Developing a strategy-oriented performance management system for a German SME : managing by objectives in a balanced scorecard framework

Abstract

The technology-focused SME Saier has established little formal management processes so far, resulting in a lack of strategic direction, unclear priorities and insufficient performance management practices. This thesis aims on developing a performance management system by introducing processes and tools to plan, measure and develop the performance of the organization and individuals. After establishing a common strategic framework, conducting strategic analyses and identifying strategic options, Saier’s detailed strategy has been translated in an objective system consisting of a strategy map and a four-dimensional Balanced Scorecard (BSC) that specifies performance measures, targets and initiatives. The main contribution is a practical guide to align organizational and employee performance: Firstly, this requires clear communication of the strategic objective system. Secondly, a proposal for managing individual performance by integrating an annual Management by Objectives (MBO) cycle into the BSC framework is provided in order to realize the strategic priorities on the operational level: Individual objective agreements clarify the expected performance contribution. Hereby, the unambiguous definition of performance indicators and evaluation criteria enables employee self-control, feedback and coaching during the year and provides the basis for year-end performance reviews. Thirdly, a performance-related reward system is suggested to support the creation of common priorities and enhance Saier’s employer attractiveness for high performers. The effectiveness of the proposed PMS depends critically on its regular review and actualization.