Performance management practices, when implemented successfully, can lead to the successful and harmonious delivery of business milestones. The components of a performance management system provide the framework which managers and employees operate in, united in their journey towards a clearly articulated, regularly reviewed and reinforced, set of goals.
However, performance management proves to be a challenging area for businesses to effectively implement.
Stella Voules, co-CEO of Melbourne-based management consultants JOST & Co describes a performance management system as the 'spine' of an organisation, which supports all the other important 'limbs'.
"If the spine loses alignment, there is a loss of control and companies run the risk of losing productivity through disengaged and confused employees,” says Ms Voules. "Or even worse, high-talent, valued staff will leave and join competitors."
So, how can organisations ensure they construct and execute meaningful performance management processes and systems that are fit for their unique purpose?
What is an effective performance management system?
A much more complex concept than a 'performance appraisal' or disciplinary process, AHRI defines performance management as a strategic function that aims to improve organisational, functional, team and individual performances.
"Effective performance management measures the progress being made towards the achievement of the organisation's business objectives. It does so by planning, establishing, monitoring, reviewing and evaluating organisational, functional, team and individual performance."
An extensive study undertaken by the Australian Public Service Commission to understand the role of performance management within the Australian Public Service (APS) found that employees who participated in the research agreed that effective performance management must have a clear purpose and be meaningful to employees.
Research participants viewed performance management within the APS as a mechanism for:
- aligning employees to organisational requirements;
- clearly articulating and managing expectations;
- establishing role and goal clarity;
- identifying the support required to enable goal attainment;
- discussing future career aspirations;
- identifying developmental needs;
- monitoring and reviewing performance;
- ensuring that standards of performance align with expectations; and
- recognising good performance.
In a recent article, Ms Voules emphasised the obligation employers have to individuals, the business and (often) legislation, to be able to demonstrate how they manage talent genuinely, appraise performance and reward fairly.
"Besides a few exceptions, most organisations are - at a fundamental level - structured," adds Ms Voules. "It follows that there is also a need for some kind of meaningful structure around performance - defining the organisation's culture, expected behaviours and how that organisation defines value."
"This defined and articulated performance brings coherence; it sets the goal posts and provides the framework for how individuals, teams and business units align, and contribute to, successful business operations."
"Without a strong performance management system, organisations run the risk of having internal teams kicking goals in different directions, wasting talented energy and incurring huge costs as misaligned projects are disbanded."
Is there a relationship between strong performance management systems and business success?
The AHRI emphasises that for a performance management system to work effectively, "it must be encouraged and supported by strong leadership (support from senior management) and an organisational culture which values improvement."
According to the AHRI, a successful performance management system should:
- incorporate performance improvement, development of teams and individuals, and behaviour management to ensure productive working relationships;
- have structures which support the effective functioning of the performance management system, i.e. a performance management policy as well as performance appraisal and disciplinary processes and procedures; and
- ensure that employees:
- know and understand what is expected of them in their job role (i.e. performance objectives and performance standards)
- have the skills and knowledge required to deliver on these expectations through implementing development plans, as well as learning and development activities
- are given feedback and an opportunity to discuss their work performance
- are rewarded for their performance through a reward and remuneration strategy
- are counselled for underperformance and/or behaviour which is out of alignment with organisational values and/or inconsistent with achievement of organisational goals
- are supported by the organisation to achieve optimum performance.
It doesn't matter (in fact it's essential) that every business will value different things - in behaviour, expectations, profits and culture. The important thing is that this 'value' is well defined, articulated and shared across the organisation, so everyone is 'signed up' to the same vision.
"Almost all the strongest performing companies have a strong performance management system in place," says Ms Voules. "They will also typically enjoy strong governance and regulatory compliance."
Why are performance management systems important? (show me the benefits!)
A well-structured and implemented performance management system provides a number of benefits to the organisation, management and employees. According to AHRI, these benefits are wide-ranging and include:
- establishing group and individual performance objectives to ensure that their performance is aligned with the organisation's strategic and operational objectives;
- linking performance evaluation and employee development and rewards to motivate individuals;
- assisting the organisation in improving its productivity and efficiency;
- identification of specific training needs across the organisation;
- improved salary administration;
- regular monitoring of progress toward achievement of performance objectives;
- improved communication and relationships between managers and staff; members; and
- improved guidance and assistance in developing capabilities and potential of staff members.
The Australian Public Service Commission's research delivered similar findings, and they adopted a new approach to performance management based on the following principles:
1. Clarity and purpose;
2. Alignment and integration;
3. Mutuality and motivation;
4. Adaptability and progress;
5. Evidence and data;
6. Pragmatism; and
By putting these principles into practice, employees had a clear line of sight between high-level and individual goals, as well as experiencing performance management practices that encouraged praise-bred rewards, peer recognition, and increased developmental opportunities.
Current trends and shifts in performance management
The importance of people management as a core management activity often lacks the recognition and support it deserves. Traditionally, performance management has been seen as a compliance exercise or shorthand for managing underperformance. This mentality can often result in a degree of pushback from both managers and employees and a reluctance to engage in the process.
So as the traditional 'annual review' faces extinction, many of the world's most progressive companies have been challenged to redefine how performance management looks. Two key shifts have led to some seismic shifts in focus away from "dictating what employees should do at work to helping develop their skills as individuals." They are:
1. Ongoing performance feedback.
2. Decoupling performance appraisals and professional development conversations.
The more recent evolution of both these performance strategies has been a positive step towards ensuring a business's most valuable asset – its human capital – remain engaged and productive. It has also provided a progressive, workable alternative to the often-arbitrary annual appraisal discussion and performance bell-curve analysis where the lowest performing 10 per cent of employees were identified and cut.
"I see merit in both these trends as they align the needs of the business with the needs of the individual," says Ms Voules. "Organisations must innovate to survive, and performance management innovation is part of that."
"What we see now is managers spending equal, and more substantial time, discussing performance and professional development. Historically, a performance appraisal was 95 per cent performance discussion and 5 per cent development. That is a positive change and will help ensure employees remained engaged and focused over the longer term."
How can performance management systems be improved?
Global corporates such as General Electric, Google and Accenture have all undertaken massive changes to their performance management systems, implementing less rigid processes and replacing annual performance reviews with more frequent conversations based on constructive, forward-looking feedback.
Such is the commitment to frequency and embedding of continuous performance feedback that one company, Cargill, has adopted the term "Everyday Performance Management" to describe their system.
In summary, performance management has the power to elevate or derail the success of a business. Experts agree that it often forms the 'glue' that keeps an organisation and its human capital aligned with what is truly valued. When organisations get it right, success typically follows.