The Benefits of Performance Management

Just the words Performance Management can send a shiver up the spine of many managers and employees, as it creates images of ‘big sticks’, ‘angry leaders’ and ‘people being driven on to achieve unattainable targets’; where performance management seems to get more attention when things aren’t going well and less attention when business is good.

Performance management is often misunderstood and far from being a method for ‘bullying’ and ‘setting unattainable targets’ it is a principle, which if adopted correctly has significant impact on business performance, as it links directly to the corporate strategy, corporate governance and enterprise risk management. Likierman (2009) mentions that one of the main problems is “the people managing performance frameworks are generally not experts in performance management. A really good assessment system must bring finance and line managers into some kind of meaningful dialogue that allows the company to benefit from both the relative independence of the former and the expertise of the latter” (p.101).

Performance management isn’t just about reporting figures and goes beyond the confines of the organisation to look at competitors and your industry sector, to identify meaningful benchmarks on which actual performance can be measured and assessed.

At the micro measurement level you’ll hear terms like key result indicators or key performance indicators. These key indicators, if correctly identified and implemented (and linked to the corporate strategy); allow directors, managers and staff to assess their strategic progress against key measures. In some cases, although key indicators are developed within the organisation, the understanding of how they link and impact on corporate strategy is left unexplained. This creates a culture of compliance rather than ownership, which never leads to the optimum results. In other cases these key indicators become static measures that don’t change over time, which leads to the methodology being blamed for not working, rather than the organisation being blamed for not working the methodology.

Performance management systems, if misunderstood or poorly implemented, can lead to an overload in the generation of meaningless information and reports, as the organisation develops itself into a state of information and statistical overload, simply for the sake of it. The creation of ‘silo’ key indicators at the functional/departmental level will create a further overload of data that does not integrate across the organisational structure and can often create a multitude of different approaches to measure the same indicator.

To make key indicators work effectively they must be reviewed as part of the strategic development process and become an integral part of the strategic implementation. The only key indicators that should exist within an organisation are those that offer management an effective measure against the strategic goals. Key indicators should be common across functions and integrated effectively (Brownbill, 2009, p.97-98).

The concept of dashboards and scorecards is an effective methodology for visually depicting performance at a corporate or functional level. Used correctly they can be a very powerful visual and motivational tool. However these methods can become lost within the day-to-day business activities and rather than becoming motivational, can become de-motivational as dashboards/scorecards don’t get updated or are incorrect.

At the macro level performance management links to corporate governance and risk management by identifying the critical success factors that need to be monitored to allow effective scrutiny of business performance. As van der Stede (2009) mentions, the link between performance and risk management “is not only about ensuring bad things don’t happen, but equally about making sure that good things do happen.”

Finally Barbara Bowes (2009) reminds us that, “there’s now good evidence to show that, if performance management systems are in place and implemented effectively, revenues, shareholder value, employee satisfaction and investor interest will increase. In fact, the HayGroup recommends that management create opportunities for dialogue so that employees can challenge, interpret and shape their goals, and become motivated toward higher productivity,” (p.13).

References

Bowes, B. (2009). Improving Performance Management Systems. CMA Management, Vol. 82, Issue 9, p.12-13.

Brownbill, N. (2009). Be the Best in Business. ACC: Cape Town

Likierman, A. (2009). The Five Traps of Performance Management. Harvard Business Review. Vol. 87, Issue 10, p.96-101.

Van der Stede, W.A. (2009) Enterprise Governance: Risk and Performance Management through the Business Cycle. CMA Management, Vol. 83, Issue 3, p.24-27.