6 Reasons Why is PMS A Failure in Mid-Sized Companies

6 Reasons Why is PMS A Failure in Mid-Sized Companies

The origin of PMS goes back to the 1800s – historians attribute early usage of performance measurement when Robert Owen had silent supervision and monitoring of cotton mill workers in Scotland – this may have helped in evaluating individual performance, but had no bearing on productivity and performance of the entire mill.

In the 1920s and the decade that followed, organizations started focusing on various aspects of efficiency and effectiveness. What this meant was a wider coverage of Return on Investment. The scope was simply to ensure profitability and not so much as manage performance at individual or on a collective basis, either at the team level or organization level.

The path-breaking development happened in the 1950s – Peter Drucker, a management guru wrote a book – The Practice of Management bringing to light the MBO framework. This of course was a distillation of his many years of work and consulting carried out in various organizations. The approach boiled down to running an organization based on goals.

During the 1980s and 1990s, large and successful companies began to tie organizational performance with individual, team and functional/departmental goals. During this era, the now popular OKRs (Objectives and Key Results) were taken up by John Doerr in Intel. Andy Grove, CEO of Intel mentions of managing people and processes in his book – Only the Paranoid Survive.

Till date, many successful and large organizations use different forms of PMS to great advantage. While it is beneficial to use some form of PMS, it is essential to understand what the typical pitfalls are so that steps may be taken to understand and pre-empt what can potentially go wrong.

The blog takes into account widely available observations, publicly available information and the author’s research on the subject and discusses six key reasons why PMS is a failure in mid-sized companies.

1. Stress on short-term goals by senior management and leadership team

We know that the business and economic world is in the VUCA (volatility, uncertainty, complexity and ambiguity) space in current times, more than anytime else in the past. This situation drives the management of companies to overtly focus on the ‘here and now’ Employees are expected to produce results quickly and efficiently. This leaves a lot unattended for the longer run, even for the mid-term. Most often, employees are fire-fighting and chasing targets without a structured approach nor with an eye on clearly articulated and measurable results over a period of time, typically half yearly or annually. This applies to many mid-sized companies and startups and leaves such companies inadequately equipped to meet future challenges and difficulties. It can lead HR to bring in policies which can impact employee well-being

2. Lack of participation by senior management and leadership

Once a PMS is set, most senior folks forget it! The expectation is for the middle management to deploy and execute the goals and targets. Once the overall methodology and framework are signed off, leadership hands it over to middle management and HR for effective deployment. There is hardly any involvement on a daily/frequent basis. This leaves gaps in effective tracking and implementation, it only serves a formality rather than any real contribution to performance

3. Recent Biases of observation

It has been observed that many managers, without proper guidance and/or training, fall into the ‘recent bias’ trap. This is a phenomenon where managers tend to evaluate individuals on the basis of recent performance rather than considering work and contribution for the entire period of performance evaluation. This can work for or against the individuals, depending on what their recent contributions would be.

Consider a consistent top performer making one or two mistakes closer to the event of appraisals and her entire contribution for the assessment period is completely overlooked. Such an assessment is not rational nor justified and will leave the individual dissatisfied.

4. Lack of uniform assessment/measurement processes

Many mid-sized companies do not have a clear set of guidelines and templates for managers to follow. In the absence of such guidelines and templates, much is left to the imagination and creativity of how different managers would apply assessment measures. The disparity would then be glaring for individuals working with different managers to see – this will lead to unhappy employees. This in turn will result in the organization struggling to perform consistently and to maintain performance during difficult or uncertain market conditions.

5. Absence of a two-way communication

Managers communicating with employees at various levels is good. However, for effective deployment of a PMS, two-way communication and feedback from individuals being evaluated is most essential – this often takes a beating. There is no employee engagement without a two-way system since such a system provides checks and balances. In such a scenario, there is a drop in productivity and an absence of motivated employees rearing to raise the bar in what they can accomplish.

6. Usage of archaic processes

In current times, there is extensive use of software solutions. However, a sizeable number of companies fail to embrace such solutions and rely on manual methods, like spreadsheets, which are quite cumbersome and hard to bring in dashboards important to track larger groups interdepartmental and intradepartmental in nature
Such manual systems will not be able to establish any ambiguities or make comparisons across teams. Drawing any specific inferences of spot-level productivity will be hard to identify and track. To effectively track such ongoings, managers and HR functionaries will end up spending more time than necessitated leaving little time for strategic and developmental interventions.

Successful PMS in mid-sized firms ensures that performance is systematically measured, improving productivity and employee satisfaction. Though the journey might be more nuanced, PMS remains indispensable for mid-sized firms seeking growth, operational excellence, and long-term success.

Cornerstone International Group India can help firms build and optimize a Performance Management System (PMS) that will drive business success. We can help you assess your current PMS, design and develop a new system aligned with your business goals, and provide training and ongoing support.