Performance management is the process through which organisations quantify, assess and take measures to improve the performance of the units, departments and individuals that make up the organisation. It sounds like a very complicated process but it is at its heart a simple exercise. Simple enough to be practised by the smallest and newest of businesses. Let’s take a look at the process of performance management, some things we need to be aware of and how to use it in small and startup businesses.
Performance management is a management tool that is used to align activities within an organisation to the goals of the organisation. It does this by measuring and appraising the work of divisions, individuals and processes and looking for ways to improve performance where possible. Performance management doesn’t simply stop at measuring the work but looks at ways of improving the output, assuring quality and where necessary terminating the relationship. It is customary to have reward systems built into the performance management process as well. With a brief understanding of performance management let’s look at how to create a performance system.
First things first we need to plan for good performance management. This comes in two parts. We need to first define what good performance is and how we will measure it. Secondly, we need to have the buy-in of participants in the performance measures. Deciding on measures without consulting the participants doesn’t work out. Two important things to note here is the establishment of Critical Success Factors and Key Performance Indicators.
Critical Success factors
In simple terms, Critical Success factors (CSFs) are the most important things that you need to be good at to be considered a success at whatever you do. While CSFs address bottom-line issues they are rarely bottom-line issues. Customer satisfaction is a good example of a CSF. In most businesses customer satisfaction will come long after the customer has paid and we have hit the bottom line (money) but it does impact the possibility of return and referral business (growth).
Key Performance Indicators
Key Performance Indicators (KPIs) are the measures that we use to quantify how well we are hitting our CSFs. KPIs are quantitative metrics that give us information on qualitative measures in our CSFs. So if customer satisfaction is our CSF it can have KPIs such as repeat customer rate, referral rate, customer feedback scores and average revenue per customer growth. These give us a way to measure progress towards our objectives.
When setting CSFs and KPIs a lot of thought needs to be put into the process. If you have the advantage of having operated for some time you will have a good idea of what to look at and what makes reasonable expectations. For those who are new to business or Performance management, you should avoid using thumbsuck or optimistic targets that aren’t grounded in reality. Doubling sales every month sounds easy until you have to do it.
So we have established what we want to do and how we’re going to measure it. The question then begs how we are going to achieve the goal. That’s where coaching comes in. Much like coaches work in sports daily with athletes and their hard work culminates in competition coaching has a similar role in performance management. How do we make customers happier? What matters to customers? What can we do to consistently please them? How do we turn the strategic concept of improved customer satisfaction into daily actions our team members and processes can work on to achieve these big goals?
So we created KPIs from our CSFs, we coached our team to improve the performance and now we are at the end of a review period. This review period would have been decided when creating the KPIs. Now comes the evaluation or review process. This is the part that many will be familiar with from employment situations. An evaluation may seem like a case of measuring the actual performance versus and passing judgement but there’s a bit more to it. Why did the actual performance vary from the expected performance? And that is important whether it is positive or negative variance. Most importantly what comes next. If the performance is negative is there a need for disciplinary action? If it’s positive can it be replicated? So we come out of review with action steps.
The final part of performance management is documentation. It may be the least appealing part but is just as important as all the other parts. All your measures, coaching and evaluation aren’t worth much if you can’t keep a record of them. So we want records that can stand the test of time (which isn’t a big problem these days ) and records that can be read and understood by other people if ever the need arises.
Good performance management makes the difference between knowing what, why and how your team’s performance level is and wondering what is going on. It is something that anyone in business must at the very least know something about.