Six insights into Performance Management best practice

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8th Mar 2013
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A few years ago, the CIPD report ‘Performance Management in Action’ revealed the shocking statistic that less than 20 percent of organisations said they realised ‘some’ benefit from their investment in performance management. Just pause a moment and think about that number: this means that more than 80 percent of organisations see no benefit at all, even regarding performance management as actively destroying value. What on earth is going wrong? It is hard to think of any other optional business process that would continue with this level of failure rate.

Experience has shown me that the underlying problem with much performance management is that, somewhat bizarrely, it is not perceived as an essential methodology to manage and improve performance. Instead, performance management is perceived as an HR process closely linked to irksome red tape designed to prevent managers from doing their job. If you stand back from all the emotional baggage, it is a very weird perception. Why would a business not be interested in managing people, when sure as heck they are interested in managing money?

The essence of performance management is to ensure that everyone is doing what the organisation needs them to do, in the way that it needs them to do it, and that people get better at it each year. What’s not to want?
The problem often lies with ‘us’ in HR. We talk about alignment and competencies, embedding behavioural frameworks and rolling out revised rating systems. Meanwhile everyone else is just getting on with the job.

So, given that we are often our own worst enemies, how can HR deliver an approach to performance management that creates value?

Speak in the language of the business

Performance management is a business process. It should be couched in the language of your business and use the goals, aims and values of it as the central content.. For example, if your organisation seeks to develop a flexible and agile workforce, then everyone needs to know what flexible and agile looks like in the context of your organisation (it is unlikely to look like a top gymnast). Best practice means there is a common, articulated understanding of corporate language.

Focus on delivering strategy to the front line

This is the central purpose of performance management: if people do not have clear goals directly focused on delivering strategy appropriate to their role, they cannot give you maximum value. Managers find goal setting one of their most difficult and time consuming activities so it is not surprising that it is often poorly done or left incomplete. Providing ‘SMART’ training is useful as an introduction, but does little to improve goal setting in practice. Best practice finds a more effective route to goal setting than managers sitting down with headline company objectives and a summary of the SMART acronym.

Know what good looks like

I hear frequent requests to help managers know ‘what good looks like’. Performance cannot be managed without standards – if all performance is only relative to others in the team, then the entire business can be under-performing yet still handing out performance bonuses. Standards are not a job description, they are a clear picture of what good looks like in a role. Managers need to know what they can expect from people, how to coach for more and when they need to take remedial action. Without standards managers will fail to manage performance.

There are, of course, cultural norms in many organisations, and for lots of smaller companies the ‘do it like I do’ school of standards suffices. However, any serious attempt to create value from performance management requires an understanding of just what can be achieved. Steve Jobs was famously hard to please, nit picking over every detail. Bill Gates would often look at lines of code written by developers and send them praise/comments/ advice.

This is one area where benchmarking against other organisations can help. Choose organisations that perform highly in areas you want to improve upon and see what ‘good looks like’ to them. Best practice means standards are set to upper quartile against the benchmark.

Ensure accountability

Let’s face it, giving feedback can be challenging and managers will usually avoid tricky conversations if they can. Setting goals is hard work and, unless done effectively, often a waste of time. If no-one chases you to complete a performance review then you are likely to conclude that it wasn’t that important (based on the assumption that you are always chased for things that matter). If you are not accountable for how you have managed and developed your team, then how well you do it is more a matter of personal disposition than business commitment.

Accountability means consequences and organisations can get these horribly wrong. When I was doing my MBA, many of the lecturing staff complained they were endlessly told to improve teaching standards and devote more time to supporting students. At the same time recognition and reward were based exclusively on the amount of peer reviewed, published research each lecturer completed. Not surprisingly, most were unwilling to devote a lot of time to students. The National Student Survey is finally changing this mismatch of goals and consequences.

Even now, for many in the public and third sector, the reward for great performance is more work, while less hard-working colleagues are asked to do less.

Balance ‘fairness’ with a drive for high performance

If reward is based on achievement of goals, then all those at a particular level should be set goals of similar difficulty without reference to the capability of the individuals involved. However, to achieve high performance, goals need to make the same level of demand on individuals but in relation to their capability i.e. goals that stretch individuals but which take into account the difficulty level when it comes to rating achievement. This is a dilemma that needs resolving through policy. It is worth remembering that most of the time, performance is unaffected by the potential value of a bonus (if you want to question this go back and revise all the basic research on motivation and performance – money is not a factor). The outcomes of performance management must be debated and agreed at a policy level. Rewarding high performance is good- it encourages people to stay, shows you value their contribution, and raises individual engagement. Public recognition is even more effective than reward in many cases. Expecting people to perform better in the expectation of a bonus is largely a waste of time and money.

There is no perfect solution to the links between reward, recognition and performance management. There are a variety of good options that will work in different circumstances and there are some bad options that notoriously fail (think investment bankers).

DAILY performance management

I cannot think of a single organisation that makes daily financial management decisions based on the previous year’s annual report and accounts. Managers expect monthly accounts with many having access to daily trading information to enable them to take action to respond swiftly to changing business performance. Likewise, the annual appraisal is the equivalent of the annual report and accounts – it represents a summing up of all that is already known and has gone before.

Managing performance is a daily, weekly and monthly activity. In some environments, particularly smaller businesses, performance can be managed informally through daily contact. For larger, more complex organisations (typically over 100 employees, and definitely over 250) there needs to be some structure to ensure accountability for ongoing management of people. Best practice requires regular (at the very least quarterly) performance management to underpin annual performance reviews.

Summary

All the above takes time, a commodity in short supply for many managers. If managers do not have the time to spend reviewing performance with each direct report at least quarterly, it brings into question in what context they can be said to be managing these people at all. Performance management carried out in accordance with the principles above will create significant value for an organisation, and position HR as key players in delivering results.

Hedda Bird is a mathematician by training with an MBA from University of Warwick. By founding 3C Performance Management she has created a company devoted to helping organisations turn their performance management programmes into a source of competitive advantage. Clients include major private and public sector organisations across the UK as well as internationally.

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