The underlying logic of performance management is one and three natures, which require two or three main lines of three or four methods

Wen / Yang Demin is a senior partner of Huaxia Cornerstone Enterprise Management Consulting Group and the chief expert of the reform and development of state-owned enterprises

Source: Huaxia Cornerstone e Insights

Performance management is a worldwide problem, but it does not mean that there is no solution. The theories and methods of enterprise performance management are complex and need to grasp their essence. What is the basic logic of enterprise performance management? The author believes that the focus is on implementing the "three genders" requirements, that is, systematic, important and operable; grasping the three main lines, that is, based on strategy, process-based, and function-based; and using four methods, namely MBO, BSC, KPI, and OKR. These basic logics are fundamental, and the rest of the theories and methods are not useless, but if these basic logics are not clarified, the role of other theories and methods will be greatly reduced.

<h1 class="pgc-h-arrow-right" data-track="4" > the requirements of "three sexes"</h1>

1. Systematic

The systematic nature of performance management is reflected in the whole organization (joint promotion), the overall situation (strategic decoding), the whole staff (hierarchical classification policy), and the whole process (management closed loop).

Organization-wide: Departments and managers at all levels should form a broad consensus and perform their duties, rather than one department of the human resources department to operate, and other departments "listen to greetings and watch the liveliness".

Overall: The main line is based on the decomposition of strategic objectives, focusing on the growth of the main business, highlighting the key points, rather than covering all aspects.

Full staff: In the organizational performance appraisal, the business unit (including the subsidiary company and the business department) focuses on the realization of business performance, and the functional departments focus on supporting and serving business development; in the personal performance appraisal, the senior management of the enterprise focuses on the achievement of strategic performance, the middle level of the enterprise focuses on the implementation of important goals, and the grass-roots employees focus on the implementation of specific tasks.

Whole process: realize the combination of result evaluation and process management. The whole process, including performance goal formulation, performance process counseling, performance evaluation, performance result application, etc., must be standardized to form a management closed loop.

2. Importance

The principle of importance of indicator selection. What kind of indicator to choose? How many metrics to choose? The principle of importance should be followed. The indicators are not the more the better, the more complete the better, some enterprise assessment indicators are set very much, there are economic indicators, there are spiritual civilization indicators, there are indicators in various management business areas, intricate, large logic more than a dozen, refined indicators dozens. Even the person who formulated it can't remember, how can the person being evaluated implement it? Everything is equal to nothing, and more means nothing.

What are the importance indicators of enterprise assessment? For the company as a whole or business unit, financial indicators are the focus, which is determined by the nature of the enterprise. Financial indicators include indicators such as benefits, income, and expenses. Financial indicators should also be focused and should not be duplicated. For example, the benefit indicators, there are total profits, net profit, return on net assets, state-owned assets preservation and appreciation rate, EVA, etc., the consistency of these indicators is very strong, there is no need to test, or even one is enough.

The principle of importance of the classification of assessment results. What are the categories of assessment results? What is the name of each category? There is no conclusion, generally divided into four to five categories. The specific categories of enterprises are not the same, such as excellent, excellent, qualified, to be improved, unqualified, such as excellent, good, competent, basically competent, incompetent, no problem.

One of the important decisions in the classification of assessment results is whether to carry out mandatory distribution. Why forced distribution? Mainly for the assessment indicators are difficult to quantify the position, if the assessment indicators can be quantified, there is no need for mandatory distribution. For positions where the assessment indicators are not easy to quantify, if there is no mandatory distribution, but according to the assessment score to determine the level, each department will be compared with each other, there will be a situation where the head of the department gives high scores to his employees and gives high performance levels to send affection, resulting in low assessment distinction and substantive unfairness, which cannot be used as the basis for salary, promotion, etc. The proportion of forced distribution is generally small at both ends and large in the middle, with 20% to 30% in the front and about 10% in the back. The determination of incompetence shall be determined on the basis of actual work results and performance, and shall not be forcibly distributed.

3. Operability

For enterprises that have just started the assessment, the operating principles are simple, highlight the key points, and the results are weakly linked with the interests, and the focus is to operate the assessment system. For enterprises with a good management foundation, the operating principles should be: systematic, process assessment and result assessment, strong linkage between results and interests, focusing on solving the outstanding problems of enterprise development, and the effect of assessment must be ensured.

The most likely problem in assessment is the pursuit of perfection. Think well, design the indicators and processes perfectly, but the operation process is too complicated to implement or managers and employees are very disgusted, resulting in failed assessments.

<h1 class="pgc-h-arrow-right" data-track="19" > two or three main lines</h1>

There are three main lines in the development of indicators of achievement, as shown in Figure 12-1.

The first main line: vertical decomposition, that is, based on strategy and external customer needs layer by layer to specific departments, that is, the organizational function decomposition method (FAST) (Function Analysis System Technique). This is the main logic of indicator decomposition, and the strategy decoding is based on this logic. The organizational performance of the enterprise and the senior and most of the middle level of the enterprise are mainly based on this logic for the development of indicators. This is shown in Figure 12-2.

The second main line: horizontal decomposition, that is, decomposition based on internal processes, that is, the PROCESS Analysis System Technique (PAST). The production, quality, logistics, procurement and other departments of manufacturing enterprises are mainly based on this logic for index decomposition. This is shown in Figure 12-3.

The third main line: Based on responsibilities, mainly from the responsibility positioning of the department and the post itself to sort out the task and work decomposition, mainly used for functional departments, especially the grass-roots posts of functional departments.

The logic of the three main lines sometimes intersects. It must be made clear that strategy-based is the main logic. Indicators are closely related to the final results of the enterprise and the organization, rather than a simple decomposition based on the responsibilities of the department and the responsibilities of the position; it is to support the development of the enterprise and the realization of strategic goals, even if the weight is not so heavy, it is not to do something innocuous.

The logic of indicator formulation also includes the question of orientation and concept. Are the indicators based on rapid development or on growth inertia? Is it based on existing resource capacity, or is it based on strategic and challenging metrics? This is a matter of ideological understanding, not a matter of method, and sometimes ideological understanding is more important than method.

<h1 class="pgc-h-arrow-right" data-track="26" > three or four methods</h1>

There are many ways to manage performance, but the following four methods are more important in my opinion.

1. MBO (Management by Objectives Act)

Target management is the management method that each person establishes a specific work goal according to the company's overall goal, and is responsible for planning, executing, controlling and assessing.

Peter F Drucker first proposed "Management By Objectives" in his famous book "The Practice of Management" in 1954, arguing that under the condition of clear goals, people can be responsible for themselves. It has distinct characteristics compared with traditional management methods: employee participation in management; self-management as the center; emphasis on self-evaluation; and emphasis on results.

MBO theory covers goal setting, process monitoring, evaluation feedback, and results application, which is the basis of the whole process of modern performance management.

2. BSC (Balanced Scorecard)

The BSC (Balanced Score Card), described by the Harvard Business Review as one of the "most influential management tools of the past 75 years," was proposed by Robert S. Kaplan and Dvadi P. Norton in the 1990s. BSC boils down the goals of the enterprise to the four basic aspects of finance, customer, internal operation and learning and growth (or innovation and improvement), trying to balance the relationship between finance and non-finance, operation and non-operation, action-oriented and supervisory measures, to achieve the overall optimization of the enterprise, so that it maintains dynamic coordination and balance with the environment. Therefore, BSC essentially provides a path that aligns with the overall strategy of the enterprise in terms of goal formulation and goal decomposition.

3. KPI (Key Performance Indicator)

KPI (Key PerformanceIndicator) is a target quantitative management index that measures the performance of the process by setting, sampling, calculating and analyzing the key parameters of the input and output of the internal process of the organization, which is a tool that decomposes the strategic goals of the enterprise into operational work objectives, and is also the basis of enterprise performance management. KPIs enable department heads to identify the primary responsibilities of the department and, on this basis, to define performance metrics for department personnel.

The characteristics of KPIs are: (1) causal; (2) long-term and short-term; (3) quantitative and qualitative; (4) consequential and behavioral; (5) team and individual; (6) all-round transparency.

The SMART principles of KPIs are: (1) Specific specific description; (2) Measurable; (3) Achievable can be achieved through effort; (4) Resultoriented results-oriented; (5) Timed is temporal.

4. OKR (Objectives and Key Outcomes)

OKR (Objectives and KeyResults) was invented by Intel (Intel) in 1999, was popularized by John Doerr to Google (Google), and later Oracle (Oracle), LinkedIn (LinkedIn) and other high-tech companies gradually spread, and is now widely used in IT, venture capital, games, ideas and other large and small enterprises with projects as the main business unit. In the past two years, many people have begun to compare OKR with KPIs, and even some people think that the "disease-ridden" KPIs should be replaced by OKR.

But if we trace the essence, we will find that the core difference between OKR and KPI is that OKR is not assessment-oriented, but a target traction tool. Its main purpose of existence is to always remind everyone what is the most important task for everyone at the moment from a strategic point of view of the entire company. In order to remove the strong guiding effect of the appraisal results directly used to reward and punish employee behavior in the KPI mode, the performance management in the OKR mode clearly separates the evaluation process and performance evaluation process in the target management to ensure that employees are willing to challenge higher goals, so the performance management system like Google (Google) is actually a comprehensive model of OKR+ performance evaluation.

OKR is suitable for enterprises or projects where the strategic path is not very clear and is in the exploratory stage. Strategy is strong, the task is very specific enterprises or projects are not suitable for the use of OKR, do not use OKR as a universal tool to be applied.

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