The Role of Performance Management in Creating and Maintaining a High-Performance Organization

Abstract

There is still a good deal of confusion in the literature about how the use of a performance management system affects overall organizational performance. Some researchers find that performance management enhances both the financial and non-financial results of an organization, while others do not find any positive effects or, at most, ambiguous effects. An important step toward getting more clarity in this relationship is to investigate the role performance management plays in creating and maintaining a high-performance organization (HPO). The purpose of this study is to integrate performance management analysis (PMA) and high-performance organization (HPO). A questionnaire combining questions on PMA dimensions and HPO factors was administered to two European-based multinational firms. Based on 468 valid questionnaires, a correlation analysis was performed on the PMA dimensions and the HPO factors in order to test the impact of performance management on the factors of high organizational performance. The results show strong and significant correlations between all the PMA dimensions and all the HPO factors, indicating that a performance management system that fosters performance-driven behavior in the organization is of critical importance to strengthen overall financial and non-financial performance. Research on the effects of performance management on organizational performance has produced conflicting results (Neely, 2005), suggesting that the impact of performance management is still not well understood (Pavlov & Bourne, 2011). A recent review by de Waal and Kourtit (2013) lists both financial advantages (revenue and profits increase while costs decrease) and non-financial advantages (improved communication, closer collaboration, better knowledge sharing, stronger focus on what really matters and on the achievement of results, better strategic alignment, higher operational efficiency, higher commitment of organizational members, more innovation, higher employee and customer satisfaction, and a strengthened organizational reputation). On the other hand, the same review also found disadvantages of using a performance management system, including information overload, too much subjectivity, too much financial and backward-looking information, and an expensive, bureaucratic management approach. Rangone (1997) remarked that the link between the use of performance measures and organizational effectiveness has been widely recognized but that explanations for this relationship are constrained by the lack of a clear theoretical foundation. Almost two decades later, lack of theory still seems to be an issue, judging from Brudan's (2010: 110) lament that "the lack of standards regarding the definition, classification and usage of specific tools make both research and application of performance management principles difficult." Pavlov and Bourne (2011) pointed out that the literature thus far has not demonstrated how performance