Performance management is a process of evaluating employees work in line with set goals and objectives.
This is a fundamental management tool necessary to establish a growth oriented organization. Effective performance management is essential to businesses. Through both formal and informal processes, it helps them align their employees, resources, and systems to meet their strategic objectives.
Continuous exercise of performance management also alerts management or managers of potential problems, helping them to know when they must make adjustments to keep a business on track.
Organizations that get performance management right become formidable competitive entities. Most successful companies would attribute their success to a sound alignment of employees, processes and goals. Knowing the full benefits of performance management, it beats us when too many companies have a slow or nonexistent performance-management system.
Strong performance management rests on the simple principle that “what gets measured gets done.” In an ideal system, a business creates a cascade of metrics and targets, from its top-level strategic objectives down to the daily activities of its employees. Managers continually monitor those metrics and regularly engage with their teams to discuss progress in meeting the targets. Good performance is rewarded; underperformance triggers action to address the problem.
Where do things go wrong?
In the real world, the details of performance management systems are difficult to get right. Let’s look at a few common pitfalls.
The metrics that a company chooses must actually promote the performance it wants. Usually, it can achieve this only by incorporating several of them into a balanced scorecard. Problems arise when that does not happen. Some manufacturing plants, for example, still set overall production targets for each shift individually. Since each shift’s incentives are based only on its own performance, not on the performance of all shifts for the entire day, workers have every incentive to decide whether they can complete a full “unit” of work during their shift.
If they think they can, they start and complete a unit. But if they don’t, they may slow down or stop altogether toward the end of the shift because otherwise all of the credit for finishing their uncompleted work would go to the following shift. Each shift therefore starts with little or no work in process, which cuts both productivity and output. A better approach would combine targets for individual teams with the plant’s overall output, so workers benefit from doing what they can to support the next shift as well as their own.
Selecting the right targets is both science and art. If they are too easy, they won’t improve performance. If they are out of reach, staff will not even try to hit them. The best targets are attainable, but with a healthy element of stretch required.
Lack of Transparency
Employees have to believe their targets encourage meaningful achievement. Frequently, however, the link between individual effort and company objectives is obscure or gets diluted as metrics and targets cascade through the organization. Different levels of management, in an attempt to boost their own standing or ensure against under-performance elsewhere, may insert buffers into targets. Metrics at one level may have no logical link to those further up the cascade.
In the best performance-management systems, the entire organization operates from a single, verified version of the truth, and all employees understand both the organization’s overall performance and how they contributed to it. At the end of every shift at one company in the hospitality sector, all employees pass the daily production board, where they can see their department’s results and the impact on the company’s performance. The company has linked the top-line financial metrics that shareholders and the board of directors care about to the production metrics that matter on the ground. Employees can see the “thread” that connects their daily performance with the performance of their business unit (Exhibit 1).
A senior manager at another hospitality company aligns the whole organization around a shared vision through quarterly meetings for more than 50 staff. Managers not only share the company’s financial performance but also introduce new employees, celebrate work anniversaries, and recognize successful teams. Most important, if targets are missed, the senior manager acts as a role model by taking responsibility.
Lack of Relevance
The right set of metrics for any part of a business depends on a host of factors, including the size and location of an organization, the scope of its activities, the growth characteristics of its sector, and whether it is a start-up or mature. To accommodate those differences, companies must think both top-down and bottom-up. One option is the policy-deployment approach: all employees determine the metrics and targets for their own parts of the organization. Employees who set their own goals tend to have a greater sense of ownership for and commitment to achieving them than do those whose goals are simply imposed from above.
Lack of Dialogue
Performance management does not work without frequent, honest, open, and effective communication. Metrics are not a passive measure of progress but an active part of an organization’s everyday management. And in many high-performing companies, supervisors act as coaches and mentors. One-on-one sessions for employees demonstrate concern and reinforce good habits at every stage of career development.
Lack of Consequences
Performance must have consequences. While the majority of employees will never face the relentless “win or leave” pressure typical of professional sports, weak accountability tells people that just showing up is acceptable.
Rewarding good performance is probably even more important than penalizing bad performance. Most companies have various kinds of formal and informal recognition-and-reward systems, but few do enough of this kind of morale building, either in volume or frequency. In venues from lunchroom celebrations to general gathering announcements, employee-of-the-month and team-achievement awards are invaluable to encourage behavior that improves performance and keeps it high. One COO at an industrial-goods company keeps a standing agenda item in the monthly business review for recognizing the performance of individuals and teams. Employees on the list may find a gift waiting at home to thank them (and their families) for a job well done.
Lack of Management Engagement
Management interactions with personnel are an extremely powerful performance-management tool. They send a message that employees are respected as experts in their part of the business, give managers an opportunity to act as role models, and can be a quick way to solve problems and identify improvements.
One company’s machinery shop, for example, had developed such a reputation for sloppiness and missed deadlines that managers suggested outsourcing much of its work. When a senior manager was persuaded to visit the workshop, he was appalled at the dirty, cluttered, and poorly maintained environment. Employees reported chronic underfunding for replacement parts and tools, and asked the manager what it would take to save their jobs. He told them to “clean up the shop and give me a list of what needs to be fixed.” Both sides lived up to their commitments, and in less than a year the shop became a reference case for efficiency within the company.
how to get things right
You guessed right.
By building a strong performance system.