It might be called the same thing, but Performance Management will always be a part of every business.
With the recent headlines and hype around, “throw out Performance Management,” many are asking the question, “What takes its place? What next?” The simple answer is that few are literally throwing Performance Management (PM) out in its entirety. It is evolving into something more doable and usable.
Performance Management (PM) is and will always be an integral part of every business. Every manager and business owner without exception, with or without formal training, practices Performance Management on an intuitive level every day. They may not even know it is called “Performance Management”, but it is permanently on their mind – how to increase the effectiveness of the company by improving the performance of the people who work in it.
Background to PM
As companies and their workforces grew in size and their processes became more complex, a need for more structured, efficient and formalised Performance Management arose, ultimately resulting in a field of research interest by scholars from the fields of leadership, economics, human resources and psychology. They developed numerous theories, methods and procedures to facilitate and improve the outcome. In practice, they yielded only various degrees of success, because all businesses are different, there is no “one size fits all” recipe. What works in a firm of attorneys may not necessarily work in a construction company. Also, it may be a generation issue. What worked with Baby Boomers, may no longer work with Generation Y. Their priorities and motivational factors are vastly different. These are some of the reasons why the field is constantly evolving. Some old techniques are discontinued, while some other new ones are emerging.
Let us define Performance Management. According to Armstrong’s Handbook of Performance Management. It is “a process for establishing shared understanding about what is to be achieved and how it is to be achieved, and an approach to managing and developing people that improves individual, team and organisational performance.” The purpose is to achieve better results. It is inconceivable that organisations wouldn’t want to align employees to focus their efforts on achieving the organisation’s strategies.
Why do organisations still need PM?
No matter what else changes around them, there are a few factors that will never change.
Organisational leaders will always want to:
1. improve organisational performance;
2. align individual and organisational objectives;
3. align individual behaviour with values of the organisation;
4. provide the basis of personal development;
5. develop a performance culture;
6. improve individual performance;
7. confirm contribution/performance pay decision; and
8. motivate people.
This is where Performance Management comes in.
Concerns about Performance Management
Performance is obviously an extremely difficult variable to measure, especially in today’s rapidly changing organisations. Results and measures become obsolete very quickly, and translating interactions and human desires to measurements may be seen as unlikely and impersonal. This means that a PM system has to be continually evaluated against its goals.
I came across an article by the Boston Consulting Group titled “The Art of Performance Management.” I think the authors really got to the gist of why PM systems need to be revamped.
They claim that companies’ Chief Financial Officers have increasingly become responsible for the performance aspect of the business, making them the “chief performance officer”.
The article points out: “Unfortunately, most CFOs are poorly served in this role by the current state of their company’s Performance Management system. The proliferation of information technology has allowed organisations to generate more data and reports than ever before. The paradoxical result, however, is that senior managers and boards of directors are drowning in a sea of data without the tools needed to translate that data into genuine intelligence and insight about the business.
At most large companies, the Performance Management system is a hodgepodge of legacy systems. KPIs are not aligned across the organisation. Different information systems categorise data differently – what some parts of the organisation define as fixed costs, others define as variable; human resources, finance, and payroll often have different definitions of what constitutes an FTE. Decision rights as to who decides what data to collect are so distributed that there is no consistent approach to reporting across the entire company.
As a result, the finance organisation spends an inordinate amount of time simply putting the data together and trying to resolve the inconsistencies so that executives can make apples-with-apples comparisons. We estimate that this task consumes roughly 30 percent of the resources in a typical corporate finance function. But the far more serious cost is the negative impact of poor data quality on senior management time and decision making. As one senior executive said, “Our leadership team spends so much time trying to make sense of the data and debating whether it is right that we never get around to exploring what it really means for the business!”
CFOs are keenly aware of the problem. “We generate some 20,000 reports every year – one for every three employees! That can’t be right,” said one. “We’ve stitched together our Performance Management system on blood, sweat, and Excel,” said another. “It’s a controller’s nightmare.”
Their advice is for companies to stop spending money on new IT systems, to step back and take a more strategic and holistic approach. The company’s most important metrics need to be identified in order to help build an organisational system that will translate the data into actionable business insights and more useful decision making.
On a practical level, changes that companies can make to modernise their systems include:
1. simpler forms;
2. abolishing two rating sessions a year and replacing them with ongoing conversations;
3. removing forced ranking; and
4. avoiding moderating performance scores at the expense of line manager authority.
The law and Performance Management
Another albeit less positive reason for retaining an effective PM system is that it helps clarify misconduct and incapacity as described by the Labour Relations Act (LRA) 66. “The LRA, in section 188, indicates that a dismissal will not be unfair if it is for a fair reason related to the employee’s conduct, capacity, or the employer’s operational requirements, and if fair procedure is followed.”
In the case of Stevenson v Sterns Jewellers (Pty) Ltd (1986) it was found that:
“Those employed in senior management may by the nature of their job be fully aware of what is required of them and fully capable of judging for themselves whether or not they are achieving that requirement.”
These two extremes only go to show how flexible a company’s PM system needs to be and to this end, the following trends should be noted:
Trend 1: From paper chase to a conversation;
Trend 2: Quantitative and Qualitative, Financial and Non-Financial metrics;
Trend 3: Use your judgement, you are getting paid to;
Trend 4: Individuals and teams;
Trend 5: Outputs, not activities;
Trend 6: Not only IQ, but EQ and SQ;
Trend 7: Consciously develop a performance culture; and
Trend 8: The nub of it is who:
a. adds value?
b. would you fight for not to lose? and
c. would you hand pick to be in your team?
Whether or not it is in a formal programme, Performance Management will always be part and parcel of every organisation. It is a tool that can be used to great advantage, if only harnessed to the right horses. Simply put, Performance Management systems need to get more intelligent.
Dr Mark Bussin is the Executive Chairperson at 21st Century Pay Solutions Group, www.21century.co.za, a Professor at University of Johannesburg, Professor Extraordinaire at North West University, Chairperson and member of various boards and remuneration committees, immediate past President and EXCO member of South Africa Reward Association, and a former Commissioner in the Office of the Presidency.
This article appeared in the December 2015 issue of HR Future magazine.