Concept, models, and importance of PMS in firms

Changing external demands, increasing competition, and change in the role of businesses is forcing corporates and enterprises to review and improve their management systems and strategies. The first step that can be taken by a firm to attain business excellence and improve its performance is to come up with a system that can be used to measure the performance of each sector and employee. Thus, much of the attention shifts to strategic performance and management models and how they can be used to achieve this much-needed success in a business setting. Nowadays, organizations operate in an environment that is dynamic. For example, the success factors are dependent on the capability of a business to satisfy the ever-changing expectations and demands of stakeholders (Striteska & Spickova, 2012). Thus, organizations are expected to build a performance management system that observes inclusivity rather than being self-centered. Therefore, firms have to make a performance evaluation based on external factors like stakeholders, suppliers, and customers’ views. Various holistic PMS have been developed to wade the challenges associated with traditional performance measurement systems.

Long after a PMS has been established within a firm, the latter should embark on a new strategy to keep pace with changing business environments and operating atmosphere. Another practical approach to improving a firm’s performance is through benchmarking. It may be internal-based, where an organization is trying to compare the performance of different sectors, such as the manufacturing sector and the marketing sector or human resource department. The process may also be external, and it entails a comparison of an organization’s operation with other organizations in the same business environment (Maire, Bronet, & Pillet, 2005). Often called comparative improvement, benchmarking encompasses conducting a comparative analysis of performance between different organizations. This approach aims to help an organization make observations, judge the best practices, and adopt it if need be. Doing this assures a firm of favorable results in its performance-boosting process. Benchmarking has brought immense success to several companies all over the world. Currently, many medium-sized and small companies have adopted benchmarking as a tool to shape the performance improvements. Some scholars term it as the best tool for quality management.

The premise of this essay will be to holistically unravel benchmarking and performance management systems as effective approaches that can ensure the performance of an organization reach top-notch levels. The essay will describe the concepts, models, importance, and objectives of both PMS and benchmarking.

Concept, models, and importance of PMS in firms

The basic concept of PMS revolves around a company’s strategy to measure employees’ performance. The process entails a company’s initiative to align their objectives, goals, and missions with the help of the resources (material and human resources) available (Helpborad, 2017). In this system, the executive team is bestowed the responsibility to formulate policies and goals, assign and distribute duties, and link the subordinate staff to the administrators and stakeholders. Knowledge, skills, and competency gaps are also noted through PMS, thus provide a framework for training, coaching, guiding, and mentoring employees. Results are optimized through a proper process and channel, minimizing the grievances and conflicts that may arise between employees and teams. The core focus is to measure and monitor performance standards against desired objectives and goals.

PMS can be categorized into two models based on theories proposed by other scholars. These categories include the game-setting model and the expectancy model.

• Goal-setting model/theory – This model was proposed by Edwin Locke back in 1968. It suggests that an employee establishes individual goals used to motivate them to perform at their optimum best (Agarwal, 2011). The reason is that these employees stick to their objectives and follow them to the latter. If these goals become elusive, these employees decide to either modify the goals and make them realistic or improve their performances. Eventually, the employees meet their set ultimatums, collectively contributing to the achievement of an organization’s goals.
• Expectancy model/theory – Proposed in 1964 by Victor Vroom, the concept of this model revolves around individuals’ ability to change their behavior to achieve their own set goals hypothetically. Their behaviors are modified and aligned in a way that will lay a conducive environment for them to achieve their goals.

PMS plays a vital role in organizations and firms. Below are four significant purposes of PMS.

1. PMS is used as a tool to align individual and departmental goals with those of the overall organization. This is to mean that there should be a link between organization goals and personal and/or departmental goals.
   1. PMS also sets the employees’ deciding factors like termination, transfer, salary increment, demotion or promotion. Under-performer, non-performers or performers are noted within the organization. It provides a platform to merit the employees’ skills and competency level.
2. PMS also acts as an effective communication channel between employees and the executive team. Employees can learn of their performance standards, key deliverables, job responsibilities, and their goals. This system also helps employees learn about the areas they have to improve on and enhance their performance.
3. PMS can be used in the developmental area by communicating about development plans and positive feedback. Managers can train, coach, or mentor their team to help them improve on performance.

Concept, models, and importance of Benchmarking

Benchmarking is the competitive concept that helps firms thrive, grow, and adapt through change. It can be termed the process used to measure essential business practices and metrics and make comparisons between different departments or external competitors within the same operation sphere, companies around the world, or peer companies. The goal of conducting a benchmark helps gauge the capacity and strength of an organization and identify areas that need improvement. Benchmarking is divided into four different models. These models are explained below.

• Performance benchmarking – This is a process of collecting quantitative data and comparing another set of data from a different firm. An organization that desires to identify performance gaps uses this model as its initial step in benchmarking. To conduct this benchmarking, an organization should have KPIs, and a means to extract, collect, and assess it. The outcome of this type of benchmark helps acquire information that can be used in the decision-making process.
• Practice benchmarking – This process entails collecting and comparing qualitative data regarding how people and technology conduct any process (Harper, 2019). A standard approach is required to collect qualitative information and analyze it with another. This type of benchmark helps an organization learn about how performance gaps occur.
• Internal benchmarking – This model of benchmarking compares performance metrics between different units like geographies, departments, programs, and production lines that exist within an organization. The requirements for this process are at least two units found within an organization with related and comparable practices. The outcome of this process helps an organization understand its internal and underlying performance standards.
• External benchmarking – This model compares performance metrics between two or more organizations or firms. The requirements for this process are two or more organizations that are willing to participate. A third party may also be required to collect data. The outcome of this type of benchmark helps an organization gauge its performance levels on a broader scale and plan for improvement if need be.

Benchmarking has various significances to an organization. Through benchmarking, an organization can identify how it stacks up against the competition. Benchmarking also helps organizations improve their effectiveness and efficiency through the challenge. The objectives and goals of an organization of a firm may be tracked easily through benchmarking (Downs, 2019). The quality of products and business sales are also improved. New opportunities are often discovered and used to lay foundation fo0r growth. Finally, it helps hold employees accountable and motivates them.

Key Aspect of Benchmarking

Objectives from strategy to action

Benchmarking is a process that undergoes a development cycle to reach set targets and goals. Below is a listing backed with a precise explanation of the objectives of benchmarking from strategy to action.

• Planning – The planning process entails highlighting the critical improvement areas, the partner who will participate in the benchmark, and how success is contemplated. Besides, this part will also give insight into what type of data will be collected.
• Gathering information – Once a plan is in place, data about competitors or peer firms are collected. For example, if the benchmark objective is to improve customer service and satisfaction, the benchmarking firm should collect information about how calls are handled differently from the latter.
• Data analysis – Once the required data is collected, the organization must make a critical assessment of what competitors are doing and determine the difference (Orbelo, 2020). This data should be analyzed objectively and with an open mind because no organization is perfect. Once findings are consolidated, it is high time to draft a strategy or change plan.
• Action – Involving the implementing department by presenting the findings and recommendations of a benchmark has never been that easy. Thus, the presentation aspect should be epic and convincing to ensure that the implementing department buys ideas and suggestions.
• Monitoring – Immediately after implementation, the action plan should be carefully tracked to ensure that it meets the set standards.

Financial and Non-financial Benchmarking

Financial benchmarking entails conducting a financial assessment and comparing it with a company’s results to gauge the overall productivity, efficiency, and competitiveness. For instance, a benchmarking firm may want to know the running costs, gross revenue, net profits, or losses incurred by its competitor firm.

Non-financial benchmarking involves carrying out an analysis of another firm to determine how they go about with non-cash- related aspects. The non-financial elements that a company be interested in include brand preference in the market, customer churn and retention, innovation and technology, market share, customer experience, and take rate.

Measures and KPIs

A Key Performance Indicator (KPI) is a value that can be measured to demonstrate a company’s effectiveness in achieving its goals and objectives. Most companies use KPIs to gauge their success in achieving their targets (Walczak, 2014). There are a variety of measures and KPIs that a firm can use, but this section will pinpoint only a few. These KPIs include financial indicators, directional indicators, practical indicators, actionable indicators, output indicators, process indicators, leading indicators, input indicators, lagging indicators, qualitative indicators, and quantitative indicators.

There is a definitive procedure that can be used to identify the relevant KPIs for a given firm. This procedure is explained below.

1. Firstly, a KPI that has a direct relation with a firm’s objectives is chosen. For example, a KPI could be related to the business’ goal of improving customer care, improving return on investment, or increasing sales.
2. Focus on a small number of measures and metrics rather than spread energy on variety. By doing this, there is an assurance of having detailed metrics that will address even the smallest under the standard.
3. The firm’s stage of growth should be considered. Different metrics suit different types of businesses (either startup or enterprise). Enterprises focus on measures like customer lifetime and cost per acquisition, while startup businesses focus on model validation metrics.
4. Identification of both leading and lagging performance indicators. The difference can be based assessed based on the history of how things were done and how things are currently being done.

Outcomes of Benchmarking

The revelations of benchmarking are categorized into three. For instance, the internal processes may be of lower standards as compared to external processes. This type of scenario is called a negative gap that would call for action to change the situation. Secondly, there may be parity or equality of process performances between two organizations. Such an occurrence would require an organization to investigate further to determine if there exists an opportunity to capitalize on it. Thirdly, internal processes may be exceedingly better than those of external processes (positive gap). This occurrence would culminate in the acknowledgment and rewarding of internal processes that directly impacted this outcome.

Conclusion

In conclusion, competitor analysis is a vital aspect of a company’s performance and can be achieved through benchmarking. A proper analysis should ask the following question. What is the competitor’s brand awareness? What is the pricing of the company’s commodities? What are the earning reports and share prices of the company? What is the customer experience for the other company? What is the competitive strength of the competitor company? What are the patents, trademarks, copyrights, and other intellectual properties of that company? These are just a few pokes into a competitor’s affairs. Using such an inquisitive attitude while conducting a benchmark or analysis opens an avenue to know more and strategize more.