Performance Management Systems

MA 3102
Exam coverage:
- Performance management and reward systems
- Financial performance analysis
- Supply chain management
- Customer relationship management

Introduction to PMS
“This is what is expected of you, this is how we’re going to help you in your development, and this is how you’ll be
judged relative to compensation.”

Performance management- is a continuous process of identifying, measuring, and developing the performance of
individuals and teams and aligning performance with the strategic goals of the organization.

PMS- is a continuous process aligned with strategic goals. 2 components of PMS

Performance Appraisal
● employee evaluation once a year
● No ongoing effort to provide feedback & coaching
● Systemic descriptions of an employee strengths & weaknesses
● Assess individual employee’s progress in performance and productivity
● Does not include specific details of employee contribution
● Is broader and more comprehensive
● Aligns individual employee performance
● Includes: goal setting, ongoing feedback, coaching, & development planning
● Expectation- this is what is expected of you, this is how we’re going to help you, this is how you will be
judged/rated relative to your performance

Principle of performance management: the conversation between the manager and employees in which feedback is
exchanged and coaching is given if needed.

● Mid-year reviews- assess what progress has been made toward the goals and how personal development
plans are faring
● End of the year review- incorporates feedback from several sources, evaluates progress toward objectives,
and identifies areas that need improvement.

Those that do not make explicit the employee contribution to the organizational goals are NOT true PMS

6 elements of PMS 2 elements of Appraisal

1. Continuous process - Identification

2. Identifies the process - Measurement
3. Measures the performance of individuals
4. Sets the goals (goal of performance)
5. Develops the coaches based on their
performance
 6. Aligns the performance of team in strategic goal

Performance management systems can make the ff contributions:

1. Motivation to perform is increased
2. Self-esteem is increased
3. Managers gain insight about subordinates
4. The definitions of job and criteria clarified
5. Self-insight and development are enhanced
6. Administrative actions are more fair and appropriate (merit increases, promotions, transfers, terminations)
7. Organizational goals are made clear
8. Employees become more competent
9. Employee misconduct is minimized (accounting irregularities, churning customer accounts, abusing overtime
policies, giving inappropriate gifts to clients and potential clients hoping to secure their business, using
company resources for personal use)
10. There is better protection from lawsuits (w/o PMS arbitrary performance are more likely)
11. There is better and more timely differentiation between good and poor performers
12. Supervisors views of performance are communicated more clearly
13. Organizational change is facilitated “The truth is that culture change is driven by a change in performance. An
organization’s culture cannot be installed. It can be guided and influenced by policies, practices, skills, and
procedures that are implemented and reinforced. The only way to change the culture is to change the way
individuals perform on a daily basis”
14. Motivation, commitment, and intentions to stay in the organization are enhanced.
15. Voice behavior is encouraged - making suggestions for changes and improvements that are innovative
16. Employee engagement is enhanced- employees are involved, committed, passionate, & empowered.

Dangers & Disadvantages of poorly implemented PMS:

1. Increased turnover- employees may leave the organization (physically or psychologically)
2. Use of misleading information- fabricating info on employee’s performance
3. Lowered self-esteem- can create employee resentment when feedback is inappropriate/inaccurate
4. Wasted time and money
5. Damaged relationships
6. Decreased motivation to perform- when superior performance does not result to tangible and intangible
rewards
7. Employee burnout and job dissatisfaction
8. Increased risk of litigation
9. Unjustified demands on managers’ and employees’ resources
10. Varying and unfair standards and ratings
11. Emerging biases
12. Unclear rating systems

Purpose of PMS:
- To make decisions about employees’ compensation (e.g. pay rises)

Reward systems
Reward system- is a set of mechanisms for distributing both tangible and intangible returns as part of an
employment relationship.
- Tangible returns include (cash compensation; base pay, cost-of-living and merit pay, short term incentives,
long-term incentives) & (benefits; income protection, work-life focus, tuition reimbursement, and allowances).
 - Intangible returns / relational returns (recognition & status, employment security, challenging work, learning
opportunities)

Returns that are not related to performance MS: (some are based on seniority)
1. Base pay (difference on wage & salary)
2. Cost-of-living adjustments and contingent pay (COLA)- (merit pay- value is not known in advance)
3. Short Term incentives- variable pay, known in advance. High degree of dependency
4. Long-term incentives- (stock ownership/options to buy stocks at a profitable price) High degree of
dependency
5. Income protection- (medical insurance, pension plans, savings plans)
6. Work/life focus- (vacation time)
7. Allowances- (allowances covering housing & transportation, smart phones & monthly charges, club & gym
fees, discount loans, & mortgage subsidies)
8. Relational returns- intangible (recognition & status, employment security, challenging work, opportunities to
learn, opportunities to form personal relationships at work)

Aims and Roles of PMS:

Information collected by a performance management system is most frequently used for salary
administration, performance feedback, & the identification of employee strengths & weaknesses.

PMS also provides key information for workforce planning.

Link between PMS & compensation system.

PMS is a key component of talent management in organizations

PMS can serve the following 6 purposes:

1. Strategic purpose- help top management achieve strategic business objectives. onboarding
2. Administrative purpose- 2nd function of PMS is to furnish valid & useful information for making
administrative decisions about employees. (administrative decisions: salary adjustments, promotions,
employee retention/termination, recognition of superior individual performance, identification of poor
performers, merit increases)
3. Informational purpose- important communication device. 1st inform employees progress and inform
improvement measures, 2nd PMS provide info about the orgs and supervisors expectations, and what
aspects of work the supervisor believes are most important)
4. Developmental purpose- feedback can be used in developmental manner. Feedbaclk is useful only when
employees are willing to receive it.
5. Organizational maintenance purpose- to provide information to be used in workforce planning. (assessing
future training needs, evaluating performance achievements at the organizational level, evaluating the
effectiveness of HR interventions)
6. Documental purposes - PMS allow orgs to collect useful information

Characteristics of an ideal PMS:

● Strategic congruence- PMS should be concurrent with the organization’s strategy. Individual goals must be
congruent with organizational goals.
● Context congruence- PMS should be congruent with the organization’s culture. Importance of context in
implementing effective PMS. Culture plays important role in the effectiveness of PMS.
● Thoroughness- PMS should be thorough in 1. All employees should be evaluated 2. All major job
responsibilities should be evaluated (including behaviors and results c5) 3. Evaluation should include
performance spanning the entire review period, not just the few weeks before the review, feedback should be
given on both positive and negative performance
● Practicality- good-easy to use systems. Benefits of PMS must outweigh the cost of PMS.
 ● Meaningfulness- each job function must be considered important. Informal quarterly reviews are
recommended. People will not pay attention to a system that has no consequences in terms of outcomes
that they value.
● Specificity- detailed guidance to employees about what is expected of them & how they can meet
expectations
● Identification of effective and ineffective performance-
● Reliability- measures of performance that are consistent, free from error
● Validity- measures should include all relevant performance facets and exclude irrelevant..
● Acceptability and fairness-
● Inclusiveness- evaluation process must represent the concerns of all the people who will be affected by the
outcome, employes help in creating the system
● Openness- no secrets
● Correctability- the process of assigning ratings should minimize subjective aspects. Establishing appeals
process
● Standardization-performance is evaluated consistently across people and time.
● Ethicality

3 pillars of PMS:
1. Setting clear measurable goals
2. Implementing concrete actions
3. Imposing rigorous consequences

Administrative nuisance
- There are many potentials not realized/acknowledged
- May lead to dangerous outcomes
Financial Performance Analysis
Financial Analysis Formulas
- Need to be trained more
- gives/checking the responsibility of employees(if it's doing well)

Financial Ratios

Why calculate ratios?

- Make data more meaningful

Ratios Analysis (that will be used for utilizing the financial):

1. Liquidity Ratios
2. Asset Utilization
3. Debt Utilization
4. Profitability Ratio
5. Market Value Ratio

Horizontal vs Vertical Analysis

Horizontal Vertical

It shows specific period if it increase/decrease of each Focuses on ONE period only

account

Multiple period Gives the percentage of each accounts based on total

assets (on specific reporting only

1. Liquidity Ratios
- ability to meet short-term obligations, to know how much we can pay the short-term
- Formula: Current ratio= Current Assets/Current Liabilities

2. Asset Utilization ratios

- effective use of assets in the process of generating sales
- Note: Ideally, credit sales should be used for the receivables ratios. However, only total sales
are available at times.

- Receivable Ratios
- (1) AR Turnover
- To check the movement of balance (collection/replenishment)
- The higher the turnover, the higher sales
 ➢ sales/accounts receivable
➢ Credit sales/ AR
➢ sales/ average AR turnover
➢ average sales/ average AR

● Average Collection Period (DSO) Days Sales Outstanding

○ To check pila ka days ma collect ang AR
○ 365 days ÷ AR Turnover

- HOW TO IMPROVE: (1) Make a system (improve the system) of collection

(2) Motivate the customer to pay earlier
- Ex: To reduce number if days

- (2) Inventory Turnover

- COGS is sometimes used in lieu of sales, and average inventories may replace
ending inventories
- Ave. Inventory Formula: B + E ÷ 2
● Average Collection Period (DIO) Days Inventory Outstanding
○ 365 days ÷ Inventory Turnover

3. Debt Utilization Ratio (use of financial leverage)

- How well we use financial leverage ( how well we utilize the utang)
- Purpose: (1) to determine how much RISK the company has acquired
(2) to know how much proportionate the UTANG to asset
4. Profitability Ratio
- Ability to earn an adequate return
● Profit margins:

● Return on Investment ratios:

- (5) Market Value Ratio

- Purpose: to know if overvalue/undervalue (investor’s reactions)
- Diluted Vs. Anti-Diluted - Earnings per share can increase or decrease based
on certain factors. If a factor increases EPS, then it's considered antidilutive. If a factor
decreases EPS, it's considered dilutive.
Ratio analysis
Supply chain management
SCM- interconnected business model that involves product purchasing down to consuming the said product BY the
customer. Involves from the purchasing of the product down to the consuming PART by the customer.

- is the management of a network of interconnected businesses involved in the ultimate provision of product
and service packages required by end customers. Supply chain management spans all movement and
storage of raw materials, work-in process inventory, and finished goods from point of origin to point of
consumption .
- Supply chain management is the systemic, strategic coordination of the traditional business functions and the
tactics across these business functions within a particular company and across businesses within the supply
chain, for the purposes of improving the long-term performance of the individual companies and the supply
chain as a whole
- According to the Council of Supply Chain Management Professionals(CSCMP), supply chain
management encompasses the planning and management of all activities involved in sourcing,
procurement, conversion, and logistics management. It also includes the crucial components of
coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party
service providers, and customers.

Business functions:
(1) buying of the raw materials
(2) Making of raw materials & other raw materials to create the finished product
(3) Moving of such product to the warehouse
WAREHOUSING
(4) Selling the products to consumers

Network:
● Buying
● making
● Moving
● warehousing
● selling

WHO are the PARTNERS:

(1) Suppliers - who furnishes the product
(2) Manufacturers - who produce the product
(3) Warehouse ( Additional) - to store the product
(4) Retailers - the ones who are the closest to the customers
(5) Customers (themselves)
Dynamics of material flow:
● Supplier
● Plant
● RS
● Logistics
● Retailer

Traditional SCM
- Traditional organizations set performance goals for each function to be managed in isolation with no or little
attention given to inter-functional relationships.
Benefits of using supply chain management
1. Benefit from the cost- why ? because there will be a decrease in the STORAGE cost. If using the supply
chain, there is a decrease in cost because level of inventory will be reduced. And reduce waste/excess-
causes of SPOILAGE
● Reduced inventories
● Reduced waste
● Reduced total system cost

2. Benefit from the service- because there's

- (1) an establishment of a collaborative framework, collaboration between the suppliers and etc.
- (2) Has real time information flow, records are updated on time and reproduced on demand.
- (3) Reduce variances and increase in quality

3. Benefit from business growth opportunities - we want to develop opportunities with suppliers (new
opportunities, means NEW PRODUCT)
● Preferred source for new opportunities
● Expanded benefit to other customers

Benefits from SCM:

● Increased market share and sales growth
● Reduced inventory levels and total SCM costs
● Decreased order cycle/fulfillment time
● Increased asset and capital utilization
● Improved delivery performance
● Faster response to changing customer requirements
● Improved return on assets and sales
● Increased forecast accuracy
● Reduced cash-to-cash cycle time

Elements of a SUPPLY CHAIN MANAGEMENT

1. INVENTORY MANAGEMENT- how we manage the inventory levels?(how we manage waste & spoilage
chuchu)
Inventory
- The stock of material lying with you for which payments are made but which are yet to be delivered to the
customers and paid for by them.
- Material stocked to meet the expected demand in the market.
- An idle resource which locks the capital

2. WAREHOUSING MANAGEMENT- because it is where we store our goods, geographical area - can be
transported from one place to another.

How to know of a good warehouse:

- Documentation of fifo - FIRST IN FIRST OUT
- Maintenance of prompt and correct records
- Fast and courteous services to the customers
- Minimum damages to the materials
- A Place for everything & everything in its place
- Protection against pilferage (theft)
- Regular inventory taking and consider verification
 3. Transportation Management - how we deliver the goods to the customer, how we provide customer
relationship *because of the delivery*

Objectives:
1. Cost of utilization - check the cheaper cost
2. Improved service - check if you want to have an improved delivery service
3. Competitive differentiator - there’s a difference in the competitor (against the logistics)
4. Time of market - on time delivery

Merchandising
Retailer
Customer

Customer relationship management (CRM)

- strategy that aims to understand and anticipate MANAGE customer relationships (the current customer and
potential customers involved).

- Integrates technology ( use social media for it to communicate with the customer)
- Integrate marketing ( any aspect that will involve customers

CRM - The creation, development, and enhancement of customer relationships.

- Enhance: Identify the needs of the customers( customized) for us to make the product/service.
- Purpose: (1) we want to create value of the product and company IN THE LONG RUN,
(2) Need to know/understand the customer life cycle.

Know the customers life cycle to understand their needs;

● First stage - The prospects - meaning potential customers

● Second stage - first time buyer - there is an expectation whether high or low
● Third stage - early repeat buyers - after the purchase, wants to have another purchase
● Fourth stage - core customers - suki

How do we create and manage customer relationships?

- Identify who are the customers (check the wants need expectations)
- Differentiate the customers (groups customers with same wants and needs)
- Socialize/Interact with customers (to settle the treatment)
- Customize the Treatment of Customer