Management Perspectives

The fast pace at which we live and work today is driving both incremental and radical change in business and is becoming the new normal. Some organisations are keeping up, but many getting left behind. It is no longer a question of when or whether it is a good idea to transform organisations in preparation for the future; it is now an urgent question of how to transform. This piece intends to clear the fog between performance and potential and at the macro level and addresses the issue- “Are you in the same bus and the right seat?” as rightly put by Jim Collins, author of Good to Great, wherein Collins emphasises that successful companies ensure they have the right people (on the bus) and that these people are in roles that best suit their talents and skills (in the right seats). This concept is part of Collins’ broader discussion on leadership and organisational effectiveness, emphasising that getting the right team in place is crucial before determining the strategy of the company. A 2 ×2 matrix akin to BCG Matrix can further clarify the underpinnings and other subtle aspects.

Performance and potential demystified

Individual performance is the existing ability of an employee to execute tasks and responsibilities effectively in the role. It is usually measured through performance appraisals, which assess how well the employee meets set goals, objectives, and KRAS over a specific period. Performance is typically evaluated based on quantifiable outcomes such as sales targets, project completions, customer satisfaction scores, or other key performance indicators like KRAs or KPIs on a quarterly, biannually, or annual basis. It mainly focuses on how well an employee completes the assigned KRAs set during the beginning of the performance year and is based on past on performance metrics.

Potential is an employee’s capacity to develop into roles of greater responsibility or complexity in the future. It indicates an individual’s ability to grow, adapt, and take on new challenges beyond the existing role. It is future-oriented and is based on inherent attributes such as leadership qualities, cognitive abilities, learning agility, interpersonal skills, capacity for growth, and learning new skills. Potential may not always be evident through current performance and often requires identification through psychological, cognitive, leadership tests, and more precisely, through assessment and development centers—an extremely powerful technique. It is important to understand that performance and potential do not exist at the bipolar end of the same continuum, but are mutually exclusive paradigms which most line managers

BCG Matrix A 2 ×2 matrix akin to Boston Consulting Group (BCG) matrix can further clarify the underpinnings. The BCG Matrix is a strategic tool used for portfolio management, helping companies allocate resources among different business products based on their market growth rate and relative market share. Comparing individual performance and potential on the lines of BCG Matrix can offer deeper insights into how employees might be evaluated and managed similar to business products. Here’s a detailed description of the BCG Matrix: Likewise, employees after their performance and potential assessment can also be categorised in four classifications: Stars, cash cows (rainmakers ), problem children (low on performance, high in potential) and dead woods (potential exits). This becomes an extremely useful framework for their compensation and career planning.

Compensation and career planning Whereas the Stars can be given hefty increases in their compensation, incentives, Stocks coupled with promotions, cash cows should be awarded with high variable compensation to make them go whereas deadwoods should be shown the exit door. Problem children should be handled with extreme sensitivity through counseling, providing them learning opportunities and some increase in comprehension to keep them motivated enough.

Role of HR and line management The role of HR and line management in performance and potential appraisal differs significantly.

HR’s role: is essentially about-

4.1. Framework development and Policy Creation: HR leaders design and implement appraisal policies, ensuring that they align with organisational goals. 4.2. System implementation: It develops and maintains the appraisal system, including the forms, criteria, and software selection. 4.3. Training and guidance: HR is responsible for training line managers in conducting effective appraisals, including how to provide constructive feedback. Moreover, it offers an ongoing support to line managers, helping them address any challenges that arise during the appraisal process. 4.4. Consistency and standardisation: HR ensures that appraisals are conducted consistently across the organisation, reducing biases and ensuring fairness through moderation of post appraisal ratings. 4.5. Data analysis and reporting: HR collects and analyses performance data to identify trends, strengths, and areas for improvement across the organisation. Moreover, it reports on appraisal outcomes to the senior management, highlighting the organisation’s performance and development needs.

Line manager’s role

 4.2.1. Direct evaluation: Line managers directly evaluate the performance of their team members, based on their day-to-day interactions and observations.

4.2.2 Objective setting: They set specific performance goals and KRAs for their employees and monitor progress.

4.2.3 Feedback: Line managers provide immediate and constructive feedback to employees, to improve performance and address issues.

4.2.4. Engagement: They engage with employees regularly to understand their concerns, aspirations, and to support their well-being.

4.2.5. Performance monitoring: Line managers continuously monitor performance throughout the year, not just during formal appraisal periods. Thus HR managers focuses on designing, implementing and overseeing the appraisal system, ensuring fairness, and alignment with organisational goals. Line managers, on the other hand, are directly involved in evaluating their team’s performance, providing feedback, and supporting their professional development.

Together, they ensure that the performance appraisal process is effective and beneficial for both the employees and the organisation. In essence, HR is the process designer and process enabler whereas line managers are process implementers.

5 Role of software: While software packages may offer numerous benefits, they come with certain limitations .

5.1. Complexity and usability: Poorly designed interfaces can lead to user frustration and reduce the effectiveness of the system.

5.2. One-size-fits-all solutions: Most software packages are designed to be broadly applicable, which can result in a lack of customization to fit specific organizational needs and processes.

5. 3. Rigid processes: Organisations may find themselves having to adapt their processes to fit the software rather than the other way around.This may be a difficult call for the organisation, as it has implications on organisational culture.

5.4. Integration issues: Integrating performance management software with existing HR systems and other enterprise software can be challenging and may require additional resources.

5. 5. Costs: The initial cost of purchasing and implementing the software can be high. Additionally, there may be ongoing expenses for maintenance, update, user support and customisation which can have a huge cost implications which the vendors rarely talk about in the beginning. 5.6. Over reliance: Over reliance on software can lead to the neglect of the human element in PP management, such as face-to-face feedback and interpersonal communication.

6. Key reflections and learning: Having worked in multiple organisations as an OD and HR- CXO with varying degrees of success in PP management , here are a few my key learnings.

1. Setting of new performance and potential systems intrinsically involve changing in the habits of employees which means culture change for which prior knowledge OD is essential. Organisations are characterised by their unique culture, hence PP systems should be in consonance with their prevailing culture.
2. Never copy forms and formats of other companies; it does not work. In MNCs the systems are driven by parent organisation though.
3. Processes (like training in KRA setting, counseling and creating buy in by various stakeholders) are more important than forms and formats.
4. PP process forms the heart of HR. Hence for its efficacy, take as much care as one takes for its heart.

As our narrative reaches its zenith, we should realise that “In the alchemy of leadership, potential is the philosopher’s stone, transforming ordinary endeavors into extraordinary legacies.” Thus, for the synergy of performance and potential, the corporate orchestra attains a timeless crescendo and address the key talent management issue: whether organisations have their right people “on the right bus” and whether these people are “in the right seats” !!