Managing for maximum performance

Consider the following situations :

- An athlete searching for a coach who really understands her.

- A student scheduled to see his guidance counselor at school.
- A Worker who has just begun working for a new boss,
- A self-managing work team and a supervisor about to meet to discuss objectives for the next
quarter.

What do these situations all have in common? The need to manage performance effectively-at the level
of either the individual or the work team. Think of performance management as a kind of compass, one
that indicates a person’s actual direction as well as a person’s desired direction. Like a compass, the job
of the manager (or athletic coach or school guidance counselor) is to indicate where that person is now,
and to help focus attention and effort on the desired direction.

Unfortunately, the concept of performance management means something very specific, and much too
narrow, to many managers. They tend to equate it with performance appraisal, an administrative exercise
they typically do once a year to identify and discuss job-relevant strengths and weaknesses of individuals
or work teams. This is a mistake! Would it surprise you to learn that in a recent poll of 750 HR executives,
58 percent of them graded their own performance-management systems a C or below? Many were
frustrated that managers do not have the courage to give constructive feedback to employees. Indeed,
only 30 percent of respondents agreed that employees have a sense of trust in their performance-
management systems. Although HR professionals often devise the systems and follow up at the end, they
cannot control how effectively managers execute reviews. Clearly, there is lots of room for improvement.

On the other hand, there are solid organizational payoffs for implementing strong performance-
management systems, empirical research has found. Organizations with such systems are 51 percent
more likely to outperform their competitors on financial measures and 41 percent more likely to
outperform their competitors on nonfinancial measures (e.g., customer satisfaction, employee retention,
quality of products or services.

Obviously, if performance management were easy to do, more firms would do it. One of the reasons it is
difficult to execute well throughout an entire organization is that performance management demands
daily, not annual, attention from every manager. It is part of a continuous process of improvement over
time.

So what is the role of performance appraisal in the overall performance-management process?

Performance appraisal is a necessary, but far from sufficient, part of performance management. Managers
who are committed to moving from a performance-appraisal orientation to one of performance
management tell us that the first step is probably the hardest, for it involves a break with tradition.
Typically, appraisal is done annually, or in some firms, quarterly. Performance management requires
willingness and a commitment to focus on improving performance at the level of the individual or team
every day. A compass provides instantaneous, real-time information that describes the difference
between one's current and desired course. To practice sound performance management, managers must
do the same thing-provide timely feedback about performance while constantly focusing everyone's
attention on the ultimate objective (e.g., world-class customer service).
At a general level, the broad process of performance management requires that you do three things well:

1. Define performance

2. Facilitate performance

3. Encourage performance

Let's explore each of these ideas briefly.

Define Performance

A manager who defines performance ensures that individual employees or teams know what is expected
of them and that they stay focused on effective performance. How does the manager do this? By paying
careful attention to three key elements: goals, measures, and assessment.

Goal setting has a proven track record of it improving performance in a variety of settings and cultures.
How does it improve performance? Studies show that goals direct attention to the specific performance
in question (e.g., percentage of satisfied customers), they mobilize efforts to accomplish higher levels of
performance, and they foster persistence for higher levels of performance. The practical implications of
this work are clear: Set specific, challenging goals, for this clarifies precisely what is expected and leads to
high levels of performance: Several important qualifications are in order, though. One, more goals are not
better than fewer. Experts suggest setting no more than four goals. Two, some jobs are fluid and
unpredictable, so goals must be agile. Setting goals provides context, direction, meaning, and energy.
Three, individual objectives do not work well when work is team based or when results depend on factors
outside an employee's control. When individual goal setting is appropriate, however, on average, studies
show that you can expect to improve productivity 10 percent by using goal setting.

The mere presence of goals is not sufficient. Managers must also be able to measure the extent to which
goals have been accomplished. Goals such as “make the company successful" are too vague to be useful.
Measures such as the number of defective parts produced per million or the average time to respond to
a customer's inquiry are much more tangible.

In defining performance, the third requirement is assessment. Here is where performance appraisal
comes in. Regular assessment of progress toward goals focuses the attention and efforts of an employee
or a team. If a manager takes the time to identify measurable goals but then fails to assess progress toward
them, he's asking for trouble. To define performance properly, therefore, you must do three things well:
set goals, decide how to measure accomplishment, and provide regular assessments of progress. Doing
so will leave no doubt in the minds of your people what is expected of them, how it will be measured, and
where they stand at any given point in time. There should be no surprises in the performance-
management process-and regular appraisals help ensure that there won't be.

Facilitate Performance

Managers who are committed to managing for maximum performance recognize that one of their major
responsibilities is to eliminate roadblocks to successful performance. Another is to provide adequate
resources to get a job done right and, on time, and a third is to pay careful attention to selecting
employees, all of which are part of performance facilitation.
What are some examples of obstacles that can inhibit maximum performance? Consider just a few:
outdated or poorly maintained equipment, lack of timely information, inefficient design of workspaces,
and ineffective work methods. Employees are well aware of these, and they are only too willing to identify
them-if managers will only ask for their input. Then it's the manager's job to eliminate these obstacle.

Having eliminated roadblocks to successful performance, the next step is to provide adequate resources-
capital resources, material resources, or human resources.

After all, if employees lack the tools to reach the challenging goals they have set, they will become
frustrated and disenchanted. indeed, one observer has gone so far as to say. “It's immoral not to give
tough goals." Conversely, employees really appreciate it when their employer provides everything they
need to perform well. Not surprisingly, they usually do perform well under those circumstances.

A final aspect of performance facilitation is the careful selection of employees. After all, the last thing any
manager wants is to have people who are ill-suited to their jobs (e.9., by temperament or training)
because this often leads to overstaffing, excessive labor costs, and reduced productivity. In leading
companies, like Apple and Google, even top managers are expected to get actively involved in selecting
new employees. Both Companies typically require even experienced software developers to go through S
or 6 hours of intense interviews, if you're truly committed to managing tor maximum performance, you
pay attention to all Of the details-all of the factors that might affect Performance-and leave nothing to
chance. That doesn't mean that you are constantly looking over everyone's shoulder. On the contrary, it
implies greater self-management, more autonomy, and lots of opportunities to experiment, take risks,
and be entrepreneurial.

Encourage Performance

The last area of management responsibility in a coordinated approach to performance management is

performance encouragement. To encourage performance, especially repeated good performance, it's
important to do three more things well: (1) provide a sufficient number of rewards that employees really
value, (2) in a timely fashion, and (3) in a fair manner.

Don't bother offering rewards that nobody cares about, like a gift certificate to see a fortune teller. On
the contrary, begin by asking your people what's most important to them for example, pay, benefits, free
time, merchandise, or special privileges. Then consider tailoring your awards program so that employees
or teams can choose from a menu of similarly valued options.

Next, provide rewards in a timely manner, soon after major accomplishments. If there is an excessive
delay between effective performance and receipt of the reward, then the reward loses its potential to
motivate subsequent high performance.

Finally, provide rewards in a manner that employees consider FAIR. Fairness is a subjective concept, but
it can be enhanced by adhering to four important practices:

1. Voice-collect employee input through surveys or interviews.

2. Consistency-ensure that all employees are treated consistently when seeking input and
communicating about the process for administering rewards.
3. Relevance-as noted earlier, include rewards that employees really care about.
 4. Communication—explain clearly the rules and logic of the rewards process.

In practice, there is much room for improvement. Thus, in a recent survey of 10,000 managers and
employees, only 46 percent of the managers and 29 percent of the employees agreed with the statement
"My last raise was based 011 performance.”

In summary, managing for maximum performance requires that YOU do three things well: define
performance, facilitate performance, and encourage performance. like a Compass, the role of the
manager is to provide orientation, direction, and feedback. These ideas are shown graphically in Figure
10-1.

Performance Management in Practice

A study by RainmakerThinking of more than 500 managers in 40 different organizations found,

unfortunately, that few managers consistently provide their direct reports with what Rainmaker calls the
five management basics: clear statements of what's expected of each employee, explicit and measurable
goals and deadlines, detailed evaluation of each person's work, clear feedback, and rewards distributed
fairly. Can you see the similarity with the "Define, Facilitate, Encourage Performance" approach shown in
Figure 10-1? Only 10 percent of managers provide all five of the basics at least once a week. Only 25
percent do so once a month. About a third fail to provide them even once a year! Even more worrisome
are the results of a poll of 700 business leaders in which 92 percent said they recognize superior talent as
providing a competitive advantage, but only 7 percent of managers and 10 percent of senior executives
are held accountable for developing their direct reports through performance-management processes.
Clearly there is much room for improvement.

PURPOSES OF PERFORMANCE-APPRAISAL SYSTEMS

As we have seen, performance appraisal plays an important part in the overall Process of performance
management. It has many facets. It is an exercise in observations and judgment, it is a feedback process,
and it is an organizational intervention. It is a measurement process as well as an intensely emotional
process. Above all, it is an inexact, human process. Not surprisingly, therefore, more than 60 percent of
workers say reviews don't do anything to help their future performance. in view of such widespread
dissatisfaction, why do appraisals continue to be used? What purposes do they serve?

In general, appraisal serves a twofold purpose: (1) to improve employees' work performance by helping
them realize and use their full Potential in carrying out their firms’ missions and (2) to provide information
to employees and managers or for use in making work-related decisions. More specifically, appraisals
serve the following purposes:

1. Appraisals provide legal and formal organizational justification for employment decisions to promote
outstanding performers; to weed out marginal or low performers; to train, transfer, or discipline others;
to justify merit increases (or no increases); and as one basis for reducing the size of the workforce. In
short, appraisal serves as a key input for administering a formal organizational reward and punishment
system.

2. Appraisals provide feedback to employees and thereby serve as vehicles for personal and career
development.
3. Appraisals can help to identify developmental needs of employees and to establish objectives for
training programs.

4. Appraisals can help diagnose organizational problems by identifying training needs and the personal
characteristics to consider in hiring, and they provide a basis for distinguishing between effective and
ineffective performers. Appraisal therefore represents the beginning of a process, rather than an end
product.

5. Appraisals are used as criteria in test validation. That is, test results are correlated with appraisal results
to evaluate the hypothesis that test scores predict job performance. However, if appraisals are not done
carefully, or if considerations other than performance influence appraisal results, the appraisals cannot
be used legitimately for any purpose. These ideas are shown graphically in Figure

10-2.

Should Organizations Abandon Performance Reviews?

Despite their shortcomings, performance reviews continue to be used widely, especially as a basis for
tying pay to performance. To attempt to avoid these shortcomings by doing away with appraisals is no
solution, for whenever people interact in organized settings, appraisals will be made-formally or
informally. To illustrate, think of the last time you went to a concert, you watched a sporting event, a
motorist in front of you, or you had to choose members of a project team. In each processes were at work:
observation and judgment. In each case, you made an assessment of individual or group (team)
performance. The real challenge, then, is to identify appraisal techniques and practices that (1) are most
likely to achieve a particular objective and (2) are least vulnerable to the obstacles listed above. Let us
begin by considering some of the fundamental requirements that determine whether a performance-
appraisal system will succeed or fail.

Requirements of Effective Appraisal Systems

Legally and scientifically, the key requirements of any appraisal system are relevance sensitivity, and
reliability. In the context of ongoing operations, the key requirements are acceptability and practicality.
Let's consider each of these.

Relevance

Relevance implies that there are clear links between the performance standards for a particular job and
organizational objectives and between the critical job elements identified through a job analysis and the
dimensions to be rated on an appraisal form. In short, relevance is determined by answering the question
"What really makes the difference between success and failure on a particular job, and according to
whom?" The answer to the latter question is simple: the customer. Customers may be internal (e.g., your
immediate boss, workers in another department) or external (those who buy your company's products or
services). In all cases, it is important to pay attention to the things that the customer believes are
important (e.g., on-time delivery, zero defects, information to solve business problems).

Performance standards translate job requirements into levels of acceptable or unacceptable employee
behavior. They play a critical role in the job or work analysis--performance appraisal linkage, as Figure 10-
3 indicates. Job analysis identifies what is to be done. Performance standards specify how well work is to
be done.

Such standards may be quantitative (e.g., time, errors) or qualitative (e.g., quality of work, ability to
analyze market research data or a machine malfunction).

Relevance also implies the periodic maintenance and updating of job analyses, performance standards,
and appraisal systems. Should the system be challenged in court, relevance will be a fundamental
consideration in the arguments presented by both sides.

Sensitivity

Sensitivity implies that a performance-appraisal system is capable of distinguishing effective from

ineffective performers. If it is not, and the best employees are rated no differently from the worst
employees, then the appraisal system cannot be used for any administrative purpose. It certainly will not
help employees to develop, and it will undermine the motivation of both supervisors (“pointless
paperwork") and subordinates.

A major concern here is the purpose of the rating. One study found that raters process identical sets of
performance-appraisal information differently, depending on whether a merit pay raise, a
recommendation for further development, or the retention of a probationary employee is involved. These
results highlight the conflict between appraisals made for administrative purposes and those made for
employee development. Appraisal systems designed for administrative purposes demand performance
information about differences between individuals, whereas systems designed to promote employee
growth demand information about differences within individuals. The two different types of information
are not interchangeable in terms of purposes, and that is why performance-management systems
designed to meet both purposes are more complex and costly.

Reliability

A third requirement of sound appraisal systems is reliability. In this context, it refers to consistency of
judgment. For any given employee, appraisals made by raters working independently of one another
should agree closely. In practice, ratings made by supervisors tend to be more reliable than those made
by peers. Certainly, raters with different perspectives (e.g., supervisors, peers, subordinates) may see the
same individual’s job performance very differently, and this can actually make the feedback less useful
and more problematic. To provide reliable data, each rater must have an adequate opportunity to observe
what the employee has done and the conditions under which he or she has done it: otherwise, unreliability
may be confused with unfamiliarity.

Note that throughout this discussion there has been no mention of the validity or accuracy of appraisal
judgments. This is because we really do not know what “truth” is in performance appraisal. However, by
making appraisal systems relevant, sensitive and reliable-by satisfying the scientific and legal
requirements for workable appraisal systems-we can assume that the resulting judgments are valid as
well.

Acceptability

In practice, acceptability is the most important requirement of all. We know, for example, that when
senior managers emphasize the importance of the performance management process-that is, when they
“own” it-it is far more effective. When HR “owns” it. However, it is seen more as an administrative
exercise. Evidence also indicates that appraisal systems that are acceptable to those who will be affected
by them lead to more favorable reactions to the process, increased motivation to improve performance,
and increased trust for top management.

Smart managers enlist the active support and cooperation of subordinates or teams by making explicit
exactly what aspects of job performance they will be evaluated on. As we have seen, performance
definition is the first step in performance management. Only after managers and subordinates or team
commitment that is so sorely needed in performance appraisal.

Practicality

Practicality implies that appraisal instruments are easy for managers and employees to understand and
use. Those that are not, or that impose inordinate time demands on all parties, simply are not practical,
and managers will resist using them. As we have seen, managers need as much encouragement and
organizational support as possible if thoughtful performance management is to take place.

In a broader context, we are concerned with developing employment-decision systems. From this
perspective, relevance, sensitivity, and reliability are simply technical components of a system designed
to make decisions about employees. As we have seen, just as much attention needs to be paid to ensuring
the acceptability and practically of appraisal systems. These are the five basic requirements of
performance-appraisal systems, and none of them can be ignored. However, because some degree of
error is inevitable in all employment decisions, the crucial question to be answered in regards to each
appraisal system is whether its use results in less human, social, and organizational cost than is currently
paid for these errors. Answers to that question will result in a wiser, fuller use of talent.