Introduction to Performance Management System
A performance management system refers to the process of continuously identifying, evaluating and improving performance at the workplace (Aguinis 2009). This system is managed by the human resource team. It is different from performance appraisal which only identifies the strength and weaknesses without doing it continuously or taking action. Deals Pharmaceuticals is a company that engages in the development, marketing, distribution and research of pharmaceutical products. Sales and marketing of medical products are one of the major operations at the pharmaceutical company and for this reason, the performance of the employees greatly contributes to achieving the company’s goals. It is, therefore, important to keep the employees motivated and working to their full potential towards the goals of the company
It is important to develop a system that keeps track of the performance of the employees and enables the managers to make decisions using this information. The introduction of a performance management system leads to easier management of performance by the employees and engagement between the employees and the managers. An efficient system also gives HR managers more time to concentrate on aligning their goals at work (Bacal 2011). The performance management system gives them a chance to create development strategies based on the staff performance. Employees can be more productive when dealing with an effective system due to the motivation provided by the system and a high self-esteem with regard to their performance.
Considering the case of Deals Pharmaceuticals, a company that deals with the sale of medical drugs, lack of motivation and not addressing poor performance has been identified to be leading to poor sales and financial loss to the company. The company was also making a little profit due to competitors taking advantage of their poor performance. There is a need in the company to identify the top talent and make sure all the talent has its focus on the company’s mission. Poor performance resulting from lack of proper talent management also creates pressure from competitors and consequent financial losses (Gruman and Saks 2011). Top talent is frustrated at work and poor talent is not given a chance to improve and the performance of all the employees at Deals Pharmaceuticals is therefore poor.
The current state of managing performance at Deals Pharmaceuticals is as a result of the use of annual performance appraisals where the sales manager fills out performance forms of the sales agents and forwards them to human resource. This method is ineffective because no improvements are made based on the results of this evaluation. The sales manager is also unable to gather any information from the agents who are always in the field. Action, in this case, would be conversations between employees and management with the administration of necessary coaching (Hameed and Waheed 2011).
Importance of Performance Management System
The HRM initiative in this situation will be to transition from the yearly appraisals to a system that allows for conversation after performance evaluation. The conversations will then lead to a declaration of each individual’s targets and goals and evaluation done every six months to figure out if the goals have been achieved. Proper adjustments will follow each evaluation to ensure all the employees are giving their best performance. The adjustments include coaching of the employees who may be lacking in some of the required skills and awarding of the top talent. Managers will have to receive training on how to set goals and review employees using the new systems (Becker, Antuar and Everett 2011). An information system where feedback will be shared and which keeps track of the employee’s performance even when they are in the field will be set up.
The cost-benefit analysis is a tool that compares the benefits of establishing a performance management system against the costs involved in implementing and evaluating this system (Newcomer, Hatry and Wholey, 2015). This analysis makes sure that the decisions made by the company about this proposal are optimal and that the process of making the decision is well understood and communicated to the interested parties. The benefits of the proposed initiative presented to the business should be greater than the cost that could be incurred when the initiative is implemented. The cost-benefit analysis, therefore, involves quantifying the benefits and the cost in the form of money and making the appropriate comparisons (Boardman and Boardman 2008). Analysis of the positive and adverse outcomes makes sure a company makes the right investment and that this investment is worth taking even in the long run.
Information regarding the costs and benefits in human resource performance management is qualitative and this makes Cost-Benefit analysis a bit challenging in the field. Benefits and cost will, therefore, have to be quantified to dollar value for justifiable comparisons to be made. The managers making the decision will use the results of these comparisons to ensure that an investment such as the establishment of a performance management system gives a return on investment (Nas 2016). The process of cost-benefit analysis done on the establishment of a performance management system will involve quantifying benefits and costs, then comparing them.
One of the expected benefits at Deals Pharmaceutical is the financial benefits resulting from better performance of employees. Other benefits could include the more effective employee information that managers get from the process assisting them to make good decisions and the resulting realignment of the employee’s work to the company goals. The negative impact experienced by the performance management system such as the cost incurred through training of the employees and management to gain the required skills. Time is taken by the staff and management in the process of talent evaluation, fixing identified issues and the cost of the technology used to assist in the evaluation process should also be included in the cost.
Current State of Performance Management at Deals Pharmaceuticals
Deals pharmaceuticals, a company where the highest number of employees are the sales agents, will have to quantify the benefits and costs expected from establishing a performance management system (Rothaermel 2015). The initiative taken by the pharmaceutical company involves evaluation of talent and setting of work objectives which will require training of the human resource managers. The cost of this will be added to the total cost of implementation along with the cost of the time used up during the process. The system proposed by Deals Pharmaceuticals also involves communication between the employees and managers with the intention of effecting the necessary changes and this will require the introduction of a system that eases the flow of information between the two. The purchase of software to accomplish this will also be added to the cost. The total quantifiable cost that Deals Pharmaceuticals will incur from the process calculated for a year is an estimated $250,000.
The sales agents at the pharmaceutical company are expected to have better performance and benefits will be quantified in terms of the profits gained from increased sales. Time freed up by the use of an effective system will also be quantified in dollar value and added to the total benefits. Retaining employees who could have left due to lack of motivation is also quantified as a benefit by calculating the expected cost of the recruitment, training, and onboarding that would have followed. The total quantifiable benefits that are expected for Deals Pharmaceuticals approximate $500,000 for a year
Calculation of the cost benefits will involve getting the benefit-cost ratio described. Given that the company realizes the total savings after a year to be $581,000 and the corresponding cost $229,000 then: BCR=$581,000/$229,000=2.54
This interprets to 2.54:1 meaning that every $1 invested return a benefit of $2.54
Return on investment (ROI) can be defined as the losses or benefits resulting from the choice to take up an investment with regard to the cost of implementing the investment. The determination of ROI is important in the decision-making process since it advises the company on the presence of any red flags or benefits resulting from the decision (Pulakos et al. 2015). The optimal decision made by a company is supposed to have more benefits than costs. The use of return on investment will, therefore, involve calculations of the total benefits and the total cost to figure out if the profits outweigh the cost which will assure a return on investment (Armstrong and Taylor 2014).
HRM Initiative to Implement Performance Management System
Increased sales from better performance, time freed up from the use on an effective performance management system and money saved from retaining employees who were frustrated by the previous system have been identified to be the benefits that Deals Pharmaceuticals will gain from the system (Akhtar and Mittail 2014). They have been estimated to add up to $581,000 a year. The costs include training of the managers, time used up in implementing the performance management system and purchase of software used to share feedback on performance. The coaching of employees to meet the required standard after evaluation also contributes to the total cost. This is because of the payment made to the trainers and the time spent by the employee on training instead of working. These costs approximately sum up to $229,000 for a year.
Calculating the Return on investment is done using the formula. Therefore, in the case of Deals Pharmaceuticals with savings of $500,000 after a year and $229,000 cost, Net benefits=$581,000-$229,000=$352,000 so
ROI= ($352,000/$229,000)*100=154%.
This shows that every $1 investment returns $1.54 in benefits after covering costs.
Studies have shown that evaluation gives more effective results through questioning the people involved (Merchant and Van Der Stede 2007). Keeping track of how efficient a performance management system has proven to be immediately after implementation and after a set period is important as it ensures it still has a return on investment. The major objectives that a performance management system achieves are making sure the process of evaluation and improvement is continuous as well as ensuring that performance of the employees is linked to the company’s goals (Pollitt 2013). Evaluation of the performance management system is also in identifying the problems that may arise from the process of implementation and adjustment. Disorientation and lack of familiarity with the new system can paralyze the company’s operations and should, therefore, be detected early enough and appropriate action was taken (Hunter and Nielsen 2013).
Short term evaluation at Deals Pharmaceuticals will be done through the issuance of questionnaires to the employees, which collect qualitative data on the changes in their work experience since the implementation of the performance management system. This will be done six months after the first review. The data will be collected by the managers, who will make proper adjustments using the feedback. Short term evaluation will help identify issues arising from resistance to change, dissatisfaction with performance ratings or lack of proper integration of the operations of the company with the new system (Ferreira and Otley 2009). Proper solutions which include an adjustment in training will later be applied for the proper implementation of the performance management system.
Cost-Benefit Analysis of Implementing Performance Management System
Long-term evaluation is important because it shows the validity of an individual project even under various situations and changes after times (Saunders and Cornett 2014). Long-term evaluation of this process at Deals Pharmaceuticals will take place after a year. It will seek to evaluate the effect of the system on performance through sales and feedback from the employees. Data used for evaluation will be from the financial records and the information system introduced for the purpose of performance management. The evaluation will occur at a workshop which will involve all the relevant stakeholders. Success will be measured based on how well the performance of the employees has affected the financial status of the company, level of satisfaction of the employees based on feedback and the improvement of talent based on changes made using the system.
A problem was identified at Deals Pharmaceuticals where the current performance appraisal system does not deliver since no action is taken on the information and the process is not continuous. This identified the need to establish a system where communication between the employees and management takes place after evaluation and changes made based on this information (Buckingham and Goodall 2015). The evaluation needed to be done thoroughly and employees found lacking in some skills coached. Top performers also needed to be recognized and rewarded in addition to being assigned work according to their abilities.
This business case seeks to introduce a performance management system which accomplishes this initiative. The determination of this initiative and the method of implementing it is followed by an investigation into the possible benefits and costs. The performance management system has benefits to Deals Pharmaceuticals that include increased sales from better performance, time freed up from the use of an effective performance management system and money saved from retaining employees who were frustrated by the previous system (Simons 2013). The expected costs are training of the managers, time used up in implementing the performance management system and purchase of software used to share feedback on performance.
Return on investment and cost-benefit analysis are the tools used to analyze the potential success of the business case (McNulty and De Cieri 2016). The benefits of establishing the performance management system are seen to outweigh the cost of introduction and implementation of the system when calculated using these tools. Both long and short term evaluations of the success of the performance management system at Deals Pharmaceuticals indicate greater benefits than cost. This ensures the company gains a return on investment and is better positioned to achieve its goals. Further justification of the importance of a performance management system at Deals Pharmaceuticals is found in the qualitative benefits. These include self-esteem of the employees, self-insight, and development. The establishment of a performance management system that implements change at Deals Pharmaceuticals is therefore recommended for better efficiency at the workplace.
Quantification of Benefits and Costs
Creating a business case for the establishment of a performance management system has brought me to the realization that the expected return on investment can make or break the case. The ROI must, therefore, be justifiable for the proposed initiative to pass through. It is also challenging to quantify all the costs and benefits expected to result from the initiative due to their qualitative nature that is impossible to convert. Conversion to dollar value is, however, possible in some of the benefits and cost with an example of time spent or saved in the process and proved very useful in the business case creation.
Another challenge experienced in presenting a strong justifiable business case is the struggle to make the expenditure as low as possible while getting the best service from the initiative. Achieving this goal however hard makes the business case justifiable and recommendable. One of the takeaways from writing this business case is the importance of talent management that is continuous and aligns the employees with the company’s goals. Poor implementation of the performance management system can also be detrimental to the company as highlighted by the problem of occasional performance appraisals that were not being acted upon at Deals Pharmaceuticals.
References List
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Armstrong, M. and Taylor, S., 2014. Armstrong’s handbook of human resource management practice. Kogan Page Publishers.
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Hameed, A. and Waheed, A., 2011. Employee development and its effect on employee performance a conceptual framework. International journal of business and social science, 2(13).
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McNulty, Y. and De Cieri, H., 2016. Linking global mobility and global talent management: the role of ROI. Employee Relations, 38(1), pp.8-30.
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Newcomer, K.E., Hatry, H.P. and Wholey, J.S., 2015. Handbook of practical program evaluation. John Wiley & Sons.
Pollitt, C., 2013. The logics of performance management. Evaluation, 19(4), pp.346-363.
Pulakos, E.D., Hanson, R.M., Arad, S. and Moye, N., 2015. Performance management can be fixed: An on-the-job experiential learning approach for complex behavior change. Industrial and Organizational Psychology, 8(01), pp.51-76.
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Simons, R., 2013. Performance Measurement and Control Systems for Implementing Strategy Text and Cases: Pearson New International Edition. Pearson Higher Ed.
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