Why Performance Management Systems Fail to Deliver Better Performance

In the world of business, today’s leaders exist in a Darwinian fight for survival, where high rates of change and uncertainty are the key pressures determining their future. Using Darwin’s theories, you might say that in business, it is not the strongest that survive, nor the most intelligent, but those most responsive to change.

The business landscape today is evolving very rapidly, but many organisations continue to rely on outdated, counterproductive people management systems and practices that simply don’t reflect a world of volatility with a high velocity of change. Even large, seemingly successful organisations can quickly come undone if they fail to react quickly to competitors, or new entrepreneurial threats to their markets and business models.

Leadership teams need to move beyond the traditional “clockwork” model of the business universe, and use more dynamic methods for coming up with new ideas, organising teams, and measuring outcomes. Innovation and entrepreneurship require different skills and management techniques to highly defined, “clockwork” bureaucratic systems.

In some ways, Darwin’s theory was an attempt to apply a systematic layer of insight and order to a world full of apparently chaotic and unstructured outcomes. The same types of issues relating to interpretation occur in business.

For example, how should we really understand or measure success, when it clearly means different things at every level of organisational grouping. Success for an innovative product development team is likely to have only the most indirect immediate impact on the wider organisation. If there is no transparency of metrics from the board to the frontline within an organisation, how can everybody work effectively? How can an executive team measure and forecast?

If it is so difficult to manage a business using KPIs that can be easily measured via the IT systems that automate ERP and customer service, why do we expect a similar performance management frameworks to work when we are dealing with a much more complex measurement, like the individual contribution of an employee.

Organisations typically use highly standardised measurements when measuring individuals, which attempt to rate performance using abstract metrics. These metrics are meant to be used by managers to consolidate the efforts of their direct reports into a series of easily reported numbers.

The items measured are typically selected based on their ability to be deployed as a universal measurement system, rather than their relevance to the situation at hand. Because the abstract measurements that go into these performance frameworks are typically unable to be measured in any automated way, there is a considerable burden placed on teams and their managers.

In a more dynamic, fast moving team based organisation, the rigidity of “universal” HR performance measurements is counter-productive. When team composition shifts over the life of a project, it can be very difficult ensuring managers are rating the correct individuals. HR tools should be regularly tailored to the needs of leaders who are close to the action, as they need to be able to respond to changing business needs.

When tools and systems are not business relevant, they are inevitably seen as pure bureaucracy, and effective leaders will start to circumvent these systems in order to remain productive.

Rather than simply watching HR systems rendered irrelevant through disuse, or even misuse, HR teams should actively focus on tailoring management tools to be useful support tools at all levels of management within an organisation.

Unfortunately, to achieve a useful outcome, many organisations will need to re-engineer their HR performance management frameworks to allow them to become more nimble, and less dictatorial.

While the process of quantifying and qualifying performance is essential, organisations also need to understand that outstanding performance management requires more than metrics and an annual performance conversation. It is more than ticking boxes, giving incentives, and justifying remuneration.

Effective performance management systems need to be capable of evolving with business needs, and align to the natural business cycles faced by the people using the systems. Measurements and outputs need to be focused on items that are meaningful and of key business relevance, and be timely for everyone involved.