Performance 2.0 - How to fix your Performance Management process!

Introduction

“Given the right circumstances, from no more than dreams, determination, and the liberty to try, quite ordinary people consistently do extraordinary things.”

Dee Hock (Founder and former CEO, Visa credit card association)

Performance Management is different things to different people. Let’s find out what Performance Management means to you!

A.     A complete waste of time for everyone

B.     A bureaucratic process imposed by HR

C.      A means to justify why I won’t get the rewards I deserve

D.     All of the above

E.      None of the above

For most of the readers, it could well be Option D. However, in truly high performing organizations, it is Option E.

The good news is that, according to Gartner, 87% of HR leaders were considering changes to performance reviews in 2020.

So, let’s examine the need for this change: Why is it important to fix Performance Management? Isn’t it just another checkbox HR exercise that we should be least bothered about?

That’s what you’ll learn in this guide. We’ll help you understand how the Performance Management process works. You'll also discover what you need to know to run a flawless performance management process in your organization.

Keep reading to learn more or use the chapter links below to jump ahead.

1. Why Does Performance Management Matter?
2. Evolution of Motivation Theories and Performance Management
3. What is Social Performance Management?
4. How to Create Goals Like A Pro
5. How to Make Performance Management Agile
6. How to Provide Feedback That Makes an Impact

1.      Why Does Performance Management Matter?

Imagine you work in an organization that has a standard three-step Performance Management process:

a)     Goal Setting

b)     Mid-Year Assessment

c)     Annual Assessment

By our estimate, it takes between 1 to 2.5 hours on an average for an employee for each process step. This involves, time spent on preparation, time spent on documenting and then some more time in a one-on-one discussion between the employee and the line manager.

Assuming that the minimum time required by an employee is 1 hour and an equivalent 1 hour by the manager, the three-step process is likely to take a minimum of 6 hours ((1+1)*3=6). With time from the senior leadership and HR teams on reviews, calibration, sign-offs, grievances, etc., we can easily assume that the minimum time invested per person is 8 hours, or approximately, 1 person day per year. In reality, it is more likely to be 2-2.5 person days. Depending on the rigor of the process, the time taken will be much more.

Now, let us assume that in your company, the average staff cost is $30,000 per annum.

In effect, this amount of $30,000 is for 365 days but the actual working days will exclude weekends, public holidays and leave.

Assuming that the person works for 226 days (365 – 104 weekends – 10 Public Holidays – 25 Leaves). The effective per working day rate is $133 ($30,000/226). For a company with 20,000 employees, the cost of doing Performance Management then is $2,660,000 ($133 * 1 day * 20,000 employees) to $6,650,000 ($133 * 2.5 days * 20,000 employees), depending on how much time we actually spend on the process.

You can easily use this logic to compute the cost of conducting Performance Management in your own company.

And this does not include any cost of attrition that invariably follows the appraisal cycle, the cost of unfilled positions and increase in disengagement.

Deloitte found that creating the ratings consumed close to 2 million hours a year. The same at Adobe was estimated at 80,000 hours every year.

Given that most organizations take a prudent view of investment, these amounts are obscenely large to not warrant a critical review and trigger change.

It is not just the organizational resources, it is also the outcome for the employees and managers that leaves a lot to be desired. This data from Gartner shows just how poorly the current systems work.

In Mercer's 2019 Global Performance Management Study, merely 2% of companies feel their performance management approach delivers exceptional value.

The bottom line is that the current Performance Management Process in many organizations is enormously time-consuming, and hence expensive, process that produces highly subjective outcomes that are demotivating and eventually unhelpful. Sounds like Option D?

That leaves us with two options:

1. Abolish Performance Management: Several organizations, notably Adobe, Deloitte, Microsoft, etc. had abolished annual performance appraisals starting 2012. Some organizations kept the process but abolished the rating. The time around 2015 saw intense experimentation on doing away with elements of the performance appraisal process, or the process in its entirety. The replacement was more frequent check-in processes or regular end of project feedback and review processes. The experiment of removing ratings has proved unsuccessful as Gartner reported a 6% lower employee engagement score in organizations “without ratings” as compared to organizations “with ratings”. Employee engagement scores comprise two batteries that represent employees’ involvement in their work and intent to stay at their organization. The reduction in employee engagement is statistically significant.
2. Make the Performance Management Process more meaningful: This is what we will achieve with the changes we suggest

2.      Evolution of Motivation Theories and Performance Management

The History of Performance Management

“If you show respect [for tradition and ancestors], the populace will respect you. If you promote the worthy and teach the backward, the populace will try their best.”

Confucius, Chinese philosopher (~500 BC)

“The Officials of Chou”, written circa 1100 BC is one of the earliest documents on management. It says a king should lead by setting a good example

The precise origin of performance appraisals is not known but the practice dates to the third century when the emperors of the Wei Dynasty (221-265AD) rated the performance of the official family members (Banner & Cooke, 1984, Coens & Jenkins, 2000). With this first example, we also had the first complaints of rater bias (“Fairness of raters was questioned since the third century by the Chinese philosopher Sin Yu who reportedly criticized a rater employed by the Wei Dynasty: “the Imperial Rater of Nine Grade seldom rates men according to their merits, but always according to his likes and dislikes”). Hence, the problems of Performance Management have existed for as long as the process itself!

The Silent Monitor was used by Robert Owen in New Lanark Mills around 1800. It was used to remind the spinning mule operators about their behaviour. If people were working well and diligently then the monitor was turned to its white side indicating “super excellence”. The yellow side pointed to reasonably good behaviour, the blue side, a “moderate state of morals” and the black side “excessive naughtiness.” This four-point rating scale to provide feedback is possibly one of the first documented mechanisms of managing performance in industrial settings.

In 1909, Frederick Winslow Taylor, one of the earliest management theorists, published The Principles of Scientific Management. He proposed that productivity would increase by optimizing and simplifying jobs. He also advanced the idea that workers and managers needed to cooperate with one another. The third of his four Principles of Scientific Management is “Cooperation, Not Individualism” detailed as “Monitor worker performance, and provide instructions and supervision to ensure that they're using the most efficient ways of working.”

Putting Taylor’s principles to action, Walter D Scott introduced the concept of rating the abilities of workers in industry just before World War I. He introduced his ‘man to man comparison’ scale. His scale was modified and used to evaluate US army officers.

In 1916, Henri Fayol went ten past Taylor and created 14 principles of management that he believed all leaders should live by in Administration Industrielle et Générale. Fayol talks about principles like Obedience, Singular Command, and A Unified Direction – possibly the first instance of someone talking about cascade and alignment of goals!

Taylor’s principles were refined and developed further by Max Weber (Bureaucratic Management Theory), who emphasized on formal work arrangements

“There should be no small talk, collaboration or sharing of ideas. Work is work, it isn't a social outing.”

Elton Mayo took a completely different view of work and emphasized relationships. For five years, Mayo studied employees at Chicago’s Western Electric Hawthorne Works. His study found that relationships work as a key motivator for employees (the “Hawthorne Effect”).

Formal Performance Appraisal systems were well established by the mid-1950s. Personality-based systems were being widely used to evaluate performance. However, these personality or trait-based assessments were far from objective. In 1954, Peter Drucker outlined the concept of “Management by Objectives (MBO)” in his book, The Practice of Management. MBO is a strategic management model that aims to improve organizational performance by clearly defining objectives that are agreed to by both management and employees.

Douglas McGregor (The Human Side of Enterprise, 1960) highlighted the drawbacks of personality-based ratings and promoted a more participative approach and performance-based approach. His Theory Y built more directly from Mayo’s studies and forms the cornerstone for most modern management theories.

Commonly Used Performance Management Frameworks

MANAGEMENT BY OBJECTIVES (MBO)

Nothing has shaped the Performance Management landscape more than Management by Objectives, introduced by Peter Drucker.

Management by Objectives (MBO) is a strategic management model that intends to improve organizational performance by clearly defining “Objectives” agreed to by both management and employees. Having a say in goal setting and action plans encourages participation and commitment among employees, as well as aligning objectives across the organization, espouses this model.

MBO is built around the following five-step process:

#1- Set Organizational Objectives

Management reviews business goals and sets the entire company's objectives for that review period. This broad overview is derived from the mission and vision. The acronym SMART (Specific, Measurable, Acceptable, Realistic, Time-bound), developed by George Doran, Arthur Miller and James Cunningham in 1981, is used to express the concept.

#2- Cascade of Company Objectives to Employees

Management releases objectives down to the employees. In large companies, there may be many levels of reviews prior to this reaching the employees. Employees will review the objectives, recommend changes, and come up with a plan of action that will allow for them to reach their objectives.

#3- Monitor

Management monitors employee performance and offers help where needed. In concept, this is the beginning of continuous performance management.

#4- Evaluate Performance

At the end of the cycle, management and employees meet to discuss how well the employee has met their objectives. Management compares what the employee has completed against what the employee had agreed to perform.

#5- Reward Performance

After the evaluation, the employees are rewarded with increments, promotions, or new responsibilities. Sometimes employees don't believe they were rewarded enough and have issues, but it all comes down to how well they have met their objectives.

The advantages of MBO include goal cascade, employees taking pride in their work with goals that they know they can achieve. Goals are also aligned with employees’ strengths, skills and capabilities. MBO also improves communication.

Though there are many advantages of MBO, there are also some drawbacks and limitations. As MBO is focused on goals and targets, it often ignores other parts of a company, such as the culture of conduct, a healthy work ethos, and areas for involvement and contribution. MBO puts increased strain on employees to meet the goals in a specified time frame.

MBO is the base on which most modern Performance Management frameworks like the OKRs (Objectives and Key Results) are developed.

OBJECTIVES & KEY RESULTS (OKRs)

Andy Grove, the "Father of OKRs", is generally attributed to introducing the approach to Intel during his tenure there. It is documented this in his 1983 book High Output Management. At Intel, Grove championed iMBOs or “Intel Management by Objectives”.

In 1975, John Doerr, a salesperson at Intel at the time, attended a course taught by Andy Grove where he was introduced to concept of iMBO. Doerr built on the concept of iMBO to introduce OKRs. His book, Measure What Matters: OKRs: The Simple Idea that Drives 10x Growth, describes the entire concept of OKRs and its application. In his words, Grove's simple but effective concept is: "The key result has to be measurable. But at the end you can look, and without any arguments: Did I do that, or did I not do it? Yes? No? Simple. No judgments in it".

In 1999, Doerr, working for a venture capital firm Kleiner Perkins, introduced the idea of OKRs to a start-up Kleiner Perkins had invested in. This company was called Google and the idea caught on – OKRs soon became an integral part of Google's culture as a "management methodology that helps to ensure that the company focuses efforts on the same important issues throughout the organization".

Since becoming popular at Google, OKRs have found favor with several other similar tech organizations including Twitter, Gett, Netflix, Uber, Microsoft, etc.

OKRs comprise:

a)     Objective — a clearly defined goal. This is about “what” do we want to achieve.

b)     Key Results — 3–5 specific measures to track the achievement of that Objective. Key Results can be objectively measured. The goal of OKR is to define how to achieve objectives through concrete, specific and measurable actions.

c)     Initiatives – Objectives should also be supported by initiatives, which are the plans and activities that help to achieve the objective and move forward the key results. The initiatives are the milestones or building blocks that ensure Objectives can be achieved.

The extent of achievement of the Key Results depends on the way “stretch” has been applied on the targets.

OKRs are different from Key Performance Indicators (KPIs). While both are useful to measure progress, KPIs are tangible outcomes with measurable results, or metrics, similar to Key Results, but not Objectives, or Initiatives.

Email open rate is a KPI. Improving Net Profit is an OKR.

OBJECTIVES, GOALS, STRATEGIES AND MEASURES (OGSM)

OGSM is a strategic planning process providing clear goals and identifying the strategic choices to achieve them. It defines the measures that will be followed to assure that goals are met and helps groups work together towards common objectives across functions, geographical distance and throughout the organization.

OGSM’s origins can be traced back to Japan in the 1950s, stemming from the process and strategy work developed during the Occupation of Japan, post-World War II. It has since been adopted by many Fortune 500 companies.

BALANCED SCORECARD (BSC)

“What you measure is what you get.” This is how Robert S. Kaplan and David P. Norton introduced the concept of the Balanced Scorecard in a ground-breaking article The Balanced Scorecard—Measures that Drive Performance in Harvard Business Review (January–February 1992). A follow-up article Putting the Balanced Scorecard to Work in Harvard Business Review (September–October 1993) developed the concept further. A full-fledged book The Balanced Scorecard: Translating Strategy into Action (1996) created a movement that still has many followers.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”

Organizations use BSCs to:

• Communicate what they are trying to accomplish
• Align the day-to-day work that everyone is doing with strategy
• Prioritize projects, products, and services
• Measure and monitor progress towards strategic targets

SOCIAL PERFORMANCE MANAGEMENT (SPM)

Social Performance Management is a new form of performance management that recognizes the changed nature of the modern workplace where individuals work as part of networks rather than purely following a hierarchy in their day-to-day work. It also recognizes the importance of interdependence that is vital to foster an environment of collaboration. It builds on OKRs and adapts them to the current times.

At the same time, SPM borrow concepts from social media and applies it to performance management. The next chapter deals extensively with the concept of SPM.

3.      What is Social Performance Management?

Facebook is on the road to extinction!

You may already have seen youngsters shunning it for cooler platforms. Teenagers say it is for old people and they don’t want an account on it. Before we realize, we are getting into the second generation of social media in our personal lives.

As our personal lives have evolved over the last decade with technology and the influence of social media, the way we work has also undergone substantial change; these changes only intensified by COVID-19.

As we move to agile ways of working, where collaboration is more important than rules of the hierarchy, we need to redefine our HR processes to reflect this change.

In this post, we will be showing how Social Performance Management can redefine the DNA of every organization and bring about true transformation in the ways of working!

What is Social Performance Management?

Social Performance Management is a way of measuring contribution, not just performance, in a networked organization. It is much deeper than 360-degree feedback processes, that are more geared for development than performance evaluation. It is also the next generation in seeking feedback from collaborators by getting help from principles of social media.

Have you been in a situation where you believed that someone was being evaluated without taking inputs from collaborators? Or have you received a performance document to provide feedback as an “additional stakeholder” where you don’t know what to fill for most goals, since you have only worked with the individual concerned for one or two goals?

Social Performance Management extends the social media concept of following/unfollowing to goals. The goal owner can tag a collaborator from anywhere in the organization while the collaborator reserves the right to unfollow the goal if it is not relevant. Each goal, thus, becomes a micro-community where collaborators can work effectively together.

This mechanism operationalizes collaboration, which is a Core Value, or Competency, in many organizations.

Why is Social Performance Management Important?

HR processes went into hibernation with Captain America!

All this while the world kept evolving while we got busy with our annual cycles. Well, how relevant is the “Hire to Retire” cycle now? How many people will actually retire from one job?

The seismic shifts in the way we work since the outset of the COVID-19 pandemic is another trigger for us to start looking at changing the way we perform and measure work.

As we migrate to permanent hybrid work arrangements, the physical elements of collaboration need to be supplemented with online forms. While MS Teams and Zoom have been game changers in the way we communicate and connect online, true collaboration goes beyond just online meetings. In fact, too many online meetings can be detrimental to overall productivity.

In this situation, we need to closely define shared accountabilities, set expectations, and clearly explain the common problem statements that everyone needs to work together on. This is a completely different paradigm of managing work than just assigning goals and tasks to individuals and evaluating those at the end of the year.

This is also the best way of keeping pace with the changing nature of work!

Tips and Reminders for Social Performance Management

#1: Age is not a barrier

Don’t worry about age and demographics before implementing Social Performance Management. Over the last few years, hundreds of millions of people have become familiar with social media in their personal lives. Social Performance Management will be a natural extension.

#2: Power in your palm

Most social media work best on the mobile phone. Social Performance Management that is mobile first will have the highest chances of making a positive impact.

#3: Winning Together

Social Performance Management is a powerful way of creating shared accountabilities and enabling collaboration.

4.      How to Create Goals Like A Pro

Importance of Goal Setting

Imagine a game of football where 22 highly talented players are displaying skills of the highest order in front of thousands of cheering fans! Now imagine that the pitch does not have goal posts. How would you feel? Will you think you are wasting your time watching the game? Goals are important to give meaning to the game of football. They are equally important to making work meaningful.

A McKinsey research identified that goal-setting can help improve employee engagement in a way which elevates performance and benefits organizations overall.

It is almost 40 years since George Doran, Arthur Miller and James Cunningham introduced the concept of SMART goals in 1981. In this duration companies have spent countless hours trying to train their employees on how to create SMART goals. Unfortunately, the quality of goals created is still quite bad, with few exceptions.

Before we begin the process of defining individual goals, let’s revisit the OKRs framework which provides a very robust framework for goal setting. OKRs comprise:

a)     Objective — a clearly defined goal. This is about “what” do we want to achieve.

b)     Key Results — 3–5 specific measures to track the achievement of that Objective. Key Results can be objectively measured. The goal of OKR is to define how to achieve objectives through concrete, specific and measurable actions.

c)     Initiatives – Objectives should also be supported by initiatives, which are the plans and activities that help to achieve the objective and move forward the key results. The initiatives are the milestones or building blocks that ensure Objectives can be achieved.

Timeframe of Goals

High Performance is manifested best in sports psychology. Jeremy Snape, ex-England cricketer and noted sports psychologist, describes WIN as “What’s Important Now” and “What’s Important Next”. The annual goal is a Gold Medal Dream that requires steps to avoid being overwhelmed by lofty targets.

Sir Dave Brailsford, head of British Cycling, espoused the concept of marginal gains (1% Performance Improvement) that led to 14 out of 20 Gold Medals in two Olympics.

This insight from sports psychology leads us to believe that only annual goals are not enough to achieve peak performance. Hence, we recommend goals at multiple levels:

1. Long Term Goals: These are annual goals linked to long-term strategy of the firm
2. Medium Term Goals: These are milestones that are the building blocks of annual goals
3. Short Term Goals: These are daily/weekly goals or Tasks that align to milestones

7 Steps to Ace Goal Setting

The most important element in goal setting is Cascade and Alignment. Goals should be derived as much as possible from the corporate objectives or organizational purpose. Lack of alignment is the single biggest reason for sub-optimal organizational performance.

Whether your organization uses a formal strategy map or not, there should be a strong alignment of goals all the way down in the organization. The extent of cascade generally reduces as we progress lower down within an organization, but the overall concept of alignment is no less important. Ideally, goals should be cascaded as-is, so that there is strong correlation between performance at different levels.

While creating individual goals, the following need consideration:

#1- Goal Theme

Goals can be grouped under the Balanced Scorecard perspectives or some other themes as well. The different “perspectives” or “pillars” provide the means to view the deliverables more holistically than focus on just financial goals. You can use the traditional lead (Learning & Growth/People and Process) and lag (Customers and Financial) measures as described in the Balanced Scorecard. Alternatively, Purpose-driven organizations can use pillars such as Work, Environment, Society and Governance. Organizations can choose their own (three to five) bespoke strategic pillars within which goals can be created.

#2- Goal Description

This is where we write what are we looking to achieve. This is the Objective within the OKR framework. The goal description should begin with an action word (verb, for example, achieve, improve, reduce, increase, etc.). Equally important is to define the quality desired in the deliverable, the “boundary condition”, that defines whether the goal will be valuable for the organization or not. Reducing cost is a goal description, but when we add “without impacting marketing spend” it gives a clearer perspective on what is the available playing field.

#3- Target

This corresponds to Key Results and is where you decide whether it is a goal or a responsibility from a Job Description. If you come to anything similar to “ongoing”, it is time to delete that entry and move to the next. A goal, by definition, has a target that can be measured objectively. We recommend a way to assign a target which is SMART. The target should follow the hierarchy below:

a)     Number: The most objective target is a number. Period. It could be a positive or negative number, but having a number makes calculating achievement a cakewalk. Example: Goal Description – Reach subscription base. Target – 100,000

b)     Percentage: If we cannot express a goal as a number, the next best option is to express the target in percentage form. Calculation of achievement is still possible but gets a bit complicated. Example: Goal Description – Improve Net Profit. Target 10%. Note: In this case, since there is a base, the Goal can be reframed. Goal Description – Achieve Net Profit Plan. Target 1,100,000.

c)     Greater/Less Than: In some cases, the target is represented as a threshold. The performance is more complicated to convert into an achievement percentage, depending on whether the favourable condition is “greater than” or “less than”. While “greater than” targets are relatively straightforward, computing achievement for “less than” targets require a different formula. Example: Goal Description – Maintain Error Rate. Target <5%. Here 4% Error Rate corresponds to achievement above 100%.

d)    Qualitative/Text: This should be the last option while framing the target in case any of the above target types is not applicable. Qualitative targets are less objective and there is always room for disagreement on the final outcome. The good news is that just by reframing the Goal Description (as in the Percentage example), it is possible to shift from Qualitative to another target type.

If we imagine the four target types on a left to right scale, the more you are on the left, the SMARTER the goal is.

#4- Weightage (Optional)

A weightage is a good way of indicating the relative importance of different goals. If Person A has 6 goals, and over-achieves two goals, the final rating could well depend on how important those two goals were relative to others. If the total weightage of those two goals is 15%, then obviously, it has little impact on the overall assessment. However, if the total weightage is 55%, then it has a substantial impact on the overall rating. Some organizations do not have weightages, or in other words equal weightages for all goals.

#5- Collaborators

While we create goals at the beginning of the year, it is important that we identify any interdependence. This ensures that expectations are set and any help we need to complete our own goals is agreed with the relevant stakeholders. An early agreement on commitment means that there is greater alignment of efforts.

#6- Due Date

If you are used to annual performance cycles, keeping the due date as the last day of the performance period may seem obvious. However, it is more appropriate to put realistic dates for achievement of goals. There may be a need to complete certain goals during the year, and that should be reflected in the goal.

#7- Milestones

Milestones correspond to initiatives in OKRs and are the building blocks that take you towards the completion of your goal. This exercise is all about “Performance Planning” and is an important part of making sure that all the initiatives that are required are thought through and any interdependence is addressed. An easy way of creating a milestone is to follow the WWW framework as outlined below:

a)     What will be achieved?

b)     When will it be achieved?

c)     Whose Support is required?

You should create as many milestones as are reasonably required and that you can plan for.

Short-Term Goals

While the focus is on winning the Olympic Gold Medal, the short-term is full of sweat and tears, far away from the glamour of the podium. It also requires a disciplined approach to execution. When we bring in remote working in the equation, the process becomes a bit more complex as remote working brings along a number of productivity blockers.

A simple 3P process can help achieve peak performance. These are:

1.      Prepare: This is the part where you should determine what needs to be worked on and by when it needs to be completed. We recommend that once the task is identified, time should be blocked on the calendar to work on it. This takes out limitations of traditional To-Do lists that often do not work

2.      Partner: Like in long-term goals, it is imperative that any collaborators who are required to complete the task are notified as much in advance as possible. However, since the timeframes for completing these goals/tasks are relatively short, aligning with collaborators becomes even more important. Expectation setting on availability of collaborators should be carefully addressed. In case the collaborator is not available, there needs to be a conversation amongst everyone involved including the collaborator and the collaborator’s manager to align on deliverables.

3.      Prioritize: Let’s face it! Right from school where a set timetable is handed over to us, prioritization is a skill that is rare. However, in order to work effectively, prioritization is vital. It ensures there is no need for micro-management, since the employee and the manager are aligned on the expectations. There are a number of frameworks available that help with prioritization. One of the most well-known models is the Eisenhower Matrix, also referred to as Urgent-Important Matrix, that helps you decide on and prioritize tasks by urgency and importance, sorting out less urgent and important tasks.

How to Improve Goal Setting

Making Sure Your Employees Succeed involves several principles through which peak performance can be attained. Here are the Dos and Don’ts:

Dos:

1. Connect individuals’ goals to broader organization objectives
2. As a leader, show employees that you are a partner in achieving their goals
3. Learn about and incorporate employees’ personal interests into their professional goals
4. Adapt goals in real time to reflect changes in business

Don’ts:

1. Allow employees to set goals alone
2. Take a hands-off approach to high performers — they need input and feedback to meet their goals as well
3. Ignore failures — be sure people have opportunities to learn when they don’t achieve goals

SHRM have identified characteristics of effective performance goals as described in the chart below:

At the core of any performance management framework is a Goal. Garbage In, Garbage Out is a commonly understood phenomenon in business. A badly designed goal can spoil all great frameworks. The entire Performance Management system is only as good as the goals that underpin the whole process.

5.      How to Make Performance Management Agile

"Success today requires the agility and drive to constantly rethink, reinvigorate, react, and reinvent."

Bill Gates

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.

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.

That leaves us to the million-dollar question of how to provide effective feedback which is addressed in the next chapter.

6.      How to Provide Feedback That Makes an Impact

“The single biggest problem in communication is the illusion that it has taken place.”

George Bernard Shaw

Providing feedback is an art, and without a doubt, a highly stressful exercise for many. One person’s feedback could be another person’s criticism! On the other hand, feedback could completely miss the point as the recipient may not understand the message.

A quick primer into the structure of the brain and the way we have evolved will give a good insight into how people respond to feedback. There are two specific parts that play an important role in this process:

1.      Prefrontal cortex, which helps people set and achieve goals. It receives input from multiple regions of the brain to process information and adapts accordingly. The prefrontal cortex contributes to a wide variety of executive functions, including:

a.      Focusing one’s attention

b.      Predicting the consequences of one’s actions; anticipating events in the environment

c.       Impulse control; managing emotional reactions

d.      Planning for the future

e.      Coordinating and adjusting complex behaviors (“I can’t do A until B happens”)

2.       Amygdala, which is recognized as a component of the limbic system and is thought to play important roles in emotion and behavior. It is best known for its role in the processing of fear. research suggests that information about potentially frightening things in the environment can reach the amygdala before we are even consciously aware that there’s anything to be afraid of.

While the feedback process is going on, these two parts of the brain are constantly in conflict. While the rational prefrontal cortex is looking for ways to manage emotional reactions and plan for the future to achieve goals, the amygdala is fearful of consequences in case things do not go right. In other words, feedback needs to find the sweet spot between the rational and the fearful parts of the brain.

Another important element to remember is what motivates an individual. While there are many models, including some mentioned in the Chapter on Evolution of Motivation Theories and Performance Management, we recommend Dan Pink’s model of Autonomy, Mastery and Purpose as the means of motivating intrinsically rather than the carrot and stick model of extrinsic motivation.

With an understanding of how our brain processes information – positive and negative – as well as how people are motivated, let’s see how we can provide feedback that makes an impact!

A number of models have been in vogue that suggest ways of giving feedback. One of the most popular ones is the feedback sandwich, where praise is used to start the conversation, criticism/constructive feedback provided in the middle, and praise is used to close the feedback conversation. The rationale here is that by keeping criticism in between two slices of praise, we maximize the chances of acceptance of the criticism.

However, the sandwich method has recently been under intense criticism. The primary reason is that like many other practices in HR, it has no empirical evidence to suggest that performance actually improves using this model of feedback. It is believed that the sandwich approach may be undermining both the feedback and the manager’s relationships with direct reports.

An alternative to the sandwich’s unilaterally controlling strategy is to use transparency and candor.

Here we present a step-by-step guide on how to provide feedback.

1.      Prepare: Dealing with the emotions of a human being is a tricky job. Each person is different and responds to communication differently. Hence, feedback cannot be a one-size-fits-all approach. Also consider your personal equation with the recipient. Accordingly, plan for what you need to communicate and the style of communication. Some people prefer it direct; some need the context. At this stage, the focus is on tailoring the message based on the respondent. Also vital is the preparation with respects to facts. Feedback based on perceptions will ring hollow and not meet its objectives. The rule of thumb here is “the better you prepare, the easier it gets”!

2.      Buy-in: Feedback is based on facts in some cases, and how you see things in others. Before you start giving feedback, the starting point should be to create buy-in into the feedback process as well as prime the brain that some inputs are being provided. “Can we discuss how you did on the presentation?” opens up the discussion compared to “I want to give you some feedback on the presentation”. By doing this we are engaging the prefrontal cortex rather than the amygdala. No feedback can be effective unless the person is open to receive feedback and since the purpose of feedback is to bring about improvement, it is vital that the recipient is open. The Autonomy principle kicks in when the person says “Yes, sure!” in response to your question.

3.      Be specific: Once you have the consent to provide feedback, get into the details with as much specificity as possible. While you provide details, at all times, the recipient must see that your intent is for them to improve. The feedback should be based on what you saw/felt and should include “I felt/thought” rather than a general statement. “You should work harder” is bad feedback as it doesn’t tell the recipient what needs to improve with specific examples. While providing feedback remember that Good leaders always make you feel safe!

4.      Identify impact: When providing feedback, it is vital to bring to the attention of the recipient what was the impact of their action. This is important to show how their actions led to a favorable or unfavorable situation. “We missed the deadline we promised to the client because you couldn’t finish your part on time” explains the result of the action

5.      Self-reflection: While closing the feedback session, use the Autonomy principle again and let the recipient of the feedback self-reflect. There is enormous power in self-reflection and by asking the right question at the end of a discussion, you can trigger thought that leads to improvement.

Providing feedback is an art and takes time to master. However, it is important to realize that each feedback session is an opportunity to coach and develop the recipient as well as raise the bar higher.

Conclusion

The Future of Work is Now. As we fundamentally change the way we work, from home and office, we need to keep our HR processes aligned to these changes. The age-old processes that were built for the hierarchy are no longer valid and reduce the entire traditional performance management process to a check-box exercise that does not enable people to perform better.

By using new age frameworks such as OKRs or even better Social Performance Management built on the OKRs framework, you can fix all that is wrong with your performance management process and get in a position to SOAR!