You are in the right place if you’ve been looking for an elaborate Performance Management Systems guideline. According to Harvard Business Review (HBR), what you measure is what you get. Senior executives understand that their organization’s measurement system strongly affects the behavior of managers and employees. Executives also understand a few things.
For instance, they fully understand that traditional financial accounting measures like return-on-investment and earnings-per-share can give misleading signals for continuous improvement and innovation — activities today’s competitive environment demands. The traditional financial performance measures worked well during the industrial era but are out of step.
More so, with the skills and competencies companies are trying to master today — productivity is now a very hot topic. For many of us, productivity is an absolute good, an obvious goal for ourselves as much as for the organizations where we work. It feels like a badge of honor, and our sense of productivity can seem like a direct reflection of our success in life.
But, for everyone talking about it, we don’t all tend to share an understanding of what productivity means. By all means, workplace productivity is the value each team brings to the success of the overall business. One thing is for sure; it helps businesses to measure the output of individuals or teams to understand better how an organization can optimize its workflows.
Understanding What Performance Management Systems Offer Businesses
Performance Management Systems are tools for businesses to track employees’ performance consistently and measurably. The system relies on a combination of technologies and methodologies to ensure people across the organization are aligned with — and contributing to — the business’s strategic objectives. Usually, the software system is very collaborative.
By being collaborative, we mean the system has managers and employees working together to set expectations. It helps them identify employee goals, define performance measurements, share the employee’s performance reviews and appraisals, and provide feedback. Thus, increasing workforce productivity when properly defined and consistently applied.
Employees are more invested in their work, and turnover is minimized while revenue per employee is maximized. For example, SAP SuccessFactors Performance & Goals can help you align your strategy and goals, improve employee performance through ongoing coaching and feedback, and recognize top talent to adjust to evolving business needs quickly.
A great performance management system;
- Enables an efficient and productive workforce
- Improves employee performance with performance goal management
- It helps in ongoing dialogue and continuous business development
- Creates a performance mix that works for your organization
- It helps you to manage employees more proactively
The truth is, checking off our to-do list is not what productivity is all about. While personal productivity contributes to business productivity, these two types of productivity are defined very differently. Things can get confusing when you and your boss have different definitions of what’s productive in the workplace — or rather, what’s unproductive.
Most of us understand how personal productivity makes our lives better, but what about corporate or national productivity? When you’re productive, it takes less time, effort, and mental demands to achieve what you want or create a high-quality finished product. You are more productive when the output is the same (achieving what you want), but it takes less input.
More so when accomplishing the input goals given all the time, effort, and resources — it is the same for almost all industry businesses. When businesses produce a larger amount of a given output (goods and services) with less input (labor, capital, and materials), they’re more productive. Let’s now learn how performance productivity works and the main tracking metrics.
How Performance Management Systems Work Plus The Main Trackers
Of course, in today’s business, the output of our efforts can be harder to quantify. (That’s why so many people default to a checklist — “done” or “not done” is easy to measure, even if it has no connection to value.) It is hard for individuals or businesses to compare output as value is less and less often delivered as a standard unit of product.
However, at the business level, in the aggregate, you can compare the level of effort, time, and resources used to produce an equivalent output of sales or revenue. Businesses measure productivity by taking total revenue (or net sales) in a particular period (the output) and dividing that by the total number of employee labor hours worked in the same period (the input).
This is called the labor productivity formula. The Bureau of Labor Statistics defines productivity as “a measure of economic performance that compares the number of goods and services produced (output) with the number of inputs used to produce those goods and services.” When people think of “being productive,” they often think about what they’re personally doing.
For many, that means checking the “to-do” list. That type of personal productivity reflects how efficient you are at completing tasks. But not all tasks are created equal. Politicians, economists, and pundits talk about it at a macro level. Business leaders and managers worry about their teams and employees working in a hybrid environment.
And most of us, individually, may make some assessment of our own, such as whether we “felt” very productive on a given day. Each of these examples incorporates a different view of productivity. That being said, there are a few examples of different perspectives on productivity that we can emulate.
1. Personal Productivity
On the one hand, productivity can mean different things in different contexts, especially with the rise of knowledge work and automation. On the other hand, personal productivity refers to consistently and efficiently completing tasks or accomplishing goals. Understanding the different layers of productivity can help you see how your personal productivity at work contributes to your business’s productivity and maybe even how both relate to your country’s productivity.
2. National Productivity
For countries, productivity measures how well they turn labor and materials (the input) into goods and services (the output, gross domestic product [GDP]). It’s a broad measure that reflects trends in policy and technology and indicates economic growth relative to other things happening in the macro-environment. This can ladder to a higher standard of living for the residents of that country.
3. Business Productivity
For businesses, too, productivity measures how well they generate revenue from input, labor, and materials. Business productivity usually refers to productivity as revenue divided by hours worked. For company leaders, an aggregate productivity level isn’t likely to provide actionable insights, but it can help them see how they compare against the competition or other leading firms.
4. Organizational Productivity
Productivity at the company level — revenue relative to employee labor hours in a quarter — can seem far removed from our activities, which might see results or deliver value in a different timeframe.
5. Workplace Productivity
Last but not least, workplace productivity is the value each team brings to the success of the overall business. It measures the output of individuals or teams to understand better how an organization can optimize its workflows.
The Key Performance Management Systems Balanced Scorecard Elements
As managers and academic researchers have tried to remedy the inadequacies of current performance measurement systems, some have focused on making financial measures more relevant. Others have said, “Forget the financial measures. Improve operational measures like cycle time and defect rates; the financial results will follow.”
But managers should not have to choose between financial and operational measures. In observing and working with many companies, we have found that senior executives do not rely on one set of measures to the exclusion of the other. They realize that no single measure can provide a clear performance target or focus attention on the critical areas of the business.
Managers want a balanced presentation of both financial and operational measures. During a year-long research project with 12 companies at the leading edge of performance measurement, we devised a “balanced scorecard”— a set of measures that gives top managers a fast but comprehensive view of the business. In general, the balanced scorecard includes key features.
For instance, it may have some features for financial measures that tell the results of actions already taken. And it complements the financial measures with operational measures on customer satisfaction, internal processes, and the organization’s innovation and improvement activities — measures that are the drivers of future financial performance.
It provides answers to these basic questions:
- How do customers see us? (customer perspective)
- What must we excel at? (internal perspective)
- Can we continue to improve and create value? (innovation and learning perspective)
- How do we look to shareholders? (financial perspective)
Overall, it’s clear that the balanced scorecard allows managers to look at the business from four important perspectives. Think of the balanced scorecard as the dials and indicators in an airplane cockpit. Pilots need detailed information about many aspects of the flight for navigating and flying an airplane. They need information on fuel, airspeed, altitude, bearing, etc.
As well as destination and other indicators that summarize the current and predicted environment. Reliance on one instrument can be fatal. Similarly, the complexity of managing an organization today requires that managers be able to view performance in several areas simultaneously. Performance management software can be implemented on-premise in the cloud.
Or rather, within a hybrid environment. A cloud platform or HR cloud provides a range of benefits, including larger data storage capacities, stronger security, and easier integration with complementary applications, such as learning and development, compensation, and other people-centric systems. Below are the main performance management system processes:
Plan And Act With Management
- Align employee performance to the objectives of the organization.
- Assign work that is meaningful and fulfilling to increase employee engagement.
- Quickly adapt goals when business priorities shift.
Monitor With Continuous Tracking
- Monitor the goals of each employee to ensure ongoing alignment with organizational goals.
- Provide feedback and guidance to improve performance.
- Recognize good results as they happen.
Evaluate And Recognize Assessments
- Assess performance consistently and accurately.
- Recognize and reward strong performers.
- Use data-driven insights from the system to quantify the value your workforce delivers to the business.
Unfortunately, personal productivity, at work or in life, can be hard to pin down, especially now that many people don’t do repetitive tasks — it was much easier when productivity could be measured by how many widgets a person built per hour. Per the Performance Management System, personal productivity is a topic of disagreement in the knowledge worker age.
Creativity, innovation, and excellent customer service don’t sum up an efficiency metric neatly. Nonetheless, it’s useful to consider what productivity means in your role and type of work. Then try to set the conditions to improve it;—
You’ll need to consider the following:
- the appropriate way to assess quality or value
- What is the relevant productivity measure of quantity?
- the inputs you’d want to use most efficiently
Something is valuable to you (or a company) when it helps you achieve your desired outcomes. Not everything on your task list is equivalent in terms of the value it delivers to you or others.
This changes the way we think about productivity to incorporate how effectively an activity delivers value in addition to how efficiently we do that activity. In a company, the value of work is a function of how well the work aligns with the organization’s priorities, the quality it is executed, and the efficiency with which it is done.
The Simple Steps To Measure The Key Business Performance Metrics
The following is a process for choosing metrics that allow you to understand, track, and manage the cause-and-effect relationships that determine your company’s performance. We will illustrate the process in a simplified way using a retail bank based on an analysis of 115 banks by Venky Nagar of the University of Michigan and Madhav Rajan of Stanford.
Be that as it may, business or organization input value is the most relevant output to consider for your teams and yourself. Productivity = (value of work) / (employee time, effort). Value might seem hard to define, but you can start by thinking about outcomes. Companies are adopting new technologies to stay afloat as customer demands grow in the marketplace.
Similarly, when it comes to managing employees’ performance, investing in good Performance Management Software can do wonders in engaging your employees effectively. Every organization is constantly looking for new technologies to streamline their employees’ performance; therefore, it becomes important that organizations invest in performance management systems.
Or rather, Performance Management Software (PMS) that is apt for their business so that they can coherently manage their employees’ performance and engage them. Leave aside, for the moment, which metrics you currently use or which one’s Wall Street analysts or bankers say you should. Start with a blank slate and work through these simple steps in sequence.
Step #1: Define your governing business objectives
A clear objective is essential to business success because it guides the allocation of capital. Creating economic value is a logical governing objective for a company that operates in a free market system. Companies may choose a different objective, such as maximizing the firm’s longevity. We will assume that the retail bank seeks to create economic value.
Of course, some companies also use nonfinancial performance measures, such as product quality, workplace safety, customer loyalty, employee satisfaction, and a customer’s willingness to promote a product. In their 2003 HBR article, researchers suggest that at least 70% of the surveyed companies didn’t consider a nonfinancial measure’s persistence or predictive value.
Nearly a decade later, most companies still fail to link cause and effect in their choice of nonfinancial statistics.
Step #2: Develop a working cause-and-effect theory
Developing a cause-and-effect theory to assess the objective’s presumed drivers is good. The key financial drivers of value creation are sales, costs, and investments. But, financial drivers vary among companies, including earnings growth, cash flow growth, and return on invested capital. Naturally, financial metrics can’t capture all value-creating activities.
You also need to assess nonfinancial measures such as customer loyalty, customer satisfaction, and product quality and determine if they can be directly linked to the financial measures that ultimately deliver value. As we’ve discussed, the link between value creation and financial or nonfinancial measures is variable and must be evaluated case-by-case.
In our example, the bank starts with the theory that customer satisfaction drives the use of bank services and that usage is the main driver of value. On that note, this theory links a nonfinancial and a financial driver. The bank then measures the correlations statistically to see if the theory is correct and determines that satisfied customers use more services.
This allows the bank to generate cash earnings growth and attractive returns on assets, both indicators of value creation. Having determined that customer satisfaction is persistently and predictively linked to returns on assets, the bank must now figure out which employee activities drive satisfaction.
Step #3: Identify the specific activities per employee
To help achieve the governing objective, it’s worth it for you to identify the specific activities that employees can do. It must be remembered that productivity is a measure of economic performance that compares the number of goods and services produced (output). Coupled with the number of inputs used to produce those goods and services.
The goal is to link your objective and the measures that employees can control through the application of skill. The relationship between these activities and the objective must also be persistent and predictive. In the previous step, the bank determined that customer satisfaction drives value (it is predictive). Now, they have to find reliable drivers of customer satisfaction.
Statistical analysis shows that the rates consumers receive on their loans, the speed of loan processing, and low teller turnover affect customer satisfaction. They are within the control of employees and management; they are persistent. The bank can use this information to ensure that its process for reviewing and approving loans is quick and efficient.
Step #4: Utilize the best business data calculation methods
Some firms are more productive than others. The Office for National Statistics (ONS) and others have researched the reasons for slower productivity growth in the past decade and why some businesses are more productive. Attributes such as age, size of business, foreign direct investment (FDI), management practices, and international trade are all associated.
Especially in facilitating higher productivity among firms. Labor productivity measures how much output is produced per unit of labor input, for instance, per worker. Higher productivity means a business produces more output for each worker. Productivity is important because it is a key determinant of living standards in the long term.
Increasing productivity over time allows businesses to produce more goods and services per unit of input. This ultimately enables higher wages, aids economic growth, increases profitability, and boosts tax revenues. Since 2008, labor productivity growth in the UK has been slow by historical standards; this is often labeled the UK’s “productivity puzzle,” to be precise.
A free time management and interactive calculator allows you to understand better your business’ productivity and how it compares with other businesses within your industry. You only require three pieces of information: your turnover (or sales), your purchases of inputs (excluding employment costs and investment), and the number of people you employ.
Step #5: Evaluate your productivity performance statistics
Finally, you must regularly reevaluate the measures you use to link employee activities with the governing objective. The drivers of value change over time, and so must your statistics. For example, the demographics of the retail bank’s customer base are changing, so the bank needs to review the drivers of customer satisfaction.
As the customer base becomes younger and more digitally savvy, teller turnover becomes less relevant, and the bank’s online interface and customer service become more so. Companies have access to a growing torrent of statistics that could improve their performance, but executives still cling to old-fashioned, often flawed methods for choosing metrics.
In the past, companies could get away with going on gut and ignoring the right statistics because that’s what everyone else was doing. Today, using them is necessary to compete. More to the point, identifying and exploiting them before rivals do will be the key to seizing advantage.
The Topmost Best Performance Management Systems Software To Utilize
Performance management has recently gone through a functional revolution. These days, employees want more feedback than a simple annual performance review. This means that performance management system software should be essential in every HR team’s toolbelt. In a previous role, we prepared and organized hundreds of performance reviews.
The results… Well, it was time-consuming, with no automations to ease the load. In such a situation, selecting the best performance management software would have been a game-changer. For one, such a tool would include quality details like key features, software integrations, screenshots, and free trials or demos to help us track the employees’ productivity.
Investing in a good Performance Management System helps businesses achieve their organizational goals in a much faster and more organized manner. As customer demands keep growing, companies must identify new technologies to manage their employees’ performance and engage them actively. For that matter, leveraging PMS can do wonders.
While also bearing in mind that some of them may even have a comparison chart in their collection of basic features to help us evaluate the data results side-by-side. There are some performance management systems that you can consider using.
- Leapsome — Best performance management software for integrated goal management
- Inspire — Best for strategic goal alignment and 360-degree feedback
- PerformYard — Best for dedicated customer support to design your ideal performance review cycle
- Primalogik — Best for advanced benchmarking and performance comparison tools
- Motivosity — Best for publicly recognizing top-performing employees with additional rewards
- Lattice — Best for incorporating performance data from multiple feedback sources
With that in mind, seeing how efficient performance management software is can be impressive! The only thing for you to do now is to try any of the above-listed tools — so that you can see the real magic while tracking the productivity of your business employees. Just choose the best performance management software for integrated business goal management.
The Performance Management Systems Tasks To Move Companies Forward
Most companies have applied the balanced scorecard, and we have begun to recognize that the scorecard represents a fundamental change, particularly in the underlying assumptions about performance measurement. Some controllers and finance vice presidents involved in the research project took the concept back to their business organizations for a reason.
Specifically, the project participants found that they could not implement the balanced scorecard without the involvement of the senior managers, who have a complete picture of the company’s vision and priorities. This was revealing because financial experts have designed and overseen most existing performance measurement systems.
Rarely do controllers need to have senior managers so heavily involved. Probably because traditional measurement systems have sprung from the finance function, the systems have a control bias. Traditional performance measurement systems specify the actions they want employees to take and then measure whether they have taken those actions.
In that way, the systems try to control behavior. Such measurement systems fit with the engineering mentality of the Industrial Age. On the other hand, the balanced scorecard is well suited to the kind of organization many companies are trying to become. The scorecard puts strategy and vision, not control, at the center.
Of course, the balanced scorecard establishes goals but assumes that people will adopt whatever behaviors and take whatever actions are necessary to arrive at those goals. The measures are designed to pull people toward the overall vision. In the end, senior managers may know what the result should be. Still, they cannot tell employees exactly how to achieve them.
That’s if only because the conditions in which employees operate are constantly changing. This new approach to performance measurement is consistent with the initiatives underway in many companies: cross-functional integration, customer-supplier partnerships, global scale, continuous improvement, and team rather than individual accountability.
By combining the financial, customer, internal process and innovation, and organizational learning perspectives, the balanced scorecard helps managers understand, at least implicitly, many interrelationships. This understanding can help managers transcend traditional notions about functional barriers, ultimately leading to improved decision-making and problem-solving.
The balanced scorecard keeps companies looking — and moving — forward instead of backward.
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That’s our wrap! You now know how a Performance Management System works, the benefits, the simple steps for your business managers to utilize, and the best software tools to consider. But, if you still need more support, you can Consult Us anytime so our professional business experts can sort you out. You are also welcome to share with us in our comments section.
Answers To The User FAQs:
1. What do we mean by productivity?
Productivity is defined as the ratio between output and input. Our measure of output is gross value added (GVA), and our labor input is workers (employees and working proprietors). In most cases, this is an interactive tool that aids businesses in calculating their productivity and comparing their performance to other businesses.
2. At what levels can productivity be measured?
- Individual worker’s productivity
- Company’s productivity
- Industry or sector productivity
- Business sector productivity
- National productivity
3. What is productivity at work?
Workplace productivity is the value each team brings to the success of the overall business. It measures the output of individuals or teams to understand better how an organization can optimize its workflows.
4. What is an example of productivity tracking?
Productivity is the output you get from your input, such as time, energy, or resources. For instance, your productivity has increased if you produce more goods or services using the same amount of resources.
5. What is productivity in human resource management?
Employee productivity is the work an employee can accomplish in a fixed amount of time. While it seems simple at first glance, it involves various complex factors. A productive person is efficient in their work. They manage time well and get better results in shorter periods.