Syntax
Literate: Jurnal Ilmiah
Indonesia p–ISSN: 2541-0849 e-ISSN: 2548-1398
Vol. 9, No.
2, Februari 2024
MEASURING ORGANIZATIONAL PERFORMANCE AND THE ROLE OF
PERFORMANCE MANAGEMENT USING PROFITABILITY RATIO
Eka Setiawati, Yohanes Ngamal
Sekolah Tinggi Ilmu Ekonomi Saint Theresa, Indonesia
Email: [email protected], yohanes@sainttheresa.ac.id
Abstract
The purpose of this research is to find out how PT. X applies performance
management and performance as a measuring tool. The data collection method in
this research is library research. In its implementation, Library Research is
carried out by reading, studying and taking notes on various literature or
reading materials that are appropriate to the subject matter, then filtered and
outlined in a theoretical framework of thought." (Kartini
Kartono: 1998). The conclusion that can be drawn is
Company PT X in the 2018-2022 period there were increases and decreases, this
condition was related to Covid 19 where external
factors such as the occurrence of Covid 19. The
highest profitability occurred in 2018. By looking at these data, the
performance of the PT company can be assessed. X is good. Because PT X controlling
the cost of goods or production costs, and PT X from the profitability ratio
description has been able to produce efficiently.
Keywords: organizational performance, management performance,
profitability ratio
Introduction
PT X, a company in Jakarta, is a company operating in the
retail business sector. In carrying out its operations PT. X applies
performance management and performance as a measuring tool. PT.X understands
that in the business world, performance is a driving tool that can create
success or achieve predetermined organizational goals. Employees often do not
pay attention to these things, except when the condition of the organization
experiences a downturn. Too often employees do not know how bad their
performance is, resulting in a decline in organizational performance creating a
crisis in their company.
Agus Dwiyanto in his book entitled Public Bureaucratic Reform in
Indonesia explains that organizations will run well if they carry out their
management functions appropriately. This can be called organizational
management. Company organizations require good organizational management.
However, company management must also be good, then it is likely that the
company's goals can be achieved. Organizational management can be understood
from the meaning of the words 'management' and 'organization. Nugroho (2017) defines Management for Business, Public and Non-Profit
Organizations, management is the process of planning, organizing, implementing,
and supervising the resources owned by the company. Various resources consist
of labor, finance, natural resources, knowledge, and
others.
The target to be achieved by management is to achieve the
company's targets in an effective and efficient manner. Meanwhile, the
definition of organization itself is interpreted as a collection of people who
work together and interact with each other and have important roles, tasks, and
functions within this group. It can be interpreted that organizational
management is the process of planning, organizing, implementing, and monitoring
organizational resources, where each person has important tasks, roles, and
functions to achieve organizational goals.
According to My Accounting Course, the definition of
organizational management is management activities carried out to fulfil
company goals, including dealing with existing problems. The management
function in organizing is considered an important function. Because management
creates an organizational system that makes it easier for management to control
and supervise the ongoing organization. So, management itself can find out
where management deficiencies lie so that they can be corrected, and management
goals can be achieved.
Quoting from the book Organizational Management (Theory and
Cases) by (Astuti, 2019), it divides seven organizational functions, namely: Planning
is the most important function of organizational management. This can be
interpreted as planning to determine the achievement of goals or objectives,
how to develop and form them. Planning is also the best way to achieve goals
and implement organizational strategies. Meanwhile, organizing Organizing refers to the relationships between individuals
in an organization. Organizations have a relationship with the capabilities and
resources used to achieve organizational goals. The staffing element is the
most important resource in an organization. Personnel has the duties of
recruiting, selecting, acquiring, training, and evaluating employees. Employees
are one of the determinants of an organization's success in achieving its
goals.
Direction (Directing) is usually carried out by the manager.
Direction is giving instructions, guiding, and reviewing employees, as one way
of achieving goals. In carrying out direction, managers need to pay attention
to various things related to the organization and HR behavior
because they determine the success of the organization, apart from staffing.
Meanwhile, the Motivation function is needed to encourage HR to improve the
organization's work ethic. Motivation is needed so that employees can do their
work well, so that the company's goals are achieved. The Implementation
(Actuating) function is the function of carrying out what has been previously
planned. The implementation function is carried out for the activities of a
group of people in an organization to achieve organizational goals. The final
function of these seven functions is the monitoring function. The supervisory
function is defined as the manager's job of supervising the process of implementing
activities by employees. The monitoring function also includes determining
whether organizational goals can be achieved by planning and implementing these
activities.
Meanwhile, organizational management structure is the
arrangement or relationship between parts of an organization. In implementing
the management span of control, an organizational structure is needed to
achieve company goals. Organizational structures usually take the form of
diagrams that explain the various employee positions in an organization. This
is done so that employees understand whose job it is to make reports and who
oversees supervising and giving commands.
In this organizational structure, the main director serves as
the leader of the company. The director must be responsible to the main
director. In carrying out his duties, the director supervises the marketing
manager, manager, and production manager. Each manager oversees a division
according to his field. The marketing manager leads the marketing division to
carry out production marketing. Production is usually led by a production
manager supervising employees in the production sector. The main duties of the
production manager are responsible for the goods production division of a
company. Meanwhile, the role of managers in the organization is to help the
company achieve its desired goals. Managers play a role in carrying out
management stages or functions in an organization. If organizational management
is good, then the goals of the organization or company can be achieved.
Managers and directors play a role in determining what activities or steps are
considered efficient and effective for the company.
Organizational
Performance
Organizational performance is a measuring tool to measure how
much an organization is performing. Dwyanto (2021) stated several things as follows, namely: 1. Productivity is
an individual's personality characteristics that appear in the form of mental
attitudes and contain the meaning of the individual's desires and efforts to
always try to improve the quality of his life. 2. Quality of service. Many
negative views are formed about public organizations, arising from public
dissatisfaction with the quality of services received from public
organizations. Therefore, satisfaction from the community can be a parameter for
assessing organizational performance. 3. Response The organization's ability to
recognize and meet community needs. Responses need to be included in
performance indicators because they directly describe the organization's
ability to carry out its mission and goals. 4. Responsibility explains whether
the implementation of public organization activities is carried out in
accordance with correct administrative principles or in accordance with
organizational policies, both explicit and implicit. 5. Accountability
(Accountability) shows how much the policies and activities of public
organizations are subject to political officials elected by the people.
According to this concept, public accountability can be used to see how much
the policies and activities of public organizations are consistent with the
wishes of the public (Dwiyanto, 2021).
So performance means a group of people in an organization
with their respective authority and responsibilities in order to achieve goals
or a group of people and individual employees who are in business entities or
government institutions who carry out functions or tasks. While the performance
of an organization is of course determined by individuals or apparatus within
the organization, there are several factors determining work performance or
individual performance that are very clear in determining the performance of
the organization, and from these five theories the success of the organization
in carrying out its goals and tasks which they carry out, has the aim of
solving welfare problems. Suyadi Prawirosentono
defines performance as something that influences the performance of an
organization, is as follows:
The definition of performance can also be interpreted as the
work results achieved by a person or group of people in an organization in
accordance with their respective responsibilities and authority. In order to
achieve the goals of the organization concerned legally, without violating the
law and in accordance with morals and ethics" (Gultom, 2014).
Performance management
To better understand what performance management is, we can
refer to the opinions of the following experts:
1) Robert Bacal
Bacal (1999), defines performance management as continuous communication
carried out in partnership between an employee and his direct superior. This
includes all activities to establish expectations and a clear understanding of
the work to be done.
2) Michael Armstrong
Armstrong (2004), performance management is a strategic and integrated
approach to providing sustainable success to an organization by improving the
performance of employees who work in it and by developing the capabilities of
teams and individual contributors.
3) Sheila Costello
Sheila (1994) defines performance management as the basis and driving
force behind all organizational decisions, work efforts and resource
allocation.
4) Gary Schwartz
Gary S
(1999), defines performance management as a management style that is based on
open communication between managers and employees regarding goal achievement,
providing feedback from managers to employees and vice versa, as well as
performance appraisal.
5) Lloyd Baird
Lloyd B
(1986), the definition of performance management is a work process of a group
of people to achieve predetermined goals, where this work process takes place
continuously and continuously.
Profitability
The profitability of a company can be assessed in various
ways depending on the profits and assets or capital that will be compared with
each other. The aim of the profitability ratio is to assess the company's
ability to make a profit or gain in a certain period. Apart from that, the
profitability ratio also provides a measure of the level of effectiveness of a
company's management as shown by the profits generated from sales or investment
income (Kasmir, 2019). Meanwhile, Prihadi defines
profitability as the ability to generate profits (Farasi, 2022).
Moreover, the purpose
of this research is to find out how PT. X applies performance management and
performance as a measuring tool.
Research Methods
The data collection method in this research is Library
Research. In its implementation, Library Research is carried out by reading,
studying and taking notes on various literature or reading materials that are
appropriate to the subject matter, then filtered and outlined in a theoretical
framework of thought" (Kartono, 1998).
The literature study method involves a comprehensive review
and analysis of existing literature, including books, articles, and other
relevant sources, to gain a deep understanding of the topic. This method
includes the following steps:
1) Identification of Relevant Sources: The first step is to
identify and gather relevant literature, such as books, articles, and other
publications, related to the topic of interest.
2) Review and Analysis: The gathered literature is then
thoroughly reviewed and analyzed to extract key
information, concepts, and findings related to the research topic.
3) Synthesis of Information: The next step involves synthesizing
the information obtained from the literature review to develop a comprehensive
understanding of the topic and identify key themes, trends, and gaps in the
existing literature.
4) Citation and Referencing: Throughout the literature study, it
is essential to accurately cite and reference the sources used to ensure
academic integrity and provide proper credit to the original authors.
Results and Discussion
PT X understands that good management is the key to the
welfare of society consisting of various organizations. The results of research
carried out by Markos & Sandhya (2012) regarding the key to successful
performance is employee engagement. Employee involvement is a key factor in the
positive performance of an organization. One aspect that is key in management
is how managers can recognize the role and importance of the parties who will
support the achievement of company goals. The costs incurred for human
resources are the most dominant compared to expenditures on other resources. In
increasingly tight competition in the global market, many business
organizations are affected by disasters, suffer losses, and even suffer bankruptcy,
which is caused by the low productivity of human resources in these business
organizations.
Problems that befall business organizations can be resolved
by finding the main causes that give rise to these problems. The cause of this
problem is due to business organizations implementing performance management.
Therefore, performance management is an important means of getting better
results in organizations, teams, and individuals within an agreed framework in
planning goals, targets, and standards. Performance output refers to the level
of individual success in carrying out tasks and the ability to achieve agreed
or predetermined goals. Work assessment becomes a formal system for reviewing
and evaluating individual or teamwork. In the explanation, performance
measurement is an important variable in management as part of efforts to
improve performance itself (Wang, 2014). For this reason, performance measurement is very important
because without measurement it is impossible for an organization to know the
development of the company it manages. So, it can be concluded that performance
measurement or performance management must be preceded by a correct
understanding of the essence of performance itself. Therefore, it can be
concluded that performance is the basis or foundation of the entire process of
performance assessment and management.
Inaccuracy in defining performance does not mean that
performance assessment and management is not wrong. Based on the results of
research conducted by Suhartono (2012), it is said
that to achieve the goals of performance management, business organizations
must develop supervision in making improvements to work management.
Furthermore, from research conducted by Azmy
(2019) developing strategic human resource management to support
organizational competitiveness: a performance management perspective, the
results obtained were that leadership, motivation and work stress
simultaneously had a significant effect on employee performance. Meanwhile,
according to Rohaga (2014), the implementation of
performance management still has shortcomings, namely: the management stages
have not been fully implemented in accordance with existing provisions, the
focus of implementation is still limited to the performance assessment stage.
The implementation of performance management in organizations
has the aim of providing tools or methods by which better results can be
obtained for individuals and work teams by understanding and managing performance
on one goal and frame of objectives, standards, and planned competency
requirements. According to Sunarto (2015) performance
management implemented in organizations has several benefits, namely: (1) to
improve performance in achieving organizational, team and individual employee
effectiveness. (2) To develop employees through effective processes and
continuous development. (3) Satisfying the needs and expectations of all
organizational stakeholders, owners, management, employees, customers, and
society, and (4) regarding communication and involvement of the entire
organization regarding various information about the organization's vision,
mission, values, and goals. Work management implemented through the employee
performance assessment process has many benefits for all parties, namely for
those being assessed (employees), for being assessed (superiors) and for the
organization (Rivai et al., 2011).
The benefits for employees assessed are increased motivation,
job satisfaction, clarity of expected work standards, feedback on performance,
knowledge of weaknesses and strengths and others. Meanwhile, for superiors, the
benefits obtained are the opportunity to measure employee performance and plan
improvements, providing opportunities to develop monitoring systems, identify
new ideas, plan opportunities for rotation and changes in staff work.
Furthermore, the benefits for the organization are improving all existing
units, increasing harmonious relationships between employees and work teams,
recognizing existing problems in the organization, establishing company culture
and others.
Castello (2014) defines performance management as supporting
the overall goals of the organization by linking the work of each worker and
manager to the overall mission of the work unit. If each worker understands
what is expected of them and has the support necessary to contribute to the
organization efficiently and productively, their sense of purpose, self-esteem
and motivation will increase. So, performance management requires cooperation,
mutual understanding and open communication between superiors and subordinates.
In making a decision whether a business entity or company has
good quality, there are two most dominant assessments which are used as the
basis of reference to see whether the business entity is implementing good
management principles. Usually, companies look at the financial performance in
the financial reports held by the company concerned. Performance is a
description of the level of achievement of the implementation of an
activity/program/policy in realizing the goals, objectives, vision, and mission
of an organization as stated in the formulation of an organization's strategic
scheme (strategic planning)" (Bastian, 2010).
Usually, a company assesses its success through the company's
financial performance, which is one of the bases for assessing the company's
financial condition which is carried out based on analysis of the company's
financial ratios. The parties who have an interest really need the results of
measuring the company's financial performance to be able to see the condition
of the company and the level of success of the company in carrying out the
company's success in carrying out its operational activities. Each company has
different performance due to the scope of the business it runs.
There are several stages in analyzing
financial performance, namely: (1) review of the financial reports, with the
aim that the financial reports that have been prepared are in accordance with
the application of the rules that apply to the accounting system, so that the
results of the financial reports can be accounted for, ( 2) The analysis and application
of the calculation method here is adjusted to the conditions of the problem
being carried out so that the results of the calculation will provide a
conclusion in accordance with the desired analysis, (3) comparison with the
calculation results that have been obtained from various other companies (Fahmi, 2011).
In assessing the company's financial performance and
achievements, it is necessary to carry out financial analysis, which is a
benchmark, namely using a ratio that connects two financial data with each
other. For this reason, it is necessary to carry out analysis using various
financial ratios to provide a better view of the company's condition and
company achievements. The use of various ratio analyzes
will be able to explain or provide an overview of the company's financial
position, especially if comparative ratio figures are used as standards.
The output resulting from measuring work performance can be
used as a tool for evaluating management's performance so far, whether they
have worked effectively or not. The results of this measure can be used as
reference material for future profit planning, as well as the possibility of
replacing new management, especially after the old management has failed. For
this reason, the profitability ratio is often referred to as a measure of
management performance (Kasmir, 2019). Apart from that, it is used as a comparison to assess the
condition of a company in generating profits, namely through profitability
analysis. (Kasmir, 2019) states that financial performance measurement standards for
assessing profitability are according to industry averages, namely: (1) NPM
above 20%, (2) ROA above 30%, (3) ROE more than 40%.
Measuring Company X's Performance Using Profitability Ratios
2018 – 2022
PT X's operational activities aim to obtain maximum profits.
In generating this profit, of course the company carries out sales activities
of both goods and services. For this reason, PT Because the profitability ratio
is a ratio that describes the company's ability to earn profits through all
existing capabilities and resources such as sales activities, capital, cash,
employees, branches and so on (Harahap, 2011). The next definition of Profitability Ratio is a ratio to
assess a company's ability to generate profits (Kasmir, 2019). Investors prefer companies with high profitability ratios
because investors think that with a high profitability ratio, the company can
provide high returns on investment so that the company makes more comprehensive
financial report disclosures to convince investors.
The higher the profitability ratio means the higher the
company's ability to earn profits and the better its financial performance.
Thus, the picture of company performance when analysed using the profitability
ratio is that of the three companies This means that the company's performance
is good based on Gross Profit Margin (GPM) ratio analysis. This ratio can be
used to determine the gross profit from each item that the company has
marketed. Gross profit margin is a ratio that measures the efficiency of controlling
the cost of goods or production costs, indicating the company's ability to
produce efficiently (Faruk & Habib, 2010).
In testing performance, Pt X using the formula according to
Henry (2012) in his book Financial Report Analysis, there are generally 4
profitability ratios, namely:
1. Gross profit margin:
Sales – (Cost of Good Sold)
GPM = X 100%
Sales
2. Net profit margin:
Earning After Tax (EAT)
NPM = X 100%
Sales
In measuring the amount of business income, it is sometimes
called net profit that comes from each sale. This ratio shows how well the
company's operating costs are managed. Furthermore, this ratio also shows
whether the company has generated enough sales to cover fixed costs and leave a
decent profit.
3.
Return on investment (ROI):
Earning After Tax (EAT)
ROI = X 100%
Total Asset
Roi is a ratio that measures the profit on the company
owner's investment (Return on the owner's investment). This ratio is used for
analysis and final evaluation to determine investment decisions in the company.
4.
Return
on equity (ROE)
:
Earning After
tax (EAT)
ROE = X 100%
Shareholders’ Equity
Below is described the company's financial condition as a
basis for calculating profitability using the Gross Profit Margin Ratio (GPM).
The data displayed is net sales and Cost of Goods Sold (COGS) between 2018 and
2022, because the GPM ratio is a comparison between net sales after deducting
COGS and net sales.
Table 1. Sales Data and Cost of Goods Sold
(COGS) Company X
|
No |
2018 |
2019 |
2020 |
2021 |
2022 |
|||||
|
1 |
COGS |
Sales |
COGS |
Sales |
COGS |
Sales |
COGS |
Sales |
COGS |
Sales |
|
|
1.81 |
2.24 |
1.88 |
2.24 |
2.20 |
2.60 |
3.08 |
3.28 |
3.05 |
3.37 |
Tabel 2. Gros
Profit Margin (GPM) Company X 2018-2022
|
Company Name |
Code |
Years |
||||
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
|
PT X |
BMAR |
99.80% |
24.22% |
17.42% |
15% |
7.35% |
Based on the data above using the Gross Profit Margin Ratio
calculation, the largest ratio in 2018 was 99.80%.
Overview of
Company Performance Using Profitability Ratios for Company X
As the definition explained by Srimindarti
(2004) states that company performance is a complete display of the
condition of the company during a certain period, it is a result or achievement
that is influenced by the company's operational activities in utilizing the
resources it has. The explanation of company performance is a general term used
for some or all the actions or activities of an organization in a certain period.
The company's operational activities aim to obtain maximum
profits. To obtain these profits, of course the company carries out sales
activities of both goods and services. In this research, the measurement of
company performance is measured by the profitability ratio. The profitability
ratio is a ratio that describes the company's ability to earn profits through
all existing capabilities and resources both in terms of cash sales, capital,
number of employees, number of branches and so on (Syafri,
2008). The profitability ratio measuring tool is a ratio to assess a company's
ability to generate profits (Kasmir, 2019). Investors prefer companies with high profitability ratios
because investors think that with a high profitability ratio, the company can
provide high returns on investment so that the company makes more comprehensive
financial statement disclosures to convince investors. The higher the
profitability ratio means the higher the company's ability to earn profits and
the better its financial performance.
The performance of the company analyzed
using profitability ratios in this research is company What the author did was
fluctuations in increases and decreases. This is caused by external influences,
namely Covid 19. Therefore, it can be concluded that
the performance of the company PT. X is good based on Gross Profit Margin (GPM)
ratio analysis. Meanwhile, the aim of the analysis using profit margin is aimed
at seeing and knowing two aspects, namely the company's gross profit based on
the goods the company sells. The second is to look at the company's efficiency,
because gross profit margin is a ratio that measures the efficiency of
controlling the cost of goods or production costs, indicating the company's
ability to produce efficiently (Alarussi & Gao, 2023).
Conclusion
Based on the discussion stated previously, the conclusions
that can be drawn are; (1) company Judging from the profitability ratio in the
2018-2022 period, there were increases and decreases, this condition is related
to Covid 19 where external factors such as the
occurrence of Covid 19. The highest profitability
occurred in 2018, and (2) by looking at these data, the performance of the PT
company can be assessed. X is good. Because the company is seen in controlling
its cost of goods or production costs, and company from the profitability ratio
description has been able to produce efficiently.
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Copyright holder: Eka Setiawati, Yohanes Ngamal (2024) |
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