The Past and The Future of Performance Management

The talk and debate about the best approach to a performance management system is alive, and more intense than ever. Companies such as General Electric, Accenture and Deloitte are leading the pack with their new approaches. And many other companies are starting to debate how to rethink their existing approach to make it more agile and engaging. 

To rethink and redesign the performance management process that most companies have in place, it is important to address why the existing approach doesn’t work (the past!). 

1. It is based on a one-time a year appraisal in which all the annual performance, with its learnings, failures and successes is reduced to a short conversation about what went wrong during the year and how to fix it.
2. The approach doesn’t incentivize leaders, and their teams, to have ongoing conversations around professional development, based on talent and potential. Rather, it focuses on what people don’t have (“weaknesses”).
3. It is extremely heavy and intense, and the pace of change and innovation today is too fast for the existing approach to respond. Actually, the current performance management approach is one of the main obstacles to keep up with innovation. It hinders people’s development.

When I talk to companies’ leaders, they express that despite the downsides and the imperfection of the existing system, it works. They say that it allows them to differentiate people’s performance by categorizing them with ratings; to identify high performers and develop their potential, and address issues of low performance. Unfortunately, reality has proven that all these elements are well beyond the results that the existing approach delivers. 

Differentiating performance by providing ratings or categories is not only shortsighted, but it misses the opportunity to look at broader considerations, such as people’s potential, strengths and abilities. Actually, I would say that incapable leaders, unable to develop their people by supporting and challenging them via coaching and feedback, take advantage of the rating-evaluation system. They merely focus on providing a rating/category at the end of the year, because they see it as another checkbox to be marked. 

For example, to what extent is “low performance” actually lack of skills or talents, or the inability to complete goals? Could it be more related to misallocation of talents, or assignment of too easy/too difficult goals, or lack of continuous feedback and coaching?  The performance management process, with its ratings and categories, won’t resolve these issues. Low performance is not an issue to be addressed via systems or processes, but via human interactions. However, the existing system is sort of a consolation for managers who don’t really have the skills to develop their people. 

Now, knowing that the existing system is ineffective to recognize real top performers and develop people’s potential, addressing the actual issues of low performance, what is the best way to rethink and redesign performance management? What is the best way to ensure that top performers are not just lucky, but that they are actually developing their potential? How to support low performers and reward people fairly? 

I’d like to propose a more agile architecture. This approach is more flexible and offer one possible future for performance management: 

1. Agile Objective Key Results (aOKR): too many organizations make greater efforts to ensure that their people have yearly goals. However, in doing so they are sending everybody to the precipice. The pace of innovation and change today is just too fast to deal with high-intensity one-time-a-year objective setting. Instead, the focus should be on a few agile project/process-based significant, actionable and measurable objectives, with only a few key results and indicators, that are constantly updated throughout the year. This shouldn’t be a heavy process, but rather swift and agile (and constant!). It is very important that these aOKR also include professional development activities.
2. Development and Performance: this is equivalent to execution. And the new approach to performance management must also take into account development of people’s potential, together with organizational results. The existing system reduces performance evaluation to whether people achieve something or not. Also, it usually punishes risk-taking and failure. But the new architecture and agile approach must go beyond the “right or wrong” or “you did or not” approach to a systematic understanding of the processes and learnings going on in the organization. For example, when someone is working on a particular project and doesn’t meet the end results. How to take into account the process developed during the project and its learnings, including the ideas for potential innovations, for performance evaluations? Continuous and ongoing feedback is essential in this stage. This is the 21st century and everything happens just too fast. Development and performance must be accompanied by swift and agile feedback.
3. Support and Challenge: this stage is the real measurement of people’s performance through their potential, talents and skills, and the true nature of those who have the responsibility to develop them. This stage requires strong leadership capabilities. It is centered in two premises that need balance. First, supporting people when the task at hand is too complex for their existing level of skills. In this case, leaders have the responsibility to orient their people on how to develop the skills needed to reach a higher level of potential. Very often people need this type of support, but don’t get it. And they become anxious and frustrating, thus performing at lower levels than their potential capacities. Second, some people have skills and talents that exceed the tasks they are developing. In this case, they could easily get bored, disengaged and disconnected, thus performing poorly. Leaders have the great opportunity to challenge people by either assigning them more complex tasks, or asking them to create and innovate, and develop more complex skills. This creates a safe level of stress and motivation for people to perform better.

The final element in the new architecture is rewarding performance. It is evident that budget constraint is a fundamental factor in deciding how to distribute money allocation to pay for performance. However, it is key to consider a few elements when designing the rewards system in this new architecture: 

• Team and individual performance should be rewarded, based on projects/processes performed. Rewarding only at the individual level kills the collaboration spirit that must exist in the organization
• Compensation should be decoupled from a rating or category, and go beyond past performance. It must include people’s energy around developing their potential, and their contribution not only to results, but to processes, innovation, etc.
• Compensation’s final decisions must not depend exclusively on people’s immediate managers. It should rely on a team of leaders capable of seeing each person with as much objective as possible. Managers’ biases could play a big role in creating favoritism, thus rewarding the wrong type of behaviors. Having leaders’ teams evaluating how to reward people is more transparent, diverse and objective.
• Separating coaching and feedback conversations from pay raise conversations. This is fundamental, because pay raises usually happen one or two times a year, whereas developmental conversations must occur on an ongoing and constant basis. 

The future of performance management depends on the decisions organizations and leaders make today. Fortunately, when it comes to the future, there is not a unique way to do things. Many futures are possible, and it all boils down to understanding organizational culture and purpose, and designing accordingly! Nevertheless, one thing is critical, the existing approach to performance management doesn’t respond anymore to the needs of organizations and people. It urgently needs to change, because otherwise it’ll kill engagement and motivation, bringing the organization to a slow, but sure death. I proposed a possible future, based on an agile approach. 

What can your organization do about performance management? How can I help you doing that?

Follow me on Twitter: @erubio_p
Visit my blog: www.innovationdev.org

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About the Author: Enrique Rubio is an Electronic Engineer and a Fulbright scholar with an Executive Master’s Degree in Public Administration from Syracuse University. Enrique is passionate about leadership, business and social entrepreneurship, curiosity, creativity and innovation. He is a blogger and podcaster, and also a competitive ultrarunner. Visit the blog: Innovation for Development and Podcast. Click here to follow Enrique on Twitter. 

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