Conference Paper by André de Waal and Béatrice van der Heijden
Purpose: In order to create a High Performance Organization (HPO), managers and employees have to behave in such a way that the objectives and goals of the organization are achieved on a world-class level. In practice, this means that the organization’s performance management system has to provide the right information so that the organisation’s members can behave in a performance-driven manner. This article goes into the relationship between performance management and the HPO.
Design/methodology/approach: For this research, the Performance Management Analysis (PMA) and the HPO Framework and were used. A questionnaire, which combined questions on PMA dimensions and HPO factors, was administered to two Europe-based multinationals. 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 the latter in the light of organizational success.
Findings: Theoretically, a strong correlation between the PMA and the HPO Framework was predicted. The research results indeed showed strong and significant correlations between all the PMA dimensions and all the HPO factors , indicating that a performance management system that fosters performance-driven behaviour in the organisation is indeed of critical importance to create an HPO.
Originality/value: This research adds to the literature in the sense that factors of high performance have now been correlated with the characteristics of the performance management system. This makes it possible for organizations to work in a more focused and targeted manner towards improving the organization’s performance management system and herewith on strengthening the organization.
Keywords: performance management, performance-driven behaviour, performance management analysis, PMA, High Performance Organisation, HPO
In recent years, a consensus seemed to have emerged about the advantages of applying performance management in an organization. Increasingly, researchers found that performance management enhances the financial results of an organization, in the sense that revenue and profits increase while costs decrease (Malina and Selto, 2001; Sim and Koh, 2001; Davis and Albright, 2002; Said et al., 2003; Braam and Nijssen, 2004; Davis and Albright, 2004; Neely et al., 2004; Robinson, 2004). They also reported considerable non-financial advantages of performance management, such as 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, higher innovativeness, higher employee satisfaction and customer satisfaction, and a strengthened reputation of the organisation (Malina and Selto, 2001; Shulver and Antarkar, 2001; Lovell et al., 2002; Baraldi and Monolo, 2004; Heras, 2004; Neely et al., 2004; Papalexandris et al., 2004; Robinson, 2004; Lawson et al., 2005; Tapinos et al., 2005; Meekings et al., 2009; Maley and Moeller, 2014).
However, Waal and Kourtit (2013) did find some disadvantages from using performance management, such as information overload, too much subjectivity, too much financial and backward-looking information, and a too expensive and bureaucratic approach, but these disadvantages were only found on a limited scale. In summary, it can be said that implementing performance management is considered to be a constructive means for an organisation to gain competitive advantage and to continuously react and adapt to external changes (Chau, 2008; Cocca and Alberti, 2010).
As such, performance management may be a useful tool for organizations to support them in their journey toward becoming an high performance organization (HPO). An HPO is defined as an organization that achieves financial and non-financial results that are exceedingly better than those of its peer group over a period of five years or more, by focusing in a disciplined way on that what really matters to the organization (Waal, 2012). In order to create a sustainable HPO, managers and employees alike have to behave in such a way that the objectives and goals of the organization are achieved on a world-class level. In practice, this implies that the organization has to be structured to such an extent that its performance management systems provide the right information so that the organisation’s people can behave in a performance-driven manner. In this article, the relationship between performance management and the HPO is investigated on a detailed level, using the Performance Management Analysis (PMA) (Waal, 2010) and the HPO Framework (Waal, 2012), in order to evaluate which dimensions of performance management have the highest impact on achieving high performance. This is important because the outcomes of this research can be used by organizations to shape their performance management systems, which, in turn, will help them in their quest to become an HPO. This article is structured as follows. In the next two sections, the HPO Framework and the PMA are described. Then the methodological approach and research results are given. The article ends with a conclusion, the limitations of the research, and opportunities for future research.
THE HPO FRAMEWORK
The HPO Framework was developed on the basis of a descriptive literature review of 290 academic and practitioner publications about high performance (Waal, 2012, 2014). Out of each of the reviewed publications, those elements were extracted that the authors regarded as essential for becoming an HPO. Because the authors of the various scholarly contributions used different terminologies, the identified elements were grouped into categories which constituted possible HPO characteristics. For each of the possible HPO characteristics, the ‘weighted importance’ was calculated, i.e. the number of times that it was mentioned in the publications. Finally, the possible HPO characteristics with the highest weighted importance were included in an HPO
questionnaire which was administered worldwide and which encompassed more than 3,200 respondents. In this questionnaire, the respondents had to grade how well they thought their organizations were performing with respect to the HPO characteristics (on a scale of 1 to 10), and also what their organizational results were compared to their peer group (consisting of to their organization comparable firms). By performing a statistical analysis, 35 characteristics which had the strongest correlation with organizational performance were extracted and identified as the HPO characteristics.
The correlation was as expected: the high-performing organizations scored higher on the 35 HPO characteristics in comparison with the low-performing organizations. This means that organizations that pay more attention to these 35 characteristics achieve better results than their peers, in every industry, sector and country across the world. Conversely, organizations which scored low on the characteristics appeared to rank at the bottom of their industry performance-wise. A factor analysis, performed during the statistical analysis, resulted in the determination of five distinct HPO factors.
The five HPO factors are described underneath (for a detailed description see Appendix 1):
1. Management Quality. In an HPO, belief and trust in others and fair treatment are encouraged. Managers are trustworthy, live with integrity, show commitment, enthusiasm, and respect, and have a decisive, action-focused decision-making style. Management hold people accountable for their results by maintaining clear accountability for performance. Values and strategy are communicated throughout the organization, so that everyone knows and embraces these.
2. Openness and Action-Orientation. HPOs have an open culture, which means that management values the opinions of employees and involves them in important organizational processes. Making mistakes is allowed and is regarded as an opportunity to learn. Employees spend a lot of time on dialogue, knowledge exchange, and learning, to develop new ideas aimed at increasing their performance and make the organization performance-driven. Managers are personally involved in experimenting thereby fostering an environment of change in the organization.
3. Long-Term Orientation. An HPO grows through partnerships with suppliers and customers, so that long-term commitment is extended to all stakeholders. Vacancies are filled by high-potential internal candidates, and people are encouraged to become leaders. The HPO creates a safe and secure workplace (both physical and mental), and lays off people only as a last resort.
4. Continuous Improvement and Renewal. An HPO compensates for dying strategies by renewing them and making them unique. The organization continuously improves, simplifies and aligns its processes and innovates its products and services, creating new sources of competitive advantage to respond to market changes. Furthermore, the HPO manages its core competences efficiently, and out-source non-core competences.
5. Workforce Quality. An HPO assembles and recruits a diverse and complementary management team and workforce with maximum work flexibility. The workforce is trained to be resilient and flexible. They are encouraged to develop their skills to accomplish extraordinary results and held responsible for their performance, as a result of which creativity is increased, leading to better results.
The HPO Framework is build upon the idea that there is a direct and positive relationship between the identified HPO factors and competitive performance: the higher the HPO scores the better the performance of the organization, and vice versa. An organization can empirically investigate its HPO status by having management and employees fill in an HPO questionnaire and calculating the average scores on the HPO factors.
When looking in more detail at the HPO characteristics, several characteristics can be noticed that have a direct relation with performance management: “The organisation is performance-driven”; “The management of the organisation focuses on achieving results”; “In the organisation everything that matters to the organisation’s performance is explicitly reported”; “In the organization both financial and non-financial information is reported to organizational members”; “Management coaches organizational members to achieve exceptional results”; “Management focuses on achieving results”; and “Management inspires organizational members to accomplish extraordinary results.”
Thus, theoretically, a strong correlation between performance management and the HPO Framework can be predicted. To evaluate whether this is the case, the performance management system of an organization has to be empirically tested on its ability to actually support the organization toward high performance. This can be done by relating the HPO Framework to the so-called performance management analysis.
THE PERFORMANCE MANAGEMENT ANALYSIS (PMA)
A technique which can be used to assess the quality of performance management in an organization is the performance management analysis (PMA) (Waal, 2010). The PMA makes a distinction between the structural and the behavioural side of performance management. The ‘structural side’ deals with the systems’ architecture which needs to be in place to be able to use performance management. This usually involves determining Critical Success Factors (CSFs) and Key Performance Indicators (KPIs), and designing a Balanced Score Card (BSC). The ‘behavioural side’ deals with the organizational members and their use of the PMS. The PMA is based on the principle that the two sides, that is, the structural and the behavioural side, need to be given equal attention in order to establish a performance-driven organization. There are many things that can be measured and reported in an organization, but they will be of little value if organizational members do not use this performance information. Conversely, goodwill of organizational members does not account for much when they cannot access the performance information needed to display performance-driven behaviour. The PMA enables an organization to actually assess the degree of performance-driven behaviour.
The nine PMA dimensions are described underneath (for a detailed description see Appendix 2):
- Responsibility structure (structural dimension): A clear parenting style and tasks and responsibilities have been defined and these are applied consistently at all management levels.
- Content (structural dimension): Organizational members use a set of financial and non-financial performance information, which has a strategic focus through the use of CSFs and KPIs.
- Integrity (structural dimension): The performance information is reliable, timely and consistent.
- Manageability (structural dimension): Management reports and performance management systems are user-friendly and more detailed performance information is easily accessible through ICT systems.
- Alignment (structural): Other management systems in the organization such as the human resource management system, are aligned with performance management, so what is important to the organization is regularly evaluated and rewarded.
- Accountability (behavioural dimension): Organizational members feel responsible for the results of the KPIs of both their own responsibility areas and the organization as a whole.
- Management style (behavioural dimension): Senior management is visibly interested and involved in the performance of organizational members and stimulates an improvement culture and proactive behaviour. At the same time, it consistently confronts organizational members with lagging results.
- Action orientation (behavioural dimension): Performance information is integrated in the daily activities of organizational members in such a way that problems are immediately addressed and (corrective or preventive) actions taken.
- Communication (behavioural dimension): Communication about the results (topdown and bottom-up) takes place at regular intervals as well as the sharing of knowledge and performance information between organizational units.
Sample and Procedure
For this research, the PMA and the HPO Framework were combined in one questionnaire, which was distributed to two multinational companies operating in Europe. One of the organizations was a bank of which the Dutch branch offices participated. The other organization was a car rental agency of which the sales offices in five countries (Netherlands, UK, Spain, Germany, France) participated. In the questionnaire, managers and employees of an organization were asked to rate their organization on the 35 HPO characteristics and the nine PMA characteristics, on a scale of 1 (the organization does not satisfy the characteristic at all) to 10 (the organization satisfies the characteristic completely). The scores of all respondents were averaged for
the five HPO factors and the nine PMA dimensions. In total, 468 valid questionnaires were received, out of a possible total of 2,024 respondents, implying a response rate of 23.1 percent. Using the final valid sample of 468 respondents, a correlation analysis was performed on the HPO factors and the PMA dimensions.