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Definition Performance Management |
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Consider the following scenario : Sally
is a sales manager at a large pharmaceutical company. The fiscal year will
end in one week. She is overwhelmed with end-of-the-year tasks, including
reviewing the budget she is likely to be allocated for the following year,
responding to customers’ phone calls, and supervising a group of 10 sales people.
It’s a very hectic time, probably the most hectic time of the year. She
receives a phone call from the human resources (HR) department: “Sally, we
have not received your performance reviews for your 10 employees; they are
due by the end of the fiscal year.” Sally thinks, “Oh, those performance reviews.
. . .What a waste of my time!” From Sally’s point of view, there is no value
in filling out those seemingly meaningless forms. She does not see her
subordinates in action because they are in the field visiting customers most
of the time. All that she knows about their performance is based on sales
figures, which depend more on the products offered and geographic territory
covered than the individual effort and motivation of each salesperson. And,
nothing happens in terms of rewards, regardless of her ratings. These are
lean times in her organization, and salary adjustments are based on seniority
rather than on merit. She has less than three days to turn in her forms. What
will she do? She decides to follow the path of least resistance: to please
her employees and give everyone the maximum possible rating. In this way,
Sally believes the employees will be happy with their ratings and she will
not have to deal with complaints or follow-up meetings. Sally fills out the
forms in less than 20 minutes and gets back to her “real job.” There
is something very wrong with this picture, which unfortunately happens all
too frequently in many organizations. Although Sally’s HR department calls
this process “performance management,” it is not. |
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Performance
management is a continuous process of identifying, measuring, and
developing the performance of individuals and teams and aligning performance
with the strategic goals of the organization. Let’s consider each of the
definition’s two main components : |
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Continuous
process. Performance management is ongoing. It involves a neverending
process of setting goals and objectives, observing performance, and giving
and receiving ongoing coaching and feedback. |
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Alignment with strategic goals. Performance management requires that managers ensure that employees’ activities and outputs are congruent with the organization’s goals and, consequently, help the organization gain a competitive advantage. Performance management therefore creates a direct link betweenemployee performance and organizational goals and makes the employees’ contribution to the organization explicit. |
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Note that many organizations have what is labeled a “performance management” system. However, we must distinguish between performance management and performance appraisal. A system that involves employee evaluations once a year without an ongoing effort to provide feedback and coaching so that performance can be improved is not a true performance management system. Instead, this is only a performance appraisal system. Performance appraisal is the systematic description of an employee’s strengths and weaknesses. Thus, performance appraisal is an important component of performance management, but it is just a part of a bigger whole because performance management is much more than just performance measurement. As an illustration, consider how Merrill Lynch has transitioned from a performance appraisal system to a performance management system. Merrill Lynch is one of the world’s leading financial management and advisory companies, with offices in 37 countries and private client assets of approximately US$ 1.6 trillion (http://ml.com/). As an investment bank, it is a leading global underwriter of debt and equity securities and strategic adviser to corporations, governments, institutions, and individuals worldwide. Recently, Merrill Lynch started the transition from giving employees one performance appraisal per year to focusing on one of the important principles of performance management: the conversation between managers and employees in which feedback is exchanged and coaching is given if needed. In January, employees and managers set employee objectives. Mid-year reviews assess what progress has been made toward the goals and how personal development plans are faring. Finally, the end-of-the-year review incorporates feedback from several sources, evaluates progress toward objectives, and identifies areas that need improvement. Managers also get extensive training on how to set objectives and conduct reviews. In addition, there is a Web site that managers can access with information on all aspects of the performance management system. In sharp contrast to its old performance appraisal system, Merrill Lynch’s goal for its newly implemented performance management program is worded as follows: “This is what is expected of you, this is how we’re going to help you in your development, and this is how you’ll be judged relative to compensation.” As a second example, consider the performance management system for managers at Germany-based Siemens, which provides mobile phones, computer networks, and wireless technology and employs 475,000 people in 190 countries (www.siemens.com). At Siemens, the performance management system is based on three pillars: setting clear and measurable goals, implementing concrete actions, and imposing rigorous consequences. The performance management at Siemens has helped change people’s mind-set, and the organization is now truly performance oriented. Every manager understands that performance is a critical aspect of working at Siemens, and this guiding philosophy is communicated in many ways throughout the organization. Performance management systems that do not make explicit the employee contribution to the organizational goals are not true performance management systems. Making an explicit link between an employee’s performance objectives and the organizational goals also serves the purpose of establishing a shared understanding about what is to be achieved and how it is to be achieved. This is painfully clear in Sally’s case described earlier: from her point of view, the performance review forms did not provide any useful information regarding the contribution of each of her subordinates to the organization. Sally’s case is unfortunately more common than we would like. A survey conducted by the consulting firm Watson Wyatt showed that only 3 in 10 employees believe their companies’ performance review systems actually helped them improve their performance. In subsequent chapters, we describe best practices on how to design and implement performance management systems. For now, however, let’s say that well-designed and implemented performance management systems make substantial contributions to the organization. This is why a recent survey of almost 1,000 HR management professionals in Australia revealed that 96% of Australian companies currently implement some type of performance management system.6 Similarly, results of a survey of 278 organizations, about two-thirds of which are multinational corporations, from 15 different countries, indicated that about 91% of organizations implement a formal performance management system.7 Moreover, organizations with formal and systematic performance management systems are 51% more likely to perform better than the other organizations in the sample regarding financial outcomes, and 41% more likely to perform better than the other organizations in the sample regarding other outcomes including customer satisfaction, employee retention, and other important metrics. Based on these results, it is not surprising that senior executives of companies listed in the Sunday Times list of best employers in the United Kingdom believe that performance management is one of the top two most important HR management priorities in their organizations.8 Let’s describe these performance management contributions in detail |
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