5. GETTING DIVIDENDS FROM PERFORMANCE MANAGEMENT – Hurconomics for Talent Management: The Creation of a Business-driven HRD Missionary


Getting Dividends from Performance Management

Performance Appraisal Versus Performance Management

The last decade has seen sweeping changes in the approach to performance appraisal systems across the world. It is now felt that it is more important to focus on defining, planning and managing performance rather than merely appraising it. While the interest in measuring performance and linking it with rewards remains, the need to develop it, hitherto neglected, has gained recognition. Most organizations now prefer the term performance management system to performance appraisal system. This is a most welcome change.

It is rare to encounter a manager who can claim: ‘We have a good performance management system and it is working well.’ Survey after survey of Fortune 500 or Fortune 1000 companies indicates a high degree of dissatisfaction with performance appraisal systems. Probably the very nature of performance management is such that it can never elicit a satisfying response from its users or those who complement it. It is chiefly the HR people who claim that their performance management systems are efficient and well-oiled.

First, it is important to distinguish between a performance appraisal system (PAS) and a performance management system (PMS). In some senses, both are similar. The differences between the two systems are highlighted in Table 5.1.

The main differences between performance management and appraisal systems lie in their respective emphases and spirit. In the past, good organizations have essentially used their performance appraisal systems as performance management systems, though they may have used the traditional title. Indeed, the terms “appraisal system” and “management system” seem to communicate the appropriateness and particular focus of the system.


TABLE 5.1 Performance appraisal systems versus performance management systems

Similarities Differences
Focus on performance appraisal and generation of ratings Focus on performance management
Emphasis on relative evaluation of individuals Emphasis on performance improvement of individuals, teams and organization
Annual exercise; normally, though, periodic evaluations made Continuous process with quarterly performance; review discussions
Emphasis on ratings and evaluation Emphasis on performance planning, analysis, review, development and improvement
Rewards and recognition of good performance an important component Performance reward may or may not be integral part of PMS; defining and setting performance standards, however, is integral.
Designed and monitored by the HR department Designed by the HR department but could be monitored by the respective departments themselves
Ownership mostly with the HR department Ownership with line managers; HR facilitates implementation
KPAs and KRAs used to introduce objectivity KPAs and KRAs used as planning mechanisms
Developmental needs identified at the end of the year on the basis of the appraisal of competency gaps Developmental needs identified at the beginning of the year on the basis of the competency requirements for the coming year
Review mechanisms to ensure objectivity in ratings Review mechanisms essentially to bring about performance improvements
A system with deadlines, meetings, input, output and a format A system that focuses on contributions
Format-driven, with emphasis on the process Process-driven, with emphasis on the format as an aid
Linked to promotions, rewards, training and development, interventions, placements Linked to performance improvements and, through them, other HR decisions as and when necessary

Note: KPA = key performance area and KRA = key result areas


When Can We Say That the System Is Working Well?

Rao (2003) has identified the following criteria to determine if the performance appraisal or management system is working well:

  1. Line managers take it seriously and performance plans are completed on time for 80 per cent of the cases in any given year. Completing plans on time means completion within two weeks of the date stipulated by the organization.
  2. Line managers spend adequate time on performance planning and review discussions. Adequate time may mean about one day or 8 to 10 hours per employee per year, of which four hours should be for oneself. This includes group performance planning, individual planning, attending performance briefing sessions, identifying developmental needs, and so on. Any seminars and workshops used for introducing the performance management system should be excluded.
  3. The performance plans are of good quality, and achieve the objectives of clarifying the goals, roles, time frame, and performance standards for each department and individual. They differentiate the work to be done by each employee from that of her/his boss and subordinates.
  4. Performance review discussions are of high quality, and at least 80 per cent of the employees look forward to them with enthusiasm and treat them as learning opportunities.
  5. Organizational support is planned in the form of removing bottlenecks, and arranging training programmes and job rotation after performance planning sessions. Performance improvements are taken seriously and all the employees try their best to assist each other to improve their performances.
  6. There is a performance culture generated in the organization and the performance management system is a part of it. It may even be one of the reasons for its generation.

Implementation Mistakes

In spite of the shift in emphasis from appraisal to management, implementation issues continue to trouble CEOs and HRD managers. The following are the most commonly made mistakes in implementing performance management systems:

Design mistakes

The key mistakes in design are outlined here.

Mistake 1: Not having the right emphasis  Most performance management systems simply mimic performance management, but in reality emphasize performance appraisals or ratings. This is the most potent source of trouble. The moment ratings take precedence over performance improvements, an atmosphere of unhealthy competition is created. Ratings are deceptively subjective. It is a mistake to think that by having an appropriate rating system, objectivity can be achieved. For example, a rating of 7 on a 10-point scale given by a conservative materials manager to a high-performing subordinate; a rating of 7 given by a lenient IT manager to an average programmer; a rating of 7 given by an HR manager who is new to the organization to the only subordinate officer; a rating of 7 given by the production manager to a decently performing assistant manager whose section met its production targets—are all treated alike. This is the most subjective way of handling numbers. Hence the overemphasis on numbers is the first problem in performance management systems. The emphasis should be on the process and performance improvement. Which activities have been well performed? Which ones have been performed relatively less well? Which activities have not been performed at all, and which ones need to have been performed? Are there better and more cost-effective ways of performing these activities? Are employees’ competencies being put to the best use? How does one enhance employees’ motivation to work?

Mistake 2: Poorly designed performance management system and format  Poorly designed performance management systems may take many forms, ranging from lengthy formats (which are not looked at by anyone once they are completed), to inadequately designed formats and systems. Sometimes, the spacing and layout are themselves faulty. In other cases, there is page after page to be filled and it virtually becomes a form-filling exercise. And, in some instances, the format is too simple with no guidelines and accompanying instructions. For any performance management system to be implemented successfully, the system and its format—which ultimately represents the system —should be well designed. The process should be clearly explained and understood. The format should be accompanied by guidelines that are available online or in printed format at any time for all employees. In fact, these guidelines should form a part of the employee handbook or induction material for newcomers. While the format should be simple, the accompanying manual should provide all necessary details and illustrations for a new entrant. The layout may keep changing with time and the organization’s evolving needs.

Mistake 3: Multiple objectives make a mess  Performance management systems involve multiple HR objectives. I have identified at least 12 objectives, including role clarity, gaining insights into employees’ strengths and weaknesses, identification of developmental needs, competency development, increasing upward and downward communication, promoting mutuality, enhancing promotion decisions, culture-building, value promotion, rewarding and monitoring performance, and improving accountability. Integrating individual and organizational goals, and differentiating employee performance are the other objectives. While designing their appraisals, many organizations aim to achieve multiple objectives. This often creates an impression that performance management systems are magic wands, and possess an inherent ability to solve all organizational and employee-related performance problems. Unfortunately, this is not true. It is not the system that solves problems. Systems set directions, enhance predictability and, if implemented well, ensure certain outcomes. Multiple objectives seem to raise the expectations of line managers and cause subsequent disappointment.

An important lesson, therefore, is that it is more practical and useful to focus on one or two of the most important objectives, and promote their achievement. The others could be left to the process to be solved. The most important objective of a performance management system could be the ‘improvement of performance’. Some organizations could specify this to mean the enhancement of internal customer satisfaction, improvements in the quality of products and services, or the reduction of costs.

Mistake 4: Multiple components make for a complicated system  As with objectives, performance management systems have a number of components. At least 10 components have been identified: key performance areas (KPAs) or key result areas (KRAs), goal-setting, attributes or competencies, self-appraisal, performance analysis, review discussions, performance ratings, identification of developmental needs, potential appraisals, reviews by committees or reviewing officers, and so on. While all these could be a part of the process, after some time they should become routine activities and need not be overplayed. They should be internalized. The most important components could be performance planning, performance reviews and communication for competence-building. It is useful to simplify and at the same time promote a sound process for performance improvements and performance development.

Process mistakes

Let us now take a look at the key process mistakes.

Mistake 5: Over-criticism of the past and over-projection of new/changed system as panacea for all past problems  Most corporations introduce a new system by pointing out the problems of the previous system and indicating how the new system would address those problems. It is found that, in most cases, earlier systems did not work well because of problems of implementation rather than design. Significant roadblocks to implementation might have been lack of managerial time, inadequate commitment of the top management or lack of guidance available for employees to plan their performance. If these issues are not understood and tackled, employees begin to believe that a mere change of system will suffice to bring in change. The over-criticism of the previous system raises expectations of the present one. Over-criticism may facilitate the introduction of new subsystems but also increases the chances of cynicism later. It is necessary to identify one critical difference either in terms of objectives or process, and emphasize it, while introducing the new system. A singular focus and sensitivity to implementation issues raises the chances of success.

Mistake 6: New system introduced with much fanfare, but inadequately implemented  HRD departments have high budgets for introducing a new system or changing the old one. They forget that the real work begins only after introducing the new system. A lot more effort is required in the initial years. Mere introduction never makes a system work. A lot of hand-holding is required. A constantly operational helpline is needed for a human performance-related system. High performance is the most important objective of any organization. It is, therefore, necessary to address post-initiation work on systems carefully. Implementation needs to be monitored more rigorously, and may extend well beyond the initiation workshops. It is important, and may even be necessary, to have at least one person for every 100 managers to guide and monitor performance management. Performance planning, reviews and the preparation of a performance improvement programme at the individual/group level may all require some help during the initial stages.

Mistake 7: Lack of organizational support  In many cases, the performance management system fails to take off due to lack of organizational support. Lack of support is more harmful for the individual employees (than it is for the system), as it does not enable them to perform better at work. In a competitive world, if any employee is to deliver results, she/he needs to have competencies, motivation and full organizational support. Support may manifest itself through basic work conditions, resources, facilities, inputs from internal customers, and so on. These are highlighted in any performance management system. It is unjust for an organization to force its employees to work within the organizational limitations all the time. The organization should certainly demonstrate that it is willing to hear its employees out and is keen to remove the bottlenecks that hinder employee performance. It is, therefore, important to build credibility on a continuous basis. The HR department should act as an organizational development (OD) facilitator. It should devise special mechanisms to regularly collect data, feed it to the relevant agencies and create problem-solving conditions.

Mistake 8: Lack of competencies in HR department  Time and again, I have found the lack of competencies in HR departments to be the biggest hindrance to the effective implementation of performance management systems. The most important competencies they need are the following:

  • Business sense and close involvement in the main business of the organization
  • Knowledge of all departments, and an appreciation of each of them and their roles
  • Interpersonal sensitivity
  • Performance planning, particularly by identifying KPAs/KRAs, and conducting performance review discussions
  • Organizational diagnosis skills
  • Perseverance
  • Ability to set personal examples by first implementing in their own department all that they expect others to implement
  • Counselling skills
  • Performance orientation
  • Initiative and proaction
  • System-building and monitoring skills
  • Credibility to carry line staff with them
  • Interest in working with line managers.

Additionally, HR departments need to have time and aptitude, and the conviction that effective implementation is their business, as much as it is that of the line managers. In organizations where PMS has not taken off, it is usually chiefly because of the shifting priorities of the HR department, coupled with its lack of competence in monitoring and implementing the system.

Mistake 9: Image of the HRD department and inability to promote sense of ownership of system among line managers  Another major hurdle is the image of the HRD department. The mistake is to assign the task of implementing PMS to a department that does not have enough credibility, and may be thought to promote subjectivity. Organizations may not consider alternatives, as implementing PMS is the legitimate role of the HRD department. It may not have competent and trained people. It is, therefore, necessary to recruit some HR staff or, alternatively, outsource the same. The HR staff should have competencies in implementing PMS.

It is also important to create a sense of ownership among line managers. Open reviews and task forces to monitor implementation are good mechanisms to promote ownership. A decentralized implementation of the system helps. Heads of departments should assume responsibility for collecting, gathering, analysing and using the data emerging from PMS. The HR department could act as an internal consultant.

Mistake 10: Lack of follow-up by HR department  Where competencies are available, unless the HR department follows up, they may be neglected by default. Hence, it is necessary for the HR department to have an effective follow-up procedure in place. The follow-up could take the form of quarterly performance review meetings, implementation review meetings, survey feedback, upward appraisal of the appraisers by their subordinates on the time spent and the extent to which they are listened to, and understood, the problems of their juniors. Follow-ups should be conducted both at the individual and the primary group level.

Mistake 11: Top management commitment  The most powerful obstacle to the effective implementation of PMS is the lack of time at the level of the top management or senior managers to conduct performance planning for themselves and their subordinates. When one unit head does not do it, the wrong signals are sent throughout the unit, and the purpose of PMS is defeated. The last thing any top-level or senior-level manager should say is that performance planning or reviews can wait because important matters like production or other short-term goals and tasks demand immediate attention. Indeed, the top management should integrate PMS into all its other interventions, as it is the primary system for planning and managing performance.

Mistake 12: Past experience with all systems  In some corporations, PMS has not worked because most of the systems introduced earlier were disasters. For example, if a budgeting system was introduced and abandoned, or a new management information system (MIS) was introduced and given up, the company may be regarded as having a culture of introducing and rejecting systems. Cynicism inevitably enters such organizations, creating inherent difficulties that impede the functioning of new systems.

Mistake 13: Nature of the system  It must be recognized that PMS has some inherent issues that make it difficult for everyone to appreciate it. People who perform and do not get rewarded are likely to blame the system for not recognizing them. For every 10 persons, there will be at least a few who feel that they deserved to be rewarded and the company did not notice their performance. If rewards are linked to performance it creates one sort of problem, but if they are delinked they cause another. The very nature of the system is problematic, and it is bound to displease at least a few individuals every year. Hence continuous reinforcement, reassurance and renewal are needed to keep it alive and productive.

Performance Management: From a Systems to a Spiritual Approach1

For several years, and definitely in the last two decades, we have taken a systems approach to performance management. The systems approach consists of asking individuals and teams, and their supervisors and organizations, to define performance (identify KPAs), plan performance (set targets), review performance (performance-coaching), identify developmental needs, assign performance ratings, moderate ratings, and debate whether performance and reward should be linked. The systems approach was fairly logical, commonsensical, predictive and performance-driven. Unfortunately, it did not work the way it should have. In our eagerness to promote a systems approach and in our overcommitment to professionalism we have ignored more fundamental questions about performance management. We have focused on the performance equation all right, but we have over-focused on its scientific, predictable and tangible aspect, while ignoring the spiritual, dynamic, abstract and unpredictable part. While the former defines performance by identifying competencies and competency gaps, the spiritual aspect underlies motivation, and is unpredictable and often neglected.

Technology and systems are both available, but are not implemented as they ought to be. Line managers, the top management and HR heads pay lip service to performance management systems, but fail to implement them. When systems fail, perhaps what is needed is a spirit of conviction that will help enforcement and implementation. It is this spirit that has largely been lacking. Consequently, PMS despite its obvious power and merit remains the most ill-implemented of all organizational systems.

The spiritual approach focuses on the understanding that:

  • Performance management is not an event. It is a continuous process.
  • Performance management requires understanding, desire and discipline:
    • An understanding of one’s self, motives, interests, responsibilities
    • A desire to discover and apply oneself
    • An understanding of organizational limitations as well as opportunities provided by organizations to discover and apply one’s self.
    • The values of self-discipline, the desire to improve, OCTAPACE (openness, collaboration, trust, autonomy, proaction, authenticity, confrontation and experimentation) and learning
    • Organizational culture and committed people

The spiritual approach requires spirit and spirited people. Systems do not provide spirit—it is the people who do. Systems provide opportunities. It is left to the people to make us of them.

The PMS experience of TVRLS

TVRLS has worked with a number of organizations on PMS in the last few years. Some of them are Geologistics, FAG Bearings, Tata Finance, Titan Industries, EID Parry, Mahindra & Mahindra, Bharat Petroleum and National Stock Exchange. The experience of working with these companies has convinced the team at TVRLS that a good PMS can go a long way in ensuring performance improvements at all times, particularly in times of difficulty. In fact, the team wonders why such an important tool has got inadequate attention and focus. TVRLS has the following lessons to impart from its experiences so far.

There is no change in the fundamentals  The fundamentals include the following:

  • Performance planning is necessary for performance improvement. A good performance plan gives a sense of direction, utilizes human potential, and enhances individual and organizational performance. Imagine the case of a general manager of a manufacturing unit who discovers that 60 per cent of her/his time is spent on meetings, and that communication skills and meeting management are important strengths she/he needs to acquire. She/he further finds on doing a KPA exercise that a 30-minute saving in her/his daily two-hour meetings would mean a cost-saving equal to the salary of a deputy general manager, thus allowing for the appointing of an additional deputy general manager. With two hours a quarter spent on KPAs and planning your work, you could give the right direction to your remaining 600 hours of work. Seen another way, if you spend just 12 hours a year on KPAs and planning, it would enhance your productivity and output in the 2,388 hours you spend working for the organization every year.

    Imagine a branch manager of an IT company who discovers after a good performance planning exercise that about 40 per cent of her/his time is spent on following up seven bad payment cases. Over time, the follow-up time increases. It allows her/him to spend less time on business development.

  • There is no great technology involved in identifying KPAs or in designing PMS. It is fairly obvious which PMS can be acquired in a short time. Experts are not as essential as organizations seem to imply. Despite their differences, KPAs and KRAs are essentially tools of performance planning and role clarity. They are intended to give a sense of direction and help achieve improvements in performance.
  • Performance planning done in a participative way using the organizational context (vision, mission, long- and short-term goals) will enhance commitment to performance, communication and joint problem-solving, and result in better performance or performance accomplished with satisfaction. TVRLS’s workshops have demonstrated this time and again. In one of the innovative designs TVRLS introduced while training people in, or implementing, PMS, they called junior-senior pairs (or boss-subordinate pairs; TVRLS does not wish to call them appraiser-appraisee pairs as appraisal is not the purpose of PMS) to actually plan and review their performance in the previous year/previous half-year/previous quarter. The training programmes or PMS workshops are meant to identify KPAs and also to conduct actual performance review discussions (PRDs) rather than merely learning about how to do these.
  • Linking performance with rewards may be fine but making it a primary purpose will dilute or even nullify the focus on performance improvements and development goals. Time and again experience has demonstrated that it is not possible to ensure objectivity to everyone’s satisfaction. Discussions about rewards are always so intense and absorbing that the issue of performance improvements is inevitably relegated to the background. Ugly disputes come to the fore. Hence, it is important to shelve discussions about rewards to the extent possible. Appraisal is a subjective process, and there can never be objectivity of the kind people would like to have. TVRLS found that when rewards are discussed or announced there is usually more resentment than joy. Rewards motivate a few, but demotivate a great many others.
  • Developmental needs should be identified along with performance planning at the beginning of the year and continuously thereafter, rather than at the end of the performance period. Identification of training and development needs at the end of the year has led to postponement and continued poor performance for the entire period. Developmental needs should, therefore, be identified along with performance plans. A number of organizations today require the individual to plan her/his own development.
  • The individual should own performance management more than her/his boss does, and the latter should own it more than the HRD department does. This is a fundamental point that seems to have been forgotten in the last few years. As HRD managers are in the business of designing and introducing performance management systems, there has been the mistaken notion that they are the owners of the system. This has done a lot of damage. In quite a few companies today, line managers think that they have to carry out more PMS exercises as a requirement of the HRD department, rather than for improving themselves and their performance. This misconception needs to be rectified. Organizations have perpetuated this idea by getting their HRD departments to distribute and collect forms, and send reminders. HRD departments have even maintained inventories of PMS forms. Many organizations have now recognized the wisdom of what Pareek and Rao had recommended to L&T in 1974: namely, these forms are owned by the line managers themselves and some parts of them should not even go beyond the reviewing officer. Nowadays, the forms are available online for any interested manager to download and use whenever they like.
  • Performance-coaching, mentoring and counselling are useful tools for performance improvement. It has been established beyond doubt that performance improvement will occur if seniors help juniors through periodic reviews and discussions. Coaching or PRD exercises result in increased mutuality, communication, understanding, enhanced problem-solving abilities and much more. But few people seem to take the time and effort to do these things.

What is new?  Although there are not many new developments in the PMS field, the few new ones include the following:

  • The move away from appraisals: Performance management systems are not appraisal systems. The focus is on improvement and development rather than appraisal.
  • The move away from numbers to qualitative assessment: Numbers in performance appraisal, whether they are 5-, 7- or 10-point scales, tend to mislead rather than provide an objective assessment.
  • Innovation: The process is now more important than the format, reinforcing the primary focus on development. The format simply gives the process shape and presents it in a systematic way.
  • Emphasis on learning and growth: There is an emphasis on learning and development, empowerment, growth and problem-solving, rather than assessment, objectivity, and measurement.

Some Recommendations for Implementing PMS

The following are some recommendations for implementing PMS:

  • Don’t insist on quantitative targets. Where you find you cannot quantify something, don’t even attempt to do so. Higher-level roles are sometimes difficult to quantify. How do you quantify how much leadership you should show, and to what extent you should act as a role model.
  • Use multi-rater assessment as supplements.
  • Use technology to facilitate learning from each other.
  • Publicize KPAs and performance plans on local networks so that anyone can access and use them.
  • Synergize with other systems where you have already spent your time and energy. For example, if you have already conducted a competency mapping exercise, use the results and integrate them into the PMS.
  • Use internal task forces and other review mechanisms selectively.
  • Encourage employees to own their own performance management. Monitor the process and not the filling of formats.
  • Ensure that follow-up actions are carried out on time. It may be a matter of training or job rotation or removal of blocks.

Hurconomics: The Cost of Not Planning One’s Work and Performance

Performance planning is necessary for performance improvement. A good performance plan gives a sense of direction, utilizes human potential, and enhances individual and organizational performance. A good performance plan should include all the activities a manager wants to undertake in order to achieve the organizational, departmental and individual targets, and make contributions during a given performance period. Very often, managers are reluctant to plan their work and often pass off the KPAs of their juniors or seniors as their own KPAs. KPAs can become a means for evading accountability as they do not indicate what activity the role holder will actually be performing during the period and how much time she/he should be spending on it. A good performance plan lists under each KPA all the critical activities the role holder expects to perform, the time she/he expects to spend on each activity and the expected outcome after spending that time. The outcome may be a process outcome, and need not be the final and tangible result.

At a meeting of the top management of a particular company, the chairperson, the seven directors and the general managers decided to improve their performance planning to ensure that they made strategic contributions rather than perform routine jobs. They spent a whole day listing each activity they had undertaken during the year. When all of them had listed their activities, they discovered that as members they were required to attend about 40 different meetings in a year. One of the directors discovered that he spent 60 per cent of his time (about 1,400 hours) in a year in meetings (internal, external, plant-level, and so on). Also, half of the meetings were with the chairperson. This was news to the chairperson. Collectively, the top management arrived at the figure of 5,600 hours in a year (nearly 30 per cent of the time of each of the directors) spent on meetings convened by the chairperson. This led the chairperson and the team to introspect about the meetings. This resulted in a straight reduction of 15 per cent of the time for meetings, or an immediate gain of 2,800 hours in a year. In other words, by spending one full day (8 × 10 hours = 80 hours, where 8 is the number of directors and the chairperson) on planning their own performance, the directors saved a full years’ equivalent of one director’s annual working hours. The company had been conducting meetings for the last seven years. Estimate the time they wasted by not planning their work. What were the R-COT and O-COT of not planning?

Invest 20 and Direct 2,000 to 20,000

Recently, I worked on a PMS for a company abroad. It is an infrastructure company with several senior GMs at the helm. I was asked to help the company implement a new system it had just designed. I asked the 25 GMs attending the workshop to answer the following four questions:

  • To what extent did you clearly have a set work plan for the last six months?
  • To what extent did your seniors with whom you work share the same understanding of your work plan and priorities in the last six months?
  • To what extent were you able to put to use most of your capabilities in the last six months?
  • To what extent are you clear about the work plan and priorities for the next six months?

They were asked to use the following scale:

100 per cent = fully
75 per cent = mostly
50 per cent = somewhat
25 per cent = a little
0 per cent = not at all

The following were their responses (the numbers on the right in each case refer to the number of GMs):

  • To what extent did you clearly have a set work plan for the last six months?
    100 per cent = 3
    75 per cent = 18
    50 per cent = 4
    25 per cent = 0
    0 per cent = 0

    On average, the extent to which there was a clearly set work plan was 74 per cent. If we consider unplanned work as a waste of resources, there was about 26 per cent of it in this company. If the CTC of the 25 top level managers is about 10 crore (assuming an average CTC of 40 lakh per GM), there was a wastage of 2.6 crore CTC due to unplanned work, and the opportunity cost might have been much more. Such unplanned work gets passed down the hierarchy and multiplies. Hence the solution is to reduce this wastage by planning the work. The PMS can therefore be a useful tool for reducing wastage through planning.

  • To what extent did your seniors with whom you work share the same understanding of your work plan and priorities in the last six months?
    100 per cent = 7
    75 per cent = 10
    50 per cent = 5
    25 per cent = 3
    0 per cent = 0

    On average, the extent to which there was shared understanding was 71 per cent. If the PMS is effective, this shared understanding can be improved. When shared understanding is improved, organizational overheads come down, focus is increased and work effectiveness goes up. There will be a gain of at least 5 per cent to 10 per cent in managerial effectiveness due to shared understanding.

  • To what extent were you able to put to use most of your capabilities in the last six months?
    100 per cent = 2
    75 per cent = 9
    50 per cent = 7
    25 per cent = 1
    0 per cent = 0

    On average, the extent to which capabilities had been used in the last six months was 68 per cent. This indicates that there was 32 per cent wastage of talent. Converting this into CTC, it works out to 3.2 crore as per the calculations indicated earlier.

  • To what extent were you clear about the work plan and priorities for the next six months?
    100 per cent = 9
    75 per cent = 13
    50 per cent = 3
    25 per cent = 0
    0 per cent = 0

    On average, the extent to which clarity existed about work plans and priorities was 80 per cent. This indicates the potential future wastage of top management time.

Simple questions and analysis, such as the foregoing, have brought to focus the need for better utilization of talent though planning work and having a shared understanding of the work. A good PMS can reduce wastage of time and talent, and ensure better utilization of human resources. The scope for this is indicated by the answers of a number of managers from MNCs, family-owned businesses and professionally managed companies in India and abroad.

The story was not too different when the TVRLS team collected data from an MNC in India (sample size or N = 28), a family-owned business company in India (N = 41) and a professionally managed company from abroad (N = 83). The results pointed to very similar situations across these different types of organizations. All these organizations sought improvements in their PMS.

These results clearly indicate the potential use of PMS for performance enhancement. They also indicate the similarity in the implementation of PMS in MNCs, family-owned businesses and professionally run companies in India and abroad.

It is these insights that have helped us develop a programme at TVRLS that is called ‘Invest 20 and Direct 2,000 to 20,000’. I have been propagating this idea by communicating to line managers and the top management that their managers can learn to direct (or manage) 2,000 hours of their own performance time to 20,000 hours of their juniors’ performance time by investing merely 20 hours of their time in planning their and their juniors’ work. We have helped many senior managers to cost the value of their time and have shown them the benefits of such planning. Executives can be shown to achieve savings in their own time and get a better ROI on their time investments. In other words, organizational performance, resource utilization—including talent utilization, which is becoming more expensive by the day—goes up and cost reductions are effected with better planning.

Similarly, we have demonstrated that by viewing PRD as learning opportunities for seniors to learn from their juniors, coaching and mentoring can be taken to a whole new level. PRD and coaching sessions are meant to develop both the coaches and the performers.

Learning dividends from performance review discussions

We spend lakhs of rupees sending our senior managers and top management to programmes at Harvard Business School, Wharton, Michigan and Stanford. But we do very little to send them to meet their customers. Neither do we use available opportunities to educate them about customers and their perceptions, and competitors and their successes. Imagine your marketing manager making policies, but oblivious to the results of her/his market strategies and other interventions in the previous years. We blindly assume that if profits have improved, the customer base has been enhanced and sales have risen because of our clever marketing strategies. There may be little hard evidence of the correlation between these elements. Yet we demand scientific proof for HR interventions like PMS. The question normally asked is: Why, after all the workshops and the introduction of a new PMS, have the desires results not been achieved?

Assume that your marketing manager is devising market strategies for your next product. The strategy is essentially based on a certain understanding of what the customer wants and the belief that the previous year’s results have indicated the customer’s preferences. Suppose, you check your assumptions with your field sales staff and they say:

Our sales last year were better than the year before, but our competitor has sold three times more than us. This is because of the door-to-door campaign they used. We have found that door-to-door campaigns work well in this particular state, and people are accustomed to sales officers visiting them and talking about the product.

This information will definitely help you. In fact, every month and every quarter, as a marketing manager, you have access to hundreds of such bits of information, if only you care to listen, allow or encourage your juniors to talk, and value their inputs. Perhaps you could learn much more about workable marketing strategies from your juniors than from any management book or from Harvard. Do you now realize the vast potential of quarterly PRD meetings? They would work wonders, if only we could see them as opportunities for upward communication rather than as opportunities to monitor the performance of our juniors and control their behaviour or performance. Most firms have developed well-managed, performance monitoring systems that are separate from the performance appraisal or management systems promoted by HR departments. This makes for a wonderful learning opportunity.

If you want to educate yourself as a manager, listen to your juniors carefully. Each hour you spend listening to them is equivalent to several hours of lectures by management professors at a business school. And you are getting this benefit free of cost. The only price you have to pay is to listen. Our juniors could be our greatest teachers and our PMS could become the best possible platform for our development and growth.

The ROI on PMS is enormous if you realize the learning and teaching potential of your juniors. Through them, you receive the distilled wisdom of all the hundreds of juniors who report to them down the line. You can now make policies and decision based on informed wisdom.


Rao, T. V., 2002, ‘Systems Approach to Spiritual Approach, in 360° Feedback and Performance Management Systems’, in T. V. Rao, Gopal Mahapatra, Raju Rao and Nandini Chawla, Performance Management and 360 Degree Feedback, New Delhi: Excel Publications.

———, 2003, Performance Management and Appraisal Systems, New Delhi: Response Books.