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How Performance Management Impacts Organizational Culture

by Jack Boutchard & Cascade Team, on Jun 7, 2021 2:57:10 PM

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Performance management is integral for performance but can be easily over-complicated. There is an increasing need to steer organizational culture through performance management for enhancing overall performance.

In this article, we’ll learn:

● What is performance management
● How performance management impacts organizational culture
● How performance management can establish a precedent for improving performance
● Understand the employer's role in fostering a high-performing culture
● Highlight the elements of a performance management system
● How Google, Disney, and General Electric use performance management

Understanding Performance Management

Not an easy field to navigate, performance management has caught a lot of attention in the management world lately.
The rapidly changing business landscape requires an effective performance management system. With new performance management trends and culture related 'buzz terms' emerging every year, the human resource department needs to be constantly evolving to meet the demands of the dynamic working environment.

Failure to understand the requirements of such trends results in employee demotivation and disengagement which leads to poor team performance. Luckily, a greater number of companies are waking up to the eminence of performance management. To improve your company's overall performance, realizing what an effective performance management system is imperative.

Performance management chartSource: Profiles in Performance

What is Performance Management?

Performance management is an ongoing communication process between the management and employees for the accomplishment of strategic objectives.

The whole process is linked with other organizational systems including strategic planning, team development, compensation, succession planning, and HR technology. However, it is important to note that HR is the key to efficient performance management.

Performance-Management-Cycle
Source: Clear Review

The Link between Culture and Performance Management

Performance management (PM) has been in the limelight over the past two decades and continues to grow in importance as the modern workplace evolves.

Why is this so?

First things first, the benefits of having a strong performing culture cannot be negated. A strong and unified performance management system underpinned by culture reinforces business operations. Much of the culture is anchored in unspoken behaviors and patterns. If properly managed, culture can help with change management, building thriving organizations that will pass through the testing times.

It is a huge mistake if it goes unmanaged and is made a secondary concern for the organization.

performance-management-statistics-infographic (1)Source: Profit.co

A high-performance culture is the secret to business success: companies with a healthy culture experience 1.5 times more revenue growth and 2.5 times more stock growth.

However, only 31% of the leaders believe that culture drives business, and 85% of the organizations fail to transform their cultures.

Don't we already have enough evidence to create a high-performing culture that is backed up by strong performance management systems?

performance-management-dissatisfactionSource: Gartner

Organizational culture impacts every aspect of your business, from tone to operations to employee involvement. When the culture aligns with employees, they are more likely to feel connected with the organization. Not only can that, but organizations that prioritize their culture pass through difficult times, COVID being a vivid example.

Culture is the key when it comes to outperforming the competition. 77% of the people consider company culture when applying, and 65% of employees stated that their "organizational culture is one of the main reasons I stay in my job". Also, organizational culture is one of the top indicators for employee performance.

This explains why performance management is linked to organizational culture.

The Employer's Role in Fostering a High-Performance Culture

A high-performing organization should be in continuous alignment with the organizational vision and goals. Although every organization has a unique work culture, it is how the culture empowers, engages, and values employees that make it a thriving one.

At a time when organizations are making it to the headlines for culture scandals, it is imperative for the employers to ascertain whether the culture is empowering enough for the employees to live by the shared values.

Resonate with your Employees

With employees seeking a workplace that intertwines with their belief systems, common vision, and purpose, it befalls upon the leaders to shape an organization that unifies their people around a shared cause.

Considering the example of Microsoft, the tech-based company is a world-class brand and has primarily achieved this status due to the prioritization of performance and integrating it with culture.

Continuous Learning

Microsoft’s cut-throat competitiveness has been greatly transformed by Satya Nadella who took charge of the company in 2014. A program was embarked upon for refining the company culture in favor of continuous learning. The employees were encouraged to improve themselves instead of proving themselves, and the company today has a market cap of $1 trillion.

Getting the right things done is a major problem in a large number of companies. Research discovered that 78% of the leaders found it difficult to hold anyone accountable. Although this can be attributed to the fast-paced business environment, lack of accountability stems from the absence of a performance management system. When there is no system that connects the strategic goals with people's engagement, it is difficult to deliver results.

Performance indicators infographicSource: McKinsey

What does an Effective Performance Management System do?

Having a structured performance management system helps integrate accountability into the organizational culture. Enabling everyone to be aligned with the strategic objectives engages employees to focus on what needs to be done and by when. A lack thereof can result in the management getting off track and not being able to measure performance.

In a glimpse, an effective performance management system does the following:

● Communicates to individuals how they contribute to organizational objectives and how they will be evaluated
● Aligns employee and organizational goals for resource efficiency, greater focus, and elimination of non-value adding activities
● Provision of a comprehensive system for ascertaining the ‘what’ and ‘how’ of organizational operations
● Establishes criteria of measuring progress against goals and adjusting as necessary

Elements of Performance Management

Although the elements of a good performance management system are simple, ther integration into the organizational operating system is more complex than it appears.

performance management systemSource: Performance Management System

Primarily, an effective PM system comprises several elements which help them avoid the pitfalls on the way.

Metrics: the leading indicators

Very often, performance is measured through lagging indicators, compliance with the monthly targets for example. The time by which results are known, the consequences are already out of control.

Successful companies utilize the same metrics but integrate their PM systems into critical process inputs. For example, SCADA handles variations by letting its staff know about variations within minutes. That makes those handling the operations react before the output or quality is disturbed.

Moreover, some metrics do not require investment in technology. Teams can complete forms at the end of each day and assess their performance. Using a mix of quantitative and qualitative metrics along with basic graphics can form an effective tool for the identification of issues before the next day. However, it is important to note that as organizations and their performance management systems grow, the metrics used will become complex.

Sustainability: Setting constant standards

While successful companies keep on evolving their metrics, the cadence of reviews and meetings is kept constant so as to establish them as an intrinsic part of the internal operations.

Feedback loops graphSource: McKinsey

The need for a standardized process goes beyond routine activities and extends into organizational operations. It is based on some basic principles: having a standard for all activities, each employee having the knowledge and activities for meeting the standard, and measurement of compliance with the standard.

Some examples of this include quarterly reviews and monthly accounting close.

An industrial commodity company implements a lean manufacturing program by asking its employees “what went well today, what didn’t go well today, what management can do to help” every day. This results in annual savings of $2 million every year, and the impact on employee morale is priceless!

Standards and Continuous Improvement

Standard work is imperative, whatever the organizational level: this includes the C-suite and senior management. Establishing standards for every function leads to the development of expectations throughout an organization. It is due to those expectations that finally result in predictable performance.

A global resources company has a requirement that its managers spend 50% of their time on coaching, safety briefings, improvement reviews, and production meetings.

Building on this approach, every successful organization commits to a comprehensive calendar for the whole year. A field services organization is an example of this where the calendar marks the date for all events, monthly and quarterly meetings, succession planning, performance reviews, and training and development workshops.

With agendas being fixed beforehand, there is planned progress and tight guidelines are followed for internal reporting. There is transparency and timeliness, and financial results are published every month.

While most organizations have rich data regarding their performance indicators, the question then remains: how can they make the best use of their data? The main part of the answer is instant feedback and routine performance reviews. It is difficult to maintain willingness and ability to streamline these performance management processes with routine work, but only this leads to real growth in the long run.

Using Performance Management to Your Advantage

A performance management system helps reward employees: let’s not deny, encouraging and recognizing your employees is crucial to your success. According to a study by American Express, it was found that reward and recognition resulted in better employee performance, engagement, and retention. Here are some stats: it was found that 83% of the employees were happy and 69% of the employees said that they will work harder if they were appreciated.

Benefits of Performance Appraisal GraphSource: Educba.com

Along with that, performance management helps boost employee engagement as well as productivity. Not to forget, engaged employees produce better results. It can therefore be said that improving employee engagement boosts productivity while maximizing ROI.

How can it be achieved?

Performance management helps create a culture of trust and support, developing a relationship between employees and the organization.

When employees are aware that their efforts are recognized and rewarded, they engage in a better manner. For example, a company that gets feedback from its employees only once a year will have disconnected and disengaged employees.

You can also use performance management for creating strategies for employee development. This means you are proactively catering to the employee development needs. This can pursue improvement in the overall performance.

Given that the importance of feedback cannot be negated, it also allows for the exchange of feedback. They need to know about their performance and hence how it can be improved. This is the only way to evolve.

But why does it fail?

Sometimes, it may fail because there is a lack of communication, the goals set are unrealistic, there is a lack of manager involvement, and many companies collect the wrong data.

Google- Practices to Ensure the Continuity and Success of an Organization's Culture

One view of Googleplex makes it clear as to why it is receiving an average of 2.5 million resumes a year. Google has gone all the way to take good care of its employees which can be proved by the incentives given to them at work, i.e. on-site massages, nap pods, and three complete meals a day. The following are the three lessons that any company can learn from Google and implement right away:

1. Psychological safety is a necessity

Google launched a thorough study in 2012 in order to ascertain how the struggling teams who worked hard to accomplish their goals were different from the excelling ones. A whole team of organizational psychologists, statisticians, engineers, and sociologists was made in order to resolve this complex issue. This project was known as Project Aristotle. It analyzed various studies that traversed a period of five decades along with different characteristics of the organizational teams and tried to decipher ways in which the teams corresponded with others. For example, the level of education, hobbies, etc.

2. It all starts with the leader

Project Oxygen was launched in 2008 by Google in order to evaluate the finest qualities of its finest managers. It managed to get more than 10,000 evaluations on its managers to figure out the most helpful traits.

Before the initiation of this project, it was believed in the organization that the leader must have more technical knowledge than his/her subordinates. However, this project helped in understanding that this was not true. Upon conclusion of the data, it was made clear that empowering team members, strong communication, and accessibility stood highest amongst the finest qualities of good managers.

3. Data is empowering

It is not shocking to know that a tech company creating complex algorithms is making its decisions on the basis of data. Google’s department of human resources is known as the People Analytics Department due to its dedication to making data-based decisions.

The willingness of Google to analyze data from the deepest perspectives has allowed its environment to become increasingly desirable. Every small company can learn from Google to regularly conduct employee surveys and harvest performance reviews from time to time.

Disney - Example of Culture within the Context of Performance Management

The organizational culture of any firm is a set of customs, values, and traditions that tend to have an impact on the behavior of employees. The company analysis of Disney ensures that its employees are working in accordance with the preferences as well as expectations of its target customers in parks, resorts, entertainment industries, and mass media.

As an example, any employee telling a sterling story aids in the management and satisfaction of the expectations of customers regarding different movies or programs of the company. The alignment of the target market’s cultural traits and performance management indicates the success of the company.

Furthermore, the connection between the company’s performance management and the American culture is a vital factor to be considered in its success globally.

Disney Organizational CultureSource: Disney

General Electric- The Evolution of Performance Management

The performance management overhaul of General Electric is long overdue some may argue, however, the company ranks 38th on the Fortune 500 in 2021. Jack Welch was the CEO 30 years ago who strongly supported the vitality curve (aka rank and yank). It was an annual review of the overall performance on the basis of the system. The company was renowned for this strategy, where after the annual performance analysis of its employees they would terminate the bottom 10 percent of staff.

The HR head at GE, Susan Peters wrote in an article of 2012 for Harvard Business Review that the end results of that year’s Global Innovation Barometer Study found out a “collegial and personal view of leadership now rising through the workforce.”
Following the next month, she started to replace the annual performance management review with an improved process of performance management which was established on feedback from those working in the company at that time. This resulted in an apt PM process that had the PDGE app at its core. This was a shift from the employee management system towards a real-time performance development system.

As the PM system comprises an app, the aim is to get instant feedback. Frequent conversations are required between the managers and employees so as to ascertain the lag from the goal. The aim of the app is to unravel the constant improvement process. Moreover, the most important element of the process is a continuous conversation, which leads to positive feedback. The result is easy collaboration, quick business decisions, and the provision of superior products to the customers.

How Can Your Organization Achieve Organizational Excellence?

The future of PM will have more feedback with leaner development. With cut-throat competition, having an empowering culture is the underlying key to success. 

If only there was a platform to oversee and manage all your teams performance..... Cascade

Topics:Environmental Scanning
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