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Types Of Performance Management Systems (& How Best To Use Them)
Is your organization using the right type of performance management system in the right way? Learn about all the options available here.
It’s a beautiful thing when an organization has hundreds, thousands, or even tens of thousands of employees all pulling in the same direction to achieve shared goals. When that happens, there’s virtually no limit to what the business can accomplish.
The problem is this: Few organizations have mastered the art of performance management. Done correctly, performance management connects two elements—individual work and organizational goals—to achieve alignment, the very thing that creates (and sustains) continuous improvement. Having a performance management system in place—a framework that guides your approach to creating alignment—is the starting point to make it all happen.
If you’re trying to decide which framework will work best for your organization, you’re in the right place. In this article, we’ll explain the different types of performance management systems as they apply to both individuals and organizations, as well as explain how they can be used in combination most successfully. We’ll also show you how you can use ClearPoint performance management software to help you stay on top of the many moving parts and produce the best results.
Need some tips on how to get everyone pulling in the same direction? Download our ebook, “How To Make Strategy Everyone’s Job,” for some actionable ideas!
3 Types Of Organizational Performance Management Systems
Organizational performance management (sometimes called corporate performance management) is a term used to describe the methodologies and processes that help you define, measure, and ultimately achieve your strategy. Three commonly used forms of organizational performance management are:
1. The Balanced Scorecard
In our humble opinion, the Balanced Scorecard (BSC) is one of the best types of performance management systems available, and for good reason: 88% of BSC users say the framework is extremely or very useful in helping them achieve their goals.
What makes the BSC unique is that it combines four different business perspectives—financial, customer, internal processes, and people—to help companies understand and achieve their organizational objectives. Some key points about the BSC are:
- Its main components:
- Objectives—high-level organizational goals that state what your organization is trying to accomplish strategically, broken down according to the four perspectives
- Measures—key performance indicators (KPIs) that help you understand if you’re accomplishing your objectives strategically.
- Initiatives—key action programs developed to achieve your objectives, sometimes referred to as projects.
- It facilitates alignment across divisions and departments because you can link departmental objectives to the overall organizational objectives. You can also see how measures and projects are connected to organization-level measures.
- It requires a structured reporting process. Creating a BSC is predicated on reviewing your strategy on a regular basis—and you can only do this if your strategy is organized.
2. Management By Objectives
Created by influential management consultant Peter Drucker, Management by Objectives (MBO) has many variations. Essentially, it centers on creating a set (anywhere from two or six) of organizational objectives, which are then used as guideposts for creating individual employee objectives.
Some of its key characteristics are:
- Objectives are not necessarily linked to one another. (This is different from the BSC approach, where objectives are aligned within an overall strategy.)
- Objectives may be defined as part of a collaborative effort between leaders and employees. The idea is that employee participation creates buy-in, and helps clarify the path to obtaining the objectives.
- Objectives are the main focus of MBO; less emphasis is placed on how those objectives will be achieved. Organizations tend to rely on either measures or projects (but rarely both). The key to making MBO work is to create a structure that clearly differentiates between projects and measures. They don’t work the same way, so trying to lump them together will inevitably cause confusion.
The term Management by Objectives has been around a while, but you don’t always see it in strategy documents. One way to recognize this approach is by looking at the strategic plan, which might have a set of goals and then objectives. You will also then see a list of activities or actions that the organization is grouping together to try to improve those goals and objectives.
3. Budget-driven Business Plans
Sometimes, the budget leads the performance management process rather than strategy. In this case, “work plans” are linked to the overall budget of the organization, and spending goes to the projects and programs that deliver results. It is a less commonly used performance management system, but it works for some organizations. Some of its key characteristics are:
- Income sources and expenses (line items) may be grouped into categories so leaders can easily identify areas that need downsizing or potential opportunities for investing.
- It may involve a combination of ongoing and new projects.
- It is driven by finance, which is different from the other approaches that are organized by a strategy department.
- The development process usually starts with the finance team providing last year’s spending to a department, and asking the department to list the activities they hope to accomplish within the coming year without changing the budget.
2 Types of Personnel Performance Management Systems
Also called human resource (HR) performance management, personnel performance management systems provide a framework for evaluating the performance of your employees, as well as linking and aligning those individual performance levels to the strategy of your divisions, departments, and enterprise as a whole. There are two different types of performance management systems for staff members: Objectives and Key Results (OKR) and HR review-driven systems.
Currently the most popular framework, OKR is a simple way to set, track, and measure progress toward goals on a regular basis. Here’s how it works in a nutshell:
- Each individual has a set of objectives (usually three to five) and key results that are linked to organizational objectives. This is a hierarchical system, so OKRs are first set at the level of the individual employee, then the manager, then the manager’s manager, and so on. So when employees achieve their goals, managers should achieve their goals, then the division chiefs, etc.
- Reporting usually takes place on a quarterly basis. For smooth reporting, many normalize their results on a scale of 0–1 or 0–100%. Of course, sometimes OKRs are completed on a weekly basis or other more frequent set of reports.
- Key results can be weighted for an individual and rolled up to a manager.
- Reviews may be conducted by the strategy office, but then again OKRs may not be centralized at all.
The OKR system is simple, and with the right controls and structure, you can achieve great results. It also states explicit responsibilities for employees, so everyone knows their role, has tangible goals, and works at a fast, consistent pace to get there.
2. HR Review-Driven Systems
An HR review-driven performance management system isn’t necessarily an alternative to OKR, but rather an additional way of measuring individual performance from an HR perspective. An OKR framework tends to be more strategy-driven, focusing on performance factors that would impact an individual’s achievement of objectives. For example, sales department OKRs could measure things like the number of people the individual reached out to for a product demo.
HR review-driven systems are also interested in aspects of performance unrelated to objectives, such as whether an individual is developing a specific skill set or if they are a good fit for the team. Often, these types of evaluations are separate from an OKR system, but may also need to be measured. Some characteristics of an HR-driven approach are:
- Reviews are usually conducted annually or semiannually.
- Measures may include contributions to the organization (like OKRs), as well as competencies, culture, and growth/development in the organization
- Reviews are often managed by HR rather than by a strategy office, as they are with the OKR system.
What performance management system is best?
The answer is: It depends on how your organization thinks about strategy.
If you're a strategy-driven organization with an active strategy office, a Balanced Scorecard will be pretty helpful for you. The advantage to choosing BSC is that you get a comprehensive view of your strategy that makes it easier to manage organization-wide.
If your strategy consists of individual departmental goals, Management by Objective is a good choice. With MOB there’s no alignment of goals across the organization, but there are clear departmental goals.
If your strategy is driven by the finance department, a budget-driven form of performance management would work best for you. In this case, you won’t have to worry about strategy as a factor that could potentially force you to allocate your budget in nontraditional ways.
The same is true for personnel performance management frameworks—the approaches named above have different uses and are driven by different parts of the organization.
Strategy-driven organizations would benefit from having an OKR (or personal scorecard) system that would help drive organizational performance. And if you have an active HR department that also wants to nurture, develop, and identify talent, you would also benefit from conducting regular HR performance reviews.
Finally, keep in mind that organizational and individual performance management systems work best when combined. For example, you may determine that to attain true strategic alignment, you need a combination of the BSC with linked OKRs at the individual level. In an ideal world, employees should not only be working to achieve organizational goals, but also improving their own skill sets for the future good of the company. What combination of performance management frameworks will help you lay the foundation for that approach?
A word of warning: Don’t let your systems get jumbled or you will struggle to get results. Don’t attempt to have the HR department dictate strategy, or the strategy or finance departments get involved in competencies and promotions. Different departments should collaborate to carry out a combined approach to performance management; as long as all departments understand their roles and who is taking “the lead” at specific junctures, different systems can work well together.
At this point, you might be wondering how the most successful organizations manage to orchestrate a comprehensive performance plan—it sounds like a daunting task. We’re glad you asked! ClearPoint performance management software was tailor-made for the job—and we’ll show you how.
Using ClearPoint For Comprehensive Performance Management
As you can probably tell from the above descriptions, performance management is a complex art. In fact, some organizations never reach their performance goals simply because they don’t use the right tools to manage the process. If you don’t have a streamlined way to visualize, quantify, and monitor your strategic goals, then you simply will not be able to improve your performance with any accuracy.
ClearPoint can help you manage any performance management framework you choose. Not only does it effectively keep your strategy and objectives top-of-mind, but it also simplifies the most time-consuming parts of the process.
Here are three reasons why ClearPoint is the best tool for comprehensive performance management:
1. It tracks alignment across the organization, including individuals.
One of ClearPoint’s strengths is that it gives your organization a dynamic way to see (and share) how your strategy and all its components fit together. You can link goals, measures, and projects across departments to see exactly how each goal relates to the overall strategy, and link measures and initiatives to goals to see how these elements inform one another. You can even link individual performance KPIs to see how each employee is contributing to departmental performance, and to overall organizational goals.
Whether you want a high-level view of corporate performance, a mid-level view of project performance, or a narrow view of individual performance, you can see it all—and their interconnectedness—using ClearPoint dashboards, reports, and other features.
2. It links to your HR and finance systems to provide a more comprehensive view of the data.
You likely have a variety of systems you’re already using—like HR software to collect individual performance data and financial software for budget information. The ClearPoint API lets you extract or import the appropriate data points from those systems into ClearPoint, so you can view it all in relation to your strategy. It’s easy to show the alignment of your budget to strategy, for example. (The best part: Once you have it set up, it’ll run automatically!)
Having all the data in one place makes it easier for you to see the big picture. You can easily update all departments on their progress, and aggregate upward to show budget and strategy across the organization. You can also bring qualitative and quantitative information side by side to tell a story about the progress of your strategy, and chart budget performance against an average of previous years to see how you’re doing over time.
3. It has built-in workflows to help manage the reporting process.
Reporting can derail even the most dedicated organizations; it consumes a massive amount of time and energy. ClearPoint takes all that frustration away with its Reporting Workflows.
With ClearPoint, reporting becomes streamlined and simple:
- Once managers define the monthly updates needed, by when, and by whom, ClearPoint sends reminders to the appropriate parties automatically.
- The software automatically generates and distributes pre-read materials for review in advance of strategy meetings.
- During the meetings, you can: add action items; link action items to goals, measures, and projects; assign accountability; and set due dates live.
- After a meeting, ClearPoint generates a Briefing Book of action items and sends it to the team.
- You can save and reuse pre-built and custom report templates.
ClearPoint supports the success of your performance management process, no matter what type of system you use. If you’d like to see our software in action, let us know!