Performance management is defined as a process of determining work objectives and goals for an employee to contribute to an organization. The effective performance management system contributes to economic rationality and organizational success. The article selected for reading dealt with performance management systems in the public sector in the Netherlands. The dependence of performance impact and contractibility discussed in the article greatly assists in assessing the effectiveness of the performance management system.
To increase the performance of an organization, it is crucial to determine the organizational goals which are unambiguous and clear. Performance is to be measured according to these goals to evaluate the best way to reach them. Managers should control the process of transformation and predict the outcomes of alternate actions. These conditions are necessary to meet for a successful implementation of performance management measures in order to avoid focusing on the achievement of particular targets instead of company goals.
It is stated that “explicit performance contracting requires that goals can be specified unambiguously in advance; that the organization is able to select undistorted performance measures” (Speklé & Verbeeten, 2014, p. 133). Thus, a decision-influencing role is utilized to provide information that can be applied to motivate employees and managers, and a decision-facilitating role is utilized to provide information that can guide the actions and decisions of managers. The effective performance management system should use one of these approaches for performance measurement. It also assists in setting targets, providing incentives, and securing rewards. The process of the provision and monitoring of information is utilized in the operational use approach. Finally, the control and knowledge of production functions, undistorted performance measures, and unambiguous goals are required to achieve better performance management systems.
It is also stated that the performance effect of utilizing performance management systems to ensure incentives is regarded to be more positive for the activities that involve high contractibility (Speklé & Verbeeten, 2014). Thus, the effectiveness of performance measures differs in the conditions of low contractibility. This information can be used to evaluate the impact of performance management strategies in various business environments.
It is possible to say that performance contracting can be used for improving performance in the public sector as it is characterized by high activities of contractibility. The incentive-oriented approach can negatively impact performance, but increasing contractibility makes this effect less negative. Thus, performance management should be based on the situation-dependent approach. It is also believed that performance can be improved by the exploratory application of performance measures. They are used by managers to communicate goals clearly to employees and evaluate if the goals are appropriate to the company’s standards, as well as revise the organizational policy. Therefore, the exploratory application of performance measures is known to be appropriate in the condition of high contractibility.
The approaches to performance management in public organizations described in the article help to understand how the performance management system works. The evaluation of any performance management system begins with clarifying the organizational goals which should be identified and communicated to employees. After that, appropriate tools for employee motivation and initiative such as the system of rewards should be selected. It is generally recognized that rewards help employees to achieve the set goals and contribute to the company’s success. The given article argues that the performance management system is greatly dependent on contractibility in the public sector. Thus, this information can be utilized for evaluation of the performance management systems in public organizations to measure their performance level.
Speklé, R. F., & Verbeeten, F. H. (2014). The use of performance measurement systems in the public sector: Effects on performance. Management Accounting Research, 25(2), 131-146.