The Value of Managing Performance

Importance in Management

John Kotter describes management as consisting of planning; organising and resourcing; review and control; and communication. All of these activities are heavily influenced and informed by performance management.

Performance management is an absolutely essential business management process and an important tool for people managers to use in meeting their business objectives:

· Organisations are increasingly realising that it is often not the quality of their strategy but their employees' ability to implement it that will make the difference. Bossidy and Charan define this ability to execute as 'the missing link between aspirations and results'.

· In addition, in order to maximise an organisation's potential for achieving its strategy, it is essential that the organisation both creates and develops the capability of its people. Improved business performance can really only be achieved through effective people management.

The purpose of Performance Management is, therefore, to increase the effectiveness of people at work in order to improve business performance.

Achieving this improvement in performance should be the number one priority for any line manager. A manager can achieve high performance much more easily by working through their team, rather than concentrating on their own day-to-day tasks.

By managing their people effectively, managers gain greater productivity from all those in their team. This means less time concentrating on the things that go wrong, and more time on looking ahead to advance their team's capabilities and improve both their own and their team's value to the organisation.

This is why Jack Welch at GE used to spend more than fifty per cent of his time on people issues.

Bureaucracy is History

In practice, many managers concentrate on their own responsibilities and on their own technical / functional expertise, fitting in people management around this. Management becomes an add-on when it should be the central focus of their job.

So why is performance management often pushed to the side in this way?

A common reason seems to be that performance management is often associated with paperwork, bureaucracy and difficult conversations. This is largely due to the way the process has developed over time.

Up until the early 1990s, performance management was seen largely as an appraisal scheme for determining performance related pay increases. People may have used it for setting objectives at the start of the year and were then appraised against their achievement of these objectives at the end of the year. The results of this appraisal would determine pay and promotion.

The whole process would have been fairly static with people only really looking at their objectives at the start or end of the year. Some more enlightened organisations may have had more regular reviews, however, common practice was still rather event driven.

Since there was little ongoing conversation, the end of year rating would often come as a surprise. This would lead onto long debates about evidence, judgement and subjectivity and an overall deterioration in the line manager / employee relationship.

Overall, performance management was rather monolithic, it was owned by HR, viewed as being something you had to do to get paid and certainly not something that was not seen as having real business value.

Requirements for Effectiveness

Performance management is now usually seen as a process, rather than an event, with individuals and line managers much more likely to use the process regularly. When used like this, performance management is much more of a monitoring process that helps individuals and line managers take stock of where they are and plan what they need to do to achieve the right results. Performance management processes are also more likely to be used to engage and enhance individual, team and organisational performance.

This has been helped by a number of things:

· Clarity in performance objectives: whether through the use of scorecards (key performance measures spread over four or more quadrants, for example, people, finance, customer and process) or through Key Performance Indicators, the setting of performance standards is essential. Every member of staff should be clear about their role, what they are expected to do and the level of performance they need to attain. Only when individuals can clearly see how their efforts contribute to the achievement of the organisation's overall objectives can they fully focus on moving the organisation forward. Individuals appreciate this clarity, become more motivated about what they need to do as a result and are encouraged to develop their capability to achieve as much as they can. Any performance management process needs to ensure that this strand is put in place.

· Performance assessment and feedback: naturally enough it is not sufficient just to make it clear to people what they need to do. Effective assessment of performance at regular and appropriate times is also essential. The role of the line manager in this is crucial as they must provide the appropriate guidance, feedback and support to help their staff understand how they are doing; suggest ways of doing things better and to really focus their interactions on increasing effectiveness. Any assessment process must be simple, easy to operate and allow the interactions between the line manager and their reports to be the main focus.

· Joint review: the use of a performance management process is much more about joint responsibility now that it once was. Line managers and individuals have to use the process together, each with their own responsibilities, in order that they get the most out of it. In this respect it is more like a performance contract between the individual and the line manager, with both signing up to helping the other achieve the right results and develop in the right ways.

· The use of multi-rater feedback: multi-rater feedback has become a much more common part of the performance management process. This provides much greater levels of information and objectivity to the review process, enabling individuals to be more open to development opportunities. It also provides upward feedback and as such allows leadership teams to be much more aware of their areas of development.

· Employee engagement: performance management meetings are one of the key 'moments of truth' where a line manager can show appreciation of a person's contribution, identify their career and engagement drivers, and find ways to motivate the individual to perform, grow and stay within the organisation. Even when giving constructive criticism, when done when, performance management meetings should be positive and engaging events.

· The development focus: people have seen that development is an essential element of driving up individual performance. Competence frameworks have often been used to assess the level of capability an individual has and identify where they need development. The individual can then undertake some form of development to reduce their capability gap. This focused development can then be seen to directly help the individual perform better in their role and thus increase their contribution to overall organisational performance.

· Flexible and pragmatic approach: the processes that are used today are much better able to cope with different needs, requirements and abilities. When building performance management processes the accent needs to be on simplicity, usability and flexibility. This ensures that the process can be used, helps individuals understand what they need to do and how they need to do it (i.e., what are the right behaviours they need to demonstrate) and focuses the organisation on a performance culture. Once again the new performance management is not about control it is about enablement and whatever process is designed, this must be its key aim.

· The use of systems and technology: technology can be an enormous help to making a performance process useable and attractive. With the growth of Intranets, a simple solution can be produced that makes the individuals objectives or performance criteria much more accessible. Individuals can be encouraged to look at the system on a more regular basis and see performance management as a continuous process.

· This is not a HR owned process: one of the more potent changes has been that forward thinking HR practitioners have understood that they do not own the performance management process. They need to be responsible for creating, embedding and supporting the process but they do not own it; the business does. If performance management is to be a tool to enhance business performance (through enhancing individuals and their development) then the business needs to own it. HR has used this shift as a means of helping HR business partners achieve their objectives. This is a fundamental change that has helped in the understanding of the value of performance management and has significantly increased its usage.

Line Manager Capability

A critical role here is that the line manager is a 'coach'; someone who helps an individual achieve to their potential and contribute to the overall success of the organisation.

Many performance management processes fall down in this area if the development of the coaching skills is not done and if line mangers are not clear that this is their role.

An emphasis on the education and development of the line manager should therefore be a significant element of any implementation of performance management.

The Business Benefits

When done well, performance management provides substantial benefits to an organisation. These benefits include:

For the organisation:

· Alignment of objectives

· Motivation of employees

· Support for core values

· Improvement in training and development

· Development as a learning organisation

· Focus on continuous improvement

· Basis for career development

· Retention of skilled employees

· Support for culture change.

For line managers:

· Clarification of expected performance and behaviour

· Support for leadership, motivation and team building

· Basis for helping under performers

· May be used to develop or coach individuals

· Improving relationships with team members

· Basis for non-financial reward, including recognition and development.

For individuals:

· Greater clarity of roles and objectives

· Encouragement and support to perform well

· Provision of guidance in developing abilities

· Improving relationship with their line manager

· Clarity over contribution to organisational performance

· An objective and fair basis for assessing performance.

These benefits are significant. In the private sector, a study by Morgan and Schiemann found that organisations using people measures to help manage their business had a five-year return on investment of 146 per cent, compared to 97 per cent in other organisations, and a one-year return on assets of 4.6 per cent compared to 1.9 per cent in other organisations.

In the public sector, effective performance management helps organisations achieve their key performance outcomes, meet the needs of stakeholders and develop operational excellence in providing their services.

Line managers should not view performance management as a chore - it is the key to their own effectiveness and to that of their employing organisations.

Jon Ingham
Executive Consultant
Strategic Dynamics Consultancy Services

Jon Ingham graduated from Imperial College, London in 1987 and joined Andersen Consulting (now Accenture) as a systems development consultant. After ten years in IT, change and then HR consulting, John joined Ernst & Young as an HR Director, working firstly in the UK, and then, based in Moscow, covering the former USSR.

Jon is now a Director in Human Capital Consulting with Buck Consultants, part of ACS, one of the leading business process and HR outsourcing firms. Jon also consults independently through Strategic Dynamics, and as an associate of Learning Light. In all of these roles, Jon focuses on helping business that already have sound approaches to people management gain further improvements in the capabilities and engagement of their people, and the effectiveness of their organisations.