Improving your Company’s performance: 3 tips to setting up an Effective Performance Management System which gives results

A number of owners/founders whom I coach have one important question which they ask around the middle of the second session. And that is “How do I improve the business results of my company”. As an owner/founder  this is one thing which occupies the maximum mindshare and hence the question.

The question which I ask then is “What do you think will improve your business results?” and with a few follow up questions we come to an understanding that to improve the performance of the organization, it is imperative that the performance of every team member in the organization improves. So how do we improve the performance of every team member who is part of the organization?

An organization which does not measure and monitor the performance of every employee cannot reach optimum level of performance. Human beings naturally love challenges and most of us need a target or a goal to aspire for. At the workplace too, in case we do not have a clear goal most employees prefer to meander along doing what is minimum requirement to get their monthly salary.

It is therefore imperative that all organizations have some method of measuring and monitoring performance.

So why is a performance measurement and monitoring system or a PMS (Performance Management System) required in an organization? There are three main reasons:

1. To drive results of the company
2. To build capability through constantly measuring, monitoring and then improving performance.
3. To differentiate the performance of employees so that the better performers are rewarded and the not so great performers are identified and worked upon to either improve their performance or exit the organization.

There are a few components of a good performance management system(PMS).  A good PMS system should have the following characteristics :

1. A process of identifying clear goals for each role. These could be 2 or 3 things that the role holder must do which have a direct connect with the organizational goal.
2. Clear expectations set by the manager on how the goal will be measured and periodicity of reviews.
3. A clear and formal method of providing feedback on the progress on achievement of goals and how to improve or an action plan.
4. Measurement of results and their connection to rewards, financial and others.

So how does an owner/founder set up an effective PMS system in his/her company in a simple manner?

First, identify what are the most critical performance parameters for your company. These could be revenue, cost, profitability etc.

Second,  identify what are the 3 top things which any role holder should do contribute to the company’s goals. A  production head could have the goal of ensuring on time delivery of all orders, reducing cost of manpower and rework and quality. Similarly, a sales head would have increase of revenue,  increase in profitability and high customer satisfaction scores.

Third, monitor these 3 key parameters at least  once a month and keep formal record of it, the feedback provided as well the action plan decided between you and the role holder. Ensure that your direct reports do the same with their teams.

The key to organizational growth is data based effective reviews done diligently month on month. It is the most important thing you can do as a founder/owner.

Article By:

Rajiv Misra.