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:
1. The criteria define for performance and
others the type of behavior or attributes of aproduct which are expected, and
2. 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:
1. To
examine the relationship between performance assessment and investment decision
of SMES.
2. To
investigate strategies that can be adopted in conducting an effective
performance assessment.
3. To
find out the factors that can influence investment decisions.
1.4 RESEARCH QUESTIONS
1. What
is the relationship between performance assessment and investment decision of
SMES?
2. What
are the strategies that can be adopted in conducting an effective performance
assessment?
3. What
are the factors that can influence investment decisions?
1.5 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:
1. 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.
2. 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