Accounting

The Impact of Performance Management on the Profitability of Manufacturing Firms in Nigeria

The Impact of Performance Management on the Profitability of Manufacturing Firms in Nigeria (A Case Study of Nestle Plc)

ABSTRACT

The study examined the impact of performance management on the profitability of manufacturing firms in Nigeria: A Case Study of Nestle Plc. The study sought to determine the impact of performance management components such as goal-oriented system, performance-based reward system, performance-oriented training system and performance appraisal on the profitability of Nestle Plc. The study employed a descriptive survey design. The data was generated through the primary source. The questionnaire was administered to 167 randomly selected middle-level, senior and management staff of Nestle Plc. The analysis of data was carried out by the use of descriptive statistics and multiple regression analysis. The result revealed that the four components of performance management have a significant positive impact on the profitability of Nestle Plc. The study maintained that performance management enhances the profitability of Nestle Plc. To this end, the study suggested amongst others that relevant and key performance indices must be spelt out. It also has to be consistent with the job descriptions of staff and must show how these indices contribute towards achieving the overall firm objectives.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The concept of performance management has come into the limelight in recent years. Performance management is among the human resource management practices and an important aspect of management and organizational theory. The increasing interest of researchers and managers in performance management and its associated concepts such as performance appraisal, performance measurement, performance evaluation and performance assessment can be attributed to the fact that no concept in management theory seems so difficult to objectively and effectively implement and yet so important to employee development, organizational growth than evaluating and managing individual’s performance (Banjoko, 2005). A successful performance management system helps to evaluate and enhance individual and organizational performance against predetermined business strategies and objectives (Kumar & Nirmala, 2015). Performance management helps to manage organizational performance as well as employee performance and provides the platform for their integration.

Performance management involves many stages of assessment and is connected to the assessment of human resources as well as the performance of organizations. Performance management encompasses performance-based mission and goals, performance-based reward system, planning, performance appraisal, training and development and performance review (Bevan, 2005).

Performance management assists an organization to realize the effectiveness of the people who work in it. Performance management is beneficial to employees and organizations as it provides individual feedback and helps to collect data that can be used for human resource planning and program evaluation. In reality, the mention of performance management reflects negative perceptions from all parties involved. Despite the negative perception about performance management, the majority of organizations have continually engaged in performance management as a potent human resource strategy. Performance management has received attention in the world of management because the business environment is dynamic as a result of increased legislation, technological advancement, competition and extraneous factors (Price, 2011). Competitive pressures have compelled organizations to pay great attention to develop the quality of their workforce to ensure increased productivity and performance. Performance management has been identified as one of the human resource strategies to achieve improved productivity and performance (Ime & Umeh, 2015).

Boxall and Purcell (2003) submitted that performance management is the process of creating a work environment in which people are enabled to perform to the best of their abilities. It is the main channel through which managers communicate what is expected of employees and give feedback on how well they are achieving their job goals (Armstrong & Baron, 1998; Ime & Umeh, 2015). Performance management system ensures that an organization meets its obligations to stakeholders such as employees, suppliers, partners, the public, trade unions, trade associations, media and shareholders. Performance management harmonizes the elements that constitute the practice of people management and learning and development. Performance management brings about a common understanding of what is to be achieved and provides an approach to leading and developing people to ensure that stated goals are accomplished. Performance management is, therefore, an essential element of a manager’s responsibilities and supports a healthy relationship with individuals and groups of individuals.

1.2 Statement of Problem

Even though a performance management system is existent in Nestle Plc, the processes of implementation are not in tandem with the goals and objectives of the organization. Consequently, issues centring on lack of acceptability, lack of employee involvement in performance management process and outcome and breach of trust between management and employees have been identified as some of the weaknesses of the performance management system in Nestle Plc. Given these weaknesses, the essence of establishing a performance management system as a human resource strategy is defeated. The process of the performance management system in Nestle Plc needs to be improved to overcome the dynamic challenges faced by Nestle Plc.

It is not gainsaying to state that a significant proportion of workers in the organization lament about the unfairness of the performance management process. Some employees are unhappy about the way performance management is carried out without their involvement, other employees lament about some perceived deficiencies of the process to tap into relevant behaviours that employees see as contributing value to the organization. The majority of employees in Nestle Plc are not informed about the factors that constitute performance indicators, and the extent to which these performance parameters contribute to organizational performance. In addition, some managerial staff of the firm lacks adequate knowledge of performance review techniques that can be implemented to stimulate organizational performance.

Another major defect of the performance management system in Nestle Plc is the lack of transparency and poor feedback mechanism in the process. For instance, after an assessment is conducted, no feasible mechanism is created to address the discrepancy between expected and actual workplace behaviour. It can be concluded that the performance management system in Nestle Plc is quite ineffective, and can negatively influence the profitability of the organization if no urgent action is taken. The problem of the study is therefore to determine how performance management influences the profitability of Nestle Plc, Ogun State.

1.3 Objectives of the Study

The broad objective of the study is to examine the impact of performance management on the profitability of Nestle Plc, Ogun State. The specific objectives of the study are:

To investigate the impact of a goal-oriented system on the profitability of Nestle Plc, Ogun State.

To assess the impact of a performance-based reward system on the profitability of Nestle Plc, Ogun State.

To explore the impact of a performance-oriented training system on the profitability of Nestle Plc, Ogun State.

To examine the impact of performance appraisal on the profitability of Nestle Plc, Ogun State.

1.4 Research Questions

The study attempts to provide robust answers to the following research questions. The research questions include:

To what extent has a goal-oriented system influenced the profitability of Nestle Plc, Ogun State?

To what extent has the performance-based reward system influenced the profitability of Nestle Plc, Ogun State?

To what extent has a performance-oriented training system influenced the profitability of Nestle Plc, Ogun State?

To what extent has performance appraisal influenced the profitability of Nestle Plc, Ogun State?

1.5 Research Hypotheses

Four hypotheses are developed in the study. Each hypothesis addresses each of the specific objectives.

The hypotheses that guide the study are stated as:

H01: Goal-oriented system has no significant impact on the profitability of Nestle Plc, Ogun State.

H02: Performance-based reward system has no significant impact on the profitability of Nestle Plc, Ogun State.

H03: Performance-oriented training system has no significant impact on the profitability of Nestle Plc, Ogun State.

H04: Performance appraisal has no significant impact on the profitability of Nestle Plc, Ogun State.

1.6 Operationalization of Variables

As stated earlier, the main objective of the study is to examine the impact of performance management on the profitability of Nestle plc, Ogun State. The dependent variable is profitability while the independent variable is performance management. Performance management is proxied by four variables namely goal-oriented system, performance-based reward system, performance-oriented training system and performance appraisal.

The functional form of the model can be expressed as:

Y= f (X)

Where:

Y= Profitability

X= Performance management

The sub-variables of performance management are expressed as:

X= f(X1, X2, X3, X4)

X1= Goal-oriented system.

X2= Performance-based reward system

X3= Performance- oriented training system

X4= Performance appraisal.

Y= a0+ a1X1+ a2X2 + a3X3 + a4X4 + u

a0 = Constant term of the regression model, a1-4= coefficients of the sub-independent variables and u= error term.

1.7 Scope of the Study

The study examined the effect of performance management on the profitability of Nestle Plc, Ogun State. The population of the study consists of employees of Nestle Plc at middle-level, senior and management positions. Available statistics from the human resource department of the organization indicated that the total number of staff at middle-level, senior and management positions is 286. The Yamane sample size determination is applied to determine the appropriate sample for the given population. The sample of the study consists of 167 staff at middle-level, senior and management positions. The study prioritized four variables of performance management namely goal-oriented system, performance-based reward system, performance-oriented training system and performance appraisal.

1.8 Significance of the Study

The study is beneficial to the management of Nestle Plc, other firms operating in the food and beverage subsector in the manufacturing industry in Nigeria and the academic society.

The study educates the management of Nestle Plc on the rationale and importance of performance management. It enlightens the top management on the appropriate process and procedures to implement performance management that will not contradict the interest of various stakeholders. In addition, the study provides basic knowledge about some performance management review techniques that can be adopted to improve organizational profitability. The findings of the study may be generalized to other firms in the food and beverage subsector. It equally assists other firms on how to implement a performance management system for better employee and organizational performance. Also, the study is of utmost benefit to the academic community. Students, researchers and academics will find this study invaluable in their future research undertakings on performance management.

1.9 Definition of Operational Terms

Performance Management: This refers to the strategic and integrated approach to deliver sustained success to organizations by improving the performance of the people who work in them and by developing the capability of teams and individual contributions (Armstrong & Baron, 1998).

Profitability: This refers to the ability of a firm to generate profit.

Goal-oriented System: This refers to the ability of a firm to achieve its stated goals and objectives.

Performance Appraisal: This refers to the process by which organizations evaluate the performance of their staff.

Performance-based Reward System: This refers to the quality of reward packages of an organization. A good performance-based reward system ensures that pay is commensurate with work.

Performance-oriented Training System: This refers to the planned effort to facilitate the learning of job-related knowledge, skills and behaviour by employees (Kumar & Nirmala, 2015).

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