Performance Management

Contents :
  1. Concept Performance Management.
  2. Meaning and Definition of Performance Management.
  3. Need of Performance Management.
  4. Features of Performance Management.
  5. Principles of Performance Management.
  6. Process of Performance Management.
  7. Advantages of Performance Management.
  8. Disadvantages of Performance Management.
  9. Linkages with Strategic Planning, Management Control and Operational Control.

What is Performance Management ?

The term 'Performance Management' first came into wide use in the HR field in the early 1990s. Although objective setting, assessment and review, and performance-related pay were becoming common prior to that period, it was not until the late 1980s that organizations started to be concerned with the management of individual performance in a holistic way. 

Even when the Institute of Personnel Management first carried out research in the area in 1992 there was confusion over what the term 'performance management' actually meant. For some it was an appraisal process, for others performance-related pay, and yet others defined it in terms of training and development. By the time of our second survey in 1997 there was much more agreement about what the term 'performance management' meant, with a distinct polarization between those who thought it focused on pay and those who believed it was development-led.

It is now commonly agreed that performance management as a natural process of management contributes to the effective management of individuals and teams to achieve high levels of organizational performance. As such, it establishes shared understanding about which is to be achieved and an approach to leading and developing people which will ensure that it is achieved.

What is performance management system ?

Performance management is an ongoing, continuous process of communicating and clarifying job responsibilities, priorities and performance expectations in order to ensure mutual understanding between supervisor and employee. It is a Hold performance philosophy which values and encourages employee development through a style of management which provides frequent feedback and fosters teamwork. It emphasizes communication and focuses on adding value of the organisation by promoting improved job performance and encouraging skill development. Performance management involves clarifying the job duties, defining performance standards, and documenting, evaluating and discussing performance with each employee.

Meaning and Definition of Performance Management :

Performance management can be defined as a process or set of processes for establishing shared understanding about what is to be achieved and of managing and developing people in a way which increases the probability that it will be achieved in the short and longer term.

Definition of performance management by different authors :

According to Armstrong :
"Performance Management means of getting better results by understanding and managing performance within an agreed framework of planned goals, standards and competence requirements. It is a process to establish a shared understanding about what is to be achieved, and an approach to managing and developing people So that it will be achieved."

According to Armstrong and Baron :
"Performance management is both a strategic and an integrated approach to delivering successful results in organisations by improving the performance and developing the capabilities of teams and individuals".

Thus, Performance Management is :
  1. A systematic approach to improving individual and team performance in order to achieve organizational goals.
  2. The development of individuals with competence and commitment, working towards the achievement of shared meaningful objectives within an organization that supports and encourages their achievement.
  3. Performance management is managing the business.
  4. Directing and supporting employees to work as effectively and efficiently as possible in line with the needs of the organization.

Need of Performance Management :

The need of performance management is as follows :
  1. To enable the employees towards achievement of superior standards of work performance.
  2. To help the employees in identifying the knowledge and skills required for performing the job efficiently as this would drive their focus towards performing the right task in the right way.
  3. Boosting the performance of the employees by encouraging employee empowerment, motivation and implementation of an effective reward mechanism.
  4. Promoting a two-way system of communication between the supervisors and the employees for clarifying expectations about the roles and accountabilities, communicating the functional and organisational goals providing a regular and a transparent feedback for improving employee performance and continuous coaching.
  5. Identifying the barriers to effective performance and resolving those barriers through constant monitoring, coaching and development interventions.
  6. Creating a basis for several administrative decisions strategic planning, succession planning, promotions and performance-based payment.
  7. Promoting personal growth and advancement in the career of the employees by helping them in acquiring the desired knowledge and skills.

Features of Performance Management :

Following are the Features of performance management :
  1. Performance management is closely aligned with the organizational context and culture without being influenced by passing fads and strategically linked to clearly defined to organizational objectives.
  2. Performance management systems are closely linked to other systems of human resource management, particularly career planning, succession planning and training and development.
  3. Performance management is seen as a continuous process of monitoring and feedback rather than annual one off event and there should be involvement of employees through focus group interviews.
  4. Performance management involve effective use of technology in conveying desired competencies and in monitoring, collecting and giving feedback so there is minimum possible beaucratization of administering the system.
  5. Performance management emphasizes comprehensive training to managers.
  6. Performance management is a dynamic system.

Principles of Performance Management :

Egan proposes the following guiding principles for performance management : 
Most employees want direction, freedom to get their work done and encouragement, not control. The performance management system should be a control system only by exception. The solution is to make it a collaborative development system in two ways. First, the entire performance management process - coaching, counseling, feedback, tracking, recognition, and so forth - should encourage development. Ideally, team members grow and develop through these interactions. Second, when managers and team members ask what they need to be able to do bigger and better things, they move to strategic development.

The principles of performance management have also been well summarized by Incomes Data Services :
  1. It translates corporate goals into individual, team, department and divisional goals.
  2. It helps to clarify corporate goals.
  3. It is a continuous and evolutionary process, in which performance improves over time.
  4. It relies on consensus and co-operation rather than control or coercion.
  5. It creates a shared understanding of what is required to improve performance and how it will be achieved.
  6. It encourages self-management of individual performance.
  7. It requires a management style that is open and honest and encourages two way communication between superiors and subordinates.
  8. It requires continuous feedback.
  9. Feedback loops enable the experiences and knowledge gained on the job by individuals to modify corporate objectives.
  10. It measures and assesses all performance against jointly agreed goals.
  11. It should apply to all staff.
  12. It is not primarily concerned with linking performance to financial reward.


Process of Performance Management :

Following are the different steps for performance management :

Step 1: 
From the business plan, identify the requirements and competences required to carry it out.

Step 2 :
Draw up a performance agreement, defining the expectations of the individual or team, covering standards of performance, performance indicators and the skills and competences people need.

Step 3 : 
Draw up a performance and development plan with the individual. These record the actions needed to improve performance, normally covering development in the current job. They are discussed with job holders and will cover, typically :
1) The areas of performance the individual feels in need of development.
2) What the individual and manager agree is needed to enhance performance.
3) Development and training initiatives.

Step 4 : 
Manage performance continually throughout the year, not just at appraisal interviews done to satisfy the personnel department. Managers can review actual performance, with more informal interim reviews at various times of the year.
1) High performance is reinforced by praise, recognition, increasing responsibility. Low performance results in coaching or counseling.
2) Work plans are updated as necessary.
3) Deal with performance problems, by identifying what they are, establish the reasons for the shortfall, take control action (with adequate resources) and provide feedback.

Step 5 : 
Performance review : At a defined period each year, success against the plan is reviewed, but the whole point is to assess what is going to happen in future. Organizations are introducing such systems for much the same reason as they pursued management by objectives. In other words, they are aiming to :
1) Tie in individual performance with the performance of the organization.
2) Indicate where training and development may be necessary. This plan and do review cycle is the basic process of people management. It operates at two levels:
i) The Macro Level : The management of the year's activity.
ii) The Micro Level : the development of performance through involvement at the doing stage.

Advantages of Performance Management :

Following are some of the advantages of implementing a performance management process within a company :

1) Increased Performance of Individuals and Department Organisation :
The main goal of performance management is to improve the performance of individuals to eventually improve the performance of the organisation as a whole. The correct application of performance management will identify development areas of each individual as well as good performance areas. 
By planning specific outputs linked to specific standards and measuring the success of the individual against this on a continuous basis will have a direct impact on the performance of the individual and indirectly the organisation as a whole. Utilizing the results of the performance management discussions to identify focused development programmes for employees will further assist in attaining the department/organisation goals. Existing and future problems can be identified and addressed and eliminated before becoming major obstacles in realizing organisational goals and strategies.

2) Better Communication : 
Performance management focuses on the improvement of communication between the manager and his subordinates. The feedback and planning interview create opportunity for the creation and development of communication channels as well alignment between the manager and his subordinate.
It creates an opportunity for the manager to communicate organisational departmental goals, policies, strategies and information to the subordinate and to ensure that the outputs of the subordinate is in line with policies and strategies. It also creates an opportunity for the manager to give recognition for good performance.
It creates an opportunity for subordinates to express their views and opinions as well as suggestions for improvement of performance and identification of obstacles. The subordinate gets the opportunity to discuss personal and company goals together with the manager fines a balance between them.

3) Performance Standards and Indicators : 
Performance management focuses on specific valuable outputs that the individual must deliver which is linked to specific goals and standards that must be achieved during the evaluation period. By clearly defining the outputs, performance standards and performance indicators the subordinate can understand exactly what is expected from him. The impact of the subordinate's outputs on the department and organisation can be explained much easier during the planning phase.

4) Succession and Career Planning : 
The performance management process provides valuable information that can be used during succession and career planning. Employee aspirations can be clarified and where possible incorporated into overall planning of the employee's goals and outputs as well as his development plan. Clarification of the managers goals and direction regarding the employee and his role within the department. Compilation of formal training and development plans per employee to ensure the development of the employee based on the results of the performance evaluation phase of the process.

5) Training and Development : 
The Performance management process, when applied correctly, will supply valuable information regarding developmental areas of a subordinate. The information is used during the compilation of the subordinate's development and training plan after evaluating the individual's performance. This will also provide a "check point" to determine whether the past training had any positive effect on the employee's performance.

6) Remuneration : 
Performance management simplifies the linkage of salaries, bonus and allowances because it is comparable and explainable.

7) Recruitment and Selection : 
The latest requirements and specifications of a specific job and the readiness for promotion of the subordinate are supplied by the performance management system. It is a tool that can be used for the selection of the most appropriate candidate for a specific job.

Disadvantages of Performance Management :

The following is some of the disadvantages or problems of implementing a performance management process within a company :

1) Decreased Performance of Individuals and Department / Organisation :
It is possible that by implementing performance management within the company could have a negative impact on the immediate performance of individuals and indirectly the organisation. This could be because of the following reasons :
i) Lack of training of the individuals and managers.
ii) Lack of a formal change management process.
iii) Lack of addressing the change in the culture of the organisation.
iv) Subjectivity level to high during evaluations.
v) Performance reviews used as a stick to get back at employees.
vi) Lack of addressing the fears of employees and clarification of the whole process and advantages to the employees.
vi) Lack of conformity regarding performance management in the various departments.
viii) Lack of management commitment.

2) Degrading of Communication : 
Performance management is a two-way communication process and should managers neglect this and turn the performance review into a one-way disciplinary interview it will have a negative impact on the employee. Should the employee feel that this interview is just to be reminded of things that went wrong; it will have a negative impact on the employee's performance. There need to be a balance between providing negative as well as positive feedback. Negative feedback should be given in such a way that the focus is on improving the employee's performance the next time the task has to be performed and not on another parent-to-child session telling the employee he has not done his job. The focus should either be on giving guidance as to how to prevent this issue occurring again or even clarify the requirements should it appear that this was not understood by the employee.

3) Lack of Management Commitment : 
Even though a person may spend lots of time and effort in designing and implementing a performance management process for his organisation it may have a negative impact on performance due to the level of management commitment. The most important factor to successfully implement this process is the commitment and support of top management as well as line management. Employees must "feel" that management is committed to the process and it is to their own benefit to improve their performance, as there are some rewards in the pipeline should they improve their performance.

4) Subjectivity :
Subjectivity during the performance management process with specific reference to the manager, is one the most fatal elements that can negatively impact on an employees performance. People have noticed many times how subjective evaluations of managers can negatively impact on the employee's performance. Therefore it is extremely important to eliminate subjectivity of performance evaluation by utilizing specific measurable performance indicators, i.e., financial statistics to prove whether the employee has done his job or not. Usually the "gut feel" evaluations are very subjective and can be influenced by the current emotional state of the manager. To further eliminate subjectivity of performance evaluations is to implement a 360 degree performance management process. Various people provide their inputs regarding the performance of the employee to provide a more objective and fair reflection thereof.

5) Lack of Rewards :
Should there be a total lack of rewarding the employee for his performance (either negatively or positively), the performance management process will not be very effective in improving employee performance. There is always a "what is-in-it-for-me" element that a person will have to address. Employee must see the benefits of the process. Whether financially or by "soft" rewards (i.e., being nominated as employee of the month).

6) Negative Attitudes :
Negative Attitudes of Managers :
i) Conflicting goals with regard to performance evaluation.
ii) Lack of knowledge regarding the setting of objective performance standards.
iii) incompetence to distinguish between responsibilities that the subordinate has control over and responsibilities the subordinate does not have control over.
iv) Fear of communicating performance evaluation results to the subordinate.
v) It de-motivates employees.
vi) Performance evaluation is used for reprimanding poor performance.

Negative Attitudes of Subordinates :
i) Lack of understanding why performance is evaluated.
ii) Lack of objectivity and fairness.
ii) Subjective measuring used for performance evaluation.
iv) Personality evaluation and not evaluation of outputs.
v) Managers attitude that the subordinate is in full control of his performance.
vi) Nothing is done after the performance evaluation.
vii) Performance evaluation is just a tool to discipline the subordinate and has no advantages for the subordinate.

Linkages with Strategic Planning, Management Control and Operational Control :

Strategic planning, management control and operational control are interdependent and interrelated activities. Which is describes as follows :

1) Strategic Planning : 
The concept of strategic planning has evolved over the past two decades as a response to this need for a more dynamic planning process - one which would permit continued efficacy of decisions to be tested against the realities of current conditions and, in tum, corrected and refined as necessary. As applied in government, it has been suggested that strategic planning - "is the process of identifying public goals and objectives, determining needed changes in those objectives, and deciding on the resources to be used to attain them. It entails the evaluation of alternative courses of action and the formulation of policies that govern the acquisition, use, and disposition of public resources".

The term strategic has been applied to these planning activities to denote the linkage with the goal-setting process, he formulation of more immediate objectives to move the organisation toward its goals, and the identification of specific actions (or strategies) required in the deployment of organisational resources to achieve these objectives. The term also was adopted to distinguish the scope of this process from the so called planning which characterized much of the forecasting and other piece-meal efforts undertaken by industry and business concerns.

Strategic planning should be a continuous process which includes performance evaluation and feedback. Alternative courses of action should be examined, and the impacts and consequences that are likely to result from their implementation should be evaluated. Explicit provision should be made for dealing with the uncertainties of probabilistic futures. Major priorities should be identified and ordered, and the activities and functions of the organisation can be integrated into a more cohesive whole.

The emphasis in strategic planning is on an orderly evolution - from a board mission statement, to statements of more specific goals and objectives consistent with the organisation's mission, to more explicit policies and implementing decisions. This emphasis seeks to establish or reinforce linkages that often are missing in more disjointed, incremental approaches to decision-making.

2) Management Control :
Management control involves the measurement and evaluation of programme activities to determine if policies and objectives are being accomplished as efficiently and effectively as possible. Management control provides the basic structure for coordinating the day-to-day activities of an organisation, encompassing all those activities involved in ensuring that the organisation's resources are appropriately used in the pursuit of goals and objectives.

Accounting and finance departments traditionally have served as the primary locus of the management control functions in most organisations. Information provided by an accounting system is designed to serve the needs of internal decision-making as well as external financial reporting. This information can also provide a significant component in contemporary management control systems. Output from the accounting system, e.g., can provide managers with important performance-measurement information as decisions are made and actions taken that are expected to lead to desired results.

Management controls are often designed to anticipate and identify problems before they happen. An obvious approach to try to anticipate possible deviations from some established standards or criteria of performance. This is the primary objective of statistical quality control. This approach also can be applied as a budgetary control. The possibility that a major proposed expenditure might exceed the budget, e.g. should be ascertained ahead of time rather than after-the-fact. Such controls involve various forecasting and projection techniques.

3) Operational Planning : 
Operational planning focuses on setting standards for the use of specific resources and on performance tactics to achieve overall goals and objectives of the strategic and management plans. Operational planning is concerned primarily with the scheduling of detailed programme activities. Scheduling determines the calendar dates or times that resources will be utilized according to the total resource capacity assigned to the programme. A schedule can be developed only after the management plan is complete. Resource availability, task or job sequence, resource requirements, and possible starting times for the project or programme activities must then be taken into account in order to produce a schedule.

Effective and comprehensive strategic planning may mean the difference between success and failure in the delivery of vital services. Successful management planning can mean the difference between the effective utilization of scarce resources and waste. Effective and efficient operational planning can mean the difference between "on time" and, "late" in the achievement of a specific project.

The managers of responsibilities centre in turn identify specific tasks and exercise control over them. It goes without saving that if operational control is not properly exercised, attainment of goals is just not possible. This creates imbalances and poses threats before the organization that may be forced to look again at its strategies and introduces necessary changes.