The need for change – addressing our new reality.
This whitepaper seeks to find an answer to the question: How can we best align the day-to-day activities of employees within the work environment as we experience it today? The relevance of this question is rooted in a number of trends that have become more and more prevalent in the past few years. Think, for example, about the growing dissatisfaction with the performance management approach as we have known it for the past decades. We only need to look at the shift in mindset and ways of working that the Corona pandemic has triggered and the rapid changes in the external environment that require a more agile approach to traditional planning processes. Or the high demand for employees that is shifting the labor market to a demanding candidate market. How can you manage all this while driving your Inclusion & Diversity agenda?
The need for a new approach to aligning employee activities with the company purpose and its strategic direction is a very real and one that needs an integrated approach addressing relevant employee trends. Thinking through and actively engaging with your employees on how you create a workplace where your employees can make a visible contribution is a key leadership responsibility in addressing the relevant trends mentioned above.
In this whitepaper, I focus on how to best repurpose the performance management process. How do we keep the good and make it work in today's environment while addressing the bad and ugly part?
My proposed solution does not focus on changes in the operating model or company process, which are also important drivers of employee activities. Rather, it looks at aligning and optimizing employee activities with the company objectives irrespective of the type of industry within which you operate.
What's the problem with the current approach? A couple of observations and thoughts. The observation of employees and leaders that the traditional performance management approach is not fit for purpose is something I have experienced especially the past five years. And many people have expressed this same experience via various channels. For many years, the benefits of this approach overcame the challenges it created. What I believe has changed in the last couple of years is that the frustration among employees and leaders has reached a tipping point, and the financial driver behind the process has almost excluded its humanity. But it's not only the forced or guided performance distribution principles that drove the humanity out of performance management process, but also the fact that the outcome of the performance appraisals is strongly connected to too many other things like compensation, talent label, and career progression.
The consequence is that by design we create our own problem. Albeit that for example that companies are struggling to find the financial budgets to reward the different performance that people delivered, which undermines the motivation to outperform. Above all, the performance and talent ratings remain solely an opinion of the current leader. And the assumption that leaders make perfect rational decisions about performance is not correct.
Throughout my career, I have seen significant shifts in leaders’ opinions about people, especially with new leadership. And although it is mere human behavior, this triggers the question of whether performance ratings are indeed solid enough, rational and well underpinned that we can attach so many consequences to it? In his books and articles, Dan Ariely shares interesting insights in the (ir)rationality of our decisions. Why shouldn't this hold true for performance management decisions?
Another dimension that questions the humanity of the traditional approach is the composition of the goals that are laid down in the typical three to five fields in the performance management process. Leaders and employees have become very creative in using these fields to write complete job descriptions and lay down a number of goals that a normal human being can only accomplish throughout a full career. This means that even the best players in the team can perform averagely at best. If you then add the rule of tumb that 80% of people think they belong to the top 20%, it becomes understandable why the frustrations around the approach have reached a tipping point and is not seen as human anymore.
The final point that needs to be addressed, is the complexity that is created by the traditional approach. To manage the various challenges described, the approach requires leaders to have very high levels of people skills, and a significant amount of time. The latter is something leaders have in short supply.
It's time to bring things back into perspective, integrate insights on the rationality of human decisions, and repurpose the performance management process as a tool leaders can use to help them value the contributions of all employees in a fair, objective and inclusive way. By design.
A new approach to performance management.
How can we address these observations and concerns? In this chapter, I will touch on the various elements that need to be addressed to come up with a solution that works for your company.
Defining the WHAT.
The first step is to take the strategic plan of your company with accompanying goals and the translation of it to your business, function or team. This is the standard cascading process as we have known it for decades. At most levels in the company this still results in a long list of things that need to be managed. The first principle that should be applied is to manage initiatives only via one channel or process. Take, for example, financial objectives. Most companies have financial review process in place with a weekly/monthly/quarterly frequency. Why do financials goals have to be included in the goals of leaders and employees? This creates double work. And when the financial goals are also included into the bonus objectives, it creates even more work and creates more focus on what is already known, managed, and appraised. The same goes for topics that are managed via operational excellence processes or, for example, via lean management processes that many companies have in place. The first step in defining the goal areas that should be part of the performance management process is to identify what is managed where?
Going through this step with your team will help to create visibility on the areas that are part of some kind of a company performance process, like the financial review, and areas that are not. This doesn't mean that these topics cannot be included into the overall performance evaluation. I will address that later in this paper.
The second step is to further differentiate the remaining activities. Ask yourself questions like: is this a goal or a task? Is this business as usual or really ‘goal-worthy’? And finally, look at the shortlisted goal areas and see with your team what are three to five things that have the highest contribution to your company purpose and can be realistically realized in the coming period. Be aggressive against self-inflicted work. Keep the focus on making relevant, purposeful contributions.
The third step is to break down the high-level goals into activities for the coming specific period. Take, for example, the next quarter and specify the work that needs to be realized as part of the overarching goal. Focusing on short timeframes will drive more continuity in the formal and informal performance dialogues. It is important to identify the primary task of the team at this stage. What is the real work that needs to happen? If, for example, you have a priority with your team to work on for the next couple of weeks, but the team dynamics are not in a state to drive strong team results, the primary task is actually to bring the team dynamics in shape.
Once you have identified the team activities for the coming period, the translation to the individual team members needs to happen. To address various challenges as raised in the first chapter, it is important to clarify the following items with your individual team members:
Let people propose their own contributions based on their understanding of the team activities and agree in a (team) dialogue on the final activities.
Help to make the connection between the company purpose, the goal and activities, and make purposeful contributions for each team member tangible.
Specify what success looks like. Make it very concrete.
Understand if each employee is fully enabled to deliver what is expected and has the right level of sponsorship / mentorship. This is a key driver of employee performance and often not addressed properly. Next to topics like budget and time, it's worth spending time on understanding which decisions employee can make and not make and how this enables the achievement of success.
Working through these steps might take more or less time depending on the complexity of the overall goals and the complexity of the roles in your team. It is an investment that you have to make as a leader if you want to create a workplace where people feel they make valuable contributions. The payoff will come in the execution as a result of the clarity you create, the ownership your team members will feel, and the belief they can do something that matters, starting today.
Defining the HOW
Now you have defined the 'what’ part in the performance management process it's time to look at the ‘how'. Some elements related to the how are already included in the above steps, such as whether your employee is enabled to deliver on agreed goals and the topic of decision rights. In the how part, the focus is on the most impactful behavioral shift the team or employee has to make to deliver their best performance. What is the ONE thing you are going to work on that will further boost your performance?
The answer to this question is not always obvious and easy. Insights from multi-rater feedback, assessments, and dialogues with various stakeholders are very useful to identify the behavioral development that creates most impact. Help your employees to go through this process themselves and as a leader help them in answering this difficult question. This might take some time.
Opposite to the ‘what’ part of the performance management process, I propose a longer time frame for the 'how’ part. People should get sufficient time to experiment new behaviors, learn, and make it stick. This might even take up to a year or more.
This implies another proposed change compared to the standard way of working that fits things into a 12-month timeframe. Frequent dialogues on progress
One observation from both employees and leaders in many organizations is that the goals that have been set at the start of the year are not frequently reviewed throughout the year. This way of working doesn't underline the importance of these goals, often resulting in surprises at the end of the year.
To make the proposed approach to connecting employee activities to the company purpose really work, frequent interaction between a leader and employee is critical. Depending on the timeframe of the set goals, weekly, bi-weekly, or latest monthly check-ins are needed. Both formal and informal.
This is especially important if you do not have sufficient direct visibility on your employee. It is the role of the employee to prepare for the dialogue by having the latest status on progress on the what, how key stakeholders feel about the progress, and outlook for the next couple of weeks. To avoid these sessions turn into a baby-sitting exercise, it is key that the employee and leader have a two-way dialogue focused on among other things understanding the progress, potential barriers, and whether the employee is still fully enabled and can make relevant decisions. This is where the leader takes on more of the role of coach and asks accompanying questions. The employee takes ownership of his/her goals. The frequent interaction between leaders and employees requires both parties to adjust the role they play in the process. It requires maturity in the working relationship and mutual trust. Training leaders and employees in playing their role in the right way is one of the most important things to make this proposed approach a success. It is these conversations between leaders and employees where the magic happens. Or does not happen. Another element that should be included in the training for leader is to create an understanding of their biases towards how their employees should realize their goals. This is an area where we can learn a lot from sports.
Take, for example, tennis. Not a single top tennis player has the same technique. Numerous top 10 players in the world have techniques that don’t match the handbooks at all. They are all unique and deliver different performance levels in different circumstances. But they are still top players. It’s human to feel comfortable with people in your team that think alike and handle things in a way you would do it. But it might not be the only or best way. To get the best out of their team and people, leaders have to understand their biases and how that helps and hinders them in bringing the best out of others and in the end themselves.
Calibration – drop it or not? When reviewing the performance management process, the question on what to do with the calibration step often comes up. Without going into too much detail, my view is that calibration is becoming even more important.
This is especially true when you have employees in your team of whom you have limited visibility on how they spend their day, and employees that work for different stakeholders. Both employees and leaders should calibrate their view on employee performance on a frequent basis. This should be done especially when there is a more formal review of achieved performance at the end of the agreed performance period. What's important is to do it right. Calibrate with people that have an objective opinion about you or your team members, rooted in clear examples. Performance ratings?
The use of performance ratings is heavily debated. Various companies have tried to abandon ratings. Some have successfully done so, others have re-introduced ratings. It's hard to find a clear answer to this question. In my view, companies can let go of performance ratings, but it needs to be looked at from an integral perspective as this raises questions such as how to manage the relationship in areas like compensation and talent management. And how to express to your employees how much you valued their different contributions, without ratings?
As mentioned earlier, my view is to let go of the causal relationship between ratings, merit increase, and bonus payment. Assign financial budgets to leaders and let them divide it among their team. Put employees’ value for the company and market value in the lead for salary adjustments and make compensation a separate topic. For talent management, performance ratings are an important input, but also not more than that for the reasons mentioned in the introduction. Letting go of the performance ratings is possible and might require an adjustment to the way a company defines talent. To address the observations and thoughts in the introduction, some form of evaluation of the performance of employee needs to be given by their leaders. Performance ‘ratings’ will remain an opinion of the leader and next to the agreed ‘what’ and ‘how’ section in the performance management process, financial results and other achievement measures via, for example, operational excellent programs can be included. And this is not a backdoor to still include too many topics in the process. What you do is evaluate the performance on a few agreed, purposeful goals within the full context and make it human.
This will also help answer the question of whether people can have a great performance evaluation while the company results are not as planned for. What would have happened if those people didn't deliver that great performance? The consequence of the financial results will already be felt by employees in their compensation adjustment and bonus payments.
Don't review that again in the performance management process if not needed and create a work space where people can make impactful contributions to the company and society and reward them with the unfiltered recognition they deserve. Be human. Closing
Every company has the opportunity to repurpose it's performance management process to one that adds value in the eyes of leaders and employees. Depending on the process you have in place today, it requires a large or minor shift in framing its purpose and how you can manage the practical consequences.
Simplifying the content, helping to create strong focus on what adds most value, and training leaders and employees in how to best manage the process are key drivers of a successful change. It can be done!