The Value Promise of Performance Management

Updated: December 06, 2010

The Keys to Delivering Value

If performance management delivers value in best of class organizations, what are they doing differently than most organizations? Various authors and research studies have attempted to identify what are the key drivers in delivering real value from performance management processes. A summary of key findings are offered below:

  • Avoid making it too complicated - Many organizations make the mistake of creating too many goals and gathering too many metrics in their performance management process. The result is tremendous time investment and employee confusion. BusinessWeek Research Services (2008) found that "Determining the appropriate number of goals and types of metrics was considered the number one performance management success factor."
  • Provide a supportive culture - Performance management has to be supported by senior executives. They need to foster a supportive culture in order to realize real value. The same study from BusinessWeek Research Services (2008) found that "The biggest obstacles to widespread execution of performance management are "lack of accountability" and "a culture that does not support measurement."
  • Make it widespread and consistent - Performance management needs to be an enterprise wide practice in order to realize full value. This was a finding supported by BusinessWeek Research Services (2008). This study indicated that, "The biggest return comes from extending performance management to front line workers". Typically, technology is needed to provide widespread access and use. However, remember rule #1 to keep it simple. Lot's of bells and whistles not only results in difficult and costly implementations, the added complexity also results in line managers and front line workers rejecting the technology.
  • Don't forget foundation skills - Performance management in more than standardizes processes and measurements. Real value is dependent on the interactions between employees and managers. In an international cross study of performance management practices published in SASCOM magazine (4th qtr. 2006), the authors concluded "Overall the research shows that successful performance management efforts combine the measurement process with appropriate infrastructure, skills, and culture." Managers need to have basic skills to manage performance effectively. These skills include:
    • Setting Performance Goals
    • Monitoring Performance
    • Providing Performance Feedback
    • Conducting Performance Reviews
    • Conducting a Developmental Planning Meeting
  • Align individual performance goals with organizational goals - Linking the goals of an individual with the broader goals of a business unit or an organization is called cascading. In order to optimize strategic value, performance management processes should help ensure that the efforts of all employees are in alignment with the goals of the organization. Aligning performance management to support organizational goals and to integrate with other systems proved to be the most critical differentiator in system effectiveness (DDI - Performance Management Practices Survey Report).
  • Focus on both the "whats" and the "hows" of performance - Job performance is not one-dimensional. Focusing only on what was accomplished ignores the importance of how the results were achieved. Adding goals for competencies that are needed to support results in the plan ensures both aspects of performance are considered. Performance against competency goals can be reliably tracked using multi-rater or 360 data. These data along with appropriate development content and support processes also help drive individual development planning. In spite of the value received from including competencies, the DDI Performance Management Practices Survey Report found only 38% of organizations followed this practice.
  • Make it a process not an event - In most organizations, the Performance Review is typically treated as a single event, looking backwards rather than forward. Making it an ongoing process requires anticipating problems and focusing on the present or future. This means that managers need to have frequent ongoing discussions through out the year planning and communicating with employees to improve current and future performance.
  • Focus on development and improvement, keep pay discussions separate - Rensis Likert offered this critique of the performance review discussion in the July 1959 issue of the Harvard Business Review, "The aim of reviewing the subordinate's performance is to increase his effectiveness, not to punish him. But apart from those few employees who receive the highest possible ratings, performance review interviews, as a rule, are seriously deflating to the employee's sense of worth ... not only is the conventional performance review failing to make a positive contribution, but in many executives' opinions it can do irreparable harm." Samuel Culbert, a professor of management at UCLA and Lawrence Rout, a senior editor at the Wall Street Journal concur in their book, "Get Rid of the Performance Review!," These authors contend that the typical performance review discussion derails due to differences in the mindsets of the two participating parties. The employee is concerned about the impact of the review on his/her pay. This leads to the employee focusing on defending mistakes, justifying actions, promoting their accomplishments, and challenging the manager's evaluations. At the same time the manager is trying to engage the employee in a discussion of how performance could be improved. The net result is that both parties feel frustrated by the discussion.

The purpose of performance review discussions should be on development and improvement. Discussions about pay should occur separately and recognize that pay decisions are only partially informed by performance. Organizational performance, the employee's position within their pay range, and external supply and demand factors also contribute significantly to pay decisions.

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