Professional Documents
Culture Documents
BBMA4303
MATRICS NO. :
IDENTITY CARD NO. :
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E-MAIL : yeshwin@oum.edu.my
LEARNING CENTRE : SUNGAI PETANI LEARNING CENTRE
BBMA4303
CONTENTS
QUESTION 1
1.1 Introduction to performance evaluation 2
1.2 Review of literature on performance evaluation 3-4
1.3 Review of literature on main expectancy theories 5-7
1.4 Impacts of performance evaluation on employees motivation and ethics 8 - 10
1.5 Summary 11 -
12
1.6 References 13
QUESTION 2
2.1 Introduction to the performance measurement system 14 -
15
2.2 Review of literature on the traditional performance measurement system 16 -
17
2.3 Benefits of contemporary performance measurement system :
2.3.1 In performance measures 18
2.3.2 More understandable 18 -
19
2.3.3 Organisation capabilities 19 -
20
2.3.4 In people’s motivation 20
2.4 Differences between traditional and contemporary performance
measurement system :
2.4.1 Financial and non-financial measures 21
2.4.2 External benchmarks 22
2.4.3 Continuous improvement 22 -
23
2.5 Summary 24
2.6 References 25 -
26
1
QUESTION 1
According to Chenhall and Sidilth (2020), it can be viewed from three perspectives they are
the shareholder’s, board director’s or CEO’s perspective; where the perspective of the
organisation as a whole; the upper management perspective and the operational
perspective.In the upper management perspective of the organisation or its segments as it
pertains to the effectiveness of the unit or the individual managing the unit.In operational
persective of the management and supervisors as it relates to efficient day-to-day
operations.The potential for bias can be regarded as a function of the particular style of
performance evaluation adopted by the organisation like a budget-constrained style is likely
to give rise to a high degree of bias; if standards and budgets are used in a more flexible
profit conscious style, the level of budget bias is likely to be considerably lower.According to
Collier and Gregory (2019), the associated ‘static optimisation’ approach to performance
evaluation through comparison of actual and standard tends to avoid the whole thrust of
modern thinking in areas such as total quality management, continuous improvement and
business process re-engineering.The modern trend in performance evaluation is towards the
use of internal and external benchmarking.The budget provides an internal benchmark against
which performance can be evaluate.Benchmarking is probably the most important recent
innovation in performance evaluation.The standard benchmarking practice can be used to
study processes in the organisation and select which are to be benchmarked, secure suitable
benchmark partners, compare appropriate figures and indicators with partners, adopt and
implement best practices.If the department or business achieves its budget turnover and or
profit for the period that it is deamed to be performing well.Conversely, if it fail to achieve
budget then it is deemed to be performing well.Conversely, if it fail to achieve budget then it
is deemed to be performing badly.This approach to performance evaluation has been subject
to a variety of criticisms the process of establishing a budget and its subsequent use in control
and performance evaluation can have a variety of behavioural effects within the
organisation.Budgets should be assembled and results reported in a manner that is consistent
with the organisational structure.This allows the performance of individual responsibility
areas to be budgeted for and then evaluated.The term performance evaluation refers to the
methods and processes used by organisations to assess the level of performance of their
employees.In order for workers to improve their performance following an appraisal, they
must accept the appraisal rating and be willing to change their performance
accordingly.Ensuring worker’s reactions such as satisfaction, commitment, acceptance of the
appraisal and trust in management could help organisation achieve the primary performance
evaluation purpose of improving performance.In order to yield positive reactions among
ratees, the perform evaluation process should be perceived as reliable, accurate, and free of
political interests on the one hand, and allow the ratee to participate in the process and
express his or her voice on the other.The shift from measuring the accuracy of the appraisals
to measuring the ratee’s reactions and motivations reflects a significant change in the research
of performance evaluation. Using multisource technique helps evaluators collect a range of
views regarding an employee’s performance, with each source adding a unique perspective
(Harrison,2020).For example, a manager can evaluate a nurse on professionalism and
compliance to rules, a peer could evaluate how well he or she gets along with colleagues, and
a patient could add information on how this nurse treats patients.With multisource feedback,
the ratee usually receives the results along with normative data and self-ratings, providing the
employee with comparative information.The purpose of the multisource evaluation is
developmental, namely to develop and nurture employees and to help them achieve their
goals and aspirations which eventually leads to a promotion focus.As such, use of
multisource evaluation assumes to improve employee performance.In addition, the evaluation
data should be used only for developmental purposes, and if other uses are considered, this
fact should not be hidden from the employees because no performance evaluation can work
without mutual trust.The standards for evaluation should be evidence-based, employees
should receive early notice about the evaluation standards, and consistent periodical feedback
should be given to employee regarding their performance.In additional, employees should be
given an opportunity to influence the process during evaluation meetings and to present their
opinions.An employer can provide consistent feedback on an employee’s strengths and strive
for improvement in the areas that the employees need to work on.The goal of this entire
process of performance evaluation is to improve the way a team or an organisation functions,
to achieve higher levels of customer satisfaction.An organisation’s management conduct
frequent employee training and skill development sessions based on the development areas
recognized after a performance evaluation session.Regular performance evaluation help
determine the scope of growth in an employee’s career and the level of motivation with
which he or she contributes towards the success of an organisation.Performance evaluation
lets an employee understand where does he or she stands as compared to others in the
organisation.An organisation’s management can compare every employee’s self-evaluation
with the rating his or her manager provides, which makes the performance evaluation process
exhaustive and effective.
Vroom’s expectancy theory explains that processes that an individual undergoes to make
choices.In organisational behaviour study, expectancy theory is a motivation theory first
proposed by Victor Vroom of the Yule School of Management (Gary,2020).In work and
motivation, he postulated the theory known as “Expectancy theory of motivation”.In this
seminal work, Vroom describes motivation force as a product of expectancy instrumentality
and valence. Vroom defines motivation as “a process governing choices made by persons or
lower organisms among alternative forms of voluntary activity”.According to Vroom, the
motivational force that drives behaviour is a product of these three variables and can be
represented by the equation:
Vroom’s expectancy theory was the first to examine work motivation and is based on three
key variables which are expectancy, instrumentality and valence.Instrumentality identifies
outcomes as first level or second level in the valence level.First level outcomes are related to
performance and second to need.Instrumentality is the perception that achieving the
performance will lead to a reward.If an employee sees that promotions are based on
performance, instrumentality will be rated high. A low estimate of instrumentality will be
made if the employee fails to see such linkage between performance and rewards.The basic
theory is that the strength of valence depends on whether a particular outcomes is seen as
Valence is the anticipated satisfaction gained from a particular outcome.It may be positive
whereby the individual prefers to achieve a particular outcome than not achieve it; or
negative where the individual prefers to avoid a particular outcome.a route or path to other
outcomes.Zero valence occurs where the individual is different.Valence is the degree to
which the reward satisfies the individual’s goals.In other words, how much he values the
reward and research shows people value monetary reward over non-monetary
rewards.Expectancy identifies where an individual chooses between alternative behaviours
that have uncertain outcomes where that choice is affected by preference for a particular
outcomes and the probability that the outcome will be achieved.Expectancy is an individual’s
perceptions that the effort he or she puts in will lead to a certain performance.If an employee
sees no chance that effort will to the desired performance, the expectancy is zero.On the other
hand, if the employee is confident that the task will be completed, the expectancy have a
value of one.The combination of these three factors is what motivates people.These variables
is the motivation and suggests that the employee’s beliefs about expectancy, instrumentality
and valence interact psychologically.In this way they create a motivational force, such that
the employee will act in a way that brings pleasure and avoids pain.Motivational force as
described by the expectancy theory is based on an individual’s belief that a certain effort will
lead to a given performance and that performance will lead to attainment of a desirable or
undesirable reward.An individual’s perception of each variable is essential to determining
behavior.Vroom’s expectancy theory of motivation is not about self-interest in rewards but
about the associations people make towards expected outcomes and the contribution they feel
they can make towards expected outcomes and the contribution, they feel they can make
towards those outcomes.
According to Hunt (2020), Porter and Lawler’s expectancy theory model suggested that an
individual’s view regarding the attractiveness and fairness of the rewards will affect
motivation.Porter and Lawler’s model is a more complete model of motivation.This model
have been partically applied also in their study of managers.They recommended that the
managers should carefully reassess their reward system and structure.This is a multivariate
model which explains the relationship that exists between job attitudes and job
performance.In fact, Porter and Lawler expectancy theory is an improvement over Vroom’s
expectancy theory.They say that motivation does not equal satisfaction or performance.The
model suggested by them encounters.Some of the simplistic traditional assumptions made
about the positive relationship between satisfaction and performance.They proposed a
multivariate model to explain the complex relationship that exists between satisfaction and
performance. What is the main point in Porter and Lawler’s model is that effort or motivation
does not lead directly to performance.It is in fact, medicated by abilities and traits and by role
perception. Ultimately, performance leads to satisfaction.This various elements of Porter and
Lawler model are effort, performance and satisfaction.Effort refers to the amount of energy
an employee exerts on a given task.How much effort an employee will put in a task is
determined by two factors which are, by value of reward and perception of effort-reward
probability. Performance are one’s effort leads to his or her performance.Both may equal or
may not be.However, the amount of the performance is determined by the amount of labour
and the ability and role perception of the employee.Thus, if an employee possesses less
ability or makes wrong role perception, his or her performance may be low in spite of his
great efforts.Satisfaction is performance leads to satisfaction (Michael,2020).The level
satisfaction depends upon the amount of rewards achieved.If the amount of actual rewards
meet or exceed perceived equitable rewards, the employee will feel satisfied.On the contrary,
if actual rewards fall short of perceived one, he or she will be dissatisfied.In this Porter and
Lawler’s expectancy theory, reward are categorised as intrinsic and extrinsic.Intrinsic factors
such as job enrichment motivate people while extrinsic factors such as salary and bonuses are
mainly related to hygiene or dissatisfaction avoidance (Michael,2020).Intrinsic rewards are
the positive feelings that the individual experiences from completing the task with
satisfaction and sense of achievements. Example of intrinsic rewards are such as a sense of
accomplishment and self-actualization.A fair degree of reseach supports that the intrinsic
rewards are much more likely to produce attitudes about satisfaction that are related to
performance.Extrinsic rewards are rewards emanating from outside the individual such as
bonus, commission an pay increases.Extrinsic rewards may include working conditions and
status.Porter and Lawler’s expectancy theory suggested that an individual view regarding the
attractiveness and fairness of the rewards will affect motivation.They also said that
motivation is also affected by the individual’s ability to perform that task and their perception
of the task.
1.4 Impacts of performance evaluation on employees motivation and ethics
According to Weaver (2019), employee performance evaluation and management system can
play a critical role in improving ethical conduct of employee in organisation.Organisation
explicitly incorporate ethical behaviour into performance evaluation in order to improve
employee ethical behaviour. Incorporating ethical dimensions into the formal performance
evaluation has been suggested as a way to integrate ethical expectation into employee’s
formal role identities, and to make ethical behaviour at work relevant and rewarding for
employee.If a worker receives a positive performance evaluation, people may tend to rate the
employee’s ethical behaviour was indeed highly ethical.Otherwise, the result could be
inordinately positive judgments of the ethical nature of the worker’s job behaviours.The
ethics and values implemented by any organisation are usually being adopted throughout the
organisation and have been used for every task.The ethics of both the company’s leaders and
employee make up how that company is perceived and whether they are seen as ethical or
not.Nowdays, ethics have emerged as one of the most critical issues facing the organisation
and the people who work with them.Ethical performance of employee is influenced by
schematic, affective and attributional process.Ethical behaviour could be manipulated by
providing unethical, neutral and ethical critical.Performance evaluation system for the most
part, have exclusively concentrated on business performance to the exclusion of ethical
dimensions of job performance.Given the increasing importance of ethical issues in
organisation, there is a need to correct this aberration in the current approach to evaluate
system development and included ethical dimension in the performance evaluation
domain.The overall objective of high ethical performance evaluation should be to provide a
honest assessment of the performance and mutually develop a plan to improve the ratee’s
effectiveness.Organisational aim to guide the ethical behaviour of their employee by
communicating codes of conducts, training, behavioural guidelines and monitoring of ethical
decision making.Evaluation offer supervisors the opportunity to give performance feedback,
agree on targets or work goals, establish a basis for promotion and salary decision and discuss
employee’s career ambitions.These activities, in turn have strong implication for employee’s
position in the organisation and their development, which affects their attitudes like
satisfaction, commitment, trust and their work behaviours.
1.5 Summary
QUESTION 2
According to Evans (2004), performance measurement system can be defined as the set of
metrics used to quantify both the efficiency and effectiveness of actions. Performance
measurement system are characterized as strategic expert systems by which organisation
observe and measure their intangible performance elements in the form of qualitative and
quantitative assessment. According to Neely (2007), performance measurement system is a
brief and precise set of measures financial or non-financial that supports the decision making
process of an organisation by collecting, processing and analyzing quantified data of
performance information.Performance measurement system can serve a range of purposes so
that judgments of what is a good system must depend on its purpose.For example, some
system are designed essentially to give strategic direction to staff through targets based on
measures of strategic performance, others seek to enhance staff and organisational
capabilities through stretch targets based on performance measures; and yet other seek to
support evidence based management and organisational learning through providing measures
of what works. Performance measurement can support each of these purposes.According to
Atkinson, Banker, Kaplan and Young (2001), performance measurement system have six
attributes they are, employees must understand the system and believe it measures what they
control; the system must be based on inputs or outputs depending on which is
applicable.Inputs are applicable when employees have little control over outputs or it is
impossible or too expensive to measure output; performance measurements should be
balanced to reflect the organisation’s critical success factors; the system must have clear
standards of performance; the system must establish a clear relationship between
performance and outcome and when cooperation is critical, the system should reward group
performance, rather than individual performance.Cooperation is needed when there is
interdependence (Henri,2016).Performance measurement system focuses on the critical
success factors of an organisation.Critical success factor is an element or area which is
necessary for an organisation to achieve its strategy or goals.A further critical decision is
designing performance measurement system is the balance between self-assessment and
external assessment.There is major debate about whether a performance measurement system
should attempt to provide a balanced and comprehensive picture of the organisational
performance or whether it should focus on assessing performance in relation to the
organisation’s priority objectives.It is important that the performance measurement system
used by managers to continually reviewed and revised as the environment and economy
changes.Performance measurement system is an important system in the purpose of
improving the organisation performance.Performance measurement system create a very
significant connection between organisation due to measurement in the organisation system
directly related to the organisation strategy. Performance measurement system helps the
organisation to develop and improvise the business environment thus improve better decision
making process.
2.2 Review of literature on the traditional performance measurement system
According to academic literature performance measurement had until the 80’s a more
traditional approach with financial focus Platts (2005). Johnson and Kaplan (1987), argued
that traditional performance measurement systems focused too heavily on accounting or
financial based measures and tended to ignore non-financial measures. In other word, less or
no emphasis is given to long-term value creation, particularly for intangible and intellectual
assets that generate the future growth of the organisation. This is because these intangible
assets could not be easily quantified in terms of financial or monetary values. Budgeting and
variance calculations under standard costing systems are examples of traditional performance
measurement system. The focus of this traditional performance measurement system was to
monitor organisation cost. According to Shaw (2007), supported this view that the traditional
idea of performance measurement system was a mean of maintaining organisation control
and financial goal for hierarchical manufacturing organisations. However, this traditional
performance system is not effective in the context of today’s business environment as a result
of shift in the nature of business and its surrounding.Traditional models of performance
measurement system focused on maximizing the wealth of shareholder, such as earning per
share (EPS), return-on-investment (ROI) which are the result of management action and
organisational performance, and not the cause of it.Traditional performance measurement
system focus on improving and monitoring business process that exist.The only time they go
beyond financial measures is when they attempt to incorporate metrics that are time-based
and quality.Traditional performance measurement system measures that mostly are cost
efficiency oriented and are measured only in financial terms.This system doest not provide
non-financial measures that are also link to the organisation business strategy. The
application of this system is basically suitable for mass production companies with the
purpose of minimizing cost.According to Kaplan and Norton (1996), traditional performance
measurement system focus more on cost and revenue data and less on the process. Most of
the time it provides irrelevant or misleading information. Performance measures which
contain bottom line financial results are too late to take up useful corrective action.
Traditional performance measurement system measures are without activity and process
analysis which are essential to decide the value-added and non-value added activity and
process. Business organisations have to analyse which processes are capable of fulfilling
customer requirement time and time again. Traditional performance measurement system
designed for the industrial-age economy, which emphasize financial measures and tangible
assets, are no longer able to capture the changing nature of today’s business environment
(Fisher,1992). This shortcomings of traditional measurement system have triggered a
performance measurement revolution.Researchers have been highlighting the shortcoming of
the traditional system and proposed various types of performance measurement system that
would enable the organisation measure all aspects of business.Most tradisional cost based
measures were designed around the turn of the century, with the main purpose of providing
information useful in evaluating the operating performance of mass production companies
which were prevalent during that era.Platts (2005), argued that a company should not claim
itself a complete Just-In-Time(JIT) company if it continues to use traditional performance
measurement system to measuring efficiency and producitivity. “Companies may claim to be
practicing JIT but continue to use employee efficiency measures as indicators of
performance.If these are the measurements reported, the firm has not completely converted to
the JIT philosophy”.Shaw (2007), argued that traditional cost accounting measures, especially
the ones used to gauge shop floor performance, may lead to decisions conflicting with the JIT
goal.Assert that traditional cost accounting tends to impair JIT implementation since the
features of cost accounting measures rely on standards, emphasize variances and efficiencies
and are preoccupied with direct labour. The importance of the fire traditional performance
measures, indirect labour productivity, direct labour productivity, variances, labour efficiency
and machine efficiency is decreasing as manufacturers increases their emphasis on JIT
practices (Platts,2005).Traditional process is top-down, linear-structured an static process.It
includes establishing objectives early in the year and presenting them to the employees who
are responsible for achieving them.Then management monitors the performance against those
objectives during the year and share their evaluation near the end of the year when it is time
for the annual performance measurement system.Evaluation are against some types of
specific performance standards established earlier in the year, for example below expectation,
meets expectations and exceeds expectation.
Performance measurement system is a brief and precise set of measures financial or non-
financial that supports the decision making process of an organisation by collecting,
processing and analysing quantified data of performance information.Performance
measurement system can serve a range of purposes so that judgments of what is a good
system must depend on its purpose.Traditional performance measurement system measures
that mostly are cost efficiency oriented and are measured only in financial terms.This system
doest not provide non-financial measures that are also link to the organisation business
strategy (Neely,2007). The application of this system is basically suitable for mass production
companies with the purpose of minimizing cost.Budgeting and variance calculations under
standard costing systems are examples of traditional performance measurement system. The
focus of this traditional performance measurement system was to monitor organisation
cost.Contemporary performance measurement system measures, concentrate on current
activities which will be drivers of future financial performance.For example, if actions are
taken now to improve quality and customer satisfaction, the effect is improved future
financial performance.Contemporary performance measurement system are more
understandable and easier to relate to.Benefit of contemporary performance measurement
system on organisation capabilities in terms of strategy processes, communication, strategic
capabilities, managerial practices and corporate control. Tradisional performance
measurement system focused too heavily on accounting or financial-based measures and
tended to ignore non-financial measures. Traditional system measures that mostly are cost
efficiency oriented and are measured only in financial terms.While, contemporary
performance measurement system that focus on both financial and non-financial aspects of
measures are better known as integrated performance measurement system. Contemporary
performance measurement system often use external benchmarks to indicate whether
performance is as good as that of competitors, or best practice companies.This is better
approach than traditional performance measurement system that compare actual performance
with last year’s performance or with budget targets. Contemporary performance measurement
system help in achieving continuous improvement, as performance targets can change over
time.In tradisional performance measurement system, performance targets do not often
change overtimes, thus they hider continuous improvement.
2.6 References