Unit 2 - Introducing performance management

Most definitions of performance management suggest that:

•        it communicates a strategic vision to the organisation

•        it sets individual and departmental targets

•        a formal review of performance is involved

•        the review process identifies training, development and reward outcomes

•        it evaluates and refines the whole performance management process.

Managing individual performance is an issue of strategic importance; an organisation’s purposes are achieved through the sum of individual performances. Performance management is the means to link the two together; it is concerned with improving the performance of employees so that organisational objectives are achieved.

It could be argued that there is no single view of performance management. In the widest sense it can mean all of the processes directed towards performance improvement in an organisation or the focus can be much narrower, concentrating on initiatives such as performance related pay, bonuses, sales incentives and non-monetary rewards (see Figure 2.2).

There are also different degrees of emphasis on two of the main approaches to performance management:

1.            Formal systems of performance using targets, feedback and corrective action.

2.            Improving individual performance through personal development and support – a ‘people management’ approach.

The extent to which one or the other is emphasised gives very different experiences of the process. At the heart of performance management is the idea that organisational performance can be improved by designing, in a holistic way, a series of interconnected practices which encourage individual and group performance and link it to organisational goals. These interconnected practices are known as performance management systems.

Regardless of definition or emphasis central features of performance management could be said to include:

•      Improving performance. The emphasis on how to achieve this may be on systems and procedures or on personal development and motivation, or a combination of the two

•        a range of measures and approaches coordinated to achieve improved performance; this is known as a performance management system (PMS)

•        key processes common to nearly all approaches: the setting of targets and objectives, monitoring, performance review and performance improvement

•        Managers needing to understand the nature of work in organisations (the inputs, the transformation process and the outputs) to correctly interpret information on performance.

Performance management systems (PMS)

The idea of improving organisational performance is central to management thinking. In competitive markets, businesses need to strive constantly to improve their performance so that they remain viable. In many industries and also many countries too, these pressures have grown as domestic markets have become increasingly open to international competition. In the public and not-for-profit sectors, the growing use of performance benchmarking (that is, comparing performance with best practice in other organisations) has introduced similar pressures. As a result, the measurement and management of performance have become increasingly important preoccupations.

Some of the components of performance management, such as goal setting, appraisal, personal development and performance-related pay may be familiar to you already. What is important is the way they are put together or integrated. It is the integration of the components – horizontal and vertical – which provides a system to manage performance:

•        vertical integration is the linkage between corporate goals, departmental objectives and individual target setting

•        horizontal integration is the coordination of individual and team goal setting, performance standard definition, communication, monitoring, feedback, analysis of training needs and rewards to bring about the desired performance.

Figure 2.3 Vertical and horizontal integration in action

In an organisation, large or small, each department or section reviews its purposes in relation to the overall business strategy. (Ideally corporate strategy may be amended in the light of feedback from departments!) Individual objectives are then set to achieve the departmental purposes. Following evaluation of performance, performance-related payments may be triggered and/or personal development undertaken. This leads into a further round of objective setting, making the process and ongoing one and not just an ‘annual ritual’.

A number of aspects of this model are worth highlighting:

First, in its pure form, performance management assumes an (arguably) overly rational and mechanistic model of management. It draws on the idea of the control loop that you may have met in earlier Open University modules. Central to PMS are the three elements of setting objectives, reviewing performance and revising objectives and plans based on the outcomes of the review. In essence, this is a simple learning model: deviations from given objectives can be detected and corrected in the light of experience.

Second, the model assumes that organisations are unitary; that is, that clear organisational goals can be specified and that these will be shared by others in the organisation. Little allowance is made for the fact that different people and units may have their own interests and interpret organisational goals in different ways, or for the ambiguities and uncertainty of organisational life.

Third, as you will probably notice, many features of the model are not new. At the heart of PMS are the practices of individual performance appraisal, and the related aspects of performance-related rewards and development. However, what the proponents of PMS claim is new is the way in which these different aspects of managing people are linked together to form an interlocking system, along with the way in which units and individual performance are related to the overall strategy.