Why Performance Management Matters, Why It Fails, and the Role of CEO

Wouldn't it be great if you could walk into a business and randomly ask anyone—from a manager to an office clerk—and they all knew the company's vision, key goals, and mission by heart? Wouldn't that be something?

Where To Start

It is so important to align performance metrics with overarching business objectives, ensuring that short-term daily achievements directly contribute to long-term organizational profitability and efficiency. This alignment can be done by focusing on performance-based profit metrics, ensuring the practice and its technology are efficiently managed. Profitability is a solid indicator of business management quality, reflecting efficient resource utilization and guiding crucial aspects of managing profit and profitability.

Embedding performance management systems into profit strategies is not optional; it should be an absolute no-brainer. I've seen way too many times where each department operates with its own performance metrics and evaluations that are separate and predominantly focused on a task management approach. This method lacks overarching department goals that align with the overall business objectives. Departments should be aligned with overall business goals both as a unit and as individuals towards a set of shared goals. Unfortunately, this alignment is still largely missing in many businesses.

How Often Do You Measure Team and Individual Performance ROI?

How often do you not just measure performance but actually assess your investment in terms of its yield on individual and team performance? Look at real revenue-generating activities and their ability to support business profitability in a real and meaningful way.

Here are a few common ways to do it -

Costs and Benefits Analysis: Begin by identifying all costs associated with the employee, which includes salary, benefits, training, attendance, sick leave, and other related expenses. HR and payroll should be great sources of information. You, as a business owner, should always have a?broader overview of labor costs within your business and how these are likely to change in the coming years. Asking your Head of HR to provide detailed reports and be proactive is critical. Then, the benefits that the employee brings to the organization, which could be in terms of revenue generated, cost savings, or other value-added contributions, should be measured.

Performance Metrics: Incorporate performance metrics to gauge effectiveness. Methods like the Personal Balanced Scorecard (PBSC) help evaluate performance objectively, align it with broader company goals, and calculate ROI by correlating performance with outcomes.

Spider Strategies: Spider Strategies Utilizing the MOORA algorithm, for example, can be used to rank employees based on criteria such as attendance, work quality, discipline, and service, which helps in determining their overall ROI.

Role Of A CEO

The CEO plays a key role in shaping the performance management culture of an organization, emphasizing the alignment of short-term gains with long-term viability. They hold valuable information about the business's current state and its future vision, which should be effectively communicated throughout the company to avoid information silos and ensure effective performance management.

The research underscores the CEO's critical role in championing performance management initiatives with overarching business objectives, fostering a performance-driven culture, and championing the implementation of performance metrics. By providing strategic leadership and direction, CEOs ensure that performance management efforts drive both short-term results and long-term organizational goals.

Michael L. Dohaney's "The Performance Power Grid" highlights three key strategies for CEOs to enhance performance management:

1. Establish Clear Expectations: CEOs set clear performance expectations by articulating the company's vision, mission, and strategic objectives, ensuring alignment throughout the organization.
2. Foster a Culture of Accountability: CEOs create a culture of accountability by establishing performance metrics aligned with strategic objectives and holding leadership accountable for achieving them, fostering transparency and recognition. A great CEO is also one who is openly okay with admitting their own mistakes and taking accountability, just as they would expect from others. Lead by example, it's as simple as that.
3. Empower Leaders to Lead: CEOs empower leadership by providing resources, support, and opportunities for success, including investment in training and development, fostering collaboration, and encouraging innovation, driving superior organizational performance.

Performance Management Strategy That Delivers

One of the more useful books I find when designing permanence management tools and systems "First, Break All the Rules: What the World's Greatest Managers Do Differently" by Marcus Buckingham and Curt Coffman book based on Gallup's in-depth research of over 80,000 managers across different industries. I love well-backed research, and here are some key insights on how to build a Performance Management System that works:

Select for Talent, Not Simply Experience, Intelligence, or Determination:

Prioritize hiring individuals with natural talent suited to the job rather than solely focusing on experience or skills.

Define the Right Outcomes, Then Let Each Person Find Their Route to Those Outcomes:

Set clear goals for employees, but give them autonomy to determine the most effective methods to achieve those goals.

Focus on Strengths, Not Weaknesses:

Enhance productivity by emphasizing and leveraging employees’ strengths rather than solely focusing on improving weaknesses. The time and resources it would take to correct what is weak instead of focusing on what is already good and making it great would be very costly and counterproductive.

Find the Right Fit for the Employee, Not Just the Job:

Ensure that employees are placed in roles that align with their talents and career aspirations, maximizing their potential for success and satisfaction.

Motivate by Focusing on Strengths:

Keep employees motivated by assigning tasks that capitalize on their natural strengths and interests, fostering engagement and enthusiasm in their work.

Below, we explore five key strategies, offering a detailed guide on how to effectively implement and sustain performance management practices that yield tangible results:

Integration of Strategy with Day-to-Day Operations: Directly linking strategic goals with larger operational actions involves establishing a seamless connection between your organization's high-level strategic goals and everyday activities. This ensures that daily operations drive strategic objectives forward. Every activity your team takes should be oriented toward achieving common business objectives. This is only possible if larger business objectives are fed into individual departments and then to individuals themselves.

Use of Advanced Methodologies: Implementing advanced management methodologies like Six Sigma or Lean Management is crucial for enhancing efficiency and effectiveness within an organization. I particularly favor Lean Management because it focuses on identifying and eliminating waste in processes. It meticulously examines every step to cut down on activities that consume time but do not contribute to results. Sit down with your teams, observe their workflow, and assist them in identifying and eliminating inefficiencies. Cut down the 'fat' where possible. Please.

Embracing Analytics and Data-Driven Decision-Making: Collecting data from various sources within the organization, such as sales performance, customer interactions, operations, and more. Leverage data analytics in addition to individual feedback.

Managing Risk Proactively: Integrate risk management within the performance management cycle. It is important to see those early signs of poor performance that could potentially affect an organization's ability to meet its efficiency and profitability goals. Proactively identify, assess, and manage potential risks as an integral part of performance management to safeguard and ensure the stability of operations and strategy execution. This is where pulse surveys, one-to-one meetings, and live data/reporting are also very helpful.

So Why Does It Often Fail

In several businesses where I have worked, performance management was often seen as just another task that managers and employees needed to check off—usually done at the end of the year by filling out a form and filing it away, among other HR documents. It primarily focused on task management rather than actively tracking KPIs, setting OKRs, conducting 360 reviews, and other vital measures.

Many professionals argue that traditional performance management systems are mainly ineffective, highlighting several core issues that contribute to their failure. Firstly, traditional performance management often relies on infrequent and badly timed feedback, typically conducted annually. This system fails to provide real-time insights and adjustments that could help employees improve more continuously and promptly. Feedback should be provided continuously and swiftly as events unfold, even if it is initially captured as simple notes and later consolidated into more comprehensive overviews.

Performance management systems and forms that are solely used for retrospective evaluation rather than ongoing tracking, improvement, and development are ineffective. So, don't use them!

Additionally, traditional performance management systems lack the flexibility to adapt to rapid changes in employees' work environment. They are often rigid, focusing on yearly goals and standardized assessments that may not align with the dynamic needs of businesses or the professional growth paths of individuals.

The use of ratings in performance reviews also poses significant issues. Ratings, if used as a primary source of truth, are subjective and can be influenced by bias, leading to data that may not accurately reflect an employee’s true performance or potential. Summarizing a year's worth of work into a simplistic rating oversimplifies employee contributions and overlooks the complexity of their performance over time.

Finally, traditional performance management systems frequently fail to enhance performance, which is their primary goal. By focusing on justifying past performances rather than actively fostering skill development and improvement, these systems miss opportunities to genuinely enhance employee capabilities and organizational productivity.

It is so important to align performance metrics with overarching business objectives, ensuring that short-term daily achievements contribute to long-term organizational efficiency and profitability.

Overall, if performance management systems are oriented towards delivering overarching business goals, where feedback is provided frequently as events unfold by individuals closely involved in the project and designed to develop vs. critique it is truly a very powerful profitability driver. First and foremost, the mindset must shift away from repetitive yearly reviews using outdated methods or forms that are used just to look back not to track, improve, and develop. It simply doesn't work, and therefore, shouldn't be forced on your teams. One method may work this year but next you may need to review it as a business objectives change and so the performance management should do too.

You do not need to reinvent the wheel; simply use well-tested methods such as or a combination of Personal Balanced Scorecard (PBSC), Management by Objectives (MBO),360-degree feedback, KPIs, and OKR-based performance management systems. These should ideally be connected, where possible, to live data using company analytics and reporting tools and not just individual feedback.

As always, I maintain an open-door policy. Write to me, and let's connect for deeper conversations about the challenges you face in your business.

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Books that you might find useful as I did:

1. "The Performance Power Grid: The Proven Method to Create and Sustain Superior Organizational Performance" by Michael L. Dohaney.
2. "First, Break All the Rules: What the World's Greatest Managers Do Differently" by Marcus Buckingham and Curt Coffman.