Performance Management Model, Frameworks, Methods, and Development Aspects

Performance management system (PMS) is an important organization development (OD) intervention or a tool used by management to drive business performance in organizations. If this tool is used effectively then it ensures the accomplishment of the organization or business objectives. Often it is observed that organizations fail to use these frameworks & the models in a systemic manner or these are not deployed or not practiced in letter and spirit. In many instances, it found that teams are confused with frameworks, models, methods & applications. All of this keeps organizations away from achieving their objectives. In this blog, we will focus on understanding the performance management frameworks, models, methods, and growth development aspects. 

What is a performance management model?

When organizations are revamping or introducing a performance management system (PMS) in their organization, It’s of utmost importance that you create a model around which a performance management system can be designed for your organization. The model answers many questions that come to your mind when designing a PMS for your organization.  What do you intend to focus on? What do you want to drive - organization growth, people development, or both? what to assess? When to assess & how many times to assess?  We recommend, below ‘three-level model’ that will answer all questions that are coming to your table while designing PMS at your organization.

1. Performance frameworks
2. Assessment Methods
3. Development Aspects

1. Which are the best frameworks that can be considered for PMS?

When organizations are at the juncture to adopt a performance management system (PMS), or redesign their existing PMS  to drive or enhance business performance by achieving organizational objectives. We recommend below four frameworks for your adoption assessment or review.

• Management by Objectives (MBO):

In 1954 in the book “The Practice of Management”, Peter Ducker coined the term and concept of “Management by objectives (MBO)”. This was done because in the early 1950s companies have become so big & complex that managers were busy & engaged to provide solutions to current issues, while they forgot about the company's aim, strategy goal & bigger objectives.

Management by objectives is the formulation of organizational objectives & goals, and then breaking down & cascading these to departments, teams & employees, providing them with the necessary resources and the allocation of roles and responsibilities for achieving goals.

Because the objectives are formed and assigned from the top down, this strategy often performs best and employees are aligned with the company’s goals and overall values. This creates a company that is working as a whole towards one final objective, at all levels. The main objective in this framework is often set for a long period; most commonly they last for a full fiscal year. The results are measured at the end of the year, and those who found the highest success rates are compensated for their efforts.

• Balanced Scorecard (BSC):

Post MBO, over many decades it was observed that there is an increased focus on only financial objectives & goals.  In 1992, David Norton, Director of the Institute of Nolan Norton, and Professor at Harvard Business School, Robert Kaplan concluded that for successful management of modern companies, only financial indicators are not enough. There are also other business verticals like customer focus/service, system/ process improvements, and training/development that are critical from a strategic, long-term & future growth perspective. Therefore, Norton & Kaplan, modified & supplemented MBO with a balanced scorecard (BSC, Balanced Scorecard, BSC) and KPI (key performance indicators, key performance indicators, KPIs).

The BSC is a strategic planning and management system that organizations use to communicate strategy, create alignment, prioritize, and improve strategic performance across different perspectives.

• Key Performance Indicators (KPIs): 
  

As the name suggests key performance indicators are the key or the critical indicators that show the performance over the objective. In normal scenarios an objective will have many metrics or indicators that will demonstrate its performance, while out of so many, there will be critical or key metrics/indicators that are tracked for the performance of an objective,  these are called key performance indicators (KPIs).  

Eg: There are hundreds of metrics in business that you can track, just like there are billions of stars in the sky, but there are only a handful of KPIs– like, guiding stars in the sky. KPIs are differentiated because they give you a good idea of how the business is performing, and how you can improve the business.

• Objectives & Key Results (OKR):

This framework is used in modern management to manage business or project objectives & outcomes(results). Objectives are what the organization, teams, or individuals want to achieve, whereas key results are the specific & time-bound measurables that will lead to the overall objectives’ success. Therefore, OKRs tend to be written in a SMART (specific, measurable, attainable, relevant, and time-bound) format, meaning the Key Results include a targeted level of performance and a milestone.

The OKR method was developed at Intel and then spread to several major technology companies, including Google, LinkedIn, Oracle, etc. Subsequently, the method has become popular among managers of small high-tech startups.

OKR v/s MBO

OKRs are used by organizations and individuals for collaboratively setting ambitious goals, tracking progress, and aligning action with an organization’s strategy to achieve measurable results.  Whereas in MBO objectives cascade from top-down, it's a long bureaucratic process to set goals, and direct binding targets, that often all boils down to what the managers decide what to do and the employees simply follow the plan.

2. What are performance Assessment methods?

We have already discussed the performance management frameworks that can be considered for our system. Post this we have to identify the assessment method for our system. Many assessment methods are practiced in the industry. We are recommending the five best assessment methods that you can review & choose one as a model for designing a PMS system in your organization, these methods are as below:

• Annual

This is a traditional method that is being practiced in many organizations. In this method, the goals plan is for a longer period of one year & are assessed once on an annual basis. Employees are locked in for a  year i.e. they need to be in the organization at least for a year for completing assessments & getting rewards for their performance.

• Quarterly

This is also the most popular assessment method in an organization for a sales team. This method helps engage their sales employees to drive growth; in lead generation, sales revenue, order booking, collections, etc. Based on the quarterly assessment, organizations link their variable payout as incentives in this method. Many organizations use this method for the sales team whereas, for the rest of the operational team, they prefer to go with an annual option, thus forming a balance of two methods for administrative reasons.

• Mid Year

This is another method like annual & quarterly assessments that an organization can opt for assessments. Organizations can use this method along with other methods to check the progress & do course corrections.  In this interim method, organizations can render support to employees by providing resources, training, etc. making them able to gear up toward achieving goals.

• Project-Linked

This is the method used in organizations for project roles; wherein the project timelines is an assessment course. As these names suggest, the goals are project-based & assessment is also project-based. Here the rewards are linked to the project & its milestones.  

• Continual Improvement  or (P-D-C-A)

This is the robust assessment method that is getting popular & practiced across the industry. This is based on the ‘Plan-Do-Check-Act’ (P-D-C-A) methodology for continuous improvement. This method is very agile and not only supports annual, quarterly, and mid-year & but can also support assessment on a YTD basis or smaller intervals.

3. What are the ‘growth-&-development’ aspects of the performance management model?

‘Growth & development’ aspect is the third level in the model,  but a very important & crucial part of the performance management model.  This level consists of multiple steps:

• Captures employee aspirations,
• Feeds for individuals' development,
• Builds a talent matrix,
• Supports talent movement,  
• Helps succession planning,
• Develops compensation grid etc.  

At this model level, you build these steps & aspects in line with your business needs & priorities, which make the level of strategic alignment with the organization. The growth & development aspect in this model may vary from organization to organization & are based on their business priorities.

Conclusion:

When organizations are revamping or introducing a performance management system (PMS), they need to build a suitable performance model with the right; performance framework, assessment methods, and development aspects to design robust, engaging & driving PMS for their organization. The organization should conduct thorough due diligence during the designing as well as deployment phases of PMS.  Therefore, it's important to collaborate with an agile HR/PMS technology partner & subject matter advisory.