The Truth is Most Performance Management System Fail

leadership
Book Review: The Leadership Engine
September 16, 2016
performance-system

The Truth and Reality

Very recently when I was in Hanoi, Vietnam presenting a program on managing and developing Key Performance Indicators, a HR executive came to me and showed me his organization Performance Management System Form. The design and concept was based on a standard taken from a reputable multinational organization. He wanted my comment on the Performance Management System Form. As he seemed to be very concern about the form, I have asked him a question; “Is there an issue?” Reluctantly, he then related that there was a serious problem. No one in his organization, other than a few top executives, believes that Performance Management System works. Do you think this is shocking?

Try asking your staff about Performance Management System. Do not be surprised to find out that probably more than 80% of them think that it is unfair, meaningless and a waste of time. The sad part of it is that many in the HR fraternity are aware of the issues but choose to close one eye and still proceed with their Performance Management System knowing the actual consequences and results.

There is definitely a serious need for organizations to look more closely at their performance management and appraisal systems. It is obvious that many are not only useless, but can actually harm productivity and the relationships between employees and managers.

Importance of Performance Management System

It is clear that there is no question about the significance and importance of Performance Management System for today’s organizations. In fact, managing performance cannot be taken for granted at all in the new global economy. The marketplace is very intense and competitive. Speed and accuracy in getting the right information at the right time is everything. Today’s organizations are required to respond to the market situation instantly and to make necessary changes constantly. In order to stay competitive and responsive at all times, organizations need to be strategically “right” and at the same time, motivate and drive a high level of productive workforce.

In the 90s with the bullish market and expanding economy, organizations can afford to have low productivity and yet do well in terms of revenue and profit. The overall buoyancy of almost every industry then, covered up the need for quality internal capabilities and processes. Back then, to do well financially, there is no necessity to drive performance internally or from within the organization. In fact, most of these organizations have no time for such activities. Even if there are, it is just done merely as a formality. The organizations could afford incurring high operating costs and wastages and still be able to do well financially.

Unfortunately, organizations have no such luxury today. In fact, many such organizations suffered the consequences and paid a heavy price for failing to really manage performance in its true sense. Organizations can no longer afford to operate with such manner in today’s business world.

Of course, there are organizations in the 90s that focused on driving performance to achieve excellent financial results. What these organizations have achieved were not just in financial term but, they have also grown internal market penetration, global expansion and organization size, achieved high level of customer satisfaction, improved internal capabilities, and most important of all, developed a strong human capital capable of managing “future” business. It is obvious that responsibilities of today’s CEO are no longer about achieving financial results alone. In fact, managing performance of an organization and its human capital has to be the CEO’s number one priority, full stop.

The Performance Management System

So it is not surprising for you to find that most organizations today have some forms of performance management system in place. It could be a simple 2 to 3 pages system merely based on competency assessment, right up to a highly complex system of up to 5 pages or more based on a combination of KPIs, KRAs, BSC and Competency Frameworks.

Obsolete System

As for the Performance Management System that is based just on competency assessment framework, let us agree that is it outdated and obsolete for organizations today. It is not a performance-based Performance Management System. Its assessment is subjective and does not help people to achieve better performance. It is understandable that this type of Performance Management System simply does not work. Organizations still having such system are supposed to change the system immediately. Nevertheless, you will be surprised that we have come across a public listed company still having such a system!

What about the Objective Based System?

Then, what about the so-called objective based Performance Management System which many organizations are using now? Many of these Performance Management Systems have most of the standard performance parameters incorporated into the form-like objective column, KPI column, weighted column and rating column. We would have expected organizations using this type of Performance Management System to succeed. Unfortunately, many organizations are still struggling to implement the Performance Management System without any real success so far. The problem is that we are not tackling the real issues. Pathetically, many are interested to just set-up an appraisal system manually or electronically.

Wrong Start!

To begin with, many Performance Management Systems are designed to serve the function simply for monitoring and tracking data without really understanding the key objective of the exercise. This resulted in many organizations focusing too much on the development and design of the form and not focusing on what they intend to achieve from the exercise. They will usually refer to a few references and pick what they think they like and then incorporate them into the final Performance Management System form. When you copy without understanding the whole thing, you end up with a poorly designed form that looks good. That is why some Performance Management System forms ended with a KPI column and a target column which is technically wrong. By simple definition, a KPI consists of 2 components: a measure and a target. Appropriately, you should have a main KPI column with 2 sub-columns: a measure column and a target column.

Lack of Knowledge

This leads us to the next problem: lack of knowledge on the subject on performance management. The truth is that people who design the form and set-up the system sometimes lack the knowledge and understanding on Performance Management and the subject of Key Performance Indicator. In one of the review exercises, a HR executive briefed the staff that the organization Performance Management System required them to have “SMART” objectives as well as “SMART” KPIs. This HR executive has totally mixed-up the knowledge on MBO (Management by Objective) with KPI (Key Performance Indicator) framework. Both are based on totally different principles. Such conflict of principles usually leads to a lot of confusion and wrong input, creating useless data.

As a result, this lead to another problem: the reality is that many people in the organization do not have enough knowledge to apply it at the workplace, which is a very serious problem in most organizations yet only few acknowledge so. Worst of all, some of the organizations are not even aware that there is a problem.

Most of them cannot even tell the difference between a work standard and a target. Some of them are confused between KPI and objective statement. It is easy to blame the tool if something does not work. If changing the tools still does not produce the required results, then the wrong attitude of the human capital has to be addressed. How can organizations get people to perform when they, in the first place, do not know what constitute performance?

Most of the time, managers and supervisors cannot really help their subordinates in developing meaningful KPIs. So when you have a situation of garbage in, garbage out, many outputs are of poor quality and become subjective. Unfortunately, it is a case of “blind leading the blind”.

Is There a Hope?

Simply, the purpose of a Performance Management System is to objectively track and quantify one’s performance so that it can be converted into a performance rating which helps to drive organization performance. The whole idea is to:

Tie performance of each human capital to the organization overall strategic direction and objectives

Recognize and reward employee performance on all aspects of performance and not just based on financial parameter

And at the same time, to identify employees’ development needs and to increase their ability to outperform current capability, which will lead to outstanding performance

However, in many cases, the actual performance rating is still subject to the supervisor’s subjective interpretation. At the end of the day, it is still a guessing game.

Apparently, a lot needed to be done if organizations are serious about driving performance to achieve strategic goals. It is not just an exercise of developing Performance Management System form and getting people to fill up the form on a yearly basis. Unfortunately, this seems to be the case currently and resulted in many taking short cuts. We spend so much time trying to figure out what”s going on that we forget where we want to go and what it will take to get there.

Let us face the fact that, most Performance Management Systems are still far away from succeeding in driving performance unless there is a serious attempt to bring knowledge on performance management and the subject of KPI to the workforce. We should first go back to the basic of re-educating everyone on the subject of performance management with an emphasis on practical application – education which is currently lacking in most organizations – before actually trying to put performance management processes in place. There are many assumptions that everyone knows how to develop objectives, measures and targets, yet results have indicated otherwise. Most assessment exercises we carried out show that most people are still quite vague about performance management and the ways to develop meaningful KPIs. We are talking about 70% in most cases!

Unless this lack-of-knowledge issue is addressed immediately, otherwise we would have to accept the fact that eventually most performance appraisals will still be carried out on yearly basis simply as a matter of filling up form or duplication exercise based on the previous year’s outputs. Let’s stop wasting resources on using Performance Management System as merely an administrative tool.

It is about time organizations use Performance Management System effectively to drive strategic goals and carry out organization-wide assessments on the effectiveness of the Performance Management System. Find out what your human resources think about the system and how much they know about performance management. The truth always hurt but it could be the best thing that you can do for your organization and eventually help your organization to achieve strategic advantages over your competitors.