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Performance Management

Published May 2008

The Four Pillars of Managing Performance

Edward E. Lawler III

 

It is an increasingly acknowledged fact that a company's human capital is its most valuable and sustainable competitive asset. But an organization's appreciation of its talent can't stop with this basic understanding. It is essential for organizations to proactively employ effective performance management systems that focus on both individuals and groups.

Some of the most important performance measurement systems are those that focus on groups or teams that are responsible for a particular business process, customer or geographical area. In many respects, the same principles that apply to measuring individual performance are appropriate to appraise team performance. It is critical the team as a whole be assessed on its performance and capability levels.

Talent management and employee development are critical to determine an organization's performance potential, but the ability to manage performance often is the major differentiator between organizations that produce adequate results and those that truly excel.

Executives responsible for designing an effective performance management system need to focus on accomplishing four things:

• Define and agree on what performance the organization needs.
• Guide the development of individuals so they have the skills and knowledge needed to perform effectively.
• Motivate individuals to perform effectively.
• Provide data about the condition of the organization's human capital.

With these four pillars firmly in place, managers can successfully manage performance, ultimately influencing the company's bottom line and overall success.

Pillar One: Defining Performance

Determining what needs to be done and how to do it is the bedrock of a performance management system. Without this definition, it is nearly impossible to develop and motivate individuals, and then channel their performance to support the organization's business strategy.

Every performance management system should explicitly identify objectives and how these will be measured once complete. Since many knowledge-based organizations don't have bureaucratic control structures and detailed job descriptions, thorough performance management systems are necessary to avoid confusion about what each employee should do and what constitutes individual and overall effective performance.

A perfect example is Best Buy's Results-Only Work Environment program that allows employees in participating departments to work virtually anywhere at anytime, as long as they successfully complete their assignments on time. At first, this program created an obstacle for managers who preferred supervising work in progress and lending assistance along the way. To help smooth the transition into its new management approach, Best Buy trained its managers how to set performance expectations and measure performance even when they cannot observe and manage the work of employees in person. The retail giant's resulting high performance levels were realized in part because it made an effort to set clear expectations for employees.

Pillar Two: Develop Employee Skills and Knowledge