THE EFFECT OF PERFORMANCE MANAGEMENT PRACTICES ON EMPLOYEE PRODUCTIVITY (A CASE STUDY OF SCHINDLER LIMITED)

ABSTRACT

 The general objective of the study was to determine the effect of performance management practices on employee productivity with a focus on Schindler Limited. The study was guided by the following research objectives: To investigate the influence of performance appraisals on employee productivity, to determine the influence of reward systems on employee productivity and to examine the influence of performance feedback on employee productivity.

This study used the descriptive research design. The study adopted a quantitative approach on the effects of performance management practices on employee productivity. The dependent variables included performance appraisals, reward systems and performance feedback, and the implications on employee productivity as the independent variable. The target population comprised of 108 Schindler employees in Nairobi, Kisumu and Mombasa branches in Kenya. Stratified sampling was used to divide the population into two strata. Descriptive statistics was utilized as a data analysis tool. The demographic profiles of the respondents were analyzed using percentages and frequencies. Inferential statistics such as correlation and regression analysis established the relationship between dependent and independent variables.

In regards to the influence of performance appraisals on employee productivity, the findings suggested that the appraisal leads to enhanced employee performance in organization. An effective appraisal model can enhance the interest and performance of the employees leading to the completion of specific targets geared towards attainment of corporate goals.

In regards to the influence of reward systems on employee productivity the findings suggested that employees can be rewarded to meet target productivity levels. The opportunity by the manager to formally recognize good employee performance leads to work motivation. When good performance is observed and then rewarded, the chances of it being repeated are increased, while poor performance is discouraged or even punished to decrease the chance of it happening again.

In regards to the influence of performance feedback on employee productivity, the findings indicated that effective feedback is essential for any organization to meet its target. Feedback enables the employees to be made aware of what exactly is expected from them. Effective performance feedback between employees and supervisors is the key to successful empowernment and productivity. Adequate feedback builds accountability, since employees and supervisors participate in developing goals, identifying competencies, discussing career development and employee motivation.

TABLE OF CONTENTS

STUDENT’S DECLARATION...................................................................................... ii

ABSTRACT..................................................................................................................... iii

ACKNOWLEDGEMENT............................................................................................... v

DEDICATION.................................................................................................................. vi

LIST OF TABLES........................................................................................................... ix

LIST OF FIGURES.......................................................................................................... x

CHAPTER ONE............................................................................................................... 1

1.0 INTRODUCTION....................................................................................................... 1

1.1 Background of the Study.............................................................................................. 1

1.2 Problem Statement......................................................................................................... 4

1.3 General Objective.......................................................................................................... 4

1.4 Specific Objectives........................................................................................................ 5

1.5 Significance of the Study.............................................................................................. 5

1.6 Scope of the Study........................................................................................................ 6

1.7 Definition of Terms....................................................................................................... 6

1.8 Chapter Summary.......................................................................................................... 7

CHAPTER TWO.............................................................................................................. 8

2.0 LITERATURE REVIEW.......................................................................................... 8

2.1 Introduction................................................................................................................... 8

2.2 Influence of Performance Appraisals on Employee Productivity................................. 8

2.3 Influence of Reward Systems on Employee Productivity.......................................... 13

2.4 Influence of Performance Feedback on Employee Productivity................................. 18

2.5 Chapter Summary........................................................................................................ 22

CHAPTER THREE........................................................................................................ 24

3.0 RESERCH METHODOLOGY............................................................................... 24

3.1 Introduction................................................................................................................. 24

3.2 Research Design.......................................................................................................... 24

3.3 Population and Sampling Design................................................................................. 24

3.4 Data Collection Method.............................................................................................. 26

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CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Study

Performance management comprises all activities that guarantee that organizational objectives are constantly being attained in an efficient and effective manner. Normally, performance management focuses on the organizational performance, employees, departments, and to some extent, the processes that are usually employed to build a service or product, as well as other key areas in an organization that would lead to employee productivity (Homayounizadpanah & Baqerrkord, 2012). Baron and Armstrong define performance management as an integrated and strategic approach towards enhancing the employee and organizational productivity by bettering the performance of employees through developing the individuals and teams capabilities (Baron & Armstrong, 2007).

Performance management is actually a broad term that was initially used in the 1970s to depict a technology-science entrenched in application methods basically intended to assist the institutional managements to manage both results and behavior, which are the two vital aspects of what is commonly identified as performance (Homayounizadpanah & Baqerrkord, 2012). The effect of performance management practices on organizational performance and employee productivity is an important topic in the fields of human resource management and industrial relations. There is an increasing body of work that argues that the use of performance management practices that take into account comprehensive employee recruitment and selection procedures, employee involvement and training, can improve the knowledge, skills and abilities of an organizations employees while at the same time increase their motivation, reduce malingering and enhance the retention of quality employees as well as their productivity.

 Bloom, Dorgan, Dowdy and van Reenen (2007) concluded that it is only by having strong and effective management practices in place that multinational companies have been able to replicate the same standards of performance across different regions, cultures and markets. Today, they are reaping the benefits of this effort in terms of higher productivity, better returns on capital and more robust growth. This goes to show that well laid out structures can be replicated and still be effective in different regions hence promoting Productivity. Productivity is a measure of the efficiency of a person, machine, factory, system such as in converting inputs into useful inputs (Marsor, 2011). The sources of productivity growth and production volume growth are explained by Jorgenson et al. (2014) as follows: productivity growth is seen as the key economic indicator of innovation. The successful introduction of new products and new or altered processes, organization structures, systems, and business models generates growth of output that exceeds the growth of inputs. This results in growth in productivity or output per unit of input. Income growth can also take place without innovation through replication of established technologies. With only replication and without innovation, output will increase in proportion to inputs (Jorgenson et al., 2014).

 Employee productivity is an assessment of the efficiency of a worker or group of workers. Productivity may be evaluated in terms of the output of an employee in a specific period of time. Typically, the productivity of a given worker will be assessed relative to an average for employees doing similar work. Because much of the success of any organization relies upon the productivity of its workforce, employee productivity is an important consideration for businesses. In short, productivity is what comes out of production. Managers of every business organization are charged with the responsibility to motivate their employees to achieve organizational goals. Most organizations wonder how they can sustainable performance among its employees. This means looking at what can be done to encourage the employees to give their best though various reward systems in whatever work they do in the organization (Armstrong, 2001). Productivity sustenance is therefore a concern that many organizations are looking at addressing via various means so that employees can still remain productive in the long term. Performance management therefore needs to be tested in any particular setting taking into consideration how individuals in any particular organization are motivated and the extent to which they are most effective for a particular organization. Thus it is on this basis that the study aims to determine the effect of performance management practices on employee productivity with a focus on Schindler Limited.

Schindler Limited was established in 1874 in Switzerland. The company is a leading global provider of mobility solutions being a world leader in the production of escalators and elevators with more than 100 national companies, 54,000 employees and over 1,000 branches worldwide. Its innovative and environmentally-friendly access and transit management systems make an important contribution to mobility in urban societies. Schindler Kenya is a limited liability company whose mandate is part of the Schindler group serving the Eastern Africa region. The core business is to manufacture, install, service and modernize elevators, escalators and specializing in the latest technology engineering, as well as mechanical and microprocessor technology products designed and rigorously tested for safety, comfort, efficiency and reliability. Its other offerings range from cost effective solutions for low-rise residential buildings to sophisticated access and transport management concepts for high-rise buildings. Also covered is the maintenance of existing portfolio and specialized modernizations (Schindler Limited, 2015).

 As a result of globalization, liberalization and completion, Schindler redefined its vision and mission statements. Schindler vision is “to be the best service provider in the industry for its customers through the continued development of highly innovative and user friendly mobility solutions and to deliver these to the world market in the future”. The mission statement is “leadership through customer service by providing high quality mobility solutions and services at all times”. The management of Schindler embarked on a program to build a new image of an efficient and highly responsive organization based on the premise that the success and public image of the company will depend largely on the quality of service delivered to both internal and external customers. One of the primary tools or change drivers identified as key to the change process was efficient performance management practices (Schindler Limited, 2015).

In this response, the Schindler management established an institutional strengthening function within the human resource function to redefine the performance management practices of the employees so as to enhance their productivity. A performance management policy was introduced in 2011 based on the philosophy that employees are the most valuable asset and the attainment of corporate objectives depends on how efficiently and effectively the staff carry out their responsibilities. It was the responsibility of management, all employees and unions concerned to sustain jobs and to ensure continued profitability of the company. The performance management plan had five components: setting objectives, sharing objectives, implementing objectives, view and track objectives progress, manage appraisals and review performance contracts .The purpose of appraisal at Schindler is for annual performance review done once every financial year (Schindler Limited, 2015).

1.2 Problem Statement

 There are findings that suggest performance management practices do have the same benefits to different companies that conduct performance reviews every year (Singh, Kochar & Yukse, 2010). There are findings that suggest performance appraisal can be more effective on employee productivity if carried out twice a year, others emphasize that the best practice requires the evaluation of performance to take place on a regular basis (Moulder, 2011; Gupta & Upadhyay, 2012). A number of studies have suggested quarterly performance updates (Cook & Crossman, 2014; Singh, Kochar & Yukse, 2010). From various mixed results, the current study aims to investigate whether continuous performance appraisal review can identify poor performance or identify existing issues and corrective measures to be designed to improve employee productivity.

 There are a number of issues facing the effective and efficient use of the reward system in boosting employee productivity. From a number of studies conducted by Erdogan (2012); Fletcher (2011); Broady-Preston and Steel (2012), they have established that linking rewards with performance leads to commitment employees in the appraisal system. Mone and London (2010) study found that that unfair evaluation of employee performance makes them feel insecure or discouraged leading to the development of poor relationship between the employer and employee. Caruth & Humphreys (2008) recommends that performance feedback should be fair, timely and specific in highlighting the employees progress in carry out their responsibilities (Gupta & Upadhyay, 2012) and the feedback should be often (Lee, 2005). There is however, relatively little research to support the view that performance management activities have any impact let alone having a positive impact on organizations operating within the Kenyan economy. This called for the investigation of the current study.

 1.3 General Objective

 The general objective of the study was to determine the effect of performance management practices on employee productivity.

1.4 Specific Objectives

 The study was guided by the following research objectives:

 1.4.1 To investigate the influence of performance appraisals on employee productivity in Schindler limited.

 1.4.2To determine the influence of reward systems on employee productivity in Schindler limited.

 1.4.3 To examine the influence of performance feedback on employee productivity in Schindler limited.

1.5 Significance of the Study

 This study would contribute to the wealth of knowledge by focusing on an organization within Kenya. The results of this study will be useful to the following stakeholders:

1.5.1 Academicians and Researchers

This study will add to the body of knowledge on performance management and particularly as regards the Kenyan case. The information on the subject of performance management and productivity is scanty and many sources do not offer current information therefore this research will play a crucial role in providing current information.

 1.5.2 Policy Regulators

 Policymakers and stakeholders in the human resource management function such as government and employer organizations such as Federation of Kenya Employers (FKE) can use the findings of this research to formulate policies and procedures and devise best in class methods of increasing employee productivity from the findings of this case study. The findings can also be used in formulating performance management systems. The study will provide the human resource departments with an assessment of the performance management tools and provide a basis for improvement and also provide constructive feedback on how best to attain organization goals and objectives.

 1.5.3 Schindler Kenya Limited

 The findings of the research will provide crucial information to human resource managers and line managers of Schindler Kenya Limited concerning the best ways of increasing employee productivity within the organization.

1.6 Scope of the Study

 The study focussed on the effect of performance management practices at Schindler Kenya Ltd. on the employee’s productivity. It specifically sought to determine the effects of performance appraisal, performance reward and performance feedback on employee’s productivity. The geographical boundary of the research was three Schindler stations in Nairobi, Kisumu, and Mombasa. The study focused on the management and non-management staff of the three regions. A census of 108 employees was used for the investigations. The study was conducted between June to August 2015.

1.7 Definition of Terms

 1.7.1 Employee Performance

 Employee performance refers to their output at a minimal cost from the use of their technical skills, raw materials in carrying out work responsibilities. In this case, employee performance is directly linked with appraisal, rewards and feedback (Mwanje, 2010).

  1.7.2 Employee Productivity

 Productivity can be defined as “quality or volume of the major product or services that an organization provides” (Moorhead & Griffin, 2012).

  1.7.3 Feedback

 This refers to the information reflecting past performance and results and given by the manager to the employee (Solmon & Podgursky, 2010).

 1.7.4 Performance Appraisal

 Performance appraisal is where a superior evaluates and judges the work performance of subordinates (Harter, Schmidt & Hayes, 2012).

1.7.5 Performance Management

 Performance management practice is a systematic way of communicating to employees on what they are expected to do and what the performance and productivity parameters (Marsor, 2011).