Performance Management

Here is a brief summary of the sections in this topic. If you want to see the full topic, you can get a free trial here.

1. Introducing performance management

Performance management is the application of a structured process to deliver organisational strategy through the selection and monitoring of appropriate measures, and management action against agreed targets. To be worthwhile, it should also have the aim of creating a climate of ongoing improvement.

The introduction (or, usually, re-introduction) of performance management into any organisation is a major change management initiative and should only be undertaken after appropriate planning and with the involvement of managers, supervisors and operators.

  • The appropriate selection of measures is probably more important than the choice of the computer system.
  • The organisation should operate a pilot project in order to pave the way of least resistance and learn from inevitable mistakes.
  • Figure out who the stakeholders are, and then involve them.
  • It is best to allay the legitimate fears of staff by including them directly into scoping and planning.

2. Strategic goals

Every organisation should have an explicit strategy containing purpose and goals. If these are to be achieved, it’s important that all the parts of an organisation are pulling in the same direction. Performance Management, together with the associated tools and techniques, is a process for managers and supervisors to achieve these goals and hence support the organisation’s strategy.

  • If strategy is an emergent property, rather than something which someone decides and then everyone does, other frameworks to measure improvement in capability can be substituted to make up part of the shortfall. One of these is a Balanced Scorecard.
  • The EFQM Excellence model is a management framework for measuring progress on a path of continuous improvement. It is based on the premise that excellent results with respect to performance, customers, people and society are achieved through leadership driving policy and strategy that is delivered through people, partnerships and resources, and processes.

3. Business process

Defining the business process is the stage that is the least well understood and the most overlooked, but it’s crucial to success.

  • BPR (Business Process Re-engineering) uses a set of tools and techniques to map the existing ‘as-is’ process, then facilitate the operational team to come up with an optimised ‘to be’ process.
  • BPR is a necessary part of the introduction of major computer systems, such as those for ERP (Enterprise Resource Planning) and CRM (Customer Relationship Management), as the business processes need to be explicit in order to configure them within the work-flow in the software.
  • BPM (Business Process Management) refers to BPR and the ongoing management of processes across computer systems and departments; in other words, it offers a wider, more holistic view on improvement as it includes the continuous improvement aspects that are missing from BPR.

4. Measurement

Ideally, measurement of business processes should be automatic and in-process where practical. In-process simply means that the measurement should fall out of the process and not introduce additional work. The automated collection of data offers solutions to a number of managerial problems with measurement.

  • Automated collection reduces overhead costs and gives us greater flexibility.
  • Extracting data directly from the process takes out much of the bias.
  • Unless they are system based, many measures lack supporting data to qualify them.
  • Be aware that people often think that if something is not measured, it is therefore not important.

5. Benchmarking

Once you have measurement processes in place, but before you lunge in to setting targets and maybe beating yourself up about missing them, you first need a good idea of SMART targets.

You need to know

  • What are you currently achieving – it is essential that you start to measure before you set targets
  • What your peers are achieving – many people are quite willing to share on non-competitive technology and processes, so give one of your peers a ring and pay them a visit
  • What do you have the resources to achieve, what do you need to achieve, and how much is it worth to you?

6. Agree targets; measure the journey

Targets need to be ‘stretching but achievable’. Setting targets too high is probably worse than setting them too low, as repeated failure usually leads to a sense of inadequacy. Hence it is necessary to properly benchmark what is currently achieved, what is achievable, and what we as a team aspire to do over a period of time.

  • There is a great temptation to measure outputs, such as sales and profits, for example, to see how we are doing, but we should at least consider adding in some measures of the resources we are investing to ensure desirable outcomes.
  • We should not overwhelm ourselves with data just because we can measure it – we need to identify the few genuinely ‘Key’ Performance Indicators.
  • Targets should be aligned with our organisation’s strategy and goals. They should also be formulated using the well-known ‘SMART’ criteria for goal setting.
  • A target should be owned.

7. Reporting

As managers, we do not want to see huge files of data; we want to know what it means. What we require is a handful of indicators to tell us if the business is on track. If it is, OK. If it isn’t, then we follow up by digging into detail.

  • One popular way of improving the reception of management information is through graphs or pictorial indicators, which can be configured to look like a car dashboard.
  • A Management Information System is the database and reporting function for performance management and is often IT based.
  • Business Intelligence is an umbrella term which is being applied, particularly to software support products, to describe a set of concepts and methods to improve business decision-making by using fact-based support systems.

8. Improvement

Consuming resource to gather and report performance information is of little use unless we are going to do something with it. As managers we are, when required, duty bound to take management action based on Performance Indicators.

  • Intervention approaches, such as Business Process Re-engineering (BPR), bring in resources or consultants to look at the basic business process to look for what has changed or broken.
  • Continuous improvement approaches originate from Systems Thinking and TQM (Total Quality Management).

9. Review

Things change with time, so

  • We need to change what we measure with time, so it is essential that we schedule in at least periodic reviews.
  • We need to periodically benchmark against our peer group to ensure that we are not being left behind.
  • We need to have an ongoing understanding of where we are with respect to our targets, and we should review the measurement process and targets at the same time as reviewing gaps in performance.

10. Common pitfalls

Common pitfalls include

  • Measurement and reporting are not translated into action
  • Performance management has not been aligned with business strategies and plans, or the latter are not even in place
  • Performance management becomes part of the IT system, but is not related to people and processes
  • The system is not SMART
  • There’s an overwhelming number of measurements or the wrong KPIs are chosen
  • The processes need to be changed
  • Performance management is linked to pay and remuneration.