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FACTORS AFFECTING A PERFORMANCE MANAGEMENT SYSTEM AT SOUTH AFRICAN
AIRWAYS
By
Brenda Qabaka
Submitted in fulfilment/partial fulfilment of the requirements for the degree of Masters in Business Administration at the
Nelson Mandela Metropolitan University
November 2011
Promoter/Supervisor: Prof. Paul Poisat
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i
DECLARATION
I, Brenda Qabaka 20539738, hereby declare that the dissertation for the degree of Masters
in Business Administration to be awarded is my own work and that it has not previously
been submitted for assessment or completion of any postgraduate qualification to another
University or for another qualification.
B. QABAKA
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ACKNOWLEDGEMENTS
I would like to take the opportunity to acknowledge the following individuals who helped
me in compiling this study. The completion of this thesis would not have been possible
without the considerate and sincere assistance of the following:
The Almighty, for giving me the strength and guidance throughout this journey of
writing this dissertation.
My research supervisor, Prof. Paul Poisat who provided persistent guidance and
encouragement during the course of my research efforts.
My husband, Bonakele for his continued patience and support during my academic
studies, and our children Libo and Lisa for giving me the inspiration to complete
this study.
To the rest of my family, friends and colleagues for their support and
encouragement throughout my studies.
To each and every respondent who took part in the study.
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ABSTRACT
Many organisations are continuously searching for methods which can be used to improve
performance. The balanced scorecard is a management system that enables organisations to
clarify their vision and strategy and translate them into action. When fully deployed, the
balanced scorecard transforms strategic planning from an academic exercise into the nerve
centre of an enterprise.
A prerequisite for implementing a balanced scorecard is a clear understanding of the
organisations vision and strategy. The basis for the vision and the strategy should be the
holistic view and the information management receives during systematic strategy work.
The research study addresses the integration of South African Airways (SAA) strategy with
the performance management system. A comprehensive literature study was performed on
performance management and the balanced scorecard.
Questionnaires, developed from the literature study, were distributed amongst randomly
selected respondents, in order to establish the extent to which South African Airways
manages performance. The opinions of the various respondents were compared with the
guidelines provided by the literature study in order to identify the best approach of
performance measurement to be implemented at South African Airways.
The final step of this study entailed the formulation of recommendations. These
recommendations are regarded as critical to ensure the successful implementation of a
performance management system at South African Airways.
The following main recommendations were made:
Although the empirical study revealed that South African Airways shares its
strategic objectives with its management, it is highly recommended that a balanced
scorecard should be used as a measuring approach for performance at South African
Airways.
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Before any organisation can start implementing a balanced scorecard it needs a clear
understanding of its vision and strategy. It is the management’s responsibility to
define a vision, formulate a strategy and set strategic goals regardless of a balanced
scorecard being implemented.
The implementation of a balanced scorecard should always be organised as a
separate project. Several different procedures describing the building process of a
balanced scorecard have been presented.
The research shows that, to increase the chance of a successful scorecard implementation,
regular feedback must be provided to all employees and managers must hold people
accountable for using the system.
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TABLE OF CONTENTS
PAGE
DECLARATION i
ACKNOWLEDGEMENTS ii
ABSTRACT iii
TABLE OF CONTENTS v
LIST OF FIGURES xi
LIST OF TABLES xii
LIST OF CHARTS xiii
LIST OF ANNEXURES xiv
CHAPTER ONE
PROBLEM STATEMENT AND DEFINITION OF KEY CONCEPTS
1.1 INTRODUCTION 1
1.2 MAIN PROBLEM 3
1.3 SUB-PROBLEMS 4
1.4 THE IMPORTANCE OF THE RESEARCH 4
1.5 AN OVERVIEW OF RELATED LITERATURE 5
1.5.1 Performance management 5
1.5.2 Why is performance management essential? 6
1.5.3 The balanced scorecard 8
1.6 OBJECTIVE OF THE RESEARCH 8
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1.7 RESEARCH DESIGN AND METHODOLOGY 9
1.7.1 Literature survey 9
1.7.2 Empirical study 9
1.8 DELIMITATION OF RESEARCH 10
1.8.1 Organisational level 10
1.8.2 Management level 10
1.8.3 Individual level 10
1.8.4 Geographical demarcation 10
1.9 OUTLINE OF THE DISSERTATION 11
1.10 SUMMARY 11
CHAPTER TWO
ELEMENTS OF PERFORMANCE MANAGEMENT SYSTEMS
2.1 INTRODUCTION 12
2.2. KEY ELEMENTS OF AN EFFECTIVE PERFORMANCE
MANAGEMENT PROGRAMME 12
2.3 PERFORMANCE AS AN ONGOING PROCESS 15
2.3.1 Performance planning 18
2.3.2 Managing performance 20
2.3.3 Reviewing performance 21
2.4 IMPLEMENTING PERFORMANCE MANAGEMENT 25
2.5 CONCLUDING REMARKS 26
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CHAPTER THREE
APPROACHES OF MEASURING PERFORMANCE
3.1 INTRODUCTION 27
3.2 PERFORMANCE MEASUREMENT 27
3.2.1 Characteristics of an effective measurement system 28
3.2.2 The need for balance in organisational performance measures 29
3.3 THE BALANCED SCORECARD: AN OVERVIEW 30
3.3.1 The balanced scorecard as a management system 31
3.3.1.1 Clarify and translate vision and strategy 33
3.3.1.2 Communicate and link strategic objectives and measures 34
3.3.1.3 Plan and set aligned strategic initiatives 34
3.3.1.4 Enhance strategic feedback and learning 34
3.4 THE BALANCED SCORECARD’S FOUR PERSPECTIVES 35
3.4.1 The balanced scorecard framework 36
3.4.1.1 The learning and growth perspective 36
3.4.1.2 The business process perspective 37
3.4.1.3 The financial perspective 37
3.4.1.4 The customer perspective 39
3.4.2 Measuring strategic financial themes 42
3.5 BALANCED SCORECARD DOWNFALLS 43
3.6 BUILDING A BALANCED SCORECARD 44
3.6.1 Guidelines at corporate level 44
3.6.2 Guidelines at employee level 46
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3.7 RATING 47
3.7.1 Arguments for and against rating 47
3.7.2 Evaluation of rater accuracy 48
3.7.3. A comparison: performance appraisal systems and performance
management systems 49
3.8 MANAGEMENT BY OBJECTIVES (MBO) 51
3.8.1 Three phases of management by objectives 52
3.9 CONCLUDING REMARKS 52
CHAPTER FOUR
RESEARCH METHODOLOGY FOR EMPIRICAL STUDY
4.1 INTRODUCTION 54
4.2 DEFINITION OF RESEARCH DESIGN 54
4.2.1 The definition of research 54
4.2.2 The definition of research design 55
4.3 CONDUCTING THE EMPIRICAL STUDY 56
4.4 SAMPLING METHODS AND SIZE 57
4.4.1 Probability sampling 58
4.4.2 Non-probability sampling 58
4.5 THE QUESTIONNAIRE 59
4.5.1 The design 60
4.5.2 Questionnaire content 62
4.5.3 Types of questions 62
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4.5.4 Questionnaire wording 63
4.5.5 Validity and reliability 63
4.6 CONCLUDING REMARKS 64
CHAPTER 5
ANALYSIS AND INTERPRETATION OF RESULTS
5.1 INTRODUCTION 65
5.2 ANALYSIS AND INTERPRETATION OF THE BIOGRAPHICAL
INFORMATION 66
5.3 ANALYSIS AND INTERPRETATION OF RESULTS OF EMPIRICAL
STUDY 69
5.3.1 Implementing performance management 69
5.3.2 Elements of an effective performance management programmes 73
5.3.3 Performance measurement 76
5.3.4 Suggestions from respondents 80
5.4 CONCLUDING REMARKS 81
CHAPTER 6
SUMMARY, RECOMMENDATIONS AND CONCLUSION
6.1 INTRODUCTION 82
6.2 SUMMARY OF CHAPTERS 82
6.3 SUMMARY OF THE EMPIRICAL FINDINGS 84
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6.4 PROBLEMS AND LIMITATIONS OF THE STUDY 85
6.5 RECOMMENDATIONS 85
6.6 OPPORTUNITIES FOR FURTHER RESEARCH 89
6.7 CONCLUDING REMARKS 89
REFERENCES 90
xi
LIST OF FIGURES
PAGE
Figure 2.1 Hartle’s elements of a performance management programme 14
Figure 2.2 Hartle’s key phases of a performance management process 16
Figure 2.3 Hartle’s model of 360-degree feedback 23
Figure 3.1 The Balanced Scorecard as strategic framework for action 33
Figure 3.2 Measuring strategic financial themes 39
Figure 3.3 The customer perspective - core measures 43
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LIST OF TABLES
PAGE
Table 3.1 Characteristics of an effective measuring system 28
Table 3.2 Comparison between performance appraisal systems
and performance management systems 50
Table 5.1 Response according to department employed 66
Table 5.2 Response according to period employed in organisation 66
Table 5.3 Response according to position held 67
Table 5.4 Response according to gender 68
Table 5.5 Implementing performance management 69
Table 5.6 Elements of an effective performance management programme 73
Table 5.7 Performance measurement (as per SAA’s current
performance management system) 76
Table 5.8 Performance measurement (management’s views) 78
Table 5.9 Suggestions from respondents 80
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LIST OF CHARTS
PAGE
Chart 5.1 Period employed 67
Chart 5.2 Gender composition 68
Chart 5.3 Implementing performance management 72
Chart 5.4 Elements of an effective performance management
system 75
Chart 5.5 Performance measurement (as per SAA’s current
performance management system) 77
Chart 5.6 Performance measurement (management’s views) 79
xiv
LIST OF ANNEXURES
PAGE
Annexure A Covering letter 95
Annexure B Questionnaire 97
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CHAPTER ONE
PROBLEM STATEMENT AND DEFINITION OF KEY CONCEPTS
1.1 INTRODUCTION
This Chapter focuses on the presentation of the main problem and sub-problems to be
addressed in this dissertation. Furthermore it also addresses the importance of this research,
an overview of related literature, the objectives of the research, the research design and
methodology. Delimitation of the research and the outline of the dissertation were also
discussed.
South African Airways (SAA) is one of the world’s oldest airlines, having been founded in
February 1934. Today South African Airways employs more than 9,500 employees, carries
more than 9.2 million passengers per year, has a route network that serves 155 countries
and flies to more than 845 destinations. South African Airways has a fleet of 54 aircraft,
including the new Airbus A340-642 and A319 as part of its fleet renewal programme.
South African Airways also has the largest maintenance facility in Africa which performs
maintenance work for more than 40 major airlines.
One of South African Airways strategic objectives is to inculcate a culture of performance.
South African Airways already had a no-frills, manual performance-management tool
implemented, but it was not effective. It required a lot of paperwork, and did not provide
any real information on growth. It was also incentive driven, which limited the scope to a
great extent compared with the measuring possibilities provided by an actual performance
management system.
Stronger emphasis on acquiring professional performance management became an
imperative investment issue. Therefore South African Airways decided to implement a
performance system that will facilitate the increase in productivity, quality and customer
service, improve operational efficiencies, reduce cost and in turn increase profitability.
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Quality Processes Results Scorecard (QPRS) was implemented to help management attend
to financial problems impacting performance in the short term, as well as in stepping up its
cost-cutting drive to ensure the long-term sustainability and profitability of the airline.
The system went live in 2006 for the management level. South African Airways has
flattened the group’s structure, making executives more accessible, in touch and
accountable. South African Airways is still in the process of rolling out the system to
junior staff. This nonetheless is the aim of performance management, i.e. to have every
individual performance scorecard and communicated as per South African Airways
strategy.
Johnson and Scholes (1999:480) define a performance management system as the process
of assessing, developing and incentivising employees to enhance their skills and
capabilities, further their careers and strengthen the organisation. There is both an
individual and an organisational side to performance management. For an individual, an
effective performance management system provides on-going feedback on performance
and the resulting benefits, rewards and development programs that are provided. For the
organisation, an effective performance management system provides essential information
about how employees (as a group) are aligned with company strategy and initiatives, and
how well company objectives are being achieved.
Many managers and researchers have tried to cure the inadequacies of current performance
management systems. It has been realised by managers that no single measurement can
provide a clear performance target or focus attention on the critical areas of the business.
Managers want a balanced presentation of both financial and operational measures (Kaplan
and Norton, 1992:71).
Scheiderman (1996:6) firmly believes that a good scorecard can be the single most
important management tool in organisations. Scheiderman (1999:6) quote Tom Malone,
President of Milliken and Company: “If you’re not keeping score, you’re only practicing.”
Scheiderman (1999:6) offers the following view as to why most balanced scorecards fail:
The independent (i.e. non-financial) variables on the scorecard are incorrectly
identified as the primary drivers of future stakeholder satisfaction;
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Poorly defined metrics;
Improvement goals are negotiated rather than based on stakeholder requirements,
fundamental process limits and improvement process capabilities;
There is no exploitation system that breaks high level goals down to the sub-process
level where actual improvement activities reside;
A state of the art improvement system is not used; and
There is not and cannot be a quantitative linkage between non-financial and
expected financial results.
1.2 MAIN PROBLEM
Brown (1994:89) argues that managers in large companies have difficulty translating
objectives, strategies and performance measures at different levels of the company.
Objectives at the senior management level frequently have no clear connection with
performance priorities lower down. Generally, financial objectives take precedence at the
top, while service objectives have the highest priority at the frontline, employee level. How
lower level service objectives translate into upper level financial results is usually not clear.
Brown (1994:89) cites that the need to incorporate objectives and strategies across levels
and functions is becoming more critical as companies compete on a broader array of
performance criteria.
SAA utilises a balanced scorecard approach for the measurement of organisational
performance. The performance management system is administered up to managerial level
and excludes lower level employees. Overall performance of SAA as determined by the
balanced scorecard approach has revealed below standard performance. Although there
may be a number of organisational factors such as structure, communication, management
style and culture that may contribute to SAA not meeting their standards; the premise of
this study is that the performance management system is not properly implemented and
devolved to the lower level employees at SAA. This assumption leads to a number of
questions relating to the performance management system at SAA. Is the performance
management system properly utilised by management at SAA? Is the performance
management system effective in directing performance to meeting organisational goals? If
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the system is limited to managerial level, what about the appropriateness of the system for
lower level employees? What mechanisms direct lower level employees’ behaviour towards
meeting South African Airways objectives? These questions raise significant concern
regarding the alignment of lower level employee performance with that of South African
Airways strategy and meeting objectives.
The preceding discussion provides the rationale and basis for problem formulation for the
investigation into the performance management system at SAA. In order to provide focus
and clearly delineate the research, the following main problem and sub problems were
developed:
What is the approach that should be used by South African Airways to compile
an effective performance management system for SAA employees?
1.3 SUB-PROBLEMS
Sub-problem one
What are the elements of a good performance management system?
Sub-problem two
What are the different approaches mentioned in literature that could be used to compile
a performance management system for South African Airways?
Sub-problem three
How can the results obtained from the resolution of the first two sub-problems be
implemented in order to improve the performance management system at South African
Airways?
1.4 THE IMPORTANCE OF THE RESEARCH
Managing an organisation’s performance is important for a number of reasons. This
includes both internal and external factors such as the need to attract future investment, to
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retain and attract more customers, to remain competitive and innovative in order to increase
profit and share prices. However, it is now recognised that traditional financial measures
alone are no longer sufficient for understanding performance in a dynamic business
environment, as it encourages short-termism leading to a lack of strategic focus and failure
to provide data on quality (Kagioglou et al.,2001).
The aim of this study is to identify and recommend a new approach of performance
measurement that South African Airways can implement so as to improve the performance
management system currently in place.
The research to be conducted will be significant, if it can be proven that the performance
management system recommended will sustain long term business objectives and
continuous improvement on the current performance management system of the
organisation.
1.5 AN OVERVIEW OF RELATED LITERATURE
1.5.1 Performance management
According to Johnson and Scholes (1999:480) acquiring, retaining and developing human
resources of at least a threshold standard is a starting point of a successful strategies.
Performance management is the day to day management of employees in terms of goals of
the organisation. A performance management system is an orderly process that properly
documents the goals and objectives of each employee, with a built-in review process.
Having a good performance management system means that each person will have goals
and measures that are linked directly to the organisation’s strategy.
The process of developing individual measures starts by taking the strategy of the
organisation and cascading the strategic objectives down through the diverse departments.
Once managers of the different departments have set their goals and objectives, each person
in the department should be assisted by means of a co-operative goal setting session to set
his or her goals and the associate measures. This process is often known as goal alignment.
In effect, everyone’s efforts are directed towards the same goal and there is no wasted effort
with employees going off at a tangent (Schultz, et al. 2003:76).
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According to Beer and Ruh (1990:219) performance management comprises (1)
recognition of a manager’s role in dealing with subordinates, (2) emphasis on development
and evaluation, (3) the identification of an individual’s strengths and development needs,
and (4) an integration of the results achieved and how they were achieved.
1.5.2 Why is performance management essential?
What you hope to achieve through a performance management process should have a
significant impact on what kind of process you design, and the people who will participate
in it. The list below sets out the potential benefits that can be derived from performance
management (Hartle, 1995:16).
Business Objectives:
increased focus on key business objectives;
alignment of organizations, department, and individual objectives;
reduce costs;
raise productivity;
support a total quality management initiative;
support ‘Investors in People’ initiative;
improve or maintain particular standards;
implement a new project or structure e.g. team working ;
achieve other specific business objectives.
Human Resource Management Objectives:
improve communication about business objectives;
increase employee commitment to the organisation;
improve managerial capabilities;
change to a more focused performance culture;
increase staff motivation;
change dominant managerial styles within the organisations, e.g. empowering;
introduce performance related pay;
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increase focus of training through clearer definitions or training needs;
increase managers focus on the management roles;
provide better ways of assisting individual performance to fit people to roles and
managing careers;
achieve other human resource objectives.
Individual’s Objectives
more clarity about what performance is expected;
more regular feedback on how they are performing;
understand clearly how managers view their performance;
define more specific training to meet their needs;
have an opportunity to discuss how the manager has managed them;
define more specific development to meet their needs;
identify career development opportunities;
get better rewarded for their contributions;
increase opportunity for more to participate in decision making.
Performance management supports overall business goals by linking the work of each
individual employee and manager to the overall mission of his or her work unit. All
employees, therefore, play a key role in the success of their company or organisation. How
well you manage the performance of your employees directly affects not only the
performance of the individual and your work unit but also the performance of the entire
company (Costello, 1994:6).
Performance is often regarded simply in output terms, the achievement of quantified
objectives. But it is more than that: it is the outcomes of activity and endeavour that matter.
Performance is a matter not only of what people achieve but of how they achieve it. High
performance results from appropriate behaviour, especially discretionary behaviour, and the
effective use of the required knowledge, skills and competencies. Performance management
must examine how results are attained because this provides the information necessary to
consider what needs to be done to improve these results (Armstrong and Baron, 2005:9).
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1.5.3 The balanced scorecard
Kaplan and Norton (1996:7) developed the balanced scorecard model as an innovative
business performance measurement approach, primarily relying on financial accounting
measures, which were becoming outdated. This innovative approach was able to consider
the intangible or ‘soft’ factors that had previously been considered as immeasurable, and as
such, of little value. The term ‘Balanced Scorecard’ reflected the balance between short and
long-term objectives, financial and non-financial measures, lagging and leading indicators
and external and internal performance perspectives. The successful application of the
balanced scorecard in a number of transformation projects identified that it could also be a
medium to communicate and align a new strategic approach. It has been successful
because it is able to identify linkages between the four key areas that generate and
perpetuate success.
According to Kaplan and Norton (1992:71) primarily, the balanced scorecard gives
managers the ability to view performance in several areas at the same time. The balanced
scorecard also restricts the number of measures used and forces manager’s focus on the
critical indicators of the company’s performance. Apart from bringing diverse pieces of
information together in a single management report, it guards against sub-optimisation.
This is because the balanced scorecard lets managers see whether changes in one area are at
the expense of another. This is important as there is often more than one way of achieving
the same objective and even the best objective can be achieved badly.
1.6 OBJECTIVE OF THE RESEARCH
The following procedure was implemented to meet the objectives of the study:
To identify the best approach for performance measurement to be implemented at
South African Airways, with the aim of improving the organisations’ performance
management system.
To assess the attitudes of managers towards performance management.
Evaluate the current performance management systems that are in place within the
organisation.
Make recommendations on the performance management system to be
implemented.
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1.7 RESEARCH DESIGN AND METHODOLOGY
The following procedure was adopted to solve the main and sub-problems:
1.7.1 Literature survey
The literature survey focused on the following:
(a) Identifying components for an effective performance management system (textbooks,
articles and research reports were utilised as secondary sources).
(b) Providing a theoretical framework which can serve as guidelines for an effective
performance management system.
1.7.2 Empirical study
The empirical study consisted of:
(a) Measuring instrument
The researcher developed a questionnaire, according to the principles and guidelines
identified in the literature survey. It should be noted that the questionnaire used does not
include the item required for a neutral response.
(b) Obtaining empirical data
Empirical data was obtained by means of an organisational survey, by conducting
interviews with a structured questionnaire developed by the researcher to establish the key
elements of performance management that the managers regard as part of performance
management system at South African Airways. A more detailed discussion of the empirical
method used is provided in chapter four.
(c) Sample
The audience of the survey was limited to managers and middle managers of South African
Airways.
(d) Analysis of results
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The results of the survey were analysed and integrated with the literature findings. The
collected data was analysed and presented in the form of tables and percentages. The
results were used to draw conclusions and formulate recommendations
.
1.8 DELIMITATION OF RESEARCH
Delimiting the research serves the purpose of making the research topic manageable from a
research point of view. The omission of certain topics does not imply that there is no need
to research them.
1.8.1 Organisational level
The study looks at the organisation as a whole, and more specifically, on ways to improve
the current performance management system at SAA.
1.8.2 Management level
The study was limited to managers and middle managers, as this level of management is
closely involved with the lower level employees.
1.8.3 Individual level
The current performance management system at SAA did not include the lower level
employees, the researcher decided not to include them as they were not familiar with the
performance management processes within their organisation.
1.8.4 Geographical demarcation
The empirical component of this study was limited to Cape Town airport and Johannesburg
airport being the two large employment base of SAA. In this study the empirical research
focuses on the In flight service department and the Airport operations department from both
airports. The exclusion of other departments did not necessarily imply a lack of the need to
conduct research.
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1.9 OUTLINE OF THE DISSERTATION
The study was conducted under the following chapters:
Chapter One: Problem statement and definition of concepts
Chapter Two: Elements of performance management systems
Chapter Three: Methods of measuring performance
Chapter Four: Research methodology for empirical study
Chapter Five: Analysis and interpretation of results
Chapter Six: Summary, recommendations and conclusion
1.10 SUMMARY
The aim of this chapter was to present the main problem to be addressed in this research,
and to outline how the researcher intends to solve the main and sub-problems. A structure
of the dissertation was also provided. Chapter two will present elements of performance
management systems.
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CHAPTER TWO
ELEMENTS OF PERFORMANCE MANAGEMENT SYSTEMS
2.1 INTRODUCTION
Chapter one focused on the presentation of the aim of the study as well as the research
problem with its related sub-problems. In this chapter, the key elements for an effective
performance management programmes will be described. Performance management and
its implementation will also be discussed.
2.2 KEY ELEMENTS OF AN EFFECTIVE PERFORMANCE
MANAGEMENT PROGRAMME
Sacht (2004:23) lists the key elements of the performance management programme as
follows:
It is a business process
It is about the everyday actions and behaviours people use to deliver the goals of the
organisation to meet customer needs, improve performance and themselves. It cannot
be divorced from the management and business processes of the organisation. Performance
management is not about a set of forms, the annual appraisal ritual, or the merit or bonus
scheme.
It is an approach to managing people
The focus of performance management is on connecting people to one another and to the
larger organisation and its values. The main emphasis is on how to get people to work
together and support one another to achieve shared aims. In particular it puts the
responsibility on managers to work effectively (through coaching and motivating) with
those for whom they are accountable.
It increases the probability of organisation health and durability
Performance management has a clear purpose. It is about delivering success for
individuals, teams, and the organisation. By establishing a continuous management process
13
that delivers clarity, support, feedback, and recognition to all, leaders take a major step in
sustaining performance management process, and organisational life span.
It is driven by competencies
Competencies are the only common denominator that can be used across human resource
systems consistently. This assists both line managers and human resource professionals to
measure and manage jobs and performance in integrated way.
Likewise, Lawson (1995:12-13) views the elements of an effective performance
management programme as:
Clarifying the organisation’s vision;
establishing key results, objectives and measures;
identifying business process objectives, as well as the key performance indicators for
those processes;
identifying and implementing effective measures;
monitoring and controlling performance measures;
managing the continuous improvement of performance, and;
altering performance measures as necessary, when performance improvement is
required.
14
Figure 2.1 sets out elements that a performance management programme should contain.
(Hartle, 1995:64).
Figure 2.1: Hartle’s elements of a performance management programme
Source: (Hartle, 1995:64)
This is a very straightforward diagram which looks at the four elements of performance
management and their respective sub goals:
Performance planning
This is the process of identifying the desired performance and gaining employee’s
commitment to perform to these expectations. It is of vital importance because unless
individuals know what is expected of them in the future they will be unable to work
effectively to achieve the objectives (Hartle, 1995:66).
Managing performance
This is the on-going process of working towards the performance expectations established
in the planning phase. It is probably the most neglected area of the performance
management cycle. Together, manager and employee review the employee’s performance
-Establishing individual/ team objectives -Describing job expectations -Planning competency improvements - Describing tasks -Personal training and development planning -Setting performance standards
-Coaching -Counselling -Feedback and day to day planning meetings -Motivating management styles -Self monitoring -Monitoring training and developing training activities.
-Praise -Promotion/ Job enrichment -Individual bonuses -Merit pay -Team bonuses -Prizes -Special awards
-Formal review of performance -Performance measurement -Formal team feedback sessions -Individual self-review -Peer group and upwards appraisal
Planning Managing performance performance Rewarding Reviewing performance performance
15
on a periodic basis. If it is on track, or exceeding expectations, the manager provides
positive reinforcement to keep performance at a high level. If performance is below
expectations, the manager coaches the employee on improving the trouble spots. This
involves developing strategies with the employee to determine appropriate action plans.
Performance review
Performance review provides the opportunity to step back from day to day activities, assess
performance trends and plan for the future. Because periodic performance reviews have
essentially eliminated any surprises, both manager and job holder can anticipate the nature
of the discussion and prepare for the meeting accordingly. Career development, a natural
outgrowth of this discussion, helps build the employee’s commitment and loyalty to the
organisation, increasing motivation and productivity as well (Hartle, 1995:75).
Rewarding performance
Reward is an important part of the feedback loop in performance management. However, it
is not necessarily only concerned with money. A reward only has a positive effect on an
individual if it is:
valued by them;
appropriate to the effort put in and the achievement.
Since each individual might be motivated by different things, an effective performance
reward process should be sufficiently flexible to cater for individual needs, for example
praise, promotion, individual bonuses, prizes, special awards, etc. (Hartle, 1995:82).
It is the researcher’s belief that although this is a very straightforward diagram and aimed
specifically at the job/performer level of performance management, it could be applied very
successfully to most organisations. The reason being that it is easy to understand and has
well defined goals.
2.3 PERFORMANCE AS AN ONGOING PROCESS
Armstrong (2001:474) define a performance management as a process for measuring
outputs in the shape of delivered performance, compared with expectations expressed as
objectives. In this respect it focuses on targets, standard performance measures or
16
indicators. But, it is also concerned with inputs, the knowledge, skills and competencies
required to produce the expected results. It is by defining these input requirements and
assessing the extent to which the expected levels of performance have been achieved by
using skills and competencies effectively that developmental needs are identified.
The key phases of the performance management process (see Figure 2.2), consists of
planning, coaching, and reviewing/rewarding. These phases each have significant impact
on the dimensions of standards, clarity, and responsibility and reward (Hartle, 1995:154).
Standard
Clarity
Responsibility
Rewards
Figure 2.2: Hartle’s key phases of a performance management process
Source: (Hartle, 1995:155)
According to Kemp and Hillard (1999:25-27) management refers to accepting and taking
responsibility in order to cope with different kinds of demands. Demands, in this case
demands for performance, need to be managed, and the individual need certain skills, for
example time management and self management skills, to enable himself/herself to cope
with these demands effectively.
Armstrong (1994:76-77) argues that performance management is an on-going process,
which reflects good management practices of direction setting, monitoring and measuring
Planning
Reviewing/Rewarding
Managing
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of performance, and taking action accordingly. Performance management can be regarded
as an integral part of the continuous process of management, based on a philosophy
emphasising:
the achievement of continuous improvement in performance;
continuous development of skills and competences, and;
that an organisation becomes a learning organisation.
Armstrong (1994:43-45) furthermore says that performance management can be regarded
as a continuous self-renewing cycle. The fact that there is scope for feedback during the
year provides managers with the opportunities to revise or produce new performance
agreements.
On the other hand, Spangenberg (1994:45-46) regards managing performance as an on-
going twelve-month activity, which comprises three parts:
Managing performance at three levels
At the organisational and process level, performance management includes ensuring
that goals are set and measured, feedback is provided, necessary solutions are available,
and resources are optimally utilised. At the employee level, performance management
entails managing those factors in the human performance system, including input,
output, consequences, feedback and knowledge, skills and individual capacity.
Understanding the employee’s work motivation
Within any performance management programme, it is important to understand and
know what it is that motivates employees. If these needs are satisfied, performance will
improve.
The leader’s role in enhancing employee performance
Van Arsdal, in Spangenberg (1994:46) regards the manager-subordinate relationship as
crucial in managing performance.
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2.3.1 Performance planning
Performance planning can be viewed as part of the whole process of forming an agreement,
which ultimately expresses a number of actions to be taken by an individual and by his/her
manager. The agreement and performance planning discussion between and individual and
his/her manager should provide clarity and focus, as well as set of key objectives. Complete
agreement and understanding on these issues is also necessary. Furthermore, as part of
performance planning, periodic discussion throughout the year is necessary, in order to
check progress against objectives, and possibly even revise priorities (Armstrong, 1994;
Hartle, 1995).
In addition to these views, Bacal (1999:27) regards performance planning as the usual
starting point for an employee and manager, to begin the performance management process.
Manager and employee work together to identify what the employee should be doing for
the period being planned, how well the work should be done, why it needs to be done,
when it should be done, and other specifics, such as level of authority and decision making
for the employee.
Hartle (1995:65-71) provides a more detailed explanation of the phrase ‘performance
planning’, by distinguishing between four key processes within the planning phase:
Establishing individual objectives
While a specific business unit’s objectives are set through the business strategy, individual
objectives may be set through:
Establishing improvement over previous years;
targets and standards set by external bodies, and;
targets and standards set by internal bodies – ‘benchmarking’.
The definition of individual objectives is an important element in performance
management, as these objectives set priorities.
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Describing the job roles of individuals
For good performance planning, defining individual roles and performance expectations
is the key. A mechanism that can be used for this is ‘key accountabilities’, which refers
to an area of responsibility for which the job holder is expected to produce results. A
new trend nowadays, is to define jobs, not only in terms of key accountabilities, but
also in terms of skills and competencies necessary for success.
Objective setting
For employees to know what is required from them, and on what basis their
performance will be assessed, the setting of individual objectives is a key part of
performance management. These objectives highlight the clarity of understanding of
the job, and provide focus to an individual’s actions and behaviour. Williams, in Hartle
(1995:70) mentions that objectives should satisfy the following criteria:
Objectives should be appropriate to improving performance;
Objectives should involve some degree of stretch, because if too easy, objectives
will not motivate individual performance;
Objectives should be capable of on-going monitoring as well as the year-end
assessment, and;
Objectives should support the overall strategy of the organisation.
Development planning
Included in the performance planning process, should also be personal performance
improvement objectives. It is important to realise that each individual can achieve
better results, and by means of personal performance improvement objectives,
individual and organisational performance can be improved.
Managers who periodically track and review performance, let employees know where they
stand. Effective counselling and coaching is an important part of managing performance
and should form part of South African Airways performance management system.
Counselling is necessary when performance has not met the expectations and the manager
needs to take a formal planned approach in order to help the job holder to overcome the
obstacles.
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2.3.2 Managing performance
Managing performance is an on-going process of working towards performance
expectations mentioned in the planning phase.
According to Hartle (1995:72-75) the managing phase of a performance management
programme consists of discussion taking place between a manager and an individual, aimed
at motivating employees to strive towards high standards and stretching objectives. Any
performance gaps identified, must be followed by action plans to rectify these gaps. This is
an on-going process, aimed at achieving the performance expectations established in the
planning phase. Activities included in this phase are:
Coaching
Coaching is a learning process, where the individual is responsible for planning and
achieving the objectives set, but is supported by his/her manager. The manager also
provides feedback, both on positive aspects, as well as on those areas that need
improvement.
Counselling
When performance targets are not reached, managers need to take a formal and planned
approach in order to help individuals overcome obstacles. The aim of counselling is to
agree on specific action plans which could bring about performance improvement.
On-going progress review
Performance management should be integrated with normal business planning or work
activities, placing more emphasis on the links between an individual’s capabilities,
objectives and output, and the overall success of the organisation. If the achievement of
the organisations’ goals is dependent on the individual’s objectives, then monitoring of
the individual’s objectives on a regular basis is critical.
Self-monitoring
The individual job holder should be encouraged to manage and take responsibility for
his or her own performance. This encouragement should aim at:
seeking guidance from colleagues;
21
participation in discussions about their performance, and reviewing their performance,
and judging how well they have done.
2.3.3 Reviewing performance
It should be noted that the purpose of the review is not to discuss personality but
performance. Kirkpatrick (2006:61) recommends that the following ten principles must be
applied to all performance reviews regardless of the form that is used:
Establish and maintain rapport. Rapport can be defined as the climate in which the
interview takes place. Socialising for a few minutes is well worth the time as it creates
rapport;
Clearly explain the purpose of the interview. Make it clear to the employee what you
want to accomplish. State it in positive terms. This can be done as follows: “The
purpose of this review today is for us to discuss your performance and agree on your
strengths and areas that can be improved, and then we are going to talk about your
future and how we can work together” (Kirkpatrick, 2006:61);
Encourage the employee to talk. The review must include two communications. The
establishment of rapport helps to overcome this reluctance;
Listen and do not interrupt. The word listen here means to really listen. It is an active
process of finding out the thoughts as well as the feelings of the other person. If both
parties start to talk at the same time, the manager should quit talking and encourage the
employee ahead;
Avoid confrontation and argument. Even if thought differences of opinions are
expressed, the manager should avoid confrontation and argument;
Focus on performance, not personality. This is a performance review, and emphasis
should be on performance, not personality. It does not mean that items such as attitude,
integrity, dependability, appearance, or initiative are not mentioned, it means that these
characteristics are mentioned only as they relate to performance;
22
Focus on the future and not the past. This does not mean that past performance is not
discussed, but that the emphasis is on what can be learned from the past that will help
the future;
Emphasise strengths as well as areas to improve. Every employee has strengths as well
as areas of performance that can be improved. Recognise and build on the strengths,
and also discuss job segments that must be corrected if performance is to improve;
Terminate the interview when advisable. The appraiser should hesitate to terminate the
review at any point when he thinks it is a good idea. If the review meeting is terminated
before accomplishing all of the objectives set, agree on when the review meeting can be
continued;
Conclude on a positive note. The appraiser must ensure that the employee leaves the
meeting in a positive frame of mind instead of feeling resentful of the negative aspects
of the discussion. A warm handshake at the end of the meeting is one way of ending on
a positive note.
Performance review provides the opportunity to step back from day to day activities, assess
performance trends and plan for the future. Because periodic performance reviews have
essentially eliminated any surprises, both manager and jobholder can anticipate the nature
of the discussion and prepare for the meeting accordingly (Hartle, 1995:75).
Hartle (1995:75-82) distinguishes between three types of reviews:
The formal review
A formal review is an annual event, both at the beginning and the end of the annual
performance management process, which provides a basis for planning the following year’s
expectations, and forms an agreed view on the job holder’s performance in the preceding
year.
23
Individual self-review
The individual job holder should be a partner in the performance management programme,
and usually s/he will have an accurate picture of his/her own performance. Each individual
should be encouraged to take part in the reviewing phase of performance management,
ensuring and understanding the factors that led to successful performance, and those factors
that contributed to under-performance.
Peer group and upward appraisal
Traditional performance appraisal led to dissatisfaction of individuals, as it was regarded as
a ‘top down’ approach. Performance appraisals were often regarded as being one-sided,
leaving individuals despondent and de-motivated. The emergence of 360-degree feedback,
has overcome this problem, whereby feedback is given between a manager, subordinates
and peers (see Figure 2.3).
Manager
Peers Peers
Subordinates
Figure 2.3: Hartle’s model of 360-degree feedback
Source: (Hartle, 1995:79)
Spangenberg (1994:46) also regards performance review as a critical step in the
performance management process. Performance review outcomes are fed directly into three
major human resource systems, namely reward, training and development, and career
management. Similar to the findings of Hartle, Spangenberg (1994:198) mentions that the
traditional management culture of imposing controls over employee behaviour has become
JOB HOLDER
24
less effective, and the use of self-review, managers and peer review, could ensure that an
organisation remains competitive, through involvement and commitment of all individuals.
Likewise, Armstrong (1994:88-102) sees the performance review meeting to be a basis for
assessing the three key elements of performance, namely: contribution, competence and
continuous development. He furthermore identifies the following main issues concerning
performance reviews:
A formal review provides a focus point for the consideration of key motivational,
performance and development issues.
The objectives of reviewing performance are:
Motivation, to encourage improvement of performance;
Development, to provide a basis for developing and broadening
competences and attributes, and;
Communication, to provide the necessary communication channels about
roles, responsibilities and work problems.
Performance review systems should not just focus on the upper and lower extremes
of performance, but also on employees who are average or middle-of-the-road
performers.
Performance review meetings should focus on:
performance improvement issues, and;
the degree to which the meeting should be forward looking rather than backward
looking.
The criteria for assessing performance should be balanced between:
achievements in relation to objectives;
behaviour that affects performance, and;
daily effectiveness.
Managers with a highly directive style, need to adjust, in order to ensure a
participative, two-way review meeting;
25
guidance and training is required for managers to conduct both formal and informal
reviews, with a role of counsellor and coach;
the outputs of the review meeting have to be relevant and put into action, and there
needs to be commitment and agreement by the individual to these outputs;
both positive and negative elements of performance need to be addressed at the
review meeting;
the performance review meeting should provide a communication channel, whereby
organisational and departmental objectives, as well as how and where the individual
fits into the big picture is discussed;
the criteria for evaluating performance should cover agreed objectives;
performance should be evaluated throughout the year;
both managers and subordinates must understand the positive nature of the review
process.
2.4 IMPLEMENTING PERFORMANCE MANAGEMENT
Hartle (1995:212-217) identifies seven critical success factors, which will ensure the
successful implementation of a performance management programme:
Performance management process should not be driven by ‘pay’, and a stronger
emphasis should be on other issues that motivate people, such as job satisfaction,
job challenge, career opportunities and training and development;
performance management should be used as a link between overall strategy and
individual contribution, by means of setting clear objectives for individuals, in line
with key strategic goals;
top management should use the performance management process themselves, and
show a genuine commitment to it;
26
it might be beneficial to first have a pilot run of the process in a part of the bottom
up;
a programme should be set in place, whereby all/everyone involved are trained in
the setting of objectives, monitoring and tracking of performance, and the
assessment of performance, and;
the implementation of a performance management programme should be seen as a
learning process, as it will not work perfectly within the first year.
As you receive the feedback, take the longer view. Do not overreact to one piece of
feedback. Stay with the intended design. Trying to fix the practice based on every
criticism will surely give you a mess. On the other hand, keep track of the feedback,
complaints, and system data, and see if there are opportunities for deliberate, well thought-
out improvements (Coens and Jenkins, 2002:299).
2.5 CONCLUDING REMARKS
Chapter two provides the reader with the elements for performance management systems.
Key elements for an effective performance management system were highlighted as means
to improving performance.
The researcher believes that the elements of performance management discussed in chapter
two gives a good background on how performance review process can be improved if these
guidelines are followed.
Chapter three will examine and analyse the different types of approach of measuring
performance revealed by the literature as well as analyse and discuss the second sub-
problem relating to the different approach that the literature reveals in order to be able to
implement the best method that will be suitable to South African Airways performance
management system.
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CHAPTER THREE
APPROACHES OF MEASURING PERFORMANCE
3.1 INTRODUCTION
In chapter two the researcher discussed the key elements for an effective performance
management system.
Chapter three will provide the reader with guidelines to be used when building a balanced
scorecard for the organisation, for the corporate level as well as the employee level.
Firstly, the researcher will discuss measurement as the important part of performance
management. Secondly, the three approaches of measuring performance will be discussed,
the balanced scorecard, rating and management by objectives.
The emphasis will be on the balanced scorecard, being the approach used by South African
Airways. The researcher will conclude the chapter on how to build and implement a
balanced scorecard.
3.2 PERFORMANCE MEASUREMENT
Measurement is the key ingredient in performance management. According to Rummler &
Brache (1995) the following ‘truths’ about measurement underlies effective management of
organisation’s and human performance:
Without measures, managers have no basis for:
specifically communicating performance expectations to subordinates;
knowing what is going on in their organisations;
identifying performance gaps that should be analysed and eliminated;
providing feedback that compares performance to a standard;
identifying performance that should be rewarded;
effectively making and supporting decisions regarding resources, plans,
policies, schedules, and structure.
28
Without measures, employees at all levels have no basis for:
knowing specifically what is expected of them;
monitoring their own performance and generating their own feedback; required for
rewards from others;
Identifying performance improvement areas.
Measures alone are not enough. To serve as guide and tools, measures have to serve as the
foundation of a performance management system. The selection of measures and related
goals is the greatest single determinism of organisations effectiveness as a system
(Rummler and Brache, 1995:163).
It is important to choose a set of integrated measures relevant to an organisation’s strategic
objectives and key performance results (Butler et al., 1997). The balanced scorecard
translates an organisation’s strategy into a comprehensive set of performance measures.
These measures are required for setting targets, monitoring performance, benchmarking
against industry performance and identifying improvement opportunities.
3.2.1 Characteristics of an effective measurement system
Delivering an excellent service in business requires a high standard of performance on a
wide range of factor. It is vital to establish what an effective strategic performance
measurement system should be in order to focus on the critical aspects of business.
Moullin (2004) highlights eight characteristics of an effective performance measurement
system. As table 3.1 shows:
Table 3.1: Characteristics of an effective measurement system
Must use a balanced set of measures
Must measure what matters to service users and other stakeholders
Involve staff in determining the measures
Include both perception measures and performance indicators
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Use a combination of outcomes and process measures
Take account of cost measuring performance. The benefit must outweigh the cost
of obtaining them
Have a clear system of translating feedback from measures into strategy for action
Measurement systems need to be focused on continuous improvement
Source: (Moullin, 2004)
Amaratunga and Baldry (2002) stress that a strategic performance measurement system
must have the following characteristics:
must be sensitive to changes in the external and internal environment of an
organisation;
reviewing and reprioritising internal objectives when the changes in the external and
internal environment are significant enough.
3.2.2 The need for balance in organisational performance measures
Financial performance measurement has long been criticised for failing to help managers
cope with the pressures of today’s competitive environment (Ghalayini and Noble, 1996).
This dissatisfaction has led to the development of a number of new approaches to
performance measurement, which integrate financial measures, operational measures,
incorporate the needs of various stakeholders, and align these with company strategy
(Fitzgerald, Johnson, Brignall, Silvestro and Voss, 1991) and (Cross and Lynch, 1991,
Kaplan and Norton, 1992).
It is widely recognised that business performance can be enhanced by developing and
implementing a balanced set of measures (Kaplan and Norton, 1992). This is backed by a
survey of more than 200 executives in the United States of America, which concluded that-
measurement-managed companies exhibit better performance compared to other companies
that do not use performance measurement as a key management too (Lingle and
Schiemann, 1999). The translation of the results into action is crucial in achieving
improved performance.
30
Now that the importance of performance measurement has been established, it is critical to
discuss the nature and type of performance measurements that will yield desired results. It
is only important that an organisation measures organisational performance but also that it
measures the right things.
3.3 THE BALANCED SCORECARD: AN OVERVIEW
The balanced scorecard is a strategic planning and management system that is used
extensively in business and industry, government, and non-profit organisations worldwide
to align business activities to the vision and strategy of the organisation, improve internal
and external communications, and monitor organisation performance against strategic
goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David
Norton as a performance measurement framework that added strategic non-financial
performance measures to traditional financial metrics to give managers and executives a
more ‘balanced’ view of organisational performance.
The balanced scorecard had evolved from its early use as a simple performance
measurement framework to a full strategic planning and management system. The ‘new’
balanced scorecard transforms an organisation’s strategic plan from an attractive but
passive document into the ‘marching orders’ for the organisation on a daily basis. It
provides a framework that not only provides performance measurements, but helps planners
identify what should be done and measured. It enables executives to truly execute their
strategies.
This new approach to strategic management was first detailed in a series of articles and
books by Drs. Kaplan and Norton. Recognising some of the weaknesses and vagueness of
previous management approaches, the balanced scorecard approach provides a clear
prescription as to what companies should measure in order to ‘balance’ the financial
perspective.
The balanced scorecard is a management system (not only a measurement system) that
enables organisations to clarify their vision and strategy and translates them into action. It
provides feedback around both the internal business processes and external outcomes in
order to continuously improve strategic performance and results. When fully deployed, the
31
balanced scorecard transforms strategic planning from an academic exercise into the nerve
centre of an enterprise.
(Kaplan and Norton, 2004) describe the innovation of the scorecard as follows: “future
value through investment in customers, suppliers, employees, processes, technology, and
innovation.”
3.3.1 The balanced scorecard as a management system
Hacker and Brotherton (1998:18) place the scorecard in a systems perspective by
describing it as a system that integrates processes for planning, deployment and
implementation. They see as key outputs of a planning session the firm’s vision, mission,
and value statements; and annual objectives and targets.
A critical component of the strategic planning process is to put an organisations’ vision into
operation. This is also the starting point for an effective measurement system. The vision
needs to be translated into specific, measurable objectives. A measurement system enables
an organisation’s management to ascertain whether activities are supporting the
achievement of objectives, and if objectives are moving the organisation closer to its vision
(Niven, 2005:34).
Johnson and Scholes (2002:239) define a mission statement as a generalised statement of
the overriding purpose of an organisation. Nair (2004) argues that mission statements are
not that important to the balanced scorecard as much as they are important to drive the
organisation. Missions have the following characteristics:
they are targeted and concise;
they have strong emotional content;
they must have meaning beyond the words on paper but in the action of the
organisation, and;
they serve to define the objective of the organisation (Nair, 2004:68).
Nair (2004:73) defines the vision as “a dream that never leaves you; a picture of what the
organization believes the future can be”. He further states that vision statements show
everyone that the world can be:
significantly motivating;
32
a selling document;
a communications tool used to solicit members and stakeholders, and;
a driving dream of the way things can be.
Kaplan and Norton (1996:10) argue that the balanced scorecard should translate a business
unit’s mission and strategy into tangible objectives and measures. The measures should
present a balance between external measures for stakeholders and customers, and learning
and growth. Innovative organisations are using the balanced scorecard as a strategic
management system to manage their strategy over the long run and are using the
measurement focus of the scorecard to accomplish critical management processes.
Organisations can utilise the measurement focus of the balanced scorecard to accomplish
critical management processes (Kaplan and Norton, 1996:10). The scorecard introduces
four new management processes that either separately, or in conjunction, link long-term
strategic objectives with short term-actions (Kaplan and Norton, 1996:75). These four
processes are depicted in figure 3.1 and consist of: translating the vision, communicating
and linking, business planning, feedback and learning.
With reference to 3.1, the balanced scorecard as a strategic framework for action, Kaplan
and Norton (1996:24) cite that the balanced scorecard provides senior executives with a
comprehensive framework that translate an organisation’s vision and strategy into a
coherent set of performance measurers. Many organisations have adopted mission
statements to communicate fundamental values and beliefs to all employees. The mission
statement addresses core beliefs to all employees and identifies target markets and core
products.
33
Figure 3.1: The balanced scorecard as a strategic framework for action
-PLANNING AND TARGET SETTING. -SETTING TARGETS -ALIGNING STRATEGIC INITIATIVES ALLOCATING RESOURCES -ESTABLISHING MILESTONES
-STRATEGIC FEEDBACK AND LEARNIG
-ARTICULATING THE SHARED VISION
-SUPPLY STRATEGIC FEEDBACK
-FACILITATING STRATEGY REVIEW AND LEARNING
BSC
-COMMUNICATING AND LINKING -COMMUNICATINGAND EDUCATING -SETTING GOALS -LINKING REWARDS TO PERFORMANCE MEASURES
-CLARIFYING AND TRANSLATING THE VISION AND STRATEGY
-CLARIFYING THE VISION
-GAINING CONSENSES
Source: Adapted from Kaplan & Norton, 1996:76
3.3.1.1 Clarify and translate vision and strategy
The process starts with the senior executive management team working together to translate
its business unit’s strategy into specific strategic objectives. According to Kaplan and
Norton (1996:10) to set financial goals, the team must consider whether to emphasise
revenue and market growth, profitability, or cash flow generation. For the customer
perspective, the management team must be explicit about the customer and market
segments in which it has decided to compete. With financial and customer objectives
established, an organisation then identifies the objectives and measures for its internal
34
business process. Such identification represents one of the principal innovations and
benefits of the scorecard approach.
3.3.1.2 Communicate and link strategic objectives and measures
Kaplan and Norton (1996:12) recommend that the balanced scorecard strategic objectives
and measures be communicated throughout the organisation via company newsletters,
bulletin boards, videos, and even electronically via groupware and networked personal
computers. This communication effort must signal to all employees the critical objectives
that must be accomplished if an organisation’s strategy is to succeed.
3.3.1.3 Plan set and aligned strategic initiatives
Kaplan and Norton (1996:13) argue that the balanced scorecard has its greatest impact
when it is deployed to drive organisational change. They cite that senior executives should
establish targets for the scorecard measures, three to five years out, which, if achieved, will
transform the company. The targets should represent a discontinuity in business unit
performance. Kaplan and Norton (1996:12) recommend that if the business unit is a public
company, target achievement should produce a doubling or more of the stock price.
Organisational financial targets have included doubling the return on invested capital, or a
150 per cent increase in sales during the next five years.
To achieve such ambitious financial objectives, managers must identify stretch targets for
their customer, internal-business-processes, and learning and growth objectives. Once
targets for customer, internal business processes, and learning growth measures are
established, managers can align their strategic quality, response time, and re-engineering
initiatives for achieving the breakthrough objectives.
3.3.1.4 Enhance strategic feedback and learning
Kaplan and Norton (1996:15) consider this process to be the most innovative and most
important aspect of the entire scorecard management process. It provides the capability for
organisational learning at the executive level. Managers in organisations today do not have
a procedure to receive feedback about their strategy and to test the hypotheses on which the
strategy is based. This has enabled managers by monitoring and adjusting the
35
implementation of their strategy, and, if necessary, to make fundamental changes in the
strategy itself.
Kaplan and Norton (1996:15) cite that managers can also examine closely whether the
business unit is achieving its targets for customers, for internal processes and innovation,
and for employees, systems, and procedures. Management reviews and updates shift from
reviewing the past to learning about the future. Managers discuss not only how past results
have been achieved but also whether their expectations for the future remain on track.
3.4 THE BALANCED SCORECARD’S FOUR PERSPECTIVES
Al-Ghassani, Anumba, Carribo and Robinson (2005) note that organisations are using
various types of performance measurement models and some have adopted more than one
measurement system. It was suggested that SAA management might find the balanced
scorecard to be the more useful tool, due to its simplicity in application.
This is the main reason why it has been chosen by the researcher as the framework that will
be used to design a performance measurement system and assess the type and nature of
measurements currently in practice within South African Airways.
Developing balanced scorecards should encourage business units to link their financial
objectives to corporate strategy. The financial objectives serve as the focus for the
objectives and measures in all the other scorecard perspectives. Kaplan and
Norton(1996:47) state that the scorecard should reflect strategy by identifying long-term
financial objectives and then linking them to the actions taken with regard to financial
processes, customers, internal processes, employees and systems to deliver the desired
economic performance. The following questions form the basis of the scorecard model:
To succeed financially, how should we appear to our shareholders?
To achieve our vision, how should we appear to our customers?
To satisfy our customers and shareholders, what internal business processes must
we excel at?
To achieve our vision, how will we sustain our ability to change and improve?
36
The essence of the balanced scorecard approach is that the drivers of financial performance
dictate the relationships firms to develop with their customers, and that internal business
processes shape those relationships (Atkinson, Waterhouse and Wells, 1997:26). These
authors feel that the scorecard approach fails to highlight the contributions that employees
and suppliers make to help firms achieve their objectives. Atkinson et al (1997) propose a
stakeholder approach to develop a model of performance measurement that captures
strategic planning issues.
3.4.1 The balanced scorecard framework
The balanced scorecard retains traditional financial measures. But financial measures tell
the story of past events, an adequate story for industrial age of companies for which
investments in long-term capabilities and customer relationships were not critical for
success. These financial measures are inadequate, however, for guiding and evaluating the
journey that information age companies must make to create.
Literature will be used to determine the actual performance measurement focusing on the
following four perspectives: financial, customer, internal processes; as well as the learning
and growth perspective.
Olve, Roy and Wetter (1999:17) suggest that a comprehensive vision and strategy underlie
all four perspectives. They further state that strategic aims, measures, specific goals and
action plans are formulated for each perspective. Every measure selected for a balanced
scorecard can be described either by what is achieved (the outcome) or what affects the
outcomes (performance drivers). Each of these perspectives will be discussed below.
3.4.1.1 The learning and growth perspective
The measures in the learning and growth perspective of the balanced scorecard serve as the
enablers of the other three perspectives. In essence they are the foundation on which this
entire house of the balanced scorecard is built. Once organisations have identified measures
and related initiatives in their customer and internal perspectives, they can be certain to
discover some gaps between their current organisational infrastructure of employee skills,
information systems, and climate and the level necessary to achieve the results they desire.
37
The measures developed within this perspective should close these gaps and ensure
sustainable performance in the future (Niven, 2005:16).
This perspective includes employee training and corporate cultural attitudes related to both
individual and corporate self-improvement. In a knowledge-worker organisation, people,
the only repository of knowledge, are the main resource. In the current climate of rapid
technological change, it is becoming necessary for knowledge workers to be in a
continuous learning mode.
3.4.1.2 The business process perspective
This perspective refers to internal business processes. Metrics based on this perspective
allow the managers to know how well their business is running, and whether its products
and services conform to customer requirements (the mission).
In this perspective, organisations identify internal processes that contribute towards
meeting the objectives of shareholders and targeted customer segments. Kaplan and Norton
(1992:74) suggest that internal measures should be based on business processes that
provide the biggest impact on customer satisfaction; more specifically on factors affecting
cycle time, quality, employees’ skills, and productivity. Thus, the objectives of the internal
business perspective are formulated after determining the objectives and measures for the
financial and customer perspectives (Kaplan and Norton, 1996:92).
Epstein and Manzoni (1998:194) indicate that a “firm can delight customers all the way
into bankruptcy, so it needs to make sure that it performs well on key internal dimensions”.
For example, customer service can be improved by employing large numbers of employees
servicing customers, or by having fewer employees whose time is utilised more efficiently
with the support of good information technology. Creating customer value only translates
into shareholder value if organisations employ efficient and effective key internal
processes.
3.4.1.3 The financial perspective
Niven (2005:15) notes that one of the important components of the Balanced Scorecard is
financial measures. In a for-profit domain, the measures in this perspective indicate whether
an organisation’s strategy execution is leading to improve bottom-line results. In a non-
38
profit sector, financial measures ensure that organisations are achieving their results, but
doing so in an efficient manner that minimises cost. They normally encounter classic
lagging indicators in the financial perspective. Typical examples include revenue,
profitability, and asset utilisation
Kaplan and Norton (1996:48) state that financial objectives and measures perform a dual
role; they define the financial performance expected from the strategy, and they serve as the
ultimate target for the objectives and measures of the remaining scorecard perspective.
Financial objectives can differ at each stage of a business’ life cycle (see figure 3.2).
Kaplan and Norton (1996:48) have simplified this life cycle into three broad stages:
Growth
sustain;
harvest.
39
Figure 3.2: Measuring strategic financial themes
Strategic Themes
Revenue Growth and Mix
Cost Reduction
Asset Utilisation
Bu
sin
ess
Un
it S
trat
egy
Gro
wth
Sal
es g
row
th r
ate
by s
egm
ent
Per
cent
age
reve
nue
from
new
pr
oduc
t, se
rvic
es a
nd
cust
omer
s
Revenue per employee
Investment (percentage of sales)
R&D (percentage of sales)
R&D (percentage of sales)
Su
stai
n
Share of targeted customers and Accounts. Cross-selling. Percentage revenues from applications. Customer and Product line profitability.
Cost Versus competitor’s
Cost reduction rates
Indirect expenses(percentage of sales)
Working capital ratios (cash to cash cycle)
ROCE by key asset categories Asset utilisation rates
Har
vest
Customer and product profitability Percentage unprofitable customers.
Unit Cost (per unit of output, per transaction)
Payback Throughout
Source: Adapted from Kaplan and Norton, 1996:48
Growth organisations are at the early stages of their life cycle and have products or services
with significant growth potential. They may initially operate with negative cash flows and
low returns on investments. The overall financial objective will be percentage growth rates
in revenue and sales growth rates in targeted markets (Kaplan and Norton, 1996:48).
3.4.1.4 The customer perspective
The customer perspective focuses on ways in which customer value can be created and how
demand for those values is satisfied. If organisations neglect customer needs by not
40
delivering the right products and services, revenue will be adversely affected (Olve et al,
1999:61).
The cost of customer dissatisfaction is substantial. It includes the cost of replacing lost
customers, recovery costs involved in satisfying displeased customers, the impact of
negative word-of-mouth, poor employee morale due to working with disgruntled
customers, and the cost of opening doors for competitors (Massnick, 1998:14). For this
reason major effort is directed at determining how to ensure and increase customer loyalty.
Olve et al (1999:61) suggest that organisations become familiar with customers purchasing
processes. According to Kaplan and Norton (1992:73) this process encompasses customers’
concerns and can be divided into four categories:
Time
This can range from the time an order is received until the products/service is delivered or,
in the case of new products, the time it takes to market the product.
Quality
This includes a broad range of activities, such as product quality as perceived by customers,
quality of on time deliveries and accuracy of invoicing.
Performance and service
These relate to how an organisation’s products and services create value for its customers.
Cost
It compares the importance of product and service price in relation to the other categories.
Olve et al (1999:61) suggest that strategies for the customer perspective should be based on
analyses of customers and markets in terms of time, quality, performance and service, and
cost. Goals must be set for these four categories and then translated into specific measures.
Kaplan and Norton (1996:67) identify a core measurement group of customer outcomes for
all organisations which includes:
Market share
41
This represents the proportion of business that an organisation sells in a given
market.
Customer acquisition
This measures the rate at which an organisation recruits new customers or business.
Customer retention
This measures the rate at which an organisation retains on-going relationships with existing
customers.
Customer satisfaction
This measures the level of customer satisfaction along specific value performance criteria.
Customer profitability
This measures the net profit of a customer after subtracting expenses required to support
that customer.
The above customer core measures can be arranged in a causal chain of relationships (see
figure 3.3). However, they tend to be lagging measures in that organisations will not be
able to determine their performance in terms of customer satisfaction and retention until it
is too late. Organisations must rather identify what customers in targeted segments value.
Kaplan and Norton (1996:85) identify three classes of attributes from which objectives and
measure can be selected. These attributes are:
product and service attributes: functionality, price and quality;
customer relationship: personal relationships and the quality of purchasing
experience, and;
image and reputation amongst customers.
The above attributes will enable organisations to retain and increase customers in targeted
segments by delivering superior value.
42
3.4.2 Measuring strategic financial themes
Organisations in the sustain stage are well established and expected to maintain and grow
market share. Capital investments are aimed at continuous improvement of business
processes. The main financial objective will relate to profitability, and can be measured by
traditional means such as return on capital employed, operating income and gross margin
(Kaplan and Norton, 1996:49).
Organisations in the mature phase of their life cycle want to reap the benefits from
investments made during the two earlier stages. The main financial objectives for
organisations are to generate maximum positive cash flows and reduce working capital
requirements.
The financial perspective portrays many of the traditional instruments of management
control in the form of key ratios and financial measures. It refers to three strategic themes
that drive the business strategy:
the rate of growth and product mix;
cost reduction and improved productivity, and;
the basic rules for capacity utilisation and investment strategy (Olve et al, 1999:60).
The rate of growth and product mix refers to re-pricing, changing the mix, increasing
products and services on offer, and targeting new customers and markets.
Cost reduction and productivity focus on the reduction of direct and indirect costs and the
sharing of resources between departments and/or business units. Capacity utilisation and
investment refer to the efficient use of scarce resources and the disposal of unproductive
assets. Kaplan and Norton do not disregard the traditional need for financial data. Timely
and accurate funding data will always be a priority, and managers will do whatever
necessary to provide it. In fact, often there is more than enough handling and processing of
financial data.
With the implementation of a corporate database, it is hoped that more of the processing
can be centralised and automated. But the point is that the current emphasis on financials
leads to the ‘unbalanced’ situation with regard to other perspectives. There is perhaps a
43
need to include additional financial-related data, such as risk assessment and cost-benefit
data, in this category.
Source: Adapted from Kaplan and Norton, 1996:85
3.5 BALANCED SCORECARD DOWNFALLS
Scheiderman (1999:6) firmly believes that a good scorecard can be the single most
important management tool in organisations. Scheiderman (1999:6) quote Tom Malone,
President of Milliken and company: “If you’re not keeping score, you’re only practicing.”
Scheiderman (1999:6) offers the following view as to why most balanced scorecards fail:
Figure 3.3: The customer perspective – core measure
Market
Share
Customer
Acquisition
Customer
Profitability
Customer
Retention
Customer
Satisfaction
44
the independent (i.e. non-financial) variables on the scorecard are incorrectly identified
as the primary drivers of future stakeholder satisfaction;
poorly defined metrics;
improvement goals are negotiated rather than based on stakeholder requirements,
fundamental process limits, and improvement process capabilities;
there is no exploitation system that breaks high level goals down to the sub-process
level where actual improvement activities reside;
a state of the art improvement system is not used, and;
there is not and cannot be a quantitative linkage between non-financial and expected
financial results.
3.6 BUILDING A BALANCED SCORECARD
3.6.1 Guidelines at corporate level
Each organisation is unique and so follows its own path in building a balanced scorecard.
Kaplan and Norton (1993:138) give examples of companies such as Apple in the Harvard
Business Review (September-October 1993:138-139), where the senior finance or business
development executive intimately familiar with the strategic thinking of the top
management group, constructed the initial scorecard without extensive deliberations. At
Rockwater, however, senior management had yet to define sharply the organisations
strategy, much less the key performance levers that drive and measure the strategy’s
success.
Kaplan and Norton (1993:138) recommend a typical project profile when building a
balanced scorecard as follows:
Preparation – The organisation must first define the business unit in which a top-level
scorecard is appropriate. In general, a scorecard is appropriate for a business unit that
had its own customers, distribution channels, production facilities, and financial
performance measures;
Interviews: First Round – Each manager in the different business units receives
background material on the balanced scorecard as well as internal documents that
describe the company’s vision, mission and values. Balanced scorecard facilitators
45
conduct interviews with senior managers to obtain their input on the company’s
strategic objects and tentative proposals for balanced scorecard measures. The
facilitator may also interview some principle shareholders to learn about their
expectations for the business unit’s financial performance, as well as some key
customers to learn about their expectations for top-ranked suppliers;
Executive Workshop: First Round – The facilitator brings the top management team
together to undergo the process of developing the scorecard. During the workshop they
debate the proposed mission and strategy statements until consensus is reached. The
team then needs to ask themselves the following question: “If I succeed with my vision
and strategy, how will my performance differ for shareholders, for customers, for
internal business processes, for my ability to innovate, grow and improve?” The group
needs to formulate preliminary balanced scorecard containing operational measures for
strategic objectives. Frequently the group proposes far more than four or five measures
for each perspective;
Interviews: Second Round – The facilitator review, consolidates, and documents the
output from the executive interviews / workshop and interviews each senior executive
about the tentative balanced scorecard. The facilitator also seeks opinions about issues
involved in implementing the scorecard;
Executive Workshop: Second Round – A second workshop involving senior managers,
direct reports, and middle managers debate the organisation’s vision, strategy
statements and the tentative scorecard. This group links the various change programmes
underway to the measures, and start to develop an implementation programme;
Executive Workshop; Third Round – The senior management team meets to come to a
final consensus on the vision, objectives, and measurements developed in the first two
workshops to develop stretch targets for each measure on the scorecard and to identify
preliminarily action programmes to achieve the targets. The team must agree on an
implementation plan, including communicating the scorecard to employees, integrating
it into a management philosophy, and developing an information system to support the
scorecard;
46
Implementation – The organisation then links the measures to databases and
information systems, communicating the balanced scorecard throughout the
organisation, and encouraging and facilitating the development of second-level metrics
for decentralised units, and;
Periodic reviews – Each quarter of a blue book of information on the balanced
scorecard is prepared for both top management review and discussion with managers of
decentralised divisions and departments. The balanced scorecard metrics are revitalised
annually as part of strategic planning, goal setting and resource allocation processes.
3.6.2 Guidelines at employee level
Higher level strategies have always needed to be converted into activities and measures
which are meaningful to lower level employees. Davis (1996:18) recommends the
following guidelines for the development of an employee balanced scorecard:
The employee scorecard should be closely integrated with the plant, divisional,
group and cooperate measures of the company. This keeps the entire organisation
focused on the same agreed set of objectives;
Lower level employees should be involved in the development of the measures.
Employee participation will inspire greater ownership of the measures and the
commitment to accomplish them. This approach is compatible with ‘open book
management’ in which a great deal of financial and non-financial information is
shared with the employee. By showing employees how their performance influences
and impacts of the bottom line, front line employees are encouraged to act like
owners and ensure the future of their jobs;
Union officials should be included in the earliest discussion of the measurement
system;
production employees need information in real time so that they can respond and
solve problems on the spot;
47
The measures selected should focus on the critical aspects of performance. Plant
personnel should use root cause and Pareto analysis to determine what aspects of
the work have the largest impact on the targeted performance goals;
New measures that are being introduced should be balanced with the other
scorecard measures, and;
The balanced scorecard measures should be entered into a database so that current
figures can be accessed instantly by people in different departments and at different
levels of the company.
3.7 RATING
Rating is a method commonly used to summarise the judgements of appraisers to get them
to rate the performance of individuals on some form of scale. The rating scale format can
be either behavioural, with examples of good, average or inadequate performance, or
graphic which simply presents a number of scale points along a continuum.
The ratings might be made against a series of standard headings, which in traditional
schemes were generalised performance characteristics or personality traits such as effective
output, knowledge of work, judgement, initiative, cooperation and reliability (Fisher,
1995:127).
3.7.1 Arguments for and against rating
Fisher (1995:128) describes the arguments for ratings as:
they are a convenient way of summing up judgements which might otherwise be
submerged in verbiage;
it is not possible to have performance-related pay without them (assuming that
performance-related pay is wanted or needed);
they provide a means of identifying the exceptional performers or under-performers
and those who are the reliable core performers so that action can be taken
(developmental or some form of non-financial reward);
48
they can provide a basis for predicting potential on the assumption that people who
perform well in the present are likely to go on doing so in the future – however, past
performance is only a predictor of future performance when there is a connecting
link, i.e. there are elements of the present job which are also important in a higher
level job.
The arguments against ratings are that:
they are largely subjective and it is difficult to achieve consistency between
different rates;
to sum up the total performance of a person with a single rating is a gross over-
simplification of what may be a complex set of factors influencing that
performance;
to make judgements about potential on the basis of an overall rating which masks
dissimilarities between these elements is dangerous, although , obviously, poor
overall performance should not be followed or rewarded by promotion;
to label people as ‘average’ or ‘below average’, or whatever equivalent terms are
used, is both demeaning and demotivating.
Fisher (1995:129) indicates that some organisations which do not have performance-related
pay reject ratings altogether because of the objections listed above. Organisations which do
have performance-related pay may sometimes also avoid the use of performance ratings as
part of the review system, and instead have a separate pay review in which managers are
given a budget and simply asked to indicate whether they want to award and exceptionally
high increase, an above average increase, a below average increase or no increase at all.
3.7.2 Evaluation of rater accuracy
Barnes-Farell and Lynch (2003) have argued that an evaluation of rater accuracy should
focus on the presence of conditions that support accurate ratings, such as trained,
knowledgeable appraisers who understand the performance standards and have adequate
opportunity to observe performance; have at their disposal a valid, reliable performance
instrument; and operate in an organisational climate that facilitates and rewards accurate
evaluations.
49
There are several key characteristics that need to be taken into account when evaluating
performance criteria. The predominant concern is validity, to what extent are performance
criteria relevant to the organisation’s goals and individual’s job requirements and how
successfully have these criteria been translated into measures of performance? Does the
measure assess the performance it is designed to assess? An accurate assessment of
performance can only be made when there is a clear link between the job requirements and
the content of the evaluation (Gottfredson, 1991).
The evaluations of the following two components or rater accuracy are addressed: rating
elevation and differentiation and performance rating instrument (Barnes-Farell and Lynch:
2003).
Rating elevation and differentiation. The evaluation of rater accuracy is challenging due to
the absence of ‘true’ measure of performance to which actual performance ratings can be
compared. The most important criteria for judging rater accuracy are those that most
directly influence human resource decisions, the overall elevation of performance ratings
and the degree to which ratings differentiate among employees, both within ratings and
across performance dimensions (Murphy & Balzer, 1989).
Performance-rating instrument. Barnes-Farell and Lynch (2003) noted that there is no
single, preferred rating instrument or format identified through best practices for ensuring
accurate ratings. Their contention is that the evaluation of the measurement instrument
hinges on two key questions – does the measure facilitate accurate communication of
employee performance?
3.7.3 A comparison: performance appraisal systems and performance
management systems
The new language of performance appraisals uses the term performance management rather
than appraisals. Appraisal is an annual affair while performance management is a year
round affair. Appraisal focuses on ratings while improvements focus on the work, the
stakeholders, service levels, productivity, motivation effort and all such performance
related variables. The table below gives differences between performance appraisals and
performance management.
50
Table 3.2: Comparison between performance appraisal systems and
performance management systems
Performance appraisal systems Performance management systems
Focus is on performance appraisal and
generation of ratings.
Focus is on performance management.
Emphasis is on relative evaluation of
individuals.
Emphasis is on performance improvements
of individual officer and his departmental or
team performance
Annual exercise – though normally periodic
evaluations are made.
Continuous process with quarterly or
periodic performance review discussions.
Emphasis is on ratings and evaluation. Emphasis is on performance planning,
analysis, review, development and
improvements.
Rewards and recognition of good
performance is an important component.
-Performance rewarding may or may not be
an integral part.
-Defining and selling performance standards
are an integral part.
Designed and monitored by the personnel or
administration department.
Designed by the personnel/HR department
but could be monitored by the respective
departments themselves.
Ownership is mostly with the administration
or personnel.
Ownership is with line managers, personnel
or administration facilitates its
implementation.
KPAs and KRAs are used for bringing in
objectivity.
Development needs are identified in the
beginning of the year on the basis of the
competency requirements for the coming
year.
There are review mechanisms to ensure
objectivity in ratings.
There are review mechanisms essentially to
bring performance improvements.
It is a system with deadlines, meetings, input,
and a format.
It is a system with deadlines, meetings, input,
output, and a format.
Format-driven with emphasis on the process Process driven with emphasis on the format
51
Linked to promotions, rewards, training and
development interventions, placements,etc.
as an aid linked performance improvements
and through them to other career decisions as
and when necessary.
Source: Lessons from experience: A new look at PMS, 2008
3.8 MANAGEMENT BY OBJECTIVES (MBO)
Management by objectives is a process of defining objectives within an organisation so that
management and employees agree to the objectives and understand what they are in the
organisation. The term “management by objectives” was first popularised by Peter Drucker
in his 1954 book “The practice of management”.
Druker noted the advantages of managing managers by ‘objectives’ rather than by ‘drives’.
The advantages are that each manager, from the highest level to the lowest level, has clear
objectives that reflect and support the objectives of higher-level management,
(Spangenberg, 1994:276).
The basic principle behind Management by objectives (MBO) is for employees to have a
clear understanding of the roles and responsibilities expected of them. They can then
understand how their activities relate to the achievement of the organisation. Management
by objectives also places importance on fulfilling the personal goals of each employee.
Some of the important features and advantages of MBO are:
Motivation – Involving employees in the whole process of goal setting and
increasing employee empowerment. This increases employee job satisfaction and
commitment;
Better communication and coordination – Frequent reviews and interactions
between superior and subordinates help to maintain harmonious relationships within
the organisation and also to solve many problems;
Clarity of goals – Subordinates tend to have a higher commitment to objectives they
set for themselves than those imposed on them by another person. Managers can
ensure that objectives of the subordinate are linked to the organisation’s objectives
(Spangenberg, 1994:278).
52
3.8.1 Three phases of management by objectives (MBO)
Spangenberg (1994:279) identifies three phases of management by objectives. Getting an
effective MBO program started in an organisation requires a great deal of coordination and
planning. The implementation of a programme typically occurs in three phases:
Phase 1 focuses on evaluating performance against measurable objectives. In this phase,
MBO is administered almost exclusively by the human resource department. At this stage,
the program usually receives only moderate support from top management, and line
managers usually are even less enthusiastic because the programme not only takes time, but
also involves paperwork. Still, Phase 1 MBO programmes generally are moderately
successful, because they tend to clarify responsibilities and focus on achieving results.
Phase 2, MBO programmes are integrated into an organisation’s planning and control
processes. Greater involvement and support are obtained from both top management and
line managers, and the MBO programme becomes tied to the organisation’s planning and
budgeting cycle. Training and developing subordinates is emphasised.
Phase 3, is a fully implemented MBO system. In this phase, all of the major organisational
functions and key management processes are integrated in a logical and consistent manner.
These functions and processes include performance evaluations, budgeting and financial
planning, the development of strategic plans and overall goals, staffing, compensation,
human resource development, and management training and development. The emphasis is
on teamwork and flexibility in establishing goals and plans, frequent performance reviews,
and achieving individual growth and development.
3.9 CONCLUDING REMARKS
This chapter provided the reader with a brief overview of measurement of performance, as
the key ingredient in performance management. Next, the balanced scorecard as a
management system was explained, with a brief overview of the balanced scorecard
downfalls. This chapter also provided the reader with guidelines on how to build a
balanced scorecard.
53
Lastly, the other two methods of measuring performance, namely: the rating method and
the method of management by objectives were explained.
54
CHAPTER FOUR
RESEARCH METHODOLOGY FOR EMPIRICAL STUDY
4.1 INTRODUCTION
In chapter two an overview of the key elements for an effective performance management
system was discussed. Chapter three focused more on the guidelines to be used when
building a balanced scorecard for the corporate as well as the employee levels within the
organisation.
Chapter four focuses on the empirical study. In the empirical study, the objective is to
determine how the results obtained from the resolution of the first two sub-problems, can
be implemented in order to improve the performance management system at South African
Airways?
Sub-problem one: What are the elements of a good performance management system?
Sub-problem two: What are the different approaches mentioned in literature that could be
used to compile a performance management system for South African Airways?
The employee survey will specifically be aimed at the management level and the middle
management of South African Airways.
4.2 DEFINITION OF RESEARCH DESIGN
4.2.1 The definition of research
Wellman & Kruger (2001:2) describes research as the process in which scientific methods
are used to expand knowledge in a particular field of study. Research involves the
application of various methods and techniques in order to create scientifically obtained
knowledge by using objective methods and procedures. Hawkins (1994) defines research as
the systematic investigation into sources in order to establish facts and reach new
conclusions or collate old facts by the scientific study of the subject or by a course of
critical investigation. Research encompasses activities that increase the sum of human
knowledge.
55
Research and experimental development comprises (Burnell, 2003:1):
creative work undertaken on a systematic basis in order to increase the stock of
knowledge, including knowledge of humanity, culture and society and the use of this
stock of knowledge to devise new applications;
any activity classified as research and experimental development is characterised by
originality; it should have investigation as a primary objective and should have the
potential to produce results that are sufficiently general for humanity’s stock of
knowledge (theoretical and or/ practical) to be recognisably increased.
True research is a quest-driven by a specific question which needs an answer. Research
projects vary in complexity and duration, research typically has eight distinct characteristics
(Leedy and Ormrod 2001: 4):
research originates with a question or a problem;
research requires a clear articulation of a goal;
research follows a specific plan of procedure;
research usually divides the principal problem into more manageable sub-problems;
research is guided by the specific research problem, question, or hypothesis;
research accepts certain critical assumptions. These assumptions are underlying theories
or ideas about how the world works;
research requires the collection and interpretation of data in attempting to resolve the
problem that initiated the research;
research is by its nature cyclical or more exactly, spiral or helical.
4.2.2 The definition of research design
According to Mouton & Marais (1992) the aim of research design is to plan and structure a
given research project in such a manner that eventual validity of the research findings is
maximised. Hawkins (1994) states that the design is a preliminary plan, concept or purpose.
Zikmund (1994:43) defines a research design as the master plan that specifies the methods
and procedures used in collecting and analysing information.
With this in mind, the research design for this study was broken down into the main
problem, with three sub-problems. The main problem is:
56
What is the approach that should be used by South African Airways to compile
an effective performance management system for South African Airways
employees?
Following the main problem, three sub-problems were identified to assist with the solution
to the main problem, namely:
What are the elements of a good performance management system?
What are the different approaches mentioned in literature that could be used to compile
a performance management system for South African Airways?
How can the results obtained from the resolution of the first two sub-problems be
implemented in order to improve the performance management system at South African
Airways.
The procedure used to solve the main problem and the sub-problems was as follows:
In chapter two the author described the key elements for effective performance
management programmes.
In chapter three a literature survey was conducted providing guidelines to be used
when building a balanced scorecard for the organisation, for the corporate level as
well as the employee level.
The findings from the literature study and empirical study was used to determine the
approach to be used for employees in the compilation of a performance management
system for South African Airways.
4.3 CONDUCTING THE EMPIRICAL STUDY
The empirical study was conducted by means of individual interviews. The researcher
collected data by means of structured interviews through the use of a structured
questionnaire.
Leedy (1997:199) identifies two types of interviews. Structured interviews consist of
closed-form questions. Semi- or non-structured interviews also include probes designed to
obtain additional information. De Vos (1998:299) notes that interviews range from fairly
structured to totally unstructured.
57
Interviews can therefore be divided into three types:
Open-ended interviews. Pre-formulated questions are arranged in a set sequence
and put to all interviewees.
Unstructured interviews with a schedule. A schedule with relevant questions and
themes serves as a guideline when interviewing. Questions are not asked in a fixed
sequence, but all relevant issues are covered at some stage of the interview.
In-depth interviews. No questions are pre-formulated, and the interview develops
spontaneously.
Interviews can also range from one-on-one interviewing to focus group interviewing. De
Vos (1998:314) defines focus group interviewing as “purposive discussion of a specific
topic or related topics taking place between eight to ten individuals with a similar
background and common interests”. Focus group interviewing has a distinctive set of
characteristics.
It involves a small group of people who are homogeneous, but not too familiar with
each other.
Interviews are conducted in a series using a data-gathering method.
Interviews produce qualitative data and are characterised by focused discussions of
specific topics (de Vos, 1998: 314-315).
4.4 SAMPLING METHODS AND SIZE
Before the research could be initiated, it was necessary for the researcher to decide whether
to study South African Airways in its entirety, or to do a sample of the workforce.
A non-probability sample size of 36 managers was selected for participation in the study
out of a population of 50 managers. However, due to challenges experienced with regards
to accessing the identified research participants, the researcher managed to interview only
20 managers. Personal semi-structured interviews were utilised as data collection method.
This method of interviewing ensured the collection of in-depth information that was
manageable for the purposes of analysis.
58
Wegner (2001:169) argues that it is not always practical to gather data on every possible
observation in a population. If this is the case, then a subset of all observations, called a
sample, is usually gathered on the random variable. Leedy & Ormrod (2001:211) cite that
“the sample should be carefully chosen that, through it, the researcher is able to see all the
characteristics of the total population in the same relationship that they would be seen were
the researcher, in fact, to inspect the total population.”According to Wegner (2001:170)
there are two basic methods of sampling:
non-probability sampling methods; and
probability sampling methods.
4.4.1 Probability sampling
Wegner (2001:171) states that probability sampling includes all selection methods where
the observations to be included in a sample have been selected on a purely random basis
from the population.
The following are probability sampling techniques:
simple random sampling – each observation in the entire population has an equal
chance of being selected;
systematic random sampling – some randomness is sacrificed, sampling begins by
randomly selecting the first observation and thereafter subsequent observations are
selected at a uniform interval relative to the first observation;
stratified random sampling – if the population is regarded as being heterogeneous
with respect to the random variable under study, the population can be divided into
segments or strata where the sampling units in each stratum are relatively
homogenous;
cluster random sampling – the population is divided into clusters, where each
cluster is similar in profile to every other cluster.
Leedy (1997:204-205) explains the opposite of probability sampling, to be non-probability
sampling. In terms of non-probability sampling, a researcher has no way of forecasting or
estimating that each element in a population will be represented in the sample.
4.4.2 Non-probability sampling
59
The following non-probability sampling methods are available:
convenience, or accidental sampling – bias is not controlled, and sample units are
selected from a population as they are presented to the researcher, whether or not
the sample is representative of the whole population;
quota sampling – An unregulated type of sampling, the reasoning behind this kind
of sampling is that the researcher, for example, requires the opinion of, let us say 20
individuals, and will only conduct his or her research, until the quota of 20
individuals has been reached;
purpose sampling – people are chosen, as the same implies, for a particular purpose,
for example, to choose people who the researcher has decided are ‘typical’ of a
group or those who represent diverse perspectives on an issue.
For the purpose of this research, the most useful sampling method is that of non-probability
sampling. The total population for SAA management and middle management is 50. A
sample size of 36 managers and middle managers was chosen from SAA. Since 60 per cent
of the population is male, the survey targeted at 60 per cent male respondents and 40 per
cent female respondents. According to Leedy and Ormrod (2001:219), quota sampling
selects respondents in the same proportions as they are found in the general population, but
not in random fashion.
4.5 THE QUESTIONNAIRE
The questionnaire is the data collection instrument used to gather data in all interview
situations. Wegner (2001:17) cite that the design of all questionnaires is critical to ensure
that the correct research questions are addressed and that accurate and appropriate data for
statistical analysis is collected.
The questionnaire used in this study was arranged in such a way that it covered all the areas
that were included in the literature review in chapter two and three. The researcher was
mindful about the length of the questionnaire, it is important that the questionnaire does not
become too lengthy, otherwise the respondents may lose interest in completing the
questionnaire and this would consequently have a negative impact on the research and
sample covered.
60
Structured interviews were held with management on one to one basis. It should also be
noted that the lower level employees were not included in the performance measurement of
staff at SAA. The research focused on management and middle management.
4.5.1 The design
The data contained in the questionnaire is displayed in the following sections:
Section A which contains the biographical information and Section B which contains the
following:
part 1, referring to implementing performance management;
part 2, referring to the elements of an effective performance management programme ;
part 3, referring to performance measurement.
The questionnaire was accompanied by a covering letter explaining the purpose of the
study. The letter also explained the procedure to be followed in completing the
questionnaire as well as the interviewing process. Issues of confidentiality were explained
in the letter in order to allay any fears that the respondents may have regarding the
information required in the questionnaire. The researcher obtained permission to conduct
the study from the manager: performance (Human Resources).
Conclusions were drawn from the findings of the questionnaires, interviews and
recommendations made. This information was used to determine the performance
management measure that would be effective at improving South African Airways’
performance management system.
Leedy and Ormrod (2001:202) suggest that the following guidelines be used for developing
a questionnaire that encourages people to be cooperative and yields responses one can use
and interpret:
Keep it short. The questionnaire should be as brief as possible and solicit only that
information essential to the research project.
Use simple, clear, unambiguous language. Write questions that communicate
exactly what you want to know. Avoid terms that your respondents may not
understand, such as obscure words or technical jargon.
61
Check for unwanted assumptions implicit in your questions. Consider simple
questions, such as “How much beer did you consume yesterday?”
Word your questions in ways that do not give clues about preferred or more
desirable responses.
Check for consistency. When an issue about which you are asking is such that some
respondents may give answers that are socially acceptable rather than true, you may
wish to incorporate a ‘countercheck’ question into your list.
Determine in advance how you will code the responses. As you write the questions,
consider how you will process the responses you get.
Keep the respondent’s task simple. Make the instrument as simple to read and
respond to as possible.
Provide clear instructions. Communicate exactly how you want people to respond.
Give a rationale for any items whose purpose may be unclear. Each question should
have a purpose and in one way or another, you should make that purpose clear.
Make the question attractive and professional looking. The instrument should have
clean lines and crystal-clear typing.
Conduct a pilot test. Have colleagues and friends fill out the questionnaire to see
whether they have difficulty understanding any items and to see the kinds of
responses you are likely to get.
Scrutinise the almost-final product carefully to make sure it addresses your needs.
Each item on the questionnaire should be quality tested for precision of expression,
objectivity, relevance and probability of favourable reception and return.
Fowler (1988:67) states that questionnaires are a form of structured interviewing, where all
respondents are asked the same questions and are often offered the same options in
answering them (yes/no, ranked on a scale, etc.). Questionnaires may include open
questions, which are better avoided as they are difficult to interpret and analyse, although
respondents are better able to express themselves in their own words and allows for more in
depth answers when required.
62
4.5.2 Questionnaire content
Neuman (2003: 268) states that a good questionnaire forms an integrated whole. The
researcher weaves questions together so they flow smoothly. An introductory remark and
instructions for clarification are included and measures each variable with one or more
survey questions. There are two key principles for good survey questions; avoid confusion
and keep the respondent’s perspective in mind and they also help respondents feel that they
understand the question and their answers are meaningful.
4.5.3 Types of questions
A questionnaire containing both open-ended as well as structured questions compiled by
the researcher was used. This questionnaire was compiled according to the principles and
guidelines identified in the literature study on researched methodology.
Neuman (2003:277) mentions that there has been a long debate about open versus closed
questions in survey research. An open-ended (unstructured, free response) question asks a
question, for example, “what is your favourite television programme?” to which
respondents can give any answer. A closed-ended (structured, fixed response) question both
asks a question and gives a respondent fixed responses from which to choose, for example,
“is the president doing a very good, good, fair, or poor job, in your opinion?”.
Large scale surveys have closed-ended questions because they are quicker and easier for
both respondents and researchers. Something important may be lost when an individual’s
beliefs and feelings are forced into a few fixed categories that a researcher created (Neuman
2003:278).
Welman and Kruger (2001:150) states that the Likert scale may be used for multi-
dimensional attitudes. The scale consists of a collection of statements about the attitudinal
object. In respect of each statement, subjects have to indicate the degree to which they
agree or disagree with its content on a five-point scale (for example, strongly differ, differ,
undecided, agree and strongly disagree). Some statements represent a positive attitude,
whereas others reflect a negative attitude towards the attitudinal object. An attitude scale
should contain approximately the same number of positively and negatively formulated
items to counteract the acquiescent response style.
63
4.5.4 Questionnaire wording
The researcher must use simple vocabulary and grammar to minimise confusion and know
the effects of specific words or phrases. The difference between forbid and not allow
illustrates the problem of wording differences. Both terms have the same meaning, but
many more people are willing to ‘not allow’ something than ‘forbid’ it. Researchers are
beginning to learn that certain words seem to trigger an emotional reaction. Many
respondents are confused by words or their connotations (Neuman 2003:282).
4.5.5 Validity and reliability
Leedy and Ormrod (2001:98) argue that validity of a measurement instrument is the extent
to which the instrument measures what is supposed to measure. It takes different forms,
each of which is important in different situations:
face validity is the extent to which, on the surface, an instrument looks like it is
measuring a particular characteristic;
content validity is the extent to which a measurement instrument is a representative
sample of the content area being measured;
criterion validity is the extent to which the results of an assessment instrument
correlate with another, presumably related measure, and ;
constructive validity is the extent to which an instrument measures a characteristic
that cannot be directly observed but must instead be inferred from patterns in
people’s behaviour.
Leedy and Ormrod (2001:99) explain that the reliability of a measurement instrument is the
extent to which it yields consistent results when the characteristic being measured has not
changed. The following are forms of reliability that are frequently of interest in research
studies:
interpreter reliability is the extent to which two or more individuals evaluating the
same product or performance give identical judgements;
internal consistency reliability is the extent to which all the items within a single
instrument yield similar results;
64
equivalent forms reliability is the extent to which two different versions of the same
instrument (e.g. ’Form A’ and ‘Form B’ of a scholastic aptitude test) yield similar
results, and;
test-retest reliability is the extent to which the same instrument yields the same
result on two different occasions.
4.6 CONCLUDING REMARKS
This chapter has attempted to provide the reader with an overview of the methodology that
was used to conduct the research. In chapter five the researcher will use the results of the
empirical study to solve the main and sub problems. This will be done by relating the data
collected to the theoretical requirements presented in chapters two and three.
65
CHAPTER FIVE
ANALYSIS AND INTERPRETATION OF RESULTS
5.1 INTRODUCTION
In chapter four the research methodology which was used during the research was
described. The results of this research study are presented and analysed in this chapter.
The development and structure of the questionnaire, the design of the questionnaire and the
content of the questionnaire was discussed.
The objective of chapter five is to assist the researcher to solve the second and third sub-
problems:
Which approach of performance measurement does the literature reveal that will
best suit the South African Airways performance management system?
How can the results obtained from the resolution of the first two sub-problems be
implemented in order to improve the performance management system at South
African Airways?
The data contained in the questionnaire is displayed in the following sections:
Section A which contains the biographical information and Section B which contains the
following:
part 1, referring to implementing performance management;
part 2, referring to the elements of an effective performance management programme ;
part 3, referring to performance measurement.
The questions from section B were designed to verify the information sourced during the
literature study in chapters two and three. Finally, a conclusion regarding the responses and
the integration of the literature will be presented.
66
5.2 ANALYSIS AND INTERPRETATION OF THE BIOGRAPHICAL INFORMATION
Tables 5.1, 5.2, 5.3 and 5.4 respectively indicate the responses in terms of the specific
department within SAA, how long the respondents have been employed by the
organisation, the position held by the respondent and the gender of the respondents.
Table 5.1
RESPONSES ACCORDING TO DEPARTMENT EMPLOYED
Department Number Percentage
In-flight service 14 70
Airport
operations
6 30
Total Respondents 20 100
Source: Survey Questionnaire, Section A1
Table 5.2
RESPONSES ACCORDING TO PERIOD EMPLOYED IN ORGANISATION
Source: Survey Questionnaire, Section A 2
Number of years Number Percentage
0-5 years 3 15
5-10 years 7 35
More than 10 yrs 10 50
Total Respondents 20 100
T
R
S
A
m
t
Source: R
Table 5.3
RESPONSE
Position
Manage
Middle
manage
Total R
Source: Surv
As can be
management
the superviso
1
Chart 5
Researcher’s
ES ACCOR
n held
ement
ement
Respondents
vey Question
seen from
t. Managem
ory level em
0
2
4
6
8
10
0‐5 ye
5.1: Graphic
own constru
RDING TO P
Num
10
10
s 20
nnaire, Secti
Table 5.3
ment represen
mployees.
ears5‐10 y
3
c presentatio
uction based
POSITION
mber
ion A 3
a distinctio
nt the station
yearsmor
7
PERIO
on of the pe
on received
N HELD
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50
50
100
on has been
n managers.
re than 10years
10
OD EMPL
eriod emplo
d data
ge
n made betw
Middle man
LOYED
oyed.
ween two l
nagement re
67
evels of
epresents
T
R
C
S
T
s
f
Table 5.4
RESPONSE
Gend
Male
Fema
Total R
Source: Sur
Chart 5.2 G
Source: Rese
Table 5.1 g
services and
from the two
ES ACCOR
der
e
ale
Respondents
rvey Questio
Graphic repr
earcher’s ow
gives a break
d airport ope
o departmen
RDING TO G
Num
12
8
s 20
onnaire, Sect
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Gende
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60
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der composi
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hat a fair spr
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ata
two departm
read of respo
in-flight ser
ments i.e. in
onse was rec
rvices depart
M
Fe
68
-flight
ceived
tment.
Male
emale
69
An important point is that the majority of respondents have been employed at South
African Airways for more than 10 years (Table 5.2), of which fifty per cent of the
respondents hold management positions and the other fifty per cent hold middle
management positions. Table 5.4 shows that the majority of respondents are male (60
per cent) and the remainder are females (40 per cent).
5.3 ANALYSIS AND INTERPRETATION OF RESULTS OF EMPIRICAL
STUDY
5.3.1 Implementing performance management
Performance management is an on-going process, which reflects good management
practices of direction setting, monitoring and measuring of performance, and taking action
accordingly. Performance management can be regarded as an integral part of the
continuous process of management, based on a philosophy emphasising:
the achievement of continuous improvement in performance;
continuous development of skills and competences, and;
that an organisation becomes a learning organisation.
Table 5.5 represents the respondents’ opinion of the extent to which South African Airways
should ensure a successful implementation of a performance management programme.
Table 5.5
Implementing performance management
IMPLEMENTING
PERFORMANCE
MANAGEMENT
ST
RO
NG
LY
AG
RE
E
AG
RE
E
DIS
AG
RE
E
S
TR
ON
GL
Y
DIS
AG
RE
E
1 PM process should not be driven by “pay”.
3 (15%)
7 (35%)
10 (50%)
0 0(%)
2
PM should be used as a link between overall strategy and individual contribution.
18 (90%)
2 (10%)
0 (0%)
0 (0%)
70
Source: Researcher’s own construction based on received data
An Analysis of Table 5.5 indicates the following:
fifty per cent of respondents agree that a performance management process
should not be driven by pay, where as the other 50 per cent of respondents
disagree with this statement;
all respondents agree that performance management should be used as link
between overall strategy and individual contribution.
seventy five per cent of the respondents agree that the senior or top
management should use the performance management process themselves and
be committed to it;
all the respondents agree that to have a pilot run of the process might be
beneficial to South African Airways;
3 Top management should use the PM process themselves.
9 (45%)
6 (30%)
5 (25%)
0 (0%)
4 It might be beneficial to first have a pilot run of the process.
10 (50%)
10 (50%)
0 (0%)
0 (0%0
5 Everyone involved in the PM process should be trained in setting objectives, monitoring and assessing performance.
14 (70%)
6 (30%)
0 (0%)
0 (0%)
6
The implementation of PM should be seen a learning process.
10 (50%)
8 (40%)
2 (10%)
0 (0%)
7 PM improves the organisations’ department and individual objectives
16 (80%)
4 (20%)
0 (0%)
0 (0%)
8 PM helps with cost reduction.
15 (75%)
3 (15%)
2 (10%)
0 (0%)
9 PM raises productivity
8 (40%)
9 (45%)
3 (15%)
0 (0%)
10 PM support a total quality management initiative.
15 (75%)
5 (25%)
0 (0%)
0 (0%)
11 PM helps to implement a new project or structure, e.g. team working.
8 (40%)
8 (40%)
4 (20%)
0 (0%)
71
all respondents agree that everyone involved in the performance management
process should be trained in setting objectives, monitoring and assessing
performance;
ninety per cent of respondents agree that the implementation of performance
management programme should be seen as a learning process;
all respondents agree that performance management programme improves the
organisation’s department and individual objectives;
ninety per cent of the respondents agree that performance
management programme helps with cost reduction;
eighty five per cent of the respondents agree that performance management
programme raises productivity;
all respondents agree that performance management support a total quality
management initiative;
eighty per cent of respondents agree that performance management
programme helps to implement a new structure or team work.
To summarise Table 5.5, and in order to provide the reader with a visual picture of the
responses relating to what the management of South African Airways think should be
part of the performance management programme of South African Airways, the total
number of responses to all the questions were added together, and presented in chart 5.3.
R
d
Relating the
discussed, th
Hartl
drive
motiv
train
The
perfo
balan
key m
and
comm
Supp
be us
settin
2
4
6
8
10
120
140
Im
e results of t
he findings a
le (1995:212
en by pay. H
vate people
ing and deve
analysis sho
ormance ma
nced scoreca
metrics, excl
profitability
mitted to doi
ported once
sed as a link
ng clear obje
0
20
40
60
80
0
0
0
Strongly A
13
mplementin
the analysis
are as follow
2-217) cauti
He suggests
such as job
elopment.
owed that th
anagement p
ard and com
lusively deri
y, while th
ing whateve
again by Ha
k between ov
ectives for in
AgreeAgr
36
CHART
ng performa
of Table 5.
ws:
ion against
that a stron
b satisfactio
he managem
rocess shou
mpensation is
ived from st
he pay com
r it takes to
artle (1995:2
verall strateg
ndividuals, in
reeDi
68
5.3
ance manag
5 and Chart
a performan
nger emphasi
on, job chal
ment do not
uld not be dr
s a match be
trategy, that
mponent of
achieve scor
212-217), pe
gy and indiv
n line with k
isagreeSt
26
gement
t 5.3 to the
nce manage
is should be
llenge, caree
all agree to
riven by pay
cause the sc
set a trajecto
the equatio
recard target
erformance
vidual contri
key strategic
rongly Disagre
0
theory prev
ment system
e on other iss
er opportuni
o the statem
y, they feel
corecard con
ory of future
on keeps e
ts.
managemen
ibution, by m
goals.
ee
72
viously
m that is
sues that
ities and
ment that
that the
ntains the
e growth
everyone
nt should
means of
73
The analysis also shows that the management of SAA confirms that the
implementation of a performance management programme should be seen as a
learning process, as it will not work perfectly within the first year.
Spangenberg (1994:266-270) supports the above-mentioned critical success factors
of implementation of a performance management programme, adding to this the
importance of linking the performance management programme to an organisation’s
human resource management system. Information obtained from the performance
management system, is essential for a human resource section to function
effectively, in terms of reward systems and providing for development facilities.
Performance management should be linked, along with the total human resource
function, to the strategies of the organisation, in order to ensure that it is strategic.
5.3.2 Elements of an effective performance management programme
Lawson (1995:12-13) views the elements of an effective performance management
programme as clarifying the organisations’ vision and goals, establish key results,
objectives and measures, and lead to continuous improvement of performance.
Table 5.6 represents the respondents’ opinions as to whether SAA current performance
management does lead to the improvement of the organisational performance.
Table 5.6
Elements of an effective performance management programme
TOTAL TOTAL%
Responses YES NO YES NO
12 Does SAA have a vision
statement?
20 0 100% 0%
13 If yes, is this vision
communicated to all
employees in the
organisation?
12 8 60% 40%
74
Source: Researcher’s own construction based on received data
Table 5.6 presents responses to the elements for an effective performance management
programme question. Interpretation of the respondents’ answers as presented in table 5.6
allow for the following deductions:
all respondents are fully aware of the existing vision statement;
twelve respondents (60 per cent) indicated that the company vision is
communicated to everyone in the organisation;
all respondents are fully aware of the existing mission statement;
sixteen respondents (80 per cent) indicated that the mission statement is fully
communicated to every employee in the organisation;
all respondents fully agree that SAA formulate plans and objectives based on
the vision and mission of the organisation;
fifteen respondents (75 per cent) indicated that plans/goals and objectives are
filtered through the entire organisation.
To summarise Table 5.6, the total responses to all questions were added together, and
presented in Chart 5.4.
14 Does SAA have a mission
statement?
20 0 100% 0%
15 If yes, is this mission
statement communicated to
all employees in the
organisation.
16 4 80% 20%
16 Does SAA formulate plans
and objectives based on the
vision and mission of
organisation?
20 0 100% 0%
17 If yes, are these plans/goals
and objectives filtered
through the entire
organisation?
15 5 75% 25%
75
CHART 5.4
Elements of an effective performance management programme
From chart 5.4 it is evident that most of the respondents agree to the elements of an
effective performance management programme at South African Airways.
Relating the results of the analysis of Table 5.6 to the theory previously discussed, the
findings are as follows:
Management confirm that SAA shares its strategic objectives with their employees
and that they are committed to the achievement of goals. Kaplan and Norton
(1996:12) recommend that the Balanced Scorecard strategic objectives and measures
be communicated throughout the organisation via company newsletters, bulletin
boards, videos, and even electronically via groupware and networked personal
computers. This communication effort must signal to all employees the critical
objectives that must be accomplished if an organisation’s strategy is to succeed.
Management agree that the strategic objectives of SAA and their individual roles and
goals are linked to the organisation overall goals. Romanoff (1989:25) argues that
the real goal of effective performance management is to improve performance, not to
merely to measure it and should be related to overall company goals. Without the
0
20
40
60
80
100
120
Yes (responses) No (responses)
76
perspective of a uniform set of these goals, a company tug-of-war will occur;
employees may be pulling as hard as they can, but in opposite directions.
Kaplan and Norton (1996:24) cite that the balanced scorecard provides senior
executives with a comprehensive framework that translate an organisation’s vision
and strategy into a coherent set of performance measures.
5.3.3. Performance measurement
Table 5.7 (as per SAA’s current performance management system) represents the
respondents’ opinions to determine which approach of performance measurement will
best suit South African Airways performance management system.
Table 5.7 Performance measurement
Source: Researcher’s own construction based on received data
Table 5.7 represents responses to the performance measurement question. Interpretation
of the respondents’ answers as presented in table 5.7 allow for the following deductions:
all respondents agree that SAA measure financial performance;
twelve respondents (60 per cent) agree that financial measures are linked to the
organisational objectives derived from strategy;
all respondents agree that SAA measures reflect the information needed to run
its business.
PERFORMANCE
MEASUREMENT
TOTAL TOTAL%
Responses YES NO YES NO
18 Does SAA measure financial
performance? 20 0 100% 0%
19 Are your financial measures
linked to the organisational
objectives derived from strategy?
12 8 60% 40%
20 Do SAA measures reflect the
information needed to run its
business?
20 0 100% 0%
77
To summarise Table 5.7, the total responses to all questions were added together and
presented in Chart 5.5 (as per SAA’s current performance management system).
CHART 5.5 Performance measurement
From chart 5.5 it is evident that most of the respondents agree that SAA does measure
financial performance and their measures reflect the information needed to run its
business.
Relating the results of the analysis of Table 5.7 to the theory previously discussed, the
findings are as follows:
Management all confirmed that South African Airways measure financial performance.
Many companies have performance management systems that incorporate financial and
non-financial measures. All organisations have financial and non-financial measures,
however many use their non-financial measures for local improvements at their front-line
and customer-facing operations. Senior managers use aggregate financial measures as if
these measures could be summarized adequately the results of operations performed by
their lower and mid-level employees. These organisations are using feedback and control
of short-term operations. Kaplan and Norton (1996:7) argue that the balanced scorecard is
0
10
20
30
40
50
60
Yes (responses) No (responses)
Performance measurement
78
more than a tactical or an operational measurement system. Innovative companies use it as
a strategic management system, to manage their strategy over the long run.
Brown (1994:89) argues that managers in large companies have difficulty translating
objectives, strategies and performance measures at different levels of the company.
Objectives at the senior management level frequently have no clear connection with
performance priorities lower down. Generally, financial objectives take precedence
at the top, while production volume, quality and service objectives have the highest
priority at the frontline, employee level. How lower level production and service
objectives and strategies across levels and functions is becoming more critical as
companies compete on a broader array of performance criteria.
Table 5.8 Performance measurement
Source: Researcher’s own construction based on received data
An Analysis of Table 5.8 (management’s view) indicates the following:
fifty per cent of respondents agree that performance measurement systems are vital
for the success of the organisation;
sixty per cent of respondents agree that having a balanced set of performance
measurements is vital to the success of the organisation;
PERFORMANCE MEASUREMENT
Str
ongl
y A
gree
Agr
ee
Dis
agre
e
Str
ongl
y D
isag
ree
21 Performance measurement systems are vital for the success of the organisation.
10 (50%)
3 (15%)
2 (10%)
1 (5%)
22 Having a balanced set of performance measurements is vital to the success of the organisation.
12 (60%)
4 (20%)
2 (10%)
2 (10%)
23 The balanced scorecard is a useful performance measurement framework for my organisation.
9 (45%)
4 (20%)
4 (20%)
3 (15%)
T
r
p
forty fiv
performa
To summari
responses, th
presented in
From th
measurem
suggeste
is progre
and wea
organisa
The bala
the busi
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5
10
15
20
25
30
35
ve per cent
ance measur
ise Table 5.8
he total num
n Chart 5.6.(M
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he chart it
ment system
ed that measu
essing towar
aknesses an
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anced scorec
ness, along
d takes strat
0
5
0
5
0
Strongly A
31
of respond
rement frame
8 and in ord
mber of resp
Management
CHART 5.6
is clear th
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rds its pre-de
nd decide o
rmance (Am
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hat most re
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11
mance M
that the ba
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uccess of th
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overing the m
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easurem
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main non-fi
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StonglyDisagree
6
ment
recard is a
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tion. It is f
assess how w
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nancial driv
hell, the bal
ment system p
79
useful
of the
nd are
mance
further
well it
rength
roving
vers of
lanced
per se;
80
it is a directional tool for translating strategy into action at all levels of the
organisation.
5.3.4 Suggestions from respondents on the key factors that they think should
be part of South African Airways performance management system.
This section deals with the open-ended question that required respondents to provide
suggestions for improving performance management at SAA. Following are seven
suggestions that were mentioned by the respondents:
Table 5.9: Suggestions from respondents
1 SAA should measure performance from the top, all the
way down to front-line employees, if not, there are not
going to be much impact on what is measured.
2 Specific measures should change with every function and organizational level because managers doing different jobs need different information to make different decisions.
3 The same methodologies used to develop measures at the corporate level should be used to cascade the measures down to front-line managers, supervisors, and employees.
4
The balanced scorecard primary objective should be to communicate strategy to all employees by translating it into operational terms.
5
Everyone should be trained in using the systems and measures when implementing performance measures as it should be expected that some problems will be identified that will require changes to the system.
6
Appropriate direction and support should be provided when implementing performance measurement systems as the culture of the organization is expected to change.
7 All the departments within SAA must have a standard BSC which focuses more on the inputs of the employees.
81
In order to ensure the continuous improvement of performance, as a means of remaining
competitive in a changing environment, it is of utmost importance that an effective
performance management should ensure that the goals of the individual support the
strategic objectives of the organisation, and that the organisation supports the individual in
achieving these goals.
5.4 CONCLUDING REMARKS
The purpose of this chapter was to analyse and interpret the data obtained through the
research questionnaire. The analysis and interpretation was undertaken in terms of the
objectives stated in chapter one. The evaluation done by the researcher indicates that some
of the guidelines discussed in chapters two and three were adhered to, but also certain key
aspects of performance management were not being applied.
Chapters six will focus on various recommendations, based on the above findings.
Problems encountered during the research will be discussed and recommendations made.
82
CHAPTER SIX
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
6.1 INTRODUCTION
“Factors affecting a performance management system at South African Airways”, is the
subject researched in this dissertation.
This chapter contains a summary of the preceding chapters, including an overview of the
empirical findings.
6.2 SUMMARY OF CHAPTERS
Chapter one (Problem statement and definition of key concepts)
The main problem addressed by this research was:
What is the approach that should be used by South African Airways to compile an
effective performance management system for SAA employees?
The chapter also outlined the researcher’s method for solving the stated problems.
Chapter two (Elements of performance management systems)
In the second chapter the researcher discussed the key elements for an effective
performance management system.
Secondly, performance as an ongoing process was described. Performance planning,
managing performance and reviewing performance were discussed.
Thirdly, implementing performance management was outlined and the critical success
factors which will ensure successful implementation of a performance management
programme were identified.
Chapter three (Approaches of measuring performance)
83
This chapter addressed the second sub-problem: “Which approach of performance
measurement does the literature reveal that will best suit South African Airways
performance management system? Performance measurement was outlined and thereafter,
a brief overview of the balanced scorecard was provided.
Secondly, the balanced scorecard four perspectives were discussed and thereafter the
balanced scorecard downfalls were identified. The guidelines on building a balanced
scorecard were also described.
Lastly the other two approaches of measuring performance, the rating method and the
method of management by objectives were described.
Chapter four (Research methodology for empirical study)
The empirical study was described in this chapter. The research methodology followed
was:
a) A questionnaire was developed according to the principles and guidelines identified in
the literature survey.
b) Interviews were conducted to determine and gather the primary data required to
establish the key elements of performance management that the managers regard as
important that should be included in the performance management system at South
African Airways.
c) The findings from (a) and (b) were used to recommend which approach of performance
measurement that can be best applied and implemented to improve performance
management system at South African Airways.
Chapter five (Analysis and interpretation of results)
The results of the empirical study were presented and analysed in this chapter. The
researcher conducted one personal interview with each manager. The information from
these interviews was used to identify the key elements that the management perceived to be
part of South African Airways performance management and to recommend a performance
measurement approach that will be used to measure performance and improve the current
system in place.
84
Chapter six (Summary, conclusions and recommendations)
The purpose of this chapter is to summarise the empirical findings and to provide
concluding remarks and recommendations.
6.3 SUMMARY OF THE EMPIRICAL FINDINGS
For the purposes of this study only employees in management level were interviewed. The
following sub-problems were identified, in order to make the main problem more
researchable and manageable:
What are the elements of a good performance management system?
What are the different approaches mentioned in literature that could be used to compile
a performance management system for South African Airways?
How can the results obtained from the resolution of the first two sub-problems be
implemented in order to improve the performance management system at South African
Airways?
The main and sub-problems were identified in order to determine which approach of
performance measurement that will best suit South African Airways performance
management system. The sub-problems have been dealt with in previous chapters.
Although South African Airways already had a performance management tool
implemented, it was not effective, and a number of recommendations needed to be made
for the system to be implemented successfully. The main findings from the research
conducted, can be summarized as follows:
Performance management should be used as a link between overall strategy and
individual contribution (100%).
A pilot run of the performance management process will be beneficial to South African
Airways ((100%).
The implementation of a performance management programme is a learning process
and will take time (90%).
Management is fully aware of the existing mission and vision statements (80%).
Plans/goals and objectives are filtered through the entire organisation (75%).
85
The same methodologies used to develop measures at the corporate level should be
used to cascade the measures down to front-line managers, supervisors, and employees
(100%).
The balanced scorecard’s primary objective is to communicate strategy to all employees
by translating it into operational terms (100%).
6.4 PROBLEMS AND LIMITATIONS OF THE STUDY
There were some problems with regards to accessing all the identified research participants
and these were as follows:
The research was conducted during the time when the station managers were relocating
to other provinces around South Africa.
Confirming interviews with some of the identified participants then posed to be a
challenge, as a result they could not participate in the study.
These challenges resulted in a smaller sample size which may affect the complete validity
of the findings.
6.5 RECOMMENDATIONS
Although the empirical study revealed that South African Airways shares its strategic
objectives with its management, it is highly recommended that a balanced scorecard should
be used as a measuring approach for performance at South African Airways.
From the respondents’ opinions, it can be concluded that the balanced scorecard was found
to be the more useful tool, due to its simplicity in application. The literature findings from
the theory chapters stated that organisations are using various types of performance
measurement models and some have adopted more than one measurement system. This is
the main reason why the balanced scorecard has been chosen by the researcher, as the
framework to design a generic performance measurement approach for South African
Airways performance management system.
86
The recommended model: Quality Processes Results Scorecard (QPR) was developed by
QPR Software Plc, which was founded in 1991 and has its headquarters in Helsinki,
Finland. One of QPR’s local partners in South Africa is Executive Business Solutions.
The most tangible benefits of QPR’s software, solutions and services based on it, are
related to process and performance improvement, strategy execution, risk and quality
management actual at all times.
The following guidelines and model is highly recommended when implementing a
balanced scorecard at South African Airways:
Introduction:
The balanced scorecard is a management system (not only a measurement system) that
enables organisations to clarify their vision and strategy and translate them into action.
Prerequisites:
Before an organisation can start implementing a balanced scorecard it needs a clear
understanding of its vision and strategy. It is the management’s responsibility to define a
vision, formulate a strategy and set strategic goals regardless of a Balanced Scorecard being
implemented.
Project planning:
The implementation of a BSC should always be organised as a separate project. The
project is very much a management system development project, rather than IT project.
Before the actual project starts the following questions should be answered:
What is the goal of the BSC project?
What current problem does the balanced scorecard solve? What is the goal state?
Who leads the project?
Who participates in the project?
In a large organisation a member of the corporate management should be involved in order
to align the SBU scorecard with the overall corporate strategy. Top management input and
buy-in is crucial for a successful balanced scorecard implementation.
87
Which unit (or units) is the pilot unit?
Implementation phases:
Several different procedures describing the building process of a balanced scorecard have
been presented. The procedure described below is just one of them and is not necessarily
better than any other.
The actual implementation of a balanced scorecard can be divided into five phases:
Model Synthesis
Technical implementation
Organisational integration
Technical integration
Operation
Many of the phases can be performed parallel. This will shorten the total project schedule
significantly.
Model Synthesis:
During the model synthesis phase the organisation seeks consensus about their vision and
strategy and derive the needed measures. The model synthesis phase consists of two major
tasks:
Strategy synthesis (structure synthesis)
The objective of the strategy synthesis phase is to form and commit the management to a
consensus view about the organisations vision and strategies.
Measure synthesis
During the measure synthesis phase the strategy of the organisation is quantified into
measures of the key performance indicators (KPI’S). The measures can be derived from
the strategy using critical success factors or alternatively using Strategy maps.
Technical Implementation
The technical implementation includes the following steps:
88
Installation of the software,
Basic training for the persons building scorecards
Building of the scorecards
Setting target and alarm levels
Setting calculation formulas to consolidate the data
Defining graphical properties for graphs
Organisational integration
The organisational integration phase includes the following tasks:
Definition of the persons who are responsible for measure data and their empowerment.
Explanation of the objectives of Balanced Scorecard implementation to employees.
Re-engineering the management and strategy process.
Re-engineering the reporting process.
Technical integration
The technical integration steps are the following:
Identification of the imported measures and exporting capabilities of the operative
systems.
Defining the procedure to get measure data from data sources including data
identification, modification and scheduling.
Lastly, defining and building a balanced scorecard is a very useful learning experience in
itself. The organisation receives deeper understanding of what drives its business and the
cause and effect relationships between the drivers. Still the real benefits from the balanced
scorecard are realised when the balanced scorecard is part of the day-to-day operations.
It is the researcher’s belief that this model should not be seen as the answer to all
performance problems, but should be used as a guide to achieving better overall
performance.
89
6.6 OPPORTUNITIES FOR FURTHER RESEARCH
The study can provide a basis for further research. The findings of this study can prove to
be a useful resource to those responsible for managing performance, as well as other
organisations wishing to improve their performance management programmes.
6.7 CONCLUSION Performance management can be seen as a means of getting better results from
organisations, teams and individuals by understanding and managing performance within
an agreed framework of planned goals, standards and attributes or competency
requirements. Whether or not companies use tailored performance management systems or
the balanced scorecard approach, at the end of the day the effectiveness of the system
depends on how well it is utilised and managed within an organisation.
It can be concluded that whether performance management within South African Airways
can achieve its objectives, depends on:
senior management’s leadership and support through articulating the organisational
goals and ensuring alignment of performance management objectives with these goals;
charging managers at all levels with clear responsibility for coaching, monitoring and
improving performance of their respective divisions;
continuous improvement to managers’ skills on performance management, including
objective setting and measurement, coaching, appraising , motivating staff, and;
produce staff ownership of the performance management system by effective
communication and regular feedback in the performance management processes.
The purpose of this research paper was to identify and recommend a new approach of
performance measurement that South African Airways can implement so as to improve the
performance management system currently in place.
90
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ANNEXURE A
12 September 2011
Dear Participant
PERFORMANCE MANAGEMENT SYSTEM SURVEY
I, Brenda Qabaka would like to ask for your help by seeking your permission to be
interviewed. I am currently engaged in a Masters in Business Administration degree
at the Nelson Mandela Metropolitan University. The topic is “Factors affecting a
performance management system at South African Airways”.
The study is aimed at investigating the approach that should be used for employees in
the compilation of a performance management system for South African Airways.
The objective of the interview is to obtain the views of the management towards
performance management and analyse what they think should contribute towards an
effective performance management system at South African Airways.
As a result of your experience and position at South African Airways, a number of
respondents, including you, have been selected to participate in the survey. All
information will be treated in the highest confidence and thus will not be revealed to
anyone and the respondent’s name will not be released.
If you have any questions or comments regarding this research, please feel free to
contact me.
Contact details: 082 7476898 (Mobile)
041 5835186 (Home)
Email: [email protected]
96
Thank you for your time and consideration.
................................
B.Qabaka
Researcher
97
ANNEXURE B:
QUESTIONNAIRE
PERFORMANCE MANAGEMENT EVALUATION
SECTION A: BIOGRAPHICAL INFORMATION
INSTRUCTIONS:
Please provide the following information regarding the position in the
organisation, by placing an “X” in the appropriate block.
There are no right or wrong answers.
1. In which department are you employed?
1.1 Airport operations
1.2 In-flight services
2. How long have you been in the employment of the organisation?
3. What position do you hold in your organisation?
3.1 Management
3.2 Middle management
4. Are you male or female?
4.1 Male
4.2 Female
2.1 0-5 years
2.2 5-10 years
2.3 More than 10 years
98
QUESTIONNAIRE (CONT.)
SECTION B:
The key phases of the performance management process consist of planning, coaching,
and reviewing/rewarding.
Please indicate the extent in which you agree with the following statements by indicating
with and “X” in the appropriate box.
Part 1- Performance Management
S
tron
gly
Agr
ee
Agr
ee
Dis
agre
e
Str
ongl
y
Dis
agre
e
1 PM process should
not be driven by
“pay”.
2
PM should be used
as a link between
overall strategy
and individual
contribution.
3 Top management
should use the PM
process
themselves.
4 It might be
beneficial to first
have a pilot run of
the process.
5 Everyone involved in
the PM process should
be trained in setting
objectives, monitoring
and assessing
performance.
6
The
implementation of
PM should be seen
a learning process.
99
7 PM improves the
organisations’
department and
individuals’
objectives.
8 PM helps with cost
reduction.
9 PM raises
productivity
10 PM support a total
quality
management
initiative.
11 PM helps to
implement a new
project or structure,
e.g. team working.
Part 2 – Elements of an effective performance management
programme
The Strategic plan sets the nature and direction of the business and performance
management recognises that relating work performance to the strategic plan of an
organisation is critical for success. An effective performance management system
should provide clarity of the organisations’ goals, establish key results, objectives and
measures, and lead to continuous improvement of performance.
Please tick boxes the box that best describes your view on the following
statement:
12 Does SAA have a vision
statement?
YES NO
13 If yes, is this vision
communicated to all
employees in the
organisation?
YES NO
14 Does SAA have a mission YES NO
100
statement?
15 If yes, is this mission
statement communicated to
all employees in the
organisation.
YES NO
16 Does the SAA formulate
plans and objectives based on
the vision and mission of
organisation?
YES NO
17 If yes, are these plans/goals
and objectives filtered
through the entire
organisation?
YES NO
Part 3 –Performance measurement
Measurements provide a basis for an organisation to assess how well it is progressing
towards its pre-determined objectives, help to identify areas of strength and
weaknesses and decide on future initiatives with the goal of improving organisational
performance
Please tick the box that best describes your view on the following statement:
YES NO
NO 18 Does SAA measure financial
performance?
YES
19 Are your financial measures
linked to the organisational
objectives derived from
strategy?
YES NO
20 Does SAA measures reflect the
information needed to run its
business?
101
Please tick the box that best describes your view on the following statement:
Str
ongl
y
Dis
agre
e
Dis
agre
e
Agr
ee
Str
ongl
y
Agr
ee
21 Performance
measurement
Systems are vital
for the success of
the organisation.
22
Having a balanced
set of performance
measurements is
vital to the success
of the organisation.
23 The balanced
scorecard is a
useful performance
measurement
framework for my
organisation.
24. Do you have any additional suggestions for improving the current
performance management system?
Thank you for your kind co-operation