Can Your Organization’s Performance Management System Be A Game-changer?

Performance management systems in organizations have been a subject of debate for last three decades. Many companies including GE, Accenture, Google and Amazon have developed their unique perspectives in this area and therefore have interesting methodologies to assess employee performances. The nature of most industries has changed immensely and is still changing as we gallop along in the global knowledge economy. This has necessitated significant changes in what is expected from employees in an organization. One thing has become clear – there cannot be a one-thing-fits-all approach to performance systems as it was in late 20th century. Every company needs to make adaptations depending on what works best in their industry, their organization culture, their organization objectives and finally their organizational capabilities.

A brief history

Like many practices, performance measurement was introduced in corporates taking inspiration from the military organizations. Research suggests that this could have been in early to mid-20th century. These early processes were geared towards productivity measurement among industrial workers. The Balanced Score Card framework by Robert Kaplan and David Norton in the 90s had a seminal influence in overhauling the performance systems to align with larger objectives. Since then, devolving strategic, operational and tactical goals of an organization appropriately across employees at all levels has given a new dimension to the performance management systems (PMS).

While measurement is an invention of modern management theorists, goals setting is as old as humankind itself. The early human race,Homo Habilis, possibly had a few undefined goals too. They had to hunt and gather fruits, roots and berries to survive. They might have learnt in course of time that they can hunt and gather in more efficient ways and so made tools from stone and earned the nickname “Handyman”. The history of evolution is marked by continuous progress by various species of humankind, which could not have been all accidental, but possible only by deliberate endeavor to improve their lot. As man formed social groups, he progressed in leaps and bounds. The larger and more complex the groups, the greater were the inventions and discoveries. Therefore, history shows us that the itch to achieve and the wisdom to follow a plan to reach desired results are innate characteristics of humankind.

Hence, motivation theories right from Maslow’s need hierarchies, talk about the role of goals & their fulfillment in keeping men & women happy and how goals such as self-actualization and personal achievement are really in the higher realm, propelling people to impossible feats.

Raison d’etre for performance systems

Lord Kelvin famously said “If you cannot measure it, you cannot improve it”.

The industrial era view of people in an organization was merely “resources” that had a “cost” and therefore had to yield a “return” through efficiency and productivity. In the knowledge economy, this view has changed to “Employees & Talent” who are an “investment”. Still investments require returns. It is, therefore, not wrong to say that the essence of PMS remains one of setting hard metrics and strictly measuring results against those.

With this overarching objective, performance management systems help set forth the following two fundamental wheels:

1)     An aligned, sharp and dedicated focus on the key organizational goals by every employee

2)     Intrinsic motivation of employees to work for organizational goals built upon trust in a fair and standardized measurement-reward system, that results in individual benefits

Common Misgivings & Counter Measures

It is a fact that despite the win-win architecture of performance systems, many employees hate it and even many more managers dread it. The practice of the system is not easy even under best intentions and circumstances. Most grouses arise during the last review phase, where managers struggle to find time and energy to spend reasonably on all their subordinates and employees in turn feel the system to be unfair or worse, futile.

Many organizations have increased the frequency of reviews to biannual, quarterly or monthly to counter these challenges. To remove personal biases from the review system, HR thought leaders recommend a combination of Self-evaluation, Peer reviews and 360 degree feedback. Some organizations have taken the bold step to introduce upward feedback so that the review process becomes really a two-way street. Google’s OKR based performance measurement process, which inculcates all of the above and more, has received considerable attention and praise of late. It is seen as being very people-centric, broad-focused and transparent.

What leaders do understand is that allowing democratic goal setting and review process drives ownership, accountability and hence, superlative performance among employees. 

Room for Re-imagination

Beyond ensuring that goal setting is collaborative, reviews are frequent and fair and rewards are just, how can organizations make this critical process exemplary? Is there room for making this a good to great process whereby people perform at their peak, organizations get outstanding results and an enviable team is built?

To answer this question, it would be good to understand what the stumbling blocks to greatness are in today’s best performance systems.

KPIs – Indicative or Conclusive?

The spirit of KPIs is that they are

1)     A set of key action or outcome areas and

2)     A barometer of an employee’s potential as shown by his/her performance in those key areas

But the question arises if there is far too much emphasis on KPIs. Individual KPIs may ensure organizational goals are met, but they fall short in encompassing the wide possibilities of contribution from an employee. Most employees are happy to stick to the written when there is no additional incentive for going beyond. An exceptional employee may not be able to sustain the motivation to consistently go beyond the KPIs, as his manager may lack the bandwidth or the impetus to recognize the efforts.

Remember the famous 20% time at Google? Most organizations with underutilized employee time can benefit from emulating this. To make it a mainstream practice, annual employee evaluations could give a certain weightage to achievements beyond KPIs. Like competencies assessment, the section on “Beyond KPIs” can be formally included in the goal sheet and the review could take into account both quality and quantity of additional initiatives. So while KPIs still continue to be the core of an employee’s assessment, it does not become the only determinant.

Teams above Individuals

Many personal achievements are possible because of support from one or more team member. Some are achieved despite lack of support. Team influences are not spoken about or considered in reviews. In fact, teams are never formally reviewed. We hear of super-achievers who trampled the teams on the way to glory. There may be unsung heroes in an organization who have shown great team spirit and contributed indirectly to results. Means are as important as the Ends.

KPIs that involve a team should be reviewed as a team, for each member by the team leader. This will bring to light the team dynamics, what efforts helped and what did not and allow the team to take collective ownership for success or failure of a KPI. Bringing team work under performance review ambit will build strong, transparent & highly collaborative teams.

Redefining Objectives

The central purpose of all performance systems is to manage talent – reward, coach, train, rotate & disengage – so that organizations can use the right human resources towards achieving their vision. For people working in an organization, a well-designed and fair performance review system is the greatest motivator beyond monetary and non-monetary perks. Irrespective of the significance of the role played, employees love it when their contribution is recognized, their talents are nurtured and positive criticism is shared to help them improve. When employees feel valued in an organization, they develop highest sense of ownership. Ownership drives performance. It is a virtuous cycle!

Therefore, managers who conduct performance reviews should have a metric of “Employee Loyalty” under their KPIs. Attrition rates of subordinates under them should be measured and questioned. If organizations were brands and the leaders who steer them are the brand evangelists, they must be concerned about how loyal their employees are. Will their talent (not just the best, but everyone) jump ship when there is a better offer is a question that must be addressed. HR managers work hard to engage their employees – sometimes great workplace amenities like food, gyms etc & sometimes activities to foster togetherness and to feel like a “family”. But engagement does not translate to loyalty. And in today’s era of knowledge workers, loyalty can neither be demanded nor taken for granted by organizations. The costs associated with hiring, training, on-boarding and allowing performance gestation period for new recruits are only well-known.

Employee Loyalty rather than Employee Engagement is critical because loyalty is the long term word. After all Loyalty, Ownership and Performance are intertwined.

Summary

Like every process in an organization, performance management process should also be constantly scrutinized for efficiency and relevancy. In fact, I would suggest that the process should be renamed as People Management System, so that the focus is on People and not on KPIs. KPIs are indicators about talent in an organization and what leaders need to do to make them best in class. With this paradigm shift in thought, the process becomes a game-changer and not a mere ritual.

?Footnote:

This is the second of a series of articles I plan to publish under the topic of "Organization Performance: Transformational Drivers That Matter Today"