When the question of what Performance Management is and what it entails is asked



in any organisation, there are as many answers and perceptions as there are people

in the organisation. The Human Resources Department will tell you that Performance

Management entails the training, mentoring and development of employees; the

Finance Department will tell that Performance Management is the measurement of

a series of financial and non financial indicators; the IT Department will tell

you that Performance Management is the “system" used to manage performance

in an organisation. Though none of these perceptions are incorrect, they are

only part of the truth.

To complicate matters even further, numerous management methodologies have been

introduced over the years, which all claim to be the silver bullet when

managing performance. Concepts such as the Balanced Scorecard, Value Based Management,

Total Quality Management and Six Sigma are commonplace in most managers’ vocabulary.

Perhaps the starkest reality when attempting to sift through the information

overload is not the lack of information and methodologies available to design

and implement a performance management system, but the realisation that there

is no silver bullet that can create a successful performance management system.

Managers cannot delegate what is effectively their job to a “system". To ensure

the success of a performance management system, managers have to devote a significant

amount of their time to the process. Often the success or failure of a performance

management system has less to do with the chosen metrics and templates used for

managing the system, and more to do with the honesty and rigor used in the process.

All too often, performance management systems fail because they are either measurement

systems, where little is done to interpret the results and take corrective action,

or the system is simply delegated to the bottom drawer because it is cumbersome

and managers have not bought into the process.

A well-designed and implemented performance management system will ensure that

there is open and honest communication between all layers of the organisation.

It will ensure that managers have the authority to manage, while there is an

assurance to their bosses that agreed levels of performance will be met. A good

performance management system should focus not only on the achievement of a metric

but also on the reasons behind the achievement or non-achievement of the metric

in relation to a target. Unfortunately there is no magic formula for designing an

effective performance management system, but there are a number of factors which

differentiate between success and failure. Performance Management implementation

either succeeds or fails, based on whether the management buys into the process.

If a robust change

management process does not run alongside the process of implementing

performance management, it is bound to fail. Complete management buy-in at all

levels is crucial to ensuring the success of the system. The change management

process and associated training will ensure that a culture of value creation is

instilled throughout the business. It is important for all employees to understand

the concept of value creation as well as understanding how their decisions and

actions influence value creation. This understanding can be achieved by top management

members who consistently reinforce the importance of the value creation mindset

in all their communication to the rest of the organisation. Ultimately the senior

management must lead by example and walk the talk. Senior managers, who cut the

budgets for employee development and training to meet short-term profit objectives,

are unlikely to inspire a culture of long-term value creation among the members

of their middle management team.

Performance Management relies on measuring performance and on taking corrective

action when the targets set for the performance metrics are not met. What is

measured will ultimately impact on people’s behaviour, therefore it is important to

ensure that due consideration is given to identifying the value drivers that define

the short-term performance and long-term health of the business. It is important

for managers to have a clear understanding about what the business’s value

drivers are, as this will ensure that managers can understand and analyse the trade-offs

required to balance short-term performance against long-term health. For example,

reducing Research and Development costs may bolster short-term performance but could

have disastrous consequences for the business in the long term. When identifying

the priority value drivers, it is important to take the following into account:

• Will focusing on the driver have a material impact on business performance



• Does management have control over the factors which influence the driver, or
  
  do the external environment and asset constraints prevent them from having a meaningful
  
  impact?



• Does the driver have any unintended consequences, such as managing inventory
  
  levels to the detriment of customer service?



• Is the driver sustainable, or is it a one time cost reduction or synergy?

Once these factors have been considered, the important value drivers can be ranked

in order of priority, appropriate value metrics can be assigned to the drivers

and they can be cascaded throughout the organisation. SMART target setting should

ensure that the targets that are set are realistic but are also challenging.

In short, targets should be specific, measurable, attainable, realistic and time-based.

Targets must be based on the opportunities identified for improvement and any

economic considerations. When setting targets, the following input should be borne

in mind, namely the performance of similar companies in the same industry, the internal

performance of business units, historical performance and blue-sky scenarios. Performance

targets should include a base which should be regarded as the minimum level of acceptable

performance, and a stretch target which should result in considerable rewards

if it is met.

Quarterly performance reviews should focus on the facts, using a scorecard as

the basis for the discussion. Reviews should focus on the reasons for poor performance

so that they do not recur, rather than on apportioning blame. Opportunities for

employee  development should be identified and implemented during the review

process. The final consideration when designing and implementing an effective

performance management system is to ensure that the top performers are adequately

rewarded and recognised. Well-designed incentive schemes should differentiate between

top performers and the rest of the organisation. Short-term rewards should be linked

to the achievement of annual financial and non-financial measures, whereas long-term

incentives should focus on rewarding long-term value creation and the long-term

health of the business. The organisation’s top performers should also have

abundant opportunities for non-financial rewards such as career advancement and

development opportunities.

Though performance management is an important tool for creating value in an organisation,

its design and execution are complex and the best intentions are often shelved

or sidelined. However, companies that are willing to invest in establishing a

culture of value creation linked to effective targets, reviews and rewards, should

definitely reap the rewards that a performance management system offers. It must

however be reinforced that no matter how hard you look, there is no performance

management silver

bullet to be found.

Leslie Yuill

Director

Cle Human Capital SA (www.clehc.co.za)

Leslie

Yuill is a Director of Clé Human Capital (Pty) Ltd, a firm of market-leading

Reward, Compensation and Performance Management Consultants.

Human Capital is a vital part to any business.

Ensuring you have the right human resources, remuneration and reward strategies,

performance management, or even payroll outsourcing can make a difference.

Clé Human Capital helps companies to compete effectively for shrinking pools

of talent by linking performance and reward strategies to our your overall organisational

objectives. By working closely with your business, Clé Human Capital ensures

the development of pragmatic and flexible solutions, tailored to satisfy your

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Recognised for innovative ideas, collaborative approaches and results-oriented

implementations, Clé Human Capital’s remuneration and compensation

consultants serve companies across diverse industries with excellent results.