The five traps of Performance Management Andrew Likierman

The article focuses on the conventional ways of doing performance assessment and the resulting traps that organizations usually fall into. Subsequently the author presses on the need to shift from merely doing performance assessment to what is known as performance management, i.e. not relying on just quantitative but also qualitative measures that measure more than budgets and previous results and tell us more about how to company will fare in the future. The five commonest traps that even senior managers fall prey to while doing performance assessment are:1. Measuring against yourself Organizations generally develop a performance plan, set targets and strive to achieve them. In such a scenario they become vulnerable to having a myopic view of their performance, insulated from the actual performance standards. Instead they should compare their performance with the industry standards so that they know how well they are faring as compared to the competition. Another rationale is that our own standards/projections might be manipulated or wrongly predicted. In such a scenario they need an external checker. By keeping in mind the competitors performance they can better justify their employees compensation plans in relative terms rather than absolute. Though it is difficult to obtain competitors data in real time, organizations need to be creative. They can source the information from the common set of customers, without any obtrusion though, because that might annoy them. 2. Looking backward Organizations usually have a tendency to compare their present performance with their past performance and use that as a measure of improvement. Usually there is not much use of comparing present performance with the past performance because the environment is completely dynamic and things that used to hold true previously might not be relevant anymore. Organizations should try and make their performance management systems more futuristic. Also organizations need to look not only at what they and others are doing but also at what either of them is not doing. That ways we can learn on the opportunities that we missed and whether our decision criterion are correct or not. Possible Critique: The author here says that our performance management system needs to tell us whether or not the decisions we are making are going to help us in the future, but does not suggest any

corrective means to do it, as claimed in the beginning of the article. He says look for measures that lead rather than lag your profit, but again I find it to be global. 3. Putting your faith in numbers Companies have a tendency to quantify their processes. Though it makes comparisons easier, which probably is the major reason behind managers affinity towards them, when done in excess it leads to production of low quality data and just heaps on numbers waiting to be analysed. The point is that managers should not blindly rely on numbers and popular measures of performance management, because they may not suit their business situations and hence may not be valid. Such number-loving managers also have a tendency of applying financial metrics to nonfinancial activities and trying to calculate an ROI for every function. Instead, at the minimum, qualitative approaches need to be factored into this measurement system to provide some justification or link for the quantitative findings. 4. Gaming your metrics In tandem with the love for numbers, organizations resort to using metrics extensively, that gives birth to another common trap, i.e., manipulation of those numbers. Managers have a natural tendency to game those numbers in their favour. On top of it many people acquire the knack of tweaking numbers successfully and they rely on that tweaking rather than working. This results in performance hampering. One of the ways to overcome this natural phenomenon is that the metrics being generated should have multiple sources e.g. customers, bosses and colleagues. This reduces the chances of false information. Also we can include more people in the group to which a metric is being applied. This generates a shared sense of responsibility amongst them. Lastly managers can also reduce their reliance upon the link between meeting budgets and performance. Instead of set numbers, a range can be provided. Giving them this scope gives them more flexibility to perform. 5. Sticking to your numbers too long Performance measurement tools dont evolve as quickly as businesses do. In fact in nascent stages, using common metrics to compare your performance to last months performance is hardly of any use since at that time we need to focus on survival and growth rather than checks and balances. There is no one-fit solution and there is no point clinging to frameworks that have outlived their usefulness, they might not even be valid in your organization. Managers must be clear in terms of what needs to be measures, what metrics will be used for that measurement and both of these must be communicated loud and clear to the employees. Simply doing a survey is not enough, you need to dig deeper into what respondents actually meant when they chose one option over another.

Basically the people managing performance frameworks are not experts themselves, they do not usually feel like putting in so much effort to innovate and strive. Finance managers for e.g. have a tendency to fall back on ROI as a measure. The line managers usually have a better understanding of performances of employees but they are crippled by lack of independence in critiquing them. Instead these independent finance managers and the other line managers should work together to come up with performance measurement techniques that are both valid and applicable.