6 Reasons Why PMS Often Fails in Mid-Sized Companies

The concept of Performance Management Systems Consultant (PMS) dates back to the 1800s, originating with Robert Owen’s efforts to monitor cotton mill workers in Scotland. While these early practices helped gauge individual performance, they didn't necessarily improve the overall productivity of the mill. By the 1920s, the focus shifted toward efficiency and profitability, emphasizing a broader Return on Investment (ROI) but without a structured performance management framework.

The turning point came in the 1950s when management guru Peter Drucker introduced the MBO (Management by Objectives) framework, advocating for goal-oriented management. By the 1980s and 1990s, successful companies tied organizational performance to individual, team, and departmental goals, popularizing OKRs (Objectives and Key Results). While these systems work well for large organizations, mid-sized companies often face unique challenges that can lead to PMS failures. Here’s a look at six common pitfalls:

1) Focus on Short-Term Goals
The volatile, uncertain, complex, and ambiguous (VUCA) business landscape often drives management to focus on immediate results, pressuring employees to deliver quick outcomes. This narrow approach can neglect long-term growth and structured planning, leaving companies poorly equipped for future challenges.

2) Lack of Leadership Involvement
Once PMS is established, senior leaders frequently step back, leaving middle management to execute goals. Without continuous leadership engagement, PMS becomes a mere formality, lacking the tracking and accountability needed for real progress.

3) Recency Bias in Evaluations
Many managers, without proper training, tend to evaluate employees based on recent performance instead of a comprehensive view of the assessment period. This approach can result in unfair evaluations, overlooking long-term contributions and causing employee dissatisfaction.

4) Inconsistent Measurement Processes
Without uniform guidelines, managers apply different standards in performance assessments, leading to inconsistent evaluations and employee frustration. Standardized templates and assessment criteria are essential to create a fair, consistent evaluation process across teams.

5) Absence of Two-Way Communication
Effective PMS relies on open, two-way communication. When feedback is limited to one direction—from managers to employees—the system lacks the necessary checks and balances, reducing productivity and employee motivation.

6) Use of Outdated Processes
Many mid-sized companies still rely on manual systems, like spreadsheets, instead of modern PMS software. These outdated methods make it difficult to track performance trends across teams, hindering data accuracy and timely intervention.

For mid-sized companies seeking sustainable growth, an effective PMS can enhance productivity, align performance with strategic goals, and boost employee satisfaction. Cornerstone India can support your journey by assessing current PMS effectiveness, designing a new system tailored to your business objectives, and offering training for lasting success.