Performance management systems: a beginner’s guide.
Plus, Napkin, the app that complements your brain.
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How to implement the most effective performance management systems.
As I shared in last month’s issue, performance management systems are used for more than just evaluating your employee upon previously defined goals. They’re a great tool for making sure you’re building a universe within your organization that allows employees to live up to their true potential. As discussed in last month’s issue:
Performance management is like scouting for a soccer team. You need to find the right players and place them in the right positions so they have higher chances of winning.
A good performance management system starts with clear job descriptions and ends with exit interviews.
Some benefits of implementing one of these systems: morale boosts, clear career paths, and better employee retention.
Performance management systems are a two-way street. You empower your people to achieve better results while compensating them according to their contributions.
Systems eat your “gut feelings” for breakfast. Performance evaluations are inevitably biased. Instead, basing evaluations on results assures a fair process.
If you don’t have the time to implement a performance management system, these four things might help you objectively assess your employees’ performance without implementing formal processes: hire the right people for your business, set clear expectations, take mental note of their strengths and weaknesses, and give regular and timely feedback.
You’re all caught up now. Let’s begin!
While systems have different names and techniques, they’re all intended to build an environment that allows employees to perform toward an objective. If you want to start implementing them in your business, try one of these popular systems:
Management by objectives (MBO)
This concept was first introduced by Peter Drucker in his 1954 book “The Practice of Management.” As the name implies, this is a system that allows employees to create goals together with management to improve their performance and engagement.
According to the website Perform Yard, “Having employees offer input on goals and action plans is a way to encourage higher performance and commitment.”
The process starts when the organization gets together to define specific goals for the year. Then, departments and individuals define their own unique goals that help achieve macro predefined goals.
This way, all employees will be doing something meaningful that will actually be reflected in the company’s results. The magic of this type of system is that it works when everyone is aware and included in the goal-setting process.
However, not everything about this system is perfect. Some people believe it has a big flaw in practice since management might choose unrealistic goals as a way to quantify employees’ input and outcomes. Psychologist Harry Levinson explains that “unit managers are forced to commit to goals they don’t believe are realistic. An obsession with objectivity and quantitative measures means that quality is neglected.”
He’s not the only one who thinks there’s an obsession with impossible goals in the corporate world. This tweet by Aaron Patterson demonstrates the frustration it can cause:
"It took me three years to get a GC compactor to even work"
"Yes, but what's important is what you did last quarter"
"Literally nobody has ever accomplished this"
"Sure, but you need to do it in a quarter"
—Aaron Patterson (@tenderlove) October 12, 2019.
However, as productivity and learning expert, Scott H. Young once told us in a previous issue, “If the goal becomes something you perceive to be impossible — if you think ‘I can't do this’ — you reject the goal, and you don't actually work on it. It just fails to function as an orienting device.”
But if you believe you can do something that ambitious, you’ll work toward it and provide outstanding results. It’s your job as a leader to find the goals that are within that sweet spot.
That’s why, with the help of your employees, you can make sure you’re choosing the right quantifiable goals for your organization.
How does MBO work?
There are some steps that you need to follow to implement a system of this kind:
Collective goal setting. - Use SMART goals and measure only the key results.
Individual goals and task distribution. - The magic of this system is that personal goals come from company priorities.
Constantly monitor progress. - Conduct quarterly performance reviews and provide guidance and resources to assure employees meet their goals.
Annual performance evaluations and feedback.- Be consistent with the previous evaluation and talk about improvements. This system encourages you to include positive feedback.
Reward high performance. - This is a way of giving back to the employee for their good work. Make sure you don’t skip this part.
Read more about MBO:
What is Management by Objectives? - Perform Yard.
MBO list of goals examples. - Adobe Workfront.
The most common example of MBO is OKRs.
OKRs stands for Objectives and Key Results. Big companies like Google, Spotify, Twitter, LinkedIn and Airbnb use this to evaluate their employees.
In this system, companies choose an objective that needs to be achieved and list two to five measurable and verifiable key results that will help them reach the objective. Venture capitalist John Doerr explains both concepts here:
Doerr was the one who introduced OKRs to Google after learning about the concept at Intel. He says everyone using OKRs should follow this formula:
I will (Objective) as measured by (this set of Key Results).
If it cannot be measured with a number, then it’s not a key result.
What I like about OKRs is that grading the results can be as simple as answering “yes” if you met the goal or “no” if you didn’t. There are other ways to grade your results depending on your needs. You can choose the one that works best for you here.
Learn more about OKRs:
Measure what matters, book by John Doerr.
Why the secret to success is setting the right goals.- John Doerr
The beginner’s guide to OKRs.- Felipe Castro.
OKR templates to use with your team:
Aha! List of templates:
The balanced scorecard (BSC)
Many years ago, C-level executives believed the best way to achieve results was by setting financial goals. Dr. Robert Kaplan and Dr. David Norton came to the realization that, while financial goals are important to measure, there are other operational tasks that are as important and, if improved, will inevitably lead to better financial results. That’s how the balanced scorecard system was brought to life in 1992.
According to the Harvard Business Review, the BSC system is:
“A set of measures that gives top managers a fast but comprehensive view of the business. The balanced scorecard includes financial measures that tell the results of actions already taken. And it complements the financial measures with operational measures on customer satisfaction, internal processes, and the organization’s innovation and improvement activities—operational measures that are the drivers of future financial performance.”
This system allows managers to have a complete and balanced picture of the business from different perspectives: internal, customer, learning and growth, and financial.
What goes under each perspective?
Internal: processes that are linked to strategic goals, like improving the quality of production lines.
Customer: goals that impact the consumer’s experience, like improving the quality of the product or shortening delivery times.
Learning and growth: goals to make new products and to innovate.
Financial: goals to measure the economic growth and health of the business.
The idea is to set a few key metrics to measure and update the target on a set frequency.
The biggest perk of this system is that it provides a balanced and strategic 360 degree view of the business.
How does the balanced scorecard present itself?
It’s often presented as a strategy map containing an organized distribution of objectives which are interconnected from bottom to top. According to Intrafocus, “The Strategy Map provides a very powerful tool allowing the user to talk about the causal impact of investment at the bottom to improved financial results at the top.”
Graphic from Intrafocus.
What do you need to define in order to use BSC?
Strategic objectives: This is the core of a BSC. It motivates people and fosters drive. Strategic objectives are what needs to be done and applied to all levels of an organization. The biggest mistake people make in this space is to define projects instead of outcomes. But remember: strategic objectives are the “what” not the “how.”
Key Performance Indicators (KPIs): According to Intrafocus, “A KPI provides information an organization requires to determine whether it is performing well or not.” KPIs are the crucial measures that need to be evaluated. If a manager only reviews KPIs, they should still be able to have a clear picture of the organization’s health.
Targets: Each KPI should come with a number that defines the success or failure of each indicator.
As with MBO, this system starts with company-level goals and cascades down to individual goals, ensuring everyone works toward the same objectives.
The main difference between this system and MBO is that BSC provides a balanced platform to evaluate how well the direction and objectives are being followed and executed, whereas MBO only provides the targets.
Some companies that use this type of performance management system are Volkswagen, Wells Fargo, UPS, Apple, AT&T and more.
Learn more about this system here:
Balanced Scorecard Basics.- Balanced Scorecard Organization.
Balanced Scorecard.- Intrafocus.
What is a Balanced Scorecard? - Spider Strategies.
A Full & Exhaustive Balanced Scorecard Example.- Clear Point Strategy.
Use these templates to create your own Balanced Scorecard:
Strategy Map Template.- BSCDesigner.
Balanced scorecard (Complex).- SmartDraw.
One of the things all of these systems have in common is that they foster personalized work plans with specific goals which are linked to bigger company priorities. Employees need to work on achieving those goals throughout the year. Once the year is over, managers conduct a performance review upon previously defined goals.
What happens after the performance evaluation?
Incentives. As important as having clear business objectives is, most employees need to have a clear vision of what their company has to offer in regard to their career and overall life satisfaction.
Some performance management systems, like OKRs, separate compensation from performance evaluation. But that doesn’t mean the companies using those systems don’t take the time to reward their people. They build other parallel systems to evaluate compensation. And while they might include bonuses for performance, they often don’t share it during the performance review
While a salary may cover living expenses, as people grow and start climbing Maslow's Hierarchy of Needs, they realize money is not the only important thing when it comes to having a job.
Having no career plan or room for growth can become unbearable to many on the road to self-realization. That’s why performance management systems contemplate rewards as part of the process.
What types of things can be considered incentives?
Promoting someone to the next level of responsibility. This doesn’t necessarily mean that you need to give them another position, but assigning a different role, giving them more responsibility, preparing them for the next role, or actually promoting them to the next level can be a reward for their hard work.
Being clear about their career plans. It’s okay to say that the business is growing slowly, and unless XYZ metrics change, you cannot promise a pay increase or a promotion. But you can teach employees new techniques or make them better professionals. It’s also okay to share your perspective and say that you cannot share a career plan yet. The important thing is to be clear about what you know and what’s under your control.
Pay increases. Regular monetary rewards for hard work are a necessary investment. They allow employees to improve their lives and feel at ease within their jobs.
Trust. It’s amazing how good it feels to have your manager trust you with more challenging tasks and empower you to achieve them. As a leader, this is an easy way to reward your people, so try not to miss out on this opportunity.
In the end, it’s all about having open and consistent communication with your employees based on goals, expectations and results. As a leader, you’re responsible for your employees’ success, which will inevitably lead to better company results.
Are you ready to take your team and company to the next level?
Thanks for reading.
Edited by: Lauren Maslen.
Jessica Powell's guide to great 1:1s.- Having 1:1 meetings with your manager is something inherent to most jobs. While they’re extremely common to have, they’re not always done properly. This Coda guide by Powell will help you set expectations, make and follow an agenda, and save the historical record of all conversations. Check it out in the link above.
The delightful overwhelm of a pile of undone tasks.- It’s overwhelming to have a long list of pending tasks. Sometimes that feeling can make you procrastinate even more. Leo Babauta from Zen Habits shares his experience with finding beauty in pending work. He does it by taking one breath at a time and by finding delight in each task.
Going back to work in the office: It has to be worth it.- While remote work is here to stay, the eventual return to the office feels inevitable. Gallup, the analytics and advice firm, states that the workplace value proposition needs to change for employees to go back. They agree that managers and leaders need to focus on the 4 C’s: connections, culture, collaboration and creativity.
A how-to guide for creating a business budget.- Planning and tracking your budget is one of the most important things to do for your business. It’s the basis for having healthy finances. If you’re wondering how to build your own, read this article by Bench.
There are hundreds of apps that help you store information, but little to none help you process your thoughts. Napkin is an interface that, according to co-founder Fabian Wittel, “complements the brain in its fuzzy and highly networked structure.” It allows you to create notes and connect them together to help you be more creative. Download the beta version here.
Ideas are fleeting; they come and go in a second. Execution, on the other hand, takes time, iteration, and reworking until you eventually materialize the idea. There’s no need to rush the process. You’ll get there.
IN CASE YOU MISSED IT
Ultralearner Scott H. Young teaches us how to get out of our own way to become better learners. - Scott H. Young is an author who has devoted himself to the study of how we learn. He wrote a book called “Ultralearning” in which he shared different immersive learning experiences and gave a bunch of advice for creators, fathers and planners in ProductiveGrowth’s previous issue.
The psychology of revenge bedtime procrastination. - It’s been scientifically proven that the amount of hours we sleep directly affects our performance. But sometimes we tend to reduce our rest time to get more things done. This article explains why that happens and how to work on it. Read it, and you might discover you suffer from bedtime procrastination.
Four steps to target your employees' pain points.- Your people can make or break your business. Having a small business is no excuse to ignore performance management systems, and while you may already know that, you might be extremely overwhelmed with other processes. We get it! In this article, we share 4 ways to manage your employees’ performance without implementing a system.
FOOD CURIOSITIES & ADVENTURES
If you’ve ever eaten Korean food, you’ve eaten Korean chili peppers (Gochu), most likely in their powder (Gochugaru) or paste (Gochujang) form. The flavor defines many Korean dishes. But compare that to other cuisines. Do you think of chili peppers when you think of French or Italian food? Probably not.
In Calabria, Italy, the Calabrian chili pepper is served in oil and is well-known in local cuisine. Meanwhile, Cayenne, France, is famous for its own namesake powder chili pepper. But these two European peppers couldn’t taste much different. Calabrian chilis are salty, smoky and sweet while cayenne’s neutral flavor packs a strong, fiery bite.
From the ubiquitous and famous to the little known, there are thousands of different types of chili peppers all around the world. So what’s the real difference between the gochu and cayenne? Or calabrian and jalapeño peppers? Turns out that’s a difficult question to answer. Take a quick jaunt on Google, and you’ll find they’re all part of a few Capsicum species, like Capsicum annuum, baccatum or chinense.
Chili peppers are as diverse as the geographies they grow in, but they’re only exceeded by the diversity of cuisines that are enhanced by them. Their unique flavor profiles can transport you across the globe — after all, there are about 250 times more peppers than countries in the world. So next time you’re cooking a new dish, try cooking with a new chili pepper, and explore the world.
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