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LECT. IN LIM 10803294

I owe a great many thanks to a great many people

who helped and supported me during the writing of this

My deepest thanks to Lecturer, MR. SACHIN

KASHYAP the Guide of the project for guiding and
correcting various documents of mine with attention and
care. He has taken pain to go through the project and
make necessary correction as and when needed.

I would also thank my Institution and my faculty members without

whom this project would have been a distant reality. I also extend my
heartfelt thanks to my family and well wishers.

The implementation of a performance management system that drives focus and transparency is
vital to the success of today’s leading organisations. The primary purpose of performance
management is to align individual performance contracts with departmental business plans to
achieve the overall company vision, mission and strategies.

The success of your performance management system lies in the ability to equip your employees
with the skills and tools to take charge of their work responsibilities, development and future.
Strategic management system is the conduct of drafting, implementing and evaluating cross-
functional decisions that will enable an organization to achieve its long-term objectives. It is the
process of specifying the organization's mission, vision and objectives, developing policies and
plans, often in terms of projects and programs, which are designed to achieve these objectives,
and then allocating resources to implement the policies and plans, projects and programs.
A balanced scorecard is often used to evaluate the overall performance of the business and its
progress towards objectives.

Strategic management is a level of managerial activity under setting goals and over Tactics.
Strategic management provides overall direction to the enterprise and is closely related to the
field of Organization Studies. In the field of business administration it is useful to talk about
"strategic alignment" between the organization and its environment or "strategic consistency".
According to Arieu (2007), "there is strategic consistency when the actions of an organization
are consistent with the expectations of management, and these in turn are with the market and
the context.

Strategic management system is an ongoing process that evaluates and controls the business and
the industries in which the company is involved; assesses its competitors and sets goals and
strategies to meet all existing and potential competitors; and then reassesses each strategy
annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it
has succeeded or needs replacement by a new strategy to meet changed circumstances, new
technology, new competitors, a new economic environment., or a new social, financial, or
political environment

Key Benefits of a Strategic Management System

• Taking an organization-wide, proactive approach to a changing global world

• Building an executive team that serves as a model of cross-functional or horizontal


• Having an intense executive development and strategic orientation process

• Defining focused, quantifiable outcomes measures of success

• Making intelligent budgeting decisions

• Clarifying your competitive advantage

• Reducing conflict; empowering the organization

• Providing clear guidelines for day-to-day decisiion making

• Creating a critical mass for change

INTRO:-Performance management

Performance management is an excellent method of helping organization deliver lasting

improvement. It does this by ensuring individuals, teams, and ultimately the organisation, know
what they should be doing, how they should be doing it and take responsibility for what they

It is about placing the emphasis on managing, supporting and developing staff at all levels in the
organization. An integral part of this is the need to monitor performance, reward staff that
perform well, and challenge those who do not.

For performance management to work well it is crucial that senior management can
communicate effectively across the organisation and ensure that employees fully understand the
organization's key corporate objectives and the reasons behind them.

Benefits of Performance Management

Having an effective performance management system has multiple benefits for organization,
ultimately resulting in better, more efficient, services. These are:-

1. It means everyone knows where the organization is going, as there is a clear focus on key
objectives and priorities. This level of clarity helps to correctly direct resources, which
means there are less instances of over and under resourcing.
2. It makes life more satisfying for employees because they know what is expected of them,
and how this fits into the bigger picture, but also that they can call on extra support to
help them to perform well.
3. As the whole emphasis is on meeting set criteria and meeting targets, it is easier to
monitor how services are performing and to take action to intervene and improve where
4. It helps organization to meet their legal responsibilities in employment in terms of health
and safety, equality and diversity. Employees and the organization itself will be bound by
implied and explicit contractual terms, such as codes of conduct, the duty of mutual trust
and confidence and the duty to obey reasonable instructions, as well as health and safety
and equalities legislation. Legal issues will also arise in cases where the organization
seeks performance improvement or decides to terminate employment on the grounds of
the employee's incapability to do their job.

Equality and diversity are important aspects of performance management. Not only does the
organization's managing diversity approach impact upon its overall performance rating – through
the Best Value Performance Indicators – it also impacts upon how performance is managed
within the organisation. A performance management approach that recognises and promotes
diversity, while supporting fairness and equity will ensure that people are selected and developed
on the basis of their capability to do the job.


Performance management system (PMS) is the heart of any “people management” process in
organization. Organizations exist to perform. If properly designed and implemented it can
change the course of growth and pace of impact of organizations. Performance management
could be defined as it begins when the job is defined and ends when an employee leaves the
company. Between these points, the following should be understood for a working performance
management system.
Developing clear job descriptions: Job descriptions are the first step in selecting the right
person for the job, and setting that person up to succeed Job descriptions provide a framework so
the applicants and new employees understand the expectations for the position.

Selection: Jobs have different requirements. This is the process of matching the skills and
interests of a person to the requirements of a job. Finding a good job "fit" is exceptionally
important. Use of a selection process maximizes input from potential co-workers and the person
to whom the position will report.

Providing effective orientation, education, and training. Before a person can do the best job,
he or she must have the information necessary to perform. This includes job-related, position-
related, and company-related information; an excellent understanding of product and process use
and requirements; and complete knowledge about customer needs and requirements.

Providing on-going coaching and feedback. People need ongoing, consistent feedback that
addresses both their strengths and the weaker areas of their performance. Effective feedback
focuses more intensely on helping people build on their strengths. Feedback is a two-way
process that encourages the employee to seek help

Conducting quarterly performance development discussions. If supervisors are giving

employees frequent feedback and coaching, performance reviews can change from negative,
evaluative, one-sided presentations to positive, planning meetings.

Designing effective compensation and recognition systems that reward people for their
contributions: The power of an effective compensation system is frequently overlooked and
downplayed in some employee motivation-related literature

Providing promotional/career development opportunities for staff: The supervisor plays a

key role in helping staff develop their potential. Growth goals, changing and challenging job
assignments and responsibilities, and cross-training contribute to the development of a more
effective staff member.
Assisting with exit interviews to understand WHY valued employees leave the
organization: When a valued person leaves the company, it is necessary to understand why the
person is leaving. This feedback will help the company improve its work environment for
people. An improved work environment for people results in the retention of valued staff.

A performance management system will only be effective if it:

1. Is aligned with a company’s corporate direction and business strategy

2. Objectively measures performance.
3. Is trusted to be fair by employees
4. Both managers and employees see that they have something to gain from using the

Balanced scorecard - A strategy management tool

However, an over emphasis on achieving and maintaining short-term financial results can cause
companies to over invest in short-term fixes and to under invest in long-term value creation,
particularly in the intangible and intellectual assets that generate future growth. The pressure for
short-term financial performance often causes companies to reduce the resources spent on new
product development, process improvements, human resource development, Information
technology, databases and systems as well as customer and market development. In the short
run, the financial accounting model reports these spending cutbacks as increases in reported
income, even when the reductions have cannibalized a companys stock of assets and its
capabilities for creating future economic value. In short, these organizations use the financial and
non-financial performance only for tactical feedback and control of short-term operations.

What is a Balanced Scorecard?

The balanced scorecard is a management system (not only a measurement system that enables
organizations to clarify their vision and strategy and translate them into action. It provides
feedback around both the internal business processes and external outcomes in order to
continuously improve strategic performance and results. When fully deployed, the balanced
scorecard improves strategic planning from an academic exercise into the nerve center of an

First of all the balanced scorecard is a way of

• Measuring organizational, business unit or department success;
• Balancing long and short term actions;
• Balancing different measures of success and
o Financial
o Customer
o Internal Operations
o Human Resource Systems & Development (Learning & growth)

• A way of tying strategy to measures of action

Linking Strategy with Performance Measures

The essential thrust of the balanced score card is based on the fundamental proposition that
within organizations what gets measured gets done however, organizations dont always get what
they measure. If measurement, by itself, had that much impact on human behavior, then anyone
that had weighing scales would never get fat.

An appropriate measurement system is one that energizes employees in the context of what the
organization is trying to do. Thus, the logical starting point for the development of any
performance measurement system for an organization must be a clear statement of mission,
objectives and resultant strategy. An organizations mission is its basic function in society and is
the reason why the organization exists. Related to this are the objectives to be achieved and they
represent a precise statement of purpose for a specific period. Basically a strategy is a shared
understanding about how the organizations mission is to be achieved in a competitive
environment. Strategic thinking will focus on customers and competitors as well as internal
capabilities and resources. It will include reference to the firms competitiveness, quality of
output and levels of customer service. In turn, specified performance measures allow all
employees understand what the strategy is and how their performance is linked to that overall
strategy. The relationship between Mission, Objectives, Strategy and Performance Measures is
depicted in Fig.1.

There are at least three reasons why organizations should, and often do, measure their

1. To align mission, strategy, values and behavior

2. To improve the right things
3. To numerically define the meaning of succes

The performance management framework

Clear, consistent systems and procedures are needed to support the ongoing dialogue with
employees on performance management and provide feedback on how this is impacting on
organization service delivery. The emphasis should be on developing an approach tailored to
help the organization and its employees to perform well which is not too complex for the
benefits it delivers. Whatever the approach, everyone should know where to find information
about performance management and be able to access it whenever they need to.
Performance management needs to operate at organisational, team and individual level if it is to
be effective. This means that organisational objectives inform the development of team and
individual objectives, and individuals and teams can feedback from the frontline to support the
development of future organisational objectives and plans. Using this approach helps to ensure
that support and development opportunities are appropriate, gives a wider perspective on service
issues, helps to identify any barriers to implementation and can assist with determining better
measures of effective performance.

The performance management process is cyclical, consisting of three stages, which are:

• Defining and planning: identifying what type of performance is required and how it can
be met.
• Delivering and monitoring: providing appropriate support and development and checking
• Evaluating: assessing whether or not performance is to the required standard, recognising
where standards have been met and seeking improvements where they have not.

Readiness for performance management

It is generally accepted that performance management is a key factor for achieving high quality
service delivery. However, for many organizations it remains an extremely tough issue to get
right, as there are many factors that contribute to whether the performance management
approach is effective, including senior management commitment, clear organisational objectives
and systems and processes that help rather than hinder.

The Employers' Organisation develops a questionnaire that organization can use to identify
whether or not they are ready for the performance management challenge and whether any
further work needs to be undertaken to prepare.

Organization can decide, against a number of statements related to areas such as commitment,
processes and skills, whether they are ready for performance management, nearly ready, some
way off or a long way off.
From this, organization can identify the priority areas that need to be improved before
performance management can be implemented effectively.

Ten steps to effective performance management

There are ten basic steps that organization needs to take to develop and implement an effective
performance management system. The emphasis should be on developing a strategy tailored to
help the organization perform well which is not too complex for the benefits it delivers.

1. Develop business plans

Business planning must take account of what can realistically be delivered with the organization
resources available and consider the people management implications. Once organization plans
and priorities have been established these then need to be translated into service, team and
individual performance plans. This is a highly skilled task that is critical for the performance
management process to work well. It is important that managers are given appropriate support to
carry this out effectively.

2. Establish what aspects of performance need to be measured

Any national or local performance indicators being used must be clearly communicated to staff
and elected members, along with other measures being used to define performance. The focus
should be on measuring what matters and trying to keep these measures to a reasonable number.

3. Set up systems to monitor and evaluate

Systems need to be set up to ensure that performance can be monitored and evaluated throughout
the year to ensure that it is improving service delivery. It is therefore essential that the
performance management approach supports the organization's organisational development and
people management strategies, so that it helps rather than hinders progress.
4. Define the general performance expectations of employees

This may be done through a combination of approaches such as the use of competences, policies
and procedures. Line managers should be given specific responsibilities for managing
performance. Effective ways of doing this are making it an explicit part of their job role and
incorporating how to manage performance into management training programmes.

In return there should be clear and consistent expectations of what is expected of employees
while they are working for the organization.

5. Agree specific performance objectives

Organization plans and priorities need to be translated into service, team and individual
performance objectives.

Agreeing individual performance and employee development needs is normally carried out using
a combined performance appraisal and staff development process. This approach provides the
framework for helping managers to translate service and team plans into individual plans and
objectives and agree how these will be met. Individual plans and objectives are most effective
when both manager and employee agree them. Objectives should be specific, measurable,
agreed, realistic and time bound (SMART).

6. Develop an internal communications system

It is normally accepted that to be effective messages need to be communicated in a range of

different ways that really target the group of staff you are trying to reach. There is a wide range
of different approaches that can be adopted to ensure staff is kept in contact with key
performance issues. For example, there are staff briefings; meetings; lunch time seminars; use of
the intranet; mini articles or stories in staff magazines; posters; bulletin boards; email alerts; line
management and supervision meetings.
Conducting regular staff surveys and running a suggestion scheme are also important ways of
ensuring that employees have opportunities to feedback on a wide range of issues that will
impact directly or indirectly on organisational performance.

7. Ensure the performance appraisal system is in place, is well

understood and working effectively

A performance appraisal system is traditionally used to set objectives, identify support needs and
measure progress against objectives. For it to work effectively it needs to be clearly understood
by both managers and employees. This means ensuring that managers have access to guidance
and training to ensure that they manage performance effectively throughout the year and
employees at all levels within the organization have the necessary support, guidance or training
to enable them to actively engage in the performance appraisal process.

The performance appraisal system should also be regularly reviewed to ensure that it is
achieving what is required.

8. Support employees to help them perform well

Effective induction and probation processes for new employees are extremely important in
setting the right expectations for performance on both sides. If this early stage is managed well it
may be possible to intervene to prevent or minimise individual capability issues later on through
personal development or redeployment. Feedback from this process may also highlight problems
with job design or recruitment processes, which then need to be rectified.

Responsibility for meeting staff development needs may be addressed in the team or service or
may be fed back to a central HR function for action. Whatever the approach, the organization
needs an overview of its organisational capability and how it plans to address any gaps that will
hamper the achievement of its objectives. This strategic human resource management would
normally be the responsibility of the HR function.

Developing employee capacity to deliver organization objectives is likely to be achieved in a

variety of ways. All employees, even those who have been in the same post for some time,
should be encouraged to consider how they are performing and what else they could learn or do
differently to deliver better services. In some cases these needs will be adequately met through
attending training courses but there are many other possibilities, such as job shadowing,
mentoring, e-learning, working on projects or reading manuals. Wherever possible the employee
should be given the opportunity to agree the most suitable option.

Performance needs to be actively managed and monitored throughout the year. An essential part
of this dialogue is the giving and receiving of feedback. For this to work effectively the
organisational climate must encourage the sharing of both success and failure. Without this
employees will be reluctant to comply and the quality of the feedback may be lacking. As well
as managers, employees at all levels in the organization may also need support, guidance or
training to enable them to actively engage in the performance appraisal process.

9. Seek performance improvement

Of course, there will be circumstances where performance does not meet the required standard.
At organisational level, this will mean identifying what the barriers are to effective performance
and putting in place a plan to deliver improvement. At both team and individual level the
principles will be the same, but it may be more difficult to manage, as individual sensitivities
and complexities may be at the fore.

Having in place a clear process for dealing with inadequate performance is important. However,
it is essential that the process does not take over from the desired outcome, which is to seek
performance improvement. Identifying the reason for inadequate performance is the first step.
From this the organization can determine further action, which may involve disciplinary
procedures; additional training or support; monitoring and review mechanisms; redeployment;
changing job roles or in some cases dismissal. It is also important that learning from these
actions is taken on board, for example to improve future performance management mechanisms
or selection methods.

Formal capability or disciplinary proceedings take time, effort and resources, which could
otherwise be targeted at more positive interventions, such as recognising good performance. If
performance management is embedded into day-to-day management practice it is likely that
inadequate performance will be managed and improved before it gets to this stage; that is why
following the performance management cycle on an ongoing basis is so important.

Organization should also review job design and work flexibility as ways of improving

10. Recognise and reward good performance

This is the part that many organisations forget; instead they take good performance for granted
and focus on those who have not met the standard. However, to retain motivation and
continuously improve, it is essential that good performance is recognised and where appropriate,
rewarded. Recognition and reward will mean different things to different people; for some
financial reward in the form of pay rises or bonuses may be important, whereas for others
recognition that their contribution has made a difference will be enough.

When determining what will be the most appropriate reward the organization will need to
understand what motivates their workforce and how they can meet this need. Pay systems and
processes will be important, but it will also be necessary to identify other reward mechanisms
such as opportunities for development and career progression.

Recognising performance is also about sharing success stories across the organisation and
highlighting how good performance helps the organisation as a whole. This may also help with
sharing good practice and learning about what works.

Action checklists

Performance management strategies only work if each group within an organisation knows
exactly what they are meant to be doing:

Members should:

• Recognise the impact performance management has on service delivery improvement

• Endorse the overall performance management strategy
• Ensure that resources are targeted appropriately
• Be exemplars of performance management practice in the way they manage the
performance of senior managers
• Identify and reflect on their own development needs
• Regularly monitor and review how the strategy is progressing and how it is improving

Senior managers should:

• Recognise the impact performance management has on service delivery improvement

• Ensure that corporate visions, objectives and plans are communicated down to service,
team and individual performance level
• Take a lead role in the development and implementation of the organization's
performance management strategy
• Ensure that resources are targeted appropriately
• Be exemplars of good performance management practice
• Set targets and monitor managers' performance against the strategy's objectives

Line managers should:

• Recognise the impact performance management has on service delivery improvement

• Ensure that organisational objectives are understood by team members
• Select the best people to perform particular jobs and tasks
• Regularly monitor and feed back to employees on their performance
• Seek advice and support in order to improve performance management practice
• Monitor how well their team is doing against the strategy

The HR team should:

• Support the development of the performance management strategy and ensure that it
reflects the wider people management context
• Ensure that all HR activities support the strategy
• Continuously develop their skills and capacity to help people manage performance
• Be exemplars of good performance management practice
• Make sure that the HR function is able to support and deliver against the strategy's

Employees and their representatives should:

• Be involved in the development and implementation of the strategy

• Ensure that they understand where their individual objectives fit with organisational,
service and team objectives
• Identify and reflect on their own development needs
• Ensure that their job meets service delivery needs and feedback any issues
• Regularly communicate with their manager.
• Empowering middle managers
• Focusing everyone in the organization in the same overall framework

It is now generally accepted that performance measures should be an integral part of modern
internal reporting system. The performance measures (or indicators) should:
• Be linked with corporate strategy;
• Mirror both internal & external concerns;
• Include financial and non-financial dimensions; and
• Be both leading and lagging indicators of performance.

It has recently been reported that companies who use suitable performance measurement systems
were much more likely to achieve leadership positions in their industry and were almost twice as
likely to have successfully implemented a major organizational change. Management
accountants who grasp the very simple idea of the BSC will considerably increase the capacity
of their organizations to survive and prosper. The important issue for management accountants is
to reflect on what Albert Einstein once remarked: Not everything that counts can be counted, and
not everything that can be counted, counts.

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