Performance Management(PM) is dead. The existing way of performance management has become increasingly bureaucratic/burdensome, costly, low-value to employees and managers. Further to this, it has zero or sometimes negative contribution towards overall company growth.
You probably have read many blogs/articles stating these claims. Everybody is talking about it, but nobody is talking about what is missing in current approach and what needs to be done to be future ready. By merely shifting the annual activity to quarterly will not help. And by just doing way from ratings will also not help, in fact, it can be counter-intuitive and will result in socialist culture in the organization where high-performing people are not rewarded.
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This post is focused on how you can identify what is missing in your current approach of PM. There are two aspects when we talk about getting ready for future:
- Evaluation of Present Situation: It’s about knowing what is missing in your current approach of PM. And whether you are ready for the change in future or not.
- Preparing for Future: How to prepare for the future. Part-2 of this post will cover this aspect
Evaluation Of Present PM System
Purpose of Performance Management
The primary purpose of PM should always be to enable and enhance organizational & people performance. The organization performance can only be increased when its people become more accountable towards driving organization objectives, managerial effectiveness is enhanced, and people feel more motivated at work.
Once we have a clarity on the purpose of PM, we can decide whether PM will help us to achieve the organizational performance or not. Your purpose of PM could be one of the items listed below or cloud be the combination of them:
- Driving accountability towards achieving organization business objectives.
- Enabling people to perform better in present and future.
- Compensation/Reward/ Promotions decisions
- Identification of the high-potential’s for leadership pipeline
- Future L&D initiatives
The primary purpose of PM till date was to support the decision making related to Compensation, Reward and Promotions. And this decision making is primarily supported by data coming out of annual performance review activity, which was always received with the lowest level of interest by people in the organization. And the core reason of failure was the ‘Design Thinking’. The existing design of PM has brought in too much subjectivity & complexity in the processes which resulted in side effects like ‘Recency Bias’. And because the entire exercise was not data-driven, it has led to more politics and favoritism within the teams.
To prepare for future PM process, you can answer following questions with respect to ‘PM Purpose’
- What should be the purpose of my future performance system?
- Is my purpose getting fulfilled with existing PM in a way that it reduces subjectivity and complexity?
- Does my PM give me enough data points to achieve my PM process
The strategy is a new management jargon which has come in limelight just 10 to 15 years back. Only few people beyond HBR writes about this. In its simplest form, the strategy is about set of choices CEO and her leadership team makes about the business. These choices are primarily in following areas
- How winning future looks like?
- Where will we play?
- How will we win?
- What capabilities are required to win?
- And what kind of systems and processes are required to win?
It’s often heard that strategy is an execution and people problem. If that’s true the PM is the perfect system to support execution. And further, it can support the change in people behaviours to achieve those strategic priorities.
To prepare for future, you can answer following questions with respect to your ‘business strategy’
- Should my PM support execution of my business strategy?
- Will we able to drive the behaviours using our PM to achieve our company strategy?
Nature of Work
The nature of work has changed in last 30 years because of the growth of service economy. Employees are expected to play multiple roles during their company tenure and must deliver results at a much faster pace. This has resulted in more stress at work and the human brain is still getting adapted to new norms of speed, and high levels of anxiety. At the same time, employees are demanding much more flexibility at work to reduce their level of stress
The kind of work which is happening in the companies’ demand people to work in teams and that to cross-functionally. Your PM should be supporting the team ecosystem to achieve your goals. And should support performance evaluation not just based on how the individual has performed, but also how the team has performed to which individual was part of. Once this approach is supported, you are giving a clear signal to your people that team performance also matters.
To prepare for future, you can answer following questions with respect to your ‘Nature of Work’
- Should my Performance Management(PM) support team performance evaluation plus individual performance evaluation?
- Do I need to capture data points against all the action plans/KPI individual people have worked on throughout the year?
The service-based economy is mostly supported by new age employees a.ka. millennials. Millennials are people who have joined the workforce post-1984 and have grown up with the social networks and heavy usage of technology. They don’t hesitate to share their views publicly. They have a very high quotient of finding the meaning of their life through their work. To find the meaning they need more feedback from your managers and more growth opportunities. And they can’t just work in a fixed role, which in-fact is good for you as an organization. They want to move horizontally and vertically. And they expect much more transparency from the organizations. In a nutshell, they are way more demanding of their employers than previous generations.
Your PM should support transparency or at least improve the perception of transparency. And it should support frequent feedback in a very informal way. If you can achieve this, you will see more stickiness of this generation with your organization.
To prepare for future, you can answer following questions with respect to your ‘Millennial Readiness’
- Should your Performance Management(PM) support in improving the level of transparency or at least improving the perception of transparency?
- Should your PM support more frequent feedbacks, which should be enabled every day/week/month/quarter?
Organization cultures is about how work gets done in your company. Organization Culture can be divided into 4 archetypes. You need a good mix & balance of all the 4 types to achieve the success.
- Market-driven culture: where people are result-oriented, competitive and goal-oriented. The leaders are hard drivers, producers, and competitors. And the success is defined in terms of market share and penetration.
- Hierarchical Culture: where procedures govern what people do. The leaders pride themselves on being good coordinators and organizers. And the Success is defined in terms of dependable delivery, smooth scheduling, and low cost.
- Clan Culture: where people share a lot of personal information where leaders or heads of the organization are seen as mentors. And the success is defined in terms of sensitivity to customers and concern for people
- Adhocracy culture: where people are entrepreneurial and creativity is valued at work. The leaders are considered innovators and risk takers. And the success means gaining unique and new products or services.
Your PM should help you to achieve the proper mix of above-stated culture archetypes. Let’s say, if you want to enhance the market-driven culture in your company, whereas your culture is still inclined towards Clan or Hierarchical, can your PM support in achieving the desired organization culture.
To prepare for future, you can answer following questions with respect to your ‘Organization Culture’
- Should my PM support in achieving the kind of culture mix I want to achieve in my organization?
- Can I drive the behaviours using my PM that can help me achieve my right culture mix?
Cost of PM
The cost of your PM can be determined based on two variables, direct cost, and indirect cost.
According to a study, one company has spent close to $11 million dollars in last 5 years in supporting the traditional approach of PM process (direct cost involving people + technology cost).And according to Deloitte, companies spend approx. 2 million hours of effort on completed the PM process which employee and managers don’t even see value in(this is an indirect cost).
The indirect cost includes attrition because of post-performance review, negative employee morale, loss to productivity and overall employer brand image.
To prepare for future, you can answer following questions with respect to your ‘Cost of PM’
- What kind of direct and indirect cost involved with PM?
- Is my PM enabling us to enhance the organization performance resulting in more revenue growth and cost saving?
Every change starts with evaluation or needs to change. You might be wondering can a PM impact so many areas. If you look at PM through the lens that its core is compensation or HR compliance, it might not. But if you look at it through the lens that its core is organization performance, the possibilities are immense.
The part-2 of this blog post covers details that when you have decided to look at your Performance Management as a way to enhance Organization Performance , how you can achieve that.
- Start by identifying the primary purpose of your PM.
- Evaluate is your PM supporting the execution of your business strategy.
- The nature of work has changed and became much more complex. Is your PM supporting the team to chase the goals?
- Is your PM supporting the kind of culture mix you want to achieve in your organization?
- What kind of direct and indirect cost involved in the current Performance Management process?