Capital Investment Case Waterways Corporation is a private.docx

Capital Investment Case
Waterways Corporation is a private company providing
irrigation and drainage products
and services for residential, commercial, and public sector
projects, including farms,
parks, and sports fields. It has a plant located in a small city
north of Toronto that
manufactures the products it markets to retail outlets across
Canada. It also maintains a
division that provides installation and warranty servicing in the
Greater Toronto Area.
The mission of Waterways is to manufacture quality parts that
can be used for effective
water management, be it drainage or irrigation. The company
hopes to satisfy its
customers with its products, provide rapid and responsible
service, and serve the
community and the employees who represent it in each
community.
Waterways puts much emphasis on cash flow when it plans for
capital investments. The
company chose its discount rate of 8% based on the rate of
return it must pay its
owners and creditors. Using that rate, Waterways then uses
different methods to
determine the best decisions for making capital outlays.
In 2020 Waterways is considering buying five new backhoes to
replace the backhoes it
now has at its installation and training division. The new
backhoes are faster, cost less
to run, provide for more accurate trench digging, have comfort

features for the
operators, and have associated one-year maintenance
agreements. The old backhoes
are working well, but they do require considerable maintenance.
The operators are very
familiar with the old backhoes and would need to learn some
new skills to use the new
equipment.
The following information is available to use in deciding
whether to purchase the new
backhoes.
Old Backhoes New Backhoes
Purchase cost when new $90,000 $200,000
Salvage value now $42,000 None
Investment in major overhaul needed in next year $55,000
None
Salvage value in 8 years None $ 50,000
Remaining life 8 years 8 years
Net cash flow generated each year $25,250 $ 41,000
Instructions
a. Using the following methods, evaluate whether to purchase
the new equipment or
overhaul the old equipment. (Hint: For the old machine, the
initial investment is the cost
of the overhaul. For the new machine, subtract the salvage value
of the old machine to

determine the initial cost of the investment.) Ignore income
taxes in your analysis.
1. Use the net present value method for buying new or keeping
the old.
2. Use the payback method for each choice. (Hint: For the old
machine, evaluate the
payback of an overhaul.)
3. Compare the profitability index for each choice.
4. Compare the internal rate of return for each choice to the
required 8% discount rate.
b. Are there any intangible benefits or negatives that would
influence this decision?
c. What decision would you make and why?
Capital Investment CaseInstructions
quality
Quality management
principles
http://www.iso.org
This document introduces seven quality
management principles (QMPs).
ISO 9000, ISO 9001 and related ISO quality

management standards are based
on these seven QMPs.
One of the definitions of a “ principle ” is that it is a basic
belief,
theory or rule that has a major influence on the way in which
something is done. “ Quality management principles ” are a set
of fundamental beliefs, norms, rules and values that are
accepted
as true and can be used as a basis for quality management.
The QMPs can be used as a foundation to guide an
organization’s
performance improvement. They were developed and updated
by international experts of ISO/TC 176, which is responsible for
developing and maintaining ISO’s quality management
standards.
This document provides for each QMP :
• Statement : Description of the principle
• Rationale : Explanation of why the principle is important
for the organization
• Key benefits : Examples of benefits associated with the
principle
• Actions you can take : Examples of typical actions to improve
the organization’s performance when applying the principle
The seven quality management principles are :
QMP 1 – Customer focus
QMP 2 – Leadership
QMP 3 – Engagement of people

QMP 4 – Process approach
QMP 5 – Improvement
QMP 6 – Evidence-based decision making
QMP 7 – Relationship management
These principles are not listed in priority order. The relative
importance
of each principle will vary from organization to organization
and can
be expected to change over time.
1
1 QMP Customer focus
Statement
The primary focus of quality management
is to meet customer requirements and to strive
to exceed customer expectations.
Rationale
Su s t a i n e d s u cce s s i s a ch i e ve d wh e n a n
organization attracts and retains the confidence
of customers and other interested parties.
Every aspect of customer interaction provides
an opportunity to create more value for the cus-
tomer. Understanding current and future needs of
customers and other interested parties contributes
to sustained success of the organization.
Key benefits
• Increased customer value
• Increased customer satisfaction
• Improved customer loyalty
• Enhanced repeat business

• Enhanced reputation of the organization
• Expanded customer base
• Increased revenue and market share
2
Actions you can take
• Recognize direct and indirect customers as those
who receive value from the organization.
• Understand customers’ current and future needs
and expectations.
• Link the organization’s objectives to customer
needs and expectations.
• Communicate customer needs and expectations
throughout the organization.
• Plan, design, develop, produce, deliver and
support goods and services to meet customer
• Measure and monitor customer satisfaction
and take appropriate actions.
• Determine and take actions on interested
parties’ needs and expectations that can affect
customer satisfaction.
• Actively manage relationships with customers
to achieve sustained success.

3
2 QMP Leadership
Statement
Leaders at all levels establish unity of pur-
pose and direction and create conditions
in which people are engaged in achieving
the organization’s quality objectives.
Rationale
Creation of unity of purpose and direc-
tion and engagement of people enable
an organization to align its strategies,
policies, processes and resources to achieve
its objectives.
Key benefits
• Increased effectiveness and efficiency
in meeting the organization’s quality
objectives
• Better coordination
of the organization’s processes
• Improved communication between
levels and functions of the organization
• Development and improvement
of the capability of the organization
and its people to deliver desired results

• Communicate the organization’s mission, vision,
strategy, policies and processes throughout
the organization.
• Create and sustain shared values, fairness
and ethical models for behaviour at all levels
of the organization.
• Establish a culture of trust and integrity.
• Encourage an organization-wide commitment
to quality.
• Ensure that leaders at all levels are positive
examples to people in the organization.
• Provide people with the required resources,
training and authority to act with accountability.
• Inspire, encourage and recognize people’s
contribution.
5
3 QMP Engagement of people
Statement
Competent, empowered and engaged people at all levels
throughout
the organization are essential to enhance its capability to create
and deliver value.
Rationale

To manage an organization effectively and efficiently, it is
important
to involve all people at all levels and to respect them as
individuals.
Recognition, empowerment and enhancement of competence
facilitate the engagement of people in achieving the
organization’s
quality objectives.
Key benefits
• Improved understanding
of the organization’s quality objectives
by people in the organization
and increased motivation to achieve them
• Enhanced involvement of people
in improvement activities
• Enhanced personal development,
initiatives and creativity
• Enhanced people satisfaction
• Enhanced trust and collaboration
throughout the organization
• Increased attention to shared values
and culture throughout the organization
• Communicate with people to promote
understanding of the importance

of their individual contribution.
• Promote collaboration throughout
the organization.
• Facilitate open discussion and sharing
of knowledge and experience.
• Empower people to determine constraints
to performance and to take initiatives
without fear.
• Recognize and acknowledge people’s
contribution, learning and improvement.
• Enable self-evaluation of performance
against personal objectives.
• Conduct surveys to assess people’s
satisfaction, communicate the results,
7
4 QMP Process approach
Statement
Consistent and predictable results are achieved
more effectively and efficiently when activities
are understood and managed as interrelated
processes that function as a coherent system.
Rationale
The quality management system consists of inter-
related processes. Understanding how results are

produced by this system enables an organization
to optimize the system and its performance.
Key benefits
• Enhanced ability to focus effort on key processes
and opportunities for improvement
• Consistent and predictable outcomes through
a system of aligned processes
• Optimized performance through effective
process management, efficient use of resources,
and reduced cross-functional barriers
• Enabling the organization to provide confidence
to interested parties as to its consistency,
effectiveness and efficiency
8
• Define objectives of the system and processes necessary to
achieve them.
• Establish authority, responsibility and accountability
for managing processes.
• Understand the organization’s capabilities and determine
resource
constraints prior to action.
• Determine process interdependencies and analyse the effect
of modifications to individual processes on the system as a

whole.
• Manage processes and their interrelations as a system to
achieve
the organization’s quality objectives effectively and efficiently.
• Ensure the necessary information is available to operate and
improve
the processes and to monitor, analyse and evaluate the
performance
of the overall system.
• Manage risks that can affect outputs of the processes and
overall
outcomes of the quality management system.
5 QMP Improvement
Statement
Successful organizations have an ongoing focus
on improvement.
Rationale
Improvement is essential for an organization to maintain
current levels of performance, to react to changes
in its internal and external conditions and to create
new opportunities.
10
Key benefits
• Improved process performance, organizational

capabilities and customer satisfaction
• Enhanced focus on root-cause investigation
and determination, followed by prevention
and corrective actions
• Enhanced ability to anticipate and react
to internal and external risks and opportunities
• Enhanced consideration of both incremental
and breakthrough improvement
• Improved use of learning for improvement
• Enhanced drive for innovation
• Promote establishment of improvement
objectives at all levels of the organization.
• Educate and train people at all levels on
how to apply basic tools and methodologies
to achieve improvement objectives.
• Ensure people are competent to successfully
promote and complete improvement projects.
• Develop and deploy processes to implement
improvement projects throughout
the organization.
• Track, review and audit the planning,
implementation, completion and results
of improvement projects.
• Integrate improvement considerations into

the development of new or modified goods,
services and processes.
• Recognize and acknowledge improvement.
11
6 QMP Evidence-based
decision making
Statement
Decisions based on the analysis and evaluation
of data and information are more likely to produce
desired results.
Rationale
Decision making can be a complex process, and
it always involves some uncertainty. It often
involves multiple types and sources of inputs,
as well as their interpretation, which can
be subjective. It is important to understand
cause-and-effect relationships and potential
unintended consequences. Facts, evidence
and data analysis lead to greater objectivity
and confidence in decision making.
Key benefits
• Improved decision-making processes
• Improved assessment of process performance
and ability to achieve objectives
• Improved operational effectiveness
and efficiency
• Increased ability to review, challenge

and change opinions and decisions
• Increased ability to demonstrate
the effectiveness of past decisions
12
• Determine, measure and monitor
key indicators to demonstrate
the organization’s performance.
• Make all data needed available
to the relevant people.
• Ensure that data and information
are sufficiently accurate, reliable
and secure.
• Analyse and evaluate data
and information using suitable
methods.
• Ensure people are competent
to analyse and evaluate data
as needed.
• Make decisions and take actions
based on evidence, balanced with
experience and intuition.

7 QMP Relationship
management
Statement
For sustained success, an organization manages its
relationships with interested parties, such as suppliers.
Rationale
Interested parties influence the performance of an organ-
ization. Sustained success is more likely to be achieved
when the organization manages relationships with all
of its interested parties to optimize their impact on its
performance. Relationship management with its sup-
plier and partner networks is of particular importance.
14
Key benefits
• Enhanced performance of the organization
and its interested parties through responding
to the opportunities and constraints related to each
interested party
• Common understanding of goals and values among
interested parties
• Increased capability to create value for interested
parties by sharing resources and competence
and managing quality-related risks
• A well-managed supply chain that provides a stable
flow of goods and services

• Determine relevant interested parties
(such as suppliers, partners, customers,
investors, employees, and society as a whole)
and their relationship with the organization.
• Determine and prioritize interested party relationships
that need to be managed.
• Establish relationships that balance short-term gains
with long-term considerations.
• Pool and share information, expertise and resources
with relevant interested parties.
• Measure performance and provide performance
feedback to interested parties, as appropriate,
to enhance improvement initiatives.
• Establish collaborative development and improvement
activities with suppliers, partners and other interested
parties.
• Encourage and recognize improvements
and achievements by suppliers and partners.
15
The next step
This document provides a general perspective
on the quality management principles underlying
ISO’s quality management standards. It gives
an overview of these principles and shows how,

collectively, they can form a basis for performance
improvement and organizational excellence.
There are many different ways of applying these
quality management principles. The nature
of the organization and the specific challenges
it faces will determine how to implement them.
Many organizations will find it beneficial to set
up a quality management system based on these
principles.
Further information on ISO 9000,
ISO 9001 and related ISO quality
management standards is available
from ISO’s national member bodies
or from the www.iso.org.
16
International Organization
for Standardization
ISO Central Secretariat
Chemin de Blandonnet 8
Case Postale 401
CH – 1214 Vernier, Geneva
Switzerland
iso.org

© ISO, 2015
All rights reserved
ISBN 978-92-67-10650-2
http://www.iso.org
quality
Quality management
principles
http://www.iso.org
This document introduces seven quality
management principles (QMPs).
ISO 9000, ISO 9001 and related ISO quality
management standards are based
on these seven QMPs.
One of the definitions of a “ principle ” is that it is a basic
belief,
theory or rule that has a major influence on the way in which
something is done. “ Quality management principles ” are a set
of fundamental beliefs, norms, rules and values that are
accepted
as true and can be used as a basis for quality management.

The QMPs can be used as a foundation to guide an
organization’s
performance improvement. They were developed and updated
by international experts of ISO/TC 176, which is responsible for
developing and maintaining ISO’s quality management
standards.
This document provides for each QMP :
• Statement : Description of the principle
• Rationale : Explanation of why the principle is important
for the organization
• Key benefits : Examples of benefits associated with the
principle
• Actions you can take : Examples of typical actions to improve
the organization’s performance when applying the principle
The seven quality management principles are :
QMP 1 – Customer focus
QMP 2 – Leadership
QMP 3 – Engagement of people
QMP 4 – Process approach
QMP 5 – Improvement
QMP 6 – Evidence-based decision making
QMP 7 – Relationship management
These principles are not listed in priority order. The relative
importance
of each principle will vary from organization to organization
and can
be expected to change over time.
1

1 QMP Customer focus
Statement
The primary focus of quality management
is to meet customer requirements and to strive
to exceed customer expectations.
Rationale
Su s t a i n e d s u cce s s i s a ch i e ve d wh e n a n
organization attracts and retains the confidence
of customers and other interested parties.
Every aspect of customer interaction provides
an opportunity to create more value for the cus-
tomer. Understanding current and future needs of
customers and other interested parties contributes
to sustained success of the organization.
Key benefits
• Increased customer value
• Increased customer satisfaction
• Improved customer loyalty
• Enhanced repeat business
• Enhanced reputation of the organization
• Expanded customer base
• Increased revenue and market share
2
• Recognize direct and indirect customers as those
who receive value from the organization.
• Understand customers’ current and future needs

and expectations.
• Link the organization’s objectives to customer
• Communicate customer needs and expectations
throughout the organization.
• Plan, design, develop, produce, deliver and
support goods and services to meet customer
• Measure and monitor customer satisfaction
• Determine and take actions on interested
parties’ needs and expectations that can affect
customer satisfaction.
• Actively manage relationships with customers
to achieve sustained success.
3
2 QMP Leadership
Statement
Leaders at all levels establish unity of pur-
pose and direction and create conditions
in which people are engaged in achieving
the organization’s quality objectives.
Rationale
Creation of unity of purpose and direc-

tion and engagement of people enable
an organization to align its strategies,
policies, processes and resources to achieve
its objectives.
Key benefits
• Increased effectiveness and efficiency
in meeting the organization’s quality
objectives
• Better coordination
of the organization’s processes
• Improved communication between
levels and functions of the organization
• Development and improvement
of the capability of the organization
and its people to deliver desired results
• Communicate the organization’s mission, vision,
strategy, policies and processes throughout
the organization.
• Create and sustain shared values, fairness
and ethical models for behaviour at all levels
of the organization.
• Establish a culture of trust and integrity.
• Encourage an organization-wide commitment

to quality.
• Ensure that leaders at all levels are positive
examples to people in the organization.
• Provide people with the required resources,
training and authority to act with accountability.
• Inspire, encourage and recognize people’s
contribution.
5
3 QMP Engagement of people
Statement
Competent, empowered and engaged people at all levels
throughout
the organization are essential to enhance its capability to create
and deliver value.
Rationale
To manage an organization effectively and efficiently, it is
important
to involve all people at all levels and to respect them as
individuals.
Recognition, empowerment and enhancement of competence
facilitate the engagement of people in achieving the
organization’s
quality objectives.
Key benefits
• Improved understanding

of the organization’s quality objectives
by people in the organization
and increased motivation to achieve them
• Enhanced involvement of people
in improvement activities
• Enhanced personal development,
initiatives and creativity
• Enhanced people satisfaction
• Enhanced trust and collaboration
throughout the organization
• Increased attention to shared values
and culture throughout the organization
• Communicate with people to promote
understanding of the importance
of their individual contribution.
• Promote collaboration throughout
the organization.
• Facilitate open discussion and sharing
of knowledge and experience.
• Empower people to determine constraints
to performance and to take initiatives
without fear.
• Recognize and acknowledge people’s

contribution, learning and improvement.
• Enable self-evaluation of performance
against personal objectives.
• Conduct surveys to assess people’s
satisfaction, communicate the results,
7
4 QMP Process approach
Statement
Consistent and predictable results are achieved
more effectively and efficiently when activities
are understood and managed as interrelated
processes that function as a coherent system.
Rationale
The quality management system consists of inter-
related processes. Understanding how results are
produced by this system enables an organization
to optimize the system and its performance.
Key benefits
• Enhanced ability to focus effort on key processes
and opportunities for improvement
• Consistent and predictable outcomes through
a system of aligned processes
• Optimized performance through effective
process management, efficient use of resources,

and reduced cross-functional barriers
• Enabling the organization to provide confidence
to interested parties as to its consistency,
effectiveness and efficiency
8
• Define objectives of the system and processes necessary to
achieve them.
• Establish authority, responsibility and accountability
for managing processes.
• Understand the organization’s capabilities and determine
resource
constraints prior to action.
• Determine process interdependencies and analyse the effect
of modifications to individual processes on the system as a
whole.
• Manage processes and their interrelations as a system to
achieve
the organization’s quality objectives effectively and efficiently.
• Ensure the necessary information is available to operate and
improve
the processes and to monitor, analyse and evaluate the
performance
of the overall system.
• Manage risks that can affect outputs of the processes and

overall
outcomes of the quality management system.
5 QMP Improvement
Statement
Successful organizations have an ongoing focus
on improvement.
Rationale
Improvement is essential for an organization to maintain
current levels of performance, to react to changes
in its internal and external conditions and to create
new opportunities.
10
Key benefits
• Improved process performance, organizational
capabilities and customer satisfaction
• Enhanced focus on root-cause investigation
and determination, followed by prevention
and corrective actions
• Enhanced ability to anticipate and react
to internal and external risks and opportunities
• Enhanced consideration of both incremental
and breakthrough improvement
• Improved use of learning for improvement

• Enhanced drive for innovation
• Promote establishment of improvement
objectives at all levels of the organization.
• Educate and train people at all levels on
how to apply basic tools and methodologies
to achieve improvement objectives.
• Ensure people are competent to successfully
promote and complete improvement projects.
• Develop and deploy processes to implement
improvement projects throughout
the organization.
• Track, review and audit the planning,
implementation, completion and results
of improvement projects.
• Integrate improvement considerations into
the development of new or modified goods,
services and processes.
• Recognize and acknowledge improvement.
11
6 QMP Evidence-based
decision making
Statement
Decisions based on the analysis and evaluation

of data and information are more likely to produce
desired results.
Rationale
Decision making can be a complex process, and
it always involves some uncertainty. It often
involves multiple types and sources of inputs,
as well as their interpretation, which can
be subjective. It is important to understand
cause-and-effect relationships and potential
unintended consequences. Facts, evidence
and data analysis lead to greater objectivity
and confidence in decision making.
Key benefits
• Improved decision-making processes
• Improved assessment of process performance
and ability to achieve objectives
• Improved operational effectiveness
and efficiency
• Increased ability to review, challenge
and change opinions and decisions
• Increased ability to demonstrate
the effectiveness of past decisions
12
• Determine, measure and monitor

key indicators to demonstrate
the organization’s performance.
• Make all data needed available
to the relevant people.
• Ensure that data and information
are sufficiently accurate, reliable
and secure.
• Analyse and evaluate data
and information using suitable
methods.
• Ensure people are competent
to analyse and evaluate data
as needed.
• Make decisions and take actions
based on evidence, balanced with
experience and intuition.
7 QMP Relationship
management
Statement
For sustained success, an organization manages its
relationships with interested parties, such as suppliers.
Rationale
Interested parties influence the performance of an organ-
ization. Sustained success is more likely to be achieved
when the organization manages relationships with all
of its interested parties to optimize their impact on its
performance. Relationship management with its sup-

plier and partner networks is of particular importance.
14
Key benefits
• Enhanced performance of the organization
and its interested parties through responding
to the opportunities and constraints related to each
interested party
• Common understanding of goals and values among
interested parties
• Increased capability to create value for interested
parties by sharing resources and competence
and managing quality-related risks
• A well-managed supply chain that provides a stable
flow of goods and services
• Determine relevant interested parties
(such as suppliers, partners, customers,
investors, employees, and society as a whole)
and their relationship with the organization.
• Determine and prioritize interested party relationships
that need to be managed.
• Establish relationships that balance short-term gains
with long-term considerations.

• Pool and share information, expertise and resources
with relevant interested parties.
• Measure performance and provide performance
feedback to interested parties, as appropriate,
to enhance improvement initiatives.
• Establish collaborative development and improvement
activities with suppliers, partners and other interested
parties.
• Encourage and recognize improvements
and achievements by suppliers and partners.
15
The next step
This document provides a general perspective
on the quality management principles underlying
ISO’s quality management standards. It gives
an overview of these principles and shows how,
collectively, they can form a basis for performance
improvement and organizational excellence.
There are many different ways of applying these
quality management principles. The nature
of the organization and the specific challenges
it faces will determine how to implement them.
Many organizations will find it beneficial to set
up a quality management system based on these
principles.
Further information on ISO 9000,
ISO 9001 and related ISO quality

management standards is available
from ISO’s national member bodies
or from the www.iso.org.
16
International Organization
for Standardization
ISO Central Secretariat
Chemin de Blandonnet 8
Case Postale 401
CH – 1214 Vernier, Geneva
Switzerland
iso.org
© ISO, 2015
All rights reserved
ISBN 978-92-67-10650-2
http://www.iso.org
Chapter 5
Measuring Results
and

Behaviors
5-1
Copyright © 2019 Chicago Business Press

Key Questions
Where should each individual focus their efforts?
What are the expected standards?
How do we know how well the results were achieved?
5-2

Measuring Results: Overview
Accountabilities
Objectives
Performance Standards
5-3

Accountabilities
Broad areas of a job for which an employee is responsible for
producing results
5-4

Determining Accountabilities
Collect information about the job (Job Description)
Determine importance of task or cluster of tasks
Percentage of employee’s time spent performing tasks
Impact on the unit’s mission if performed inadequately
Consequences of error
5-5

Objectives
Statements of important and measurable outcomes, that, when
accomplished, will help ensure success for the accountability

5-6

Determining Objectives
Purpose is to identify outcomes:
Limited in number
Highly important
Achieving them will have a dramatic impact on overall
organization success
5-7

Characteristics of Good Objectives
5-8

Setting SMART Objectives
What are the benefits of using SMART objectives?
Choose a short-term personal or professional goal and frame the
objective using the SMART technique
5-9
SMART Objectives

Yardstick used to evaluate how well employees have achieved
objectives
Information about what to look for to determine the level of
performance that has been achieved
5-10

Aspects of performance objectives:
Quality
How well the objective is achieved
Quantity

How much, how many, how often, and at what cost?
Time
Due dates, schedule, cycle times, and how quickly?
5-11

Standards Must Include
An Action
The Desired Result
A Due Date
A Quality or Quantity Indicator
5-12

Good Performance Standards
5-13

Measuring Behaviors: Overview
Identify Competencies
Identify Indicators
Choose Measurement System
5-14

Identify Competencies
Measurable clusters of KSAs
Knowledge
Skills
Abilities
Critical in determining how results will be achieved
5-15

Company Spotlight
Xerox Capital Services (XCS) used leadership competencies to
create leadership development program
Steps followed:
Senior managers and leaders identified the 12 most critical
competencies for success at XCS

12-week curriculum developed with readings and course
material
5-16

Types of Competencies
Differentiating
Distinguish between superior and average performance
Threshold
Needed to perform to minimum standard
5-17

Identify Indicators
Observable behaviors
Used to measure the extent to which competencies are present
or not
5-18

Necessary Components for
Describing Competencies
Definition of competency
Description of specific behaviors
When competency is demonstrated
When competency is not demonstrated
Suggestions for developing the competency
5-19

Choose a Measurement System
Comparative system
Compares employees with one another
Absolute system
Compares employees with pre-specified performance standards
5-20

Choose a Measurement System
5-21

Types of Comparative Systems
Simple rank order
Alternation rank order
Paired comparisons
Relative percentile
Forced distribution
5-22

Simple Rank Order
Advantages:
Simple and easy to do
Results are clear
Disadvantages:
Judges performance based on one dimension only
May be difficult to rank similar performance levels
5-23

Alternation Rank Order
Advantages:
Simple and easy to do
Results are clear
Uses two anchors (best and worst)
Disadvantages:
Judges performance based on one dimension only
May be difficult to rank similar performance levels
Does not specify threshold for acceptable performance
5-24

Paired Comparisons
Advantages:

Thorough
Final rankings are more accurate
Disadvantages:
Very time consuming
May encounter problem of comparing “apples and oranges”
5-25

Relative Percentile
Advantages:
Simple and easy to use
Evaluates specific competencies or overall performance
Disadvantages:
May be difficult to consider all ratees at the same time
Time consuming if using several scales for different
competencies
5-26

Relative Percentile
5-27
Example of Relative Percentile Method Scale
Don
Desiree
Heather

Forced Distribution
Advantages:
Categorizes employees into specific performance groups
Facilitates reward assessment
Competition may be good for organizational performance
Disadvantages:
Assumes performance scores are normally distributed

May discourage contextual performance and teamwork
5-28

Company Spotlight
General Electric (GE) has moved from forced distribution
ratings to a more performance management approach
Changes include:
An app-based system to provide ongoing coaching
Evaluating employees relative to desired traits
5-29

Forced Distributions
Why might forced distributions demotivate employees?
How have forced distributions evolved over the years?
5-30
Forced Distribution

Advantages of Comparative Systems
Easy to explain
Straightforward: Identifies top as well as underperformers
Better control for biases and errors found in absolute systems:
Leniency, Severity, and Central tendency
Beneficial for jobs that are very autonomous
Attracts individuals high in cognitive abilities
5-31

Disadvantages of Comparative Systems
Rankings may not be specific enough for:
Useful feedback
Protection from legal challenge
No information on relative distance between employees

Specific issues with forced distribution method
5-32

Company Spotlight
Deloitte abandoned forced distribution ratings in favor of a
system that provides feedback on a project or quarterly basis
Changes include:
Documented, weekly “check-ins” with employees
Supervisor training on how to evaluate performance
5-33

Nature of Performance Distribution
Forced distribution implies that performance is normally
distributed
Recent research shows that, instead, performance is distributed
following a heavy-tail
That is,
There are more star performers
Differences between top and average performers are much
greater
5-34

What does the “myth of the bell curve” refer to?
Under what situations are traditional assumptions of
performance more likely to hold?
5-35

5-36

Producing Star Performers
5-37
Identify and eliminate situational constraints
Allow star performers to rotate across teams
Invest sufficient resources in star performers
Attend to stars developmental network
Shield from financial challenges
Give them preferential treatment, but explain why to all workers
Invest disproportionate amount of resources in stars

Absolute Systems
Essays
Behavior checklists
Critical incidents
Graphic rating scales
5-38

Behavior Checklists
Advantages:
Easy to use and understand
Provides quantitative information
Widespread use
More objective than other systems
Disadvantages:
May feel impersonal and disconnected
Scale points used are often arbitrary
Difficult to get detailed and useful feedback
5-39

Behavior Checklists
5-40
Example of Behavior Checklist Item

Simplest absolute method
Individualized for each employee
Can be done anytime
Potential for detailed feedback
Disadvantages:
Unstructured and may lack detail
Depends on supervisor’s writing skill
Comparisons virtually impossible
Lack of quantitative information; difficult to use in personnel
decisions
5-41

Critical Incidents
Advantages:
Focus on actual job behavior
Provides specific examples
Employees identify with rating
Disadvantages:
Collecting critical incidents can be very time consuming
Quantification is difficult
5-42

Critical Incidents
5-43
Example of Critical Incidents for Adaptability/Flexibility

Graphic Rating Scales
Advantages:
Meanings, interpretations, and dimensions being rated are clear
Useful and accurate
Most popular tool
Disadvantages:
Time consuming and resource-laden to develop
Lacks individualized feedback and recommendations

5-44

Graphic Rating Scales:
BARS Improvement
Behaviorally Anchored Rating Scales (BARS)
Uses critical incidents as anchors
Involves multiple groups of employees in development
Identify important job elements
Describe critical incidents at various levels of performance
Check for inter-rater reliability
5-45

BARS Improvement
5-46
Example of BARS Improvement scale

Advantages and Disadvantages of Absolute Systems
Advantages:
Can be used in large and small organizations
Evaluations more widely accepted by employees
Disadvantages:
Higher risk of leniency, severity, and central tendency biases
Generally more time consuming than comparative systems
5-47

Role of Context
Plays important role in determining how performance is
measured
Examples
Competitive versus Collaborative
Value of long-term relationships with customers
Industry Trends
Leadership
5-48

Measuring Performance
Several types of methods
Differ in terms of:
Practicality (time and effort)
Usefulness (quantifiable)
5-49

Quick Review
Measuring Results
Determine Accountabilities
Determine Objectives
Determine Performance Standards
Measuring Behaviors
Comparative Systems
Nature of the Performance Distribution
Absolute Systems
Role of Context
5-50

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1-51

Performance Management
Third Edition
Herman Aguinis
Kelley School of Business
Indiana University
Boston Columbus Indianapolis New York San Francisco Upper
Saddle River
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Library of Congress Cataloging-in-Publication Data
Aguinis, Herman
Performance management / Herman Aguinis. — 3rd ed.
p. cm.
ISBN-13: 978-0-13-255638-5 (alk. paper)
ISBN-10: 0-13-255638-3 (alk. paper)
1. Employees—Rating of. 2. Performance—Management. I.
Title.
HF5549.5.R3A38 2013
658.3'125—dc23
2011037274
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10 9 8 7 6 5 4 3 2 1
CONTENTS
Preface viii
Acknowledgments xiii
Dedication xiv
About the Author xiv
PART I Strategic and General Considerations 1
Chapter 1 Performance Management and Reward Systems in
Context 1
1.1 Definition of Performance Management (PM) 2
1.2 The Performance Management Contribution 4
1.3 Disadvantages/Dangers of Poorly Implemented PM Systems
8
1.4 Definition of Reward Systems 10
1.4.1 Base Pay 10
1.4.2 Cost-of-Living Adjustments and Contingent Pay 11
1.4.3 Short-Term Incentives 11
1.4.4 Long-Term Incentives 11
1.4.5 Income Protection 12

1.4.6 Work/Life Focus 13
1.4.7 Allowances 13
1.4.8 Relational Returns 13
1.5 Aims and Role of PM Systems 14
1.5.1 Strategic Purpose 15
1.5.2 Administrative Purpose 16
1.5.3 Informational Purpose 16
1.5.4 Developmental Purpose 16
1.5.5 Organizational Maintenance Purpose 16
1.5.6 Documentational Purpose 17
1.6 Characteristics of an Ideal PM System 18
1.7 Integration with Other Human Resources and Development
Activities 23
1.8 Performance Management Around the World 24
� CASE STUDY 1-1: Reality Check: Ideal Versus Actual
Performance
Management System 28
� CASE STUDY 1-2: Performance Management at Network
Solution
s, Inc. 31
� CASE STUDY 1-3: Distinguishing Performance Management
Systems from
Performance Appraisal Systems 32

Chapter 2 Performance Management Process 37
2.1 Prerequisites 38
2.2 Performance Planning 46
2.2.1 Results 46
2.2.2 Behaviors 46
2.2.3 Development Plan 47 iii
iv Contents
2.3 Performance Execution 48
2.4 Performance Assessment 49
2.5 Performance Review 50
2.6 Performance Renewal and Recontracting 52
� CASE STUDY 2-1: Job Analysis Exercise 55
� CASE STUDY 2-2: Disrupted Links in the Performance
Management Process
at “Omega, Inc.” 55
� CASE STUDY 2-3: Performance Management at the
University of Ghana 56

Chapter 3 Performance Management and Strategic Planning 59
3.1 Definition and Purposes of Strategic Planning 60
3.2 Process of Linking Performance Management to the
Strategic
Plan 61
3.2.1 Strategic Planning 65
3.2.2 Developing Strategic Plans at the Unit Level 74
3.2.3 Job Descriptions 76
3.2.4 Individual and Team Performance 77
3.3 Building Support 79
� CASE STUDY 3-1: Evaluating Vision and Mission
Statements at Pepsico 82
� CASE STUDY 3-2: Dilbert’s Mission Statement Generator 83
� CASE STUDY 3-3: Linking Individual with Unit and
Organizational
Priorities 84
� CASE STUDY 3-4: Linking Performance Management to
Strategy at
Procter & Gamble 84

PART II System Implementation 87
Chapter 4 Defining Performance and Choosing a Measurement
Approach 87
4.1 Defining Performance 88
4.2 Determinants of Performance 89
4.2.1 Implications for Addressing Performance Problems 90
4.2.2 Factors Influencing Determinants of Performance 91
4.3 Performance Dimensions 91
4.4 Approaches to Measuring Performance 95
4.4.1 Behavior Approach 95
4.4.2 Results Approach 96
4.4.3 Trait Approach 99
� CASE STUDY 4-1: Diagnosing the Causes of Poor
Performance 101
� CASE STUDY 4-2: Differentiating Task from Contextual
Performance 102
� CASE STUDY 4-3: Choosing a Performance Measurement
Approach at
Paychex, Inc. 102

� CASE STUDY 4-4: Deliberate Practice Makes Perfect 103
Chapter 5 Measuring Results and Behaviors 106
5.1 Measuring Results 107
5.1.1 Determining Accountabilities 107
Contents v
5.1.2 Determining Objectives 109
5.1.3 Determining Performance Standards 111
5.2 Measuring Behaviors 112
5.2.1 Comparative Systems 115
5.2.2 Absolute Systems 118
� CASE STUDY 5-1: Accountabilities, Objectives, and
Standards 126
� CASE STUDY 5-2: Evaluating Objectives and Standards 126
� CASE STUDY 5-3: Measuring Competencies at the
Department of
Transportation 127
� CASE STUDY 5-4: Creating BARS-Based Graphic Rating

Scales for
Evaluating Business Student Performance in Team Projects 128
Chapter 6 Gathering Performance Information 130
6.1 Appraisal Forms 131
6.2 Characteristics of Appraisal Forms 137
6.3 Determining Overall Rating 140
6.4 Appraisal Period and Number of Meetings 143
6.5 Who Should Provide Performance Information? 146
6.5.1 Supervisors 146
6.5.2 Peers 146
6.5.3 Subordinates 147
6.5.4 Self 148
6.5.5 Customers 149
6.5.6 Disagreement Across Sources: Is This a Problem? 149
6.6 A Model of Rater Motivation 150
6.7 Preventing Rating Distortion Through Rater Training
Programs 153
� CASE STUDY 6-1: Evaluating an Appraisal Form Used in
Higher Education 157
� CASE STUDY 6-2: Judgmental and Mechanical Methods of

Assigning
Overall Performance Score at The Daily Planet 162
� CASE STUDY 6-3: Minimizing Intentional and Unintentional
Rating Errors 164
� CASE STUDY 6-4: Minimizing Biases in Performance
Evaluation at Expert
Engineering, Inc. 165
Chapter 7 Implementing a Performance Management System
168
7.1 Preparation: Communication, Appeals Process, Training
Programs, and Pilot Testing 169
7.2 Communication Plan 170
7.3 Appeals Process 174
7.4 Training Programs for the Acquisition of Required Skills
176
7.4.1 Rater Error Training 177
7.4.2 Frame of Reference Training 180
7.4.3 Behavioral Observation Training 181
7.4.4 Self-Leadership Training 182

7.5 Pilot Testing 184
7.6 Ongoing Monitoring and Evaluation 185
vi Contents
7.7 Online Implementation 188
� CASE STUDY 7-1: Implementing a Performance Management
Communication Plan at Accounting, Inc. 192
� CASE STUDY 7-2: Implementing an Appeals Process at
Accounting, Inc. 192
� CASE STUDY 7-3: Evaluation of Performance Management
System at
Accounting, Inc. 192
� CASE STUDY 7-4: Training the Raters at Big Quality Care
193
PART III Employee Development 195
Chapter 8 Performance Management and Employee
Development 195
8.1 Personal Developmental Plans 196

8.1.1 Developmental Plan Objectives 197
8.1.2 Content of Developmental Plan 199
8.1.3 Developmental Activities 200
8.2 Direct Supervisor’s Role 203
8.3 360-Degree Feedback Systems 206
8.3.1 Advantages of 360-Degree Feedback Systems 213
8.3.2 Risks of Implementing 360-Degree Feedback Systems 215
8.3.3 Characteristics of a Good System 215
� CASE STUDY 8-1: Developmental Plan Form at Old
Dominion University 220
� CASE STUDY 8-2: Evaluation of a 360-Degree Feedback
System Demo 220
� CASE STUDY 8-3: Implementation of 360-Degree Feedback
System at Ridge
Intellectual 221
� CASE STUDY 8-4: Personal Developmental Plan at
Brainstorm, Inc.—Part I 221
� CASE STUDY 8-5: Personal Developmental Plan at
Brainstorm, Inc.—
Part II 222

Chapter 9 Performance Management Skills 226
9.1 Coaching 227
9.2 Coaching Styles 233
9.3 Coaching Process 233
9.3.1 Observation and Documentation of Developmental
Behavior
and Outcomes 235
9.3.2 Giving Feedback 239
9.3.3 Disciplinary Process and Termination 245
9.4 Performance Review Meetings 248
� CASE STUDY 9-1: Was Robert Eaton a Good Coach? 256
� CASE STUDY 9-2: What Is Your Coaching Style? 257
� CASE STUDY 9-3: Preventing Defensiveness 259
� CASE STUDY 9-4: Recommendations for Documentation 260
PART IV Reward Systems, Legal Issues, and Team
Performance Management 263
Chapter 10 Reward Systems and Legal Issues 263
10.1 Traditional and Contingent Pay Plans 264
10.2 Reasons for Introducing Contingent Pay Plans 265

Contents vii
10.3 Possible Problems Associated with Contingent Pay Plans
268
10.4 Selecting a Contingent Pay Plan 270
10.5 Putting Pay in Context 272
10.6 Pay Structures 276
10.6.1 Job Evaluation 277
10.6.2 Broad Banding 279
10.7 Performance Management and the Law 280
10.8 Some Legal Principles Affecting Performance
Management 281
10.9 Laws Affecting Performance Management 284
� CASE STUDY 10-1: Making the Case for a CP Plan at
Architects, Inc. 289
� CASE STUDY 10-2: Selecting a CP Plan at Dow
AgroSciences 289
� CASE STUDY 10-3: Contingency Pay Plan at Altenergy LLC
290

� CASE STUDY 10-4: Possible Illegal Discrimination at
Tractors, Inc. 291
Chapter 11 Managing Team Performance 294
11.1 Definition and Importance of Teams 295
11.2 Types of Teams and Implications for Performance
Management 296
11.3 Purposes and Challenges of Team Performance
Management 298
11.4 Including Team Performance in the Performance
Management
System 299
11.4.1 Prerequisites 300
11.4.2 Performance Planning 302
11.4.3 Performance Execution 303
11.4.4 Performance Assessment 304
11.4.5 Performance Review 305
11.4.6 Performance Renewal and Recontracting 306
11.5 Rewarding Team Performance 307
� CASE STUDY 11-1: Not All Teams Are Created Equal 309
� CASE STUDY 11-2: Team Performance Management at Duke

University
Health Systems 310
� CASE STUDY 11-3: Team-Based Rewards for the State of
Georgia 312
� CASE STUDY 11-4: Team Performance Management at Bose
313
Index 315
1 Generating buzz: Idaho Power takes on performance
management to prepare for workforce aging. (2006,
June). Power Engineering. Retrieved November 26, 2010 from
http://www.powergenworldwide.com/index/
display/articledisplay/258477/articles/power-
engineering/volume-110/issue-6/features/generating-buzz-
idaho-power-takes-on-performance-management-to-prepare-for-
workforce-aging.html
2 Workforce performance is top HR priority. (2005). T+D,
59(7), 16.
PREFACE AND INTRODUCTION

In today’s globalized world, it is relatively easy to gain access
to the competition’s technology and
products. Thanks to the Internet and the accompanying high
speed of communications, technolog-
ical and product differentiation is no longer a key competitive
advantage in most industries. For
example, most banks offer the same types of products (e.g.,
various types of savings accounts
and investment opportunities). If a particular bank decides to
offer a new product or service
(e.g., online banking), it will not be long until the competitors
offer precisely the same product. As
noted by James Kelley, performance management project leader
at Idaho Power, “technology is a
facilitator, but not a guarantor, of effectiveness or efficiency of
a company’s workforce.”1
So, what makes some businesses more successful than others?
What is today’s key compet-
itive advantage? The answer is people. Organizations with
motivated and talented employees
offering outstanding service to customers are likely to pull
ahead of the competition, even if
the products offered are similar to those offered by the
competitors. This is a key organizational

resource that many label “human capital” and gives
organizations an advantage over the compe-
tition. Customers want to get the right answer at the right time,
and they want to receive their
products or services promptly and accurately. Only having the
right human capital can make
these things happen. Only human capital can produce a
sustainable competitive advantage. And,
performance management systems are the key tools that can be
used to transform people’s talent
and motivation into a strategic business advantage.
Unfortunately, although 96% of human
resources (HR) professionals report that performance
management is their number 1 concern,
fewer than 12% of HR executives and technology managers
believe that their organizations have
aligned strategic organizational priorities with employee
performance.2
This edition includes the following six important changes. More
detailed information on
each of these issues is provided in the section titled “Changes in
This Edition.”
• There is an emphasis on the role of the context within which

performance management
takes place.
• This edition emphasizes that knowledge generated regarding
performance management is
essentially multidisciplinary.
• This edition emphasizes the important interplay between
science and practice.
• This edition describes the technical aspects of implementing a
system in detail and, in addition, it emphasizes the key role that
interpersonal dynamics
play in the process.
• This new edition includes new cases in almost every chapter.
Taken together, this new
edition includes a total of 43 case studies.
• Each of the chapters includes new sections.
SOME UNIQUE FEATURES OF THIS BOOK
Performance management is a continuous process of identifying,

measuring, and developing the
performance of individuals and teams and aligning their
performance with the strategic goals of
the organization. Performance management is critical to small
and large, for-profit and not-for-profit,
viii
http://www.powergenworldwide.com/index/display/articledispla
y/258477/articles/power-engineering/volume-110/issue-
6/features/generating-buzzidaho-power-takes-on-performance-
management-to-prepare-for-workforce-aging.html
Preface and Introduction ix
domestic and global organizations, and to all industries. In fact,

the performance management
model and processes described in this book have been used to
create systems to manage the perform-
ance of college students.3 After all, the performance of an
organization depends on the performance of
its people, regardless of the organization’s size, purpose, and
other characteristics. As noted by
Siemens CEO Heinrich von Pierer, “whether a company
measures its workforce in hundreds or
hundreds of thousands, its success relies solely on individual
performance.” As an example in the
not-for-profit sector, the government in England has
implemented what is probably the world’s
biggest performance management system, and, by statutory
force, the performance of teachers and
“headteachers” (i.e., school principals) is now evaluated
systematically. This particular system
includes a massive national effort of approximately 18,000
primary schools, 3,500 secondary schools,
1,100 special schools, 500 nursery schools, 23,000
headteachers, 400,000 teachers, and an unspecified
number of support staff.4
Unfortunately, few organizations use their existing performance
management systems

in productive ways. Performance management is usually vilified
as an “HR department require-
ment.” In many organizations, performance management means
that managers must comply
with their HR department’s request and fill out tedious, and
often useless, evaluation forms.
These evaluation forms are often completed only because it is
required by the “HR cops.”
Unfortunately, the only tangible consequence of the evaluation
process is that the manager has to
spend time away from his or her “real” job duties.
This book is about the design and implementation of successful
systems. In other words, it focuses on research-based findings
and up-to-date applications that
help increase an organization’s human capital. Performance
management is ongoing and cyclical;
however, for pedagogical reasons, the book needs to follow a
linear structure. Because performance
observation, evaluation, and improvement are ongoing
processes, some concepts and practices
may be introduced early in a cursory manner but receive more
detailed treatment in later sections.
Also, this book focuses on best practices and describes the

necessary steps to create a top-notch
performance management system. As a result of practical
constraints and lack of knowledge about
system implementation, many organizations cut corners and do
not implement systems that
follow best practices because of environmental and political
issues (e.g., goals of raters may not be
aligned with goals of the organization). Because the way in
which systems are implemented in
practice is often not close to the ideal system, the book includes
numerous examples from actual
organizations to illustrate how systems are implemented given
actual situational constraints.
CHANGES IN THIS EDITION
This edition includes important updates and additional
information. In preparation for revising
and updating this book, I gathered more than 300 potentially
relevant articles and books. About
150 of those were most relevant, and about 50 of those new
sources are now included in this
edition. These sources have been published since the second
edition of the book went into
production. This vast literature demonstrates an increased

interest in performance management
on the part of both academics and practitioners.
This edition includes five important changes throughout the
book. First, there is an emphasis
on the role of the context within which performance
management takes place. Performance manage-
ment does not operate in a vacuum. Rather, it takes place within
a particular organizational context,
and organizations have a particular history, unwritten norms
about what is valued and what is not,
3 Gillespie, T. L., & Parry, R. O. (2009). Students as
employees: Applying performance management principles
in the management classroom. Journal of Management
Education, 33, 553–576.
4 Brown, A. (2005). Implementing performance management in
England’s primary schools. International
Journal of Productivity and Performance Management, 54, 468–
481.
x Preface and Introduction

5 Aguinis, H., Boyd, B. K., Pierce, C. A., & Short, J. C. (2011).
Walking new avenues in management research
methods and theories: Bridging micro and macro domains.
Journal of Management, 37, 395–403.
6 Cascio, W. F., & Aguinis, H. (2008). Research in industrial
and organizational psychology from 1963 to 2007:
Changes, choices, and trends. Journal of Applied Psychology,
93, 1062–1081.
and unwritten norms about communication, trust, interpersonal
relations, and many other factors
that influence daily activities. Thus, for example, implementing
a 360-degree feedback system may be
effective in some organizations but not in others (Chapter 8). As
a second illustration, some organiza-
tions may have a culture that emphasizes results more than
behaviors which, in turn, would dictate
that the performance management system also emphasize
results; instead, other organizations may
place an emphasis on long-term goals, which would dictate that
performance be measured by empha-
sizing employee behaviors rather than results (Chapter 4). Also,
we need to understand the contextual
reasons why performance ratings may not be accurate—
particularly if there is no accountability for

raters to provide valid assessments (Chapter 6). As yet another
example, cultural factors affect what
sources are used for performance information: In a country like
Jordan, whose culture determines
more hierarchical organizational structures, the almost
exclusive source of performance information
is supervisors, whereas employees and their peers almost have
no input; this situation is different in
countries with less hierarchical cultures in which not only
performance information is collected from
peers, but also supervisors are rated by their subordinates
(Chapter 6). To emphasize the role of
culture, this edition describes examples and research conducted
in organizations in Jordan (Chapter
6); Japan, China, Turkey, Germany, France, South Korea,
Mexico, Australia, and the United Kingdom
(Chapter 1); Brazil (Chapter 3); Hong Kong and the Pearl River
Delta (Chapter 11); Ghana (Chapter 1);
South Africa (Chapter 1); Bulgaria and Romania (Chapter 1);
and India (Chapters 1 and 3).
Second, this edition emphasizes that knowledge generated
regarding performance manage-
ment is essentially multidisciplinary. Accordingly, the sources
used to support best-practice

recommendations offered in this book come from a very diverse
set of fields of study ranging from
micro-level fields focusing on the study of individual and teams
(e.g., organizational behavior,
human resource management) to macro-level fields focusing on
the study of organizations as a
whole (e.g., strategic management). This is consistent with a
general movement toward multidis-
ciplinary and integrative research in the field of management.5
For example, best-practice
recommendations regarding the measurement of performance
originate primarily from industrial
and organizational psychology (Chapter 5). On the other hand,
best-practice recommendations
regarding the relationship between performance management
and strategic planning were
derived primarily from theories and research from strategic
management (Chapter 3). In addition,
much of the best-practice recommendations regarding team
performance management originated
from the field of organizational behavior (Chapter 11).
Third, this edition emphasizes the important interplay between
science and practice.
Unfortunately, there is a great divide in management and related

fields between scholars and
practitioners. From the perspective of scholars, much of the
work conducted by practitioners is
seen as relevant but not rigorous. Conversely, from the
perspective of practitioners, the work done
by scholars is seen as rigorous but mostly not relevant. This
“science-practice divide” has been
documented by a content analysis of highly prestigious
scholarly journals, which regularly pub-
lish work that does not seem to be directly relevant to the needs
of managers and organizations.6
This edition attempts to bridge this divide by discussing best-
practice recommendations based on
sound theory and research and, at the same time, by discussing
the realities of organizations and
how some of these practices have been implemented in actual
organizations.
Fourth, this edition, as its predecessor, describes the technical
aspects of implementing a
performance management system in detail. In addition, this
edition emphasizes the key role that
interpersonal dynamics play in the process.7 Traditionally,
much of the performance appraisal

literature has focused almost exclusively on the measurement of
performance—for example,
Preface and Introduction xi
whether it is better to use 5-point versus 7-point scales.
However, more recent research suggests
that, related to the issue of context mentioned earlier, issues
such as trust, politics, leadership, nego-
tiation, mentorship, communication, and other related topics
related to interpersonal dynamics are
just as important in determining the success of a performance
management system. Accordingly,
this edition discusses the need to establish a helping and
trusting relationship between supervisors
and employees (Chapter 9), the role of an organization’s top
management in determining the
success of a system (Chapter 3), and the motivation of
supervisors to provide accurate performance
ratings (Chapter 6), among many other related issues throughout
the book.
Fifth, this new edition includes new cases in almost every

chapter. Taken together, this
new edition includes a total of 43 case studies. In addition, the
instructor ’s manual includes
approximately 4 more cases per chapter, for a total of about 40
additional cases. Thus, depending
on an instructor ’s preference, a course based on this new
edition could be taught entirely follow-
ing a case format or using a lecture and case combination
format.
In addition to the aforementioned changes that permeate the
entire book, each chapter includes
new sections. As illustrations, consider the following chapter-
by-chapter nonexhaustive additions:
• Performance management around the world (Chapter 1). This
material will be useful in
terms of understanding that although performance management
systems may have similar
goals, their implementation and deployment will be affected by
cultural and contextual
factors depending on where the organization is located.
• Biases in the job analysis process and their effects in the
resulting job analysis ratings

(Chapter 2). This material will be useful in terms of providing
guidelines on how to gather
valid job analysis information.
• Relationship between strategies, goals, and firm performance
(Chapter 3). This new material
will be useful in providing guidelines on the most effective
sequence of implementation of
the various strategic planning steps as it cascades down and
across the various organizational
units.
• Voice behavior: Raising constructive challenges with the goal
to improve rather than merely
criticize, challenge the status quo in a positive way, and make
innovative suggestions for
change when others, including an employee’s supervisor,
disagree (Chapter 4). This material
will be useful in terms of understanding the multidimensional
nature of performance and
how different performance dimensions may be valued
differently in different organizations.
• Relative percentile method for measuring performance
(Chapter 5). This material will be

useful regarding the development of measures to assess
performance more accurately.
• Open-ended sections included in most appraisal forms
(Chapter 6). This material will be
useful in terms of learning how to make the most of this
information, which is typically
underutilized in most performance management systems.
• Calculation of return on investment of portions of a
performance management system
(Chapter 7). This material will be useful in terms of learning
how to document the relative
effectiveness, in tangible and financial terms, of a performance
management system.
• The feedforward interview (FFI) (Chapter 8). This new
material will be useful in terms of
understanding how the FFI is a process that leads to uncovering
the contextual and per-
sonal conditions that lead to success regarding both
achievement and job satisfaction.
• Disciplinary process that may lead to termination (Chapter 9).
This material will be useful in

terms of providing information on what to do when performance
problems are identified but
employees are unable or unwilling to address them effectively.
• Relationship between new legal regulations and the
implementation of performance
management systems in China (Chapter 10). This new
information will be useful in terms
7Aguinis, H., & Pierce, C. A. (2008). Enhancing the relevance
of organizational behavior by embracing
performance management research. Journal of Organizational
Behavior, 29, 139–145.
xii Preface and Introduction
of understanding how the legal environment has a direct impact
on performance
management practices worldwide.
• Types of learning that can take place as part of the team
development plan in the perform-
ance planning stage (Chapter 11). This material will be useful in

terms of providing a
deeper understanding of specific interventions aimed at
improving team learning and
performance.
Further, the following is a nonexhaustive list of specific topics
that have been updated and
expanded in each chapter:
• The discussion of voice behavior (i.e., constructive criticisms
that challenge the status quo
and promote innovative improvements) …

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