The Power and Problems of the Invisible Performance Management System

Eric Flamholtz MANAGEMENT SYSTEMS

www.mgtsystems.com

The Power and Problems of the Invisible Performance Management System There is a well-defined way of describing the organizational structure of a business. Ask almost anyone to describe the organization of an enterprise and they can usually do it. There is a well-defined lexicography for organizational structure. Specifically, a give structure will be represented in terms of boxes reporting to another connected by lines. The Problem However, if you ask someone to represent the Performance Management System of an enterprise, you will get a very different set of responses. In contract to organizational structure, there is no well-defined lexicography for performance management. The result is that the performance management system of a typical business is virtually invisible. The invisibility of the performance management in enterprises leads people to think in terms of components of the system and not in terms of a holistic system. This, in turn, leads to performance problems. During the past 35 years of working with companies ranging in size from startups to global giants, I have rarely seen effective performance management systems. The Solution We have a created a relatively simple way to visualize performance management in organizations. This, in turn, makes it possible to understand how to design effective performance management systems. All performance management systems require a set of six components1: Key Result Areas Objectives Goals Measurement of performance Evaluation and Reward

Each of these components has a precise definition. See Eric Flamholtz and Yvonne Randle, Growing Pains, Fourth Edition, Jossey-Bass publishers, Inc. 2007.

Each of these components must be designed individually and as part of the overall performance management system. The first three (Key Result Areas, objectives, and Goals) comprise the plan component of a performance management system, and are a carve out from the strategic plan2. The remaining three need to be designed so that they are consistent with the first three. However, in practice this rarely happens, especially for the evaluation component. In most organizations, the performance evaluation component is designed in isolation of the plan component. This immediately creates a problem or dysfunctional aspect of the overall performance management system. Specifically, it is well recognized that what gets measured and evaluated leads to motivation and emphasis by people in organizations. If there is a lack of consistency between the plan and evaluation components in any so-called performance management system it will lead inevitably to unintended dysfunctional results and suboptimal behavior. Making the Performance Management System Visible Figure 1 shows a graphic model of the components and interrelationships of a performance management system.

Figure 1 Management Systems Performance Management System

Design of Performance Management Systems The design of a performance management system is beyond the scope of this article. For more information see Management Systems Performance Management Systems.

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