What Is Performance Management?
Performance management is a corporate management tool that helps managers monitor and evaluate employees' work. Performance management's goal is to create an environment where people can perform to the best of their abilities and produce the highest-quality work most efficiently and effectively.
Key Takeaways
- Performance management tools help people to perform to the best of their abilities and produce the highest-quality work most efficiently and effectively.
- The precept of performance management is to view individuals in the context of the broader workplace system.
- Performance management focuses on accountability and transparency and fosters a clear understanding of expectations.
Understanding Performance Management
A formal performance-management program helps managers and employees see eye-to-eye about expectations, goals, and career progress, including how an individual's work aligns with the company's overall vision. Generally speaking, performance management views individuals in the context of the broader workplace system. In theory, you seek the absolute performance standard, though that is considered unattainable.
Performance-management programs use traditional tools such as creating and measuring goals, objectives, and milestones. They also aim to define what effective performance looks like and develop processes to measure performance. However, instead of using the traditional paradigm of year-end reviews, performance management turns every interaction with an employee into an occasion to learn.
Managers can use performance management tools to adjust workflow, recommend new courses of action, and make other decisions that will help employees achieve their objectives. In turn, this helps the company reach its goals and perform optimally. For example, the manager of a sales department gives staff target revenue volumes that they must reach within a set period. In a performance management system, along with the numbers, the manager would offer guidance gauged to help the salespeople succeed.
Focusing on continuous accountability creates a healthier, more transparent work environment, and emphasis on regular meetings can improve overall communications. Because performance management establishes concrete rules, everyone has a clearer understanding of the expectations. When expectations are clear, the workplace is less stressful. Employees are not trying to impress a manager by doing some random task, and managers aren't worried about how to tell employees that they are not performing well. If the system is working, they probably know it already.
Performance-Management Programs
Although performance-management software packages exist, templates are generally customized for a specific company. Effective performance-management programs, however, contain certain universal elements, such as:
- Aligning employees' activities with the company's mission and goals. Employees should understand how their goals contribute to the company's overall achievements.
- Developing specific job-performance outcomes. What goods or services does my job produce? What effect should my work have on the company? How should I interact with clients, colleagues, and supervisors? What procedures does my job entail?
- Creating measurable performance-based expectations. Employees should give input into how success is measured. Expectations include results—the goods and services an employee produces; actions—the processes an employee uses to make a product or perform a service; and behaviors—the demeanor and values an employee demonstrates at work.
- Defining job-development plans. Supervisors and employees together should define a job's duties. Employees should have a say in what types of new things they learn and how they can use their knowledge to the company's benefit.
- Meeting regularly. Instead of waiting for an annual appraisal, managers and employees should engage actively year-round to evaluate progress.
“Organizational effectiveness” may sound like an empty corporate buzzword, but more and more it’s become a measurement for company success. In fact, it’s become such a hot-button concept recently that some universities are offering certificate programs toward its implementation.
At the most elemental level, organizational effectiveness is a concept that measures how thoroughly and efficiently a company achieves its business goals. An effective organization runs like a well-designed, well-oiled machine. Its moving parts function smoothly to produce the results the business set out to achieve, with minimal wasted resources or time.
Read on to find out why organizational effectiveness is worth the hype, and what steps leaders can take to position their company for more efficient performance.
Organizational effectiveness refers to how an organization has achieved full self-awareness due in part to:
- Leaders setting well-defined goals for employees and outlining ways to efficiently execute those goals
- Management implementing clear decision-making processes and communication pipelines
- Engaged employees—who are carefully selected and fairly compensated—producing work that prioritizes results
Why does organizational effectiveness matter?
The more effective an organization, the more likely it will survive and flourish over the long term. It’s worth noting that organizational effectiveness cannot be achieved, as one Bain & Company study put it, by “a cycle of recurring initiatives” to make your company more efficient. The behavior must be learned and baked into the day-to-day functioning and ongoing evaluation of the business.
The study goes on to describe the difference between an ongoing commitment to organizational effectiveness and a series of one-time initiatives that might cut costs. The former is comparable to a healthy routine of eating good food and getting regular exercise, while the latter is akin to extreme dieting. Although the latter might work in the short term, it doesn’t “build the muscles to sustain long-term change.”
Prioritizing effectiveness shouldn’t discourage company health or customer satisfaction, either. According to the same Bain & Company study, “Companies that embrace an efficiency mindset are four times more likely to say their cost efforts enabled growth rather than hindered it. They also are four and a half times more likely to report improved customer experience.”
5 ways leaders can produce long-term organizational effectiveness
The Bain & Company study maps out five key areas where successful companies made adjustments to achieve organizational effectiveness:
- Strategy
- Metrics
- Commitment
- Behaviors
- Culture
“Tenacity and a sustained investment in these areas create the best chance of success,” the study asserts.
1. Strategy
Strategy involves shifting an organization’s central identity—how leaders describe its purpose and goals both internally and externally—to include effectiveness and efficiency as core values. The more your company is known to be “effective” and “efficient,” by both the market and your employees, the more these values will be built into every new project and goal.
Organizational effectiveness should simplify and clarify long-term objectives for a company. The clearer these objectives are outlined at a strategic level, the easier it is to translate across departments.
2. Metrics
Measuring organizational effectiveness through metrics can help organizations stay accountable. But choosing the right data to measure—as well as knowing when to prize human judgment and discussion over hard analytics—is just as important. A few questions to help your organization get started should include:
- What concrete goals are your teams working toward?
- Are they clearly outlined by team leaders?
- How and at what intervals will progress be evaluated?
This effectiveness report from the University of North Carolina is a great example of an organization keeping itself honest through regular evaluation. It clearly states the organization’s strategic focus, efforts to promote clarity in roles, as well as recommendations for improving general administration organizational design.
3. Commitment
“Strong executive sponsorship is the single most important factor for success and the most often cited reason for failure when things go off track,” the Bain & Company study says. The authors stress that “visible and credible commitment” to effectiveness policies from senior leaders—in companywide communications and hiring approaches, all the way down to how quarterly budget meetings are conducted—creates a trickle-down effect across the organization.
4. Behavior
Meanwhile, recurring behavior is where efforts to achieve organizational effectiveness are most likely to break down. Identifying specific decision-making moments in the day-to-day operation of the company, communicating the ways employees ought to be changing their behavior in those moments, and then implementing systems for reinforcement, including incentivizing those choices, can build a much healthier organization that polices its own effectiveness.
5. Culture
Finally, the degree to which employees are enthusiastically engaged at work determines how effective their work will be. Therefore, creating an organizational culture that values effectiveness is key.
Countless studies, from business schools to consulting firms, have underlined the correlation [if not causation] between employee engagement and overall organizational performance. Oft-cited Gallup findings suggest that unengaged workers are costing employers at least a third of those workers’ wages, and overall could be costing the U.S. economy over $600 billion in lost productivity.
Even in a purely financial context, focusing on company culture—and prioritizing employee engagement in particular—is the best place to start when embedding organizational effectiveness into your company’s DNA.