OD Approach to Performance Management

A New Look at Performance Management Systems for Organization Development

Paper presented at the Summit on Globalization of Human Resources, 2010, Taipei, World Trade Center, Nangang Exhibition Center, Taipei, Taiwan, September 24-25, 2010 

                                                                   T. V. Rao

Chairman, TVRLS

Adjunct Professor, Indian Institute of Management Ahmedabad, India

Performance Management System (PMS) as a HRD tool if designed and implemented properly gives rise to multiple advantages. This presentation focuses on PMS as a talent management tool. This presentation explains the multiple dimensions of PMS in promoting a performance culture, besides a discipline of planning, talent utilization, upward learning, human capital building, on-boarding, integration and assimilation and OD. The presentation outlines the essential elements a PMS should have to serve as an OD and change management tool. The session draws from various contemporary experiences of Indian corporations in various sectors. Some metrics for scoring and enhancing the value of PMS also are highlighted.

Learning Objectives.

1. To understand the hitherto unexplored dimensions in the design of Performance Management Systems that meets multiple objectives of Organization Development and Talent Management.
2. To share the experiences of various organizations and draw lessons for effective implementation of PMS.

Most performance appraisal and management systems across the world seem to have one or more of the following components:

1.    Performance Planning through Key Performance Areas (KPAs) or Key Result Areas (KRAs)

2.    Competencies and competency definitions

3.    Rating scales for assessment

4.    Performance Review Discussion (PRD) or Performance Coaching

5.    Identification of Developmental Needs

6.    Performance Analysis

7.    Self appraisal

8.    Appraisal or assessment by Seniors or Su[revising Managers

9.    Potential assessment

10. Recommendations for Recognition and rewards

One of the reasons for failure of performance appraisal systems across the world is an overemphasis on them as objective performance measurement tools. A deep look into the theory of numbers and the theory of scaling indicates that measuring performance of managers and supervisors using numbers and treating them as following properties of an interval scale (additive, multiplicative and subtractive and divisive) has a serious flaw. When two departmental managers are assessing their juniors, each one of them are using their own frame of reference and the circumstances under which each manager or employee functioned are not often comparable by virtue of the function and other things associated with the work. For example the circumstances in which a Research and development Manager is performing in pharmaceutical organizations are entirely different than the circumstances under which a Personnel manager or a Marketing Manager function. Yet we try to compare the ratings in distributing the incentives and attempt to apply normal probability curve etc.

No two numbers are comparable in appraisals. The numbers in performance appraisals don’t follow any rules except the rules of the nominal scales. How so ever the firm may try to promote objectivity it should be recognized that at best the numbers assigned by each appraiser follow “Ordinal scales”. We cannot say with confidence a rating of four assigned on a five point scale by a Production Chief is indicative of the same performance level as a rating of four assigned by the Marketing Chief. Or for that matter two marketing Chiefs operating in two regions for their juniors. The ratings depend on so many factors: the supervisor or rater, his previous background, his personality, expectations, the performer (assessee) and  his own background, the way the goals are set, the level of the goals, expectations of the assessor from the performer, the chemistry with which they started setting goals, the culture of the organization, etc. No two numbers are comparable. We cannot say the a person who gets a 68 rating on a 100 point system is definitely superior to another who gets a rating of 64 and specially the 64 is from a setting where the performer had a lot of odds to face (including that of his supervisor himself perhaps?). Yet we treat them as sacred and use them to fit into normal probability, add, subtract, multiply and calculate incentives etc. I think this is a fundamentally wrong attempt to fit qualities in to quantities and use them for anything beyond a discussion or analysis.

From a reflection on this and various other experiences in my work on performance appraisals I like to suggest the following:

1. Ratings in appraisals are notional and at best should be used for discussion to integrate performance on a number of non-additive parameters (like adding for a regional sales executive his achievement of sales targets, and the percentage increase in customer base, with how well he has developed his juniors, and how much he followed the various systems). They can’t and should not be used to force fit into normal curve blindly or determine incentives mathematically. At best they could be used for discussion and review of performance. Ratings are poison but they may be inevitable side products of the performance process. They should not become the primary pre-occupation of appraisals.

2. Performance should be assessed against expectations and expectations could be changed during the course of performance with the availability of new information, data and challenges. Expectation sharing and reviewing is the most important part of performance management.

3. It is high time we drop the term appraisal and use the terms “Management”. Management is broader and encompasses many things for a system. It includes planning, development, improvements, recognitions etc. Those who prefer to be even more focused can use terms like: PMS - Performance Management Systems, PDS- Performance Development System,  PIP- Performance Improvement Program etc. (see for a comparison between PAS and PMS  Rao, 2003)

4. Merely changing the title does not help but the spirit needs to be promoted. It can be promoted by having a new look at the potential of PMS and by using PMS for objectives other than appraisals and generating numbers in percentages etc.

5. Good performance should be rewarded. But what is good performance should be understood from the beginning by each individual and there should be a shared understanding of what is rewardable performance and what is not by the performer and his superiors alike. This understanding should be there at the beginning of the performance period and not at the time of deciding the rewards.

6. Small rewards and recognitions should be encouraged to be followed and each supervisor should have a good degree of autonomy to recognize and reward the performance of his or her performing employees and this may constitute a significant part of the compensation (say 5% to 10%) of juniors. Recognition should take place all through the performance period and should not be limited to the annual stock taking or performance reviews.

7. Annual reviews of performance should be conducted using innovative methods and should become a part of life. Such reviews need not necessarily result in assigning numbers to individuals.

Multiple Objectives of PMS

Performance management systems can have multiple objectives. These include the following:

1. Continuous performance improvements among each of the employees
2. Developing a discipline of planning work and managing one’s time and talent
3. Ensuring role clarity
4. Recognition of strengths and areas needing improvement in relations to performance - Identification of development needs for performance enhancements
5. Competence building among individuals, teams and the organization as a whole
6. Data base for rewards, promotions, recognition and motivation
7. Insights into self as high self awareness is essential for better leadership and managerial effectiveness
8. Developing mutuality and respect for each other among each senior-junior or boss-subordinate pair
9. Developing problem solving capabilities among employee
10. Inculcating a learning culture
11. Enabling seniors to learn from juniors and vice versa
12. To provide mentoring and coaching support to employees and effect performance improvements
13. To prepare employees for competition and continuous change
14. To arrive at objective assessment of performance by each employee and generate data about employee for various HR decisions like rewards, rotation, recognition, higher responsibilities etc
15. To integrate and align the work of individuals and their teams with the organizational goals and tasks

These are not mutually exclusive and could be overlapping. However organizations have often tended to emphasize the non essentials and stressed the short term to long term very understandably. Often in the objectives there is an undue stress on objectivity and rewards as though employees work all the year round for annual rewards and recognition only. By linking PMS with rewards and recognition most organizations have undervalued individual’s interest in work and created new politics in organizations. In fact PMS seem to create some times politics and de-motivation or the reverse of what it is intended to create. This happens by selectively rewarding  a few and ignoring many and making the rewards once an year than continuous and asking away the power and authority from the supervising line managers and concentrating it in the hands of a few including the HR manager s and the top management. This has done the biggest damage to the cause of Good PMS.

I have come to the conclusion that the most important objectives of the PMS should be the following:

To enable each individual employee to plan his/her work for the entire year (or a part of it as is possible in an organization), to ensure that he/she undertakes productive activities, utilizing his/her competencies in the best possible manner and contributing to the achievement of departmental or organizational goals and results, while at the same time constantly learning and developing one’s own capabilities and enjoying work.

The most important parts of this objective are the following:

1. Work planning and accountability. If you plan your work you will be more accountable to your work. You are also likely to enjoy your work out of a sense of accomplishments. Work planning also ensures alignment with organizational goals as every individual plans his work in the context of organizational priorities.
2. Competency utilization. You are able to undertake work or at least give adequate opportunities for yourself to utilize your competencies.
3. Work place learning as this becomes a tool of continuous learning and development. This is the greatest reward you can get from your work When you learn and grow your competencies get built and you enhance your own brand value. If you grow beyond your role and if the organization cannot accommodate you can always find other opportunities.
4. Building mutuality, team work and work satisfaction or motivation and self respect.

The process of implementing the PMS may also ensure additional objectives to be met. The processes should include the following:

• Participative planning
• Periodic planning and review
• Periodic analysis of the performance blocks and opportunities
• Collective planning
• Collective ownership where required.
• Promotion of competencies, values and desired culture by making it a part of planning
• Participative review and learning from each other
• Mechanism of monitoring performance and implementation plans and ensuring organizational support

Thus PMS can be great tool if designed comprehensively and implemented in all earnestness. It should have little place for politics and manipulation.

Performance Planning

Invest Twenty and Direct 2000 to 20,000 Program: Recently I was working on their PMS for a company outside India. I was asked to help them implement a new system they have just designed. It is a infrastructure company with many General Managers and Senior GMs at the helm. I asked 25 of them attending the workshop to answer the following four questions:

·         To what extent did you have clearly set work plan for the last six months?

·         To what extent did your seniors with whom you work shared the same understanding of your work plan and priorities in the last six months?

·         To what extent are you able to put to use most of your capabilities in the last six months?

·         To what extent are you clear about the work plan and priorities for the next six months?

They were asked to use the following scale: 100% = fully, 75% = Mostly, 50% = somewhat, 25% = A Little, 0% = Not at all. Their responses are presented in Table 1 below.

Table 1: Responses of 25 general Managers (Top Management team) for performance related questions

Question	Number of participating responding (N = 25)
	100%	75%	50%	25%	0%
1. To what extent did you have clearly set work plan for the last six months?	3	18	4	0	0
2. To what extent did your seniors with whom you work shared the same understanding of your work plan and priorities in the last six months?	7	10	5	3	0
3. To what extent are you able to put to use most of your capabilities in the last six months?	2	15	7	1	0
4. To what extent are you clear about the work plan and priorities for the next six months?	9	13	3	0	0

Responses to question 1 in table above reveals that the average percentage of the extent to which there is clearly set work plan for the top management of this company is  74% . If we consider unplanned work as a wastage it is about 26% in this company. If the CTC of all the 25 top level managers is about two million US dollars, there is a waste of half a million US dollars that year due to unplanned work and the opportunity cost may be much more. Such unplanned work gets passed down the hierarchy and multiplies. Hence the solution is to reduce this wastage by planning work. PMS can therefore be a good tool to reduce wastage through proper performance planning. 

Responses to the item “to what extent did your seniors with whom you work shared the same understanding of your work plan and priorities in the last six months?” reveals the extent to which shared understanding exists is 71% . If PMS is effective this shared understanding can be improved. Shared understanding between the performer and his senior is indicative of interpersonal competence, role clarity, focused work and good interpersonal competence and mutual support and a number of other positive outcomes.

Answers to item 3 indicate the average of the extent to which capabilities are being used in the last six months is 68%. This indicates that there is a 32% of talent wastage.

The next item indicates that average of the extent to which clarity exists about work plans and priorities is 80%. There is a 20% potential wastage of top management Time. 

Simple questions and analysis like this have brought to focus the need for better utilization of talent though planning work, having a shared understanding of the work. A good PMS can reduce the wastage of time, talent and ensure better utilization of human resources.

The scope for the same is indicated by the answers provided by a number of managers from Multi National Corporations and Family owned businesses and professionally managed companies in India and outside (see for details Rao, 2008).

It is these insights that have given rise to the a program we have designed at TVRLS which is now called as “Invest Twenty and Direct 2,000 to 20,000 ™”.  I have been propagating this by communicating to line managers and top management that their managers can learn to direct 2000 hours of their performance time to 20,000 hours of their junior’s performance time by merely investing 20 hours of their time for planning their and their juniors work. So Invest 20 and Direct 2,000 to 20,000. We have helped many senior managers to cost the value of their time and showed benefits of such planning. Executives can be demonstrated to affect savings in their own time and get a better ROI on their time investments. In other words organizational performance, resource utilization including talent utilization which is becoming expensive day by day goes up and cost reductions take place with better planning.

Talent Utilization

When the Steel Authority of India (SAIL) a public sector giant in India decided changed its performance management system in 2007 it has decided leadership development as one of the objectives the new system should facilitate. It has decided to have the following as objectives of the system:

1. To enable employees to plan their work, utilize their capabilities and maximize their contributions.
2. To create a performance culture through continuous performance improvements of individual employees, teams and the organization.
3. To identify and develop leadership talent for future.

Accordingly the components envisaged were:

1.    Goal alignment cascade workshops for Performance & Development Planning.

2. On-line System for Performance Management
3. Assessing and Developing Competencies for the future
4. Performance Review and Assessment
5. Final Performance categorization of Ratings by Performance Management Committee (PMC)
6. Separate grading for performance and potential
7. Transparency through communication of Performance Rating to the executives
8. Assessment of Assessors
9. Audit of PMS.
10. Leadership development and Competency building through 360 Degrees and Assessment and Development Centers (ADCs)

The following list of competencies, potential factors and values were also intended to be developed:

1.    Technical/Functional competencies

2.    Commercial acumen

3.    Interpersonal skills and team work

4.    Proactive Problem solving and Initiative

5.    Communication skills (listening, clarity of thought and expression, written and oral)

6.    Positive attitude (viewing things positively and with optimism and not being critical or cynical of everything; ability to look at brighter side of change and various other decisions, policies and innovations etc., and not being over critical or all the time critical of people and events, etc.)

These competencies are assumed to be important for performing well on any job in the organization.

Potential factors are the qualities that become increasingly critical for senior management positions and are meant to prepare executives for handling higher roles as they grow in the organization. These are their ability to handle higher responsibilities including the following or more:

1.            Vision and Leadership

2.            Ability to assume responsibility and take decisions

3.            Execution ability

4.            Change Management (openness to change, initiate and manage change)

5.            Creativity

The values include beliefs, behaviours and actions that are to be exhibited by every executive:

1.        Customer focus

2.        Consistent Quality

3.        Commitment to excellence

4.        Concern for people

5.        “Integrity and Character

Most importantly SAIL decided to have special projects to be undertaken as a part of the performance planning to demonstrate and utilise the talent of managers.

SAIL has been able to ensure a good degree of human capital utilisation through this approach.

Upward learning

Most Pharmaceutical organizations employ Medical representatives (MRs) to sell their drugs to Doctors and to make sure adequate supplies are available to drug stores. Normally an MR is required to introduce to physicians and others, medical products of his company and to explain their merits. He is required to follow up his visits to ascertain the views regarding the products of his company and induce clients to prescribe his company's products to customers. He is required to maintain proper record of receipt and distribution of samples which is open for inspection by his Area Manager. He offers credit facilities, commissions, etc: to the customers as authorized by his company. He books orders and forwards them to the controlling office for compliance.

Imagine a pharmaceutical company having over a thousand MRs. They report to Area Sales managers and there are 60 of them working for Cedilla a Pharma company. Cedilla has recently decided to introduce a performance Management system in which each area manager is required to meet his MRs in a team and take their experiences from the Doctors and pharmacists they met in the previous quarter. They are to have a one to one discussion for short periods of time with a their Area Manager once in six months. In the Performance review discussion the Area Manager is required to actively listen and ask questions to learn more about the circumstances under which the MR is working, the kind of comments made by their clients on the products of his company and the comments made on the products of competitor companies, the experiences shared by the pharmacists, and any other information he gathers that will have implications for  the Drug Development and R&D departments, supply chain department and others. The Area Manager in turn is expected to consolidate his learning and share it with his seniors in the Head office whenever they have their quarterly or half yearly performance review discussion.

This way there is a significant upward learning. Cedilla Pharma after a series of programs on their Performance Management system recognized the significance of PMS if facilitating upward learning. The performer eventually is also going to be assessed besides on target achievement also on the amount of useful information he gathered and shared with his seniors.

In a pyramidal structure the field staff is constantly in touch with customers and ground realities. Normally senior at top level believe and behave as though they are direction and information givers. The information they give normally deals with organizational vision, mission, goals, targets, work practices and so one and rarely can they give customer related information as they are not in touch with customers. Yet the success of an organization depends on how well it has understood the customer needs and requirements and serviced them. In the past performance management systems have done little to encouraged upward learning.

A well designed PMS that facilitates upward learning can be a great tool to develop a customer sensitive, employee sensitive learning organization. Imaging he amount of knowledge that will be available to Cadilla Pharma to give directions to its R&D, supply chain, pricing, marketing and other activities!      

On-boarding, Integration and assimilation

Ketan Mehta Vice President of MHMC (a Mobile Handsets Manufacturing Company resigned.  He was instrumental in doubling the samples and increasing the market share of the company in the last few years significantly. He is considered a very high performer. The company was also planning to expand to other countries and found a good scope for expansion especially to South Africa. After a few weeks of Ketan leaving MHMC recruited Mr. Harry, a Harvard MBA with experience of working in African Countries. Being an Ex-pat he was offered double the salary Ketan was getting at the time he left. Eight weeks after harry joined, MHMCs Management Consultant met him to enquire how he was finding the company and the job. Harry remarked that he is trying to understand various departments and also the way his own department functioned, their interrelationships etc. Four months later the consultant met him and got the same answer. It is only in the third encounter with the consultant Harry said that he has now a good understanding of the situation, his colleagues, and the way the company worked. He also has now a hand of what the company expects from him and is ready to perform.

This experience clearly indicates that MHMC has not given adequate thought to induct its senior level persons properly. It should not take six months for a top level manager to understand his colleagues, juniors, seniors, and the company’s expectations from, its working styles. What if the new Vice-president decides that he is a misfit in the company after six months and decides to leave? The company suffers for another six months.

If only MHMC thought of the detailed performance plan made by Ketan Mehta for the year of his work, and the company took care to get a suggested performance plan for the new comer and even put Harry in touch with Ketan Mehta as well as his role set members in the first week itself? The entire induction and integration process for new recruits at senior levels can be better and faster through a well managed PMS. The author has been promoting in many Indian companies a system of passing on the performance plans and has dialogues with role set embers (juniors, seniors, internal and external customers) of the new recruit as a socialisation and induction process. It has been found that assimilation and integration processes become faster and effective through the use of a well designed PMS.

OD

Performance Analysis consists of analysing the performance of a given performer at the end of a year or a six monthly period to identify the factors that facilitated him to achieve whatever he has achieved and factors that have hindered him from doing better. The factors further classified into the Competencies or ability related, motivation related and organizational support related. Sometimes these are further classified as those that are to be addressed by the performer and those that need to be addressed by his boss or seniors, department or the organization.

Consider the following tabulation of factors arising out of performance analysis of the performance of   30 Branch Managers of a Bank. The HR department collected these from the Performance analysis done by the Branch managers. The analysis is a useful starting point for initiating OD activities to improve branch performance. This process can be a good is an Organization development intervention. The OD facilitators (internal or external) can work to enhance the competency base of the Branch Managers as required by the numbers indicated in the brackets, or work with the Regional office to improve manpower planning, branch premises management, decision making improvements etc.

Illustrative list of facilitating and Hindering factors identified by a group of Branch managers as a part of their PMS Facilitating Factors Attributable to the Performer (number mentioning it given in brackets) 1.    Patience and willingness to listen to all the problems of the staff and customers first and then work out a solution to the problem (7) 2.    Perseverance (5) 3.    Soberness and tact (5) 4.    Goodwill and fellow-feeling towards others (4) 5.    Keen desire to help customers by giving them one's personal attention (5) 6.    Interest in Bank's work (5) 7.    Ability to motivate staff (8) 8.    Specialization in Advances at the training programmes attended and in his career till date (7) 9.    Quick decision-making (6) 10. Adequate delegation (4) Facilitating Factors attributable to others (Organizational support) 1.    Full and timely support from controlling authority and his office (11) 2.    Sincere and hard-working branch staff (14) 3.    Good work conditions premises (6) 4.    A Regional Manager who is really appreciative of good work done (5) 5.    Good potential for business in the area of operation (2) Hindering Factors Attributable to the performer 1.    Softness or lack of aggressive selling (6) 2.    Oversensitive/over emotional get upset easily (4) 3.    Poor health (3) 4.    Inadequate job knowledge, particularly relating to small scale business (6) 5.    Lack of confidence while dealing with aggressive staff (5) 6.    Difficulty in motivating staff (5) Hindering Factor attributable to others (Organizational support) 1.    Shortage of staff (9) 2.    Poor infrastructure branch premises (4) 3.    Branch located very far from most residential areas (3) 4.    Competitors (Companies, Cooperative Banks, etc.) tactics (4) 5.    Inadequate potential for business in the area of operation (3) 6.    Delay in decision-making at the Local Head Office (10) 7.    Competency gaps of staff (4)

  Human capital building

In conclusion it can be said that a well designed Performance Management system is a good way to build human capital in an organization. Competencies of employees can be multiplied, organizational capabilities deal with various issues can be built and problems as well as opportunities for growth and impact via customers can also be studied and appropriate strategies made.

A well designed and executed PMS can be the most potential tool to enhance human and intellectual capital of a corporation.

References

Corporate Leadership Council (2002), Building the High-Performance Workforce

A Quantitative Analysis of the Effectiveness of Performance Management Strategies, Corporate Leadership Council, 2000 Pennsylvania Avenue NW, Washington, DC 20006,

Corporate Leadership Council, (2003), Benchmarking the High-Performance Organization: A Quantitative Analysis of the Implementation of High-Impact Performance Management Strategies, Corporate Leadership Council, 2000 Pennsylvania Avenue NW, Washington, DC 20006,

Rao, T. V. Performance Management and appraisal systems: HR Tools for global Competitiveness, New Delhi: Sage, Response Books, 2004.

Rao, T. V. Lessons from experience: A New look at performance management systems, Vikalpa, 33(3), July-September 2008, 1-15

Job aid paper

Key Points

·         You can make your Performance Management System (PMS) a change management tool and high performance work culture development tool by redesigning it as learning and development system than as a personnel administration tool.

·         As a first step identify the extent to which it is facilitating work planning and competency building at the employee level, among his seniors and in the team.

·         Redesign the PMS to include performance planning, performance analysis, and participative learning as integral parts.

·         Performance planning should include a listing of all key activities along with time in hours taken for the entire period of performance (year or half year or a quarter year).

·         The plans should also outline priorities of activities with weightages.

·         The plan should be discussed with the supervisor or seniors to whom you report so as to ensure mutuality and understanding. PMS works as a role clarification and mutuality building tool.

·         It should be designed to include scope or every employee to apply his/her key competencies in select projects

·         The performance review sessions should be used as upward learning sessions than as mere performance improvement discussions sessions. The focus of such reviews should shift from performance enhancement of the performer to the learning upliftment of his senior. A good performance review should enhance learning of seniors from their juniors

·         The performance review session also should focus on identifying the factors contributing to the individual performance through an analysis of the performance and preparation of action plans

·         The performance analysis details collected from groups and team of employees should be consolidated and used for initiating organizational improvements through OD facilitators

·         PMS thus if redesigned and implemented well gives rise to enhanced human capacity utilization, competency building and enhance human capital value of an organizing.