Applied either at corporate level or individual level, one of the key functions of management is measuring and managing performance. Between idea, action and results there is a journey to take. And perhaps the most used term in everyday life to reflect the progress of this journey and its results is “performance”.
Performance management is a ubiquitous term in today’s business environment. It is embedded in the body of knowledge of various disciplines and it is used at all organisational levels. In scientific management, performance is associated with two key processes: performance management and performance measurement. These two key processes can’t be separated from one another and performance management both proceeds and follows performance measurement.
Performance management is the overarching process that deals with performance. As in the case of management, the term performance can be used at various levels (individual performance, team performance, organisational performance), to express general achievement (such as performance in sport), or to reflect a benchmark against peers.
Traditionally, performance management in an organizational context has been divided into three levels: strategic, operational and individual performance management.
At strategic level, performance management deals with the achievement of the overall organizational objectives. Practitioners refer to it as corporate, business or enterprise performance management, this being the highest and most complete level of usage of performance management principles in organizations. Strategic management is a key driver of performance management at this level, as the key processes related to performance management systems are strategy formulation and execution. Tools such as the Balanced Scorecard, the Performance Prism, the Tableau de Bord or a set of other frameworks or quality awards such as the Baldrige Award, the EFQM Excellence Model are used at this level to guide the achievement of organizational goals.
Performance management at operational level is linked to operational management, as its focus is the achievement of operational objectives. Although aligned with corporate strategy, the focus here is more functional. The evolution of operational performance management is linked to the evolution of accounting and management in history. This is due to the fact that operational performance was evaluated in terms of efficiency and effectiveness. And the easiest way to do this is by using financial indicators, provided by the accounting function in organizations. Over time, as internal and external operating environments became more complex, organizations started to look at nonfinancial indicators of performance. This made the connection with operations management and other aspects of the general management discipline.
The traditional level at which performance management is used in organizations is the individual level, looking at the performance of individuals in an organizational context. At individual level, performance management is represented by an integrated and planned system for continuously improving the performance of all employees. It involves defining work goals and standards, reviewing performance against these standards, actively managing all levels of performance, and maximising learning and development. Individual performance management is perhaps the level with the longest evolution in history, as it mirrors the level of organizational maturity.