Cutting out waste and getting the most from staff are even more vital as budgets come under pressure. But businesses must balance the need for measuring output with keeping employees’ trust if they are to hit their goals
As pressure grows for businesses to bring out the best from staff, directors are still turning to performance management systems to help them make more informed decisions and gauge whether employees understand the company’s strategic goals.
The Chartered Institute of Personnel and Development (CIPD) points out in its 2009 report, Performance Management in Action: “The demand for up-to-date information has intensified with the economic downturn, with HR practitioners striving to ensure they are assessing performance against fair and relevant measures and that they are focusing on the things that really matter for the business.”
There are many dimensions to performance measurement programmes. These include formal appraisals, incentive/target schemes, non-monetary rewards, value-for-money audits, employee involvement activities, contract tendering and performance regulation schemes, and the use of performance metrics.
But developing a one-size-fits-all framework can be challenging, especially in organisations that carry out a diverse range of work and functions, meaning many companies manage the process badly and lose sight of what really matters.
As Professor Paul Sparrow, director of the Centre for Performance-led HR at Lancaster University Management School (LUMS), observes: “There is an old consulting adage—there is nothing better than a good performance management system but there is definitely nothing worse than a poorly designed one.
“Well-thought-through, balanced and flexible schemes can concentrate resources and effort in sensible ways. Badly designed schemes at best demotivate staff and at worst—as some of the incentive schemes in the banking sector reminded us—create risky and dysfunctional behaviour that can derail a business.”
Balancing performance management with trust
So how do employers maintain a healthy balance between measuring output effectively and accurately while preserving trust and a feeling of empowerment among employees? And how do directors ensure there’s a clear alignment between the business plan at the most senior level of the business and the individual objectives of those at a junior level?
Mike Bourne, professor of business performance in the Centre for Business Performance at Cranfield University’s School of Management, has worked with companies for 15 years on designing and implementing performance management techniques. He says the Balanced Scorecard, created by Robert Kaplan and David Norton in the early 1990s, is still the most popular framework, but alternative methodologies include the Performance Prism, Baldridge, Six Sigma, EFQM (Excellence Framework for Quality Management) and tracking key performance indicators (KPIs).
The Balanced Scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organisation, as well as improving internal and external communications, and monitoring organisation performance against goals. It recommends that a business should be audited from four perspectives—financial, customer, process, and learning and growth—and metrics developed, data collected and an analysis made based on each of these. According to the authors, this means that organisations can easily see the cause-effect relationship between actions and outcomes.
As Bourne notes, the framework has evolved since the late 1990s so that it’s less about a rigid “four-box model” and more about how companies create a success or strategy map so that key objectives are identified and linked, translating strategy into “actionable objectives”. He says that managers often come unstuck by not being able to specify exactly what they want to measure and make that relevant to what the organisation is trying to achieve. If the manager doesn’t get alignment right, he explains, you end up with conflict in the workplace because “the individual feels he’s being forced to comply with a silly set of measures”.
A 2010 survey report by US business intelligence firm SAS confirms that most organisations struggle with alignment issues-collaboration, resource optimisation, tying planning to strategy-and they look to performance management initiatives to help. The Truth About Performance Management report says: “It’s a challenge to get departments to collaborate and share-to think about the greater good. But the equation seems simple: get your house in order and the rewards (financial transparency, revenue growth, agility, competitive advantage) will follow.”
Performance management and communication
Good communication throughout the organisation is crucial to a successful performance measurement programme, agrees Andy Hogarth, chief executive of Staffline, which provides more than 15,000 blue-collar workers to production lines where productivity and output are monitored. He says companies can invoke massive changes to their profitability by making a few tweaks to the way they run their business.
“One of the biggest things is to talk to employees about what you’re doing and why you’re doing it,” advises Hogarth. “You need to create an environment where people feel able to say something. Be open to ideas because most of the people doing the work have a far better idea about it than the manager or supervisor.”
But few implementations of performance management frameworks ever go smoothly. There may be problems with data management, resistance to change in employees, or some projects may be underfunded or implemented by inexperienced staff.
Paul Niven, author of Balanced Scorecard Step-By-Step: Maximizing performance and maintaining results, says: “Perhaps the strategy was never communicated, or the associated training necessary to implement it was never provided, but for whatever reason people simply don’t know what they’re supposed to do on a day-to-day basis to make it a reality. Without that knowledge it’s often business as usual, which tends to lead to mediocre results at best.”
And there’s a risk of alienating or demotivating staff by focusing on hard, measurable outputs and ignoring the softer behaviours. The criteria of performance cannot always be measured quantitatively. Sales figures may be reduced to dry numbers, but gathering customer feedback will often require more qualitative interaction than asking customers to fill out a form.
Setting realistic performance goals
Some measurements are just not ideally suited to number-crunching. As entrepreneur Duncan Bannatyne wrote in the Telegraph in June: “Employers must take great care not to alienate their staff by introducing painstaking procedures to measure performance, no matter how tough the economic conditions, and instead consider setting realistic goals that allow staff to thrive and grow with the business.”
But, according to Sparrow at LUMS, good performance management systems can deliver and don’t have to be divisive. He explains: “First, they might create value by focusing activity on the things that make the business model clearer to employees and customers, and bring innovative, customer-centric and efficient activity to the fore. Second, they might leverage existing value by helping enhance a business model as it develops, guiding people on how best to execute strategy, learn from change, transfer important knowledge and by engaging staff. And third, they can protect and preserve value. This is where the performance management scheme makes sure that value that has been created does not get lost.”
And though it may be difficult to prove categorically that performance management schemes improve the bottom line, CIPD adviser Angela Baron says there’s evidence that if you manage people well in terms of having a set of key practices in place, which include performance management, business results improve. “If you manage people well they have high levels of skills, they’re more engaged, they’re more motivated to exhibit discretionary behaviour—which is the difference between good performance and excellent performance—and that feeds through into financial performance,” she says.
What’s absolutely required is buy-in from the top. If the system isn’t used, modelled or supported by the board, or it’s viewed as an administrative burden, then all hell could break loose. Cranfield’s Bourne explains: “When you get it wrong it’s an absolute disaster. People are going around thinking, ‘I can’t achieve that; that’s not what I’m here to do.’ A lot of organisations I work with have implemented the wrong measures because they haven’t spent the time and effort devising them.”
Sporting performance in the workplace
Damian Hughes, a sports psychologist and coach, takes performance techniques used by top sports professionals and applies them in the workplace. His list of clients includes John Lewis, Sky, and Unilever. He thinks companies would do well to focus on the “human” aspects of performance as well, because these are far more likely to transform individuals and teams than focusing purely on the technical parts of their job. He points to his work with rugby league club Warrington as an example. The club hadn’t won anything for 35 years until he got the players and coaches to think about behaviour and emotional intelligence. Last year, the club won the Challenge Cup and retained the trophy in the summer, beating Leeds at Wembley.
“We’ve done it with the same set of players,” says Hughes. “Technically, they were excellent at their job. What they weren’t getting were the sort of human metrics that made them feel safe, valued, in control and belonging.”
So how do employers achieve that kind of success in the workplace? Hughes believes the thriving organisations are those with leaders who recognise “the richness of the potential of their staff is right under their nose”. He explains: “People are crying out for a sense of belonging, of kinship and team spirit. So measure their sense of identity. Have people bought into the mission of the organisation? Measure the value that employees offer and credit them for it. Think about daily interactions—small and subtle gestures have a longer-term impact. It’s not about standing up once a year at a conference and telling everyone how good they are.”
Managers and employees do have a love-hate relationship with performance measurement systems, observes Sparrow. On the upside, they can be seen as liberating and empowering, helping people concentrate on value-adding work. “On the downside, they can be seen as being driven by just a few powerful stakeholders as an attempt at brainwashing, or just a way of getting more done for less without spreading the rewards.”
What will probably differentiate the good from the bad in future will be analytics. The SAS report states that analytics enhance the use of information and, increasingly, organisations are weaning themselves off the simplicity of Excel-style spreadsheet analysis to tackle the tougher issues with advanced systems.
“As opposed to other methods that provide a historical view (the rear-view mirror approach) and give you a sign that says ‘you are here’, analytical approaches allow an organisation to understand what will happen next, how changes in business drivers will affect results, why customers behave a certain way and so on,” it says. “This study shows the value of analytics to the performance management effort. Organisations that employ analytics are much more likely to achieve the desired results from their performance management initiatives.”
If employees are to understand the benefits of performance measurement, they need to know how their roles affect the success of the organisation. Senior management must create a sharing, collaborative environment. If the onus is placed on short-term financial objectives at the expense of long-term, value-creating activities and softer intangibles such as skills, innovation, and culture, employees can feel unsettled and over-managed. And with all directors seeking a good return on their investment, fresher, more objective methods for performance measurement in the workplace may prove to be a key differentiator.
By Amy Duff, October 2010: Director Magazine