Optimising Performance Management in VUCA Period: A Literature Review Study

Abstract

Purpose: The purpose of this paper is to explore literature on performance management in order to get insight into how the concept could be optimised during VUCA times for better performance of organisations. Research design, data and methodology: The study adopted a desktop research methodology. Extensive literature review has been conducted from various sources such as journals, research papers, organizational reports, government reports, media reports and articles available on web and effort has been made to assimilate the knowledge body on the topic in the current paper. Literature that enhances understanding on managing performance during VUCA times was reviewed. Results: Solutions to optimise performance management in organisations during VUCA times were proffered and these include innovative planning, innovative monitoring, innovative training and development, innovative rating and innovative rewarding. Conclusions: The study proves that, performance management process should not be done the ordinary way during VUCA times, but innovatively. In this regard innovative performance management can optimise performance of organisations during VUCA period. The study recommends that a further quantitative study be done to test the suitability of each of the proposed ways of innovatively practicing each element of the performance management process across different industries, countries or sector.

1. Introduction

The current global business environment has faced many challenges including globalisation and economic uncertainty that are overwhelming to learn and implement (Van der Walt, 2018). This current operating business environment is described as VUCA and it has been compelling both private and public sector organisations to adapt to the fast-changing circumstances. Korsakova (2020) propounded that in this environment, organisations and managers face uncertainties and challenges in driving their employees to achieve organisational objectives. VUCA has become a management challenge for the 21st century, therefore requiring organisations to seek deeper understanding on how to manage it. The side effects caused by VUCA negatively affect social change efforts, lending credence to the need to broaden leader understanding on ways to manage VUCA (Rimita, 2019). Van de Walt (2018) concluded that sustaining a competitive advantage and high performance in an increasingly turbulent business environment is crucial. Hamid (2019) has opined that the promotion of diversity, the recruitment and selection of talents oriented toward innovation, performance management, training and development are some of the useful HR strategies to build competitive advantage in a VUCA environment. This study sought to understand and document performance management as a strategy to be adopted by organisations in a VUCA environment. It seeks to strengthen the practical knowledge of efficiently managing VUCA, from a performance management perspective. A deeper understanding of managing performance in a VUCA environment is critical to organizational success.

2. Literature Review

2.1. Turbulence / VUCA Environment

Today’s organisations face dynamic changes characterized by frequent speed changes and these produce volatile, uncertain, complex and ambiguous (VUCA) operating environments (Mathhysen & Harris, 2018). Boyne and Meier (2009) posit that turbulence is one of the elements of the generic models of the task environment that constrains organisational performance. The term turbulence describes a natural phenomenon that is in a state of flow or violent momentum, often a product or outcome of external forces that are uncontrollable, unpredictable and uncertain which unsettle the normal flow of things (Ostrom et al., 2021).

Turbulent environments are depicted as fast-changing, disruptive and demand novel approaches to strategy that involve less planning and control, flexibility, learning and improvisation (Bettis & Hitt, 1995; Brown & Eisenhardt, 1995; Vera & Crossan, 2005). According to Deaton (2018), VUCA refers to an environment that produce organisational challenges due to dramatic and conflicting changes. Bernstein (2014) propounds that VUCA is not a set of circumstances that can be studied and responded to within a set timeframe, rather VUCA represents a set of timeless circumstances, occurring in a constantly changing environment.

Volatile changes are frequent and cause instability; uncertain changes are those of which leaders lack full knowledge; complex changes are confounding due to the interconnectedness of processes and information; while ambiguous changes are those that lack precedence (Bennett & Lemoine, 2014). The term VUCA can therefore be used interchangeably with turbulence. The following table explains the concepts of the VUCA.

Table 1: Defining Components of VUCA

Source: Hamid and Sharma (2020)

2.2. Theories Underpinning the Study

The two main theories that this study adopted to explain performance management in a VUCA environment are the Chaos theory and the Complexity theory.

2.2.1. Chaos Theory

According to Lorenz (1963), Chaos theory refers to a systems behavior that is irregular, unpredictable and complex, yet not random as there is hidden order in the chaos. Narh et al. (2016) postulate that this chaos causes wicked problems in organizational leadership (Raisio & Lundström, 2015). There are three important factors contributed by the chaos theory and this includes evidence that systems can be unpredictable, small perturbations in the conditions can have amplified effects on the systems output (butterfly effect), and order exists in the seeming randomness (Rimita, 2020). When operating in chaos, even the smallest change can have tumultuous effects, as this system is highly sensitive to changes. This often results in that there is a missing link between cause and effect, which is troublesome for organisations that are used to plan and control their operations and strategies. To predict long-term outcomes is almost impossible and instead, only the short-run outcomes can be predicted. All the above leads to that the future are not foreseeable and therefore organisations are confronted with a high rate of unpredictability. The chaos theory helps understand research studies where disorder and turbulence define the phenomenon under study. This study focuses on managing performance in a VUCA environment hence the use of chaos theory to structure arguments relating to corporates experiencing turbulence and complexity. Chaos theory, therefore, helps to frame this study’s foundational underpinning of the disorder brought on by VUCA to organizations and structures the research strategies to manage performance in such an environment.

2.2.2. The Complexity Theory

When translating chaos theory into business economics, its spin-off, the complexity theory is often used. This theory explains organisations as complex adapting systems and implies that using neither too many restrictions nor total chaos, but rather balancing on the edge of chaos is the best control for these systems (Brown & Eisenhardt, 1998). The organisation is built up by people, who do not act in the same way in every situation, but rather adapt to the present circumstances. The complexity theory demands individuals within the system figure out how to change on their own and by doing so they find order in chaos (Brown & Eisenhardt, 1998). With the complexity theory as connection between change, chaos, and the organisation, it helps to understand how an organisation must change to be able to deal with its turbulent environment.

2.3. Performance Management Concept

According to Rehman et al. (2021), a rapidly changing business environment that organisations are faced with demand them to bring performance management to the centre stage. Singh and Sorum (2018) found that performance management, talent acquisition, diversity, and digitalization are some of the HRM strategies that increase a firm’s competitive advantage whereas The studies (Delery & Roumpi, 2017; Latukha et al., 2019) found training, development and performance management practices as most important HR strategies. Due to the volatility, uncertainty, complexity and ambiguity as a result of changes occurring in today ‘s organizations, managing performance has become increasingly important in work environments.

According to Rehman et al. (2021), performance management is a cycle that includes multiple aggregate exercises that add to the feasible management of each engaged employee and team to achieve a competent, significant level of performance. Armstrong (2019), defined performance management as a systematic procedure to enhance the performance of the organisation through individual or team performance. Performance management goes beyond the ratings and formats that have been the focus of so much research and practices. Instead, performance management is a means to execute organizational strategy by signaling to employees what is really important in the organization, fixing accountability for behavior and results, and helping to improve performance. Today’s organisations are challenged to establish an effective performance management system that eliminates the negative consequences and generates the positive ones for individual and organizational performance.

2.4. Defining Employee Performance

Defining performance is considered to be a critical part of performance management and thus a number of performance evaluation research studies have focused on defining performance (Arvey & Murphy, 1998). Therefore, it is necessary to develop a clear understanding of exactly what is meant by performance. Performance is usually depicted as desired results, behaviors, attitudes, or traits. Some argue that performance refers to the final result as what gets accomplished. Others argue that performance has to do with the behaviors people exhibit in the course of producing results and with their basic competence or ability to perform various aspects of the job. Bernardin and Beatty (1984) define performance as the record of outcomes produced on a specified job function, activity, or behaviours during a specified time period. In fact, human performance is a complex phenomenon incorporating process as well as outcome aspects (Kozlowski et al., 2001). In this paper performance is regarded as any positive outcome to an organisation, that supports its objectives.

3. Research Methods and Materials

This paper is exploratory in nature and qualitative data has been collected from various primary and secondary sources. The databases searched are Business Source Premier, PsycINFO, and Proquest, which are used to find out information regarding performance management theories and practices in the fields of HRM, Industrial and Organizational Psychology, and HRD. Extensive literature review has been conducted from various sources such as research papers, dissertations, organizational reports, government reports, media reports and articles available on web. The literature search strategy focused on VUCA, performance management in VUCA, chaos theory and business success in VUCA. Exhaustive literature review has been done by researchers to define and understand various aspects of VUCA environment. The key search terms included VUCA, volatility, uncertainty, complexity, ambiguity, turbulence, complex business environments, chaos, chaos theory, organisations and performance management. Chaos theory helps explain the turbulence and paradox in VUCA environments while complexity leadership was used to examine performance management under disruption.

4. Results and Discussion

Several global studies have been conducted in relation to optimising performance management in organisations in times of VUCA. The literature pertaining to how to enhancing effectiveness of managing performance of employees and organisations during turbulent times is key to this study. Therefore, in this study literature related to these concepts was reviewed above. The implementation of a generic performance management process on its own will not achieve the desired results of organisational performance in today’s turbulent business environment, hence the need to establish innovative ways of managing performance. There is paucity of research that has addressed this phenomenon in academic research and particularly in the Zimbabwean context, hence the following literature explains the concept of innovative performance management as a solution to address the negative pressures of the VUCA environment.

4.1. Optimising Performance Management in a VUCA Environment

Performance management is an essential driving force for organisational success. Today’s organisations, however, are managing performance, amidst VUCA environments. Faced with this turbulence in the business environment, there is a need to come up with innovative ways of managing performance instead of continuing to depend on ordinary ways of managing performance. Such information is invaluable in easing the chaotic pressures presented by a VUCA environment. In essence, the study proposes an innovative model of managing performance, suitable for a turbulent business environment. Not much is known on how innovative performance management can drive organisational performance in a turbulent environment, which is the major gap to be filled by this study.

4.2. Innovative Planning

According to Armstrong (2019), planning is a process of setting goals and performance expectations for individuals and groups towards the accomplishment of organisational goals. In this modern VUCA world, adaptive planning, and innovative planning are also key constructs of innovative planning (Zinyama et al., 2015). The following are the key points to note when planning in a VUCA environment. According to (Poister et al., 2013), planning in a VUCA environment is expected to be different, being characterised by a rational approach to formulate strategy by defining organizational mission and vision, conducting an internal and external analysis, devising plans for future action, and using objective information to revise existing plans. When planning, there is also a need to focus over a shorter duration, such as monthly or quarterly periods in order to make meaningful progress (Pukalos et al., 2015).

Planning should not be the core business of top management only (Govender & Bussin 2020). The involvement of employees in the planning process will assist them in understanding the organisation’s goals, what needs to be done, the reason for doing it and how best it should be done (Locke & Latham 1990). According to Rogers and Hunter (1991), in order to enhance performance, planning should involve the participation of employees in setting goals. Involving employees in planning motivates and encourages them to be accountable as individuals work for responsibilities and assignments. It is also important to ensure that work is planned out in advance for effective results. Pukalos et al. (2015) made the following recommendations on setting goals innovatively and differently as due to the rapid changes of today’s environment. Firstly, goals should be brief and include only the most important results the employee is expected to achieve.

Secondly, base the timeframe for these goals on what is relevant to the job. According to Aguinis (2020), there should be a strategic congruence when goals are planned in order to enhance their effectiveness. This implies that the individual goals should be aligned with departmental and organisational goals. According to Pukalos (2004), when setting employee expectations during the planning phase, it is important to include both the performance expectations and the behaviours that they are expected to exhibit. Behaviours reflect how an employee goes about getting the job done, how the individual communicates, supports the team, advises others and so forth.

According to Pukalos et al. (2015), innovatively setting performance goals typically entails linking up goals instead of the traditional way of cascading goals. Instead of cascading down, each unit and employee set their own goals by “linking up” to the organization’s objectives. This avoids having to wait for each level above to complete its cascade, and each team and individual can set goals simultaneously. This approach is not only much faster than traditional cascades, but it also allows for a more direct line of sight between an individual’s goals and the organization’s objectives.

It is also important to note that there is a need to understand the organisation’s strategic context in order to maximise the value of the performance management system. (Rhee & Mehra, 2006). Aguinis (2020) also agree with the above point since they had put forward that lack of connectivity between performance management systems and organisational strategy was found to be one of the main reasons for failures.

From the synthesis of the literature, it is therefore important to note that the foundation of an effective performance management system is an alignment of what needs to be done and how it should be done. Goal setting should also strengthen the process of cascading by breaking down organisational goals into departmental and individual goals. Another key point to note from the foregoing literature is that the employee’s performance scorecards must be aligned with the divisional and organisational objectives at this stage. Snell and Bohlander (2013) put forward that employees need to know what the organisation is trying to achieve and what is expected from employees for effective performance management.

4.3. Innovative Monitoring

The monitoring stage is one of the crucial stages of the performance management process and the intent of this stage is to provide feedback in between goal setting and performance evaluation (Pukalos et al., 2019). According to Govender and Bussin (2020), effective monitoring involves maintaining a positive approach to work, routinely requesting and providing feedback from and to supervisors respectively, revising and updating initial objectives, and career development suggestion. Fletcher (2014) also propounded that enhancing communication within an organisation is essential for facilitating effective monitoring. He propounded that employees need to be consistently reminded of their objectives to ensure that they do not deviate from set objectives. Ashford and Cummings (2001) are also of the same opinion that there is need for continuous role clarification in a bid to improve self-efficacy.

Wexley (1979) suggested that for monitoring to work well, it must be a joint responsibility and two-way communication process of employees and managers. According to the Mackie (2008), effective monitoring requires that supervisors give continuous recognition to employees in order to reinforce and encourage good performance. Recognition can take the form of verbal praise, gifts and taking them out to lunch so that they will be motivated to keep abreast of performance expectations. Hartle (1995) also suggests that for monitoring to be effective, supervisors should not hesitate to provide counselling and advice where appropriate to help improve performance. Parsloe and Leedham (2009) argued that the main purpose of monitoring is to realise individual personal ambitions and potential or improve skills. The manager’s role is to be a coach, engage in honest face to face conversations and provide timeous information for the employee, so that they can monitor their own performance and enhance the probability of success. To be effective, monitoring should be practiced whenever a supervisor needs to focus attention on any specific aspect of an employee’s performance (Pukalos 2004).

According to Pukalos (2004), for the feedback process to be effective, there is a need for a two-way communication process between employees and managers. It is paramount that managers take note of the tips of coaching during the monitoring phase as mentioned by Parsloe and Leedham (2009); agreement on what you are talking about, ensure regular meetings, stick to the basic process and develop the ‘ask, not tell’ habit. In order to have effective feedback in organisations, there are some essential guidelines that need to be followed. According to Pukalos et al. (2019), this include providing immediate positive and developmental feedback in a private location. This process aids in reminding and reinforcing what is expected from employees.

4.4. Innovative Training & Development

Effective organizational learning has been considered essential to successfully deal with environmental turbulence (Edwards, 2009; Hanvanich et al., 2006; Lichtenthaler, 2009; Ramirez, 1983; Virany et al., 1992). According to Attner and Plunkett (1983), training is defined as a learning process that involves the acquisitions of skills, concepts, rules or attitudes to enhance employee performance. It is therefore a means of preventing performance problems from developing. Development is a process of increasing the capacity to perform through giving assignments that introduce higher levels of responsibility and that promote career advancement (Rodgers & Hunter 1991).

In order for training and development to be effective, Pukalos (2004) suggested that managers need to assess and follow up training and development needs to assist employees in achieving their objectives. This ensures that training programmes are related to the requirements of the job for which they are intended. David and Rogers (2002) stress that, in order to modify employee behaviour, there is need to develop their confidence and competence to enable them to fulfil their roles. According to Pukalos (2004), talent management should also be emphasized to promote alignment, nurturing and retaining of talent. Aguinis (2020), also noted that other emerging concepts of innovative training and developing employees include training in technology as well as workshops on stress management.

4.5 Innovative Performance Appraisal

According to Chakravarthy (1997), environmental turbulence is characterized by high dynamism, complexity, and uncertainty. In this regard it becomes important that organisations consider individual performance indicators that imply change, learning, and risk-taking attitudes. Facing environmental turbulence requires individual drive for change like tackling dynamism, tackling complexity, and tackling uncertainty. Therefore, formal reward systems should consider that as part of the requirements described in job descriptions (Williams & Anderson,1991). According to Hussain and Hoque (2002), performance measurement is expected to help organizations in unstable environments as it provides the information needed to make decisions, negotiate with stakeholders, and take actions. This helps ease pressure on managers during times of crisis, allowing them to work in the direction of organizational objectives. Performance measurement can help improve performance in a turbulent environment only if the performance information is used to take advantage of the rapidly changing environment. Managers can also use information to detect errors and shortcomings in the system, divert resources toward the areas in need, or defend existing services. Performance information helps managers make decisions that are required to improve organizational culture, systems and processes, goals setting, allocation and prioritizing resources, and strategies to meet goals (Amaratunga & Baldry, 2002). Aguinis (2019) argued that usually one formal evaluation per year is not sufficient and he proposed quarterly reviews. Pukalos and Hanson (2016) suggested the following key evaluation strategies that can be used in today’s turbulent business environment. These include eliminating written self-assessments, streamlining or eliminating ratings, reducing documentation requirements and changing annual review to an annual career conversation.

4.6. Innovative Rewarding

San et al. (2012) point out that in today’s world, rewards play a critical role for the success and failure of the organisation. Aguinis (2020) defines a reward as an employee’s compensation which includes benefits and cash. Intangible returns, which include status and recognition, challenging work, employment security and learning opportunities, are also regarded as rewards. According to McAffee and Champagne (1993), rewards represent important mechanisms by which employee behaviour can be aligned with the interests of the organisation. Rewarding means individually recognising employees or recognising them as members of a group for their performance (De Waal 2003). Rewards play a crucial role in motivating employee performance as well as encouraging their retention. According to Merchant et al. (2012)’s framework, if a team exceeds expectations, reward them and celebrate often. In an effective organization, rewards are used well and good performance should be recognised (US Office of Personnel management, 2009). Managers of organisations should note that people are different and are driven by different rewards mechanisms. Some are motivated by intrinsic rewards and others are motivated by extrinsic rewards. Intrinsic rewards according to Attner and Attner (1993) refers to rewards that are innate or internal to the individual for example feelings of accomplishment, recognition, advancement and achievement, whereas extrinsic results are external and these include pay and pay rises, vacation time, promotions, bonuses and vacation time.

According to Aguinis (2020), an effective performance management system should have an acceptable and fair reward system. This implies that all participants should perceive the rewards as fair relative to the level of effort they have applied. Knowing employees ‘perceptions about the rewards can be made possible by asking them about distributive justice on how they perceive, for instance the rewards received relative to evaluation received. Although rewards are a major motivator to persistent good performance, it is very vital to analyse what is valued by employees and reward them accordingly (Aguinis 2020) This can be enabled by asking employees to complete questionnaires on what rewards they value most so that when they exceed performance expectations, the organisation will reward them accordingly.

Therefore, the common lesson learned in the literature is that organisations need to sit down and assess each and every need of the employee and the extent to which that need motivates him or her. This is important in that what is motivating and valuable to one person may be of no value to someone else, for example an employee covered on a spouse’s insurance might have no interest in a company’s insurance policy. Therefore, there is great need to carefully examine what rewards motivate employees through conducting research and then reward them accordingly. Another important factor to note is that desire for a certain reward changes overtime during the employee’s life and career, hence the need to adjust rewards in relation to the changing trends.

Compensation and incentive programs are also said to have a major influence on the employees’ conceptions of their employment relationship. These programs consist of financial and non-financial elements such as on-site day care, employee assistance programs, bonuses, retirement plans, health insurance and company share, travel discounts and company picnics (Bedarkar & Pandita, 2014). Other psychological incentives include rewarding superior performance of an employee in front of an audience; mentoring, assuring job security; granting promotions and increasing insurance cover (Mangundjaya, 2012). It is therefore important for organisations to have a proper compensation management system so that the employees are motivated to work in the organisation. As elucidated by Ortiz et al. (2018), compensation and reward programs immensely contribute to organisational effectiveness through influencing both individual and group behaviors.

Figure 1 below shows an innovative performance management framework for fostering organisational performance in a VUCA environment.

Figure 1: Innovative Performance Management Framework for a VUCA Environment.

5. Conclusions

The business environment is rapidly changing, calling for organisations to device strategies that match such changes. Contemporary organisations operate in an environment which is characterised by dynamism, uncertainty and turbulence which greatly affects business activities. The VUCA world puts a lot of negative pressure on the performance of the organization. It therefore completely alters the way an organization reacts to changes in the external environment. Therefore, optimizing performance management mechanisms can act as a significant tool improving the adverse effects of a VUCA environment. This implies that innovative performance management can create stable and positive employee engagement which also aid in organisational success. This study concludes that optimising performance management can be used as a shield to minimize the effect of VUCA on the organization. The study concludes that innovative planning, innovative monitoring, innovative training and development, innovative performance appraisal and innovative rewarding as key strategies to be adopted to optimise performance management in VUCA times. The study recommends that a further quantitative study be done to test the suitability of each of the proposed ways of innovatively practicing each element of the performance management process across different industries, countries or sector.