New directions in performance management
Global organisations, including Microsoft, GE, Google and Deloitte, have dismantled their traditional ‘ticks and flicks’ performance management systems. Some have scrapped performance management altogether and others are relying on regular reviews, discussions and coaching sessions. David Reynolds, an Executive at recruitment firm Davidson, explores how team performance will be measured in the future.
Obviously, performance management is designed to improve performance. The common methods are aimed at ensuring everyone is doing what the organisation requires of them, modifying behaviours where necessary, and delivering on KPIs and personal and business objectives. A robust system should be aligned with business strategies and perceived ways of achieving competitive advantage.
The key objectives and areas subject to performance review and assessment are generally set at management level, from where they cascade through a company, down to frontline employees.
Why performance management systems fail
It’s no revelation to say that performance management systems often fail. Largely, due to some combination of these reasons:
- Employees don’t have clear, measurable and achievable goals that are aligned with the overall business strategy.
- Managers don’t have the skills or motivation to set goals.
- Managers don’t invest enough time with their staff, setting and agreeing on goals and measures.
- The goals and measures are reflective of one moment in time, not overall performance or a whole year.
- Managers aren’t experienced, skilled or confident enough to provide constructive or negative feedback, and coaching for improved performance and behavioural change.
- Managers overlook performance reviews completely because they aren’t held accountable.
- Rewards and recognition aren’t aligned with performance outcomes.
- Goals are often set with little regard for an employee’s capability, and without the corresponding support of training and development.
- Many managers assess an employee’s performance based on their most recent achievement, interaction or project (the ‘halo effect’).
- Last – but certainly not least – many organisations conduct annual reviews rather than managers having weekly, monthly and quarterly discussions with employees about their performance and future development needs.
Benefit or burden?
There is also a need to consider whether performance management delivers better outcomes for organisations and what benefit it is to individuals. Does it allow people to play to their strengths and grow and develop, or is it an administrative burden with few positive outcomes?
In a global survey by Towers Watson & Co, only 45% of the 1000 respondents felt that high performers in their organisations were adequately rewarded. This was primarily due to their manager’s tendency to dump performance rankings towards the middle range of the scoring grid.
Mind Gym Inc President, Sebastian Bailey, said in an article in Talent Management magazine that “the annual performance review has never been popular with employees or managers, and that in attaining objectivity and fairness, the process is almost always threatened by hidden biases.”
Bailey states that this is supported by research in the Journal of Economic Literature by the University of Chicago. “When managers are given a free rein on ratings they tend to fall into two categories: centrality bias where scores are clustered around the midpoint or leniency bias where scores bunch nearer the top.”
“Neither provides incentive to work harder, and there is little consequence to slacking off, so performance plateaus,” said Bailey.
To overcome this, some organisations have introduced a forced ranking system, such as a blanket policy of removing the bottom 10% of employees. This system, known as ‘rank and yank’, sends a clear message to the low or underperformers. A negative is that, after several cycles where the underperformers have exited, managers feel compelled to rate the worst of a group of high performers, with the potential risk of losing these employees.
US technology and services company Aberdeen Group says its research indicates that managers who orient themselves towards building and maintaining a “culture of performance” are critical to best-in-class performance management. The best-in-class companies doubled year-on-year revenue growth and improvement in customer retention.
The research noted that, for 41% of respondents, “aligning individual goals with overall organisational goals” topped the list of activities that organisations said had a big impact on employee performance. It also found that “the frequency with which organisations address employee performance has a dramatic effect on its efficiency”.
Aberdeen’s research concluded that employee performance management can yield significant results by:
- Isolating a mindset around performance conversations.
- Enabling managers with technology to support performance management.
- Increasing the frequency of formal and informal performance conversations.
“The fact that performance management is broken is now conventional wisdom,” says Greg Harris, CEO of employee feedback software company Quantum Workplace. In the 2015 Employee Engagement Trends report on performance and goal management, Mr Harris said “97% of workers think performance reviews are stupid, and 58% of those who design performance reviews agree”.
Deloitte is one organisation that has radically redesigned its performance management system. Ashley Goodall, its New York Director of Leader Development, outlined the company’s new approach in Harvard Business Review.
The new system doesn’t include cascading objectives or an annual review. Its features include speed, agility, one size fits all and content learning, all underpinned by the collection of reliable performance data.
Driving a performance culture
In developing a strong performance culture, a robust and tailored performance management system is only one element.
Management consultancy firm McKinsey & Company says, in an article titled ‘How do I create a distinctive performance culture?’, that a company can develop a strong performance culture by adopting an approach that combines pragmatic business sense with problem-solving rigour and behavioural insight.
Noting that the lack of a strong performance culture is a significant competitive disadvantage because it creates a barrier to implement change, the article says organisations should focus on “the vital few shifts that make the greatest difference in achieving desired business outcomes”. Leaders who seek to make this difference ideally have five basic levers to pull:
- Create consistent role models.
- Establish a purpose to believe in.
- Build the required skills.
- Put in place the reinforcing mechanisms.
- Make it personal and meaningful for a critical mass of employees. In other words, identify one or two personal behaviours that will have the biggest impact on the culture.
With all of this in mind, it may be time to review your performance management system to determine its effectiveness in creating and driving a high-performance culture and providing competitive advantage. Drawing on McKinsey’s five levers would help to keep it simple and relevant. Consider the frequency and quality of reviews, and aim at ensuring that managers are skilled, rewarded and motivated to have performance conversations that are meaningful and drive behaviours.