How companies lose money because of a poor performance management system

Is Performance Management fundamental or not?

Usually, “poor performance” is defined as firm inability to give an appropriate answer for environment dynamics, such as consumer behavior changes, digitization, markets’ transformation, etc. And, when we talk about CEO or entrepreneur performance, it is about the people’ performances from their teams.

How did Performance Management start?

The unofficial history of Performance Management started in last century, 50s or 60s, with the ambition of some HR Directors’ from large American and British companies to be equal partners with other Executives when decisions are taken about strategy, resources distribution and, obviously, rewards and recognition.

Maybe it was not just an ambition, as many field researches helped the HR Directors approach. We may suppose that it was a promise: linking business performance indicators with the individual contribution indicators, through measurements.

This approach has come with more accuracy, but someone should have taken the responsibility of implementing the vision. And who was able to better understand human behavior? Exactly: HR people, who assumed the responsibility of a very important role for companies, facing many obstacles, as the full power has never been in their hands.

And so, step by step, the Performance Management System has been “linked” with HR department, and thus, many times, it has been labeled as being an “HR system”. The “labeling” process started before entering in Romania in 90s.

Who owns the Performance Management?

What has been an error during this evolution is the positioning of the Performance Management outside Management. Setting what has to be done, agreeing the steps, the resources and “what if..” strategies, interim checking and evaluating at the end of the day what has been done, is the essence of any Management activity.

It doesn’t matter how much experience the employee has, how much delegation and how less supervision they need, there are three fundamental elements that need to be in place: setting objectives, monitoring and feedback. Therefore, the lasting and the most important accountability for a good system implementation for Performance Management belongs to the manager, and for the entire company it belongs to the CEO or entrepreneur.

What is the impact of a poor Performance Management process?

What if the CEO does not believe in the value of this system and, consequently, they do not take the responsibility of making it happen? What if, in the best case scenario, the CEO delegates the accountability to the HR Director? The answer might be: BUSINESS LOSSES.

There might be multiple causes: losses in quality, non-respecting the deadlines, lack of products/ services/ process innovation, inter-departmental conflicts, losses in customer relations. What is so many times behind these causes? “The mess” of the managing people performance. The lack of clarity, the lack of commitment, lack of competencies, not on time feedback, no recognition or appreciation.

So, what do we recommend?

As we said before, a study from INSEAD (one of the top universities in the world) shows that one of the failure factors for a CEO or entrepreneur is the poor performance of the company’ employees. Therefore, it is the time for executives and managers not to live personally what “poor performance” means.

The following recommendations might be extremely useful for any CEO or entrepreneur:

To take the full responsibility of the way Performance Management is done within the company.
Together with his team, to make the process of cascading the strategic objectives to the departmental level and, so, the executives to know how to make a similar process from department to each employee.
To train themselves or to train the others in order to know what to do next in each stage of the process
To allocate time and to fully respect the scheduling for individual conversations with their direct subordinates in order to clarify WHAT, HOW, WHO, WHEN.
To allocate time for reinforcement and redirecting feedback as actions happen and not to wait that moment when somebody would say: “few time ago...”
To listen to the personal ambition of each member of their team and to build together the best way of using this energy for achieving both business and personal development objectives.
To support HR people that become internal experts in managing performances and to set with them that quality is more important than quantity, such as a “nice” statistics of filling in forms.