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Why Is Performance Management Important and Why It Can Sometimes Fail?

26 October 2023
chart success

Scratch beneath the surface of what most business owners and senior leaders would like their organisation to achieve and you would be hard-pressed to find an answer that didn’t include the words profit and revenue. Even the most purpose-led of organisations need profit and revenue to succeed in their mission, so this is by no means a criticism, merely an observation.

If we were to then take this one step further and consider the magic ingredients of how to achieve profit and revenue, beyond having a great product or service that there is a demand for, the simple answer lies with the people who work for your organisation.  

It therefore stands to reason that an essential piece of running a successful business is to take the performance management of employees seriously and invest in this wisely.  

To be clear, this does not mean simply incorporating a soulless tick box annual paper-led process, but rather, creating something that plays a pivotal role in guiding people towards an organisation’s goals, ensuring employees are aligned with company objectives while enhancing productivity and efficiency. In other words, tangible stuff, not fluffy stuff.

performance evaluation

The performance management myth

Now I imagine that if you are taking the time to read this article beyond looking at the title, you are fully behind the sentiment that people need tangible goals to align with company objectives. Indeed, we may be preaching to the converted but before we go on to explore some of the misnomers around performance management, it is worth reminding ourselves that the path to successful performance management is far from plain sailing.

A Gallup survey reports some sobering performance statistics that are worthy of taking note of. Here are just a few:

  • Only 2 in 10 people surveyed strongly agreed that their performance is managed in a way that motivates them to do outstanding work.
  • Only 21% of people surveyed strongly agreed that they have metrics that are within their control.
  • Only 30% of people surveyed strongly agreed that their manager involves them in goal setting. Those whose managers did involve them in goal setting were 3.6 times more likely to be engaged compared to their colleagues who were not involved.

Mmmm, it doesn’t make for great reading but with our glass-half-full view of the world, it does show that there is so much room for improvement when it comes to how organisations approach performance management, which in turn means there is further scope to maximise that all important profit and revenue. Oh, and retain the amazing people who create that success!

managers meeting

What is performance management?

The words ‘performance management’ are enough to bring many a person to a shuddering halt, with visions of conversations around poor performance, PIPs (performance improvement plans) and sanctions. This is far from a fair representation of true performance management, as surely even the most tenured and successful people in your organisation deserve to have their performance managed.

Performance management, in a nutshell, refers to the systematic process of planning, monitoring, and reviewing an individual’s or team's performance in relation to pre-established goals, objectives, and standards. It incorporates the use of various KPIs (Key Performance Indicators), milestones, and metrics to measure performance and crucially, provide guidance for improvement or maintaining strong performance.

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Why is performance management so important?

There are several reasons behind why performance management is so important.

Alignment with organisational purpose

As Simon Sinek so succinctly explains in the below video, he likens businesses to making a journey in a car. People are more interested in where they are driving and why, as opposed to how much fuel or charge is in the vehicle. You need fuel or charge (profit and revenue) to keep the car moving of course but if you had the choice of driving around the M25 for three days or driving an iconic section of Route 66, I suspect most would opt for the latter.

 

The right performance management methods bring people closer to the purpose of the organisation and if employees feel they are part of something which is bigger than themselves, they are more likely to be invested and perform with a sense of purpose and dedication.

Productivity and efficiency

Performance management serves as a catalyst for improved productivity and efficiency. It encourages people to regularly assess their work and identify areas where they can enhance their performance. When our goals, objectives or targets are clear and meaningful, we are far more likely to work with diligence and purpose. Managers can also provide guidance and support to help their team members reach their potential.

Regular appraisals and reviews

Regular performance appraisals and reviews are integral components of performance management. These evaluations offer people the opportunity to receive meaningful feedback and identify areas for improvement. For managers, these conversations provide a platform to discuss successes, challenges, and growth opportunities. When facilitated correctly (more on this below) meaningful reviews can lead to higher morale, skill development and increased motivation.

Improved decision-making

Effective performance management provides decision-makers with valuable insights into the organisation's health and performance. By analysing KPIs, metrics, and other performance indicators, leaders can make informed decisions about resource allocation, strategy adjustments, and employee development. This data-driven approach allows businesses to stay agile and competitive in their respective markets.

People development and motivation

Performance management can foster an environment of continuous learning and growth. By setting clear expectations and providing meaningful feedback, managers empower their people to improve their skills and knowledge. When we recognise that our development is being treated as a priority, we are more likely to feel valued and motivated, which in turn enhances our performance.

Accountability and standards

Performance management establishes a culture of accountability within the organisation. When performance standards are clearly defined and communicated, people understand what is expected of them. This clarity promotes fairness and consistency in evaluating performance, leading to higher morale and even reduced conflict.

The case for performance management is therefore strong, but why does it sometimes go so badly wrong?

i cant board

Why can performance management sometimes fail?

There are several pitfalls when it comes to performance management, many of them quite prevalent.  When researching for this article, we came across an article written by Raffaele Carpi, John Douglas, and Frédéric Gascon for McKinsey which sums up some of these challenges succinctly:

Inappropriate metrics

If the metrics chosen to measure performance don’t align with the performance and behaviours that the organisation is looking for, problems can ensue. For example, we often see people working in a sales role being measured on the number of calls or visits they make as opposed to the outcome of those calls or visits.

Poor targets

If a performance target is easily attainable, there is little or no stretch and therefore fewer incentives to push through and overachieve. Using the phrase ‘minimum of target X’ as opposed to ‘achieve target X’ can be a way of alleviating this.

Conversely, if a target is clearly out of reach, with external factors out of the control of the individual performer, there is a danger that people will not even attempt to reach them with any meaningful effort.

Lack of relevance

If people don’t buy into the link between their performance metrics and how the completion of these adds value to the overall purpose of the organisation, then as we saw earlier from the Gallup survey, there will be a lack of engagement and effort can be depleted.

Lack of dialogue

Performance conversations need to be facilitated on a regular basis. For example, rather than have an annual conversation, break this down into 90-day or quarterly chunks. How relevant are the metrics we discussed 90 days ago, how are these progressing and what is the focus for the next 90 days? There is an abundance of excellent HR software solutions that make these conversations easy to track.

Lack of accountability

Weak accountability or a lack of consequence will simply send the message that turning up for work is sufficient. Granted we need to consider culture and the various legislation that differs around the globe but the principle remains that where there is accountability, there is more likely to be ownership.

To be clear, rewarding positive performance is equally, if not more, important than holding poor performance to account. To give but one example, the Managing Director of one of the organisations we work with sends a handwritten note to the home address of an employee when they have excelled or made an excellent contribution.  

The significance of this being handwritten should not be underestimated here. When was the last time you received a handwritten letter through the post? The fact that this has come from somebody in a position of importance is rewarding in itself, but the thought and effort that has gone into this is even more so.

Do you need a system?

In a word, yes! As mentioned above there is an abundance of HR software solutions on the market that vary in size and budget according to the needs of your organisation. These enable you to set reminders for performance-based conversations and to record metrics and the progress of these.

However, it is so important to remember that performance systems should be people-led, not process-led. Managers and leaders play a pivotal role in implementing effective performance management strategies, as they set the standards and expectations that guide their teams towards success. 

Conversations should be two-way with regular, open and supportive feedback on progress towards meeting meaningful and agreed metrics. You can have the best system on the market but if your manager is distracted by their phone as you discuss your performance with them, you are doing far more damage than good.

If you or your organisation would benefit from an outside view of your current performance management process, or if you have identified areas where you need support such as facilitating meaningful feedback, objective setting or having challenging conversations, click here or give us a call on 01295 675506 for more information and a no-obligation consultation.

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