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Performance Management – the Future is NOW!

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Some organisations have a Performance Management system in place – many do not. Why is it that so many organisations don’t have Performance Management in place? Many organisations have some form of Balanced Scorecard in place – many do not. But very few of those that have a Balanced Scorecard-type system actually cascade the scorecard down the organisation – to at least “work team” level.

Why is this so? Are we “missing the boat” here somewhere? Why is it that we have this disconnect between “people” performance and “business” performance?

Modern research and the Human Capital Management Maturity Model suggest differently.

Traditional “Performance Management”

The origins of the “traditional” Performance Management system can be traced back to the 1940’s. Performance Management process was primarily developed and introduced by HR to enable management to justify remuneration and/or bonuses paid to individual employees.

Central to traditional Performance Management is the Performance Appraisal – the process is as follows:

  • It is generally based on a review of how a person completed their job for the prior year – from the viewpoint of their manager. That is, it is “backward” looking.
  • A “score” is generally applied that could impact either pay or bonus, or both. That is, the emphasis is more “stick” than “carrot”!
  • There is some relationship with training, however the training is generally not focussed on the core skills needed for the job. That is, the training is “just in case” rather than “just in time”.
  • It is sometimes applied as an assessment of an employee for promotion.
  • It is typically conducted annually, but more recently one sees it conducted half-yearly or even quarterly.
  • It is generally a “paper-based” system, or, more recently, (and particularly with HRIS systems that focus around payroll) a computerised system, but based on the “paper-based” principles, workflow and deliverables.
  • Where HR is the custodian, there is generally a process in place – paper-based or otherwise.
  • Where HR is not the custodian, the process is inconsistent throughout the organisation – in terms of application, approach and results.

The core problems with these “paper-based” systems are:

  • They are generally not goal oriented, and where they are goal oriented, the goals are fairly narrowly defined and are certainly not linked or cascaded up to business goals.
  • They are very subjective – even the more modern 360° reviews. They are based on one person’s opinion of another, and the basis for that opinion is generally either not defined at all, or poorly defined.

That may work for some, but for others it does not work at all. In general, there are no “winners” in this process, except the HR custodian who is reviewed against how well performance management (performance appraisals) were applied, and not on how they improved business results. Managers, generally, hate the Performance Appraisal process and go through the process mostly because they have to. Employees, except those that come out tops, generally hate the process as they are aware of the impact on their overall remuneration and they have little faith in the process leading to improvement (skills, promotion, growth and development) for them.

Performance Appraisals

In terms of people development, there are basically 3 types of performance assessment:

  1. Self-referencing: A person’s performance is compared with previous performance.
  2. Norm referencing: A person’s performance is compared with a group of similar people (where the “average” is calculated based on the arithmetic mean of the total results of the group).
  3. Criterion referencing: A person’s performance is compared with predetermined, measurable criteria. The same criteria are applied to all similar job/competency requirements.

In the “traditional” Performance Management, both “self-referencing” and “norm referencing” are applied, with a good dose of subjectivity on the part of management.

Performance Management in the 21st Century.

Since the last decade of the 20th Century, Business Performance is being more closely related to “People Performance”, especially in businesses that are “knowledge”-driven. In line with this move, Performance Management is changing to become more aligned with, and driven by, business goals. The “new era” Performance Management process looks very different:

  • Corporate goals and objectives are cascaded down the organisation to “work team” and individual level.
  • The “competencies” needed to achieve the goals are identified and defined.
  • Individual goals for the next performance period (normally the next quarter, half year or full year) are negotiated and agreed including specific objectives for the period, backed up by a Job Description that includes the normal expectations (criteria) for that position.
  • Individual learning plans for the next performance period (normally the next quarter, half year or full year) are determined, backed up by a Competency Profile that includes the competence and level of competence expected to be able to achieve the goals and objectives for the position.
  • Performance is formally measured against achievement and reviewed quarterly, half-yearly and/or annually.
  • Performance is informally reviewed by the manager on an “as needed” basis. Employees who are not achieving their goals, objectives and competencies are reviewed more frequently – even monthly or weekly if necessary. The objective of this exercise is to identify problem areas and rectify them so that, by the end of the performance period, the employee, and the company, are on target.

“New era” Performance Management is, therefore, more developmental in approach, linked closely to business goals and business performance, and geared to early identification of problems in order to put corrective measures in place in time for these to have an impact on the final result.

The core strategic differences between “traditional” and “new era” Performance Management systems are listed in the table below:

 

“Traditional” PM

“New Era” PM

Focus

Backward focussed

Forward, goal achievement focussed

Focal Area

Individual performance

Business performance (through people)

Financial Focus:

Cost effective management of people

Produce economic value through people

Alignment to business

Not aligned

Closely aligned, part of business performance improvement

Computerised Performance Management Systems

As with the “traditional” vs “new era” Performance Management, computerised Performance Management follows pretty directly along the same lines. Older computerised Performance Management systems follow the “traditional” workflow, and new (Human Capital Management) systems follow the “new era” workflow, together with management dashboards and other tools for performance (both people and business) evaluation and performance (both people and business) problem solving.

The sad truth is, if you have the “older” system, it is unlikely that you will be able to move easily to the “new era” way of Performance Management.

So, organisations today need to understand where they are going with Human Capital Management – where they are in terms of the Human Capital Management Maturity Model, and where they want to be in the foreseeable future. HR strategists today need to understand the fundamental differences between HRIS (Human Resource Information Systems) and HCMS (Human Capital Management Systems).

This is not an either/or situation – organisations need both! But the sad truth today is that there are very few suppliers able to adequately address both “sides” of the HR management divide.

Benefits of Computerised Performance Management

Leading proponents of “new era” Performance Management list the following benefits of automated “new era” Performance Management:

Objective Setting – Visibility:

In many organisations, some managers fail to set objectives at the start of the process.  By contrast, automated systems track which managers have defined objectives to be achieved by their staff and when they set the objectives.  Automated systems therefore drive “performance thinking” and ensure staff are aware of their objectives for the full performance period.

Objective Quality through Visibility:

Automated systems provide visibility for all managers, including the CEO, to view objectives cascaded throughout the organisation and ensure that they will achieve strategy.

Frequency of Review:

Manual performance management systems are both cumbersome and administratively intensive.  In an automated environment, reviews can be conducted more frequently (quarterly or bi-annually) according to changing organisational needs.

Performance Management – On the Go:

Best Practice in automated systems enables both managers and staff to record information that is relevant to their objectives, as events occur during the review period.  This enables people to record information that will substantiate achievement towards their objectives and goes a long way to resolving the issue of “forgotten” information that is relevant to the review.

Process Familiarisation:

Most manual systems are used once annually resulting in a substantial re-education process that is required at each review time.  By contrast automated systems are continually used by managers and staff ensuring full knowledge and understanding of the system on an ongoing basis.

Remuneration Based on Real Performance:

In manual systems, it is nearly impossible to compare departments and determine an equitable split of the bonus pool.  In automated systems, results are available graphically by department and each department can be compared relative to each other. A more equitable distribution of bonuses can then be made after the review data is normalised.

Wasted Resource:

In manual systems it is necessary for the HR department to dedicate one or two staff to the distribution, collation and management of reviews for months – sometimes on a full-time basis.  With an automated system, there is much less management of processes, forms and paperwork, leaving more time for HR staff to assist line managers with qualitative issues.

Line of Sight – Visibility:

Manual Performance Management systems do not enable managers to view objectives for all staff reporting to them – they have very little visibility on the objectives or performance of staff that are more than one management layer removed from them.  Automated systems provide a full Drill Down, which enables managers at all levels to view objectives and performance all the way down the organisational chart.

Workflow:

Manual systems often fall into disuse because managers fail to complete staff reviews, or fail to complete them in time.  Automated systems, on the other hand, drive the process and assist line managers in completing reviews on time by provide status reporting.

For more information on “new era” Performance Management, Human Capital Management Strategy, and the Human Capital Management Maturity Model, click the button below.

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