Simply put, performance management is a process which identifies, analyzes, and develops the performance of a workforce continuously, linking individual performance with clear objectives that – if carried out – will help the workforce reach the goals of the organization and make for a more efficient workplace.
The two main components of good performance management are continuous support and forging a clear path to accomplishing the goals set out by the organization.
It is a manager’s job to monitor the performance level of their employees and support them as they evolve. It is a systematic assessment of employee performance, and this assessment provides data and helps managers and employees structure goals for the employee to work towards.
Performance management is often confused with performance appraisal, which is mainly feedback driven. Feedback is not enough for good, thorough performance management. But a performance management system (PMS) incorporates a performance interview, cataloging and archiving performance data, and referring to appraisal data.
HR platforms such as PulseHRM are useful when incorporating performance management systems, as they have all the tools you need for effective performance management such as automated review cycles and a skills inventory.
Below, we’ll take a deeper look at the concept of performance management, as well as define a few more key terms such as objectives, Managing by Objectives (MBO), and Managing by Exception (MBE).
What is the Concept of Performance Management?
The whole concept of performance management revolves around employees succeeding in their role. It is not just about good leadership from supervisors and managers but empowering employees to be responsible, and to take initiative over their goals.
Good performance management makes sure that employees are aware of the duties their role requires of them, and a level of performance that is to be expected of them. This involves continuous feedback, plenty of opportunities to train and develop their skills, appropriate rewards, and also a coherent but simple system by which their performance can be measured.
But the absolute end goal of performance management is achieving results. These results will look different from organization to organization, but thorough performance management will indicate whether an individual is engaged and working to achieve results or not.
You may have heard of people who seem busy but are not doing anything productive, and good performance management will help you encourage and motivate your employees to work more productively to achieve the desired results of the organization.
What is Management By Objectives (MBO)?
Management by Objectives (or MBO) comes from the theory that people tend to work their best when they have a clear picture of what is expected from them, and they can align their personal goals with that of what their employer is asking of them. Let’s take a look at some components of MBO.
Setting goals: You start by defining the long-term goals of the organization such as the overall vision, mission, and strategic intent of the organization. Once these are established and understood, you can then establish specific objectives that have a clear timeframe.
Putting in place an action plan: An action plan is basically a strategy of how objectives will be achieved. It gives everyone a clear direction of where they are heading, and what steps need to be taken to get there.
Appraisal: Often confused with performance management, performance appraisal is a small but crucial part of the entire performance management process. This is where you can compare what needed to be achieved with what was actually achieved. These objectives provide a foundation for reviewing progress.
MBO aligns what the organization expects from its employees, its vision and mission, with the duties of employees, and fosters a culture of everyone being in this together. Employers work together with employees to create an action plan and strategy to achieve a set of mutual goals.
There are many advantages of MBO, such as giving employees a better understanding of their duties and tasks, which reduces the risk of overlapping roles and confusion. It also helps to establish a Key Result Area (KRA) for each employee, focusing on them at an individual level and understanding their strengths, weaknesses, and experience.
MBO ensures every employee contributes towards the objectives of the organization and fosters more of a team spirit. This also helps to open up communication in the organization, as everybody understands they are working towards a common goal.
Overall, MBO is a process whereby strategy and goals are a collaborative effort between an organization and its employees.
Defining Objectives
Now that we’ve talked about Management by Objectives let’s talk a bit more about what objectives actually are, and how you set them.
In business, an objective is something that is expected as the end result achieved by an organization within a certain time frame. Objectives are future-oriented and encompass the scope of what is to be achieved and the direction in which the organization needs to take in order to achieve it.
During any planning process, objectives are key. It’s all about asking ‘why?’ and at the very top of the organization, objectives trickle down into other components such as budget and policy procedure. Objectives also categorize the strategy of an organization into achievable targets. Let’s take a look at the components of an objective.
Focused on the mission and vision of the organization: Any objective needs to revolve around the vision and mission statement of the organization.
Time frames: An objective can either be for the short-term or the long-term. For example, long range expansion of an organization is considered a long-term objective, while an increase in the margin is a short-term objective. It is also time sensitive, and needs to be achieved by a certain time.
Priorities: Objectives need to have clear priorities, so when broken up, some components will be more important than others. This allows you to tackle the tasks at hand more efficiently.
Interconnected: Objectives need to support other objectives you have set, but this does not mean that the achievement of one objective leads to the automatic achievement of another. It simply means that achieving one objective puts you in a much better place to achieve the next objective and gets you closer to achieving your overall goal. This means that objectives must be well coordinated, and if objectives are managed well enough you can achieve two objectives simultaneously.
More than one objective must be set: Following on from our last point, no organization operates on just one objective. They have several, and these need to be equally balanced, so the organization can run efficiently and effectively. Each objective must focus on different aspects of the organization for a more holistic approach.
Dynamic: Objectives need to be flexible and dynamic in order to respond to unpredictable times. This means objectives should be able to be reviewed, updated, and maybe even replaced if necessary.
Achievable: Lastly, objectives need to be achievable, with real, concrete results. The best way to measure success and provide real results is by using numerical terms. This provides standards by which the organization and its employees can be measured.
Overall, objectives work to provide an outlook for an organization, and helps to guide their business planning in order to achieve their goals. There needs to be a number of objectives, each focusing on a facet of the organization to make sure the organization is running as efficiently as possible.
How Do you Set Objectives?
So now we know what objectives are, how do you set them? Well, setting objectives isn’t easy, and the hardest part is setting objectives that are ambitious, yet realistic and achievable. Let’s take a look at the process of setting objectives:
Organizing objectives: Firstly, you need to start by categorizing your objectives as major or derivative. Major objectives have a wide scope and can be applied more generally. Once a major objective is established you can break the objective up into smaller objectives for departments and individuals.
Fairness and consistency: Objectives must be focused on the mission of the organization and their goals. However, objectives need to be realistic, attainable and consistent so people are not aiming for impossible targets. Objectives need to be harmonious and work in tandem. When one objective is achieved it should put you in a better place to start tackling the next. Objectives need to be practical and ambitious, rather than idealistic. Practical objectives are less overwhelming, and when a goal feels achievable people are more incentivized to achieve it.
Juggling objectives: Short-term objectives are not inferior to long-term objectives, in fact, they are often stepping stones to achieving the objectives with wider scope. Therefore, short-term objectives need to be given just as much priority as long-term objectives.
Flexibility: Organizations need to be dynamic, and so do the objectives set by them. Circumstances may force you to rethink your objectives, and they need to be flexible in order to do so. Objectives may need to be tweaked as you get closer to achieving them too, so they keep pace with the progress you’re making.
Objectives are crucial in every environment where targets and goals are key. Incentivization and the survival of most organizations depend greatly on clear objectives.
What is Management by Exception (MBE?)
Management by Exception is a management style that encourages managers to focus on matters of the utmost importance and making crucial decisions while assisting their team to complete day-to-day activities. It allows managers to focus on very important tasks, solve critical problems, and focus on areas in need of urgent attention. The six main components of MBE are:
Measurement: Placing different values on past and present performance, so an exception can be easily identified.
Projection: Considering that measurement relevant to the objectives of the organization and placing the same importance on future exceptions.
Selection: Establishing the parameters used by the management to focus on organizational objectives.
Observation: Measuring existing performance so that senior management are up-to-date on the existing state of affairs of the organization.
Comparison: Comparing actual performance with planned performance and identifying the exception which requires managerial intervention.
Decision-making: Deciding on a course of action which needs to be taken to ensure that performance improves, or maybe deciding on what expectations need to be adjusted to reflect a change in conditions.
Management by Exception is more beneficial in companies where there is a clear presence of delegation. It requires any anomalies or non-recurring issues to be referred to, and to be handled by senior management.
How do you Manage By Exception (MBE)?
There are steps involved in Management by Exception. These are:
- Identifying and laying out Key Result Areas (KRA).
- Establishing standards and parameters by which these standards can be breached.
- Comparing the actual result with the standard, average result or the desired result.
- Understanding where protocols, duties, and the general running of a department may vary and analyzing why this variation happens.
- Strategizing and knowing which action to take when required.
Organizations that are overbearing or oppressive rarely achieve anything. This means that normally only concerning variations in the status quo are referred to higher management. Once management is made aware of these variations and deviations, the cause should then be analyzed. This may lead to management deciding that certain processes are outmoded and outdated, their resources are inadequate, or that their standards were unrealistic. Once the actual cause is identified, corrective action should then be taken at the appropriate level.
Overall, when MBE is implemented, it means that the manager only steps in when an employee fails to meet their performance standards.
Why is it important to Manage by Exception (MBE)?
There are a few benefits to Managing by Exception. Namely, it effectively utilizes the manager’s time, allowing them to focus their attention on areas that require their managerial experience, knowledge, and action.
It also ensures that discrepancies and the causes of discrepancies are identified in a timely manner. This in turn means that decisions can be made properly and an appropriate flow of action can be taken.
Management by Exception also efficiently utilizes the resources of the organization, improves communication, and establishes a clear delegation of authority.
Final Thoughts
When defining performance management, we can see that two main management styles come into play. That is, Management by Objectives (MBO), and Management by Exception (MBE). Both have their advantages, with one having more of a hands-on approach to management and being objective oriented, while the other is more focused on managers taking more of a backseat and intervening only in certain circumstances.
But whatever management style your organization employs, objectives are a key aspect of not just organizational growth, but performance management on an individual level.
