Methods for Designing and Considerations for a Team Performance Management System

[HR Insight November 2020 Issue]

Kim Young-sung, Executive Director / Ph.D. in Business Administration. D)

According to the Korea Employers Federation (09/13/2020), a survey of the top 100 companies by sales found that 69 companies (88.4%) are currently implementing remote work for office workers. Also, among companies that had implemented remote work, 77.6% had strengthened their performance management systems to prevent a decline in employee productivity, and 56.9% had done so. At a time when uncertainty has increased due to the prolonged COVID-19 pandemic, the importance of team performance management systems is gradually growing. Many organizations, regardless of type or size—public enterprises, private companies, startups, etc.—use Key Performance Indicators (KPIs) for team performance management, but there are numerous cases where performance management systems are operated mechanically due to a lack of connectivity or the absence of clear definitions for the performance indicators. There are also cases where, by setting metrics that are easy to quantify or favorable for evaluation, team performance is not linked to corporate performance. Because this phenomenon is frequently observed, some experts argue that qualitative performance management systems are preferable to quantitative ones such as KPIs. In addition, the design, as well as the management and operation, of a team performance management system is also important. If team performance management is used merely as a tool to measure performance, it can instead become a factor that hinders team performance. Accordingly, this study aims to summarize methods for designing a team performance management system and the considerations that should be taken into account during its design.

Methods for Designing a Team Performance Management System

First, a clear definition of the core tasks is needed. Based on its connection with the higher-level strategic tasks, each team’s core tasks should be identified. If the team’s core tasks are not clearly defined, the representativeness of evaluation indicators decreases, and the effect of achieving team performance can inevitably be limited.

Second, it is necessary to derive performance indicators that take into account the Balanced Scorecard (BSC). The balance performance indicators are broadly composed of: ① financial perspectives (such as sales growth, ROI, ROE), ② customer perspectives (such as customer loyalty, repurchase rate), ③ process perspectives (such as average order processing time, reduction in production time), and ④ learning and growth perspectives (such as developing capabilities, strengthening competencies, job training, etc.). Generally, team performance indicators are often composed based on financial perspectives, such as improvements in sales. If the team performance indicators are designed with a financial perspective as the focus, only the performance related to Output/Outcome among the Process—Input, Process, Output, and Outcome—is emphasized, causing the performance and activities related to Input and Process to decline. Therefore, designing a balanced team performance management system is importantFigure 1>.

<Figure 1: Performance Management System IPPO>

Third, the influence among the team performance indicators must be assessed. By creating a strategy map considering the BSC, the impact among team performance indicators can be assessed. By creating a strategic map, it is possible to identify the distribution of performance indicators from a BSC perspective, establish connections among each performance indicator, and increase understanding of the work<Figure 2>.

<Figure 2: BSC Strategy Map>

Fourth, it is important to ensure the performance linkage among the entire organization, the team, and the team members. When designing a team performance management system, both the top-down linkage approach and the bottom-up linkage approach should be taken into consideration. From a top-down perspective centered on the team, the linkage to the team member’s performance system must be secured, and from a bottom-up perspective, the linkage to the company-wide (or headquarters) performance system must be secured. It should be designed so that a team member’s effort toward achieving performance can lead to the team’s achievement of performance, and the team’s effort toward achieving performance can be linked to the enterprise’s achievement of performance. If connectivity is not secured, the team performance management system will be used only as a tool for evaluating teams and will be difficult to lead to actual corporate performance.

Fifth, goals for performance indicators must be established systematically. To establish the goals of performance indicators, they should be set with realistic, achievable outcomes and a strong sense of commitment in mind by considering: ① trends in past performance, ② benchmarking, ③ interviews with key decision-makers, ④ internal and external evaluation results, and ⑤ team members. In addition, it is important to assess the actual feasibility through smooth communication with team members. If an overly ambitious will is excessively reflected, setting excessively difficult goals that are hard to achieve can undermine the will to accomplish results, and setting goals that are too low can undermine the team’s motivation.

Considerations When Designing a Team Performance Management System

First, when establishing an performance management system, the company’s environment and business structure must be taken into account. If a general BSC is applied without considering the characteristics of the industry and business sector the company belongs to, as well as the company’s own distinguishing features, it may lack suitability. For example, in the case of ICT companies, customization is needed to use a BSC tailored to ICT rather than a general BSCFigure 3>. Also, in the case of venture companies, since they must operate their business with growth as the focus rather than current sales, they should consider a growth-oriented team performance management system rather than a conventional BSC. Therefore, rather than blindly adopting BSC to establish a team performance management system, it is important to build such a system by taking into account the company’s surrounding environment, the unique characteristics of the industry, and the company’s own differentiating factors.

<Figure 3: Differences between a general BSC and a BSC for IT performance evaluation>

*Source: 1)Kaplan, R. and Norton, D., The Balanced Scorecard, Harvard Business School Press(1996)

2)Van Grembergen, W. and Saull, R., “Information Technology Governance Through The Balanced Scorecard(2001)”

Second, it is necessary to consider introducing a team performance management system utilizing AI. Recently, cases of introducing AI into HR systems have been increasing. In the case of Kookmin Bank, AI was introduced into its personnel system, including department assignments and branch transfers. By using AI to move and assign over 1,100 employees based on their experience, length of service, and commuting distance, misunderstandings that personnel decisions were based on factors such as seniority or school ties disappeared, increasing employees’ trust and satisfaction and improving the efficiency of personnel transfers. In addition, there is a growing trend of actively using AI to enhance the fairness and efficiency of HR systems, such as measuring work absences of Amazon logistics center employees, verifying first-round basic requirements and conducting second-round interviews for Loreal applicants, using AI for personnel management to support career development for Citizen Financial employees, and verifying self-introduction letters and conducting AI interviews for Lotte/Orion applicants. Due to COVID-19, the proportion of remote work has been increasing, and when implementing a team performance management system, one of the limitations of remote work is that performance measurement becomes restricted and it becomes difficult to ensure fairness in evaluations. To overcome these limitations, introducing AI into team performance management can enable real-time tracking of team members’ performance and improve both fairness and efficiency in evaluations. In addition, the introduction of RPARobotic Process Automation into the performance management system may also be considered.

Third, qualitative performance management systems should also be considered together with quantitative performance management systems. There are cases where it is difficult to measure a team performance management system using only quantitative methods. For example, when collaboration with other teams is important, communication can be used as a key performance indicator for the team. However, because there are elements such as communication that are difficult to evaluate quantitatively, it is also necessary to consider qualitative evaluation methods as well. If a team’s performance management system exists only as quantitative indicators, the team may be operated in a way that focuses solely on achieving those quantitative indicators, and in doing so, the team’s ancillary tasks outside those assigned as performance indicators may be neglected.

Fourth, it is necessary to establish a performance management system that emphasizes team collaboration. To move away from excessive performance-driven culture, Adobe improved its compensation system by evaluating not competition, but how well each team member facilitated smooth collaboration to achieve the organization’s goals, thereby encouraging teamwork. Microsoft operated a performance management system that emphasized competition by differentiating rewards through relative evaluation, but this led to side effects due to tension and an excessive culture of performance-based thinking, and the existing performance management system was abolished. As remote work increases and collaboration becomes increasingly difficult, if collaboration is not taken into account within team performance management systems, the likelihood of resulting negative consequences is high. Therefore, there is a need to encourage collaboration between teams and among team members.

Fifth, when establishing and operating a performance management system, it is necessary to secure sufficient consensus with team members. When operating a team performance management system, if the system (or metrics) are biased toward only certain team members, the motivation of marginalized team members may decrease, and situations may arise where whether a team member achieves performance is decided based on a specific member rather than the achievement of the team as a whole. Therefore, along with balancing performance indicators, the balance among team members must also be taken into account.

Consulting inquiries (Director Youngsung Kim): yskim@eoncg.com

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