Common Pitfalls in Setting up a Performance Management System

Performance management (PMS) is crucial to the realization of an organization’s objectives. It aligns objectives, such as growth strategy goals with employee performance and achievements.

Contrary to popular belief,  performance management is NOT merely setting KPIs at the beginning of the year and then reviewing them at the end. An average PMS system only focuses on company performance and treats employees like interchangeable parts. A better PMS system develops your talent pool with simple improvements such as integrating with HR’s training needs system and requiring quarterly feedback. When developed and implemented properly, a performance management system will help employees to perform up to their potential.

However, currently in Vietnam, the practice of performance performance is quite divergent, depending on many factors such as type, goals and stage of development of the organization itself. Some problems in developing and implementing effective performance management system can be mentioned as:

  1. The organization hardly set objectives to achieve

When discussing with some friends working in state agencies, I realized that some of them do not set any specific goals, no targets for individual and even the departmental level. In these cases, staff performance appraisals often depend on subjective opinion of the management level, so the appraisal results are either indifferent, or to be assessed in a non-judgmental way. This firstly causes employee demotivation and sometimes discontent within the organization.

I believe that for any organization, to set goals and achieve those goals are crucial. Especially for businesses, they need to define objectives precisely based on the strategy, then develop the goals of the department and each specific position based on organizational objectives. This ensures that the goals of all levels will be aligned and serve the common objectives of the entire company.

  1. They set objectives but only cover part of what should have been included

The Balance ScoreCard

In Vietnam, companies are often too focused on financial goals that tend to ignore others issues, which are just as important and critical to the viability and profitability of a business in long-term. Such companies, if deploying performance management system, rely only on financial performance – sales, profits and costs – to evaluate employees. This usually leads to situations when crucial success factors such as customer satisfaction and employee development are sacrificed for short-term goals such as profit.

I’ve witnessed a mobile operator’s sales department, which is appraised solely on revenue targets, trying to increase revenue at all costs by decisions that increase costs even faster, cause dissatisfied customers and maintain a weak employee structure. I’ve also seen a bank which is too focused on expanding customer base and increasing profits that do not have enough time to improve internal processes, leading to less competitive quality.

Actually, a sustainable business requires much more than short-term goals. Therefore, company need to ensure that they are taking into account other factors to maintain long-term growth, such as reputation, customer loyalty, internal processes improvement, or human resource development. They can consider to use Balanced Scorecard, a method that has become increasingly popular in establishing such comprehensive and sustainable objectives. The “balance” is expressed through the consideration between short-term goals and long-term goals, financial and non-financial metrics, external and internal performance aspects.

  1. Set improper metrics and targets (KPI)

One of the common mistakes in detailing performance management system is using too many indicators to measure a goal, leading to an overcomplex system which is rather difficult to communicate and disseminate to employees. Another mistake is selecting metrics that are too difficult/impossible to measure, which can cost too much time and effort to address or revise, thus losing the efficiency.

Therefore, I believe that businesses need to focus on a reasonable number of core metrics that can represent the goals they are aiming at. These metrics might be set by the employees themselves – to ensures that metrics are suitable for each job position and department, as well as to help staff memorize more easily what they need to focus on. The targets should also be discussed with each individual to get agreeable indicators, because too high target will be discouraged, and too low target will not motivate employees to perform.

  1. Do not measure and track KPI, do not link them to rewards, promotion and training

In one of my previous company, it had spent huge time and effort working with the consultancy firm to develop a serious KPI system. However, when officially ran, the system was far from effective, as it was not communicated effectively to employees, while most of the metrics were not tracked properly. In some other cases, companies do not link the performance appraisal results to rewards, promotion and training, therefore employees do not pay much attention to the assigned KPI.

Thus, businesses should measure and track KPI frequently, analyze the fulfillment progress, and link it to practical benefits of employees. They can assign a particular staff to oversight and track KPI so that the system will become more visible and can truly motivate employees to perform. Businesses also need to identify potential obstacles – factors that prevent employees to achieve assigned targets – in order to timely support them to overcome such obstacles.

And you, do you find any reflection of your own company in the above problems? If you feel that our company already has a successful performance management system, please share your experience with us. We welcome any discussion to improve our article and develop more ideas for future topics.

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