Performance Management in Small Manufacturing Companies. Changes and Future Trends

Table of Contents

1. Introduction

2. Main body
2.1. Advantages and disadvantages of a performance management system
2.1.1. Advantages
2.1.2. Disadvantages
2.2. Eliminate the lack of commitment by other managers
2.2.1. Performance and development agreement
2.2.2. Managing performance throughout the year
2.2.3. Performance review and assessment
2.3. Alternative applicable performance management system

3. Conclusion

Bibliography

1. Introduction

A performance management system is a part of human resource management. Through the system, a company can see the development of each employee’s performance. This includes all performance appraisals, training and actions that have been done and that will be done in the future (Schmidt, 2018). Most of the people are thinking of performance appraisals when it comes to performance management. However, it is more than just an annual meeting it is a process. Most of large and multinational companies have already an established performance management system. There is a lot of literature about how and why to adopt a system for those companies. When it comes to smaller organisations, it is much more difficult to find appropriate data. It seems that is not important for smaller ones to have a performance management system compared to bigger companies (Singh and Vohra, 2005; De Kok, Uhlaner and Thurik, 2003).

However, there is a reason why companies are already working with performance management systems for so long. The performance appraisals are often used to be the base for rewards, promotion and salary increase (Schmidt, 2018). These meetings are normally take place once a year. The following chapters will have a closer look on the reasons for introducing a performance management as well as on the development over the time. This assignment will examine how performance management has changed, what was important in the past and what are the trends for the future. The focus will be on small companies.

2. Main body

2.1. Advantages and disadvantages of a performance management system

Numerous of smaller firms do not have a performance management system and even do not have a human resource department. Often, owner-manager or senior manager manage the main and basic human resource tasks such as recruiting, selection and training (Singh and Vohra, 2005). Therefore, managers do not want to spend more time than is necessary for the essential tasks in human resource management, which need to be done and do not have time for any extra tasks. Those small companies see performance management as a desirable function rather than as an essential one.

2.1.1. Advantages

However, with a well-developed performance management system the company can have huge advantages compared to the competitors and to larger firms (Manzoor, 2012). Throughout the system, a company can find which of the employees the top performers are and how these have developed over a certain period. Furthermore, the system shows which employees did not perform well and with that information, managers can decide on further trainings and improving work quality. Because of the size of smaller companies, every employee is important and each has a huge impact on the quality of work (Manzoor, 2012). That is why it is more important for smaller firms to have a performance management system. The earlier a firm can identify bad performances, the better it can work on improvement and reduce the risk of a huge impact of that performance.

Furthermore, a performance management system can be a big motivator for the employees (Hansen, 2002). Even though employees and managers see each other in a smaller firm more often as in larger firms, they do not talk about performance, training, development, career options, needs and wants daily (Pekruhl, Vogel and Strohm, 2018). That is why a performance appraisal, as a part of the performance management, is crucial for the process. In those meetings, both, manager and employee, can give their opinion on the performance of the employee and both can give feedback to each other. Together, they can work on training or development and can find out the right way within the company for the employee (Achouri, 2015). With those performance appraisal meetings, the manager shows respect and interest to the employee and he or she feels valued and recognized. This can have a huge influence on the work of each employee and can increase his or her loyalty to the company (Hansen, 2002).

2.1.2. Disadvantages

There are various arguments for a performance management system, but there are also many against it. Smaller firms tend to be more informal to be more flexible than their competitors are. Being less bureaucratic, they hope to have an advantage over the larger firms in their business (De Kok, Uhlaner and Thurik, 2003). A performance management system is very time-consuming and needs a lot of administration to do it right. Thus, it is also cost intensive. That is why many firms have a more informal performance management but that is not effective, moreover, a waste of time for managers and employees (Singh and Vohra, 2005). In an informal system, companies do not record the development of each employee and do not know what happened in the past and what the plans are for the future. It is just a recording of the present. If there is no further action to transfer the data into information, then it is useless.

Further, one of the biggest problems performance management systems have is objectivity. Objectivity is important within the performance management process to grant an equal treatment to everyone (Kunz, 2015). However, people are responsible for the system, the process and it is not in human nature to be objective. It is impossible to be always objective, so many things influence people, and there will always be a bit of subjectivity. The aim is to achieve a low level of subjectivity. Nevertheless, if managers have a significant level of subjectivity, they can create injustice and this can lead to an unfair competition between employees and to a lower motivation level (Kunz, 2015).

2.2. Eliminate the lack of commitment by other managers

There are many advantages for companies to have a performance management system, but even by knowing them, it is still hard to convince both, employees and managers, that the system is important. One of the biggest problems by introducing a performance management system is to exclude the people who will work with it (Armstrong, 2009). Those decisions are normally made be a companies’ owner or senior managers. However, they will not use it. Acas (2012) has defined a guideline for smaller firms how to introduce a performance management system. Companies should involve all people so that everybody has the same knowledge about what is going on.

However, to finally get the commitment of the managers, some other tasks need to be considered. Sayer et al. (2018) carried out a study with focus groups. The members of the focus groups were employees from different small and large firms that operate in different sectors such as public and private. They asked the focus group's different questions to encourage them to discuss the different points of views. One focus group advised to train the managers better on using the performance management system effectively. Without that training, they do not even know what to do, which aspects they need to think of and what they need to consider. Without training, they do not take it seriously, it is only a form filling exercise to them. Training sessions will show them how to use the system but also what are the benefits and why. The training should cover all aspects that are crucial for performance management. Figure 1 (Armstrong, 2009) shows a framework of performance management as cycle.

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Figure 1: Performance Management cycle

No matter what kind of performance management system a company wants to establish, it will cover all three aspects to have a well-established one.

2.2.1. Performance and development agreement

During this stage, the managers must learn how to set objectives. Objectives should be different to each employee and their position. The job description and person specification should be considered when defining the individual objectives. Those need to follow the SMART criteria as seen in Figure 2 (VComply Editorial, 2018). If the job description and person specification are not up to date and have nothing to do with what the employee does, both should be updated.

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Figure 2: SMART criteria

The line manager should be able to set those objectives and to discuss them with each employee. Therefore, the employees know on what criteria their performance will be evaluated. Together, they also need to develop a personal plan that includes the next steps.

2.2.2. Managing performance throughout the year

Every manager needs to understand that performance management is more than just a formal annual appraisal. It is a continuous process, they need to work on it throughout the year (Lussier and Hendon, 2019). In addition, many multinational companies have already changed their old established performance management system to this process (Schmidt, 2018). Even though the formal appraisal is important, the informal appraisal is much more crucial. During the normal work routine, the manager should take notes about every employee, if they are doing something good or bad. They also should give feedback during the year, so everybody knows if he or she is doing a good job or not. This helps them to be prepared for the formal one and not to forget what maybe happened in the months before. Managers need to learn to be alert about this informal approach.

2.2.3. Performance review and assessment

When it is time for the formal appraisal, the managers should be well prepared for the meeting with each employee (Pekruhl, Vogel and Strohm, 2018). This is so the meeting becomes effective and is not a waste of time for both. Both should give a comment on the objectives and if they were achieved. They should give feedback to each other and discuss what the plans for the future are (Achouri, 2015). Managers should learn how to give feedback so that it is constructive and useful for the employee. They also should be able to take their time for each meeting and listening to what the employees have to say. For each of them, they should figure out individual actions, training and development. All of these meetings should be individually designed.

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