Effective Performance Management Systems in Gobal Organizations (Article 04)

A Performance Management System (PMS) is a structured and systematic approach that organizations use to plan, monitor, assess, and improve employee performance within the broader framework of talent management. It encompasses various processes, tools, and methodologies aimed at aligning individual and team performance with organizational goals, fostering professional growth, and ensuring optimal utilization of talent.

Performance management is the key process by which organizations assign work to employees, set goals for them, determine standards, review and evaluate work, and distribute rewards (Varma & Budhwar, 2014). PMSs typically have two purposes: (i) administrative decisions, such as promotions, merit raises, and bonuses, and (ii) developmental goals, such as feedback, coaching, and counseling (Murphy & Cleveland, 1995).

Clearly, PMSs that are designed and implemented according to the organization’s unique context and needs are essential for the successful implementation of business strategies (Schuler & Jackson, 1987). In this connection, it is worth noting that research has found that organizations with strong PMSs are significantly more likely to do better than their competitors on both financial and operational measures (Bernthal, Rogers, & Smith, 2003). 

The continuing globalization of the world economy has led to the rise of truly multinational enterprise. MNEs – organizations with headquarters in one country and operations and subsidiaries in one or more other countries – have become ubiquitous. In the early years of globalization, MNEs were primarily large privately held firms, but the MNE has since evolved – and they now come in all shapes and sizes, from small to large, and are present in every industry and sector and in every step of the value chain. Not surprisingly, managing a multinational workforce continues to be one of the critical issues facing MNEs.

The pace of globalization has created a sense of urgency about how to address issues associated with managing the performance of managers and employees in MNEs (Martin & Bartol, 2003). One solution to such problems could be that MNEs simply implement PM systems developed in the one part of the world (e.g., a home country) for use in another (e.g., a host country).

One challenge with an approach based on cultural integration is that it is likely to take more work and more time than assimilation. The numerous concerns related to divergent cultures, varying legal and political systems, different performance criteria, and varying task environments require considerations which go above and beyond those generally associated with domestic performance management (Dowling & Welch, 2005; Oddou & Mendenhall, 2000). 

In this connection, the Claus and Briscoe (2008) model suggests that the PM process in MNEs (design, implementation, and evaluation) takes place in a global (external) context (primarily national culture and structure) as well as an organizational (internal) context (primarily corporate culture, strategy, and design). Employee PM consists of three phases: design, implementation, and evaluation. The design phase deals with the choices that management of an MNE make with regard to its PM system. These decisions relate to identifying the purpose of PM (the why), performance criteria (the what), method of evaluation and instrument (how), frequency of evaluation (how often), rater identification (who), and whether a standardized or localized approach will be used.

The global context

PESTEL Analysis

The global environment can be analyzed in many different ways. Research on strategic man - agement highlights the importance of doing PESTEL analyses (Luffman, Lea, Sanderson, & Kenny, 1996; Lynch, 1997). PESTEL is an acronym for the Political, Environmental, Social, Technological, Economic, and Legal dimensions of a business environment. Clearly, when it comes to MNEs, the outer-most layer consists of the “culture” and the “structure” of a society in which organizations operate. External culture includes elements such as beliefs, values, practices, and norms dictated by the national culture. This would correspond to the social aspects of a PESTEL analysis.

The external “structure” relates to those other contextual elements, such as government regulations, legislation, industry, sector, type of ownership, unionization, technological and economic conditions, and demographics and so on. These other structural elements are often glossed over in designing PMSs for global organizations, whereas they deserve critical focus, since they can shape the practice of PM in MNEs (Murphy & DeNisi, 2008). Though there is little research on the role of such external, structural factors on PM systems, there are many possible practical implications. The legal environment, for instance, can affect PM systems, in numerous ways – for example, consideration of the legal environment might include key process choices (such as why PM is done), moderators (such as job performance expectations), and outcomes (such as perceptions of organizational justice). Another possible structural factor to consider might be technology and its use in PM systems. Technological capacity is different between nations and could limit the ability of organizations to transfer practices from one nation to another.

Culture and language

Culture and language are fundamentally about meaning (Shweder, 1991). As such, culture and language are issues that impact all areas of PM (as well as all other areas of HRM). The fundamental importance of culture is reflected in its research prominence. Culture and cultural differences are the most studied variable (in terms of the number of studies) when the global context has been analyzed in performance management research. Very few studies have dealt specifically with the impact of language differences on PM and PA, yet language can present practical problems. There are potentially many ways in which language differences can influence a PM system. Such differences can occur between parent firm and subsidiary, between raters and ratees, between ratees and colleagues/subordinates and/or customers. Language differences can produce misunderstandings, cause a need for translation and localization (and all the potential problems that attend language translation), and, thus, threaten the reliability or validity in performance appraisals and or other aspects of a PM system.

Cultural and language differences can lead to gaps in understanding, or a lack of coordinated thinking, among participants in a PM system. So, implementing PM systems across the globe requires that MNEs spend more time doing the additional communication needed to bridge those gaps. In addition to language, the very meaning of performance may vary significantly across cultures. 

The goals of PM can impact how individuals view performance. For example, in the US, performance appraisals are primarily used to determine individual rewards (Cardy & Dobbins, 1994), thus motivating individuals to work harder in the short run so they may achieve the desired rewards. On the other hand, in Japan, performance appraisals emphasize long-term potential (Pucik, 1984), and thus are more likely to encourage individuals to develop their skills and competencies.

Culture and PMS

Culture has been the most pervasive way that the global context has been incorporated into research on PM systems. And since performance is viewed differently in different cultures, it is clear that performance management systems must make allowances for the unique circumstances and cultural norms of the location. However, conceptualizing culture and cultural differences is an on-going challenge for both researchers and practitioners. Below we provide an overview of how culture has been studied and offer some practical advice for managers.

Primacy of national culture

Hofstede’s dimensions of cultural difference (Hofstede, 1980; 1993; see also Trompenaars, 1993) can help predict how a nation’s culture might impact on practices related to PMSs. For example, the United States scores 31 on power distance, meaning low acceptance of status and hierarchy differences, while India scores a rather high 71, and China scores a slightly higher 74. Clearly, companies that operate in these three nations will have to adapt their PMS practices and feedback mechanisms. For example, giving negative feedback in the US might require softening it up a little bit by giving positive feedback first (e.g., The Center for Creative Leadership in North Carolina suggests giving four positive feedback items for every negative one).

Similarly, we might expect that giving one’s superior negative feedback during a staff meeting may be viewed as appropriate and desirable in a low power distance culture like the USA, but such behavior would be deemed out of place and highly inappropriate in high power distance cultures such as China and India (see also Bailey, Chen, & Dou, 1997). Of course, culture has more than one dimension, so assuming that individuals from China and India would behave in the same fashion in the workplace, because the two countries’ scores on the power distance index are close, would be a mistake and set managers up for disappointment.

Clearly, the culture of a nation can have a significant impact on how performance is viewed, evaluated, and managed, and organizations should take national cultural differences into account. However, national culture is not static – instead it is continually changing and evolving, and the rate of this change can depend on a number of factors. In this connection, it has been argued that mobility and affluence are the most important antecedents of individualism (Triandis, 1995). For example, recent economic growth and increased mobility in China is likely creating a group of individuals who are slowly moving away from collectivistic values – a shift that is often reported among those working for MNEs. Thus, managers must also attend to the shifts in cultural attitudes as they attempt to adjust and adapt their HR systems to national culture. 

Cultural metaphors

Metaphors are symbols and include a system of concepts that give meaning to cultural patterns (Lakoff & Johnson, 2003). The use of metaphor by managers to make sense of their organizations has been advocated by many management scholars (Akin & Palmer, 2000). Cultural metaphors can be used to complement the dimensions approach and engage in more in-depth analysis of a particular culture (Gannon & Pillai, 2013). Cultural metaphors can be a helpful way for managers to gain a deeper understanding of differences in national culture. 

Cultural metaphors can be used as a basis for thinking through design issues of PM systems. One can imagine that a PM system designed on the basis of a cultural metaphor such as an “Italian opera” might be quite different from one based on “American football” (see Gannon & Pillai, 2013). Finally, cultural metaphors might also reduce misunderstandings about the meaning of performance and other aspects of PM. As a system of concepts, metaphors provide a practical tool for devising communication strategies. Using the same metaphor for making sense of and talking about PM systems should help managers bridge gaps of understanding that arise from cultural and language differences.

Culture in the “here and now”

Culture creates shared meaning or coordinated thinking (Malinowski, 1931). As we have argued earlier, culture and cultural differences are likely to affect every aspect of a PM system, including the meaning of performance itself. So how do we manage when we do not share culture? One managerial response is structured communi - cation. The larger the cultural distance, the more important it will be for PM systems to include explicit over-communication using multiple sources to reduce possible cultural misunderstanding. Managers should organize communication efforts around the different stages of a PM system: design, implementation, and evaluation. Communication challenges in MNEs can be managed by sending additional formal messages (e.g., making presentations or sharing written guidelines) to those who are likely to hold different views.

However, effective cross-cultural communication should do more. For cultural integration to occur, it is important for managers to learn local perspectives as a first step. Managers should ask lots of questions and listen for understanding. This type of listening is non-directive and its purpose is to manufacture an understanding. Nondirect listening can be very effective as long as managers avoid the tendency to evaluate differences that they are learning about (see, e.g., Rogers & Roethlisberger, 1952). The goal is to keep the other side talking and gain an accurate understanding.

Non-directive listening seems especially important in the design stage because early input of host country nationals can uncover differences that are not easily predicted. This could be especially important for national cultures that defy easy categorization. Non-directive listening during the design stage may also improve implementation. It is important that host country nationals develop commitment to the plan, as their participation in the early stages should increase buy-in and ownership of the plan (e.g., Vroom & Jago, 1988). In addition, their expertise about local practices is likely to be greater than managers of a foreign based MNE. 

The importance of motivation in performance management

One of the primary objectives of a PM system is to maximize employees’ contributions to the organization. Motivation is the process of allocating one’s energy to actions or tasks – about the level of effort one imparts to the job, the direction of that effort – or how effort is allocated across actions or tasks, and the persistence over time of that effort allocation (DeNisi & Pritchard, 2006). Managing motivation involves changing behaviors to make optimal contributions (Locke & Latham, 2002). Clearly, managers can better manage performance if they understand motivation. This becomes even more critical in global organizations, as the meaning of perform - ance and the determinants of motivation are likely to vary significantly across nations/cultures.

Cultural influences on motivation in PM systems

One promising direction in cross-cultural studies of motivation is based on self-determination theory (Deci & Ryan, 1985, 2000; Ryan & Deci, 2000). This theory emphasizes how a social and cultural environment can facilitate or discourage an individual’s sense of volition and initiative. Three basic psychological needs are addressed in this theory: autonomy, competence, and relatedness. The highest quality of motivation and engagement is predicted when conditions are in place that meet those basic needs. The basic tenets of the theory have received support in cross-cultural studies (Deci & Ryan, 2012), suggesting that PM systems could be structured in global organizations using a self-determination framework because the needs for autonomy, competence, and relatedness appear to be universal (Deci & Ryan, 2012). However, there are cultural differences in how important those needs are in a particular cultural group. For instance, in relatively individualist cultures, PM systems should focus more on needs for autonomy, but in collectivist cultures, relatedness needs are likely to be a higher priority.

Performance appraisal systems

Performance appraisals are an integral part of PM systems. While the cognitive models have been helpful to our understanding of the appraisal process, they do not fully account for the variance in performance ratings. Indeed, research has demonstrated that interpersonal variables explain unique variance in ratings even after ratings were made more accurate through training and instrument development. In this connection, several scholars have argued that both scholars and practitioners need to pay closer attention to the socio-cultural context within which the appraisal occurs (e.g. Dipboye, 1985; Guion, 1983; Wexley & Klimoski, 1984). These and other scholars advocate studying how social relationships between supervisors and subordinates impact performance ratings (e.g. Cleveland & Murphy, 1992; Murphy & Cleveland, 1995). 

Indeed, growing evidence supports the assertion that the social context of performance appraisals is crucial for understanding their effectiveness in implementation. In this connection, Borman, White, and Dorsey (1995) reported that while ability, knowledge, and task proficiency were all related to performance ratings as previous research had suggested, the addition of interpersonal variables to a model of supervisor ratings significantly increased the predictive accuracy and explanatory power of the model. 

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