Performance is measured by comparing actual results against desired results. In a business context, desired results consist of increasing profits and continuing growth. These are achieved by developing comprehensive plans and implementing control systems that report upon actual performance against plans.
Performance Management Process
Achieving planned results in the areas of profits and growth involves managing performance in several different areas, including sales performance, employee performance, facilities utilization, cost control and the overall strategy to cope with external conditions.
To handle the complexity, several performance management tools and approaches have been developed and tried out. Some approaches like scientific management that view human resources as mere tools fail to work in a changed environment. Others are just theories that fail to work in the real world.
The approach suggested in A Handbook for Measuring Employee Performance[1] by the US Office of Personnel Management, outlines a general approach:
- Plan the work and set expectations
- Monitor actual work performance
- Develop the ability of staff to perform
- Measure and rate staff performance
- Reward top performance
In specific terms, performance management involves:
- Clarifying what is to be achieved: Developing revenue forecasts lead to operating plans that provide specific targets to be achieved.
- Identifying the tasks involved in achieving it: Once the goals have been identified, the business has to make a detailed assessment of what is involved in achieving them. On seeing the implications, it might decide to scale down expectations (or even to scale them up)
- Creating an organization that can attend to these tasks: Businesses need know-how, people, tools and money to execute the identified tasks and have to create an organization that can make all these available
- Equipping people to perform: Ultimately it is individuals that execute each task. Organizations have to select persons fitted to perform each task, develop their competence, and provide an environment and resources that help them perform effectively
- Implementing planning and control systems: People will be busy with their day-to-day routines and it is well-designed systems that ensure that they take the time to develop specific plans and then review actual performance against the plans. Good systems go further and facilitate follow-up actions based on the review
- Providing incentives for good performance: Human nature being what it is, incentives play an important part in motivating and sustaining good performance
Putting the suggested approach into practice usually is a tough task. Smaller businesses typically lack the skills and resources needed to do it. Larger businesses tend to become bureaucratic and too unwieldy to implement a cohesive approach. Hence, deliberate efforts are needed to ensure that the critical task of performance management is not ignored. Tools like Balanced Scorecard and Business Process Management can help in such a context.
Results of Performance Management
Performance management must not be allowed to become another routine with no clear results to show. Specific results of performance management are reflected in:
- Increasing revenues and sustained growth supported by high customer satisfaction
- Remunerative selling prices in the context of controlled costs
- Speedier business processes and committed employees
- Effective management of changes that is inevitable in the fast changing environment businesses face
Business performance management involves meeting external challenges posed by competition and economic/political changes and effective internal administration of setting clear goals, developing employee competence, managing facilities and working conditions, and setting up good control systems. It also involves adopting responsible business practices.
Sources:
[1] Performance Management and Incentive Awards Division, A Handbook for Measuring Employee Performance. US Office of Personnel Management, September 2001.
