Twelve common pitfalls to avoid

Avoid complexity. Make a choice and trust your people.

When designing a performance management model, there are many selections and deselections. Whatever combination is chosen, there will always be pitfalls to avoid. The pitfalls range from confusing your employees with information overload to not getting the perspective of the model right, making the organisation run in the wrong direction. Here, we have collected twelve common pitfalls for you to consider and avoid.

Do you have the right perspective?

Set the right perspective from the beginning to ensure that the following efforts in designing the model progress in the desired direction. Here are four to be aware of.

Narrow stakeholder focus

To ensure that a performance management system is comprehensive, it is important to consider the needs and perspectives of all relevant stakeholder groups, including customers, employees, suppliers and the surrounding community. This can be done by including at least one key performance indicator (KPI) for each stakeholder group. For example, if an organisation has ten financial KPIs focused on shareholder satisfaction but does not track supplier relationships, it may be lacking important information that could help guide its decision-making and direction. It is important to take a holistic approach to performance management by considering the needs and priorities of all stakeholders.

Read more about battling the blind spot of performance management by including a stakeholder perspective.

Rearview mirror reliance

It is easier to measure historical events rather than predict future trends. However, a proper performance management system should focus on enabling future performance rather than reporting on the past. Consequently, it is critical to avoid reporting on lagging indicators and instead monitor any leading indicators outlining the road ahead. This, in turn, requires a shift towards behaviour-based metrics, which is not easily linked to traditional financial performance. Making this shift often requires significant management support.

Faulty target-setting

Targets, i.e. the goals defined for each KPI, should push your organisation and present a challenge compared to current performance. However, if the target is considered unrealistic and too hard to achieve, the organisation will not strive to achieve it. Striking the right balance is critical. Sound advice is to set SMART goals, i.e. goals that are Specific, Measurable, Attainable, Relevant and Time-Bound.

Missing link to personal objectives

Performance management should be cascaded into personal objectives of the employees that can impact performance. The challenge is to define proper, relevant metrics that support the overall desired performance while being relevant to the scope of work of the individual employee. For this to work, the measures need to be behavioural and linked to activities that support overall value creation. Unfortunately, this link is often broken, and employees are not measured against parameters that create personal engagement and purpose as well as support the overall strategic objectives.

Read more on designing motivating performance indicators.

Do you have the right KPIs?

Designing the KPIs is essentially the process of making sure that the desired behaviour is supported and guided by data and information to reach the goals defined. However, KPIs can also mislead and overwhelm if common pitfalls are not considered. Here are four to avoid.

KPI tsunami

In a world with ever-increasing data availability and computing power, it is easy to be intrigued by the possibility of showing a myriad of performance measures. However, research shows that too much data decreases people’s ability to make choices. This is referred to as decision paralysis. Consequently, a proper performance management system does not overflow the receiver with too much information but provides a limited set of key performance indicators (KPIs) aligned with the company’s strategic objectives.

Improper metrics

It is inherently difficult to define KPIs that are proper proxies for the strategic objectives you want to achieve. Even when you have defined a KPI that actively drives the desired behaviour, you might end up removing focus from other critical elements in your service delivery model. You get what you measure, and therefore it is always relevant to ask yourself: what will be overlooked, and what will not be done as a result of our performance metrics?

No single source of truth

Most finance professionals cry for one set of numbers. In performance management, this is especially critical. If you do not have a single source of truth behind your metrics, uncertainty and mistrust are bound to arise. Nobody will ever be motivated by a measure in which they have no trust.

Read more about how to become a trusted business finance partner.

Improper cascading of KPIs

No single KPI fits all. The CEO does not care about the same thing as the plant manager. Thus, proper performance management reflects corporate priorities at all levels. If your metrics do not follow a clear hierarchy cascading down through the organisational layers, you will not be able to guide the organisation on a common strategic path.

Now you need to govern your model right

Once you have the above right, you need to ensure that your performance management model has adequate governance in place. Here are four common pitfalls to avoid when designing your governance.

Missing meeting cadence

A performance management system only creates value when behaviour is changed, and decisions are altered based on performance insights. Presenting a KPI dashboard does nothing in itself. Value is only created when insights are communicated, discussed and translated into actions. Only by creating a natural flow of performance discussions will you be able to build a culture of data-backed decision-making. Consequently, if you do not have a clear annual cycle and defined governance for your performance management system, you are likely not reaping its full benefits.

Read more about five steps to keep cadence and pace of your performance management initiatives.

Lack of transparency and communication

Performance management should not be a management exercise performed behind closed doors. To drive the organisation in the right direction, selected performance metrics should be accompanied by adequate communication across all organisational levels, thereby creating transparency and fostering an honest dialogue about performance. In other words, performance metrics should not be perceived as passive measures of progress but should rather be used as a tool for changing the dialogue and directing the effort towards what matters most.

If you do not have a structured approach to communicating performance metrics to the organisation, you are unlikely to succeed in fostering ownership and accountability with the right stakeholders.

Misaligned decision authority

To ensure a dynamic performance management system where KPIs are added and subtracted as the business evolves and strategic objectives change, it is critical to know who has the authority to make such changes. Who can decide to substitute one KPI for another, and what are the requirements for such an update? If you are unclear in terms of the roles, responsibilities and decision authority, you risk ending up with a stale KPI structure that will quickly become outdated and useless.

Read more on how to instil proper governance surrounding your organisation’s performance management setup.

Missing consequences

The late Jack Welch, former president at GE, famously laid off the bottom 10 per cent of the workforce based on the annual performance measurement. This is an extreme example that might be outdated in today’s sociocratic organisations. However, the fact that performance must have consequences remains. Consequently, if you are not installing countermeasures to improve poor performance or recognising and rewarding good performance, you risk undermining your performance management system.