Brandon Hall Group: A New Approach to Managing Talent
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As you already know, performance reviews have been standard business practice for decades. Yet, only a meager few have figured out how to garner real value from it. It’s time to seriously reconsider traditional approaches and reinvent your performance review process. The most successful companies have evolved from appraising past performance to developing future potential. How did they do it? Join this live webinar to learn their secrets. In this session, Brandon Hall Group’s VP and Principal Analyst Talent Management Practice will: Explore today’s performance management drivers, challenges and philosophies Share their proprietary framework for transforming to a new approach Present the business value of adopting the new approach Describe success levers of the new approach Offer examples of how to put the new approach into practice
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Brandon Hall Group: A New Approach to Managing Talent
- 1. The New Approach to Managing Performance From Appraising Past Performance to Developing Future Potential
- 2. Learning & Development Talent Management Leadership Development Talent Acquisition Workforce Management RESEARCH PRACTICES ©2015 Brandon Hall Group, Inc. 2
- 3. Strategic Consulting Services • Strategy • Benchmarking • Custom Research • Technology Evaluation & Selection Industry Events • Webinars • Research Spotlights • Conferences The Academy • Certification Programs • Workshops Research OnDemand • DataNow™ (Industry Trends and Benchmarks) • Research Reports, Case Studies, Business Impact Models, Tools & Frameworks • TotalTech™ (Technology Evaluation & Selection) HCM Excellence Awards Program • Learning and Development • Talent Management • Leadership Development • Talent Acquisition • Workforce Management • Technology How We Work With Our Clients ©2015 Brandon Hall Group, Inc. 3
- 4. Today’s Presenter ©2015 Brandon Hall Group, Inc. 4 Laci Loew Brandon Hall Group @LaciLoew
- 5. Today’s Agenda THE NEW APPROACH TO MANAGING PERFORMANCE The Stories: How are organizations leveraging leading practices to improve performance & accelerate business results? ©2015 Brandon Hall Group, Inc. The Context: What it is and isn’t? What its challenges are and why we do it? Is what we do, working? The Research: Why is it faltering and how do we fix it? What is the new philosophy and how does that impact the performance management process and its practices? How does today’s performance management look different from traditional performance management? What business difference will it really make if we embark on the transformation effort? 5
- 6. PARTICIPANT POLL 1: Let’s Hear From You WHAT IS YOUR APPROACH TO PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 6 What is your approach to performance management? __Coach employees to improve their performance __Evaluate employees’ performance and focus on results __Neither; We ____________________________________. __I’m not sure.
- 7. The Context WHAT IS PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 7 Brandon Hall Group defines Performance Management as: An ongoing management process aimed at continuously improving employee performance for purposes of accelerating business results; Optimization is accomplished via communicating expectations, coaching for success, and recognizing results. Source: 2014 Brandon Hall Group
- 8. ©2015 Brandon Hall Group, Inc. 8 Not an obligatory annual performance appraisal. Not an HR responsibility. Not an evaluation of employees’ weaknesses. Not about formal and structured feedback sessions. Source: 2014 Brandon Hall Group DISPELLING MISCONCEPTIONS OF PERFORMANCE MANAGEMENT. The Context WHAT ISN’T PERFORMANCE MANAGEMENT?
- 9. Infrequent feedback focused on weaknesses Goals not regularly updated Rank and stack reduces engagement Reward system ignores individuality The Context WHAT ARE COMMON CHALLENGES OF PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 9 Source: 2014 Brandon Hall Group
- 10. The Context WHY DO WE DO PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 10 What are your drivers for performance management? Improving business performance Enhancing employee engagement Improving managers ability to coach employees for improved performance Identifying future leaders Setting measurable goals Measuring employee productivity and quality of work performance Identifying low performers for skill development and termination Making pay decisions Source: 2014 Brandon Hall Group Performance Management Study (n-223)
- 11. The Context IS PERFORMANCE MANAGEMENT WORKING? ©2015 Brandon Hall Group, Inc. 11 To what extent do you agree that your performance management activities are effective in accelerating achievement of business results? Strongly Agree It Is Working As Is Strongly Disagree It Needs Improvement Provides business value 26.2% 73.8% Managers coach for development 8.2% 56.5% Business and performance goals aligned 12.8% 54.4% Performance expectations communicated 11.4% 41.6% Exemplary behavior recognized & rewarded 19.5% 30.9% PERFORMANCE MANAGEMENT IS SIGNIFICANTLY UNDERPERFORMING. Source: 2014 Brandon Hall Group Performance Management Study (n-223)
- 12. The Research HIGH-PERFORMANCE PERFORMANCE MANAGEMENT REQUIRES A NEW PURSUIT ©2015 Brandon Hall Group, Inc. 12 Source: 2014 Brandon Hall Group Performance Management Study (n-223) Today’s organizations are still burdened with broken performance management. The highest performing organizations are transforming their approach from evaluating past performance and attempting to fix weaknesses to developing future potential and growing employees’ capacity to optimize individual and organizational performance—it requires a new philosophy, a new process, and new practices.
- 13. The Research HOW DO WE FIX PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 13 Action Item % of Organizations Who Agree or Strongly Agree Increase alignment of performance goals with business goals 74% Focus on coaching for development, not fixing weaknesses 64% Improve managers’ ability to be development coaches 64% Improve managers’ ability to give in-the-moment, informal feedback 64% Integrate performance feedback from multiple sources 29% Integrate social platforms for peer and collaborative feedback 11% Use mobile devices to support managers in giving feedback 8% Use mobile devices to support development opportunities 6% What actions are most critical in the next year to improve the business impact of your performance management? Source: 2014 Brandon Hall Group Performance Management Study (n-223)
- 14. The Research AT WHAT LEVEL OF PERFORMANCE MANAGEMENT IMPACT DO MOST ORGANIZATIONS RESIDE? ©2015 Brandon Hall Group, Inc. 14 Source: 2014 Brandon Hall Group Performance Management Study (n-223)
- 15. The Research WHAT IS THE NEW PHILOSOPHY OF PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 15 Source: 2015 Brandon Hall Group Theory of Evaluation Theory of Continuous Improvement Source: www.rewardhealth.com FROM A THEORY OF EVALUATION AND ‘WEEDING OUT THE POOR PERFORMERS’ TO A THEORY OF DEVELOPMENT AND ‘CONTINUOUSLY IMPROVING PERFORMANCE.’
- 16. The Research WHAT DOES THE NEW PROCESS OF PERFORMANCE MANAGEMENT LOOK LIKE? ©2015 Brandon Hall Group, Inc. 16 Star of Year (Months 1 -2) 1.Set goals Mid-Year (Months 3-9) 2. Review goal progress End of Year (Months 10-12) 3. Annual Performance appraisal meeting Source: 2015 Brandon Hall Group An Annual “Performance Appraisal” Event A Continuous Process in-the-moment ongoing feedback FROM A SERIES OF DISCRETE ACTIVITIES CULMINATING IN AN ANNUAL PERFORMANCE APPRAISAL MEETING TO A CONTINUOUS PROCESS THAT CHARACTERIZES HOW WE DO WORK EVERY DAY. Source: www.mercurirval.com
- 17. Create a performance strategy in alignment with a development philosophy and ensuring a continuous process Ensure performance goals are mapped to business goals and reviewed/revised frequently to stay aligned Engage peers, subordinates, team members, customers and others in providing in-the-moment feedback regularly Engage executives in the process and migrate ownership of PM from HR to the C suite and other senior business leaders Decouple performance discussions from compensation conversations Execute on strengths-based development plans Leverage technology to automate the process and integrate PM data with other talent data The Research WHAT ARE THE NEW PRACTICES OF TODAY’S PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 17 Source: 2014 Brandon Hall Group
- 18. The Research 7 LEADING PRACTICES: #1 REVISE TRADITIONAL PM STRATEGY ©2015 Brandon Hall Group, Inc. 18 Source: 2014 Brandon Hall Group Few have an effective strategy Many have a strategy 88% OF ORGANIZATIONS HAVE A PERFORMANCE MANAGEMENT STRATEGY, YET 71% RATE IT INEFFECTIVE OR HIGHLY INEFFECTIVE
- 19. EMPLOYEE GOALS REVIEWED AND REVISED AS FREQUENTLY AS BUSINESS UNIT AND ORGANIZATIONAL GOALS. The Research 7 LEADING PRACTICES: #2 ENSURE GOAL ALIGNMENT AND REVISION ©2015 Brandon Hall Group, Inc. 19 Source: 2014 Brandon Hall Group Organizational Goals Business Unit Goals Employee Goals review revise
- 20. The Research 7 LEADING PRACTICES: #3 ENGAGE PEERS AND OTHERS IN REGULAR IN-THE- MOMENT FEEDBACK ©2015 Brandon Hall Group, Inc. 20 Source: 2014 Brandon Hall Group
- 21. The Research 7 LEADING PRACTICES: #4 ENGAGE EXECUTIVES AND OTHER SENIOR BUSINESS LEADERS IN OWNERSHIP ©2015 Brandon Hall Group, Inc. 21 Source: 2014 Brandon Hall Group, executive interviews 87% 7% 6% Executive Engagement Critical to effective PM Not critical to effective PM Unsure of its criticality to effective PM
- 22. The Research 7 LEADING PRACTICES: #5 SEPARATE PERFORMANCE & COMPENSATION CONVERSATIONS ©2015 Brandon Hall Group, Inc. 22 Source: 2014 Brandon Hall Group Source: www.dilbert.com
- 23. The Research 7 LEADING PRACTICES: #6 EXECUTE ON STRENGTHS-BASED DEVELOPMENT PLAN ©2015 Brandon Hall Group, Inc. 23 Greatest Challenges to Improving Performance Management Effectiveness Source: 2014 Brandon Hall Group Performance Management Study (n-223)
- 24. The Research 7 LEADING PRACTICES: #7 LEVERAGE TECHNOLOGY TO IMPROVE PROCESS EFFICIENCY, INTEGRATE PERFORMANCE DATA WITH OTHER TALENT DATA, AND GATHER PERFORMANCE ANALYTICS ©2015 Brandon Hall Group, Inc. 24 Percentage of Organizations Integrating PM Data With Other Talent Process Data Source: 2014 Brandon Hall Group Performance Management Study (n-223)
- 25. The Research WHAT DOES THE NEW APPROACH LOOK LIKE? ©2015 Brandon Hall Group, Inc. 25 Low-Performance Organizations Characterized by Yesterday’s Approach High-Performance Organizations Characterize by Tomorrow’s Approach Led by HR and Talent Leaders Led by CEO and Business Leaders Focus on the administering the process Focus on developing the employee An annual performance appraisal with event-based activities (e.g. goal setting, goal review, performance appraisal) A continuous process with employee goals regularly reviewed and revised to stay aligned with with changing business goals Paper-based deployed locally Automated and deployed enterprise-wide to improve efficiency and performance analytics capture PM data separate from other talent processes PM data integrated with other talent processes A look back A focus forward Evaluative relying on ranking systems and forced distribution Developmental expecting managers to be effective strengths development coaches Pay for performance Pay for strengths scarcity and expertise Pay increases are discussed at same time as performance feedback given Pay increases are discussed at a separate time from performance feedback opportunities Development planning focused on senior leaders Development planning focused on all Flat budgets Growing budgets One time annual performance appraisal On-going, in-the-moment feedback Source: 2014 Brandon Hall Group
- 26. The Research WHAT ARE THE TYPICAL OUTCOMES OF TRADITIONAL VS HIGH-PERFORMANCE PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 26 Typical Outcomes of Traditional, Annual Appraisal-Based PM Typical Outcomes of Developmental, Continuous-Improvement Based PM Misdirected bonuses and pay increases Communication improves Painful and emotionally charged Job responsibilities and expectations are clear Unclear expectations Employee capability is continuously improved Poor execution and reporting Managers and employees are accountable for a high-performance culture Subjective manager opinion Engagement and other business results are impressive Performance not aligned to promotions Employees are motivated with recognition of results and appropriate behaviors Poor development opportunities Development is occurring Source: 2014 Brandon Hall Group
- 27. The Research WHAT IS THE PROCESS FOR DEPLOYING TODAY’S PERFORMANCE MANAGEMENT LEADING PRACTICES? ©2015 Brandon Hall Group, Inc. 27 HIGH- PERFORMING PERFORMANCE MANAGEMENT Source: 2014 Brandon Hall Group
- 28. The Research WHAT ARE THE ENABLERS OF HIGH-PERFORMANCE PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 28 Source: 2014 Brandon Hall Group Performance Management Study (n-223) HIGH- PERFORMING PERFORMANCE MANAGEMENT
- 29. The Research IN ADDITION TO LEADING PRACTICES AND ENABLERS, WHAT SUCCESS LEVERS ARE ESSENTIAL FOR HIGH- PERFORMANCE PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 29 Source: 2014 Brandon Hall Group Performance Management Study (n-223) HIGH- PERFORMING PERFORMANCE MANAGEMENT
- 30. The Research WHY DOES HIGH-PERFORMANCE PERFORMANCE MANAGEMENT MATTER? ©2015 Brandon Hall Group, Inc. 30 Source: 2014 Brandon Hall Group Performance Management Study (n-223) Business Metric Level 4 High-Performance Organizations Level 3 Level 2 Level 1 Low-Performance Organizations Organizations transforming performance management in alignment with today’s leading practices get better business results.
- 31. The Stories TRAINING MANAGERS AS DEVELOPMENT COACHES AT GAP, INC. ©2015 Brandon Hall Group, Inc. 31 Industry: Retailer Employees: 150,000+ Challenge: Turnover in critical talent segments and key job roles creating severe wane in employee performance and productivity Solution: Out with annual performance appraisals; out with forced distributions; out with top-down only feedback. Replacing those dated practices was a single heads-down effort to return employee performance to what it once was and in with training all managers to be effective development coaches Impact: Not yet disclosed from an empirical perspective but anecdotally nothing but happy employees and happy customers Source: http://www.cengage.com/management/webtutor/ireland3e/cases/gap.pdf, 2012.
- 32. The Stories ELIMINATING PERFORMANCE RATINGS AT ADOBE ©2015 Brandon Hall Group, Inc. 32 Industry: Technology Employees: 150,000+ Challenge: increase in employee turnover Solution: In 2012, Donna Morris, SVP Global People Services, abolished performance ratings and rank and stack approach and replaced with a ‘check in’ system that better fits with Adobe’s culture of collaboration allowing frequent discussions between managers and employees to acknowledge great behaviors and performance and tweak mid-course if necessary before it’s too late Impact: Since the dump of the rating process: • Stocks up 68% • Revenues up 4.4% • Voluntary attrition rate significantly down Source: http://blogs.adobe.com/adobelife/adobe-life-magazine/v1/check-in/
- 33. The Stories ELIMINATING THE RATING SYSTEM AT MOTOROLA SOLUTIONS ©2015 Brandon Hall Group, Inc. 33 Industry: Telecommunications Employees: 15,000 Challenge: Poor engagement and unfair pay raises due to forced rating Solution: Last year, Motorola eliminated the forced rating system and institutionalized expectations regarding managerial coaching and regular feedback Impact: • Reduced administrative time spent on PM by 50-70% • Anecdotally, managers and employees sharing positive input about improved engagement, morale, and motivation Source: http://www.chicagobusiness.com/article/20131102/ISSUE01/311029980/the-end-of-valued-performers-at-motorola
- 34. The Stories IMPROVING GOAL ALIGNMENT AT PAYCHEX ©2015 Brandon Hall Group, Inc. 34 Industry: Benefits Employees: 12,000 Challenge: To step up to organizational growth initiatives, needed to improve the cascade process between business goals and employee goals and keep employee goals reviewed to ensure continual alignment with changing business goals Solution: VP of HR and OD, Laurie Zaucha, implemented a goal alignment and cascade process in August 2011. It improved employees’ understanding of performance expectations and allowed for regular modifications to employee goals to suit changing business goals Impact: Managers and employees report: • Improved productivity • Improved motivation and engagement • Improved employee and customer satisfaction Source: http://www.benefitspro.com/2011/08/31/aligning-company-goals-with-performance-management
- 35. The Stories AUTOMATING PERFORMANCE MANAGEMENT AT GUITAR CENTER PAYCHEX ©2015 Brandon Hall Group, Inc. 35 Industry: Specialty Retail Employees: 11,000 Challenge: Inconsistent and unlinked approach to managing performance and related talent processes including learning and succession management Solution: Acquired and deployed a holistic talent management system (Saba) to enable the consistent deployment and integration of performance management, learning and development, and succession management across the enterprise Impact: Managers and employees report: • Improved productivity • Higher collaboration • Improved engagement Source: http://saba.com
- 36. The Stories ENGAGING EXECUTIVES IN PERFORMANCE MANAGEMENT AT A GLOBAL PHARMACEUTICAL FIRMKIMBERLY-CLARK, CORP. PAYCHEX ©2015 Brandon Hall Group, Inc. 36 Industry: Pharmaceutical Employees: 90,000 Challenge: No accountability among the leadership team to drive a high- performance culture Solution: Implemented governance and oversight of the performance management process by the CEO and heads of each business unit Impact: • Engagement increased 10% • Revenue increased 5% • Turnover in critical talent segments decreased 17% Source: Brandon Hall Group executive interview April 2015
- 37. PARTICIPANT POLL 2: Let’s Hear From You WHICH ONE OF THE THREE P’S WILL BE YOUR GREATEST CHALLENGE IN TRANSFORMING TO HIGH- PERFORMANCE PERFORMANCE MANAGEMENT? ©2015 Brandon Hall Group, Inc. 37 Which one of the three P’s (philosophy, process, practices) will be your greatest challenge in transforming to high-performance performance management? __ (Changing our philosophy) Reducing/eliminating our focus on evaluating employees’ past performance and focus on developing their strengths __(Changing our approach to process - driven) Moving our approach from a series of event-based activities (goal setting, goal cascading, goal review, mid-year check-in, end of year performance appraisal) to a continuous process of managing performance __(Implementing leading practices) Creating a performance strategy that keeps employee goals well aligned with business goals by continuously reviewing/revising them, expecting managers to be offer effective strengths-based developing coaching and offer in the-moment feedback regularly, separate performance feedback discussions from pay raise discussions and automate the process to ensure performance requirements forecasting ability and integration of performance data with other talent data. __ None! We have high-performance performance management now! __I’m not sure.
- 38. The Discussion ALL OF YOU WITH ALL OF ME! Laci Loew Brandon Hall Group @LaciLoew All of You! ©2015 Brandon Hall Group, Inc. 38
- 39. Save the Date! 39©2015 Brandon Hall Group, Inc.
- 40. Thank You to Our Sponsor 40©2015 Brandon Hall Group, Inc.
- 41. Thank You for Reading
Editor's Notes
- Not an annual obligatory performance appraisal Annual performance appraisals have a place, to be sure. Without a consistent and measurable way to manage performance, organizations cannot fairly promote the right people, tie pay to performance or incent people to perform in a constructive way. But if performance appraisals are the sum total of your performance management process, you are missing out on a major opportunity to develop, assess, motivate, engage, and retain talent. While there are tools to automate performance reviews and ease the administrative burden, efficiency by itself is not the end game. For many who still use a rating process, they may find it helpful to compare and contrast performance of employees, but by itself has little impact on the business. Successful performance management goes beyond automation of the annual appraisal meeting to employee engagement and retention. Not an HR responsibility Performance management isn’t just an HR responsibility. While human resources organizations should help define and steward the process, performance management is not an HR issue. Business managers must own performance management. The most effective model is one in which HR and line managers partner in designing and implementing performance management processes and goals, while business managers take ownership for successfully executing the processes – and driving performance excellence. Not an evaluation of employees’ weaknesses Performance is optimized when the focus is on development, particularly development of strengths. Attempting to stop the bleed on employees’ weaknesses will only serve to marginally improve performance, it won’t enable breakthrough results. A focus on leveraging employees’ talent nurtures higher levels of achievement in areas already being excelled in. Not about formal and structured feedback sessions Employees are able to change and shape their behavior when offered feedback as close to the time of the actual behavior as possible. Regular, in the moment and informal observations of behavior (good and bad) is the catalyst in effecting behavior change and optimizing performance results. Waiting to offer feedback during a weekly meeting does little, if anything, to improve performance.
- Infrequent feedback focused on weaknesses Imagine this scenario: During her annual review, an employee discovers that her supervisor was disappointed in something he did 6 months ago. In today’s mid-year performance check-in meeting, the manager recounts the mishap and his disappointment. The employee feels blind-sided and worse yet has repeated the same, less the successful behavior, for the past 6 months. Further, the manager neglected to acknowledge all the winning contributions his employee offered to performance goals. Nobody wins. People should know where they stand on a regular basis. If you’re not addressing performance issues as they occur, and more importantly, acknowledging outstanding behavior when it occurs, your poor performers may assume they are fine and not make efforts to improve. Worse still, your great performers may become unsure of their status, disengage at best, and leave at worst. And in this category, let’s not forget Millennials – this generation not only wants and deserves immediate feedback like their peers, but they are actually demanding continuous feedback and wants performance-based, metrics-focused evaluations: Once-a-year or every-six-months feedback is not frequent enough. Period. If you continue with that pattern, you are guaranteeing a mass exodus of your younger workers, particularly the top performers. Managers need to be effective development coaches providing in-the-moment feedback. Goals not regularly updated Many companies rate employee performance based on goals set at the start of each year, yet we know that in today’s world, market dynamics can turn on a dime. Assuming an organization has a defined set of goals likely crafted at the beginning of the year, when a new competitor emerges, technology changes or regulations shift, the original goals may not be the best or most strategic ones to take the company forward. For example, in a dynamic industry like software, not regularly revising goals means a company can run the risk of missing golden opportunities, spinning their wheels on irrelevant tasks and technologies, and wasting employees’ time on the wrong things. Every year, as the pace of business continues to accelerate, this problem only gets worse. If an organization’s strategic goals flex, so should the goals of individual employees. Having half your workforce rowing in the wrong direction only to reach personal objectives, but not the right ones for the company, is enough to steer any ship off course. Rank and stack reduces engagement The general disdain for performance reviews and the stacked-ranking process isn’t just a matter of personal opinion. It’s actually backed by science – ours and others. Using numbers to rate a person’s performance can create an anxiety-inducing feeling that often derails what could be productive conversations between managers and employees. According to a Strategy+Business article, “This neural response is the same type of ‘brain hijack’ that occurs when there’s an imminent physical threat like a confrontation with a wild animal. It primes people for rapid reaction and aggressive movement. But it’s ill-suited for the kind of thoughtful, reflective conversation that allows people to learn from a performance review.” For example, a typical employee who was ranked with a 3.5 (on a 1–5 scale) would disengage and close his ears to any real performance feedback knowing that others were ranked still higher. Then, managers are wasting time trying to provide constructive guidance while employees are missing out on tips for personal development. Reward system ignores individuality We know that most companies use the widespread ranking- and ratings-based performance review process for one simple reason: to drive compensation decisions. Sadly, most performance management practices that are one-size-fits-all strategies don’t recognize individuals’ unique contributions. The merit-pay-increase matrix has little to do with merit at all. It is simply a way for companies to control growth in wages and for HR to fulfill its traditional role of treating everyone equally. You know how it works: All the increases must total a company-wide standard (typically, a 2 to 3% increase). The idea is to drive everyone’s base salary as close to the midpoint as possible. Practically speaking, that often means giving employees below the midpoint larger increases (often regardless of merit) and those above the midpoint smaller increases (often despite their merit). This “drive to the middle” may make the finance department happy, but it frustrates your top performers who don’t want to be treated as “groups” or “averages.” While this standardized approach may have benefited companies decades ago, it’s not working in today’s world where employees expect personalized experiences and the organizations should be disproportionately investing in the development and compensation of top performers. If your stars aren’t being rewarded for their stellar performance, they will know it and go elsewhere where they feel and are paid for their contributions – the thank you’s are essential and so are the dollars in the paycheck – and more so in the paycheck’s of those who make a significant difference to the business. Identify top talent, provide top incentives to keep them, and watch them closely so competitors don’t poach them.
- Despite the challenges most of us face with performance management, we count on it to achieve at least three goals: Accelerate business results Optimize employee behavior and performance results Improve the engagement and retention of top talent So, the question is, is it doing it?
- And as you can see here, the answer is emphatically no. The business imperative for performance management is undeniable, yet organizations everywhere still seem disenchanted with the effectiveness of their approach to performance management. 88% of organizations have a performance management strategy, yet three quarters of organizations say their current approach to performance management needs improvement, even reinvention. The dissatisfaction is likely due to a combination of factors: • Poor linkage between business goals and employee goals • Managers poorly trained as development coaches • Continued use of ineffective traditional approaches (e.g. annual performance appraisal discussions, evaluation of employee weaknesses, rating and ranking in the bell-curve, top-down feedback only, etc.) in most organizations. In short, managers and employees at organizations everywhere have been complaining about performance management since its inception almost 50 years ago – no one likes it, few do it well, and for those who do it, it doesn’t work. At least that’s the word on the street and has been, so we set out to study the story and find the truth, or not, behind it.
- After gathering 223 survey responses from global CEOs, other senior business leaders and HR leaders representing 15 countries from all global regions across 12 industries and conducting interviews with 12 executives, it is no surprise that our analysis of the empirical and qualitative data we collected confirmed that today’s organizations are still burdened with broken performance management -- a business process that recently celebrated its 50th birthday. The highest performing organizations – what we call Level 4 organizations – are taking a stand and are transforming their approach from appraising past performance to developing future potential. Level 4 organizations have transitioned from a system dominated by start-and-stop annual activities, forced rankings, infrequent and delayed top-down feedback, and evaluation of employees’ weaknesses with employee performance data, to an ongoing process focused on building employees’ strengths via manager coaching and regular, in-the-moment, informal feedback provided by managers, peers, and subordinates and performance analytics data well-integrated with data from all other talent processes. The transition is a journey and far from complete, with nearly three-quarters of organizations still utilizing traditional performance management practices and/or just beginning to develop more effective practices. Organizations in transition have three priorities, including increasing alignment of employee goals with business goals, improving managers’ ability to give in-the-moment feedback, and focusing on coaching for employee development. To achieve these priorities, developing managers to be effective coaches is far and away the greatest challenge for organizations trying to improve performance management. Gaining executive engagement is another top challenge. Currently many executives and other business leaders are not involved in setting a strengths-based philosophy, they don’t necessarily share business goals to ensure cascaded goals, they don’t endorse the proper training for managers to be effective development coaches, and they don’t hold leaders accountable for developing their employees’ performance. According to our study results, high-performance performance management is enabled with several new practices. And while most organizations told us that their performance management budgets are likely to remain flat over the coming 12 months, those few Level 4 organizations who have figured out how to sort the budget to invest in their performance management transformation will likely do so in several different areas that are focused in just two main areas: formal training for managers to be effective development coaches, and improving automation and integration of the performance management process. Let’s take a closer look.
- With that said, organizations today, for the next 50 years, and forever more will still need to somehow measure performance and allocate compensation budgets, throwing out the old approach and replacing it with nothing isn’t the answer. What we can do, however, is transform traditional approaches with more effective approaches – including improved goal alignment, regular and informal feedback, strengths-based coaching for development, automating the process to support in-the-moment feedback and ensure the integration of performance data with other talent data – and other new approaches to performance management are just beginning to take hold and organizations have highlighted these new approaches as essential for adoption over the next year and starting now.
- To better understand how many organizations are transforming performance management from traditional to these new approaches, we created this Performance Management Impact Model. It has four levels of performance management maturity, or impact, with Level 1 – at the bottom of the chart – defining those organizations with the least effective PM practices and Level 4 – at the top of the chart – defining those organizations with the most impactful PM. While we know that few organizations – just 26% -- have cracked the code on designing and implementing effective, high-performance performance management and most -63%-- have practices that are average at best and do not serve to make a business difference, even more alarming are the 10% whose practices are not even efficient, are ad hoc, disparate and reactive when done at all. A CHRO or Chief Talent Officer or CEO might ask: So what makes an organization high-performance in performance management? And, what difference does it really make to be high-performance? Our recent performance management research validated a new approach to contemporary high-performance performance management – I call it the three P’s: a new philosophy, executing the philosophy as a process, and characterizing the process with several leading practices --- and each of the three looks decidedly different than those of the past. Let’s take a look.
- A high-performance approach to performance management requires changing your organizational definition of performance management. It is no longer about evaluating employees’ past performance, no longer about fixing gaps or weaknesses, no longer about assessing performance. It is about developing skills and shaping behaviors to optimize employees’ daily and long-term performance and thus improve business results. To institutionalize this new philosophy, it requires a commitment to skilling up managers to be effective development coaches, holding managers accountable for developing employees, and perhaps even ditching the traditional rating scales and forced distribution that so many of us still use.
- Performance management is exactly that….management. Management is continuous not episodic. Traditional performance management relies heavily on a set of activities oriented around goal setting and goal review culminating in an annual one-time formal performance appraisal discussion. High performance performance management is ongoing management with the goal of improving and optimizing employee performance to improve the overall performance of the business.
- High-performance performance management relies not only commitment to development (versus evaluation) and not only on continuous management of performance (versus a one time annual performance appraisal) but at least seven leading practices as well. Let’s review them: First, create a performance strategy and ensure the strategy aligns with your business strategy. As an example in this practice area, if your organization has plans to merge with or acquire another firm, it would prudent to ensure that your business units have defined performance goals about for understanding the impact of m&a activity on their local and functional processes and making process changes as necessary. Goals cascading is not enough – review and revise employee performance goals as frequently as business goals are modified. Stop focusing on evaluating employees’ past performance and attempting to fix their gaps, and start investing in developing employees’ strengths and growing their ability to impact business results in those areas where they most excel. Commit to inviting performance feedback from those with whom employees interact regularly, not just the employee’s manager. This could be project team members, a customer, a stakeholder, a peer – internal and external to the organization. Treat performance optimization as a business imperative, not an HR initiative and make the CEO and other senior business leaders, not HR leaders, accountable for developing employees, achieving results, and institutionalizing a culture of high performance Separate performance discussions from compensation discussions – when held at the same time, the performance improvement part of the conversation is derailed with the employee’s greater interest in simply knowing what my pay raise is going to be; by separating them, you provide the space for the employee to focus on performance feedback during the performance feedback opportunities. Focus more attention on expanding employees’ talents and strengths than attempting to fix their weaknesses; bring weaknesses up to some reasonable level of performance and then manage the gap with other team members’ strengths Adopt technology to increase the efficiency and consistent deployment of the process across the enterprise as well as capture analytics data to forecast future performance requirements to better inform performance planning efforts If the look of these practices doesn’t strike you as being decidedly different from what have been traditional practices, I think it’s important to say out loud how the approach has evolved.
- About 88% of organizations have a performance management strategy in place, but 71% said their current approach to performance management needs to be improved, even re-invented. The dissatisfaction is likely due to a combination of factors: • Poor linkage between business goals and employee goals • Continued use of ineffective traditional approaches (e.g. annual performance appraisal discussions, evaluation of employee weaknesses, rating and ranking in the bell-curve, top-down feedback only, etc.) in most organizations. Managers poorly trained as development coaches Regarding that last point – managers poorly trained as development coaches – 82% of organizations said their managers were only somewhat effective, or not at all effective, in strengths-based development coaching and feedback. Some specifics: • 8% of respondents strongly agreed that managers are skilled at giving timely, actionable feedback. • 9% of respondents strongly agreed that managers are skilled at defining actionable development • 11% of respondents strongly agreed that managers clearly communicate performance expectations. Employee development is a strong retention strategy. Employees continue working in organizations where they feel they are challenged, learn new skills and capabilities, are supported by their manager, and are developing their skills in alignment with business needs and personal career aspirations. Regardless of size, industry, or region, organizations have an opportunity to improve performance management effectiveness simply by skilling up their managers to be effective development coaches. In fact, nearly two-thirds (64%) of organizations indicated that training managers to be effective coaches was their greatest performance management opportunity and challenge.
- Goal alignment and regular revision is critical for continuous performance improvement. Many of us get the first part – we have practiced goal cascading for some time. Where we tend to fall short on this practice is the commitment to continuing reviewing and revising employee goals as we make changes to organizational and business goals
- To best improve performance continuously, employees should receive information about how they are doing, what’s working, and what’s not as timely as possible. Keep frequent frequent, informal, and in-the-moment. Waiting until mid-year check-in or the end-of-the year performance appraisal does nothing to help employees know which behaviors to modify and which to continue doing more of until it is too late. For those of us who may have ever embarked on a diet, we know that changing behavior is tough work and requires perpetual monitoring, adjustment, constructive criticism, and praise regular and often and in the moment. Without the frequency, behavior change and improvement is highly unlikely. Further, feedback can – and should -- come from many different sources: managers and supervisors, measurement systems, peers, and customers just to name a few.
- Gaining executive engagement is a challenge for many and a success lever for all. Like other talent processes, managing continuous performance improvement is a business imperative. And, getting the formula right for helping employees perform at their best requires the involvement of executives because they: Drive the organization’s performance philosophy Communicate business goals, which is an essential ingredient for ensuring alignment between employee goals and the organization’s goals Endorse and approve funding for the proper training for managers to be effective development coaches, and Hold managers accountable for prioritizing development of their employees Currently too few executives and other business leaders are engaged. In fact, 55% of organizations said their executives are not fully engaged with performance management. When executive engagement does not exists, or wanes, so does alignment of employee goals with business goals. And to make matters worse, without executive engagement, managers are not held accountable to course correct the misalignment or act committed to developing their employees. Our study showed that: • Less than half of organizations (46%) believe PM and business strategy are completely aligned • 44% of organizations say employee goals are not regularly updated in alignment with business goals and • 44% of said their managers are not held accountable for performance management.
- Let’s face it, at least one reason and often the number one reason why many, if not most of us come to work each day is to earn our paychecks. Unless you are independently wealthy, we need to earn a living in order to eat, afford our homes, cars, etc. Pay is of vital importance to us as workers, that is why discussions that involve pay are always very sensitive. In any conversation your employees have with their managers, when pay comes up, that is all the employee will ever hear and remember from the conversation. An employee could be called into a conversation with his manager to be told that he is can go on flex time, will get a time off for a community service day each quarter, or that he earned top salesperson of the moth, but that he is not receiving a pay increase this year. What did the employee hear/remember from that dialogue? Like most others, it is that he is not getting a pay increase. That is why discussions about pay need to be their own separate conversation. High-performance organizations are intentional about separating the timing of performance discussions from the timing of salary increase discussions. These organizations explained that separation allows managers and employees to focus on discussing the employees’ contributions to business goals, their achievement of individual goals, and the creation of go-forward plans (without the distraction of “How much will my raise be?” thinking). After the performance discussions are completed and plans are documented for developing strengths, the employee and manager engage in a separate pay discussion only for the purpose of reviewing what the salary increase will be based on the employee’s performance against individual goal plans, the employee’s performance in comparison to the peer group, and the organization’s ability to pay (in relation to its overall enterprise-level performance). In this fashion, the pay discussion is now focused on the pay itself and how the increase was determined.
- Regardless of size, industry, or region, organizations have an opportunity to improve performance management effectiveness simply by skilling up their managers to be effective development coaches. 73% of organizations indicated that development of employees’ strengths, rather than evaluating their weaknesses, is critical to effective performance management and nearly two-thirds (64%) of organizations indicated that training managers to be effective coaches was their greatest performance management opportunity and challenge. Specifically: • 92% of respondents indicated that managers are not skilled at giving timely, actionable feedback. • 91% of respondents indicated that managers are not skilled at defining actionable strengths-based development • 89% % of respondents indicated that managers do not clearly communicate performance expectations
- When asked if performance management was enabled with technology, 60% said yes. They identified performance rating and rating scales, performance appraisal forms, and goal setting templates as the most frequently used online functions. While most organizations do utilize technology to enable performance management, 30% said their primary tool for managing the performance management process were paper-based forms, spreadsheets, and templates. In today’s geographically disbursed and matrix business climate, managing employee performance without technology to ensure consistent application of the process across the enterprise, expose talent data across the enterprise, to ensure cascaded goals, and to assist in exposing top performers from others severely limits the effectiveness of the performance management process. Further, 40% of organizations said their performance management data was not integrated with the data from that of other talent processes and when it was integrated, it was most integrated with L&D data – integration of PM data with SM and career management data occurred in just half of organizations. Expanding the integration of talent performance data with talent data beyond L&D data will better position organizations to predict future talent capability needs, career aspirations, and proactively mitigate performance risk in critical talent segments and job roles.
- So we can see that the transformation of traditional performance management to high-performance performance management requires a new philosophy, a continuous process and several leading practices – all of which look markedly different -- I propose that high-performance performance management is more of a revolution than an evolution: 1. PM is a business imperative, not a talent challenge – therefore, in today’s high-performance organizations, PM is led by the CEO and other business leaders, not HR. 2. PM is management and management is about continuously improving employee and organizational performance; it isn’t about completing all the forms that go along with performance activities as we’ve known them forever 3. PM is an ongoing process with employees’ goals modified continuously in alignment with the organization’s changing business goals. 4. PM is executed across the enterprise and technology ensures the consistent execution of it regardless of function or region. 5. PM data is not collected in a stand alone fashion when felt like it – it serves as the input to other talent processes particularly leadership development, succession management, and career management. In so doing, organizations are better prepared to forecast performance requirements and anticipate skill gaps for better planning. 6. PM is about preparing for future performance requirements not reviewing what was accomplished, or not, in the past. 7. PM is all about developing employees’ strengths; it requires organizational commitment to train managers to be effective development coaches. PM is developmental not evaluative. It is about a focus on coaching, mentoring, development opportunities and experiences that stretch employees’ strengths to enhance their potential 8. PM is about recognizing and rewarding exemplary results and behaviors of your most valued talent, not just top performing talent. 9. PM is about being intentional to separate performance discussions form pay discussions – holding them at separate times prevents the employee from distraction about how to better improve his behavior and results. 10. PM is about development planning FOR ALL – improving collective performance will improve organizational performance 11. PM is an investment not an expense – to get better results it requires executives’ attention and approval for funding – for technology acquisition, for training managers to be effective coaches and for other high-value needs of high-performance PM 12. And very importantly, PM is about frequent in-the-moment feedback – NOT an annual performance appraisal. So now that we have insight to the philosophy, the continuous nature, and the list of practices of high-performance management, how do high performance organizations put them altogether?
- TRADITIONAL PM Misdirected bonuses and pay increases The organization may not be meeting its goals and even losing money, yet bonuses and pay increases are still being handed out. Painful and emotionally charged The employees’ pay raise is at stake and perception of the managers’ employees as being strong contributors, or not, throughout the organization prevails. Stress levels are high for both which never contributes to a productive conversation about employee performance. Unclear expectations Vague definition of performance goals and infrequent revision of goals perpetuates a system of poorly defined and executed appraisals. The annual appraisal meeting is so infrequent both manager and employee find it difficult to actually articulate what was accomplished throughout the year and how it was achieved. Both typically come ill-prepared to the meeting with little actionable data and content. Both leave frustrated. Poor execution and reporting Given that very few performance systems are automated in a fashion to extract performance analytics, to integrate performance data with other talent data and to ensure the consistent deployment and application of the process throughout the enterprise, there is low visibility as to what goals and objectives were actually achieved and more importantly, via what behaviors, and how that impacts the organization’s readiness for future performance requirements. Further, given the manual paper-based systems, compliance is not visible and therefore weak. Subjective manager opinion Employees’ future is largely, frequently wholly, dependent on the manager’s subjective opinion of her employee’s performance. The CEO and other business leaders are not accountable for the process and do not have clear visibility in to who achieved what objectives and how the objectives were achieved. Accordingly, the CEO has no ability to see failure as it is occurring. Performance not aligned to promotions Given that performance appraisals occur 1x annually, most managers think seriously and plan for performance only once a year. The consequences are poor resource management, management by fire, reactive and costly problem fixing on the fly. Performance data is not regularly reviewed and performance analytics are not understood or studied and consequently, performance data rarely if ever finds its way into the succession planning process. Top performing employees are disillusioned that they have been passed over for futher development or promotion. Poor development opportunities Employee strengths are rarely if ever identified and employee development plans are oriented around fixing weaknesses therefore. Employees are not interested in getting fixed – they want to leverage more of what they are already good at and bring gap areas up to some moderate level of performance that doesn’t distract from organizational performance allowing teammates and peers who have strength in their gap areas fill the gap. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- HIGH PERFORMANCE PM Communication improves Communication is a requisite tool to management, including managing performance. By adopting frequent in-the-moment feedback, the opportunity for mismatch between the organization’s and the manager’s expectations for performance and the employee’s behaviors is minimized if not eliminated. Job responsibilities and expectations are clear Because of goal alignment and revision and frequent communication, all stakeholder groups have consensus on what is to be accomplished, how and by when; further the line of sight between the employees’ contributions and the organizational goals is crystalized Employee capability is continuously improved By focus on identifying employees’ strengths and coaching them continuously to leverage more of those strengths and work around weaknesses, employee performance is in a perpetual improvement mode Managers and employees are accountable for a high-performance culture With goals clear, goals aligned, and performance expectations outlined, managers and employees hold themselves accountable for achieving, even exceeding those goals; in so doing, they are shaping an accountable culture – a high performance culture Engagement and other business results are impressive When performance is managed and continuously improved, rather than evaluated and ranked, business results improve Employees are motivated with recognition of results and appropriate behaviors When employees work in a high performance culture deliver results and are rewarded for their contributions in a regular and fair fashion, employees are inspired, motivated, and engaged Development is occurring As a result of strengths development plan execution, employees’ behaviors and performance are continuously improving and development is actually no longer just a plan for actually taking place and accelerating the readiness of employees for consideration in the succession planning process
- They use a model – this is part of our model or framework. Whether you execute PM following our model or yours or another, the important piece is just that – that you execute in alignment with a model that incorporates each of these 10 leading practices. Our model has 5 phases and when completing the last phase, it starts all over again at the first phase. Phase 1: Define the Strategy In this phase, the PM strategy is defined. The strategy is guided by the organization’s philosophy of performance management. Answers to the following questions reflect an organization’s commitment to a PM strategy and their philosophical points of view: • Do we have a formal performance management strategy in place? • What are the (desired and actual) outcomes of our performance management? • Are executives and other business leaders engaged in the process? • Do we clearly communicate our performance management philosophy and expectations to all employees? • Do we have written performance goal plans for all employees? • Do we hold leaders accountable for performance? • Are we focused on development of employees’ strengths (versus evaluation of their weaknesses)? • Will we eliminate the “rate and rank” approach (versus force fitting all employees into the standard bell curve with the intent to dismiss those who fall into the bottom 10%)? • Will our managers have continuous and ongoing discussions with employees about their performance (versus one-time annual performance appraisal discussions)? • Will we separate performance and compensation discussions (versus having both at the same time)? • Will we require feedback from an employee’s manager and peers and subordinates (versus only topdown feedback)? • Do we expect our managers to identify and reward exemplary performance? Phase 2: Set Employee Goals In this phase, managers and employees work together to set clear employee goals that accelerate achievement of the organization’s business goals. Answers to the following questions reflect an organization’s efficiency and effectiveness in goal-setting: • Are employee goals cascaded? • Are employee goals regularly reviewed and revised (to stay in alignment with changing business goals)? • Are goals SMART – Specific, Measurable, Achievable, Realistic, Timely? • How many of our employees have written performance goals? If I were on your side, I might be saying, so what? This seems like a lot of work – what difference does it really make? Is this new fangled language to an old process. And the answer is no – no way – and I can say that with confidence. Our research produced reliable data validating that these 10 practices and approach to PM execution promises at least one thing: better business results. Phase 3: Coach Employees for Skill Growth In this phase, the organization, its managers and employees collaborate to develop employees’ strengths. Answers to the following questions reflect an organization’s commitment to ensuring their managers have the skills, tools and resources to act as development coaches: • Do we provide “manager as coach” training? • Are our managers skilled in development coaching? • Do our managers clearly communicate performance expectations? • Do we make it a practice to solicit peer and subordinate feedback (not just managerial feedback)? • How frequently do our managers provide performance feedback? • Do our managers provide timely and actionable feedback? Phase 4: Develop Employees’ Strengths In this phase, managers and employees work closely together to plan for and execute on strengths-based development plans for each employee. Answers to the following questions reflect an organization’s capability to offer strengths-based development: • Are managers skilled at defining actionable and targeted development plans for each employee? • Are managers effective in having regular career management conversations with employees? • Are managers effective in formal strengths-based development coaching? • Do we provide our employees with performance support via technology and online tools? Phase 5: Optimize Performance Continuously In this phase, organizations leverage performance data to monitor current and predict future performance for purposes of embedding an accountable, and high-performance culture. Answers to the following questions indicate an organization’s ongoing ability to proactively mitigate performance risk in critical talent segments and key job roles: • Does our approach to PM support achievement of our business goals • Does our approach enable our employees’ work to be efficient, effective, and aligned with our business goals? • Can we count on our PM to be a business differentiator? • Does the majority of our employees meet or exceed their performance goals on a regular basis? • Do we achieve our annual business goals? • Has our voluntary turnover rate decreased in the last 12 months? • Has our revenue increased in the last 12 months? • Have our customer satisfaction ratings increased in the last 12 months? • Has our customer retention rate increased in the last 12 months? • Has our engagement score increased in the last 12 months?
- As our fuller framework shows, the 10 leading practices and 5 process steps are guided by 4 enablers: Culture Governance Measurement, and Technology Culture. The best organizations know that improving and sustaining individual, team, and organizational performance is, at least in part, contingent upon employees’ perceptions about what it feels like to work in a place. Of notable interest is the relationship between a collaborative, empowered, participative work environment and higher levels of performance. An organization’s culture is influenced by at least three key factors – all of which are oriented around leaders’ abilities: Company values, vision, and mission – leaders living and modeling them in a consistent fashion. Leader styles – emotionally competent leaders who flex among different styles depending on the situation and the competence level of the employees involved. Leader skills and behaviors – the competencies and capabilities of leaders to motivate others to maximum productivity, particularly through in-the-moment feedback and strengths-based development coaching. According to other studies and our own, there is a positive correlation between collaborative culture, employee performance, and profitability. The results of those studies showed that profit margins were 71 percent higher in organizations with empowered, participative cultures than in those with controlling, un-empowered, non-participative cultures. These data are a wake-up call to organizations looking to leverage culture to facilitate high-performance performance management. Governance. Governance is the structures, processes, and values that enable an organization to make credible, well-aligned, efficient decisions about performance management. Choices about performance management philosophy, funding, tools and resources including initiatives to train all employees on giving and receiving in-the-moment feedback and developing managers to be strengths-based development coaches are of particular priority to governance committees. Performance Management governance councils are membered by the CEO and other business leaders as well as HR/Talent leaders representing each region and function of the organization. Organizations invest in governance because it drives efficient and effective performance management decisions. Without governance, organizations can count on: Silo’d philosophies on the approach to performance management (e.g. use of rating scales or not, use of forced distribution or not, managers trained as effective strengths-based development coaches or not, etc.) Little, if any, insight to current performance results at the individual, team, and organizational levels No insight to future performance levels required to meet go-forward business goals An insufficient performance management budget to support proper training of managers to give constructive feedback and be effective strengths-based development coaches Little engagement of executives and business unit leaders in the continuous performance management process Employee goals lacking alignment with business goals Little, if any, collaboration on the automation/technology needed to support the performance management process Governance moves an organization from one that implements performance management as a set of performance appraisal meetings to one whose business is underscored by performance management as a continuous process of improving performance results by focusing on the future capabilities of its employees and developing their strengths to optimize the potential for ever increasing levels of business success. Measurement. Holding leaders accountable for improving the performance of their employees and teams is the only way to ensure that individual, team, and organizational performance expectations are achieved. To create accountability, organizations need an advanced measurement strategy that mines current performance management data and forecasts future performance requirements: Performance Management Metrics: Captures and reviews current performance data (against today’s business goals) Performance Management Analytics: Forecasts future performance requirements (to achieve go-forward business goals) Organizations dedicate a resource, full-time or part-time, to collect, consolidate, standardize, analyze and actively manage performance management data. In high-performance organizations, that resource invests less time in data collection (as data collection is automated) and much more time in data analysis. Performance management metrics provides business intelligence of current performance results. Performance management analytics allows predictive modeling empowering organizations to determine patterns and forecast future performance outcomes of all employees. Technology. Technology is the answer to increasing the efficiency of the performance management process. Still, 30% of organizations manage the process through paper-based forms only. For those high-performance organizations that have adopted automation, they rely on it largely to help managers maintain goal alignment. Technology also plays a key role in integrating performance data with other talent processes. Data integration helps leadership make smart choices about other talent processes and make choices about competencies, learning solutions, performance rewards, talent mobility initiatives, or career management resources that may be critical to improving performance at individual, team, organizational levels. Technology has erased performance management as a set of manual activities to be executed during pre-identified months of year and enabled it as a continuous process of current and predictive performance data feeds informing performance management, improvement, and sustainment decisions.
- As our full framework shows, the 10 leading practices and 5 process steps are guided by the 4 enablers (culture, governance, measurement, and technology) and 11 success levers. I’ll briefly describe each lever: External Influencers. A host of issues and trends in the external business environment, categorized in four main areas, influence an organization’s ability to effect superior performance results: Government action – Recent legislation like President Obama’s Affordable Care Act (March 2010) or the American Opportunity Act to encourage tax credits for college students require new service delivery models in a more agile, way. Accordingly, leaders and employees will best serve their clients if they too think and behave differently – with agility and innovation. This implicates potential changes to leadership and perforamnce competency models, development activities, and performance expectations of employees in healthcare, education, insurance, and other verticals. State of the economy -- The financial crisis of 2008-2009 rendered many businesses obsolete and thwarted employee development for many. While it might be tempting to refrain from investing in employee development during challenging economic periods, the bottom line is that, over time, poor leadership and employee performance will have as great an impact on an organization’s long-term performance as a recession. Globalization -- Organizations need strategic leaders and employees with an increasingly diverse portfolio of skills to effectively confront emerging global challenges. All employees, particularly more senior leaders, need mastery of global traits (acumen, emotional intelligence, networker, technologically savvy, etc.). Global leaders and employees leverage their global traits to develop and participate on global teams who are comfortable operating (usually virtually) anywhere in the world and whose performance results do not suffer as a result of the global and virtual influence. Demographics -- In today’s workforce, there are nearly 79 million Baby Boomers, 70 million Gen Xers, and 80 million from Gen Y. There is a mass of Boomers poised for retirement in the next five to seven years. In a survey conducted by the Society of Human Resource Management (SHRM), more than half (54%) of respondents expressed concern about how best to develop Gen Y for next-level leader roles and prepare them to perform to their potential. When the Boomer retirees do walk out the door, many will be leaders who take years of experience and a wealth of organizational knowledge with them. Will organizations have enough Gen Ys ready to replace them? What is the best development approaches for Gen Ys? How will critical knowledge be shared with them? Organizations’ responses indicate their readiness, or not, to deal with these demographic issues that have direct influence on performance results. Strategic Alignment. The single greatest point of failure for most organizations is designing and implementing performance management before: Considering the commitments in the business strategy Reviewing the alignment of each business unit’s strategy with the corporate strategy Understanding the linkage between the corporate and business strategies with the organization’s performance strategy Defining employee goals that are in alignment with changing business goals Failure to plan and assess performance expectations and results before launching the performance management strategy is a single greatest point of failure for organizations. Without a well-aligned performance management strategy, organizations have employees working towards achievement of goals that may or may not accelerate achievement of business goals. Stakeholder Experience. The key factors in driving the success of performance management are the people involved with the process: CEO and other business leaders, HR/Talent leaders, and the employees themselves. The effectiveness of the process depends on the subjective benefits and perceived values of each stakeholder group. Improving the impact of performance management is related to how relevant the process is to the individual goals and values of each constituent. Organizations most successful with performance management take the time to understand the expectations and values of each stakeholder, align them with organizational needs, and design a process that meets both stakeholders values and organizational needs. Executive Engagement. Performance management is a business imperative, not a talent challenge. Executives and business leaders must own it, champion it, and regularly communicate about it. HR, Talent, OD, and LD leaders should assume the role of stewardship. Executives and business leaders are members of the performance management governance committee; they review and approve performance management budget; they make decisions about the organization’s philosophy of performance management (evaluative versus developmental; forced distribution versus no forced distribution; rating scales versus no rating scales); they champion training efforts to skill managers up as effective providers of in-the-moment feedback and as strengths-based development coaches. They hold leaders accountable for performance; they expect and demand a measurement strategy that indicates business impact of performance management. Assessments. Performance assessment is an important component of the performance management process. When done in the spirit of determining strengths for developmental purposes (versus to evaluate employees for their weaknesses) it allows collaboration between employees and managers to establish performance goals and development priorities for the coming year. Performance assessment usually happens at least one time annually (typically after goals are set and developmental actions are in motion), and more frequently in some organizations. However, performance management happens continuously. Change Management. Change management is the underscore and the spotlight to high-performance performance management. Transforming traditional performance management to a business management tool that aligns decision making with the strategic value of different roles, reflects the unique aspects of the business model and organizational culture requires a wholesale change in mindset and process. Instead of being focused on achieving near-term performance targets and reward distributions, high performance performance management focuses a the establishment of performance development as being a continuous process focused on development of employees’ strengths to achieve and exceed pivotal business goals. This is a transformational, break-through change effort, not an incremental change effort. With the transformation, communication, stakeholder management, risk identification and management are essential. Scalable. To accommodate growing and shrinking global and virtual workforces, the performance management process and technology must function well and consistently across the entire organization as its design and technology platform is changed to meet user needs. Users need quick access to performance data and the flexibility to forecast future performance requirements. High performance performance management solutions share and collaborate in metrics and analytics to achieve alignment between business and employees goals as well as with social tools that encourage team performance. Agile. Perhaps there is no talent process more broken than performance management. During our 2014 State of Performance Management Survey, 71% of those surveyed said their performance management needed to be improved or even reinvented. No doubt that at least one significant contributor to the broken process relates to this: people change, technology has changed, and people’s relationship with technology has changed. Yet, organizations have not moved from the traditional, check-the-box type approach to performance management. Those few who have adopted a much more agile, strengths-based, non-evaluative approach get better business results. Global. The performance management process and automation must be consistent, reliable, and consistently accessible regardless of the region or location from which users are trying to access. A performance management design that accommodates the needs of all users regardless of geography, function or level is requisite to it being high performance. Social. Creating a performance management system with collaboration capabilities empowering employees to connect with each other, establish team networks, and maintain information hubs for individual and group decisions is essential to high performance performance management. Mobile. Gaining access to performance data and results on the road 24x7 is integral to meeting the needs of the performance management stakeholders. The ability to take advantage of performance management information consistently, with ease, and from all locations and devices improves the business case and investment-benefit ratio for all constituents. Without a framework for high-performance, the best-planned performance management is nothing more than performance appraisal forms, disgruntled employees and managers and failing business results. The combination of leading practices, enablers, and success levers deployed continuously in a fashion guided by a model such as this one sets apart organizations who implement high- performance performance management – what we call Level 4 organizations – from their lower performing peers. Exactly how are they set apart you might ask? In just one way – but it is very compelling: better business results.
- How much better you might ask? A LOT better ! We studied six different business metrics and the impact of leading practice performance management - what we refer to here as Level 4 organizations -- on each of those metrics. 38% of organizations executing on leading practice PM saw increases in customer retention at rates of 1 and 20% while 0% of organizations not aligning with leading practice PM saw the same increase. 58% of organizations executing on leading practice PM saw increases in revenue at rate of 1 to 20% while only 16% of low performance organizations saw the same increases And as you can see, other critical business metrics follow suite. Our Performance Management Framework (process, enablers, success levers) translates performance wishes to performance results with impressive and measurable impact on the business. The transformation from low-performance Level 1 traditional practices to high-performance Level 4 modern-day practices is a journey, and requires a business case. I’d be hard pressed to say that there isn’t a CEO, CFO or other business leader who wouldn’t sit up and pay attention to the business impact story told by the numbers on this chart. In fact, as part of our study, we reached out to CEOs and other senior business leaders to gather their thoughts. They told us that the transformation is nothing short of requisite to business success and it starts with sharing business impact data like shown here. They told us that It is simply unfathomable that an organization could do a good job of managing its talent without gathering information about how well their employees are performing their jobs. And it is unconscionable to think an organization could hold onto a traditional approach to performance management and expect to achieve, much less accelerate and sustain, their business goals and results. Data such as this is invaluable in building the business case for performance management transformation, but what I always find even more interesting is exactly how real organizations, like yours, have applied the practices, the enablers, the success levers in their own organizations to garner the same or better impact that we see here. Let’s look at six examples.
- Gap, Inc. is a clothing retailer founded in 1969. Nearly an immediate success, sales topped $1 billion in the late 1990s and the retailer expanded internationally, opening stores in Malaysia, Singapore and other non-US locations into the early 2000s and expanded online services into Canada and the United Kingdom. By 2010, revenues were exceeding $14 billion. However, the competition was growing with brands such as J. Crew, American Eagle, Abercrombie, Target, Kohls growing in popularity and taking part of Gap’s market share and regaining and sustaining market share has been a real challenge for Gap since. Recently, Gap’s challenges have not been contained to only their business strategy. Recent higher than average turnover in key talent segments and critical job roles alerted Gap leadership to ensuring talent challenges. To correct the wane in employee performance and productivity, a Gap HR leader talked very pointedly about Gap’s decision to completely abandon traditional performance management. Out with annual performance appraisals; out with forced distributions; out with top-down only feedback. Replacing those dated practices was a single heads-down effort to return employee performance to what it once was: train all managers to be effective strengths development coaches. This analytics-based strategy, Gap is counting on optimized employee performance and therefore improved business performance. While the effort is underway, and metrics have not yet been tabulated, Gap’s fresh and science-based approach to performance management may be the benchmark to which many others will soon be aspiring.
- In March 2012, after noticing an uptick in employees exiting right after the annual performance appraisal discussion, Adobe dropped performance ratings altogether. Adobe’s SVP of People --Donna Morris -- said the company “abolished stack ranking and now uses a ‘check in’ system that fits with Adobe’s culture of collaboration.” Since dumping its stacked ranking process, Adobe’s stock rose 68% and revenues are up 4.4% and voluntary turnover has significantly decreased. Donna said, “As a company, we were continuing to evolve from box software that takes 12 to 18 months to release to cloud-based software, real-time services, and cutting-edge digital marketing, but on the people resources side, a lot of our core processes had stayed the same. We just weren’t seeing positive results from the way we had been addressing performance.” The change in how we approached performance management just couldn’t wait any longer she said.
- In November 2014, Motorola Solutions Inc. also pulled the plug on check-box employee ratings after CEO Greg Brown and human resources leader Shelly Carlin found themselves agonizing over how an executive might react to being labeled just a “valued performer” rather than “excellent” or “outstanding.” Feared, hated and much-maligned, such categories long have been the linchpin of the employee-review process at many companies. The labels, whether numbers or names, were tied to bonuses and raises in confusing ways, triggering mistrust and resentment. Brown said that “People had an unbelievable focus on their rating; so we decided to forget the rating and forced bell curve, which can be demoralizing and can create a culture of infighting.” Under the traditional system, a “valued performer,” for example, might have been eligible to receive 90 percent to 110 percent of a “target” percentage of base pay that corresponded to his or her job title. But it often didn't work out that way. Managers sometimes were reluctant to label people who were doing their jobs merely as expected as “valued performers.” Such grade inflation and a squishy payout range often left employees disappointed and top performers pushed down on the bell curve and solid, average performers pushed to the very bottom of the bell curve – just to make the compensation budget and bonus pool numbers work. “There wasn't enough money in the bonus pool to pay the top performers without taking away from other employees,” Carlin said and the action was creating engagement and productivity issues. The new system addresses those issues better in two ways: by providing employees more feedback (which wasn't happening because of the focus on the rating) and giving high performers more pay. In addition to fixing engagement and productivity issues, the new system was just plain more efficient. In the old system, Carlin said It was a major time suck for human resources. Without the label game and the lobbying or complaining that would accompany it, “Motorola reduced the time spent on this by 50 to 70 percent.” and instead, “spent the time finding the right talent and developing it.”
- Laurie Zaucha, vice president of human resources and organizational development for Paychex in Rochester, N.Y. told us that tying employee performance goals to company goals can be particularly helpful for employers that are looking to grow. In 2011, Paychex took on a new growth initiative, and part of its plan was to do a better job at linking an employee’s goals to company growth goals and modifying employee goals as business goals changed—an effort that is particularly useful for improving employee engagement especially in organizations with large workforces. Until the change effort was underway, Zaucha reported that employees stated they had no idea how their work even made a difference. As a result, employee productivity and ambition was waning. “Being clear on where the company is going and how the employees align to the change is important because it contributed to the overall business success,, and it created a culture of folks who are connected and engaged,” she said. Although Paychex’s transition is still relatively new, many employees are already feeling positive about the new approach to performance management. Zaucha said that employees and managers alike are sharing great feedback on the goal alignment initiative.” For many organizations, one of the greatest challenges in implementing goal alignment is the tendency for managers to set too many goals and to set forth vague objectives. For this performance management strategy to succeed, employee goals must be specific and measureable. Similarly, company goals must be specific, and that will require a more defined plan on action regarding how to coach and develop senior leaders and manager on effective goal writing, goal review, and goal modification.
- Automation can greatly facilitate the performance management workflow and substantially reduce the paperwork associated with this process. In fact, evaluations of auto- mated performance management systems show that they are viewed positively by managers and employees, decrease workload, ensure widespread access to performance management tools and provide a standardized, structured approach to collecting, analyzing and integrating performance data with other talent data to best forecast current and future performance requirements. As our survey data showed, and like at Guitar Center, performance management functionality most frequently automated includes: Collaboration and peer feedback tools Social learning resources aligned with development plans Goal setting tools
- An engaging leadership approach supports a culture of high-performance within an organization. When setting employee goals, they should be ones that are actionable and attainable. Further, they are crafted with careful oversight from managers and executives who are committed to ensuring they align with business goals, and can be achieved. In this fashion, executive leadership holds managers accountable for driving a culture of accountability and high-performance. Exemplary performance among the team members reflects engaged leadership. This is because members of the group find consistent support from their leaders and the executive team with good management skills and engaging leadership strength. Engaged executives develop a connection among themselves, managers, and employees. Executives with this level of involvement in the performance management process create a bridge for better communication and interaction with employees. An organization that combines an engaging leadership approach with effective manager as coach skills fosters trust, builds engagement, and improves and sustains top performance – within each individual employee, among teams, and across the entire enterprise. In this pharma, who chose to be anonymous, their business results were significantly faltering. Pulse surveys and internal interviews pointed to lack of executive engagement in the performance management process as at least one of the underlying reasons. To address it, the organization, in rapid order, implemented talent management governance specifically focused on overseeing the performance management process. Items they first addressed included allocating budget to performance management, approving a capital expense to acquire technology to automate the process, dedicated coaching training for all managers, and a new philosophy of performance management that focused on development for future results not evaluation of past and lost opportunity. As a result, within 9 months of engaging executives via governance, the organization recorded a 10% increase in employee engagement, a 5% increase in revenue, and an impressive 17% reduction in unwanted turnover.