About the Author

Dr. C. Appa Rao is a distinguished professor

of management in the Institute of Management,
GITAM University. He has done Master of
Business Administration and Masters in English
literature and also holds a doctoral degree from
Andhra University. He joined GITAM University
after an intensive exposure at various corporate
offices for many years. Prior to joining this
University, he worked as Director (Personnel) Dr. C. Appa Rao
and I/C CMD of a Public Sector Enterprise.

Dr. Rao has authored several books including

Strategic Management and Business Policy,
Organizational Behaviour, Strategic Human
Resource Management and Human Resource
Development.

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Performance Management
 About the Book
The purpose of bringing out this book is to provide a comprehensive
textbook on Performance Management to meet the needs of the
management students. The author, with his extensive experience of
teaching the subject has realized that, despite a plethora of books on
Performance Management, students still experience difficulty in finding
out an easily understandable book covering, by and large, the course
structure prescribed by various universities. Keeping this need in view,
the author has endeavoured to bring out this book encompassing the
important concepts of performance management generally prescribed for
management students by most of the universities.

The book consists of Five parts which are further divided into 20
Chapters and Case Studies. Each Chapter begins with an introduction,
followed by the vital aspects and applications of various principles of
performance management and ends with a summary, key terms, review
questions andreferences.

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Performance Management
 Table of Contents

PART I : Fundamentals of Performance

Management
Chapter 1 : Introduction to Performance Management
Chapter 2 : Defining and Measuring Performance
Chapter 3 : Historical Perspective of Performance
Management
Chapter 4 : Goal Setting Theory and Expectancy Theory
Chapter 5 : Performance Management Model and System

PART II : Performance Management Process – I

Chapter 6 : Performance Planning
Chapter 7 : Performance Standards
Chapter 8 : Key Performance Areas and Key Result Areas
Chapter 9 : Competence and Competency Mapping
Chapter 10 : Performance Execution and Monitoring

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 PART III : Performance Management Process – II
Chapter 11 : Performance Appraisal
Chapter 12 : 360-Degree Appraisal
Chapter 13 : Performance Review and Feedback
Chapter 14 : Employee Development through
Performance Management
Chapter 15 : Coaching, Counseling and Mentoring
Chapter 16 : Performance Related Pay

PART IV : Team and Organizational Performance

Management
Chapter 17 : Managing Team Performance
Chapter 18 : High Performance Work Teams
Chapter 19 : Balanced Scorecard
Chapter 20 : Integrated Performance and Concept
of Maturity Alignment

PART V : Case Studies

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Index Performance Management
 PART ONE
FUNDAMENTALS OF
PERFORMANCE MANAGEMENT

Chapter 1: Introduction to Performance Management

Chapter 2: Defining and Measuring Performance
Chapter 3: Historical Perspective of Performance Management
Chapter 4: Goal Setting Theory and Expectancy Theory
Chapter 5: Performance Management Model and System

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 Introduction to Performance
Management

1
CHAPTER

Performance Management
 INTRODUCTION
In the changed competitive business scenario,
organizations have to improve their competitive
position to survive and sustain themselves by
aligning performance of human resources with their
business strategies. Creating a ‘fit’ between the
human performance and the business strategy can
help secure employee behaviours and attitudes
necessary for successful implementation of business
strategies. This strategic approach to integrate
performance into the organizational architecture is
the essence of Performance Management.

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Performance Management
 CONCEPT OF PERFORMANCE
MANAGEMENT
The term “performance management” has been one of the
most important and positive developments in the sphere of
human resource management in recent years. In traditional
appraisal system, managers and employees meet once in a
year for annual performance assessment and review to look
back at the work done during the previous year and to
evaluate what was accomplished. But, many progressive
organizations realized that looking back does little to improve
performance, and there is a need for more integrated,
continuous and holistic system for managing performance of
individuals and teams. In recent times, therefore, there has
been a shift away from performance appraisal to a more
comprehensive approach called ‘Performance Management’.

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Performance Management
 Overview of Performance Management

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Performance Management
 PERFORMANCE MANAGEMENT DEFINED
Some important definitions of Performance Management are
given hereunder:
1. “Performance management is defined as a trategic and
integrated approach to delivering sustained success to
organizations by improving the performance of the people who
work in them and by developing the capabilities of teams and
individual contributors”. - Michael Armstrong, 2000

2. “Performance management is an approach to creating a

shared vision of the purpose and aims of the organization,
helping each employee understand and reorganize their part in
contributing to them, and in so doing, manage and enhance
the performance of both individuals and the organization.” -
Fletcher, 1993
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Performance Management
 3. “Performance management is a continuous
process of identifying, measuring and developing
the performance of individuals and teams and
aligning performance with the strategic goals of
the organization”.
- Herman Aguinis, 2007

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 FEATURES OF PERFORMANCE
MANAGEMENT
As may be seen from the above definitions, the important
features of performance management are:
1. It is a Continuous Process
It is an on-going, never – ending process. Setting goals,
observing performance, giving coaching and counseling,
identifying development needs and giving feedback are
continuous activities.
2. It is a Strategic Process
The individual goals are linked to the strategic goals of the
organization.

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Performance Management
 3. It is an Integrated Approach
Performance management is integrated in four
senses.
Vertical integration: aligning business objectives with
individual and team objectives.
Functional integration: linking functional strategies in
different parts of the business.
HR integration: linking different aspects of human
resource management (HRM), especially organization
development and human resource development and
rewards, to achieve a coherent approach to the
management and development of people.
Integration of individual needs with organizational
needs as far as this is possible.

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Performance Management
 4. It is an Approach for Performance Improvement
It provides support and guidance to enable individuals and
teams to perform better and achieve organizational, team and
individual effectiveness.

5. It is Concerned with Development

The most important function of performance management is
to improve the capabilities/abilities of individuals and teams to
improve their performance. Performance improvement is not
achievable unless there are effective processes of continuous
development - that is, the core competencies of the
organization and the capabilities of individuals and teams.

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Performance Management
 CONCERNS OF PERFORMANCE
MANAGEMENT
Performance management is concerned with many important
elements relating to management of performance. Some of them are
discussed below (Armstrong and Baron, 2006):
Performance Management is Concerned with Outputs,
Outcomes, Processes & Inputs
Performance management is concerned with outputs – the
achievement of results – and with outcomes – the impact made on
performance. But it is also concerned with the processes required to
achieve these results (competencies) and the inputs in terms of
capabilities (knowledge, skill and competence) expected from the
teams and individuals involved.
It is Concerned with Planning
Performance management is concerned with planning ahead to
achieve future success. This means defining expectations expressed
as objectives and business plans.
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 OBJECTIVES OF PERFORMANCE
MANAGEMENT
Performance management has the following objectives:
• To help achieve sustainable improvements in organizational
performance.
• To help in developing more performance oriented culture.
• To increase the motivation and commitment of employees.
• To help employees to develop their abilities, and increase their
job satisfaction and achieve their full potential.
• To enhance team cohesion and performance.
• To develop constructive and open relationships between
individuals and their managers in a process of continuing
dialogue.
• To provide opportunities for individuals to express their
aspirations and expectations about their work.
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Performance Management
 WHY ORGANIZATIONS INTRODUCE
PERFORMANCE MANAGEMENT?
Generally, many organizations give powerful and worthy
reasons for introducing performance management. Some of
the reasons elicited from surveys are listed below:
• To bring about a culture change.
• To improve performance and identify training needs.
• To link pay to performance and skill development, and
improve efficiency of the organization.
• To face challenges of market demand and
competitiveness.
• To improve quality.
• To provide feedback to employees.
• To improve customer service.
• 18 Performance Management
 PURPOSES OF PERFORMANCE
MANAGEMENT
The information collected by a Performance
Management System is generally used for:

1. Strategic Purpose: The first purpose of performance

management system is to help top management to achieve
strategic business objectives. By linking the organizations’
goals with individual goals, the performance management
system reinforces behaviours consistent with the
attainment of organizational goals. This also serves as a
way to communicate what are the most crucial business
strategic initiatives.

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Performance Management
 2. Administrative Purpose: A second function of
performance management system is to furnish
valid and useful information for making administrative
decisions about employees, such as salary increases,
promotions, employee retention or termination.
3. Informational Purpose: Performance management
systems serve as an important communication device. First,
they inform employees about how they are doing and
provide them with information on specific areas that may
need improvement. Second, related to the strategic
purpose, they provide information regarding the
organization’s and the supervisor’s expectations and what
aspects of work the supervisor believes are most important.

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Performance Management
 4. Developmental Purpose: As noted earlier, feedback is an
important component of a well implemented performance
management system. This feedback can be used in a
developmental manner. This feedback allows for identification of
strengths and weaknesses as well as the causes for performance
deficiencies. Managers can use this feedback to coach employees
and improve performance on an ongoing basis.
5. Organizational Maintenance Purpose: A fifth
purpose of performance management systems is to
provide information to be used in HR planning. An important
component of any HR planning effort is the talent inventory,
which is information on current resources (e.g., skills,
abilities, etc., of current employees). Performance
management systems are the primary means through which
accurate talent inventories can be assembled.

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Performance Management
 6. Documentation Purpose: Finally, performance
management systems allow organizations to collect
useful information that can be used for several
documentation purposes. First, performance data can be
used to validate newly proposed selection instruments.
Second, performance management systems allow for the
documentation of important administrative decisions. This
information can be especially useful in the case of
litigation.

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Performance Management
 SCOPE OF PERFORMANCE
MANAGEMENT

According to Fowler, 1990, Performance Management

is about managing the organization. It is a natural
process of management. It is also about managing
within the context of the business (its internal and
external environment). This will affect how it is
developed, what it sets out to do and how it operates.
The context is very important. Jones (1995) goes as
far as to say ‘manage context not performance’.

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Performance Management
 IMPORTANCE AND BENEFITS OF
PERFORMANCE MANAGEMENT
The importance and benefits of well-conceived and well-
run performance management system are:

For the Organization

Performance management processes:
• Align corporate, individual and team objectives.
• Improve performance.
• Motivate employees.
• Increase commitment.
• Underpin core values.
• Improve training and development processes.

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Performance Management
 For Managers
Performance management processes:
• Provide the basis for clarifying performance and behaviour
expectations.
• Afford a framework for reviewing performance and
competence levels.
• Improve team and individual performance.
For Individuals
Performance management processes:
• Provide greater clarity of roles and objectives.
• Offer encouragement and support to perform well.
• Provide guidance and help in developing abilities and
performance.

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Performance Management
 INTEGRATION WITH OTHER HRM
ACTIVITIES

Performance management systems provide critical

information to other HRM activities. For example,
performance management provides information on what
type of skills are lacking at the organization or unit level
or who should be trained and in what areas, and which
employees should be rewarded. Performance
management also provides information on the type of
employees that should be hired. Performance
management systems thus serve as important “feeders”
to other HRM activities.

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Performance Management
 Integration of Performance
Management with other HRM Areas

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Performance Management
 CONTEXT AND PRE-REQUISITES OF
PERFORMANCE MANAGEMENT

Performance management is about managing the

organization. It is more a natural process of management,
rather than a system or technique. It is also about
managing within the context of the business (its internal
and external environment) which will affect how it is
developed, what it sets out to do and how it operates. The
context is very important. In this sense, Performance
management is an all-embracing or holistic approach to
management of performance, and a number of factors
affect the design and operation of performance
management processes.

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Performance Management
 The following factors influence the performance
management processes in an organization:

 Culture
 Functionality
 Job Design
 Team Work
 Organization Development
 Corporate Strategies

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Performance Management
 PRE-REQUISITES OF PERFORMANCE
MANAGEMENT SYSTEM
Performance management is a process or a set of processes for
establishing shared understanding about what is to be achieved,
and of managing and developing people to achieve organizational
and individual goals. Performance management being an
organization-wide programme, requires a number of essential
preconditions before its introduction in an organization. They are:

1) Organizational readiness.
2) Organizational fit.
3) Top management commitment and involvement.
4) Knowledge of the mission and job.

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Performance Management
 5) Acceptance, commitment and ownership of
managers and employees.
6) Adequacy of compensation package.
7) Availability and access to resources.
8) Effectiveness of communication.
9) A culture of accountability and openness.
10) Familiarity of manages with planning tools
such as target-setting and monitoring.
11) An open and honest management style
which encourages two-way communication
between superiors and employees.

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Performance Management
 PRINCIPLES OF PERFORMANCE
MANAGEMENT
Underlying qualities or principles are the basic assumptions of a good
performance management process. Some of the major principles that
are consistently found in an effective performance management
process that can be adapted by an organization are listed below:
1. It translates organizational goals into divisional,
departmental, team and individual goals.
2. It clarifies corporate goals to all managers and employees of the
organization.
3. It is a continuous and evolutionary process, in which
performance improves over time.
4. It relies on consensus and cooperation rather than control or
coercion.
5

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Performance Management
 5. It creates a shared understanding of what is
required to improve performance and how this
will be achieved.
6. It encourages self-management of individual
performance.
7. It requires a management style that is open and
honest and encourages two-way communication.
8. It requires continuous feedback.
9. It measures and assesses all performance
against jointly agreed goals.
10. It should apply to all employees.
11. It is not primarily concerned with linking
performance to financial rewards.
12. Performance is about providing support as well as
direction.
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Performance Management
 CHARACTERISTICS OF AN IDEAL
PERFORMANCE MANAGEMENT SYSTEM

An ideal performance management system should

have the following characteristics:
• Fairness • Transparency
• Equity • Specificity
• Thoroughness • Practicality
• Meaningfulness • Reliability
• Inclusiveness • Openness
• Correct ability • Standardization
• Ethicality

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Performance Management
 ROLE OF HR PROFESSIONALS IN
PERFORMANCE MANAGEMENT

HR professionals play an important role in

performance management. HR professionals
can help organizations in improving its
performance by helping in planning employee
objectives, appraising progress, establishing
priorities, and ensuring that employees
understand their roles in the organization’s overall
mission and objectives.

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Performance Management
 HR professionals’ role in the performance management
system revolves around the following tasks:

1. Creating an information sharing culture.

2. Design and development of performance management
system.
3. Training managers to conduct performance
management effectively.
4. Training employees to participate effectively in
performance management processes.
5. Scheduling the processes of the system.
6. Acting as an ‘internal consultant’.
7. Analysis of results.

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Performance Management
 End of Chapter 1
Thank you

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Performance Management