The Role of Performance Management in Talent Management: New Thinking and Directions
By William J. Rothwell, Ph.D., SPHR, CPLP Fellow
Performance management has more than one meaning. For some, it means the same thing as an end-of-the-year review of employee performance; for some, it means a process by which annual performance is planning, monitored, and reviewed; and for some, it means the same thing as a robust feedback system that gives employees real-time information, direct from customers or those the employees' serve, about how well they are meeting customer needs. For most organizational leaders today, the first meaning (associated with end-of-the-year reviews) has gradually given way to the second meaning (associated with planning, monitoring, and evaluating performance). The third meaning is gradually emerging.
What role does performance management play in talent management? What new thinking and directions are worth considering about the role of performance management? This article addresses these two important questions.
The Role of Performance Management in Talent Management
Recall that, for many people but not for all, talent management is a systematic process of attracting, developing and retaining the best people. The most important word in that definition is best. That word begs the questions: "best" in whose opinion? Determined as "best" in just what way(s)?
In the most general sense, organizational leaders often regard the best people as those who are productive in their present jobs and also have the potential for promotion to higher levels of responsibility. While that is not the only way to think of best—or the only way by which to define talent—it is one way, and it is widely used by organizations today. The rationale is simple enough: attracting, developing and retaining people is difficult, but the people worthy of most regard are those who are simply best investments because they are productive where they are and are capable of being productive in more demanding positions.
To assess whether people are doing a good job where they are, it is necessary to have some kind of system to measure present performance. That is one typical role of a performance management system. Performance management can do other things as well—such as justify pay raises, identify training needs, motivate top performers, redirect mediocre or poor performers, and so forth.
It is true that most performance management systems are far from perfect. Indeed, they are a favorite focus of complaints by operating managers. Managers sometimes regard performance management as a waste of time because the managers think they already know how the workers are doing and therefore find it pointless to document their thoughts in writing or take time to communicate those thoughts to workers.
How are most performance management systems organized? Describing them is simple. In most organizations, the worker and manager meet at the beginning of the review cycle—typically at the beginning of the year—to set targets for the worker to achieve and to review the behaviors that the organization wishes the employee to demonstrate. The results targets are called Key Performance Indicators (KPIs), and they are cascaded down to the individual worker from the Balance Scorecard that focuses the strategic plan of the entire organization. The behaviors are derived from competency models for the worker's level on the organization chart, and those are identified by studying what makes productive people so productive.
During the year, the worker and manager meet periodically to review the individual's performance against the targets and behaviors. Meetings may be routine if all is well. But if there are problems—such as the individual is not meeting targets, is not behaving in ways aligned with the competency model, or the organization's strategy changes for some reason—then there may be need to re-establish targets and behaviours.
At the end of the year, the individual's results and behaviors are compared to the targets established at the beginning. In this way, every individual is performing in ways aligned to the organization's strategic plan. They are also performing in ways aligned to the behaviors associated with good, or even outstanding, performance.
It is essential in talent management to maintain integrity. Only people who are doing a good job should be considered for possible advancement or promotion. On the other hand, since jobs higher on the organization chart are qualitatively different from the work performed at other levels on the organization chart, success at one level is no absolute guarantee of success at higher levels. For that reason, performance management is essential to planning, monitoring and evaluating talent. But it is not the only thing that is needed. A separate review of an individual's potential for promotion (a potential assessment) is essential if the organization is to judge objectively the individual's potential for promotion.
New Thinking and Directions in Performance Management
While performance management systems have been around for a very long time in most organizations, there have been efforts over the years to improve them.
Recent efforts have tended to add categories for consideration. In addition to the section on results (KPIs) and behaviors (measures of competencies), some organizations have explored ways to measure how well each worker aligns to the behaviors associated with the organizational value system and/or how well each worker aligns to the behaviors associated with the organizational ethical code of conduct.
Greater attention has focused around values (understood to mean what is important to the organization) and ethics (understood to mean expressions of morality, of what is right and wrong and the continuum between them). Ethics has come in for special consideration after the U.S. financial crisis of 2008. There is widespread feeling that unethical (and sometimes criminal) behavior should be avoided, and it is particularly important to ensure that future organizational leaders have the highest moral standards. Americans expect their leaders to be better than average people in all respects.
In other organizations, experimentation is going on with real-time feedback systems to give workers better quantity and quality of information directly from customers about how their performance is regarded. Often one goal is to remove the immediate supervisor from the feedback loop for the simple reason that it is the customer's opinion that matters most. While a worker might satisfy his or her boss, that does not mean that the worker satisfies customers. To that end, organizations attempt real-time surveys of customers to capture their perceptions of worker performance at the time they come in contact with a worker.
Performance management will always have a part to play in talent management. But how that part is played may change in the future. Look for greater emphasis on values, ethics, and real-time feedback systems.
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