When it comes to running an organization and executing your strategy, there is a huge difference between performance management and performance measurement. An article I read this morning by Robert D. Behn of the Kennedy School of Government on the Government Executive website, “What Performance Management Is and Is Not,” reminded me how people often use the terms interchangeably because they do not understand these differences.
While Behn highlights eight key aspects of performance management in his article, I am going to try to keep it short and focus on five.
Performance Measurement Is a Metrics Project, Performance Management Is a Way to Manage
First, when organizations engage in performance measurement, it tends to be a “metrics” project. Someone in the organization collects a lot—and I mean a lot, usually hundreds—of operational metrics that are reviewed on a regular basis—usually once per month. A panel of managers or executives grill the individuals responsible on their performance and then the numbers are revisited next month.
Performance management, on the other hand, is a management methodology—a way to manage your organization with a management framework such as the Balanced Scorecard. It isn’t just the process of collecting data. It involves analyzing the data and making strategic decisions based on the data.
Performance Management Analyzes Strategic Measures, Not Operational Ones
Second, performance management involves analyzing strategic measures, not operational measures. By strategic, I mean not measures that you use to make sure your organization is doing things right—that the “trains are running on time.” Rather, the high-level measures that tell your leadership whether your organization is doing the right things – sticking to your strategy.
For example, many municipalities track the amount of gasoline their police force fleet uses each month. This may very well be an operational measure for the police force, but does the mayor need to know about this each month to make sure his strategy of providing the “safest city in America” is on track? Of course, not. However, if part of this strategy was a pledge to increase the police force by 20 percent, he would want to know if the police force is filling open positions for officers.
Performance Management Requires Your Top Leader to Be a Champion
Third, performance measurement projects are run separate from the executive decision making process and most people in the organization know that so it becomes a compliance exercise. A performance management system is led by the organization’s overall leader who is a champion of the process. Everyone in the organization knows she is serious about it and that key decisions are made based on the data collected for the performance management process.
The top leader constantly communicates to the whole organization as well as external stakeholders that the performance management framework will be used to manage their strategy—some may even call it their strategy management system. Staff understand that it is being used to improve strategic performance and not to penalize those who may be underperforming.
Key Word: Management
Fourth, the purpose of a performance management system like the Balanced Scorecard is to enable leadership to manage its organization’s strategic performance. Measure data is collected and analyzed and recommendations are made. It is put into a format—such as a briefing book or presentation—that allows leaders to easily digest the data and understand the analysis so that when the full leadership team is in the room together reviewing performance, they can make strategic decisions based on the analysis and recommendations.
For example, leaders can see that for their strategic objective of “Recruit the best and brightest young minds” the initiative of “Recruiting outreach to top 20 undergrad engineering programs in the U.S.” led to only four new hires last year when the target for new hires from top 20 programs was 50. This may lead them to cut the program as it is not yielding the return expected.
Implementing Performance Management Requires a Culture Change
Finally, as alluded to earlier, performance measurement programs often end up as a compliance exercise. People and departments provided the request data and tolerate the reviews, but they never act on the information gathered. Performance can be continually measured, but nothing ever comes of it.
On the other hand, to execute a truly effective performance management system within your organization requires a culture shift throughout. You must become a strategy focused organization in which every individual believes they have responsibility for implementing the organization’s strategy and that their behavior affects the strategy. Leadership constantly champions the performance management system and communicates how it is being used to make key strategic decisions. The organization learns from the data gathered, improves its performance, and achieves its strategy.