By David Reynolds

Given the number of leading companies canning their performance management system, it begs the question: is the traditional process on the way out?

And if so, what will be the future way of measuring the performance of teams?

Global organisations such as Microsoft, GE, Google and Deloitte have recently disbanded the traditional performance management process. Some have scrapped performance management altogether and others are managing performance through regular reviews, discussions and coaching sessions.

Why is this?

Firstly, let us consider the original purpose and intended benefits of performance management processes and what they are meant to achieve.

Performance management has long been considered an essential methodology to improve performance. The methodologies commonly adopted by many organisations are designed to ensure that everyone is doing what the organisation requires of them, including improving performance, changing behaviours and delivering on KPIs, personal and business objectives.

An effective performance management system is generally aligned to an organisation’s business strategy, mission, culture and values.

A robust performance management system should be aligned to business strategies and designed to deliver high performance and competitive advantage.

The key objectives and areas subject to performance review and assessment are generally set at the Executive level and then cascade through the different layers of the organisation, right down to the front-line employees.

Why do Performance Management systems often fail?

Many performance management processes fail for the following reasons:

1. They do not have clear measurable goals;
2. The goals and objectives are not achievable and measureable;
3. The goals are not aligned to the overall business strategy;
4. Managers do not have the skills or the motivation to set goals;
5. Managers do not invest enough time with their staff setting and agreeing on goals and measures;
6. They are only reflective of one moment in time and not of the overall performance or year;
7. Managers are generally not experienced or confident in providing constructive or negative feedback;
8. Often managers overlook the performance review completely as there is no imperative or requirement from their own performance goals and objectives; in other words they are not held accountable;
9. Managers have not been skilled in coaching their employees for improved performance and change in behaviour;
10. Quite often rewards and recognition are not aligned to performance outcomes;
11. Goals are often set with little regard to an employee’s capability and without the corresponding support of training and development;
12. Many managers assess employees’ performance based on their most recent achievement, interaction or project, which is known as the “halo effect”; and most importantly,
13. Many organisations conduct annual reviews rather than managers having weekly, monthly and quarterly discussions about their performance and future development needs.

Why have organisations abandoned the traditional performance reviews?

Do we actually need performance management processes and forms or is there a better way?

Does performance management deliver better outcomes for organisations and what benefit is it to individuals? Does it allow people to play to their strengths and grow and develop or is it an administrative burden with little positive outcomes?

In a survey by Towers Watson & Co, less than 50 per cent of respondents felt that high performers in their organisations are adequately rewarded. This was primarily due to their manger’s tendency to dump performance rankings towards the middle range of the scoring grid.

This is supported in The Journal of Economic Literature by Professor Canice Prendergast who indicated that when managers are given a free rein on ratings they tend to fall into two categories:

• Centrality bias (scores are clustered around the midpoint)
• Leniency bias (scores bunch around the top).

The president of Mind Gym Inc Sebastian Bailey said in a recent article that the annual performance review has never been popular with employees or mangers and that in attaining objectivity and fairness the process is almost always threatened by hidden biases.

“Neither provides incentive to work harder and there is little consequence to slacking off, so performance plateaus,” Mr Bailey said.

To overcome this a number of organisations have introduced a forced ranking system such as GE who introduced a blanket policy of removing the bottom 10 per cent of employees.

This system known as ‘rank and yank’ definitely sends a clear message to the low or underperformers. A negative of this system is that after several cycles where the underperformers had exited, managers felt compelled to rate the worst of a group of high performers and potentially risk losing these employees.

Starr Conspiracy HR Examiner Steve Smith believes that we are beginning to see “organisations actually start to do things differently.”

“It’s not that the usual activities are wrong, it’s just that there isn’t enough transparency into the process on a daily basis to understand what the real business drivers are,” Mr Smith said.  

“Most employees don’t have business goals that drive their behaviour on a daily basis.”

The other line of thinking regarding performance management is should recognition and employee engagement all become part of the managers’ ongoing conversations about performance?

Greg Harris from Qantum Workplace says that “the fact that performance management is broken is now conventional wisdom… 97 per cent of workers think performance reviews are stupid and 58 per cent of those that design performance reviews agree.”

The future

In a research document, Aberdeen Group put forward the thought that “building and sustaining high performance among employees requires a mix of tools and processes, along with a commitment from the organisation to support managers in having better conversations about employees and their performance.

“Effectively assessing an employee’s skills, effort and talent is critical in the workplace by truly supporting the respective manager. This is paramount to the enterprise’s success”

Aberdeen’s 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 also noted that the “number one activity that organisations have said that made the biggest impact on employee performance is aligning individual goals with overall organisational goals.” Interestingly, this was cited by 41 per cent of all respondents.

The other telling fact from Aberdeen’s research was 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 mind-set around performance conversations;

·        Enabling managers with technology to support performance management; and

·        Increasing the frequency of formal and informal performance conversations.

What are some of the forward-thinkers doing?

One organisation that has totally redesigned their performance management system is Deloitte.

In Harvard Business Review, Deloitte’s New York Director of Leader Development Ashley Goodall outlined the company’s new approach.

In a survey Deloitte conducted 58 per cent of respondents believed that their current performance management approach drives neither employee engagement nor high performance.

Deloitte decided they needed something “nimbler, real-time and more individualised. Something focused on fuelling performance in the future rather than assessing it in the past.”

Deloitte’s new system doesn’t include cascading objectives or an annual review.

Key features included: speed, agility, one size fits all, content learning and all underpinned by the collection of reliable performance data.

Deloitte’s analysis and study found that “almost all the variations between high and lower performing teams was primarily explained by one item; namely ‘at work, I have the opportunity to do what I do best everyday’.”

In fact, business units that strongly agreed to this item were 44 per cent more likely to gain a higher customer satisfaction, 50 per cent were more likely to have lower employee turnover and 38 per cent were more productive.

Deloitte’s internal surveys of employees show that the most powerful item that impacted high performance was “I have the chance to use my strengths every day.”

Deloitte believe you cannot compress performance into a single number. They want to obtain the most detailed view of an individual and determine how the data that is gathered supports a conversation about performance and how they can equip their leaders to have insightful conversations based on the richest view, not the simplest.

Deloitte radically redesigned their performance management system by creating the following:

1.      The criteria – identified measures that met three key criteria:

1. Raters to rate their own actions, rather than the qualities or behaviours of those they were rating.
2. Questions had to be phrased in the extreme
3. Each question had to contain a single concept. The ones chosen were pay, teamwork, poor performance and promotion.

2.      The rater – team leaders being the closest to an employee’s performance were chosen as the raters.

3.      Testing – they tested their assumptions with validated data.

4.      Frequency – as Deloitte live and work in a project structure, a performance snapshot is made at the end of each project.

5.      Transparency – while they will aggregate an individual’s score into an annual composite they will err on the side of sharing more, not less in the context of a group of peers so they can provide their people with the richest possible view of where they stand.

Driving a strong performance culture

In developing a strong performance culture, a robust and tailored performance management system is only one element.

A McKinsey article ‘How do I create a distinctive performance culture’ noted that a company can develop a strong performance culture that competitors will be unable to duplicate quickly “by adopting an approach that combines pragmatic business sense with problem solving rigour and behavioural insight.”

The lack of a strong performance culture is a significant competitive disadvantage because it creates a barrier to implement change.

The article says “an organisations should focus on the vital few shifts that make the greatest difference in achieving desired business outcomes.”

They believe leaders who seek to make this difference ideally have five basic levers to pull:

1.      Create consistent role models

2.      Establish a purpose to believe in

3.      Build the required skills

4.      Put in place the reinforcing mechanisms

5.      ‘Making it personal’ and meaningful for a critical mass of employees. In other words, identify one or two personal behaviours that they will have the biggest impact on the culture.

Recommendations

With all of this in mind, it may be time to review your performance management system to ensure you have a process that will create and drive a high performance culture and provide a competitive advantage.

Keep it simple and relevant by drawing on the five levers that McKinsey have recommended above.

It is also suggested that they frequency and quality of reviews be considered and that managers are skilled, rewarded and motivated to have performance conversations that are meaningful and drive behaviours.

David Reynolds has over 30 years of experience as an executive in the recruitment, consulting, accounting and tourism sectors.