Implementing lean management with performance management systems

By Abhinash Jena on May 7, 2021

The main objective of any business is to generate profits by satisfying customer demand, supplying high-quality products on time. The aim is also to sell at competitive prices at the lowest cost and generating the shortest lead time. The global economic crisis in 2008 led to the introduction of various concepts including six sigma, theory of constraints, TQM and lean management. Lean management is a methodology that provides a unique way of organizing human activities to increase the benefits and eliminate waste. 

Implementing lean management

Lean management technuque was first implemented in the Toyota Production System (TPS) (Bhasin, 2008). It focuses on improving operational process speed as well as quality by reducing the waste generated. There are various principles in the process of lean management including defining value, mapping value stream, creating flow, establishing pull system and pursuing perfection.

Lean management can be described as a series of practices that helps detect problems in operations. It aligns resources efficiently. It also helps to design methods to improve employee performance while meeting organisational goals. In today’s world, it is imperative for managers to know the principles of lean management in order to guide their subordinates towards the improvement of workflow and productivity. This concept was initially employed in the automotive industry but it has now been accepted into all the other industries as well, as it helps in saving cost and time (Dekier, 2012). The central concept is to produce the most profitable items and the quantity produced is only what is needed.

Lean management to measure the performance of the employees

Performance measurement can be regarded as “the process of measuring efficiency, effectiveness and capability, of an action or a process or a system, against given norm or target” (Broadbent & Laughlin, 2009). In the current era of globalization and intense competition, there is a need to understand the impact of operational philosophies on business performance using Performance Management Systems (PMS). Lean management has been seen to influence organizational performance and culture. Lean management and PMS are regarded as very crucial aspects in an organization because activities that do not add value to an organization need to be reduced. Otherwise, it would amount to waste which leads to an increase in an avoidable cost for the organization (Ferreira & Otley, 2009). Thus, an effective PMS is required for proper control of the organization.

Sometimes, employees get discouraged after their performance appraisal, as they feel that they have been unfairly evaluated. Most of the traditional PMS use a type of the bell curve ranking system, which results in 80 – 90% of the employees being evaluated as ‘average’ or ‘needs improvement’ (Bonavia & Marin-Garcia, 2011). This type of evaluation leads to a negative impact on their motivation and engagement. There is a dissimilarity between the intent of the performance appraisal and its actual impact. This leads to decrease employee engagement and a probable increase in employee turnover.

In the area of application of lean principles to an organization, it has been seen that performance management reviews get the least important as they seem to have the least impact on the team. This is surprising as it has been proved that PMS has a direct and significant impact on the motivation and mindset of the employees, which in turn impacts the effectiveness of lean principles employed in an organization (Bryman & Bell, 2007).

Implementing with performance appraisal techniques

For the purpose of implementing lean management in performance appraisal, it is important to make use of lean tools to accelerate the effectiveness of lean management. These tools need to be selected on the basis of the individual features of the organization and the services provided by them. There are several metrics used for performance appraisal in an organization, so care needs to be taken to ensure that the metrics need to present data or information that allows us to take action and helps in identifying what should be done and by whom. These metrics need to be tied to strategy and to main processes in order to ensure that the organizational objectives and goals are being met (Medori & Steeple, 2000).

It has been seen that combining lean management with HRM practices reduces inventory and boosts productivity which is vital as businesses nowadays make compensation contingent on performance, employing lean techniques shall help in increasing employee engagement and motivation levels that improve the organization’s overall performance (Bhasin, 2008). Also, the salary structure has a direct impact on employee loyalty and commitment which are directly linked to lean management principles.

In a review of previous studies conducted on performance management, it was seen that “over 80% of companies make use of benchmarking technique of performance appraisal”, 50% practice a sort of “pay for performance” (Broadbent & Laughlin, 2009). The main ideology behind these studies was to effectively steer on results while supporting employees in accomplishing the desired outcome; where either of these is lacking. Shah & Ward, (2003) suggested three elements, namely, visible commitment, clear steering and support to be considered for effective implementation of lean management techniques in the performance appraisal process. In another study, Shah & Ward, (2003) found out that 56% of performance management implementation failed due to improper use of lean techniques in performance management systems (PMS) along with ignoring the behavioural factors behind an employee’s performance.

Thus, it can be seen that there is a need to put lean management techniques into use for the purpose of helping them to control lower managers as well as employees’ behaviour and improved performance. Contritely, for the purpose of successfully implementing lean management into performance management systems, a great deal of understanding of human nature and behaviour within the organization is required to be done by the managers.

References

  • Bhasin, S. (2008). Lean and performance measurement. Journal of Manufacturing Technology Management, 19(5), 670–684.
  • Bonavia, T., & Marin-Garcia, J. (2011). Integrating human resource management into lean production and their impact on organizational performance. International Journal of Manpower, 32, 923–938.
  • Broadbent, J., & Laughlin, R. (2009). “Performance management systems: A conceptual model. Journal of Management Accounting Research, 20(4), 283–296.
  • Bryman, A., & Bell, E. (2007). Business research methods. New York: Oxford University Press.
  • Dekier, L. (2012). The Origins and Evolution of Lean Management System. Journal of International Studies, 5, 46–51.
  • Ferreira, A., & Otley, D. (2009). The design and use of performance management systems: An extended framework for analysis. Journal of Management Accounting Research, 20(4), 263–283.
  • Medori, D., & Steeple, D. (2000). A framework for auditing and enhancing performance measurement systems. International Journal of Operations and Production Management, 20(5), 520–534.
  • Shah, R., & Ward, P. T. (2003). Lean manufacturing: context, practice bundles and performance. Journal of Operations Management, 21(2), 129–149.
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