Performance Management: A New Approach for Driving Business Results

By Ron Thomas

Among managers, 95% are dissatisfied with their PM systems. Among employees, 59% feel PM reviews are not worth the time invested; 56% said they do not receive feedback on what to improve. Almost 90% of human resources (HR) heads report that their PM systems generate inaccurate information. Those are frightening statistics from CLC research.

Ron Thomas, Managing Director of Strategy Focused Group sits down with Dr Elaine Pulakos to get her thoughts on Performance Management and how it can drive business results. Dr Elaine  has spent her career working with organizations to design and implement talent management systems and processes in the areas of staffing and assessment, performance management, leadership development, and succession management.

Q: What has caused an erosion of faith into Performance Management (PM)?

A key reason for disenchantment with performance management is that performance reviews have come to be dreaded by employees – they are seen to be of low value and demotivating to even the organization’s best performers. This is because year-end reviews revisit the past, which is not only highly ineffective if employees are hearing about an issue well after it happened, but can also be damaging to one’s self-esteem. It’s simply not helpful to bring up things that occurred weeks or months ago, especially ineffective things.

The most productive approach to positively impact performance is to course correct in real time as performance occurs, rather than after the fact. When this happens, the yearly review can then become a more positive forward-looking discussion of an individual’s goals and what new skills or experiences need to be developed to achieve these.
A second reason why PM processes have fallen out of favor is that they have not delivered on their promise. PM was initially implemented with the idea that it would drive individual and organizational performance. Unfortunately, research conducted by CEB has shown that today’s PM processes and outcomes have no relationship to important business outcomes or to individual or business performance. The way in which formal PM is executed – how ratings are done, how goals are set, and how feedback is given – are simply not designed to positively impact performance. These activities occur on a prescribed schedule and usually only one or twice a year rather than occurring in real time when goals need to be set or adjusted or when outstanding performance occurs or a course correction is needed.

The concept of performance management has become synonymous with once-yearly events that culminate in ratings that reduce employees to a number than something that’s done on a daily basis to help employees and the organization optimize performance.

A third reason that PM processes have fallen out of favor is that both managers and employees have to spend large amounts of time on PM documentation, forms and other administrative tasks that are of questionable value. This is exacerbated by the fact that many companies have implemented automated PM systems, which has turned PM into a largely administrative task that’s completed by interacting with an automated system rather than by interaction and engagement between managers and employees to achieve high performance.

What we’ve learned and research has shown is that open, regular communications and good relationships between managers and employees that enable ongoing, informal feedback and agile goal-setting are what drives high performance, not formal PM processes. Yet, between heavy annual administrative processes and automation, we’ve reduced PM to a HR requirement in which managers are motivated to simply “check the box” to comply with requirements. We’ve lost sight of what we need to focus on effectively manage employee performance.

Dissatisfaction with PM has come to a head in the last couple of years, as organizations have experienced increased frustration and complaints from managers and employees about their PM processes. This plus the realization that organizations are investing millions in automation and employee time in activities that produce little to no value has undermined faith in traditional PM processes.

Q: One of the common best practices was to cascade goals so that each level supports goals relevant to the next higher level; the rationales for this are to ensure employees understand how their work relates to higher levels and to align the employee’s work with the organization’s strategic direction and goals. Is the practice relevant insight of the discontent within the entire performance model?

Cascading goals is one aspect of performance management whose value has come into question. No one argues with the fact that it is important to communicate expectations and set objectives – this is a core tenant of effective PM irrespective of how it is implemented. The idea behind cascading goals is logical — ensure everyone in an organization is aligned in what they need to deliver – but the process to implement this idea has ended up being quite heavy and ineffective.

In any larger organization, significant time and investment are needed to cascade goals from the very top through all of the organizational levels. What often happens is that goals don’t actually reach lower level employees until well into the rating cycle. And, by the time CEO objectives are interpreted and translated down through many levels, the goals that reach lower level employees often don’t make sense or are disconnected to their work.

Finally, cascading goals is an annual process that does not effectively accommodate the dynamic and ever-changing nature of work today. If managers and employees actually make changes to their goals as work requirements change, it’s almost impossible to keep the cascade connected through the levels, which then raises questions about the value of the investment in doing this. Rather than set goals once per year through a cascading goals approach, we’ve found that it is much more effective to set ongoing goals and objectives at shorter intervals and link feedback to these.

This helps managers better ensure employees understand what they need to do and it helps employees have more line of sight to their goals and how success will be measured. It is also more effective to “link goals up” rather than cascade them down, because this avoids having to wait for each level above to complete its cascade. Goals set in this manner will also be most meaningful and relevant for each employee’s work.

Q: Since we have entered into what is called a VUCA environment how relevant are goals that are determined one year out, fair and meaningful and could be outdated in weeks or months because of the constant change that characterizes today’s work environments.

There is a great deal of research on goal setting which shows clearly that focusing on near-term goals that align closely with the work and providing feedback as performance occurs are important for driving high performance. We see these ideas represented in the concept of SMART goals – specific, measurable, etc. If we implement the ideas from the research, it’s doubtful they would lead us to an elaborate process of cascading goals once a year. Shorter term goals that are specific to the work also better enable accommodating change, so developing these and linking them up to ensure they fit with the organization’s overall objectives provides a much more agile process of goal setting that is better suited to a VUCA environment.

Q. Because we are knee deep in this process in so many organizations, what do you propose we can do to make Performance Management more real time and thus more effective?

For decades, we have repeatedly attempted to address dissatisfaction and poor PM outcomes by changing aspects of the formal PM system. These changes have increasingly driven towards more administrative requirements, based on the assumption that formalizing process steps would ensure effective PM behavior occurred. However, as PM systems have become more bureaucratic, we have observed an intended consequence – they have become disconnected from the day-to-day activities they were initially designed to support, such as communicating clear expectations, helping employees achieve their goals, enabling high quality feedback discussions.

The trend today is thus to streamline low-value formal processes and focus attention directly on instilling the behaviors that matter most. This approach is supported by CEB research, which shows that employee performance and engagement are substantially higher when managers set clear expectations, provide regular informal feed-back, and help employees develop and succeed. Also supporting this is research from Google – their Project Oxygen, which identified eight habits of highly effective managers, including making time for one-on-one meetings, helping employees solve problems, and coaching employees. Google managers who demonstrated these behaviors had teams that performed better, stayed longer, and had better attitudes.

One thing that’s important to recognize is that the path to instilling effective PM behavior in an organization’s culture is not something that’s achieved overnight. It requires attention, concerted effort on the part of all employees to regularly engage in the behaviors that matter (e.g., regular feedback, agile goal-setting, and so forth), and feedback from others to hone how effectively these behaviors are performed. As a result of this trend, we are thus seeing performance management behavior change programs increasingly being deployed in organizations. Those that work best drive intentionality, provide support for practicing the behaviors as part of ongoing work, and also have mechanisms to give managers and employees regular feedback about the extent and effectiveness of their PM-related behavior.

To reduce time consuming, non-value added PM processes, performance management reform today is also focusing on streamlining formal processes by, for example, stripping out things like cascading goals, once yearly formal reviews, and elaborate rating processes. Several high-profile companies, including Microsoft and Adobe, have made significant, newsworthy changes to their formal PM processes that have included eliminating performance ratings altogether – under the assumption that once ratings are removed and employees are no longer reduced to a number or ranking, attitudes towards and satisfaction with PM will improve.

While it is certainly reasonable to remove low value processes and potentially even ratings if this fits with the organization’s needs, one important caveat is that doing this without the accompanying behavior change can actually leave organizations worse off than they were before – with less satisfied employees and even less effective PM processes, as shown in recent CEB research. What we have thus been seeing is a rush to eliminate or reduce formal processes but nowhere near enough attention or support to behavior change, which leaves organizations essentially devoid of performance management.

There are very significant benefits for organizations by shifting our collective mindset about PM – away from conceiving of it as formal “check the box” steps, each of which are done annually through automated systems – to daily behaviors that matter most in driving effective individual and organizational performance. Achieving this change in organizations is certainly do-able as we have seen working with many organizations but requires supports that effectively focus attention on and enable behavior change.

While effective PM behavior is the gold standard to achieve across all situations, the formal PM process itself will vary across situations, for example, more or less streamlining of the formal process and the specific shape these take should be based on the organization’s goals, strategy, and maturity along with a realistic assessment of what the different formal process steps will provide.

Development of a PM strategy that takes this approach will enable informed decisions to be made about how to design the formal system in a manner that will work best in a given situation.

dr elaineElaine Pulakos, PhD
Dr. Pulakos has spent her career working with organizations to design and implement talent management systems and processes in the areas of staffing and assessment, performance management, leadership development, and succession management. She is a recognized talent management thought-leader and frequent invited speaker to address both practitioner audiences and the scientific community. She has authored numerous articles, book chapters, and books, as well as three best-practice volumes for the Society for Human Resources Management (SHRM). Her work has been recognized with several awards, including the Society for Industrial and Organizational Psychology’s (SIOP) Distinguished Professional Contributions Award, the M. Scott Myers Award for Applied Research in the Workplace, and the William A. Owens Scholarly Achievement Award. Elaine is a Fellow of the American Psychological Association and SIOP, for which she also served as President. Currently, she leads two groups within CEB – global measurement product development and PDRI, A CEB Company.