Performance Management is a system or business process used to maximize all kinds of performance and the behaviours that drive performance. It is a process of managing the execution of an organisation's strategy. Yet many companies, authors and HR practitioners confuse Performance Appraisal (of an individual) with Performance Management.

This article will touch on a few aspects that relate to this problem. We will also address a few reasons why Performance Management, seen as so crucial for organisational performance, often fails.

To understand the problem it is necessary to define what we mean in some detail.

What is Performance Management?

To repeat, performance management is a business process aimed at ensuring that an organisation of people achieves its purpose. It is a system that has at least 5 distinct components:

1.) Planning for performance:

• Establishing the objectives that must be achieved in order to execute a chosen strategy.
• Turning these objectives into clear outcomes that are required.
• Understanding the key value drivers that determine, influence and shape the desired outcomes.
• Defining the outcomes and necessary inputs, capabilities and competencies related to each objective, its associated processes or activities that will ensure achievement.
• Allocating those objectives to organisational units, teams or individuals through the correct definition of accountabilities.

2.) Defining the measures of performance (the key performance indicators):
 

• Key Performance Indicators represent a set of measures focusing on those aspects of organisational performance that are the most critical indicators of the organisation's progress towards achieving each objective.
• A KPI should tell you about what action needs to take place.
• It needs to be deep enough in the organisation that it can be tied to one or more individuals via the mapping of accountabilities. KPI's actually have several components:

 - The performance value driver - telling you what to do to increase performance dramatically.
 - The key result indicator - telling you how you have done in a perspective.
 - The associated measures that inform and support the KPI.

• Real KPIs in an organisation are based on either current or future orientated measures. KPIs are therefore based on "current" or future measures as opposed to past measures. Most organisational measures used are very much past indicators measuring events of the last month or quarter (typical of financial results). These indicators cannot be and never were KPIs. That is why a customer satisfaction survey result performed every six months can never be a KPI.

3.) Setting goals and targets:

• It is not possible to make meaningful assessments or measurements of an organisation's performance without a clear definition of goals and targets. This is about defining a preset level of performance that has to be attained.
• This needs to be done organisationally first in line with the strategy. Techniques such as the Balanced Scorecard are useful in building this alignment, if used properly.
• Mapping accountabilities correctly to individuals provides the framework for setting goals and targets and defining performance levels at the individual level.

4.) Measuring performance:

• This is an on-going ("24/7") process of using the defined measures to track performance. Most critical to an organisation's ability to improve performance is to recognise that we are talking first and foremost about organisational performance.
• For Performance Management to be effective, the measures to be used must be organisationally sound and relevant first.
• Performance measurement only relates to individuals once one has mapped accountabilities correctly and once goals, targets, measures and indicators have been established, agreed and understood at the individual level. And once the alignment between organisational and individual performance is clear, measures and desired levels of achievement can be defined.

5.) Reviewing and Assessing performance:

• This part of the process requires a parallel assessment of organisational and individual performance. Just as we have management meetings and use all sorts of organisational performance reports to assess the business performance, so we use (presumably) a Performance Appraisal process to assess individual performance.
• Employees are the lifeblood of every organisation. They are involved in executing company strategies; they operate and interact with the organisation's essential business processes; they represent a significant component of the organisation's capabilities.
• This requires that the entire process of linking organisational performance and individual performance must be seen as parallel but inseparable systems. One cannot exist without the other.
   

What Goes Wrong?

Most organisations fail to execute their strategies. Why? It is because they fail to manage performance. When performance management is seen this context and within the scope of how it has been defined above, it is very clear why performance management is not about performance appraisals. Rather, performance appraisals form only one small element in a chain of events that constitute an organisational process.

Here are a few reasons:

• Many companies treat Performance Management as an HR initiative that focuses only on the individuals in the organisation.
• When designing Performance Management systems the focus is on the appraisal scorecard, the template and on how to record it, either manually or using technology.
• Even innovations like the Balanced Scorecard get turned into a checklist for designing individual scorecards which then get used in performance appraisals.
• The alignment between strategy and individual goals and targets is seldom built, is rarely checked and almost never explained to the individual.
• So when an individual has his or her performance appraised, the entire action is often misdirected.
• Many companies are working with the wrong measures, many of which are incorrectly termed "key performance indicators" (KPIs). Companies with 20 or more KPIs lack both focus and alignment, and are underachieving.
• Individuals who are allocated 20 or more KPIs across numerous "key performance areas" or objectives will also lack focus and alignment.
• Very few organisations really monitor their true KPIs. The reason is very few organisations, business leaders, writers, accountants, and consultants have explored what a KPI actually is. Organisations drown under too many measures.
• Good performance management is hard work and the reluctance to commit to it usually starts at the top. The reluctance to be rigorous exists at all levels.
• Performance Management is not seen as part of management.
• Defining the correct objectives, identifying the key value drivers and then establishing KPIs and the right goals and targets (performance levels) at organisational AND individual level is a daunting task for any organisation.
• As soon as an organisation places too much emphasis on individual rewards as part of the performance management process, the focus separates organisational performance from individual performance.
• Performance appraisals then become all about money. And a vicious cycle is established at the individual level and at the organisational level, strategies are not executed.
• Large bonuses get paid but it is still more of the same.
• The job cannot be done without supporting technology, but often the computerized or webbased performance management system becomes an end in itself, and the real focus is lost.
• Appraising individual performance once or twice a year does not and cannot relate to the essence of current and future organisational performance. It thus invariably focuses on the past and on what reward must be given for past behaviours.

A final word

• In most organisations, there is no consequence for poor performance.
• At the organisational level, because the focus is on measures of past performance (e.g. the monthly accounts), corrective action is taken too late and then is translated through people in a haphazard fashion.
• At the individual level, because of the lack of rigour up front, and because of a lack of commitment to a robust process of performance management, poor performance is tolerated. The performance appraisal becomes a farce at worst. At best, it may provide some useful individual feedback, but it seldom relates to the organisations' strategy.
• Mechanisms must be developed that ensure continuous assessment of organisational and individual performance as part of one process.