Performance management is simply about managing the way employees perform, isn’t it? If you answered yes, you’d be wrong. The process is actually more complex than the phrase suggests and as a result many organisations struggle to successfully embrace it. Dan Martin examines the true meaning of performance management and how to achieve results.

What’s it all about?

If it can be put into simple terms, performance management is the holistic approach to managing performance across an organisation. However, the term does require slightly more description. Angela Baron and Michael Armstrong, from the Chartered Institute of Personnel and Development (CIPD) and two of the UK’s leading experts on the subject, define it as “a process which contributes to the effective management of individuals and teams in order to achieve high levels of organisational performance. As such, it establishes shared understanding about what is to be achieved and an approach to leading and developing people which will ensure that it is achieved.”

Monica Franco, research fellow at the Centre for Business Performance, Cranfield School of Management, says a key element is that the process should be linked to the direction an organisation is taking. “Performance management could be defined as the set of processes by which organisations manage their performance in line with their corporate strategy,” she claims.

Experts agree that where organisations fail on their definition of performance management is when they only focus on the practical processes used. While things such as employee appraisals, talent development and rewards are of course vitally important they are simply the tools which are used to help manage performance. Just having these tools in place is not enough. Effort above and beyond them is required.

Getting it right

So just how can HR ensure the process is effective?

Be prepared to work at it, advises Franco. “HR specialists need to bear in mind that the development of successful performance management systems takes time, effort and money,” she says. “Performance management systems evolve over time and resources must be available not only at the beginning of their life when they are designed but also through their implementation and review periods.” Think of the systems as ‘living’, Franco continues, meaning that they require constant attention and investment. Viewing performance management as one-off projects or quick-fix solutions will likely lead to failure.

Baron says an effective performance management process is driven by good management. “It’s about making sure line managers do what they should do be doing and they know what’s expected,” she says. “Managers need to know what good performance looks like.”

Effective management is indeed important but that management can often be hindered by bureaucracy. The bane of many a HR department’s life, performance management is one of the many areas in which red tape should be avoided. Steering away from over-complicated, form filing driven processes can only be positive. “If it’s all about form filling, the process becomes a chore and a burden and it will lose direction and fail to address the important issues,” Baron says. She adds that she has come across very successful processes which just rely on a line manager sending a half page document to HR outlining their staff training and development requirements. “Systems do need some sort of record,” Baron continues. “But keep it simple. A form on which line managers and individual employees can note comments will often suffice.”

The measurement/development balance

When looking at the way they plan on managing performance, organisations often decide to take either a ‘carrot’ or ‘stick’ approach and struggle to bridge the gap between ‘hard’ measurement techniques and ‘soft’ development processes. Research evidence seems to put towards this trend.

A study conducted by the Hay Group and Henley Management College found that many organisations fell into the extreme measurement rather than development camp. However, those that don’t and combine the best of both approaches are more likely to be successful. The Hay Group research into the ‘Most Admired Companies’ for ‘Fortune’ magazine showed organisations which steer a middle course, avoiding the pitfalls of falling into either extreme measurement or extreme development and combine the best of both approaches are most effective.

The report found that average performing firms were those which encouraged senior managers to focus on easily quantifiable measures that impact directly on the bottom line such as profits, growth and operational excellence. “The Most Admired however,” said Hay Group’s Dilum Jirasinghe, “have created performance management systems that take a more rounded approach including measures on teamwork, long-term thinking, building human capital, development and managing talent and customer loyalty.”

Baron argues that in the current workplace environment, a balance of measurement and development is vital. “Nowadays it is much more difficult than in the past to measure people in hard and fast terms as over the course of a year a job may well have changed because the modern world of work moves at every increasing rate,” she says. “The most successful processes are those which are very closely associated with learning and development.”

Show me the money?

Money makes people perform better, right? Not necessarily.

Many organisations link performance management to performance-related pay (PRP). It is true that it is an important element in the process because it can motivate staff and communicate that performance and competence are important. “PRP can play a communication role as it shows employees what is important for the organisation and what they should be focussing on,” says Franco.

However, critics argue that PRP can cause problems. They claim that PRP can actually demotivate staff because it is often based on subjective assessments of performance. Teamwork can also be inhibited due to its individualistic nature.

Angela Baron is among the critics of PRP. “Linking individualised PRP to performance management attaches value which determines a pay rise,” she says. “Doing this, you are never going to get honest answers as employees are unlikely to say they’re struggling with an element of their job if it affects their pay.”

Ownership

Experts argue that the key to successful performance management is ensuring everyone in the organisation “owns” the process. “Everyone must believe in it,” says Baron. “HR may design it but if in the end managers don’t bring it to life that makes sense to everyone, it won’t achieve anything.” She argues that line managers need to know the process is about improving their staff, while individuals must know it’s a process worth going to that is linked to their specific training and career development needs.

Franco believes that ownership can be achieved “by involving people in the design, implementation, review and update of their performance management systems”. “Organisations need to be open to suggestions from their employees as they are the ones that have the best knowledge on how their performance can be measure,” she adds. “They also have to create environments in which there is trust and people are willing to participate in those endeavours that are good for the organisation as a whole.”