The main purpose of performance management is to ensure that the business strategy is executed as planned. Performance management seeks to guide and motivate company employees to make decisions and behave in line with the strategy. In reality, however, performance management systems suffer many flaws. Managerial decisions and actions don’t always reflect the company’s business strategy. Employees are not always clear on performance goals. They can be demotivated and often feel threatened by performance evaluations. As a result, the strategy does not get executed as planned, impacting the company’s bottom line with negative results.
FIVE ISSUES IN PERFORMANCE MANAGEMENT
Five issues come up routinely that keep performance management from driving strategy execution. These are as follows:
Non-Strategic Performance Management: An effective performance management system (PMS) usually targets 5 to 10 organizational competencies that are required to execute the business strategy. More than that and things become blurry because a performance management system that aims to satisfy too many objectives and juggles too many responsibilities is bound to cave of its lack of focus. The goal should be to support the major business needs and the organizational culture.
Adversarial Program. Performance management that takes place in an adversarial structure by pitting different parties against each other is ultimately destabilizing and counterproductive to the organization. Managing performance requires balancing divergent views and building consensus. When a PMS becomes adversarial, it becomes imperative to improve the management and processes to be more data-centered, less disciplinary and more improvement-oriented.
Ineffectiveness. When done correctly, performance management may turbocharge productivity in the organization by raising the standards of excellence. However, when done incorrectly, performance management discourages people and causes underperformance, driving a negative impact on the bottom line. A PMS becomes ineffective if it lacks one or more of the following characteristics: clear objectives and expectations, fairness, individual respect, regular feedback, and positive reinforcement.
Bureaucracy. The biggest weakness of many PMSs is that they can be static and cumbersome. Let’s take the Balanced Score Card (BSC) as an example. Its hierarchical, top-down approach requires setting cascading objectives and expectations across multiple levels. This process results in a large bureaucratic structure that becomes imposed on the company. While the BSC may work well in a stable environment, it doesn’t lend itself to a fast-changing organization, sudden shifts or strategic redirection.
No Self-Correction. A system usually incorporates a control mechanism for self-correction. However, when it comes to the PMS, the control mechanism for self-correction is often missing. Feedback from users should be collected periodically to assess user reaction and to modify the system as necessary. This feedback can be obtained in the form of a survey or focus group to provide information as to how well performance tracks with strategy execution, the quality of decisions made, effectiveness, the speed of execution, and the level of integration with other HR systems.
To make sure that performance management is performing as expected, senior management needs to ask the following questions:
- Is our performance management system strategic?
- What is our balance between exterior metrics and internal KPIs?
- What type of behavior does our performance management system truly drive?
- What measures of PMS effectiveness are we using?
- How quickly can our PMS shift direction if needed?
- How / how often do we evaluate our PMS?
Any of these issues can disqualify the merit of using performance management to guide the execution of strategy. In truth, the C-suite management team needs to be directly involved. Relegating the responsibility of performance management solely to the province of human resources invites unintended results.
If there is one important take-away, for companies that have not realized it before, is that a company’s PMS needs to be evaluated and managed as an essential tool for executing strategy. Senior executives and HR managers need to work together to ensure the effectiveness of the performance management system by reviewing these items periodically:
- Alignment with strategy, incorporating external metrics
- The list of organizational competencies (5 to 10) linked to strategic objectives that define job behavior and expectations
- Removal of unintended bias that comes from over-stressing KPIs
- Speed of real-time adjustment of the PMS to strategy changes
- Actual functional performance (through direct user feedback)
These reviews serve to isolate high-level issues that can hinder the performance management system from guiding the execution of strategy.