How to build a performance management system to deliver your strategy

Introduction

You’ve created a winning strategy for your business (see previous posts). You and your management team are excited about it. But how do you ensure that your people deliver it? 

Well, we’ve dropped some heavy hints that a strategic performance management system is the key tool that allows you to link your strategic objectives to individual performance, via the annual business plan. Here’s the Framework diagram again to remind you how it all fits together.

A good performance management system delivers many positive business outcomes:

• Positive behavioural change across your people.
• Increased motivation and effort.
• Improved retention and development, especially of key contributors.
• Internal promotion and success.
• Prevention and protection against legal action.

Unfortunately, many systems are ineffective, because they are trying to do too many things at the same time. They are seeking to improve results, build capabilities and allocate financial reward. As a result, they do nothing well. Our system focuses on capabilities, which will lead to improved business performance. The employee is therefore at the centre of the process: they are the key customer and the owner – they must take responsibility for their own development. And we don’t use this system for reward, or only indirectly.

This post will set out how a good performance management system looks. As we've said before, there are other ways of doing it, but this ties in to our overall framework, and (most importantly) it works.

Moving out of the comfort zone

We all have our comfort zone. This is when we do things that we find easy and that cause us no stress. You might find yourself doing something in your comfort zone when you’re tired in the evening. 

Taking on something new causes us to move outside our comfort zone. If it’s not too far outside, this is where the magic happens: we can learn and grow in our development zone. Over time, as we develop and learn, our comfort zone expands. But if we have to do something too far outside, our natural stress responses can kick in, and we look to fly or fight rather than learn. This is our danger zone. 

The world we live in is changing faster and faster, and we will all find ourselves needing to learn and adapt more than ever. We need to help our people spend more time in the development zone, whilst avoiding the danger zone. Here’s how.

Situational Leadership

The rock that we build our performance management system on is Situational Leadership, as developed by Paul Hersey and Ken Blanchard. It is a tool that all managers will benefit from. For more information, their book ‘Leadership and the One Minute Manager’ is well laid out (and refreshingly brief).

Many managers assume that a ‘good’ employee will perform in all situations, whereas a ‘poor’ one won’t. Hersey and Blanchard pointed out that an employee’s competence and confidence vary according to the task they are set. Even your best employee can fail at a task of which they have no experience. 

They went on to say that as an employee spends more time on a task, their levels of competence and confidence change (this is their comfort zone expanding). Managers therefore get the best out of their people when there is a mutual understanding of where the employee is on any given task, and the manager changes their leadership style to suit.

The first step in using the approach is to diagnose where the employee is on a given task. This is best done in discussion with the employee. The diagram below shows how an employee given a new task can feel very confident, although their competence is low: they don’t know what they don’t know. 

As they progress, they start to see that the task is bigger and harder than they had imagined, and their confidence can take a knock. Over time, their competence increases, and their confidence recovers. In due course, they become familiar with the task and good at it: their Comfort zone has expanded. And then you give them a new task….  

Once the employee’s position has been diagnosed, you as a manager can adopt the right leadership style, as set out in the (similar) diagram below.

With a newbie in D1, you need to adopt an instructional style – show them exactly what to do. In D2, you have already explained it, so it is more about demonstrating than teaching. Non-directive coaching in D3 is classic coaching, where as a manager you try to restrict yourself to only asking questions, to help your employee grasp the answer for themselves. Delegation in D4 is not abandonment; boundaries, expectations and timelines must be established. Your level of contact with the individual will decrease along this journey, and the type of conversation will change.

Managers naturally have a tendency towards one of these styles, and rarely use more than two. But using the wrong one has consequences. Treat all staff as if they are in D1, and they will feel patronised and unvalued. And delegate to the wrong people, and you are raising the chances that they will fail. Make sure you are using the right style.

The employee can disagree with you on where they are. Avoid a battle on this, but let them know that there will be consequences if they fail to deliver. If he thinks he is at a higher D level than you do, he is probably over-rating his competence, so make sure you check his output more often that you would normally. If she gives herself a lower D number, she is likely to be lacking confidence rather than ability. Provide reassurance and time to build confidence.

Adopting situational leadership creates a common language across the business. It also makes it OK for staff to admit that they don’t know how to do something; it’s much easier to say that you are at D1 than that you don’t have a clue.  And from an employee point of view, it gives them a tool to push back at micro-managers. 

The benefits of this approach should already be clear, but even better is that it integrates into the rest of our framework.

Elements of the system

If Situational Leadership is the foundation, what are the key building blocks of a performance management system?

Objectives

The Annual Business Plan is a pivotal document. Key business objectives, whether strategic, business improvement, budgetary or important projects are the inputs, and the outputs are 10 to 20 items with quarterly targets for the year ahead that we call Rocks. These Rocks are assigned to individuals, typically on the senior management team, and are cascaded down the business as individual objectives. Generally, the CEO’s personal objectives will be almost indistinguishable from those of the business, but that will change at lower levels. 

Objectives and the business plan are best documented as action plans, as we discussed last time. Usually, the manager’s Hows will become the Whats of their direct reports. In our experience, you should challenge whether objectives are really a What or are actually a How.

For instance, your Head of Operations would own the production Rocks, and be responsible for delivering them. He would allocate parts of the Rocks to his Factory Manager, who would in turn split them out between his shift managers. These rocks become both departmental targets and individual targets. This process works best collaboratively with all involved.

Everyone should have 5 to 9 objectives in total, in place before the year starts. Each individual will have most of their objectives spinning out of the business plan. But they should also have some developmental objectives which are specific to them. These should flow from a conversation with that individual, and help take their career in the direction that they want. The accountability charts we created in the strategy process are very useful in having these conversations, as are position contracts (to be discussed in a later post). Remedial actions for under-performers can also become objectives. However, nothing else should; if it’s not linked to your business plan or personal development, it’s not important enough to be an objective. 

Objectives should be SMART, to make it crystal-clear if an employee has delivered or not. As a reminder, SMART stands for:

• Specific
• Measurable
• Achievable
• Relevant
• Time-bound

It can be hard sometimes to set measures for behavioural or developmental objectives, but it is usually possible with careful thought. Define the behaviours you want to see, as we suggested when we discussed the Values.

Action plans

Individuals should create Action Plans for each objective, and agree these with their manager. You can add an extra column to the action plan to put in an agreed Situational Leadership D level. This will help you work with the person to better deliver their objectives. Remember, the D level is task specific, so is attached to a How rather than a What. People should have a spread of D levels; too many high ones and they’re not being challenged and will get bored. Too many low ones, and they will spend too long outside their Comfort zone, which is stressful.  

One-to-ones

For some tasks where an individual has a low D number, you may want to check in weekly or even daily. But progress against objectives should be discussed at least every 4 to 6 weeks in one-to-ones, and remedial action taken if appropriate. What takes place in these meetings is key to success, so we will spend the next post on how to have effective one-to-ones within our framework.

Annual assessment

At the end of the year, individuals should have a formal Assessment for their progress, both against objectives and their behaviours in line with the values. In a Dolphin culture, the vast majority of staff deliver on both objectives and behaviours. 

Conclusion

We can now see the clear line between our strategy and people’s objectives, via the business plan and the rocks. We call this the Golden Thread. It aligns every part of the business, and ensures that all employees have clarity over their role in delivering the future. The process gives staff a better understanding of your strategy, too.

Employees working in your business will be pushed, but will receive the right support; both you and they will achieve more than you might imagine. 

In our experience, the best performance management systems contain these core elements, but we are always learning. We’d love to hear what you do that works. 

Next time, how to conduct one-to-ones.

Synesi Consulting helps businesses and the people in them to become peak performing. We understand what the very best organisations do, and work with companies like yours to give you the skills, plans and structures to do the same.

www.synesiconsulting.com