Steve Macaulay and David Buchanan tackle how to create a performance management system which will be fit for purpose to deal with current and future challenges.
‘Stability’ and ‘certainty’ are terms that are unheard of these days: organisations are battling with a runaway list of challenges: from agile working, artificial intelligence, Brexit trade rules, Covid lockdowns, to cybersecurity, hybrid work models and online business. All these are reshaping the fundamentals.
In stark contrast, performance management systems have often stood still, assuming that objectives once set are good until the next annual review. Yet today’s goals must rapidly respond to ever-changing needs: this has revealed many dysfunctions in traditional performance management systems.
Why performance management?
Effective performance management should align the requirements of the organisation with the needs and contributions of individuals. Key objectives should be consistent with organisational strategy, and should help to develop individual performance.
The process should also clarify roles and priorities and reinforce accountability. This means regular two-way communication, that adapts to changing circumstances, underpinned by coaching and development.
How does this work in practice?
In our experience, there is widespread dissatisfaction with current performance management systems, which survive because it is not clear how to improve them. This dissatisfaction has spilled over into action, particularly in the tech sector, with Google and Adobe, for example, making significant changes to their systems.
To maximise commitment to the new approach, have your employees and management co-create and implement a system tailored to the current and future needs of your organisation.
But many organisations still seem to be stuck in the past. It begs the question – how does your organisation measure up?
What are the main criticisms of traditional performance management systems?
It’s widely assumed that performance objectives should be SMART: Specific, Measurable, Accountable, Relevant and Time-Bound. But this doesn’t always cover the nature and complexity of jobs today. When circumstances change, objectives set months ago can be suddenly irrelevant – or suddenly critical.
In fast-paced environments, the goalposts keep changing and an annual approach to setting objectives may be unhelpful. It may be more appropriate to assess contribution rather than, or as well as performance; during pandemic lockdowns, for example, many organisations discovered that their lowest paid staff were key contributors to business continuity.
Adaptive performance objectives need to be subject to monthly or quarterly reviews. This can be time consuming, particularly for the manager with a broad span of control. Modern measurement and reporting systems can help to automate the process, but the surveillance which this involves can raise ethical concerns – and complaints.
However, some companies have introduced 360 degree feedback, which can be rapid, and developmental.
Focus on the past
The process is usually backward looking, identifying and explaining past mistakes. The focus should be on future performance. Recognising this, some organisations (including UK government agencies) have replaced traditional appraisal feedback with feedforward interviews, focusing on future performance objectives.
Performance management systems are meant to be motivational. In practice, they can demotivate. Company-wide systems cannot address individual differences in motivation, and some may even be harmed by a process that attacks their self-esteem. Performance conversations are meant to be two-way, but many employees don’t regard the process as fair or productive.
Lack of emphasis on strengths
An emphasis on weaknesses is another drawback. Performance management systems should aim to develop strengths – focusing on the individual, not on a rigid ‘one size fits all’ template. The competencies required to meet future challenges are particularly important.
The link to pay
If pay is linked closely to performance, discussions about personal development become difficult, because these need a different atmosphere. Moreover, where imposed targets are linked to rewards and sanctions, learning from experience is inhibited and unintended consequences (such as gaming) promoted.
Performance ratings, which look backwards, are contentious, again making it hard to focus on future development. When ratings are seen as subjective (even if they are not), then expect complaints of unfair treatment. People may withhold their best performance if they feel that they have been unreasonably treated.
Measuring up to future-proofing the system
What is required to future-proof performance management?
- Ongoing regular reviews and goal setting, replacing annual retrospectives
- Flexible, agile goals, which can be adjusted rapidly
- Line-management led, not a separate HR system
- Tailored to individual needs, not a rigid one-size-fits-all approach
- Developmental emphasis, no judgemental rankings
- Straightforward, not complex and time-consuming
- Supported by skilled managers, not relying on untrained supervisors
Characteristics of a future-proof performance management system
adaptation, fine tuning
goals for the coming year
short and long-term goals
long, formal meetings
short, informal conversations
led by human resource specialists
led by line managers
complex paper-based system
simplified measurement system
enabling and empowering
What does frequent, ongoing performance management look like?
Traditional systems often cover an annual cycle: set objectives, review, take corrective action, reset annual objectives. This reflects a directive rather than an enabling control system, putting emphasis on controlling performance instead of facilitating it.
Dynamic performance management is different:
The topics that need to be covered in frequent checkpoint reviews include:
Past and present
- How are you meeting objectives?
- What has gone well/not so well?
- What’s the feedback?
- Looking forward, key priorities
- Development and learning
Getting the right focus
- Any issues to raise?
- What support do you need?
- Key actions?
Review current practices
Review the effectiveness of your current system with a view to building a future-proof approach aligned with organisational needs. Pay particular attention to how the system will be designed and implemented. Beware off-the-shelf products designed by ‘experts’ and then handed over to those who have to live with them.
This ‘design and deliver’ approach is guaranteed to reduce the commitment of those who have to make it work as they have had no involvement in designing it.
To maximise commitment to the new approach, have your employees and management co-create and implement a system tailored to the current and future needs of your organisation. Here are some examples from organisations that have modernised their systems: you may be able to adapt some of their approaches.
Lessons from the leading edge
A decade ago, Adobe was the first to adopt a future-proofed approach to performance management. They now use a check-in model of ongoing feedback which they believe is essential in engaging people through the process of giving and receiving feedback.
Adobe believe that executive sponsorship and role modelling are also important. At its core lies the development of managerial skills. Information sharing in performance discussions has replaced a one-way communication process.
Netflix doesn’t hold formal performance evaluations. Instead, performance is reviewed as part and parcel of working relationships which include candid 360° feedback.
Honesty, through open and regular feedback is important. This feedback is through named individuals, who use a stop-start-continue framework. The company sees business and cultural context as an important means to reinforce Netflix values.
The process is seen as collaborative, with the onus on employees to set their own goals and identify measurable results to achieve their objectives. Managers rate their staff but do so in collective meetings. Midpoint check-ins are an important part of the process. Pay is a separate discussion from the annual performance reviews, held a month later.
GE was once seen as being at the leading edge of practice with its performance management, but this was replaced after a 30-year run. The company now operates in an environment of open, continuous communications.
Role of HR and L&D
Introducing an effective performance management system which is supported throughout the organisation requires the sort of care and attention to detail of any major change management project. Top team backing is essential.
An action working party, with key influencers, can help identify the steps needed to put this into practice. Importantly, this must be followed up by personal example; role modelling can be key to winning commitment to new systems.
Performance management skills are needed to operate a new system, and developing these skills must be high on the L&D agenda. Management development needs to build confidence in the whole cycle of setting objectives, monitoring and review, coaching and evaluation, and resetting objectives.
What would have been unexpected in the past is to be expected now.
Everyone involved needs to be aware of the process, and there needs to be discussion and understanding of the practicalities of putting this into effect. As in any change project, communication and monitoring needs to be well established, with progress milestones set, monitored, and action taken when necessary.
Many organisations which have introduced more radical changes to performance management have found that, after a period, they need to adapt and revise. Given the nature and pace of changes in the business environment, this is normal, predictable, and necessary, and is not a sign that the new system has gone wrong.
We live in an age where the unprecedented has become normal. What would have been unexpected in the past is to be expected now. We can extrapolate from current trends and developments – economic, social, technological – but we can safely predict that we will be taken by surprise again – and again.
But these routine discontinuities are going to cause more unpredictable business disruption. When this happens, don’t be trapped with an outdated performance management system that inhibits innovation and flexibility. HR and L&D should act on the pressure to update these systems now, with forward-looking, dynamic approaches.
Steve Macaulay is an associate at Cranfield Executive Development; he can be contacted at: firstname.lastname@example.org. David Buchanan is emeritus professor of organisational behaviour at Cranfield University. He can be contacted at: email@example.com