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PERFORMANCE
ASSESSMENT AND INVESTMENT DECISIONS OF SMALL AND MEDIUM SCALE ENTERPRISES IN
NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Researchers
all over the world has advocated the need for manager or consultant to
constantly examines and evaluates an employee’s work behavior and productivity
by comparing it with preset standards, document the results of the comparison,
and use the results to provide feedback to the employee to show where
improvements are needed and why (Miles, 2002). This therefore enables managers
to know the areas to invest in for optimal performance.
Performance
assessment is employed to determine who needs what training, and who will be
promoted, demoted, retained, or fired. It also determines which section of the
organization needs maintenance and upgrading. Investment decisions involve the
thought process of selecting a logical choice from the available options.When
trying to make a good decision, the decision maker must weigh the positives and
negatives of each option, and consider all the alternatives. For effective
decision making, a person must be able to forecast the outcome of each option
as well, and based on all these items, determine which option is the best for
that particular situation most importantly the previous performance will be a
proper guide in the choice of where to invest (Child, 2002).
Dean and
Sharfman (2006) observe, the following two assumptions must hold to prove a
link between investment decision process and performance assessment. Firstly, it must be assumed that investment
decision processes are related to choices determine by previous achievements;
or, more specifically, that the investment decision process was influencedby
the quest for better performance and productivity. Although this assumption appears intuitively
obvious, many academics have argued that the operating environment shapes
organizational and individual choices (for example, Aldrich, 2009; Pfeffer and
Salancik, 2008). Others, however, claim
that despite the existence of these external factors, managers retain a
substantial degree of control over choices (for example, Miles, 2002; Child,
2002). One argument made in favour of
this position by Dean and Sharfman (2006) is that some managers make very poor
choices with devastating consequences for their firms, while others in very
similar circumstances make much better choices (for example, Bourgeois,
2004). Such variation, the authors
assert, could not exist if performance assessment has been the driving force
for such investment decisions. Hence,
Dean and Sharfman (2006) conclude that it appears likely that viable outcomes
are a product of the decision process used.
Leading on from this, the second assumption is that choices relate to
outcomes, and that all outcomes are not equally good. Once again there can be very little doubt
that external forces also influence decision effectiveness (Hitt and Tyler,
2001; Pfeffer and Salancik, 2008).
However, Dean and Sharfman (2006) note that it is unlikely that the
influence of such forces as performance assessment eliminates the impact of
choice on decision effectiveness as it is hard to imagine a decision in which
all potential choices will be equally successful or unsuccessful. The
researcher seeks to examine the influence of performance assessment on
investment focusing on SMES in Nigeria.
1.2 STATEMENT OF THE PROBLEM
Many
empirical studies have investigated the existence of a relationship between the
performance evaluation or assessment and investmentdecision. None have concentrated on the use of decision
analysis in the investment decision-making processes of organisations. However, several have explored the effects of
comprehensiveness, rationality, formality and consensus in the decision-making
process on organisational performance.
Advocates of
performance assessments maintain that every task must have performance criteria
forat least two reasons:
The criteria
define for performance and others the type of behavior or attributes of
aproduct which are expected, and
A
well-defined scoring system allows the managers, the employees, andothers to
evaluate a performance or product as objectively as possible. If performance
criteria are welldefined, another person acting independently will award an
employee essentially the same score.
Furthermore,
well-written performance criteria will allow the managers to be consistent in
scoring overtime which will definitely reshape the decision making process of
the management. However, the researcher is examining the relationship between
performance assessment and decision making of SMES in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The general
objective of this study is to analyze the relationship between performance
assessment and investment decision of SMES in Nigeria and the following the
specific objectives:
To examine
the relationship between performance assessment and investment decision of
SMES.
To
investigate strategies that can be adopted in conducting an effective
performance assessment.
To find out
the factors that can influence investment decisions.
1.4 RESEARCH QUESTIONS
What is the
relationship between performance assessment and investment decision of SMES?
What are the
strategies that can be adopted in conducting an effective performance
assessment?
What are the
factors that can influence investment decisions?
1.5 RESEARCH HYPOTHESIS
HO: There is
no significant relationship between performance assessment and investment
decision of SMES
HA: There is
significant relationship between performance assessment and investment decision
of SMES
1.6 SIGNIFICANCE OF THE STUDY
The
following are the significance of this study:
This study
will educate the stakeholders and management of small and medium enterprises on
the need for performance assessment as a guide to investment related decision
making.
This
research will be a contribution to the body of literature in the area of the
relationship between performance assessment and investment decision, thereby
constituting the empirical literature for future research in the subject area.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study
on the relationship between performance assessment and investment decision will
cover some selected small and medium scale enterprises in Ikeja, Lagos state of
Nigeria by carefully examining the influence of
performance assessment on investment decision in an organization with a
view to attain the organizational goal. The study will also cover an overview
of the strategies that can be adopted in conducting an effective performance
assessment.
LIMITATION
OF STUDY
Financial
constraint– Insufficient fund tends to impede the efficiency of the researcher
in sourcing for the relevant materials, literature or information and in the
process of data collection (internet, questionnaire and interview).
Time
constraint– The researcher will simultaneously engage in this study with other
academic work. This consequently will cut down on the time devoted for the
research work.
1.8 DEFINITION OF TERMS
Performance:
The accomplishment of a given task measured against preset known standards of
accuracy, completeness, cost, and speed. In a contract performance is deemed to
be the fulfillment of an obligation, in a manner that releases the performer
from all liabilities under the contract.
Organization:
A social unit of people that is structured and managed to meet a need or to
pursue collective goals. All organizations have a management structure that
determines relationships between the different activities and the members, and
subdivides and assigns roles, responsibilities, and authority to carry out
different tasks. Organizations are open systems–they affect and are affected by
their environment.
Investment:
Money committed or property acquired for future income.
Decision:A
choice made between alternative courses of action in a situation of
uncertainty.
SME: Small
and Medium Scale Enterprise
REFERENCES
Aldrich,
H.E., 2009, Organisations and environments, Englewood Cliffs, Prentice Hall,
New Jersey
Bourgeois,
L.J., III, 2004, Strategic management and determinism, Academy of Management
Review, 9, pp586-596
Child, J.,
2002, Organisational structure, environment, and performance: the role of
strategic choice, Sociology, 6, pp2-21
Dean, J.W.
and Sharfman, M.P., 2006, Does decision process matter? A study of strategic
decision-making effectiveness, Academy of Management Journal, April, volume 39,
number 2, pp368-97
Hitt, M.A.
and Tyler, B.B., 2001, Strategic decision models: Integrating different
perspectives, Strategic Management Journal, 6, pp171-180
Miles, R.H.,
2002, Coffin nails and corporate strategies, Englewood Cliffs, New Jersey,
Prentice Hall
Pfeffer, J.,
and Salancik, G.R., 2008, The external control of organisations: A resource
dependence perspective, Harper and Row, New York.
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