How to measure employees’ performance Essay

Emulation of strategies incorporated amongst organizations is a tell-tale whereby the former company is performing admirably efficient and effective through well formulated resources allocation on its strategy. Of the many decisions a company must face to achieve success is how to measure employees’ performance and how to reward them (Kleiner and Gautreau 2001). For the avant-garde management accounting information system, it cannot live on financial measure alone because management can manipulate such data by cutting cost, investing less and hence forth. The accounting system requires a mix of non-financial and financial data to give a more balanced view of firm’s overall performance (Bushman et al. 1996). Research by Cumby and Conrod, 2001 indicates that non-financial information is highly value-relevant for knowledge-based industries and shown as an effective tool to evaluate an academic organization and demonstrate accountability to government and the public (Dorweiler and Yakhou 2005). Current non-financials could also predict organization’s future financial performance (Smith 2005; Amaratunga et al. 2001). Unlike usual performance measurements system decades ago, more importantly now, is to measure performances relative to organizations’ goals and strategies. Amongst other key issues in the development of performance measurement tools in past decades have been quandaries pertaining customer loyalty. The emerging new generation is more educated with their customer rights thus, more demanding. Declining customer loyalty is due to extensive choices. Hence, corporations have to focus strategy and behavior to not merely selling products/services, but also serving customers (Hope and Fraser 2001). Moreover, there has been a need to increase firms’ pace of innovation. Competitions have proliferated and firms must constantly refresh their strategies and methods; generating new business concepts and processes while coping with the changing nature of technology (Kaplan and Norton 2001). Additionally, prices are falling and costs ought to reduce to remain competitive and profitable. Hence, operation costs are challenged (Inman 2000). Furthermore, talented people are hard to find; even harder to attract. Firms then have to provide a challenging work environment that enables personal development (Hope and Fraser 2001). Large businesses were leading and performing well financially but by early 80s they were displaced as market leaders as competitors vie through quality, innovation, etc (Anthony 1998; cited by Kleiner and Gautreau 2001). Managing intellectual capital or Knowledge Management, is vital to gain competitive advantage at this era. Knowledge management being a long-term strategy, development of BSC helps the company to align its management processes and focuses the entire organization to implement it (Arora, 2002). By ‘implementing’ meaning turning the scorecard into a true management system and sustaining the system (Rohm and Halbach 2006). With BSC, intangible assets are valued (Marr and Adams 2004) while above issues have been addressed also. The scorecard actually balances external measures with the internal measures, financial with non-financial information and short-run with long-run performance drivers (Johnsen 2001; Cobbold and Lawrie 2002a). Strategy of firm in BSC is matched between internal capabilities and external relationships (Kay 1993; cited by Johnsen 2001). Strategy implementation is balancing internal and external demands. Management control and performance measurement are concerned with decision relevance, thus, performance indicators on the BSC are important to managers (Mayston 1985; cited by Johnsen 2001). Learning and growth perspective in BSC can sustain efficient employees while shareholders and customers’ needs are met by realigning values and sustaining good customer relationship in the customer perspective in BSC. Besides, business processes are innovated to keep up with the increasing pace of market uncertainties. BSC helps staff understand more, unlike before, how they could contribute to the strategic success of the organization as well as proven to be a valuable tool in linking vision and strategy to daily actions (CIMA 2001). BSC appears to be very effective and valuable for a divisional manager in a large US company (Mouritsen et al. 2005). The BSC has definitely helped in daily planning activities for different industries. The strength of the scorecard is that it has ascertained the reasons due to its ‘balanced-nature’ (Carmona and Gronlund 2003). In higher learning institutions, the European Foundation for Quality Management was used as performance measurement, do not reflect interests of all stakeholders and not linked to strategic management. Studies show that BSC is adopted instead (Cullen et al. 2003). Hotels also rely on non-financial and financial indicators with increasing confidence in strategic issues (Harris and Mongiello 2001). By using BSC, organizations can also minimize the negative consequences of risk (Scholey 2006) and identify cost reduction opportunities, resulting in overall improvement (Anand et al. 2005). Albeit Cobbold and Lawrie, 2002a claimed BSC to be complete as no additional perspective of believed worth is added, in reality, variations in basic BSC are common; some add a fifth perspective such as stakeholders, economic factors (Rohm nd; Lord and Shanahan 2006). Some express skepticism about the claimed positive results and commented that BSC is just a number crunching-exercise by accountants or just another latest management fad (Angel and Rampersad 2005). Norreklit, 2000 argued that 4 perspectives do not accommodate all intangible assets, changing the BSC framework may put the causal logic of BSC into question (cited by Marr and Adams 2004). She also argued that the BSC is not a strategic control model because of its rigidness and static focus (Lord et al. 2005). BSC has also been criticized because it is bias towards shareholders and fail to address to employees and suppliers (Smith 2005). Hoque, 2003 states that with wide ranges of measures, may lead to information overload. But findings show that BSC is not perceived to be a fad (Lord et al. 2005). There also appears to have no cause and effect dysfunctional organizational behavior as claimed, the only causal is the improved performance in one perspective leads to an increase in another (Lord et al. 2005). BSC is maturing and approached because of its flexibility (Lord and Shanahan 2006; Bible et al. 2006). It has been argued that BSC does consider employee satisfaction through the learning and growth perspective (Hoque 2003). Numbers of performance measures used were satisfactory and information overload was overcome through BSC (Yeniyurt 2003; McWhorter 2003; Arora 2002). However, BSC experiences difficulty in linking performance measures to strategy (Lord et al. 2005). Other issues include it does not tackle human resource and uncertainties issues usually done in PESTEL analysis (Smith 2005). In recent years, the Porter’s model had made its debut to help managers develop and implement long-term strategy (Sims 2001). The model is used to gain competitive advantage over another but does not define for the strategic unit or as a corporation (Sims 2001). It also does not take into account the dynamics of markets which is rapidly changing. Another development adopted by large number of companies is the Economic Value Added [EVA], which includes the cost of capital, hence creating value but was heavily criticized for not being different from traditional methods (Yeniyurt 2003). The Skandia Navigator [SN] was later developed to measure intellectual capital by adding human perspective to the financial, customer, process and learning perspectives (Roslender and Fincham 2001; Shaikh 2004). Although this opened new research fields on intellectual capital, the SN lacks incorporating financial and non-financial measures which is required to provide better performance measurement (Scarbrough and Carter 2001). Works have been done to modifying the traditional budgeting system-Beyond Budgeting Round Table [BBRT] emerged coping faster with changes and uncertainties of product and strategy lifecycles; leading to lower costs and value creation (Hope and Fraser 2001). Management By Objectives [MBO] by Drucker, 1954 is found consistent with BSC-retained emphasis on achieving financial objectives, focusing on marketing and customers and pursuing innovation (Johnsen 2001). MBO is more open-ended but lacks a valid performance measure while BSC is focused (Anand et al. 2005). BSC usage is higher than other management tools like TQM or ABC (Hendricks et al. 2004). BSC initially was a performance measurement tool, after placing strategy into it, BSC evolved to a strategic performance measurement system, illustrating flexibility and maturity (Bible et al. 2006; Cobbold and Lawrie 2002). Failure to focus attention and commit onto scorecard management and communicating them are reasons BSC whither and die albeit how successful the tool has been (Richardson 2004; cited by Hendricks et al.2004). In conclusion, it is important to realize the limitations of BSC. However, successful implementation by managers would bring about many benefits. 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