The Performance Management Cycle


Sarah Cook and Steve Macaulay discuss the need for an integrated approach to performance appraisal and the reward and recognition of employees, which makes customer focused behaviour central to individual and organisational performance.

The aim of performance management methods is to equip and encourage employees to meet customer needs. This is a notoriously difficult area - people do not respond in a robotic or easily understood and predictable way. There is, however, a well understood model of how performance management and reward are linked which leading companies are using. It involves a cycle of clarifying business goals and customer needs and then agreeing individual objectives and standards of performance. Employees will know how best to serve the customer, by being clear on:-

• What behaviours serve the customer well
• How they are performing
• What they need to do next
• The support and recognition they will receive

The difficulty seems to lie in implementing every stage of the cycle. Objectives may be set which bear little relevance to business and customer needs and their measures of success are either ill-defined or left 'up in the air'. The result is that at performance review time it becomes very ambiguous as to whether worthwhile objectives have been achieved or not and what the individual's contribution was. An honest review is a rarity in some organisations - managers back away from conflict and employees defensively approach criticism particularly if the outcome is linked to pay. Development plans are often left in a very imprecise state and are not carried out. Employees often feel they are not rewarded fairly for their efforts and don?t feel involved in the review process. This all adds up to many systems being ignored, bypassed or discarded.

So what are organisations doing positively to strengthen the effectiveness of their performance management cycles and improve their ability to deliver to the customer?

1. Reinforcing the link to the Customer

Increasingly, best practice organisations begin the performance management cycle by paying particular attention to the needs of their external and internal customers.

The starting point for culture change at Sears for example, was the extensive research conducted via customer focus groups as well as employee focus groups looking at employee attitudes and behaviours.  Drawing on this vast amount of interview and research data, the culture change team devised a series of performance measures which aggregated into an overall company measurement system, known as Sears Total Performance Indicators, or TPI.  One third of employee bonuses and incentives now derive from measures of employee attitude, one third from customer measures and one third from traditional financial measures.

Many organisations such as global airline British Airways embed customer service into their competency framework and performance review systems. In this way the importance of customer service can be reinforced.

2. Gaining Feedback From a Range of Sources

Upward appraisal and 3600 appraisal (one where feed-back is supplied from a variety of sources including peers, managers, staff and customers) now account for approximately 15% of all appraisals undertaken. Staff may well have a hand in choosing the sources of feedback to encourage participation in the process.

In UK, telecomms corporation, BT ties 3600 appraisal to a development programme, 'Leading through Teamwork' and since 1993 3600 appraisal has been compulsory for all top managers. It has found it has promoted:

• greater and more explicit understanding of customer needs
• specific targets for employee development which can be measured• mutual co-operation between supplier and customer

Fedex is an example of another corporation that has upward appraisal as part of its culture to set training and development targets for its top managers. Every employee completes a questionnaire on the performance of his or her manager. The forms are analysed and returned to the managers. Managers then arrange feedback sessions with their staff to see how they can improve their performance. Poor performing managers meet with the personnel department and are then resurveyed six months later to plan improvements.

3. Linking Performance Management and Reward to Business Measures

Measurement tools such as the Malcolm Baldridge Quality Award provide useful templates for linking the pursuit of quality to financial success for the organisation.  Custom Research Incorporated, for example, submitted applications for the Award five times and was a finalist in the competition four times before winning in 1997.  They originally saw winning the Baldridge as a marketing coupe, but the motivation changed when they began using the tool as a guide to making fundamental changes to their business effectiveness.

Many corporations have adopted the Balanced Scorecard as a management system that broadens the measurement of corporate health out beyond profit alone to embrace other factors such as customer satisfaction.  Developed by Harvard Business Scholl Professor Robert Kaplan and Davis Norton, President of management consultancy, Renaissance Worldwide, the approach is based on four key areas of measurement:

• Learning and growth
• Internal business processes
• Customer service / satisfaction and
• Financial performance

 A key feature of the Balanced Scorecard model is its customisablity.  One engineering organisation uses financial, processes, people and customers as its four areas of emphasis which form a kind of scorecard of how the organisation is performing.

4 Feedback Using Focused Customer Measures

American Express is one of an increasing number of companies which measures the quality of its customer service by rising carefully focused Service Tracking Reports. These measure every month such aspects as the time to process new applications, billing and
customer enquiries. The results are reviewed throughout the organisation. Importantly, surveys also evaluate how individual service providers deliver service to specific customers. The customer is asked to provide data on the competence, courteousness and knowledge of the representatives. This feedback helps employees to establish a motivational link between their actions and how the customer feels about those actions.

5 Empowerment and Involvement

Best practice organisations are listening to their employees and giving them greater discretion and autonomy to monitor their own performance and serve the customer better. Southwest Airlines, based in Dallas, puts particular emphasis on employing fun, customer-orientated people.  They are encouraged to use their initiative to offer the highest quality of customer service ? delivered with a sense of warmth, friendliness, individual pride and Company Spirit?.  When a flight is delayed, for example, the staff on the gate take the initiative to introduce gate games with prizes for customers who participate.  This legendary service has contributed to making Southwest the only airline in US to consistently make a profit.

To strengthen the power of service teams to manage their own performance, some organisations have used training to promote mature team development. At pharmaceutical company, Glaxo Wellcome in UK a programme of service delivery ?Exceeding Customer Expectations? included bench-marking visits to other organisations. with the emphasis on teams generating ideas for improvements in customer service and driving these through to implementation

6 Coaching and development

As companies go down the path of empowerment, greater understanding has often been realised of the importance of continuous improvement generated by employees for the benefit of the customer. The American Society for Training and Development (ASTD), is the largest professional association in the field of workplace learning and performance in the US. Representing more than 70,000 members, ASTD produce an annual State of the Industry report which tells what leading-edge companies are doing at the top of the training and development field. The report, covering 750 US organisations, shows that employer-provided training is on the rise. This is not only in terms of the amount of money invested but also the numbers of employees who are trained. Leading edge organisations train at least 86% of their workforce and on average spent $4.1 million on training in 1987 (as compared to $3.4 million in 1996)

The ASTD identify that development in US is undergoing a major structural transition away from a focus on learning as the output, towards a focus on performance improvement. It sees a shift away from the traditionally reactive training function where the acquisition of skills and knowledge is the end. What this is being replaced with is a proactive focus on what people need to do, the acquisition of skill and knowledge as a means to an end.

Myths concerning reviewing and rewarding staff

Borrow other companies' methods and paperwork

Some companies look to other organisations and believe that they can beg, borrow or steal what other companies are doing and it will fit. Beware! You will be trying to squeeze into someone else?s shoes and it will be about as good a fit. Each organisation is different and needs to be treated

Giving Appraisals and Rewards is a once a year event

In these fast changing times, to leave review and recognition to a once-a-year event is not enough. Many companies ate moving to reviewing at shorter intervals. At management consultancy, Andersen Consulting employees are appraised at the most appropriate point for the business - it might, for example be at the end of a project. It specifies mini review's must be held at least every six months. Also in many organisations whilst salary review's are traditionally held annually, quarterly bonuses or incentives are becoming more common.

One system fits all employees

Increasingly, employers are devising flexible systems which will differ for different parts of the organisation though often against a defined common framework, such as competencies. American Express uses over 100 different systems world-wide.

The Manager makes all the performance management decisions

With the advent of 360 degree feedback and more emphasis on team working, team reviews of performance are becoming more widespread. Companies like Xerox use team and multi-rater feedback to reflect the fact that customers, suppliers, colleagues and subordinates have often more knowledge of the individual and this can lead to a greater sense of fairness and more effectiveness.

Appraisal is about judging people on past performance

The old fashioned notion of appraisals as assessments or judgements leads to defensiveness and rigidity which is wholly out of place with the learning and changing organisation. More companies are emphasising the importance of performance management as a tool to set development plans and look forwards, not backwards. Textile corporation, Courtauld's is one of a number of companies that has abandoned the word appraisals.

Human Resources departments 'own' performance management systems

Best practice corporations such as British Airways are putting ownership of review and reward systems into the hands of line management. This gets away from a commonly-held practice of HR departments trying to force unwilling managers to carry out appraisals which they see as separate from running the business and hence a bureaucratic distraction.

It's all about paperwork

If it is, it has defeated its objective. Putting things on paper at times is important as a record of what has been agreed, but much more important is that regular feedback and review needs to take place every day and week with little formal paperwork. Performance management needs to be an accepted part of a customer focused culture. At Motorola all employees carry a card which reads. 'Our fundamental objective (everyone's over-riding responsibility) is total customer satisfaction.' Managers and employees each take responsibility for ensuring this is a reality.

Money is the motivator

Reward strategies should encompass a much wider range than just cash. One computer software corporation surveyed its employees to find out what motivated them. The response was overwhelming: above all else. employees said, say 'thank you' when we've done a good job.

Organisations say 'thank you' in a variety of ways under the umbrella of reward and recognition schemes.

Developing a Reward and Recognition Scheme

Many businesses adopt reward and recognition schemes which run alongside performance management techniques to encourage excellent service.  Best practice organisations integrate the whole process of reward and recognition into performance management.  Whenever an organisation develops a reward and recognition scheme for customer service a number of factors should be considered.

Firstly, what is the objective of the scheme and who is it intended to reward and recognise?

For example will the reward and recognition cover all employees or just one group of staff?
At Harrah's Casinos each year the chairman's awards recognise exemplary performance in eleven categories :

• Star entertainer
• Superior external customer service delivery
• Superior internal customer service delivery
• Delivering 100% satisfaction guarantee
• Leadership
• Innovation
• Excellence in managing people
• Outstanding team performance
• Cost savings / revenue generation
• Community service

Care must he taken to ensure that the recognition is seen as fair. A large retailer introduced a service excellence scheme for all its front-line staff.  This caused resentment amongst head office and support staff who were not included in the programme.

Should individuals or teams be recognised?

Organisations who devise customer service reward and recognition schemes should consider carefully whether to make awards to teams or individuals.  Rewarding teams encourages collaboration and achievement of team goals.  However, it can be said to discourage recognition of individual effort.  Individual customer service awards for outstanding performance can lead to definite improvements if the culture is right.  However, such schemes need to have clear and fair selection criteria if they are not to de-motivate other people who may wonder why they have not been chosen.

At Stew Leonards an approach called MBA, Management By Appreciation has been very successful.   The walls of each outlet are full of photos of 'Employee of the Month' going back years

Measurement of reward and recognition : who should measure?

Consideration should be given to whether the source of measurement should be the customer, staff, management or other external source.  Car rental company, Avis for example, tracks customer satisfaction via questionnaires administered via telephone, in car or by mail.  Since 1991 Sears has been using its external professional mystery shopping service to monitor the levels of customer service received.  United Airlines recently launched an employee recognition scheme where Mileage Plus customers are requested to pass along an award certificate to service providers who take extra steps to ensure customer satisfaction.

Are you recognising and rewarding the right things?

What gets measured gets done.  Make certain that the target level of customer service is not attained at the expense of other aspects of the service.  For example, the improvement of overall telephone response is a more customer-orientated achievement than the speed of answering the phone.  In the latter case the customer?s call may be answered quickly, but the customer may be kept holding on the phone and may not be transferred efficiently or may be dealt with in an unhelpful manner.

Avis, for example, includes in its customer satisfaction measurement both hard measures of customer satisfaction such as 'speed of telephone response' and soft measures such as enthusiasm.

Do the awards fit the values of the organisation?

An environmentally conscious wholesaler ran a reward scheme based on results of customer satisfaction surveys, and offered managers weekends at leisure parks as prizes.  Local managers were not motivated by the prize which was seen to be incompatible with the organisation's corporate values and which only rewarded the anagers for their branch efforts, not their team.

What is the best incentive?

Within a customer service environment there are three types of incentives used to encourage customer-orientated behaviour : verbal or written recognition, tokens or tangible rewards.  In wishing to recognise achievement, managers need to consider which type of reward and recognition is most appropriate to the organisation and to the individual and the team.

Recognising excellent service is an important motivator.  Saying 'well done' for good performance gives value to the person who has provided the service.  While praise is sufficient to motivate and recognise many people's efforts, other people may feel more motivated by seeing their name in print or shaking the chairman's hand.  In other organisations, a hand-written note, a public vote of thanks, a longer lunch or an extra day's leave may be more valued. At Starbucks all employees receive healthcare benefits worth $1500 to each employee per year.  The company sees this as an investment in staff retention and less expensive than the $3500 it costs to train a new employee.  The company also offers stock options to employees. At Nordstorm, famed for its level of customer service,  the sales people nominate 'All Stars' in the support functions who receive awards and have their pictures on the wall.  The top people get recognised as 'Pace Setters' with special business cards and bigger staff discounts as well.

How long will the reward and recognition scheme continue?

Although recognition via 'thank yous' and 'well dones' will always have a place in motivating employees to deliver excellent service, there comes a time with all reward and recognition programmes when they cease to energise employees.  It is important to recognise that twelve months down the line what may have been a powerful scheme may have lost its effect.

One financial corporation ran a reward scheme linked to customer satisfaction.  Branches competed against each other to gain points based on feedback from customer questionnaires, customer focus groups and mystery shopper feedback.  Six months in to the program the organisation surveyed its employees to gain their reaction to the scheme.  Based on feedback, it supplemented the programme with internal awards for excellent service.  Also a percentage of points was allocated on a regional basis by senior managers who could take into account individual branch circumstances.  These additions were seen as a fairer basis for the schme.  In the following year the business again reviewed the reward program and added, at employee's suggestion, rewards for those branches who had made the best progress plus an annual competition for regional finalists.


Our experience with best practice organisations has demonstrated that they complete the performance management cycle by:

Systematically listening to the customer
Involving people by translating the feedback from this listening into key performance measures
Rewarding progress on a regular, forward-looking basis
Providing coaching and support to customer targeted behaviour
Rewarding and recognising individuals and teams in ways that make this process relevant and motivating
Not many organisations are successful in adopting this integrated approach, but we have hopefully demonstrated that it is possible to do so with a well thought-out strategy which is comprehensive and holistic.  It starts with two values, respect for the individual employee and the customer.

Sarah Cook and Steve Macaulay.  Sarah is Managing Director of The Stairway Consultancy Ltd and Steve is a Management Development Consultant at Cranfield School of Management, they can be contacted on UK 01628 526535.

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