What is the seemingly intractable problem with performance management, and where does the approach go from here?

Performance management (PM) as a concept is over a century old, and yet it remains the itch that cannot be scratched for most organisations. In my experience, it is fair to say that along with engagement and inclusion, it is the fundamental element of the majority of organisational culture development strategies. And yet, it can feel like leaders and employees alike are either ambivalent towards it, mistrustful of it or uninspired by it as a concept. But, why is that the case? And where does the concept go from here?

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Where were we in 2016?

In 2016, Peter Cappelli and Anna Tavis’ published their seminal article, ‘the Performance Management revolution’ in Harvard Business Review (HBR); the article went on to be included in HBR’s ‘10 Must Reads on Talent’ in 2022 – it still has relevance nearly a decade later.

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In the article, the authors pitched the problem with PM as being that the focus was on what an individual had achieved in the past. It wasn’t future-focused enough. The proposed solution was to have more regular assessment and ratings throughout the year rather than one end of year appraisal and rating. The article went on to highlight some useful empirically underpinned principles that in some ways crystallised the debate, but were not definitive in shaping a solution:

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1.????? Performance actually declines when people are measured relative to each other

2.????? Appraisal scores are more likely to reflect who the rater is rather than the performance of the employee

3.????? Managers hate doing appraisals because they take too long

4.????? Firms need talented people, so doubled-down on development in the mid-2010s. This was better served through more regular feedback rather than an annual appraisal

5.????? Goals were being replaced with more meaningful short-term priorities

6.????? There was a desire to shift away from individual accountability to teamwork, but measurement was a challenge

7.????? HR was seen as a blocker as many of their systems and processes revolve around performance ratings

8.????? Employee Relations insisted on appraisals as they recorded elements that could be drawn upon in disputes

9.????? Appraisals were seen as the most clearcut way to deal with pay for performance

10.?? A focus on strengths rather than gaps was appreciated by employees

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The article finished by flagging 4 key challenges that still needed to be addressed in any approach moving forward – aligning individual and company goals, rewarding performance, identifying poor performers, and avoiding legal troubles.

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Where are we as we start 2024?

Responses to 2 critical questions will inform the shape of any approach to performance management that an organisation chooses to adopt: (1) Who should the focus be on to generate the most value? (2) What components should be included in the approach?

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Regarding question 1, I have worked in 4 different organisations since Cappelli & Tavis article was published. All of their PM approaches have moved on since 2014, but varied considerably. One focused on a flat performance structure where everyone at each grade in the hierarchy was rewarded equally and there were no individual ratings. The other three focused on the individual and the end of year rating informed individual remuneration and a talent rating. Two of the organisations were shifting to a more agile approach to projects and delivery, but the impact of this on PM was yet to be definitively nailed down.

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Regarding question 2, last year - as part of some research in my day job - I investigated 15 large multinational household brands across a variety of sectors (Technology, Telecommunications, Financial Services and Healthcare) to see whether ratings were included in their approach, the cadence of the performance cycle and whether 360s or real-time feedback was included.

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In terms of ratings:

·??????? Some had categories, others had scales or stacked ranking, one or two had no ratings

·??????? Categories or scales ranged from 3 through to 7; 3 or 5 were equally the most popular

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In terms of cycle:

·??????? The approaches ranged from ongoing through quarterly to bi-annual and on to annual

·??????? There was no clearly favoured approach or consistency of alignment with either ratings or the approach to feedback

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In terms of feedback:

·??????? 360 was included in half of the approaches, but was mainly voluntary or optional

·??????? Continuous, real-time feedback was present in two-thirds of the firms’ approaches

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The other key development since 2016 is that it is now not untypical for organisations to deploy a secondary (or often considered ‘primary’) approach to performance alongside any more traditional approach. These include Objectives and Key Results (OKRs), Hoshin Kanri, the High Performing Environmental Structure (HPES) and Consequence Management. There is also some overlay with task allocation through tools such as Service Now. It is not inconceivable that OKRs or a similar approach will become the default for PM in organisations at some point in the future.

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Where might we be in 2032?

On Monday of this week, I launched 2 polls on LinkedIn focused on PM. One enquired around the components present in the approaches being deployed currently. I was encouraged that all the ‘how’ elements of PM (feedback, behaviours, development) were present in the majority of businesses where the people were currently employed. The challenge with PM was perhaps laid bare by the results of the second poll which asked ‘where should the emphasis be placed in PM in order to deliver the best results for all stakeholders?’. The votes were evenly split between individual employees, intact teams, agile teams and the organisation as a whole. A cynic may conclude that this lack of consensus gives the impression that employees will continue to be dissatisfied with whatever approach is served up to them.

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I am choosing to be more optimistic than that. When we think about what might come next for PM, a good starting point is to create a scorecard for progress against the strengths and issues highlighted by Cappelli and Tavis in 2016.

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The strengths to build on at the time were prioritisation, a focus on the team/the future/strengths and a clear link between pay and performance. Gartner have just published their ‘6 Ways To Transform Performance Management To Deliver What Employees Actually Need’:

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1.????? Encourage ongoing manager-employee feedback throughout the year

2.????? Promote discussions beyond individual contexts (promote team goal-setting. Encourage team members to reflect and develop their individual goals for teams to review for alignment, impact, relevance and overlap.

3.????? Develop a framework for assessing future performance

4.????? Encourage managers to communicate actions needed for future success

5.????? Gather feedback from co-workers on how employees help fellow team members (collaboration)

6.????? Foster an environment of feedback

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Assuming that the 6 ways still need attention, including feedback, the team and a focus on the future, it feels as though very little progress has been made in the last 8 years. For me however, these are in fact a very good reminder checklist of what needs to be included in any PM approach moving forward, and then energy should be invested in understanding the best solution for the context with these in mind.

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In terms of the issues highlighted in 2016, i.e. link individuals to the business, reward performance, identify poor performers, avoid legal troubles, time burden, comparison, rater bias, and HR as a blocker it can feel like a heavy weight to be carried around. I do however feel as though there are options available now that weren’t available a decade ago to assist in these areas, the most important of which is technology. Rater bias can be addressed by gaining feedback digitally across the matrix and through the hierarchy rather than just relying on the line manager to score. An intuitive electronic platform used regularly can reduce the time burden on managers for the reviews. The platform will provide HR with evidence of high impact and low impact performance if it is easy to use. The tech can also provide easier linkages between the business and the individual with a cleaner cascade of goals.

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Further hope for the concept of PM is provided by someone who shall forever be synonymous with it. In 2016, former General Electric CEO Jack Welch - who had famously championed the military-inspired forced ranking approach - insisted that he was in fact more passionate about letting people know how they are doing. “As a manager, you owe candour to your people. They must not be guessing about what the organisation thinks of them”. For me, transparency for the employee feels as though it should be at the heart of any PM approach.

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Walking away from writing this article, I am concluding that 3 Cs (candour, context and clarity) are the key underpinning principles for performance management in modern organisations. Maybe it was ever thus, but in an increasingly complex world their importance has grown exponentially. It is all about finding the most intuitive - and equitable - way to be honest and open with employees to maximise value for stakeholders.

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#performance #performancemanagement #transformation