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First written on November 29,  2003 Revised & Updated on July 07, 2008 Performance Management Systems Making the simple complicated is commonplace; making the complicated simple, awesomely simple, that's creativity - Charles Mingus - Courtesy Verba Volant Translation Service, France "Recipe for success: Study while others are sleeping; work while others are loafing; prepare while others are playing; and dream while others are wishing." -– William Arthur Ward - Courtesy Bits & Pieces, Lawrence Ragan Communications, USA Preamble: We received an e-mail on November 25, 2003 from Ms. Sumati Reddy, a senior faculty member of Institute of Chartered Financial Analysts of India, Hyderabad, India, specializing in Organizational development, Organizational behavior, HRM etc., and the concerned portion is reproduced below in italics: At the moment, I am working on an executive reference book on "PERFORMANCE MANAGEMENT SYSTEMS." Since one of the most significant management concerns in the present business scenario pertains to the management of its human resources, we wish to prepare a book focusing on this theme. I have comes across one of your articles, on your website www.madgopes.com : "Difference between Performance Management and Performance Appraisal". Considering your expertise in the field of  Human Resource Management, I am sure that your insights on this subject would prove to be very useful in taking the Performance Management movement forward. We are interested to know about the model of yours i.e. The MMG Model in detail, and its application in organizational settings, in Indian context. I am therefore requesting you to kindly contribute an article on any of the following lines mentioned in the structure of book, that will make our book more enriched. Based on the above request, I am giving below some of my thoughts on the subject and hope the readers will find it useful. I have always believed in the KISS (Keep it short and simple) principle and the approach here would be no different. This article will cover the following: Introduction to performance management Defining the concept The Changing paradigm from performance appraisals to performance management The difference between performance appraisals and performance management in terms of: Focus, Scope, Benefits, Challenges I recommend that readers peruse the article referred above so that the subject is understood in its totality.  Introduction to Performance Management System: The difference between performance management and performance appraisal is covered in the paper mentioned above, but for the sake of clarity some pertinent portions are repeated here. Most people associate performance management with performance appraisals, performance related pay, achievement of targets, motivating people and enforcing discipline. Unfortunately the above is not what performance management is all about, though they do form a fundamental part of it. Then what is a performance management system ? Performance management system (PMS) has to evolve from the performance appraisals. A well designed performance appraisal system tells you the status of the health of an organization, but it indicates only the symptoms of any ills. It is like a medical checkup. It tells you what is right or wrong. However, it does not lead you to the cure of the organizational ills. Performance Management System has to be evolved for cure and to keep the organization healthy. Most often, we attack the symptoms rather than attacking the root cause of the problem. A properly designed performance management system helps us to take action for curing the organizational ills. PMS has to be designed in such a manner that it leads to achievement of organization's goals and objectives and at the same time it enables people to achieve their full potential, lead to job enrichment and job satisfaction. Ideally, all the peoples' functions, goals and objectives should be interlinked in such a manner that it leads to achievement of desired organizational results. Since it very difficult, unwieldy and time consuming to do that, it is better to decide on few key and important parameters for a design of a basic PMS. We narrowed in on 10 parameters in our MMG model. Definition & Focus: Performance management is about getting results. It is concerned with getting the best from people and helping them to achieve their full potential by enabling them to recognize their roles and contributing to the goals of the organization. The focus should be on how do we improve the performance of the organization, how do we get the best out of the people, how do we help them in achieving their objectives, thereby achieving the organizational objectives. How do we relate their personal goals with the organizational goals ? Is it possible to chart out a reasonable career path for performers ? How do we retain good people ? How to keep the attrition rate as low as possible ? How to improve the performance of average performers ? What do we do with poor performers ? Why are they performing poorly ? Where are we ? Why are we there ? Who is responsible ? When and what actions are to be taken ? Where do we want to go ? How do we get there ? The above questions need to be addressed and answered and for that organizational soul searching is necessary. Need for a Paradigm Shift: In most modern organizations, the performance appraisal systems have been subjected to fine tuning and a number of modern concepts like Management by Objectives, Pay for performance, 360 degree feedback, Competency based performance management etc., have been adopted. Among the lot, the pay for performance has led to problems like inflation of results in recent times, though this has nothing to do with the concept. Any good idea or concept can be misused by unscrupulous people. In this paper we are not going into various popular concepts or methodologies, their merits or demerits, but our focus will be on understanding the concept of performance management and identifying the requirements to design it. Performance appraisals indicate what has been done against what should have been done. It is an audit of the performance of the people. They also enable management's to set future goals and objectives. Unfortunately, in practice the performance appraisal exercise turns out into one of reward and punishment. It should lead to a system of managing performance and to that extent the performance appraisals are a beginning and not an end in themselves. A paradigm shift is defined as one where we look at things differently and when the perception of the situation changes to the opposite, though the situation has remained the same. There is a need for a paradigm shift as far as PMS is concerned. It should not stop after carrying out the performance appraisals. It is just not a reward and punishment exercise. The focus should be on what to do after that and how to make all the people perform to the best of their ability. Scope - Basic Requirements of a Performance Management System: A performance management system should address and answer the following issues. I have listed most of the issues but choosing the most appropriate ones suiting the organization is left to the concerned organizational authority.  A consistent system of performance appraisal where the Main Objectives and KRAs are clearly defined and agreed upon. Mundane tasks are not to be specified. It is necessary that the basic job description and job specifications are clearly spelt out for all and they are aware of them. In one instance, I asked the managers, supervisors and their respective subordinate to write down what the subordinates were supposed to do on their jobs. They were made to sit in separate rooms. The managers insisted that their subordinates were well aware of their roles and responsibilities and that there was no communication gap. You would be surprised that it was totally different in almost all the cases. There was a lot of red faces around. After the exercise was over, I heard a lot of noise in the  corridor. How are the organizational goals and objectives set ? Is it top down or bottom up ? Are the goals and objectives 'SMART' (Specific, Measurable, Achievable, Realistic and Time constrained) Is there a shared vision ? How relevant is the company Mission statement, Vision statement, Quality policy statement, Signature etc., ? Do people understand them and can they explain what they stands for ? In one of our workshops for a US MNC engaged in IT services, I asked the young, well qualified participants, who had all put in minimum 2/3 years of service in the company, to spell out their company's signature. They were not able to do it. It had just two words in it. I then produced it and asked them to explain what it meant. Not even one person could explain and participants included people from HR, Training & TQM departments. They also had a Quality Policy statement signed by their Managing Director well displayed. Even the TQM people were not able to spell it out or explain properly. This is not the fault of the people. I am sorry to state that most often the TMT does not even  know what is happening at the grass root level. Except for the VP in charge of Training not even one senior member of TMT ever graced the workshops and we did about 12 such workshops over a period of 4 months. However, I don't blame them. Most trainers do not have either the width or depth of knowledge on the subject and related subjects and all are considered alike, but unless they observe the proceedings, how will they know what is happening ? For God's sake do not send some junior HR executives as observers. Never make the mistake of sending some amateurs for judging the paintings of Pablo Picasso or Vincent Van Gogh.   Are the managers capable of arriving at their own objectives/KRAs and deciding on subordinates objectives/KRAs ? If not, how is the problem being resolved ?  What is the frequency of the performance review? Is it once in year after much water has flown down the bridge and the damage has already been done ? Is it done after 6 months and it is found that objectives and KRAs have not been filled and 6 months are already gone. What should be an acceptable period for a timely review ? This is very critical for strategic areas which fall under important/not urgent category. In practice, 80% of the organizations are fire fighting all the time and do not have the time for long term issues. Strangely, the TMT in most organizations seem to be obsessed with a short term operational focus rather than a long term strategic focus. Both are important but not at the cost of the other. Many organizations tried to sort this problem out by making the CEO responsible for strategy and COO responsible for day to day operations. This has not worked out successfully in most organizations. Who assesses the motivation and morale of the people in the organization at different levels ? When was the last assessment done ? How to do it ? What actions have been initiated to improve them ? Whether the managers are reasonably good at motivating people ?   How serious is TMT on developing a performance management system ? This needs full involvement and commitment of TMT. They are part of the system and not outside it. How does TMT handle the various issues of Corporate Responsibility, especially Ethical issues ? What is the disparity in pay between the CEO and the lowest paid permanent worker vis a vis the performance of the company? I read in New York Times sometime back about a CEO of a company in USA being awarded 6.2 million dollars in bonus and stock options by the board, when the company's balance sheet was awash with red ink and the workers were being laid off. Is this being fair ?  What kind of relationship exists between the management and the worker's union ? How transparent is the management in its dealings ? How amenable is the company to "Change" especially its culture ?  How well is TMT in touch with the reality of the market place ? How often does the CEO visit the market place and/or the factories ? How often does he or she visit the troops and break bread with them ? Is the CEO a line or a staff specialist ? Does he/she have all-round experience, maturity and wisdom ? How to assess it ? Who does the assessment of the CEO ? The Board ? How good and professional is the board ? Are they just old fogies who are there just because they hold lot of shares and normally sleep in the board meetings after a heavy lunch with too many beers or vodka martinis in their bellies ? Can they make meaningful contributions or suggestions ? Or is it loaded with luminaries leading to 'Apollo Syndrome' with people pulling in different directions ? I prefer old fogies to that. They do less damage by leaving you to do your own thing.    How do employees perceive performance appraisals ? Do they welcome it or take it as a one more boring and wasteful exercise and you hear lot of whining, moaning and groaning when it is due ?    Does the organization have a proper induction and training program for new employees or people are just welcomed and then pushed into water to flounder or float around ?            What are the organizational and key individuals goals ? Are they congruent and reasonably matching ? How are the star performers identified ?  How does the organization reward its star performers ? What sort of long term career plan is being developed for them ?  How well is the organization able to satisfy the aspirations of its good performers ? How does it tackle the average and non performers ?   Do the employees perceive the rewards and punishments as fair and reasonable ?   Is the ability of an individual to work in a team as well as build and lead a team assessed ?  What are the personal training needs ? Is the individual capable of coaching and training others ? How much is the organization spending on training ? Is it adequate ? Do the operating managers think that training is useless and an avoidable expense ? What is the overall approach of TMT to training, empowerment and delegation depending on the size of the organization ? How much time the top managers are spending on not urgent but important work of strategic nature ? If TMT is sorting out day to day issues most of the time then the organization will miss out on strategic focus. The routine work for TMT should not take more than 2-3 hours per day. They have 5-6 hours for long term issues, everyday. If they do not have it then something is wrong, both with them and the organization.   What kind of leadership style is being adopted ? What is the status of 'Company Politics' and the power equation in the organization. Is it anyway interfering with the progress ? You cannot eliminate this when a group of people come together. But people have to cooperate, whether they like each other or not. This is very crucial at TMT level. We have noticed that tension, political skullduggery and back stabbing is very high in poorly performing organizations.   How much counseling is done to employees by respective managers ? Is the organization engaging persons from outside to carry this out ? Is there any formal or informal mentoring scheme in the organization ? When was the last competency mapping done ? At what levels was it done ? Was it done internally or externally ? Is the TMT willing to be evaluated by some external agency on their own competence ? If the answer is no or there is resistance to it, you will know where the problem lies and what to focus on.   Is there an exit interview for people leaving the organization ? Who carries it out ? Who is responsible for its analysis? What actions have been taken on them ? Lastly but not the least, what do the major customers think about the company's management, products or services, quality and customer service. This is the acid test. There is no place to hide. All the parameters specified above are of no use, if the customers do not think very highly of you as a company. This is also very easy to establish. 80% of your business will come from 20% of your customers. Do not depend on your internal feedback. Ask some competent external professional agency to do it. You will know the true position. I can add a number of more questions, but the above should suffice to design a basic performance management system. Depending on the size and complexity of the organization, the key issues out of the above can be selected. Benefits: The performance of people in an organization depends to a large extent on direction and leadership of TMT. Poorly performing organizations have invariably poor leadership. When you have a performance management systems in place, it is easier to assess as to what went wrong, where and who is responsible. We can take corrective action. Lack of such performance management systems leads to punishment and recriminations at junior and middle management levels but TMT goes Scot free. Performance has two components for all individuals. One component depends on individual competence. The other depends on organizational constraints. You cannot hold the individual responsible for failures due to some organizational constraints. In such cases the TMT should  take the responsibility. It is the responsibility of TMT to eliminate the constraints as far as possible. If a person fails in areas of individual competence then some more issues come up. Who recruited him ? What support and  training was given to him ? Was it adequate enough ? Is he/she beyond salvage ? If so, the people who recruited such a person should come under a microscope. Only a properly designed performance management system can establish the real state of affairs in any organization and help keeping it healthy. Challenges: The biggest challenge for establishing performance management systems will be resistance to it from people who are responsible for designing and implementing it. Judgment is very important in some critical areas which cannot be measured. Care should be taken that these areas are not given to novices and handled by experts with no axe to grind. PMS will work with internal experts but experience shows that in such cases the TMT will skip some critical and sensitive areas where it is directly accountable. It can be done externally but needs time and willingness of the organization. This unfortunately leads to different kind of problems. Consultants who are close to the power center are brought in and the real issues, where the TMT is involved, are conveniently swept under the carpet. This benefits no one and leads to general disillusionment. The objective of a PMS is not to find scapegoats or faults with individuals but to find out where the problems exists and for taking corrective action. Enron Debacle & Performance Management If the problem is at the top, it generally is, the TMT should be willing to change and correct themselves. If they don't than like Dinosaurs they will get wiped out over a period of time, but they will also take the organizations down with them. Enron was one of the top 10 companies in the Fortune list. Their auditors and consultants Arthur Anderson were the biggest in the business. Enron's TMT falsified the accounts and results regularly, to show improved performance and Arthur Anderson did not protest and certified their balance sheets. They did not protest because they were getting the lucrative consulting business. This was happening for quite some time. The results of these misdemeanors are known to everyone. Jobs have been lost. Careers have been ruined. Lives have been shattered. You have men and women of Enron posing for magazines satisfying the basic carnal desires to make a living. Enron is limping back and trying to put together the pieces. Arthur Anderson no longer exists as an entity. (*) It is for the stakeholders of the organizations to decide whether such a similar situation will be acceptable to them. Individuals are important but organizations are more important and a PMS aims to safeguard the organization above the personal interests of individuals. It is not difficult to establish a reasonably good PMS. It only needs an organizational will. Written by Madhavan T Gopalachary Editorial Policy © Copyright, Jul-08 . www.madgopes.com . Without prejudice. All rights reserved This article is specially prepared for ICFAI, Hyderabad, India and sent to them for publication at their end. This is also being published in our domain for global readership www.mmgindia.com is the official website of Madras Management Group, Chennai, India and are the sponsors of these editorials. The MMG model is a trade mark owned by them. www.madgopes.com is a personal website and all editorials are published under madgopes.com banner to retain editorial independence. These editorials are published in our pages but not sent to anyone directly as a matter of policy, unless it is a special request like this one. We would highly appreciate feedback from readers and it may be sent to feedback@mmg.name  Given below is the blurb from the ICFAI Publication. Performance Management – Concepts and Cases Overview Leveraging people power has been recognized as one of the most potential means to enhancing organizational performance in today's competitive marketplace. It is now common to come across terms such as "Intellectual Capital", "Social Capital", "Human Capital", "Human Resource Assets", and "Talent Investors" being used interchangeably to refer to the great potential of human resources to build a competitive edge for an organization. Read More.. Table of Contents Section I Concepts 1. Performance Management _ A Strategic Concept -- GRK Murty 2. Difference between Performance Appraisals and Performance Management -- Madhavan T Gopalachary 3. Competence Building for High Performance -- Shailendra Singh 4. Performance Management through People: Using System Loops to Revisit HRD -- Sanjay Dhar 5. Reproducing Star Performers -- Paul Froiland 6. Effectiveness of Pay-for-Performance Schemes -- Sumati Reddy 7. Appraisal Tools for Today's Performance Management -- Andrew Dutta and Manjeesh K Singh 8. Assessment and Development Centre as Tools for Competency Development -- Dr. Radha R Sharma 9. How to Get the Most Out of 360° Feedback -- Gary Yukl and Richard Lepsinger 10. `Excellence Combining Expertise' In Everything We Do! -- Interview with Raghav Nandyal Section II Cases 11. Transforming C K Birla Group _ A Road Map from the HR Angle -- C Mohan Kumar and V Venkatesan 12. Wipro's PCMM _ Level 5 Certification -- Subhadra K 13. Building Performance Measurement Systems with the Balanced Scorecard Approach -- Toru Morisawa Index   << Back