Business Performance: Foundations of the Concept

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Numerous studies have demonstrated the strategic role of skills in achieving top Business performance. For example, the research of Reed & De Fillipi (1990), Prahalad & Hamel (1990), and Ulrich & Lake (1990) have respectively shown that distinctive and specific skills increase competitive advantage (Lado & Wilson, 1994).

These skills can come from different resources: physical capital resources (factories, equipment, finances, technologies), human capital resources (skills, intelligence, employee learning abilities), and organizational capital resources (structure, planning, control, coordination, management systems).

Barney also highlights three (03) types of resources that can provide companies with a competitive advantage: human resources: training, experience, intelligence of staff members; physical resources: technology, finance, raw materials; and organizational/informational resources: formal command structure, etc.

Physical CapitalFinancial Resources
Technology Material
Devices, Equipment
Geographic Location
Access to Raw Materials
Human CapitalSkills, Knowledge
Learning Intelligence
Experience, Judgment
Personal Relationships (Managers & Workers)
Organizational CapitalProcesses, Practices
Formal Reporting Structure Formal & Informal Planning Control & Coordination Systems Informal Relationships (Internal & External)
Company’s ability to Anticipate & Manage Events
Table 1: Classification of Resources According to Barney. Source: Barney, 1991

These resources constitute the skills for the company, but the implementation of the strategic management of these skills faces a fundamental difference in the conception of skill in strategy and HRM. It also faces the difficulty of determining how and to what extent the skill can contribute to the company’s performance.

Indeed, strategy is part of a global approach to the company and aims to determine the internal resources that will allow it to ensure its performance.

On the contrary, HRM strives to imagine approaches allowing it to precisely identify and develop the individual skills necessary for employment.

Thus, the work of Barney (1991; 2003) assumes that strategic resources are those capable of providing a sustainable competitive advantage. Indeed, these resources must simultaneously fulfill the following conditions:

  • Value: A resource has value when it allows the company to be effective and efficient. The value of a resource also allows the company to exploit its opportunities and limit threats in its environment.
  • Rarity: A rare resource is a resource possessed by a limited number of competitors. In this sense, it reduces the number of potential competitors for the company.
  • Inimitability: A resource must be difficult to imitate in order to ensure its sustainability.
  • Non-substitutability: There must be no resource that has equivalent value for the competition.

Brief History and Definitions of Business performance

Brief History of Performance

Business performance is a central notion in management sciences. Since the 1980s, many researchers have focused on defining it, and more recently this notion has been mobilized in the managerial literature to evaluate the implementation by the company of announced sustainable development strategies.

The origin of the word “performance” dates back to the middle of the 19th century in the French language. At that time, it designated both the results obtained by a racehorse and the success achieved in a race.

Then, it designated the results and the sporting feat of an athlete. Its meaning evolved during the 20th century. It indicated in figures the possibilities of a machine and by extension designated an exceptional yield.

In the 21st century, performance is not an option. It is a pressing requirement if one wishes to raise the level of competitiveness of the company.

In the era of globalization and a borderless economy, the quality of employees’ work and their performance need to be considerably improved. We also quote G. Raad, who presents a positivist approach to performance. This is defined as the positive result of an action.

Similarly, the sources of organizational performance are explained by the economic approach according to which internal factors relating to good HRM have a very marginal contribution to the performance of the company and by the organizational approach according to which organizational performance is a function of a set of internal factors: individual, collective, and organizational.

It is supported, at the beginning of the 1980s, by the theory of internal resources according to which the performance differences between companies in the same sector of activity come from the exploitation of internal resources rather than the adaptation of the organization to the market and the environment.

Definition of Performance

The notion of performance is distinctly used. It can firstly mean the quantified result, the one generally obtained by an athlete, a racehorse, at each of their exhibitions. For a company, it is equivalent in this sense to a periodic measurement (annual, quarterly or monthly rhythm).

It can also designate the optimal result which is equivalent in this sense to a potential or a maximum capacity (e) if the objective is reached, therefore the performance is judged exceptional, satisfactory or disappointing according to the objectives that one wished to reach.

While “steering performance” means: measuring the evolution of an indicator over time (quantified result) than measuring the deviation of an indicator from an optimal value (potential, capacity).

However, “improving performance” therefore means increasing the value of an indicator (quantified result) than increasing the maximum possible value (potential, capacity).

“Performance refers to the achievement of organizational objectives, regardless of the nature and variety of these objectives, performance is multidimensional in the image of organizational goals; it is subjective and depends on the benchmarks chosen”. This generic definition of performance facilitates its operationalization in an evaluation process (Gilbert, Charpentier, date).

Thus, we can define performance in the company as being anything that only contributes to improving the value-cost pair, that is to say, to improving the net creation of value.

On the other hand, action that contributes to decreasing the cost or increasing the value in isolation is not necessarily a performance unless it improves the value/cost ratio or the value-cost balance. However, the value-cost pair only appears when products and services are offered for sale.

So the performance of companies in an industrial or commercial society is knowing how to produce and knowing how to sell better and faster than its competitors.

Today, most businesses know how to produce and sell. This is the reason for their existence. If they did not have this capacity, they would have already disappeared. But the fact is, their level of performance is becoming more and more homogeneous. Growing, taking market share over time becomes easier by absorbing your competitors.

Company performance is not the sum of the performances of the units; it is more than that, a common momentum towards a common goal, a team result.

In the classic approach, the reasoning is “vertical”, by service: what to do to increase the performance of my service? What are our problems? While in the process approach, the reasoning is “horizontal”: does this service fulfill its mission for its customers? what do customers think? What is a priority for them?

To find out, you have to measure what’s going on at the interface between units (dialogue).

The Interpretation of Performance Through Efficiency and Effectiveness

The aim of the company is first and foremost to achieve a maximum profile, so it undoubtedly combines these factors of production or it better exploits resources to be efficient. Performance research refers to the device of:

  • Management by objectives set up to improve efficiency and effectiveness;
  • Measurement of results achieved by means of quantified indicators; that is to say performance = result.

Better performance of services involves improving the quality of staff skills management and recognizing both the results they obtain and the efforts they make.

Effectiveness determines the ability of an entity (agent, system) to achieve the set objective, with the resources allocated. It can be defined as a ratio between the results achieved by a system and the objectives targeted, so the closer the results are to the objectives, the more effective the system will be (efficiency = results achieved / objectives targeted).

In other words, effectiveness can mean achieving the initially set objective. Three conditions are necessary for effectiveness: good objectives, adequate resources and indicators to measure results.

Efficiency expresses the relationship between the objectives pursued and the means used to achieve the objectives (number of working hours, cost of intermediate consumption, etc.). Certain economic indicators (average cost) and technical indicators (factor productivity) can be used to measure efficiency.

In other words, comparing the results obtained to the means implemented to achieve the objective.

The company is therefore efficient if it is simultaneously effective and efficient.

Employee efficiency will increasingly impact businesses, and to be effective, an HRM system must be performance-driven.

To increase productivity, it is necessary to rely on a system that tends to improve performance and make its control and evaluation effective, and such a system benefits from being at the heart of the efforts made by a company with regard to HR if this company wants to remain competitive in the long term.

Performance is a balance between effectiveness, efficiency, and results.

This can be summarized in the performance pyramid (PPS) which is a complex system of different performance variables.

It was developed by Lynch and Cross (1995) who propose that performance measurement in an organization be deployed according to the pyramid model (figure 2):

At the top, we find the vision which is deployed through financial objectives and market positioning, for the definition of relevant objectives and measures for each level of the company.

The four levels of the PPS embody the company’s vision, the responsibility of business units, the competitive dimensions for business operating systems, and the specific operational criteria.

In general, we can define two main categories of objectives that the company. These are, on the one hand, financial objectives such as maximizing cash flow, return on investment or economic value added and, on the other hand, market performance objectives: for example, the competitive position of the company or the presence of the company in future markets.

Thus, we can know if the performance has been good or bad but we cannot know why.

In the center, we find the performance measures that govern the basic processes.

Three main aspects of performance measurement are necessary: first, customer satisfaction must be measured; second, there are indicators that monitor the performance of the organization in terms of flexibility; the third and last category of indicators is used to mark the performance of the company in relation to the achievement of productivity objectives.

In addition, the different levels of the PPS are illustrated below in figure 1.

Business Performance: Foundations of the Concept
Figure 1: The Performance Pyramid.

The Performance Equation

Studies on the subject (Mc Cloy, Campbell and Cuedeck, 1994) reveal that employee performance is essentially based on three factors:

S = qualification, ability to perform the tasks and missions entrusted to them;

K = knowledge of facts, rules, principles and procedures;

M = motivation.

To succeed, a company must have efficient employees. It is necessary to recruit employees who have the required qualifications and skills (factor S), and to strive to strengthen their knowledge (factor K) and to develop their motivation (factor M) so that they participate, through their behavior, in the performance effort, both individually and collectively.

This implies not only a judicious HR strategy and practices based on an employee evaluation that takes into consideration, beyond individual contributions, that is to say those attached to the task, but the interactions between employees within work teams, and this, to resume performance logic (MBO49).

What is essential in this context is the efficiency of employees, which is obtained by granting them autonomy and stimulating individual initiatives.

Management By Objectives (MBO) assesses the individual contribution to obtaining results. It makes the individual responsible for an objective, leaving them with full initiative of the specific means they deem appropriate to achieve it.

Also, performance is a positive result obtained by an optimal use of the resources implemented. It therefore requires at least that the following be ensured: the quality of the services offered; the efficiency of the work; the productivity of resources.

Conclusion

In short, performance is determined by the optimization and competitiveness of the results. It is the result of the combination of competence and efficiency; and therefore maintaining the team at a good level of performance is a major objective for the team leader. That is, competence without efficiency is insufficient, and meeting the conditions for efficiency without competence is ineffective.

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