Common performance management pitfalls to avoid

By Christian Frantz Hansen & Christian Salling, Implement Consulting Group

An ideal performance management system aligns and drives an organization towards achieving a common set of strategic objectives. It resonates across organizational levels and establishes the necessary incentives for everyone to pull in the same direction. However, more often than not, organizations fall victim to one of these common performance management pitfalls.

KPI tsunami

In a world with ever-increasing data availability and computing power, it is easy to be intrigued by the possibility of showing a myriad of performance measures. However, research shows that too much data decreases people's ability to make choices. This is referred to as decision paralysis. Consequently, a proper performance management system does not overflow the receiver with too much information but provides a limited set of KPIs aligned with the company's strategic objectives.

Improper metrics

It is inherently difficult to define key performance indicators that are proper proxies for the strategic objectives you want to achieve. Even when you have defined a KPI that actively drive a desired behavior, you might end up removing focus from other critical elements in your service delivery model. You get what you measure, and thus it is always relevant to ask yourself; what will be overlooked and what won't be done as a result of our performance metrics?

Rear-view mirror reliance

It is easier to measure historical events rather than predict future trends. However, a proper performance management system should focus on enabling future performance rather than reporting on the past. Consequently, it is critical to avoid reporting on lacking indicators and rather monitor any leading indicators outlining the road ahead. This, in turn, requires a shift towards a behavioral-based metrics, which is less easily linked to traditional financial performance. To make this shift, often requires significant management support.

Narrow stakeholder focus

All companies interact and rely on several key stakeholder groups - customers, employees, suppliers, the surrounding community and so forth. Thus, one way of validating if a performance management system is holistic, is to ensure that all stakeholder groups are represented by at least one KPI. If you have ten financial KPIs aimed at satisfying shareholders, but no KPIs tracking supplier relationships, you might be missing critical information to steer your organization in the right direction.

Faulty target-setting

Targets, i.e. the goals defined for each KPI, should push your organization and present a challenge compared to current performance. However, if the target is considered unrealistic and too hard to achieve, the organization won't strive to achieve it. Striking the right balance is critical. Sound advice is to set SMART-goals, i.e. goals that are specific, measurable, attainable, relevant and time bound.

No single source of truth

Most finance professionals cry for one set of numbers. In performance management this is especially critical. If you don't have a single source of truth behind your metrics, uncertainty and mistrust is bound to arise. Nobody will ever be motivated by a measure in which they have no trust.

Improper cascading of KPIs

No single KPI fits all. The CEO doesn't care about the same thing as the plant manager. Thus, proper performance management reflects the corporate priorities at all levels. If your metrics do not follow a clear hierarchy cascading down through the organizational layers, you will not be able to guide the organization on a common strategic path.

Missing meeting cadence

A performance management system only creates value when behavior is changed, and decisions are altered based on performance insights. Presenting a KPI dashboard does nothing in itself. Value is only created when insights are communicated, discussed and translated into actions. Only by creating a natural flow of performance discussions, will you be able to build a culture of data-backed decision-making. Consequently, if you don't have a clear annual cycle and defined governance for your performance management system, you are likely not reaping its full benefits.

Missing link to personal objectives

Performance management should be cascaded down into personal objectives of the employees that can impact performance. The challenge is to define proper, relevant metrics that supports the overall desired performance, while being relevant for the scope of work of the individual employee. For this to work, the measures need to be behavioral and linked to activities that support the overall value creation. Unfortunately, this link is often broken, and employees are not measured on parameters that both create personal engagement and purpose while also support the overall strategic objectives.

Lack of transparency & communication

Performance management should not be a management exercise performed behind closed doors. To drive the organization in the right direction, selected performance metrics should be accompanied by adequate communication across all organizational levels, thereby creating transparency and fostering an honest dialogue about performance. In other words, performance metrics should not be perceived as passive measures of progress, but rather be used as a tool for changing the dialogue and directing the effort towards what matters most.

If you don't have a structured approach to communicating performance metrics to the organization, you are unlikely to succeed in fostering ownership and accountability with the right stakeholders.

Unaligned decision authority

To ensure a dynamic performance management system where KPIs are added and subtracted as the business evolves and strategic objectives change, it is critical to know who has the authority to make such changes. Who can decide to substitute one KPI for another, and what are the requirements for such an update? If you are unclear in terms of the roles, responsibilities and decision authority, you risk ending up with a stale KPI structure that will quickly become outdated and useless.   

Missing consequences

The late Jack Welch, former president at GE, famously layed off the bottom 10 percent of the workforce based on the annual performance measurement. This is an extreme example that might be outdated in today's sociocratic organizations. However, the fact that performance must have consequences remain. Consequently, if you're not installing counter measures to improve poor performance, or recognizing and rewarding good performance, you risk undermining your performance management system.

Please feel free to comment and propose additional elements to add to the list.

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