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Performance Management: What's Broken and How Do You Fix It?

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November 7th, 2017

- Updated on

April 2, 2018 - 9:58am

According to business research expert, Josh Bersin, 70% of multinational companies are moving toward a new performance management model, while Brandon Hall reports that 54% of organizations have made significant changes in the past 12-18 months. Is your organization one of them? 

There’s a revolution afoot in organizations across the globe and it is happening none too soon. Business and generational shifts combined with a shrinking talent pool demand new strategies for talent management and development. Leaders are reexamining their performance management processes and finding them sorely out of sync with today’s agile business requirements. Companies are experimenting with new ways of measurement, including department, team and individual goal setting, new approaches to providing feedback, and more timely and accurate methods of evaluating and rewarding those on their team. Those organizations who have made changes from traditional structures have seen some strong results according to Brandon Hall. 
Performance management graphic
That's good news for the thousands of employees who loathe the old-school traditional performance review systems and dread nothing more than the questionable validity of annual discussions, numerical ratings and forced rankings against their peers. Many pay-for-performance systems teeter on the assumptions that raters and rankings are fair and systemic biases don’t exist.

Do annual performance ratings help leaders increase organizational and employee performance? Overwhelmingly, leaders and employees say NO! 

Case In Point
During my tenure “managing” the Performance Management process at a federal agency, in Washington, D.C., one of the biggest challenges our agency department leaders faced was that of accurately evaluating experts on their teams, whose jobs required providing counsel and issue analysis for those who create law and govern at our country’s highest level. Historical performance data from the legacy performance management system suggested a strong, consistent bias.
89% were rated by their supervisors as outstanding, or a 5 on a 5-point scale. Whether attributable to rater bias, avoidance of union and management conflict, or a reluctance to create conflict or tell the truth to those in their downline, the rankings did not make sense. When replaced with a revamped system (competency and behavior-based rating), the potential for the process to influence employee growth and development was marginal. 

What’s Wrong with Traditional Performance Management?

Traditional performance management based on annual goals and static positional competencies is no longer adequate to create an agile, self-development culture demanded in today’s work environments where information and performance requirements are ever evolving. According to The Conference Board's 2016 Performance Management Summit, if your organization is operating under a version of “the Agile Method (a project-based way of working that changes frequently, based on feedback) and a networked way of working, traditional methods may no longer meet your needs.”   
The Performance Management Summit attracted more than 80 practitioners and experts who discussed the goals of a performance management transformation and why the old way is no longer meeting their needs. They concluded that, 

“…companies are overhauling their performance management systems to eliminate ineffective processes and practices that do not reflect a contemporary workforce, strip away organizational baggage that often constrains good feedback conversations, and elevates ongoing feedback and coaching throughout the year.”  

The table below captures highlights from this event: 
Results for Old School
Performance Management
Aspirational Goals of a New
Performance Enhancing System
 ► Top down, compliance-driven.  ► Skill development driven.
 ► Backward-looking, focus on past behaviors.  ► Future focus. How can one improve to enhance performance toward goals?
 ► Annual discussions discourage more frequent feedback. Poor performers get lost.  ► More frequent conversations, weekly – quarterly, encourage employee/supervisor communication. Enables timely coaching of poor performers.
 ► Annual goal-setting is inflexible to inevitable changes in projects, priorities, and demands.  ► Agile goal setting, geared toward after-action reviews by project.
 ► Evaluations, ratings and forced-choice rankings are demotivating.  ► Check-in discussions foster career and skill development. Motivating. Empowering.
 ► Extremely time and document intensive.  ► Check-ins become a regular business rhythm rather than a year-end chore.
 ► Matrixed and project-based work makes it difficult for one supervisor to rate an employee.  ► Check-ins and after-action project reviews incorporate feedback from diverse supervisors and team leads.
 ► Current systems can make an employee feel psychologically unsafe, blindsided.  ► No more “ gotcha” moments. Frequent feedback means no surprises at year end.
 ► Promote risk-adverse behavior.  ► Incentives can be created to reward new skills, risks taken and roles are taken on.
 ► Create a pressure-cooker atmosphere and unhealthy competition among employees rather than promoting team-work.  ► Reduces the likelihood of forced-choice rater biases. Development driven. Can be team or project focused
Yes, many organizations have determined that it is time to retire the old way of measuring and rewarding employee performance. It's time to focus on a structure and process that enhance organizational agility and employee growth and development. It’s time for a performance management system that fosters a culture, an environment, and the skills employees need to respond quickly, intelligently, and creatively to business opportunities and challenges as they arise. It’s time for new systems that actually drive and enhance performance. 

Performance Systems Enhance Future Performance

There is still much ongoing debate about the best way to make necessary performance management system changes. Many alternative configurations for managing performance are being tested and proven successful in promoting future performance while supporting employee growth and development. Firms such as American Express Global Business Travel (GBT), Johnson and Johnson, technology companies such as Adobe, Juniper Systems, Dell, and Microsoft, are pioneers in the change. Others as well, such as professional services firms, Deloitte, Accenture, and PwC, and even those in the retail and manufacturing sectors, the Gap and General Electric, are rethinking and revamping their performance management approaches to best fit their strategic talent management needs.
Brandon Hall's recent research revealed that 33% - 61% of organizations that changed their performance management processes saw increases in employee engagement, employee productivity and participation in development activities and a 21% increase in employee retention. In contrast, among most organizations who did not change their performance management process in the last 18 months, they reported no change or a reduction in key performance metrics. The report's "Knowledge Graphic" identifies five changes implemented in the 54% of organizations they studied. 
Whatever the revised strategy an organization may create, it will take time, testing, and revision over time to get it right. Leaders at the Performance Management Summit stressed that any new approach must fit the overall talent management objectives and philosophy of corporate leadership. Whether an organization opts to eliminate ratings altogether as Adobe did; to forego the annual review discussion in favor of frequent feedback via check-ins and quarterly discussions as emphasized by Johnson and Johnson; or to create a hybrid performance management system by department or role as exhibited by GE’s revised system; the success of any new configuration will depend on your corporate culture and leadership philosophy. 

Regardless of the direction taken, leaders will need to make a substantial investment in time, education, and communication about the “why and how” of the new system to achieve across-the-board acceptance and bring about optimal business results. 

Coaching and Ongoing Feedback are Essential

Whatever new performance management system design, leaders at the Performance Management Summit stressed that embedded coaching and on-demand feedback through on-going conversations or check-ins with each employee proved essential elements of an agile performance management system. They agreed that regular coaching conversations can be either manager or employee initiated, but all hold a dynamic focus on driving future performance and employee skill development. Research backs up their conclusions. 
Coaching graphicAccording to studies cited by Quantum Workplace and the Career Engagement Group,

“When employees are coached on their performance, they’ll be more equipped to do their job, more motivated to go the extra mile, and more likely to produce high-quality results…Organizations with employees who are coached effectively and frequently improve their business results by 21 percent compared to those who don’t coach employees." 

During a recent Conference Board webinar entitled, 21st Century Performance Management: Linking Performance Management with Optimal Business Results, a representative from industry leader, Johnson & Johnson, offered some insightful questions to fuel coaching discussions from both the employee and the manager perspectives. What follows is a sample of those check-in conversation starters from the webinar:
For Employees to
Talk with and Listen to their Managers: 
For Managers as Conversation Starters to
Talk with and Listen to Employees:
“Let’s Talk… about my day-to-day experience.” “Let’s Talk…and check in.”
 ► What do you think I am doing well?
 ► Are you energized by the work you are doing?  Why?  Why not?
 ► What’s one thing I can do differently?  ► How do you feel you are progressing in your role /your work?
 ► Can you help me think about the best way to approach this situation?  ► Are you receiving the guidance you need to be successful? What do you need from me to support your success?
 ► Are there skills I am expected to develop in this role?  What about to prepare for the next role?
 ► What were your learnings on this project, and what would you consider continuing or doing differently on your next project?
 ► Can you help me clarify my role in this project?  ► How did the project go? What did you think of your overall experience?
 ► Am I meeting expectations for this project?  ► What do you see as the expectations for your new role? 
 ► Are there learning opportunities coming up that you think make sense for me and my career development?  ► Have your requested feedback from others on the project, and other managers impacted by your work?

Is a Performance Management Change in the Cards for Your Organization?

Perhaps you have determined that a future-focused, coaching-based performance management system would help you achieve your organization’s goals? If so, is your organization ready to change your performance management system to one more closely aligned with today’s overall talent management strategy? Ask yourself these four questions:
  1. Are your managers well equipped to coach? If not, consider building manager capabilities, enhancing their coaching skill level through internal coaching training. Provide a framework for the check-ins and coaching conversations. Make these conversations a priority. 
  2. Are your managers skilled in providing real-time feedback? Set an example by providing your managers with timely, development-focused feedback yourself. Educate your managers and your employees about the value of frequent one-on-one feedback conversations. 
  3. Are your employees ready to take responsibility for their own growth and development? Establish an environment in which it is safe for employees to seek out feedback. Reserve time in the regular business rhythm for career and skill development conversations. 
  4. Are your managers skilled in coaching your project teams to high performance? In your project and team-oriented work environment, individual performance and team performance go hand in hand. You can’t have one without the other. Provide the tools and strategies your managers need to guide and optimize team performance. Download AJO's complimentary High-Performance Teams Coaching Guide to learn more.

Recommended Reading & References

Kathy Flora is a Career and Executive Coach and AJO Blogger who is actively pursuing her life’s passion, helping others find and fulfill theirs. Known as a positive change agent, mentor and guide, she has assisted hundreds of leaders and their teams understand their strengths, collaborate effectively, and drive organizational success. She has a special affinity for working with virtual teams, using webinars, virtual meet-ups, and online collaborative communities to optimize communication and productivity. Her experience spans over 25 years in executive management and leadership, career development, facilitation, and consulting in private firms, state government, and in federal agencies.