PERFORMANCE MANAGEMENT AND CORPORATE PROFITABILITY IN THE NIGERIAN MANUFACTURING SECTOR
The study is about performance management and corporate profitability in the manufacturing sector. The objectives of the study are to determine the level of awareness of performance management in the manufacturing firms, to ascertain the approaches use in managing performance in the manufacturing firms, to investigate the performance review mechanism utilized by manufacturing firms, to find out the nature of relationship between performance management practice and the profitability of the manufacturing firms and to identify the problems associated with performance management system in the manufacturing sector. Data for the research were obtained from primary and secondary sources. The study has a population of 6467, out of which a sample size of 376 was realized using Taro Yamen Statistical Formula. Survey research design was adopted. Data collected was presented and discussed descriptively. Five hypotheses were tested using Chi square (X2), Z-test and linear regression statistical tools. Reliability was done using Pearson’s Product Moment Correlation, with coefficient of 0.94 indicating a high degree of consistency. The result of the analysis revealed that the level of awareness of performance management is not significantly low. Manufacturing firms use programme evaluation techniques, balance score card and benchmarking to a large extent in managing performance, appraisal method, management by objective and multi scale rating are performance review mechanism utilized by the manufacturing firms, there is a positive significant impact of performance management on corporate profitability and that lack of awareness, organizational culture and inadequate feedback are the key problem of performance management in the manufacturing companies. The study concludes that performance management improves employees and organizational performance and also corporate profitability but managers of these companies are yet to fully implement performance management in a comprehensive and integrated package. Therefore the researcher recommends that to ensure high productivity, effectiveness, efficiency and growth of an organization, performance management should be adopted in a comprehensive and integrated package.
TABLE OF CONTENTS
Approval page ii
Table of Contents v
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of Problem 2
1.3 Objectives of the Study 2
1.4 Research Questions 3
1.5 Research Hypotheses 3
1.6 Significance of the Study 4
1.7 Scope of the Study 4
1.8 Limitations of the Study 4
1.9 Profile of Selected Manufacturing Organizations 5
1.10 Definitions of Terms 8
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 What is Performance 10
2.2 Concept of Performance Management 10
2.3 Components of Performance Management 12
2.3.1 Steps for Effective Performance Management Practice. 13
2.4 Historical Antecedent of Performance Management 14
2.5 Theoretical Framework of Performance Management 15
2.6 Performance Measurement 20
2.6.1 Principles of Performance Measurement 24
2.7 Total performance management 26
2.8 Performance Appraisal 31
2.8.1 Performance Appraisal and Performance Management 32
2.9 Establishing Performance Management System 33
2.10 The Benefit of Performance Management 37
2.11 Corporate Profitability 39
2.12 Performance Management and Corporate Profitability 40
2.14 Summary of Reviewed Literature 43
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design 49
3.2 Sources of Data 49
3.3 Population of Study 49
3.4 Sample Size Determination 50
3.5 Description of Research Instrument 52
3.6 Data Analysis Techniques 52
3.8 Validation of the Instrument 54
3.9 Reliability of Research Instrument 54
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA 57
CHAPTER FIVE: SUMMARY OF MAJOR FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary of Major Findings 106
5.2 Conclusion 106
5.3 Recommendations 107
5.4 Contributions to Knowledge 108
5.5 Suggested Area for Further Research 110
1.1 BACKGROUND OF THE STUDY
The concern for high productivity in industrial organizations is universal, and is the desire of every manager. In the world of globalization there is lot of competition in the market also there is competition among different organizations and same organization having similar product and also within the organization. The overall success of each and every organization is depending upon the quality of employees. How successful the organization will be told by the employees on the success of or growth of that company’s employees (Kumbhar 2011). Human beings are considered as an important asset of every organization. It is a duty of every organization to motivate the employees and influence the behavior of the employees through performance management system.
The manufacturing sector in Nigeria has suffered setbacks which are largely attributed to ineffective and inefficient management. Performance management is a tool which focuses on managing the individual and work environment in such a manner that an individual/team can achieve set organizational goals. Performance management is described “as a systematic process for improving organizational performance of individuals and teams. It is a means of getting better results by understanding and managing performance within an agreed framework of planned goals, standard and competency requirement. Armstrong (2006: 495) Performance management is also considered as “a systematic and holistic (all-embracing) process of work planning, monitoring and measurement aimed at continuously improving the teams and --individual employee’s contribution to achievement of organizational goals”. Akata (2003:14).
The profitability of organizations can directly be linked to the performance of their managers, and it is in line with this link that Kanter (1982) and Nwachukwu (1992), also see company productivity as dependent to a great degree on how innovative managers especially middle level managers are, because such managers have their fingers on the paste of operations. This means people are managed as assets not costs. Bradley and Taylor (1992) categorically state that why capabilities of companies may be enhanced by technology, they rest fundamentally on the efforts of the employees in particular, managers who commit their best energies to corporate endeavours. Infact no company can hope to meet the rising expectations created by intensified competition without productive and creative managers and employees, much less profitable.
Managers are keys to making any performance management system work. Armstrong and Baron (1998) contend that so essential is performance management that managers must manage performance as an essential part of their job. Ironically, while all these possibilities exist through management, in Nigeria the bane of business enterprises is under performance. This explains the need for this study on performance management and corporate profitability in the manufacturing companies. We believe that performance management as an integrated process could bring about greater profitability for companies that practice it.
1.2 STATEMENT OF PROBLEM
Performance management is a basic tool for corporate profit. The obvious advantage of the practice performance management notwithstanding, many captains of industries are not aware of this tool. Even some that do are not very conversant with the approaches. In view of these problems, the research seeks to address the objectives stated below.
1.3 OBJECTIVES OF THE STUDY
Objectives of the study are:
1. To determine the level of awareness of performance management in the manufacturing firms
2. To ascertain the approaches use in managing performance in the manufacturing firms
3. To investigate the performance review mechanism utilized by manufacturing firms.
4. To find out the nature of relationship between performance management practice and the profitability of the manufacturing firms
5. To identify the problems associated with performance management system in the manufacturing firms.
1.4 RESEARCH QUESTIONS
In any research of this nature, some questions are asked which aimed at helping the researchers to accomplish his investigations. These questions are:
1. What is the level of awareness of performance management in the manufacturing firms?
2. What are the approaches used in managing performance in the manufacturing firms?
3. Which are the performance review mechanisms utilized by the manufacturing firms?
4. What is the nature of relationship between performance management and profitability of the manufacturing firms?
5. What are the problems associated with performance management system in Nigeria manufacturing firms?
1.5 RESEARCH HYPOTHESES
The following are the alternate hypotheses formulated, in order to provide focus for
H1: The level of awareness of performance management in the manufacturing firms is high.
H2: Manufacturing companies to a large extent use programme evaluation techniques, balance score card and benchmarking techniques as approaches in managing performance.
H3: Appraisal method, management by objective and multi scale rating are performance review mechanisms that are applied by manufacturing firms for improving staff performance.
H4: There is significant relationship between performance management practice and corporate profitability in the manufacturing firms.
H5: Lack of awareness, organizational culture and inadequate feedback are the key problems of performance management in the selected manufacturing companies.
1.6 SIGNIFICANCE OF THE STUDY
This researcher believes that this study will be of immense important in the following ways:
It will help the management of the selected manufacturing companies to realize how performance management impacts on corporate profitability in an organization especially in the manufacturing sector of the economy.
It will create an awareness of the importance of performance management to managers of all organizations which would undoubtedly stimulate the use of performance management systems as an indispensable tool in human resources management in the selected organizations and other organizations.
Finally, it may serve as a benchmark for further research material for students, policy makers and other scholars who may have growing interest in the operation of business organization.
1.7 SCOPE OF THE STUDY
The focus of this study is on performance management and corporate profitability in the manufacturing sector. The study covers the conceptual framework of performance management, the theoretical framework of performance management and the empirical review of works related to the topic.
The study was carried out in four selected manufacturing firms in Lagos state of Nigeria. These are Berger Paints Plc, Chemical and Allied Product (CAP) Plc, PZ Cussons Nigeria plc and Cadbury Nigeria Plc.
1.8 LIMITATIONS OF THE STUDY
In carrying out this study, the researchers were confronted with some limitations. This is not unusual as it is part of research experience by researchers all over the globe. Some major limitations are:
Financial Constraint: A comprehensive survey of all manufacturing company in Lagos state would have been carried out . Because of financial constraint, few manufacturing companies were surveyed.
Non-Challant Attitude of the Respondents: Research has indicated that survey investigations are often plagued with respondents giving typical responses, not the true responses. This is probably due to their ignorance of the main purpose of the study. Also entrance into the companies was a bit difficult, the security personnel and the receptionist were suspicious of the purpose of the research.
Time: Other limitation was time. A survey of all the manufacturing company would have been better but due to time constraint, only four manufacturing companies were covered.
1.9 PROFILE OF SELECTED MANUFACTURING FIRMS UNDERSTUDY
Berger Paint Nigeria Plc
Berger Paints Nigeria Plc, together with its subsidiaries, manufactures and markets paints and allied products in Nigeria. It offers decorative for interior and exterior use on wall surfaces and ceiling; industrial paints, such as Etch primer, Quick drying enamel, Cellulose enamels, two-pack polyurethane, general purpose stoving enamels, and polyester coil coatings used as coatings for various categories of manufactured items; and marine and protective coatings for various oil drilling companies and ship maintenance companies. The company also provides various automotive products comprising autolux primer, autolux finish, auto varnish etc under the LIGNOLAC name. In addition, it manufactures a range of emulsion, gloss, textured coatings, and red oxide, as well as provides construction, renovation, project management, and other architectural services. Berger Paints Nigeria Plc distributes its products through a network of depots and various distributors, as well as agents. The company was formerly known as British Paints (West Africa) Limited and changed its name to Berger Paints Nigeria Plc in 1969. Berger Paints Nigeria Plc was incorporated in 1959 and is based in Lagos, Nigeria.
Presently Berger Paint Nigeria plc has staff strength of 360
Chemical and Allied Products plc evolved from the world-renowned British multinational Imperial Chemical Industries plc, which formalized its Nigerian operations in 1957 under ICI Exports Limited. In 1962, ICI Paints was also incorporated to manufacture Dulux paints. In 1965, ICI Exports Limited changed its name to ICI Nigeria Limited and in 1968 it subsumed the paints company.
Following the promulgation of the first and second Indigenisation Decrees in 1972 and 1977, ICI Nigeria Limited at first sold 40 percent but later 60 percent of its share capital to the Nigerian public, and went further to change its name by a special resolution of the shareholders to Chemical and Allied Products Limited (CAPL) in the spirit of indigenisation. In 1991, the ‘Limited’ appellation was dropped for ‘Plc’ in compliance with the provision of the Companies and Allied Matters Act of 1990.
In 1992, ICI Nigeria Limited finally disposed of its minority 40% shareholding in CAP plc when it sold 35.7% of the equity to UAC of Nigeria Plc and the rest to the Nigerian public on the floor of the Nigeria Stock Exchange.
Today, CAP plc is a Nigerian Company operating in Coatings Business and is currently employing 320 workers CAP Plc, a fully owned Nigerian Company is a participant of the U.N Global Compact initiative. A winner of the Nigerian Stock Exchange merit award (2006) and has retained the Pearl award for sector leadership in Chemical and Paints from 2004 to date.
PZ Cussons Nigeria PLC
Pz Cussons Nigeria Plc the largest subsidiary of PZ Cussons has enjoyed tremendous business success in Nigeria for over a century.
Pz Cussons Nigeria Plc Manufactures and markets a wide range of consumer products and home appliances including soaps, detergents, cosmetics, pharmaceuticals, confectionery, air conditioners, refrigerators, freezers, packaging materials, and milk. The company boasts of its understanding of its customers in a way which no other consumer goods company can. Their approach to Nigeria, customers, consumers and to business is designed to sustain them far into the future.
Their prime business objective in Nigeria is sustainable and profitable growth and their drive to be world-class in every aspect of their business life is relentless.
To achieve this, they adopted a Strategic Business Unit (SBU) structure, in which each SBU has clear focus on its markets; developing a deep understanding of the needs and aspirations of its consumers and the dynamics of the marketplace, which it can exploit to deliver its objectives.
Their business policies, systems and actions (procedures and processes, corporate and personal ethics, corporate image, employee development, equality of opportunity, remuneration, services provided to distributors etc) are harmonized between their SBUs, ensuring the sharing of best practice and operational synergies. By combining their financial strength and the commercial acumen encouraged at all levels amongst their people, they have positioned themselves to seize profitable new opportunities within their chosen sectors. PZ Cussons Nigeria Plc has staff strength of 3775.
Cadbury Nigeria Plc
Cadbury Nigeria plc engages in the manufacture and sale of fast moving consumer goods primarily in Nigeria. The company operates through two segments, Confectionery and Food Drinks, and Intermediate Cocoa Products. The Confectionery and Food Drinks segment involves in the production and sale of Bournvita, Bubba, Stimorol, Tom Tom, Trebor, Ahomka, Buttermint, and Eclairs products. The Intermediate Cocoa Products segment offers cocoa powder, cocoa butter, cocoa liquor, and cocoa cake. It distributes its products through a network of 43 distributors. The company was founded in 1965 and is based in Lagos, Nigeria. Cadbury Nigeria plc is a subsidiary of Cadbury Schweppes plc.
The staff strength of Cadbury Nigeria plc is 2012.
1.10 DEFINITION OF TERMS
The following words are defined for easy understanding of the study.
Corporate Profitability: It is an economic indicator that calculates net income using Profit from Current Production.
Human Resources Management: It is a strategic and coherent approach to the management of an organization’s most valued assets – the people working there who individually and collectively contribute to the achievement of its objectives (Armstrong 2006:3).
Management: It is about developing people, working with them, reaching objectives and achieving results. (Mullins 2010: 425)
Motivation: It is the creation of stimuli, incentives and working environments that enable people to perform to the best of their ability. (Mullins 2010: 253)
Performance: It is the ability of an individual or an organization to accomplish activities that lead to achieving desired or stated goals, which in turn affect organizational growth and success positively (Inyang 2006:213)
Productivity: It is a measurement of how much work comes from a given input.
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Vol - I , ISSUE - IV May 2011 : Management
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