Effective Performance Appraisal Systems
My last article was
about “pay for performance” and the inherent weaknesses in this system. Having identified the potential pitfalls,
what can one do to make sure that the mechanism that delivers rewards (the
appraisal system) is as robust as possible?
Performance Reviews, Appraisals, or whatever you call them in your organisation are about managing
performance. They aren't just for large multinational businesses, or businesses over a certain size. You can perform an appraisal on yourself even if you're a sole proprietor or trader.
Sadly, the way many organisations run their performance appraisal process
results in appraisees seeing it either as a means of firing people, not paying
them the bonuses they deserve, as a way that one's supervisor can "get
back" at staff they don't like, as a tool to justify HR's existence or all
the foregoing.
There are a number of reasons that we have an appraisal or review process
including (but not limited to):
·
Talent management (developing staff);
·
Succession planning (working out which staff to
promote when occasion demands);
·
Rewarding superior performance (salary and bonus
administration);
·
Deciding which staff to “let go”.
This review should be at business/organisational, country, team/department and
individual level.
Interestingly, when
one looks at what is appraised/reviewed at individual level, it can be
diametrically opposite to what is reviewed at the organisational level.
In other words, what individual staff are told
to achieve can be out of line with corporate objectives.
Several elements
are critical to a robust appraisal system:
·
Relevance to the business and its mission;
·
Ease of use;
·
Ability to gather and measure objectively data
on performance;
·
Transparency;
·
Continuous appraisal;
·
Acceptance (trust) amongst appraisees and
appraisers.
“Relevance” means a
system/process that supports the mission and needs of the business in its environment and sector. This includes frequency, appraisal criteria and culture. Too often, businesses adopt
systems that are inappropriate, either because they measure irrelevant
criteria, or because they come from a different environment. One of my clients' performance appraisal forms measured criteria that ensured that, as long as appraisees turned up on time, wore clean clothes and smiled a lot, they would get a high score. This may have made a lot of people happy, but it didn't really show who was worthy of promotion or could lead others.
In terms of user-friendliness, some systems seem to stand out more because of their complexity and lack of user-friendliness. What works in one organisation/country/culture may not work in another (some people have a hard time understanding this). The activities or behaviours that make one organisation unique don’t necessarily apply to others. As a result, the appraisal system is used at the last minute,
no one is committed and outputs are necessarily poor. Performance suffers.
In all organisations, certain behaviours or actions are
needed to fulfil organisational goals. How
will you get objective feedback on these? Feedback risks being subjective,
unless clear definitions and gathering processes are specified.
Past experience suggests that both appraisers and appraisees
waste disproportionate amounts of time extracting or extrapolating results (in
their favour) which then become the subject of dispute. The best way to reduce the likelihood of this
happening is to agree in advance what
measures will be used, and how data will be extracted.
Feedback or data in appraisals must be transparent and objective
to be trusted.
Ideally, all information in the appraisal should be beyond dispute, i.e.
numbers extracted direct from the business’ systems (this pre-supposes that the
organisation’s management information is accurate as well). However, people are usually appraised on a
mixture of objective and subjective, quantitative and qualitative data.
Continuous assessment is now much easier as more systems are
automated, and “smart devices” proliferate in the office. In the past, appraisers had to keep bulky
files. Nowadays, one can make a note
immediately and upload it to “the system”, providing instant feedback to
appraisees.
If you can’t get the above right, then acceptance among employees (appraisers and appraisees) will be
low. No business has a “killer”
appraisal system. I’ve seen various
methods, each with its good points and bad points. One thing is clear: as our knowledge about
people and our businesses develop, the appraisal process becomes a “moveable
feast”. It will, perforce, change over
time.
In summary, make sure that:
·
Your system suits your organisation and its mssion in life;
·
It’s easy to use (for both appraisees and
appraisers);
·
As much data gathering as possible is automated;
·
Information is transparent and trustworthy;
·
Assessment is continuous (so people can improve
immediately);
·
Both appraisees and appraisers see the system as
fair.
Remember: if you can’t
measure it, you can’t manage it. What works in one organisation/country may not work in another.The activities or behaviours that make one organisation unique don’t necessarily apply to others.
I have spent more than half my life working in different world markets from the most developed to “emerging”economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.Labels: Career, Productivity, Strategy
Pay-For-Performance: Use And Abuse
Pay for performance is
the mainstay of many compensation systems.
Logically, it’s correct to pay the most to those who contribute the most
to an organisation’s results. However,
various banking and corporate scandals arising out of abuses and/or excessive
risk-taking by highly paid executives suggest that this system has engendered a
“culture of greed”. Is
“performance-related pay” really the way to go?
This article looks at why it might not be.
Let’s get one thing straight at the outset:
performance-related pay, or pay-for-results, is not a new concept. Since the
beginning of time, kings have rewarded subjects with gifts of land, money,
chattels and titles for acts of “loyalty” or meritorious service. It wasn’t long before people realised that
they could “game the system” by (say) accusing their rivals of treachery, or
“faking” results. So what one often sees
is:
1.
People “game the system” EITHER:
·
To gain an (unfair) advantage OR
·
To avoid a loss or penalty
We’ve probably all done it sometime
or another. My experience has been
“fudging results” where measures aren’t particularly clear or can be
interpreted in different ways. This has
been going on for ages. Look at the
abuses of the old-style communist “5 year plans” (and before) where factories
always met (but interestingly didn’t exceed) their quotas.
2.
Blinded by their focus on their reward, people lose
sight of their responsibilities to other “stakeholders”, e.g.:
·
Staff
·
Customers
·
Shareholders
·
Communities
·
Regulators
Incentivising
performance through financial reward is a sound idea, but if it means that one
section of society is disadvantaged, does that really merit a reward? The excessive and irresponsible risk-taking
with “other people’s money” has led to businesses and banks being forced out of
business, ruining people financially and economically. This failure to recognise responsibility
takes no account of distortions and potential unethical behaviour to secure
payments. People become focussed on the
money, not on the outcome.
3.
Management/shareholders may encourage poor
behaviour by taking no action as long as the “good news” keeps coming in. Do you really
want to kill the proverbial “goose that lays the golden eggs” by enquiring
too closely into whether results that are too good to be true really are?
How many
businesses have been brought down because someone didn’t check closely on what
was really happening?
4.
Sometimes technology, sophisticated
products/services or lack of expertise on the part of the supervisor may disguise
the fact that something isn’t right. “It
takes one to know one” is a well-used phrase meaning that quite often only an
expert will recognise a crooked act.
5.
Sycophancy or a “herd mentality” may also be to
blame. If the head of a business or team
has sufficient force of character, people are often too willing to see things
“their way”, or not to question whether things are really as good as they’re
made out to be.
It took a
young child to point out to that “the emperor’s new clothes” didn’t exist and
that the emperor had been the victim of a pair of con artists. Everyone could see it, but no one wanted to
admit that, perhaps, they were wrong.
As long as some people perceive
that dishonest, unethical (or indeed criminal) behaviour will go undiscovered
and will result in rewards, they will continue to manipulate and distort
results. Shareholders (among others)
have now started “wising up” to this and demanding measures such as the ability
to “claw back” bonuses if it is subsequently discovered that certain behaviours
or actions actually disadvantaged stakeholders, employees or customers.
So what’s the answer? You want to reward those who truly contribute
to growth (or risk losing them), but how do you ensure that those results are
truly to the benefit of everyone? This
will vary from organisation to organisation.
One thing that has to change
is being able to ensure that those caught abusing the system are punished.
I have spent more than half my life
working in different world markets from the most developed to “emerging”
economies. With more than 20 years in the world financial services industry
running different service, operations and lending businesses, I started my own
Performance Management Consultancy and work with individuals, small businesses,
charities, quoted companies and academic institutions across the world. An
international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.
Labels: Career, Financial, Productivity, Risk, Social, Strategy
Know Your Niche - Effective Business Strategy
Sometimes, we can be
“all things to all people”. At others, businesses
find that they’re better off serving a particular “niche” (or segment) of the
market.
Typical examples of niches are:
·
Low-cost airlines
·
High-end cars
·
Specialist equipment/clothing
·
Saga
·
Bridal shops
·
“High Net Worth” banking services
Niche businesses serve a particular customer segment and
focus on satisfying the needs of that segment.
They may have a competitive advantage that allows them to do this (e.g.
specialist knowledge, specialised production processes, raw material source or
other advantages).
If your business is struggling, or not doing as well as it
could, there could be a number of reasons, one of which is whether you should
be focussing on one niche, or whether you’re concentrating on the right
niche. There are plenty of businesses which
have changed niche and been successful. Some
businesses are large enough to have products or services that appeal to
different niches. Micro-finance banks,
for example, specialise in tiny businesses (usually one person) like roadside
kiosks in developing countries. Some car
manufacturers make cars ranging from
low-cost right through the scale to “upmarket” (Toyota has low-cost cars and
the “Lexus” brand as its “luxury” model).
Before you decide whether you should focus on a niche, consider:
·
Product
·
Price
·
Place/Convenience
·
Promotion
·
Buyers
·
Returns policy
·
Knowing your customers personally
Segmenting customers is a good way to work out where your
niche(s) is/are. You may have more than
one. “Segmenting” means dividing your
customers up by characteristics (depending on the business you’re in). These characteristics could be:
·
Lifestyle
·
Age
·
Income
·
Education
·
Technology-awareness (i.e. do they buy over the
internet?)
… or any others.
Ask yourself:
·
What do my buyers want?
·
What drives their decision-making (price,
quality, depth of range, availability, expertise in store)?*
·
Where does my “natural ability” lie?
·
How can I meet those needs? What needs to change?
·
Is it “bankable” (will a bank lend this business
money)?
·
How much will it earn me (is it worth the
effort)?
*Note:
people may be prepared to pay more if you can supply QUICKLY or if you can
provide EXPERT ADVICE.
Develop your reputation in that field. Get customer endorsements in particular. Word of mouth is the best advertising. Ask
customers to recommend you when they can. Make sure your customers KNOW
where/how/why you differ. No point in
setting everything up and no one knowing about it.
Develop a competitive advantage. Look at Amazon’s success in selling over the
internet. They started as an online
bookstore but now stock a huge range of goods at (mostly) competitive prices, have
a great returns policy and a prompt, reliable delivery service. Replicating all of this would require a
competitor to make some extremely costly investments. Look at where any competition fails because of
missing out on one basic issue (e.g. returns, poor service/product,
price). Could you differentiate yourself
here? Make it expensive for the
competition to copy what you do.
Has the niche got
sufficient
revenue and growth potential. If
it can’t, think again. What needs to
change?
See if it works. If not, why not? Was your research good enough? Is the chosen niche too small, do you have to
make too much effort to attract minimum levels of business?
Is it a case of “right product, wrong place/price/promotion or something
else? I know one business which sold a
good quality product out of tired-looking premises which didn’t attract
buyers. What had happened was that their
buyers expectations had changed: the
“new generation” expected modern premises. A small investment in refurbishment and new
signage made all the difference.
Another client was offered the opportunity to enter a new
area which required some heavy up-front investment. There
was a definite demand, the money was there to invest, and we could hire in the
right expertise. However, when we ran
the numbers, we found that the final increase in income just didn’t justify the
outlay and effort that were required.
I have spent more than half my life
working in different world markets from the most developed to “emerging”
economies. With more than 20 years in the world financial services industry
running different service, operations and lending businesses, I started my own
Performance Management Consultancy and work with individuals, small businesses,
charities, quoted companies and academic institutions across the world. An
international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.
Labels: Career, Customer Care, Productivity, Selling, Strategy
