Performance management programs and implications

Performance management program may not always improve performance and only such companies are among a small minority of global companies. A large majority of managers and other employees agree that their performance management programs do not improve business results. A recent study conducted by McKinsey & Company suggests that only 30 percent of employees say they receive feedback of real value in improving their performance.

As a result better performance management represents a largely untapped opportunity to improve company profitability. However, to reap these gains will require a change in focus, ownership and process, not simply changing the form or the rating scale.

Company handbooks or other descriptions often state the right goal for the performance management process, which is to improve performance. However, the true focus of most programs is not to improve results. Currently, most performance management systems focus on the following:

The majority of performance management programs are driven by the need to arrive at a rating used to determine the size of employee merit increases and, in some cases, incentive awards. As a result, many supervisors determine the amount of merit increase they believe is adequate to retain and reward employees, then use company guidelines to support it into a performance rating that justifies the desired increase.

Another common use is to make termination and promotion decisions. In fact, the bulk of the supervisor’s effort is arriving at a judgment of performance. Employees, of course, are likely to contest that judgment unless they are rated at a high performance level. As a result, the focus on improving individual performance is displaced by the focus on judging and rewarding.

The focus of most performance management programs is on individuals, not teams. Team performance is not typically considered in most performance feedback. People and Their Jobs: What’s Real, What’s Rhetoric. Rating the performance of individuals alone often results in destructive competition and conflict among team members. Given how frequently people work in teams these days, the focus on individuals is outdated and often counter-productive.

Imagine the effect if every manager’s conversation with every employee in the company were focused entirely on improving business results. There are four major steps necessary to accomplish this shift in focus.

This includes a deep understanding of how the company makes money, how the company’s customers make money, how the company can help its customers make more money and what customers need to remain loyal. It also looks at the key actions and efforts necessary by each employee and his/her team to maximise company profit and satisfy customer needs.

For frontline employees, companies such as Pepsi-Co , Sears and State Farm Insurance have used pictorial representations called ‘learning maps’ or ‘business games’ to increase literacy. Learning maps and business games can chart the flow of revenues and costs and explain how the company makes money. Similar tools describe their customers’ businesses.

For managers, enhanced business literacy may require special assignments or a better understanding of company economics. Economic ‘value trees’ can be used. These trees begin with return on capital and flow through each financial and non-financial measure that affects returns. Business literacy improvement is not just training. It requires that the employees participate and help lead the journey of discovery.

A frequent complaint of managers and other employees below the top executive level is that they lack clear business unit or company-wide strategies, goals and metrics. As a result, they have insufficient information to set team and individual goals that align with the rest of the organisation.

Management must provide multiple channels of performance information and employees should press management to provide that varied and rich data. After gaining the information to track their performance and that of their team, employees can gain a deeper understanding of how they can influence these performance measures.