Performance measurements and their benefits within the German service sector
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Research Proposal
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6th January 2020
– Performance measurement
– Operative controlling
– Key performance indicator
– Exploratory based research approach
– Germany
Table of Contents
Table of Contents i
1. Abstract 1
2. Introduction 2
2.1 Research Questions 3
2.2 Research Aim and Objectives 3
3. Literature Review 3
3.1 Performance Management 3
3.2 Benefits of program performance 5
3.3 Theoretical perspectives 7
3.3.1 Integrated approach in performance management 7
3.3.2 DSMC/ATI Performance Improvement model 8
3.4 Performance measurement within performance management 10
3.5 Clusters of performance measurement 11
3.5.1 Intrinsic Clustering 11
3.5.2 Extrinsic Clustering 12
3.6 Benefits of performance measurement 12
4. Research Methodology 14
4.1 Research Method and Analysis 14
4.2 Ethical Considerations of the Research Study 14
5. Conclusion 15
6. References 16
7. Appendix (1): CV 20
8. Appendix (2): Ethics approval form 21
9. Appendix (3): Intended timetable of research 25
1. Abstract
Performance management in business refers to analytic and business performance processes that enable the administration of a company to achieve the preselected goals. Many organisations in the service-industry apply different models of performance management depending on the market and dynamism of the business environment. Especially in the service industry performance management has an important role due the importance of human resources. Human resources need to be managed and steered to achieve the goals of an organisation which are defined by the management.
In practise I observed that the different models of performance management differ especially in terms of their usage of performance measurement. The performance management models of some organisations are much more KPI driven than others. Preselected goals are often quantifiable. I experienced that some organisations work with an overall target and others break down the overall target in different sections to track and steer each operational department. I overserved that there are different models of performance measurement which can be categorised into different clusters. Those clusters have different characteristics. I want to explore and define what are the different clusters of performance measurement. Another question is if there is a correlation between the level of KPI usage and success in business.
The research question is as follows: What various clusters of performance measurement are in the service sector and what are the benefits of the identified clusters? The research aims at exploring the different models of performance measurement and their benefits within the service sector.
The research objectives are to understand the different concepts of performance measurement in organisations, to recognize the various clusters of performance measurement and to identify the benefits achieved from the application of each clusters. Both qualitative and quantitative research methods are used in the study to ensure the research topic is fully explored, and the research objectives are met. Therefore, questionnaires, surveys and interviews are the primary data collection methods applied in the research. In the course of my research I will be in close contact with various managers of organisations that operate in the same industry and market. I will focus on the German service industry and especially on the temporary labour market.
Service industries are increasingly assuming essential roles in many societies and economies. Majority of the people in employment are within the service sector, which forms the most substantial part of the Gross National Product. In most cases, service industries rely on exceptional customer service to attract repeat business and stable operations. Especially in the temporary labour service industry, where the working arrangement is limited to a certain period of time based on the needs of the customer, customer service is key to establish a solid customer relationship. Clusters of performance measurement help organisations within the service sector to remain profitable, competitive, and successful.
The research gap is that previous studies, such as Mone & London (2018), have concentrated on mentioning the clusters of performance but there is a lack of in-depth study on the benefits of the models of performance measurement as applied by organisations in the service industry. This research will try to bridge the research gap through investigating and answering the research question.
2. Introduction
There are different clusters of performance measurement which are used by organisations depending on the market and type of industry. They include General Appraisal, 360-Degree Appraisals, Technological Performance Appraisal, Employee Self-Assessment, Manager Performance Appraisal, Project Evaluation Review, and Sales Performance Appraisal (Mone & London, 2018). Each of the various clusters of performance measurement has its benefits to the organisation in which it is applied. This research focuses on understanding the different models of performance measurement applied by different organisations in the service industry and the benefits accrued from the application of the particular model. The service industry is chosen since the success of organisations in the sector depends on the collective performance of its employees. Employees are a primary source of competitive advantage in service-oriented organisations (Luthans & Stajkovic, 1999). Also, the study examines the benefits associated with the application of a particular cluster of performance measurement to an organisation. To ensure comparability of the collected data the research will focus on analysing organisations which are operating in the same market. I will select the German temporary labour market due the high involvement of human resources.
In the first part of the literature review I will focus on performance management in general, the different models and their benefits. After that I will describe the correlation between performance management and measurement and will point out the importance of performance measurement. Based on that information, the study seeks to explore the issue of clusters of performance measurement and their various benefits to the service sector.
2.1 Research Questions
i. What various clusters of performance measurement employ in the service sector?
ii. What are the benefits of the identified clusters of performance measurement within the service sector?
2.2 Research Aim and Objectives
Research aim: To assess the effects of clusters of performance measurement in the service sector
The following are the specific research objectives of the study.
i. To analyse the concept of performance measurement in organisations.
ii. To recognize the various clusters of performance measurement that are used in organisations within the service industry.
iii. To identify the effects from the application of each clusters of performance measurement within the service sector.
3. Literature Review
3.1 Performance Management
Performance management was introduced into the business world more than sixty years ago (citation?) and became part of the income justification and was used to determine employee’s wages based on performance. There were gaps between the development of knowledge and skills and the rationale for pay among employees (Guest, 2017). However, through the introduction of performance management, there was a comprehensive approach to managing and rewarding performance. The development of performance management was accelerated by the introduction of human resource management, especially in the service sector that led to the adoption of more integrated approaches to the development and management of employees. Many business organisations have systems that promote employee appraisal, and they integrate performance management to ensure the employee’s activities, and outcomes are congruent with the various objectives of the firms (Ogbonnaya & Messersmith, 2018). Effective performance management defines clearly the firm’s developmental plans and encourages discussions within the performance, which include issues such as assessment, feedback, mentoring, and coaching. One of the challenges that management faces is to align the workforce with the strategic plan with the primary aim of driving performance improvement. Usually, for an organisation to be successful in achieving the set goals and objectives, there is a need to develop a shared workforce that understands the various needs of established organisational levels (Guest, 2017). Firms should, therefore, align their objectives with that of the employees and should have agreed means and methods of assessing skills, development of plans, and delivery of results. Otherwise, a company risks having misplaced work efforts that result in reduced development opportunities. Individual employees in an organisation should know their responsibilities and roles to play in the overall plan to gain and improve the organisation profitability.
The main activities related to performance management include goals selection and consolidating the measurement information about the goals. The activities also include the various interventions made by the managers to improve the future performance of the goals. Usually, business performance management involves reviewing of the entire business and determining the different ways of achieving the objectives. Therefore, companies need to align their strategic goals and objectives in the best way possible to manage their performance.
To introduce performance management into a company, organisations need to understand the market and working environment before selecting the appropriate cluster of performance management (Mone & London, 2018). Performance management involves the setting of performance targets and the implementation of continuous assessment. The setting of performance targets involves establishing goals for both the organisation and individual employees. The set organisational goals are communicated to the employees for them to understand what the company seeks to achieve within a stipulated amount of time (Guest, 2017). Setting performance targets require holding meetings attended by both the company management and all employees in the organisation. The meetings are aimed at discussing the individual efforts that will enable the organisation to attain the set goals (Krishnan, 2013). Continuous assessment helps to define whether the performance of the organisation is in line with the organisational goals (Karkoulian, et al., 2016). Additionally, the continuous assessment helps in ascertaining the help required to facilitate the successful enhancement of performance (Krishnan, 2013). Through continuous assessment, it is possible to understand the barriers hindering the attainment of high organisational performance in the service industry. Proper understanding of the factors hindering performance can help in adopting the most suitable performance management model. Identification of any gaps in the process of performance management is useful in an organisation and is referred to as performance coaching (Karkoulian, et al., 2016).
Continuous assessment is achieved by establishing regular time intervals at which evaluation of performance is carried out. The evaluation incorporates an assessment of the organisation’s systems or processes and the evaluation of the performance of individual employees (Hollenbeck & Jamieson, 2015). The regular and consistent assessments serve to ensure that the individual’s performance is on track and any assistance required is offered on a timely basis. The assessment reveals the challenges encountered by both the management and individual employees in completing their tasks which are geared towards the attainment of organisational goals.
According to Spreitzer & Porath (2012), there are four fundamentals of performance which promote sustainability in organisations (Spreitzer & Porath, 2012). The fundamentals include discrete decision-making, provision of performance evaluation feedback, sharing of information, and adopting the best conduct at the place of work. The evaluation and feedback provided after the assessment help in comparing the performance progress of employees with the set organisational goals (Krishnan, 2013). Self-appraisal is considered as one of the best practices of enhancing employee performance since it emphasizes on the intrinsic drive to attain targets. The assessment results are used to guide the organisation’s management in selecting the best cluster of performance management for purposes of improving the productivity of the organisation (Gerrish, 2016).
3.2 Benefits of program performance
The quantification of performance is carried out through the use of Key Performance Indicators (KPIs). It is possible to use KPIs to obtain a precise approximation of both the organisation and individual employee. The importance of using KPIs in the research study is because they reveal the crucial aspects of success for a particular firm within the service industry. The research considers the use of KPIs in quantifying success levels since they facilitate projections of performance (Erenrich, et al., 2015). The utilization of the Key Performance Indicators (KPIs) will be useful in this research study since it will help in understanding the profitability and level of efficiency exercised in the organisation. Furthermore, the use of KPIs in quantifying success helps in establishing a correlation between performance drop and factors affecting individual attainment of tasks (Agha, 2013). The KPIs selected to evaluate the performance of organisations within the service industry will be specific, measurable, attainable, realistic, and timely.
Not all organisations implement performance management or follow the same model by using the same set of KPIs or carrying out continuous assessment. Hewitt Associates (1994) undertook a study aimed at tracking the economic performance of 437 public companies in the US through the BCG matrix (Hewitt Associates, 1994).
Figure 3.1.1: BCG Matrix
The study found that companies who utilised models for performance had stocks that were stronger in the market, higher profit, better cash flow and even greater value of stocks, as compared to companies that did not utilise performance management. Furthermore, Hewitt Associates (1994) found that the productivity of companies that lacked performance management was far below the standards in the industry, whereas the productivity of firms that utilised performance management was on par with the common in the industry.
Besides hard factor such as quantifiable goal-setting models of performance management must take into consideration the behaviour of human beings as behaviour and culture are crucial in the design and execution of an effective performance management system (Watkins, 2007). According to Sole (2009), aspects that influence systems for management of performance in public organisations tend to either be internal or external (Sole, 2009). Internal factors include: commitment on the part of internal management, the resource in the organisation, a culture that is performance oriented, maturity of systems for performance management and employee engagement with leadership in an organisation (Kohli & Deb , 2008). External factors that influence performance include labour unions, citizens, elected officials and legal requirements. However, internal factors tend to the most crucial factors in the execution of systems for performance management more in terms of costs and limitations on time. Internal factors could be the overall atmosphere within an organisation or the motivation of the employees.
Jain and Gautam (2014) found that, some enterprises are less likely to adopt systems for performance management as compared to others. These firms tend to follow traditional functions in human resources such as recruitment, selection, compensation as well as training (Jain & Gautam, 2014). Therefore, the research is focussing on identifying the use and benefits of different performance management models in the service industry.
3.3 Theoretical perspectives
3.3.1 Integrated approach in performance management
According to Armstrong and Baron (Armstrong & Baron, 2004), management of performance is an approach that is both integrated and strategic in the delivery of success that is sustained to a firm through the improvement of performance of individuals by enhancing the abilities of individuals and teams. Performance management is regarded as a deliberate tool since it pertains to the accomplishment of the long-term objectives of an organisation and successful functioning of an enterprise in the external environment. There are four types of integration in performance management, namely: vertical, human resource, functional and goals.
Vertical integration refers to the alignment of the goals at organisational, personal and team levels and incorporating them together for performance that is effective. The teams as well as individuals agree to a conversation to work as per broad framework of organisational objectives and standards (Poister, et al., 2014). Human resource integration ensures that there is integration that is effective in different subsystems of human resource management in the attainment of optimum performance in organisational goals (Armstrong & Baron, 2012).
Goal integration centres on arrival at a correspondence between the goals, requirements and aspirations of employees and the objectives and goals of the organisation. Functional integration deals with centring various efficient energies, policies, plans and approaches to tasks at dissimilar parts and levels of the organisation (Armstrong & Baron, 2012).
3.3.2 DSMC/ATI Performance Improvement model
This model is primarily a model used for creating improvements for projects. The model is made up of 7 steps and starts with the establishment of a cultural background and results in the implementation of a sequence for continuous development of projects aimed at enhancing organisational performance.
Figure 3.1.2: DSMC/ATI Performance Improvement Model
The first step in the model entails the establishment of transformation improvement process management, as well as the cultural environment. The process of transformation improvement is an approach that entails the entire organisation towards the improvement of the services and products. This step requires that the management exercises the leadership to come up with conditions that allow the project to flourish. In addition, the management also plays a dominant role in the creation of a new and flexible environment which encourages the acceptance of the change. The new culture allows team work and the use of the talents of the employees and thus contributing to the organisation’s objective of excellence (Greene, 2018).
The second step entails the definition of the mission. The mission of every part of the organisation should offer a perspective that when combined with other parts will provide the synergy needed to offer positive improvement of performance. The development of the mission also entails ensuring that all members of the firm are aware of the role of their jobs, their consumers and their dealings sections (Greene, 2018).
The third step entails setting of the objectives for performance enhancement. The objectives set must reflect an appreciation of the firm’s process ability which ensures that the goals that are set are realistic. The objectives should firstly be set by the top level of management and should reveal the alternatives that are strategic for the survival of the organisation. The next step entails of the establishment of project and action plans that are improved. The direction and goals initially set for continuous improvement teams flowed down from the top level of management (Greene, 2018).
The fifth step entails the implementation of performance tools and methodologies. This is because the methodology requires as structured methodology for improvement. This step requires that the processes, measures and processes are all defined. The improvement methodology is a process that is both cyclical and infinite (Greene, 2018). The next step is evaluation. Measurement of performance and improvement process is essential for transformation and continuous improvement of processes in an organisation. This stage centres on the value in the development of efforts and comes up with areas that require improvements in the future. In addition, it is critical that the significance of advancement is measured in units that are meaningful and pertinent to the specific task.
The final step in the DSMC/ATI Performance Improvement model is reviewing and recycling. This step aims at making improvement a continuous process that is permanent in the organisation. The need for continuous review and recycle stems from the fact that approaches that result in positive conversion for constant improvement have restricted lifetimes and will become unproductive if left unattended to (Greene, 2018).
3.4 Performance measurement within performance management
Performance measurement is a process within the performance management process that involves identification and communication of the evaluation results based on performance indicators (McAdam, et al., 2014). The measurement of indicators enables the management to take actions based on the evaluation of results to ensure that organisations achieve their target goals. According to Smith and Bititci (2017), performance measurement theories support the co-existing of social and technical controls that are considered simultaneously when measuring indicators (Smith & Bititci, 2017). On the contrary, literature agrees that the management of the organisation through measures ensures that they perform better than those managed with other tools.
Similarly, the study by McAdam et al. (2014) found that linking performance measures with pay may enhance control and command practices to reduce engagement levels within an organisation. Studies have investigated many taxonomies and classifications of measures that explore the behaviour of individuals, groups as well as organisations. For instance, the study conducted by Donaldson and Luo (2014) explains the method used by Aston studies to classify organisations as Weberian, charismatic, humanistic and neo-liberal economic to demonstrate the concurrency between social and technical controls (Donaldson & Luo, 2014). However, both controls are separate but interrelated complementary concepts critical in performance management.
Performance measures enable an organisation to quantitatively identify indicators that are important for the products and services as well as associated production processes. Social and technical controls help in understanding, managing and improving organisational processes. According to McAdam et al. (2014), performance measurement is critical in supporting a performance management system. The study by Bititci et al. (2012) found that performance measurement models and frameworks enhance the effectiveness of the business strategy (Bititci, et al., 2012). However, few studies focus on performance measurement in the public sector, whereas most of the recent researches investigate private corporations. Donaldson and Luo (2014) argue that the rational control approach concentrates on structural management mechanisms to secure effective control and coordination of interaction within an organisation. Therefore, performance measurement is an integral sub-process within the performance management that enables the organisation to achieve its goals and objectives in production and service delivery.
3.5 Clusters of performance measurement
The application of clusters in performance measurements involves the use of an unsupervised algorithm to evaluate data points from groups. According to Yin and Huang (2014), before analysing clustering performance, the dataset must not be uniformly distributed (Yin & Huang, 2014). However, if the performance data does not have clustering tendency, the clustering algorithms are irrelevant. Yin and Huang (2014) found that no-uniform distribution of points within the evaluation dataset is critical for performance clustering within an organisation. The study by Kou, Peng, and Wang (2014) evaluated clustering algorithms and provided an example of the number used in optimal clusters when assessing processes within a firm (Kou, et al., 2014). According to Kou et al. (2014), the study results are based on k-means that were generated from the k-clusters. The research has found that if k is too high, every point presents a cluster; however, if k is too low, the points within the dataset are not correctly clustered. On the contrary, Zalaghi and Varzi (2014) argue that the number of performance measurement clusters depend on the shape of data distribution, dataset scale and clustering resolution (Zalaghi & Varzi, 2014). Zalaghi and Varzi (2014) contradict their findings by concluding that the process of finding number of clusters in a dataset is a subjective problem and did not state how this limitation can be avoided or overcome when measuring performance using clusters. Performance clustering is divided into intrinsic and extrinsic clustering.
3.5.1 Intrinsic Clustering
The choice of clustering evaluation measures depends on the availability of the ground truth within the performance dataset. According to Cerasoli, Nicklin, and Ford (2014), intrinsic measures do not require ground truth indicators (Cerasoli, et al., 2014). The method is used to evaluate internal performance clusters such as employee relation and engagement, productivity, knowledge on how to use machines and equipment, human resource management and technical controls. The study by Ali (2016) on employee performance has found that good scores in internal clusters do not translate to the effectiveness of performance measurement (Ali, 2016).
On the contrary, Cerasoli et al. (2014) argue that the measurement of internal clusters can be replaced by direct evaluation of interest application when assessing the performance of on organisation. The process involves examining the rate of changes in shareholders’ interest within a specific period. The intrinsic clustering performance measures include Davies-Bouldin Index and Silhouette Coefficient (Cerasoli, et al., 2014). Therefore, intrinsic clustering measures are critical in assessing the performance of internal business environment.
3.5.2 Extrinsic Clustering
Extrinsic measures require the availability of ground truth to assign a clustering performance score. The method involves the use of BCubed precisions as well as recall metrics that are traditional and unsupervised performance approach. According to Ali (2016), auditors or assessors do not need to know clusters’ labels before the evaluation process. Ali (2016) found that BCubed metrics are critical in evaluating the recall and precision of the clustering objects in a specific dataset based on the ground truth. The precision presents indicators on how metrics in a particular dataset belong in the same cluster. Additionally, Zalaghi and Varzi (2014) explain that the recall reflects how objects in the same group are assigned to the same cluster. Examples of extrinsic clusters are Adjusted Rand Index, mutual information bases scores, V-measure and homogeneity. Extrinsic measures are critical in measuring external performance clusters that involve relationship between the performance management and external business environmental focus such as corporate social responsibility, technology, political and economic factors (Cerasoli, et al., 2014). Measuring how an organisation deals with these factors helps in enhancing the effectiveness of performance scores.
3.6 Benefits of performance measurement
Implementation of performance measurement systems is associated with substantial benefits to the organisational management. According to Slovak et al. (2018), the measurement process involves continuous learning where performance feedback is used to assess achievements as well as making decision to adjust initiatives and strategies to enhance effectiveness of activities and services towards organisational mission and vision (Slovak, et al., 2018). The study by Zwikael, Chih, and Meredith (2018) on project management found that the evaluation also provides balanced as well as systematic strategies of assessing workforce and organisational performances from different perspectives such as productivity, financial and customer-employee relationship (Zwikael, et al., 2018). According to Harbour (2017), improvement of decision making within an organisation is critical due to change in technology, policies and other external factors (Harbour, 2017). Performance measurement ensures that these decisions are made at all levels such as operational, strategic and individual levels. The study by Valmohammadi and Ahmadi (2015) reports that the performance measurement is not concerned with collection of data about a predefined performance goals or objectives, but should be thought as a management system within an organisation (Valmohammadi & Ahmadi, 2015). According to Slovak et al. (2018) study, evaluation of the performance measure is critical in prevention and detection of organisational risks that influence the achievement of work product conformance as well as effectiveness and efficiency of product and services.
The performance measurement processes occur in a continuous cycle to allow expansion and improvement options of work processes as well as products and ensure better mechanisms are discovered and implemented. The management is able to control activities after they are measured. Slovak et al. (2018) argue that if the organisation cannot measure the effectiveness of a process, it cannot control or improve its performance. Therefore, measuring performance clusters helps in developing techniques to improve their performances. The study found that when performance is measured and reported, the probability of improvement increases. The findings by Valmohammadi and Ahmadi (2015) agree that the measurement of controls such as technical and social controls help in reducing variations between performance clusters by ensuring improved performance in all departments, which increases the overall organisational performance. Based on the findings by Zwikael et al. (2018), some companies have implemented self-assessment as a tool for performance measurement. The method is used in assessing the efficiency of processes as well as the personal improvement made by employees.
Performance measurement also ensures continuous improvement through detection of defect process trends and sources to ensure process efficiency and effectiveness as well as improvement opportunities. Evaluation process also enhances management assessment that involve planning, detecting variations and meeting the established goals from different performance levels to restore it to the required levels or achieve new advanced level (Zwikael, et al., 2018). Additionally, Slovak et al. (2018) argue that the measurement enables the management to evaluate underperforming indicator and identify the key issues and areas for improvement. Therefore, performance measurement is a tool that informs management on the new system to implement or change of technique using to managing organisational processes.
4. Research Methodology
4.1 Research Method and Analysis
Both qualitative and quantitative methods of data collection and analysis will be used in this study. Surveys will be administered electronically, face-to-face, mail, or by use of a telephone to managers and individual employees from selected ten companies operating in the service industry. The ten selected companies are operating in the same market. This will help to compare the individual set up of performance measurement. The companies focus on selling temporary labour. A temporary labour company finds, hires and sends temporary workers on assignments to work at the other companies. The employment situation is limited to a certain period of time based on the needs of the employing organisation. Human resources are the assets and therefore have an important role within this industry. To steer operations management often uses performance measurement as a tool. The ten selected companies have a relevance in German temporary labour market due to their annual cumulated turnover compared to the market size.
With each executive manager of the ten selected companies a questionnaire for quantitative data and then semi-structured interview for qualitative insights into the quantitative results will be conducted using either face-to-face or telephone to understand what performance measurement models each organisation is using.. The information gathered will be recorded and analysed. To make viable conclusions I will use exploratory and descriptive data analysis. This statistical analysis will help to discover patterns, to test hypothesis and to check assumptions. This will help to understand what are the specific benefits of the application each performance measurement model.
4.2 Ethical Considerations of the Research Study
The resource persons in the study will intelligently, voluntarily, and knowingly give their informed consent to participate in the interviews. Also, all the possible risk involved in participating in the research will be known to the respondents before they participate in any activity such as fill in the questionnaires and responding to the various interview questions (Good & Rodrigues-Fisher, 2016). Confidentiality and respect for anonymity and privacy will be observed in the study, and thus, no personal information of the respondents will be attached to their responses.
5. Conclusion
The contribution of this study is to help organisations in the service sector to select a cluster of performance measurement which help them to reach their set goals. The research results can be also used when working to further develop other companies to enhance their performance by implementing performance measurement. Practical application of the research results could also bring benefit to consultants providing service.
6. References
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7. Appendix (1): CV
8. Appendix (2): Ethics approval form
9. Appendix (3): Intended timetable of research