The impact of a performance management system on the engagement levels of employees.

Elements Number Questions How do the

employee feel about work and the environment he is working in

13 I feel completely involved in my work

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16 I am often so involved in my work that the day goes by very quickly

17 I am determined to give my best effort at work each day

18 When at work, I am completely focused on my job duties

Leadership 26 Communication between senior leaders and employees is good in my organisation

27 I am able to make decisions affecting my work 28 My supervisor and I have a good working

relationship Team and

co-worker

14 I understand how my work impacts the organisation's business goals

19 In my organisation, employees adapt quickly to difficult situations

20 Employees here always keep going when the going gets tough

21 Employees proactively identify future challenges and opportunities

22 Employees in my organisation take the initiative to help other employees when the need arises 23 Employees here are willing to take on new tasks

as needed

Wellbeing 24 I am satisfied with my overall compensation 25 I am compensated fairly relative to my local

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30 Senior management and employees trust each other

31 Employees treat each other with respect 32 My organisation has a safe work environment 33 I am satisfied with my overall job security

Table 6.The impact of a performance management system on the engagement levels of employees

4.3. Demographic profile of respondents

Eleven questionnaires handed out and returned. This is a 100% response rate of the population of the sales team. The research instrument grouped the respondents into various demographic profiles.

The study does not differentiate or analyse the data according to the demographic profile; this information recorded purely to see if the profile mix, especially with regard to years of service at the same company, influence the results. People that have been with the same company tend to get into a routine and accept all things as normal in the work place.

4.4. The interview process

The interview process held with each participant on a one-on-one basis before the questionnaire was completed. The questions were read to the participants and they were asked if they understood the questions. If anything was unclear, the interviewer

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clarified the question so that all participants understood clearly, what was asked of them with the questionnaire.

Age groups

The questionnaire allowed for five options from which the respondent could choose. The employees’ ages differ across the range, with the majority of the employees in the 31 to 35 age group. Table 7 below illustrates the breakdown of the age group representing the population.

Age Group Percentage of total

20 to 25 9% 26 to 30 9% 31 to 35 45% 36 to 40 9% 40 + 27% Total 100%

Table 7 Age group of respondents

The vast majority of employees (82%) fall into the age group of 31 years and older and exposed to more than one work environment in their working careers.

The latter, established during the interviews, in which one of the questions asked was how many different companies they had worked for before they joined the present company.

The average number of companies that the employees had worked for before they joined was four. From this result, we can conclude that the employees had work experience from other companies, and can compare current and previous experiences.

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Years of service with company

The company has a wide variety of employees in terms of years of service. The average within the sales team at present is six years. This is very good as there are two employees with less than one year’s service in the company. The new

employees have different expectations than the older employees.

Older employees tend to take certain things for granted as they have been with the company for some years. The newer employees will see everything in a new light and compare it to what is out there in the market place. Table 8 below shows the distribution of the employee’s years of service in the company.

Years of Service Percentage of Total

Less than 3 Years 36%

3 to 5 Years 27%

6 to 10 Years 9%

More than 10 years 27%

Total 100%

Table 8 Distribution of years’ service

4.5. What are the process and structure of the PMS

The company does not have an official performance measurement system and the questionnaire design was to test if the employees had an idea of what a performance measurement system is. The participants were asked if some of the criteria of a PMS had actually been implemented in the organisation.

Question one dealt with whether the employees knew what a PMS was. The mean score to this answer was 3.91 with a mode of 4. From this response, it is clear that the majority of the employees know what a PMS is as the mode of 4 represents that the majority of the employees are in agreement on this question.

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Understanding of PMS

i. Employees understanding of what a PMS is.

Figure 17 Employees understanding of PMS

The frequency table also shows that 72.7% of respondents agree that they understand the term “performance management”. The total of agree and strongly agree is 81.8%. The response rate of 81.8% gives validity to the rest of the questionnaire as the questionnaire centres around the fact that the respondent has a fair understanding of the concept.

Understanding of performance management

Frequency Percent Valid Percent

Cumulative Percent

VALID Neither Agree nor Disagree 2 18,2 18,2 18,2 Agree 8 72,7 72,7 90,9 Strongly Agree 1 9,1 9,1 100 Total 11 100 100 Mean 3,91 Median 4 Mode 4 Std. Deviation 0,539

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Involvement of employees in performance management planning

The planning side of performance management was dealt with in questions 3,4,8,9 and 10. These questions established if the employees had been involved with or consulted in the performance management process.

i. Agreement on targets by employee

Figure 18 Agreement on targets set

The percentage of participants that strongly disagree and neither nor disagree is 54.5% and the rest falls into the category of agree to strongly agree (45.5%). The finding is that more than 50% is unsure if they are involved in the process.

If targets are set, all the employees need to agree on targets set, if not done in this manner it can affect the performance of the company as a whole.

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ii. Consultation on targets to be achieved

Figure 19 Consultation on targets achieved

Question 4 asked if the employees were involved in or consulted on, targets to be achieved. This is important because if employees are not consulted or do not participate in setting targets, they will not take ownership of them

This question had a mean of 3.36 and the mode was 3. As the graph above indicates, more people neither agree nor disagree than agree. 54.5% of the

employees said that they either strongly disagree or neither agree nor disagree. The

Agreement on targets set Frequency Percent Valid Percent Cumulative Percent

Valid Strongly Disagree 2 18,2 18,2 18,2

Neither Agree nor Disagree 4 36,4 36,4 54,5 Agree 4 36,4 36,4 90,9 Strongly Agree 1 9,1 9,1 100,0 Total 11 100,0 100,0 Mean 3,18 Median 3,00 Mode 3 Std. Deviation 1,250

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finding is that more than 50% indicated they were not consulted on targets to be achieved.

Employee participated in setting of targets

Frequency Percent Valid Percent

Cumulative Percent

VALID Strongly Disagree 1 9,1 9,1 9,1

Table 11 Employee participated in setting targets

iii. Employees’ knowledge of their key performance indicators

This question asked whether the employees knew what their KPIs were.

Figure 20 Employees knowledge of their KPI

From the frequency table it is clear that 72.8% of the respondents do not know what their KPI are. If the employee does not know his or her KPI, how can the employee work towards a goal in the workplace?

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iv. Agreements reached on KPIs

.

Figure 21 Agreement reached on KPIs

This question leads on from the previous question. Here the question asked was whether the employee had agreed on any KPI. It is apparent from the answers to the previous question that more than 70% did not know what their KPI were

Employee KPI Knowledge Frequency Percent Valid Percent

Cumulative Percent

Disagree 2 18,2 18,2 45,5

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This question had a similar result; the frequency table shows that 81.8% of

employees have not agreed on any KPI with management. The mean score is lower than the previous question, at a mean of 2.64.

This result indicates that the employees did not agree on the setting of KPI by management. If employees do not know how they are measured, it is difficult to improve or measure yourself in the workplace

Employee agreement on KPI Frequency Percent Valid Percent Cumulative Percent

Disagree 3 27,3 27,3 54,5

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v. Performance bonus and KPI

Figure 22 Performance bonus and KPI

The researcher has already established that the employees do not know what a KPI is and/or have not agreed on their KPI. If they do not know, what a KPI is or agreed on the specific KPI for their work environment, then it is likely that this question will have the same result as the previous two questions.

The result is that 72.7 believe that their KPI has no bearing to their yearly bonuses. This implies that the employees believe that the bonus is something that they are entitled to, regardless of how they perform during the year.

Performance bonus and KPI Frequency Percent Valid Percent

Cumulative Percent

Disagree 3 27,3 27,3 54,5

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4.6. How is the performance of sales employees measured? How does the employee receive feedback

How the performance of sales employees is measured relates to feedback and whether any feedback is given to the employees. The employee needs to have regular feedback from management to know how his or her performance measures up against expectations.

i. Performance feedback from management

Figure 23 Performance feedback from management

The answers to question 6 dealing with performance feedback from management show that 54.5% of employees agree that they are getting feedback from

management on their performance. However, 27.3% believe they do not get feedback and only 18.2% are not sure.

The result of 54.5% is not satisfactory as this is an important part of a PMS, and communication with employees is vital for the system to be successful.

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Performance feedback from management Frequency Percent Valid Percent

Cumulative Percent

Disagree 2 18,2 18,2 27,3

Table 15 Performance feedback from management

ii. Negative feedback

Figure 24 Negative feedback only

This question deals with the whether the employees receive feedback only when they failing. The frequency table shows that 91% believe that they receive feedback only when they fail and 9% say they are not getting feedback only when they fail. Employees need feedback not only when they fail but also when they perform normally.

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This result shows the absence of feedback given to the employees about

performance on a regular basis. The employee need this if employee’s engagement levels need to be elevated in the organisation.

Negative feedback only Frequency Percent Valid Percent Cumulative Percent VALID Disagree 1 9 9 9 Neither Agree nor Disagree 3 27,3 27,3 36,4 Agree 2 18,2 18,2 54,5 Strongly Agree 5 45,5 45,5 100,0 Total 11 100,0 100,0 Mean 4,00 Median 4,00 Mode 5 Std. Deviation 1,095

Table 16 Negative feedback only

iii. Recognition of work performance