Performance management is obsolete.
Let’s just rephrase that, the existing way of managing performance has become increasingly outdated and low value to people managers, employees and organizations overall growth.
Today’s business world requires a fresh perspective towards how we take on performance management and people development.
In any given organization over the course of an annual performance cycle, strategies evolve, goals shift, and employees often switch between multiple projects under various team leaders.
The workforce today also actively seeks real time information on performance that informs them about their progress and motivates them to do better.
Given this dynamic, it is hardly surprising that only 8% of the organizations surveyed by Deloitte stated that their performance management process drives value while over 56% said it’s not effective at all!
So where are we going wrong? What needs to change? What should you be doing to improve performance management and make it future ready?
From performance management to performance enablement
The first step to break out of being outdated is to look for a more efficient system for performance management that works in real-time and can be personalized. A system that strives to drive future employee performance rather than assess an employee based on past performance.
Performance management systems that are only based on cascading objectives, annual performance reviews, 360-degree feedback, etc., are unsuited for the modern workplace. A performance management system for the modern workplace needs to be fast, efficient, customizable, and constantly evolving based on the collection of reliable and real-time performance data.
In fact, according to a survey conducted by HR.com three quarters of organizations use technology to support their performance management but only fewer than 60% of the respondents have solutions that include the basics such as workflow approvals, facilitation of performance review or appraisal process and the ability to integrate with third-party solutions.
In a world where employee retention and workforce capability are significant indicators of business success, the performance management process should focus on continuous coaching and forward looking development, rather than retrospective and competitive evaluation. At Mesh, we’d like to call it performance enablement rather than evaluation/management.
So what’s wrong with traditional performance management (PM) systems?
Performance management attracts considerable attention because of the ineffectiveness of the traditional system. Major drawbacks of the traditional PM system include:
Employees’ performance is reviewed only at the end of the year. By then, it is past the time for corrective action. Reviews need to be ongoing through continuous two-way dialogue and feedback.
“Annual reviews are a terrible way to evaluate employees.” - The Wall Street Journal
The article elucidates how replacing the inefficient annual review system with a weekly light-touch check in can actually improve morality and the connection between managers and their teams.
Annual reviews lead to employees being judged based only on the most recent events. Ongoing and real-time feedback is more effective than annual reviews.
Effect of work culture
The traditional PM system ignores the impact of the organization’s culture on an individual’s performance. A good culture enhances performance, and a poor culture can cause good performers to leave.
A manager's annual review of individual performance creates a culture of unhealthy competition and disincentivizes collaboration and teamwork.
First impressions, Halo/Horn effect
First impressions can lead to wrong judgments being carried forward and deter the concerned employee. Also, the Halo/Horn effect can lead to assessment in one job area creating generalizations in other job areas.
Performance ratings tend to get bunched towards the center of the scale. Hence, everyone gets rated either higher or lower than their actual performance.
A performance (enablement) management system for the modern workplace
As workplaces and employee expectations have evolved, performance management systems have also changed. It’s neither a complete break from the past system nor a new way of doing things. A command-and-control approach to managing performance has made way for a people-centric approach.
Modern performance management or performance enablement is essentially about designing a system that has to be aligned with the processes and culture of the workplace. Although best practices can be borrowed from outside the organization, the core processes should be based on the organization's specific needs.
How to bring a future-ready performance management system into your organization?
The design of the PM system has a significant impact on employee engagement and productivity. Effective performance management is a key determinant of organizational success in the modern workplace.
The key characteristics of a future-ready performance management system for the modern workplace include:
Employees need to feel there is a connection between their day to day effort and the needs of the business. According to a recent talent survey by Ceridian, 92% of respondents who feel their work makes a business impact are happy with their jobs and more likely to apply high levels of effort towards meeting purposeful goals.
While setting and communicating goals, key job expectations and responsibilities should act as the main guide and reference.
Goals should not only address what is expected, but also how it will be achieved and why it’s important. The ‘what’ covers quality or quantity expected, deadlines to be met, cost to deliver, etc. The ‘how’ refers to the behavior to be demonstrated to achieve these outcomes, for example, ‘how’ to focus on customer service. The ‘why’ explains the link between individual goals and the organization’s strategic priorities, for example, becoming leaders in a certain market segment.
In addition, some organizations choose to include competencies or core values within performance expectations, to reinforce the link to desired organizational culture and values.
To be precise, regular check-ins or 1:1s. These conversations involve discussions between peers, managers and team members, leaders and employees and so on. An organization that largely utilizes continuous conversations in strategic planning models and further cascading goal strategies are able to ensure that individual goals of employees are aligned with the organization as a whole.
In fact, Spotify addressed their most frequently asked question about “How shall we assess performance and calibrate across the business?” by creating four pillars to their approach. Among which continuous conversations was a top priority followed by development talks, talent snapshot and compensation reviews.
Evolution of goals
Organizations where employees review their personal goals quarterly—or even more often—were nearly four times more likely to score at the top of Bersin by Deloitte’s Total Performance Index.
Some goals, like your desired customer NPS, might remain steadfast. However, more often than not, fluctuations in the business environment will call for goals to be revisited and adapted in line with the current scenario.
Check out our article on reviewing and adjusting goals in times of uncertainty.
Employees in agile and dynamic teams also often find themselves being allocated new projects and tasks that can’t be attributed to the goals they set at the start of the year.
Keith Ferrazzi, an American author and entrepreneur talks about how radical adaptability separates the best from the rest. What this means is that, this sustainable leadership methodology of radical adaptability enables organizations to future-proof themselves for a world of uncertainty.
Successful organizations allow for goals to be changed and targets to be altered if the assumptions used to set them change unexpectedly. This helps ensure employees actually have relevant goals they are working towards every day, and all their contributions are duly accounted for in any performance related decisions.
According to PwC, nearly 60% of survey respondents reported that they would like feedback on a daily or weekly basis—a number that increased to 72% for employees under age of 30. However, findings from HR.com research suggests that one-third of respondents say their performance management process does not include constructive criticism and positive feedback.
That’s not it!
Only 40% of respondents say that their performance management system accurately portrays employee performance. This shows why it’s important to include feedback and recognition in your performance enablement system and ensure that the portrayal of an employee’s performance is accurate.
Successful organizations focus on on-going feedback provided informally in the natural flow of work and rapid feedback loops that give people specific and actionable inputs to implement in real time, learn from and course correct before it is too late.
Leading players like Accenture, Adobe and Deloitte have reported that regular, organic and multi-directional conversations between managers and their team members in the form of informal team check-ins have led to more meaningful discussions, deeper insights and greater employee satisfaction.
Adopting this practice requires performance management processes to also include building skills in managers to not only give effective feedback themselves but also promote a culture of authentic feedback without a fear of conflict within their teams.
When upgrading your performance management system, look for ways to support your managers and enable practices like ongoing team check-ins and manager 1:1s. Check out how mesh helps you give feedback and conduct team check-ins seamlessly!
Culture of giving praise and gratitude
Social recognition has been known to improve employee productivity by over 60%. Mozilla, like many other leading organizations, discovered the power of social performance management early on.
Debbie Cohen, VP HR once stated “Mozilla was experiencing large, global growth. We needed iterative, ongoing dialogue on the impact of contributions. At the same time, we wanted to build community and recognition.” By allowing employees to socially recognize a job well done, a helping hand, someone going above and beyond, or even company values demonstrated in the moment, organizations can promote a culture of collaboration, improve engagement, increase job satisfaction and motivate employees to improve performance.
Additionally, social recognition also promotes building on one’s strengths rather than highlighting one’s weaknesses. A Gallup study found that teams with managers who received recognition on their strengths showed 12.5% greater productivity than teams with managers who received no recognition. Good for the employees AND good for the business? Sounds like a win-win to us.
Unlinking development and compensation
People development is simply too important a subject to let compensation bury it. More often than not, when compensation, bonuses and increments come into play, authentic feedback and action planning around performance improvement takes a backseat.
In addition, when employees are competing for their share of the bonus pool or chasing the highest individual rating, teamwork and collaboration gets significantly hampered. When you review performance, the focus must be purely on what the employee did and how he or she can do it better next time. Whether you call it appraisals or performance reviews, it doesn't matter. The key is to have an open and frank discussion where everyone involved listens and exchanges views.
While shifting focus to performance development, it’s also important to make sure employees understand how bonuses and increments are calculated. The more objective and transparent something is, the more accepting employees will be towards any decisions made in this regard.
Let fairness, sharing and transparency be your key values, and your people will reciprocate.
A performance management system like Mesh helps streamline performance management-related processes. The future of performance management is headed toward using these tools for predictive analytics and succession planning to help transform organizations to be future-ready.
The future-ready PM system should place the employee's interests at the center. Employee centricity keeps employees engaged and motivated to meet all emergent business challenges.
Bell curve no more
Research has shown that the distribution of employee performance more often follows the ‘long tail’ rather than the traditional ‘bell curve’ especially at talent-intensive companies that thrive on expertise and innovation.
In other words, a small population of employees are top performers or ‘hyper achievers’, a small population of employees are low performers, while the large majority work at the middle level of performance. In industries such as software, a top performer can often outperform a mid-level performer by as much as tenfold.
Hence, your performance management system should be equipped to identify and treat high performers very well, while encouraging mid-level employees to improve through coaching and development.
Effective performance management for today’s (and tomorrow’s) world of work is both an art and science. It requires careful attention to both the intangible human aspects of performance development like coaching, ongoing feedback and social recognition, and the more tangible aspects of performance management like decisions around role changes, training and compensation. But the need to pay attention has never been more pressing.
How to Transition to a Future-Ready Performance Management (PM) System
The future of performance management is a movement away from the traditional approach to managing employee performance. The transition to a future-ready PM system needs to be preceded by thorough preparation and intense deliberation.
The steps in the transition process to a future-ready PM system include:
Identifying the purpose
Begin by identifying the purpose of your PM system. The PM system should help identify high-performance individuals, boost communication between managers and their teams, identify L&D requirements, etc. The PM system should also help eliminate subjectivity by enabling greater data utilization for decision-making and a system of feedback. In fact, a survey by HR.com found the following PM objectives to be the most important:
Check alignment with nature of work
The modern workplace is constantly changing. Check if the chosen PM system supports data-based evaluation of team and individual performance. Such a system signals that team performance is as important as individual performance and also sees into the future, crowd source intelligence and build resilience towards whatever goals your team sets to accomplish.
Evaluating the Performance management system
The chosen PM system must support the execution of your business strategy. The PM system should drive people's behavior to support the organizational strategy. Take a look at the metrics used in your performance management system. It is also worth noting that according to a survey conducted by HR.com, around two-thirds of respondents cited that the following statements are features of their organization’s PM process:
- It includes both positive feedback and constructive criticism
- It includes a discussion of organizational/work goals
- It involves a conversation about activities and developmental goals
The single most important metric that almost 72% of people want to include in the PM system is manager ratings based on objective metrics (unbiased) according to HR.com. Not far behind is self assessments(ranking & appraisals)—63%. In fact, most HR professionals believe that including self assessments gives people a voice to express themselves.
Another finding shows more than two-thirds (78%) of respondents assess behaviors displayed as compared to 56% who assessed values displayed through their PM system. This could also mean that, it may seem harsher to tell an underperforming employee that their values are poor than saying their behaviors need improvement.
Apart from this, the two other most common employee related factors in a PM system are goals met (86%) and job responsibilities fulfilled (81%). This adds an important dimension to the assessment of employee performance as often goal achievement is affected by factors that aren’t under the employee’s control.
This could also be the case if the employee gets the right results with the wrong behaviors (unacceptable behavior, not being collaborative) then your performance management system should be able to note it.
Mesh helps you do just that! It illustrates your overall progress on each of your team’s competencies and the risk estimation of each of them. This denotes the probability of employees (out of everyone who's working on it) not being able to reach the excelled stage that in turn helps you course correct before it’s too late.
Here’s a glance into GE’s performance development approach and their tangible outcomes.
GE drove a fivefold productivity increase using this new approach to performance development. The new performance enablement system started promoting trust between managers and employees which is the foundation of high-performing teams. The insights that are being shared are also quite different compared to the scrubbed and anonymous 360-degree feedback/reviews of the past.
Compatibility with company culture
The PM system needs to be compatible with the work culture prevalent in the organization. For example, a market-driven culture is characterized by result orientation and internal competition. It needs to build a sustainable change wherein employees find this as a better use of their time as compared to the traditional approach. The managers drive people hard, and performance is primarily judged by factors such as market share gained, market penetration achieved, etc.. A PM system suited for such a work culture might not be appropriate for hierarchical or entrepreneurial work culture.
Performance management systems are meant to help organizations know themselves and their employees beyond the single number associated with their rating. A future-ready PM system uses technology to transition from using limited data to assess performance to striving for a big-data view, to gain a comprehensive and all-around perspective of people and organizational performance.
Luckily, help is on the way. Mesh is a performance enablement platform designed for today's workforce, keeping these trends and needs in mind. Mesh makes it easy for employees to manage goals, track tasks, ask for feedback, share recognition, run team check-ins and 1:1s, all in the flow of work. It simplifies performance and project management processes and replaces the need for up to 4 different management tools with one daily social network for work.
Do you want to leverage a performance enablement platform? Book a free demo today! Or if you have any other tips or advice for managers to be better at leading teams? We’d love to hear from you.