Page 7 - MS Perspectives 2014 YIR

The Power and Problems of the Invisible Performance
Management System

Dr. Eric Flamholtz
President & Founder, Management Systems

There is a well-defined way of describing the organizational structure of a business.
Ask almost anyone to describe the organization of an enterprise and they can
usually do it. There is a well-defined "lexicography" for organizational structure.
Specifically, a given structure will be represented in terms of boxes reporting to
another connected by lines.

The Problem

However, if you ask someone to represent the "Performance Management System"
of an enterprise, you will get a very different set of responses. In contrast to
organizational structure, there is no well-defined "lexicography" for performance
management. The result is that the performance management system of a typical
business is virtually invisible.

The invisibility of the performance management in enterprises leads people to think
in terms of components of the system and not in terms of a holistic system. This, in
turn, leads to performance problems.

During the past 35 years of working with companies ranging in size from start-ups
to global giants, I have rarely seen effective performance management systems.

The Solution

We have a created a relatively simple way to visualize performance management in
organizations. This, in turn, makes it possible to understand how to design effective
performance management systems.

All performance management systems require a set of six components1:

 Key Result Areas
 Objectives
 Goals
 Measurement of performance
 Evaluation and
 Reward

1 Each of these components has a precise definition. See Eric Flamholtz and Yvonne Randle, Growing
Pains, Fourth Edition, Jossey-Bass publishers, Inc. 2007.

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