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Performance Management in a Tighter Economy

As we move to tighter economic conditions, Performance Management is becoming critically important to organisations and managers. In the last few years, there has been a tremendous move from traditional reactive Appraisal systems to proactive Performance Management processes.

Performance Management concerns every employee and manager and progressive organisations embrace Performance Management as a tool to include and link every employee and manager to the strategic and operational imperatives of the organisation.

And yet, we still find that many organisations persist with once-per-year Appraisals. Performance Management differs from Appraisal in many ways, however the predominant disadvantage of Appraisals is that employees and managers are NOT linked with the Organizational Strategy and this issue alone makes Appraisal a waste of time in tighter economic conditions.

Fewer Resources means more Focus

Common with the tightening of economies around the world is access to resources. As organisations tighten their belts, resources including financial capital, human capital and other resources become difficult to attain. This means managers have less access to financial capital for employee incentives/bonuses and less access to human capital to get the job done. Therefore, managers will have to ensure that their employees are focused on achieving critical objectives and staying focused on these objectives rather than being distracted by working on less critical activities.

Performance Management plays a critical role in achieving this focus. If employees have clear and focused objectives that are tied back to the organisations strategy and operational plan then it is more likely that the strategy will be achieved.

Quality of objectives critical to clear Alignment

To achieve this focus, managers need to have very clear objectives for their employees. In times of plenty, interpretation of objectives was not as critical. For example, the objective may have been “Increase market share form 15% to 20% by 30 June 2009”. The employee interpreted this to mean that discounting the product set across the product range was the best solution and advised the sales force to do this. The manager was actually seeking profitable market share gains from failing competitors.

In good times, this misalignment may not have been critical. In tougher times, this misalignment will cost the organisation dearly.

What this means is that managers will need better skills in setting objectives to align their employees and prevent employees wasting their time on objectives that were incorrect or resulted in the employee’s focus being misaligned.

Higher Frequency Feedback drives achievement of the Strategy

With more focus on short term critical objectives, regular high frequency Feedback will become of paramount importance. Employees will want to know - how are we doing, are we on track, where are we having issues, what else needs to be done? Most Performance Management Software systems provide a mechanism for frequent feedback, for example on a monthly basis. This high level of feedback ensures that the organisation stays focused, deals with issues before they become major problems and work towards achievement of its strategy.

Appraisals more of a waste of time than ever before


If your organisation is still only conducting an appraisal process (the review component without setting objectives) then you will get very little benefit from the process. When time is short and precious, employees will see the appraisal process as a waste of time and make it harder to implement a proper Employee Performance Management process.

Clear Linkages of Reward for Performance

In times of increased demands on employees and managers, both will want a clear link between performance and reward. “If I go the extra mile for the organisation, what’s in it for me?” If the organisation has a clear reward structure (whether pay or promotion or opportunity), then driving behaviors towards increased performance will be straight forward. Where the link between reward and performance is fuzzy, managers will find it difficult to drive increased performance.

Clear Strategy

In a market where both investors and employees have an increased appetite for concise information, management needs to have a clear strategy. The Strategy needs to be communicated not just to the shareholders via investor briefings but also to the employees who have to execute the plan.

The message needs to be different. Investors want to know about Earnings per Share, Earnings Before Interest and Tax. Employees also want to know about the Strategy but in a different way. They want to know their own part of how they contribute to the strategy through their objectives in the Performance Management system. In tougher times, employees want to know more rather than less, they want to know if they have a job and what they can do to ensure the success of the organisation. Annual appraisals do nothing to help deliver on the employee’s expectations for clear guidance, and certainly does not provide a platform for the delivery of an employees role in the strategy.

Summary

Old practices die hard. Organisations that continue old practices also die. Many organisations still operate outdated Appraisal systems to their detriment and to the detriment of employees, managers and shareholders.

Progressive organisations have used tight Performance Management processes for several years and have fine tuned these processes to ensure their employees and managers are Aligned to the plan, know what their part of the Strategy is, understand how they will be rewarded for achievement of the plan and know they will have jobs if they achieve the strategy.

In tighter economic conditions, organisations will need every advantage they have got to survive and prosper. Performance Management provides a clear concise framework to drive business results in a tighter economy.

As we move to tighter economic conditions, Performance Management is becoming critically important to organisations and managers. In the last few years, there has been a tremendous move from traditional reactive Appraisal systems to proactive Performance Management processes.

Performance Management concerns every employee and manager and progressive organisations embrace Performance Management as a tool to include and link every employee and manager to the strategic and operational imperatives of the organisation.

And yet, we still find that many organisations persist with once-per-year Appraisals. Performance Management differs from Appraisal in many ways, however the predominant disadvantage of Appraisals is that employees and managers are NOT linked with the Organizational Strategy and this issue alone makes Appraisal a waste of time in tighter economic conditions.

Fewer Resources means more Focus

Common with the tightening of economies around the world is access to resources. As organisations tighten their belts, resources including financial capital, human capital and other resources become difficult to attain. This means managers have less access to financial capital for employee incentives/bonuses and less access to human capital to get the job done. Therefore, managers will have to ensure that their employees are focused on achieving critical objectives and staying focused on these objectives rather than being distracted by working on less critical activities.

Performance Management plays a critical role in achieving this focus. If employees have clear and focused objectives that are tied back to the organisations strategy and operational plan then it is more likely that the strategy will be achieved.

Quality of objectives critical to clear Alignment

To achieve this focus, managers need to have very clear objectives for their employees. In times of plenty, interpretation of objectives was not as critical. For example, the objective may have been “Increase market share form 15% to 20% by 30 June 2009”. The employee interpreted this to mean that discounting the product set across the product range was the best solution and advised the sales force to do this. The manager was actually seeking profitable market share gains from failing competitors.

In good times, this misalignment may not have been critical. In tougher times, this misalignment will cost the organisation dearly.

What this means is that managers will need better skills in setting objectives to align their employees and prevent employees wasting their time on objectives that were incorrect or resulted in the employee’s focus being misaligned.

Higher Frequency Feedback drives achievement of the Strategy

With more focus on short term critical objectives, regular high frequency Feedback will become of paramount importance. Employees will want to know - how are we doing, are we on track, where are we having issues, what else needs to be done? Most Performance Management Software systems provide a mechanism for frequent feedback, for example on a monthly basis. This high level of feedback ensures that the organisation stays focused, deals with issues before they become major problems and work towards achievement of its strategy.

Appraisals more of a waste of time than ever before


If your organisation is still only conducting an appraisal process (the review component without setting objectives) then you will get very little benefit from the process. When time is short and precious, employees will see the appraisal process as a waste of time and make it harder to implement a proper Employee Performance Management process.

Clear Linkages of Reward for Performance

In times of increased demands on employees and managers, both will want a clear link between performance and reward. “If I go the extra mile for the organisation, what’s in it for me?” If the organisation has a clear reward structure (whether pay or promotion or opportunity), then driving behaviors towards increased performance will be straight forward. Where the link between reward and performance is fuzzy, managers will find it difficult to drive increased performance.

Clear Strategy

In a market where both investors and employees have an increased appetite for concise information, management needs to have a clear strategy. The Strategy needs to be communicated not just to the shareholders via investor briefings but also to the employees who have to execute the plan.

The message needs to be different. Investors want to know about Earnings per Share, Earnings Before Interest and Tax. Employees also want to know about the Strategy but in a different way. They want to know their own part of how they contribute to the strategy through their objectives in the Performance Management system. In tougher times, employees want to know more rather than less, they want to know if they have a job and what they can do to ensure the success of the organisation. Annual appraisals do nothing to help deliver on the employee’s expectations for clear guidance, and certainly does not provide a platform for the delivery of an employees role in the strategy.

Summary

Old practices die hard. Organisations that continue old practices also die. Many organisations still operate outdated Appraisal systems to their detriment and to the detriment of employees, managers and shareholders.

Progressive organisations have used tight Performance Management processes for several years and have fine tuned these processes to ensure their employees and managers are Aligned to the plan, know what their part of the Strategy is, understand how they will be rewarded for achievement of the plan and know they will have jobs if they achieve the strategy.

In tighter economic conditions, organisations will need every advantage they have got to survive and prosper. Performance Management provides a clear concise framework to drive business results in a tighter economy.

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