How to Make Performance Management Agile

"There is nothing permanent except change." - Heraclitus

Let’s face it, the annual performance review is a thing of the past. Not only is it enormously time consuming but also not in sync with the pace at which the world works and the normal cycle in which managers lead their teams.

Whether it was advice from the legal counsel or the sheer perception of Performance Management being a holy cow, Annual Reviews were the norm rather than the exception. Associated with the Annual Reviews are practices such as the “bell curve” (a.k.a. rank-and-yank) where companies would mandate a strict alignment with quotas for different performance categories, generally accompanied by performance-related exits for the bottom 10% and higher than average rewards for the top end. The process, championed by Jack Welch, starting the 1980s, were widely accepted by the corporate world.

McKinsey’s War for Talent research in 1997 further reinforced the concept that the supply of “talent” was far lower than demand and that companies needed to be judicious in their attempts to differentiate employees based on Talent. The annual rating become a cornerstone in this war, with companies looking to identify and reward “talent”.

However, in 2005 GE quietly backed away from forced ranking because it fostered internal competition and undermined collaboration.

Endless paperwork or tedious software, the evaluation criteria so utterly unrelated to jobs, and the simplistic and quota-driven ratings used to label the performance of otherwise complex, educated human beings were nothing less than a corporate kabuki. This highlight from Gartner clearly explains all that is wrong with traditional Performance Management.

The substantial prominence on financial rewards as well as punishments entrenched in the end-of-year structure holds employees accountable for past behavior rather than helping improve current and future performance and nurturing talent for the future, both of which are crucial for organizations’ long-term success. On the other hand, frequent conversations about not just performance but also development change the focus to building the workforce to be competitive both in the short and long term.

In 2011 Medtronic “completely ditched the old style of performance management” Annual ratings were replaced with a quarterly “performance acceleration” process that focused entirely on a handful of forward-looking goals, had no numbers or ratings, and included a one-page summary sheet.

Next year, Adobe abolished the traditional performance review and introduced “Check-in”. Prior to introducing Check-in, stack ranking led Adobe to lose people it wanted to keep and keep people it wanted to lose. Furthermore, Check-in motivated people to perform at their peak throughout the year – instead of right before they will get their annual performance review.

This move created a buzz in the Silicon Valley and also resulted in widespread positive publicity as well as a 68% surge in the stock price.  A number of companies followed, including some of the biggest names in technology, including Microsoft. The view centered on providing continuous feedback, with formal evaluations becoming important when evaluating an employee for a promotion or for addressing below par performance.

Technology companies moving to continuous performance was not such a surprise. The “Agile Manifesto,” a manifesto created by and for software developers in 2001, mentions the following points that they value:

Individuals and interactions over processes and tools

Working software over comprehensive documentation

Customer collaboration over contract negotiation

Responding to change over following a plan

This new way of development was completely at odds with the existing way of managing performance. Software development was well and truly in Scrum like methodologies mode: work was structured around sprint planning, where a sprint could last as less as a week rather than the traditional timeframe of one year used to determine progress.

The Agile Manifesto also emphasized principles such as collaboration, self-organization, self-direction, and regular reflection on how to work more effectively, with the aim of having teams self organize themselves, prototype more quickly, and respond in real time to customer feedback and changes in requirements. Although not directed at performance per se, these principles changed the definition of effectiveness on the job—and they were at odds with the usual practice of cascading goals from the top down and assessing people against them once a year.

Over the last few years, more and more non-tech companies are beginning to explore making their performance management process more relevant and in-the-flow-of-work. At the same time, the nature of work in non-tech and non-professional services companies is not always project-based where an end-of-project-review can easily be conducted. Frequent discussions do not always result in richer feedback.

We recommend a structured way of having these frequent “check-ins”. The general discussion in employee-manager one on one meetings generally boils down to status updates as well as planning for the next week/month. There are, however, important areas that need a discussion and deliberation as well. A good check-in process covers the following elements:

1. Relevance: In many organizations, goals are set annually. As the year goes on, it is important to review the relevance of goals throughout the year. This will save you from the uncomfortable discussion at the end of the year or a notional rating on the goal in case it wasn’t relevant, and you did not work on it. Technology needs to support you in this as some legacy systems do not allow you to delete goals once created.
2. Progress: This is the highlight of the discussion. We recommend that during the progress discussion, employee and manager should ascertain the progress made against milestones or key initiatives. This helps everyone stay on top of the deliverables and execute flawlessly.
3. Obstacles: Check-ins provide the opportunity to discuss any obstacles or roadblocks that may impact the achievement of the agreed goal. The endeavour should be to highlight any obstacle as early as practical so that a solution can be worked out. By highlighting obstacles proactively, you can spare yourself the agony of justifying to the manager at the year end that the failure to achieve results was because of some reason outside your control.
4. Assessment (optional): You may want the employee to know a light rating at the end of each check-in and the trend of the ratings show where they are tracking to. This removes the opacity as well as surprise from the year end rating. It also allows HR to get a sense of expectation setting right from the word go and gives them insights into where in the organization is the understanding of the rating scale poor. For example, if a rating of 3 means “Meets Expectations” and the company on the whole is tracking to this rating, whereas you find the certain pockets are tracking to very high YTD average ratings, there is a need to address the understanding of performance expectations in that group.

In addition, short-term goals or Tasks, by their very nature require agile performance management. Just as the 70-20-10 principle of learning, where 70% of learning happens on the job, we believe 70% of feedback should also be provided on the job. The completion of each Task is an opportunity to provide feedback. This feedback should be aggregated over time and fed back to the employee as Continuous Feedback.

The combination of structured check-in sessions as well as feedback on completion of tasks can truly make the whole performance management process more agile and remove the disproportionate emphasis on formal once or twice in a year feedback.

A consistent dialogue between employee and manager lays the foundation of a relationship of trust. It helps keep track of deliverables, achieve small wins and take action for course correction wherever required.