Organizations derive competitive advantage by outperforming rivals in the execution of activities required to ensure optimum operational effectiveness in providing products and services to customers (Porter, 1996). Operational effectiveness depends largely on the extent to which the organization’s performance management system (PM) is capable of developing the knowledge, skills, and abilities of its people (Allan, 1994). Thus, knowledge of developing and implementing an effective PM system plays an essential role in achieving competitive advantage. Using the table provided in Case Study 1-1 (Aguinis, 2009, pp. 24-25), this paper analyzes the content and efficacy of the PM system being used by Aeternus Life Insurance Corporation (renamed to comply with confidentiality agreements) to develop its people. An effective analysis of a PM system begins by comparing the characteristics of the actual system with those of an ideal system, then assessing the capability of the system for identifying, measuring, developing, and aligning performance with organizational goals (Aguinis, 2009).
The Value of an Effective PM System
In general, an effective PM system contributes to the achievement of organizational strategy, administration of employee transactions, communication of organizational performance expectations, human resource planning, and employee development (Aguinis, 2009). In addition to elements corresponding to the conduct of performance appraisals, the ideal PM system addresses several key characteristics that contribute to the alignment of performance with strategic objectives. Overall, an effective PM system represents a “. . . systematic, data-oriented approach to managing people at work that relies on positive reinforcement as the major way to maximizing performance (Daniels, 1989, p. 4). Such a system, when properly designed and implemented, provides an organization with a valuable tool for achieving competitive advantage.
To assess the capability of the Aeternus PM system to aid in creating competitive advantage, this analysis necessarily takes into account the volatile nature of the dynamically competitive internal and external environments in which Aeternus operates. Most important, the constant restructuring of the organization through mergers, divestitures, reorganization, downsizing, and off shoring, creates ongoing instability and inconsistency in the performance management linchpins of operational strategy, culture, job designs, job descriptions, and performance standards. Consequently, Aeternus struggles to maintain relative consistency within and across the organization in the administration of its PM system. Thus, as the foregoing discussion indicates, the efficacy of the Aeternus PM system appears to be significantly compromised in terms of its capability for developing the organization’s employees.
Reality Check for the Aeternus PM System
Given this context, of the 14 key characteristics thought to...