Trade secrets: Measuring and managing performance

Good performance management is the key to employee motivation and organisational success, but HR professionals often fail to make the most of the time they spend on measuring and managing performance.

Both HR practitioners and line managers would benefit from a clearer understanding of the style and context of their existing performance management approaches, to help them to maximise effectiveness and make informed choices for its redesign.

HR professionals need to navigate the terrain of fashions and fads if they are to benchmark their own practice against what is perceived as ‘best in class’, but strategic HR has never been more central, and supporting the management of performance has a vital role to play in supporting company success.

Performance tactics

Trends in HR often go hand-in-hand with political trends. This is particularly so in the case of performance management.

Along with the Labour government’s focus on targets and measurement in government there has been a move towards more measurement-based approaches in HR.

As trends in performance management change, the tendency has been to ignore what was good about previous approaches but this is like throwing the baby out with the bath water.

Analysis of research conducted by Fortune magazine in 2004 and the Hay Group consultancy in 2005 reveals that performance management in the world’s ‘most admired’ organisations (see box, far right) includes measures supporting teamwork, long-term thinking, building human capital, and customer loyalty. ‘Average organisations’, by contrast, typically focused on ‘hard’ measures, such as financial targets.

What’s next?

New research from Henley Management College and Hay Group identifies an approach to managing and measuring employee performance that is enabling top companies to thrive. It reveals that companies must move beyond purely financial goals to achieve world-class results from their workforces.

Until now, performance management has tended to be driven by either the ‘carrot’ or the ‘stick’ approach, and there has been what might seem to be an unbridgeable gap between ‘hard’ measurement and ‘soft’ development techniques.

The ‘most admired’ companies have successfully managed to span this divide and are balancing measurement and development approaches.

Better than average

While most organisations understand the importance of company strategy and have a plan to realise it, the companies that excel in performance management are organised about how they implement this strategy.

They ensure that the functions required to execute planning are in place, and that their organisation’s design is fit for purpose. They also excel at driving accountability right through the organisation and are clear about individual accountability in particular roles and the fit between these and the delivery of the organisation’s strategy. Most companies, however, tend to focus on either development or measurement, which can prove detrimental.

Balancing act

These approaches may seem to be at opposite ends of the spectrum, but it is possible to deliver an approach that is not ‘all about measurement’ at the expense of development, or ‘all about development’ with no real link to business performance.

If a balanced approach to performance management is to succeed, HR professionals need to look closely at how they measure and manage performance. At the same time, they need to be recognised as a key strategy driver, with a place in the boardroom.

Without these changes, average organisations are likely to remain just that.

Future directions

To achieve the balance between development and measurement approaches, organisations need to enhance their practice in both, according to Elizabeth Houldsworth:

Future directions in development:

  • Emulate ‘most admired’ (see box below) companies by designing a process that links to talent management.

  • Be prepared to invest in people for the long term.

  • Focus equally on the requirements for the success of specific roles, not just considering the development needs of individuals who occupy them.

  • Profile individuals so as to develop them, both for their current positions and for roles they might grow into.

  • Consider using ‘roadmaps’ to highlight the roles that are clearly unsuitable for particular individuals.

Future directions in measurement:

  • Emulate the ‘most admired’ companies by make strategy clear and practical for implementation.

  • Avoid the proliferation of measures that has tended to characterise ‘first generation’ balanced scorecard and other measurement-based approaches.

  • Clearly identify ‘must-win’ strategic battles and make these the focus.

  • Ensure a clear ‘line of sight’ between corporate and individual goals.

  • Hold individuals accountable for their performance, and link this to their reward.

Most admired companies

Nottingham Business School started running the annual Britain’s Most Admired Companies survey 15 years ago.

The survey has been the subject of further research by the University of Bath and associates from Cass Business School and the University of Reading, in association with Mercer Human Resource Consulting.

One of the measures used to establish which companies are most admired is the ability to attract, develop and retain top talent. The top four performers overall are also the top performers in the talent category, although positions vary slightly. Top four for talent:

1 Unilever (fourth overall)

2 BP (second overall)

3 Tesco (first overall)

4 Cadbury Schweppes (third overall)

Source: Mercer Human Resource Consulting

Our expert

Elizabeth Houldsworth is a member of the School of HR, Leadership and Change at Henley Management College, working across qualification and research programmes. She previously worked as an HR consultant specialising in performance management.

Reader offer

Managing and Measuring Employee Performance, by Elizabeth Houldsworth and Dilum Jirasinghe, is the result of a research collaboration between Henley Management College and Hay Group.

The book identifies a framework that captures the two opposites of performance management: performance development and performance measurement. It argues that both approaches can co-exist and complement one another.

The book includes the performance management secrets of the world’s most admired companies, international case studies and practical advice about implementing a balanced approach.

If you would like to receive a copy of the book and get 20% off the cover price, go to Kogan Page, add the book to your basket and key in code MF240 before you proceed to the checkout. Postage and packaging are not included in the offer.

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