PERFORMANCE ASSESSMENT AND INVESTMENT DECISIONS OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA (A CASE STUDY OF SOME SELECTED SMES IN IKEJA, LAGOS)

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   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:

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

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