THE IMPACT OF PERFORMANCE MANAGEMENT ON THE PROFITABILITY OF MANUFACTURING FIRMS IN NIGERIA (A CASE STUDY OF NESTLE PLC)
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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 the descriptive survey design. The data was generated through primary
source. 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 managements have
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 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). 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 stage of assessment, and is connected to the
assessment of human resources as well as 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
which can be used for human resource planning and program evaluation. In
reality, the mention of performance management reflects negative perception
from all parties involved. Inspite of the negative perception about performance
management, 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 due to the fact that 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 (Armstron & Baron, 1998; Ime & Umeh, 2015). Performance
management system ensures that an organization meets its obligations to
stakeholders such as employees, suppliers, partners, 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 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 manager’s responsibilities and supports healthy
relationship with individuals and group of individuals.
1.2 Statement of Problem
Even though
performance management system is existent in Nestle Plc, the processes of
implement are not in tandem with the goals and objectives of the organization.
Consequently, issues centering on lack of acceptability, lack of employee
involvement in performance management process and outcome and breach trust
between management and employees have been identified as some of the weakness
of 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 performance management system in Nestle
Plc needs to be improved to overcome the dynamic challenges faced by Nestle
Plc.
It is no 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 behaviors that employees see as contributing value to the
organization. Majority of employees in Nestle Plc are not inform 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 performance management system in Nestle Plc is 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 behavior. 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 goal-oriented
system on the profitability of Nestle Plc, Ogun State.
To assess the impact of performance-based
reward system on the profitability of Nestle Plc, Ogun State.
To explore the impact of
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 goal-oriented system
influenced the profitability of Nestle Plc, Ogun State?
To what extent has performance-based reward
system influenced the profitability of Nestle Plc, Ogun State?
To what extent has 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 on 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 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 performance management
system for better employee and organizational performance. Also, the study is
of utmost benefit to the academic community. Students, researchers and academic
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 organization 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
commensurate with work.
Performance-oriented
Training System: This refers to the planned effort to facilitate the learning
of job-related knowledge, skills and behavior by employees (Kumar &
Nirmala, 2015).
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