Performance Management Systems

Introduction to Performance Management Systems

In the private sector, the survival of an organization depends on its ability to both evaluate current performance and identify strategies to improve the quality of planning and control decisions. To help them do this, company managers have used a variety of performance evaluation tools and measurement techniques. Many studies examine management accounting practices and performance evaluation measures along with individual benchmarking dimensions.

Performance management systems (PMS) embody the set of organizational activities

employed by managers to focus employee attention and motivate behavior for the ultimate

purpose of implementing the organization’s strategy. PMSs consist of several interrelated

but often loosely organizational practices, typically strategic planning, budgeting, incentive

compensation design, and organizational structuring. Much of the early literature on this

topic has been categorized under the heading of management control systems.

Private organizations are characterized by private ownership. Their financial resources stem from fees paid directly by consumers, not taxpayers and they are controlled by market forces largely outside the span of political control; in other words, they are less controlled by political authority than are public organizations.

The purpose of PMS

The purpose of performance management systems is to influence the behaviour of people

as members of a formal organization to increase the probability that they will achieve

organizational goals. Therefore, a fundamental requisite for PMSs is defining objectives

and key success factors, which are then used to assess performance [6]. Thompson and

Strickland define key success factors as those activities, competencies, and capabilities

that are seen as critical pre-requisites for success. These key success factors need to be

attained for the organisation to accomplish its objectives.

The strategy literature...