Goal setting and performance management

Understanding levels of business strategy

Level 1 – Go-to-market strategy which focuses on products and markets:

My assertion is that Level 1 or go-to-market strategy is the level of strategy best understood by practicing executives. It is where the rubber meets the road and where most marketing and strategy energy is spent. The biggest strategic mistakes in go-to-market strategies are related to faulty research or focusing on markets as they exist today rather than where they are headed.

But the real effectiveness are go-to-market strategies are driven by the power and discipline of the competitive strategy.

Level 2 – Competitive strategy or business unit strategy which is about creating and sustaining a competitive advantage:

Competitive strategy or business unit strategy is the essence of competition and the ultimate source of sustainable success. It drives the need for go-to-market strategies. Companies get off track with competitive strategy when they confuse it with operational efficiency or benchmark to their competitors to the point they lose their unique advantage.

Competitive strategy is about doing things differently than your competition and making disciplined trade-off decisions about what you choose to do and not do. It is about aligning all activities to ensure they support and reinforce the competitive advantage. And it is about sustaining a core positioning while innovating your business model to keep up with product and market cycles.

Level 3 – Corporate strategy or portfolio management which is about creating additional value through the intelligent combination of businesses:

Corporate strategy, in my view, is the least understood, most difficult to get right, and the most misapplied of the three. It should be about combining businesses to strengthen the competitive strategy of all of them. It is often about growth for the sake of growth or a misguided substitution of performance improvement for strategy.

Linking employee and organisation goals

Does your company have a vision and mission? It certainly should so that everyone knows where the company is headed and why.

Do the goals of your employees complement the corporate goals? If not, you are probably experiencing setbacks in achieving the business goals established.

Before employee performance appraisal planning and goal setting takes place, each employee should have available and readily at hand the goals of the business for the next five years.

Whether it is to increase profitability, to break into a new market, to develop products, or whatever the goal may be, employee performance goals should complement the overall goals of the business.

The employees must understand the objectives of the organisation to be able to set specific, measurable, achievable, realistic and time-bound (SMART) goals for themselves.

Many different processes support the organisation’s objectives.

It may at first appear difficult to tie a process to the company’s objectives, but if you look at the process closely, it must support one of the company objectives or it would not be a process that is performed by the organisation.

After all, an organisation will not set an objective to improve the time it takes to make widgets is they are, in fact, building fire trucks!

Somehow the processes and tasks performed by every employee must support the objectives of the business as a whole.

Once goals are established which support the organisation’s overall performance, tie compensation programs directly to the behaviours that increase the performance of the corporation.

Having a six-month delay between employee performance appraisals and pay increases will reduce the pay for performance effectiveness.

Pay increases and bonuses should come very soon after performance appraisals are completed. The key to this process is the each employee must feel empowered to achieve or exceed their goals. Meaningful employee performance appraisals will more than pay for the time and energy they require.

Making performance appraisals work

• During this period of corporate restructuring and cautious optimism about the economic recovery, there is one aspect of the corporate workplace that is becoming more important than ever before for companies that want to maintain a competitive edge — performance appraisal programs. Performance appraisal systems are at the core of effective communication between an organisation and its employees, and reflect an increasing awareness of quality control and the necessity of identifying and maximising individual capabilities and feedback between all parties. In fact, these systems are some of the cornerstones of improving productivity in today’s ever-changing workplace.
• There are two key elements necessary for implementing a successful performance appraisal system in any organisation: trust and uniformity. If the integration of an appraisal system is conducted poorly or in the wrong corporate culture, it can have a boomerang effect and undermine the entire structure of the company. All members of the organisation must believe that the system works for everyone in the same way, with goals cascading from executives to middle management to plant level, a foundation of cooperation and the shared understanding of prospective benefit for all.
• One of the most fundamental questions that should be addressed before either beginning a new or attempting to improve an existing comprehensive performance management system is ‘What do we hope to accomplish with this program?’ Too often organisations attempt to start fixing the problems with their appraisal systems without starting at the beginning to redefine the process and eliminate confused or multiple purposes that will lead to the new system functioning exactly as the old one did. A new system often is handcrafted internally, although many companies will bring in a good consulting group to completely overhaul their existing system and to lend an objective viewpoint.

Five tips

In this spirit, here are five tips on some crucial elements of a viable and effective performance appraisal program:

1) Communicate the kind of results an employee must produce to support your corporate goals and customer needs. This will help align the employees’ goals with the strategy of the organisation, help them understand what they need to do to progress, give them a sense of ownership and encourage them to make plans for further development.

2) Provide managers with the information they need to reward for performance. A good appraisal system will open the door for performance- related discussion and career progression opportunities, while objectively indicating areas that deserve reward and recognition and those that need to be improved upon. Keep it simple—avoid multi-page documents that can grind your organisation to a halt with a blizzard of paperwork.

3) Look at the big picture. Too often over-worked managers can make snap judgements based on only the most recent performance, without looking at the overall contributions of an individual. Standardising your performance appraisal system and adhering to frequent review of data and exchange of two-way communication will keep things in perspective.

4) Focus on the future. In referring to positive performance, make references to how it can be carried on in future endeavours and when discussing opportunities for improvement, and work toward mutual agreement for new work habits and higher expectations. Discuss options for coaching or additional training to encourage a commitment to meet agreed upon performance outcomes.

5) No surprises. The savvy manager will always conduct ongoing development conversations with his or her team members, so the performance review meeting should not be the arena to discuss negative results or behaviours for the first time. Give your team members verbal feedback and adequate time to improve before documenting a problem.

It’s important to consider the message you want your employees to take with them from the experience of appraisal. Be careful with assigning numbers—but do so in a consistent manner. If you are not careful, you can lose people who will be put off by a sloppy administration of performance appraisals. But if it is done carefully and well, it can maximise the capabilities of the individuals and will contribute to the well-being of the employees, management and organisation as a whole.

In my next article I will give you the ‘Pitfalls of Performance Management and how to overcome them’.

Pitfalls of performance management and how to overcome them

Pitfall 1: Performance objectives are seldom used throughout the year as a management “tool”

Conceptually, one of the key benefits of performance management is the use of objectives as a tool for monitoring performance throughout the year. This practice allows the manager and employee to proactively determine what is going well and when to make adjustments where needed. In reality, other than the year-end performance review, how often do most managers and employees have a really substantive dialogue about employee performance? Certainly not at monthly staff meetings; they do not provide the proper venue or forum.

Daily pressures and changing priorities often prevent managers from practicing what human resource professionals have been preaching -- ongoing coaching, counselling and feedback produce results. Although we cannot legislate how managers´ spend their day, we can educate them about a basic tool that helps them monitor the performance of their team members more efficiently - the use of “milestones” or “sub-goals” in objective setting.

Milestones are the key steps in the achievement of the objective. Like the objective itself, milestones indicate what results are expected by a specific date. It is these milestones that the manager and employee can use to monitor progress on the objective throughout the year. The date on each milestone serves as a “trigger” for the appropriate time when the manager and employee should meet to discuss the employee´s performance on that objective. Underachievement on a milestone signals the manager that the discussion should focus on joint problem solving to get performance back on track.

Pitfall 2: Performance expectations are unclear or misunderstood

Unclear performance expectations typically lead to a challenging review discussion for the manager and a dissatisfied and frustrated employee. Objective setting provides overall direction for the employee, but even a “SMART” objective is no guarantee that both the manager and employee have a clear and full understanding of what is expected!

Objectives should be set at a “meets expectations” level of performance. If the objective is achieved both the manager and employee understand that a “meets expectations” rating is appropriate. But, do they have a common understanding of performance that “exceeds expectations” or falls “below expectations?” This ambiguity promises to create a truly memorable year-end performance review, one that is full of surprises for both the manager and employee.

Establishing standards around each level of performance leads to a common understanding by defining expectations for a broader range of performance possibilities. Both the manager and employee will be clear about what level of achievement correlates with each performance rating. Standards should be set at the beginning of the year at the same time objectives are drafted.

Pitfall 3: Performance distributions are highly skewed with too little differentiation between people based on the actual results achieved

Somewhat skewed performance rating distributions are reasonable given that companies are selective in the hiring process and, over time, “weed out” poorer performers. However, even managers who set challenging objectives and are familiar with the common rating errors -- leniency, halo, harshness and central tendency -- often assign inappropriately generous ratings with insufficient differentiation between higher and lower achievers. Setting challenging but realistic performance standards can help, in part, by more clearly defining the appropriate rating for the actual results achieved. In effect, this allows less room for discretion.

Three additional techniques can be useful in combating highly skewed rating distributions. The first technique, performance ranking, serves as a “test” for the manager. In this technique the manager ranks his team members from highest to lowest based on their overall contribution. The manager then compares the ratings to ensure they accurately reflect each individuals overall contribution, and adequately differentiate between higher and lower performers.

The second technique, appropriate for larger organisational units, utilises a “target” rating distribution that specifies the percentage of employees whose ratings should fall within each level of performance. To help ensure equity across the organisation, consideration should be given to the overall performance of each business unit when setting the targets. Higher performing units should have a distribution that is more highly skewed at the upper end than lower performing units.

The third technique, “aggregating rating distributions” compliments the use of a target rating distribution. In this procedure, managers at each level in the organisation submit the rating distribution for their unit to the next higher-level manager for review.

The process continues at every level up to the CEO. At each successive level, the manager is responsible for reviewing the distributions for conformity to the target, compliance with budgetary guidelines and equity across units. With support from HR, this procedure establishes clear accountability with line management, where it ideally belongs.



(The writer is the Managing Director & CEO, McQuire Rens & Jones (Pvt) Ltd. He has held Regional Responsibilities of two Multinational Companies of which one, Smithkline Beecham International, was a Fortune 500 company before merging to become GSK. He carries out consultancy assignments and management training in Dubai, India, Maldives, Singapore, Malaysia, Indonesia and Bangladesh. Nalin has been consultant to assignments in the CEB, Airport & Aviation Services and setting up the PUCSL. He is a much sought-after business consultant and corporate management trainer in Sri Lanka. He has won special commendation from the UN Headquarters in New York for his record speed in re-profiling and re-structuring the UNDP. He has lead consultancy assignments for the World Bank and the ADB. Nalin is an executive coach to top teams of several multinational and blue chip companies. He is a Director on the Board of Entrust Securities Plc.)