Yet almost everyone believes in the concept of performance management. Companies spend millions every year going through the elaborate ritual of strengths and weaknesses, development opportunities and forced rankings. Why the disconnect?
" Employees would laugh off reviews as artificial and retrospective if they didn’t have such an impact on their bonuses."
Andrew Woolf, Global Human Capital Lead for Accenture Financial Services
To find the answer, Accenture carried out a survey of 2,100 business leaders and employees in organisations across North and South America, Europe and Asia Pacific.
It found while 94 per cent of managers are convinced performance management improves business performance, only 34 per cent of all respondents believe their current approaches effectively support the objectives of the business.
In fact, almost nine out of 10 employees said their performance would improve if their company’s performance management improved.
There are few areas in which performance management is seen to be delivering the basic results it’s designed for.
From developing and growing employees (just 40 per cent) and retaining staff (28 per cent) to engaging and motivating them (40 per cent) and making fair decisions about their bonuses, pay increases and promotions (36 per cent), faith in current approaches is alarmingly low.
Critically, fewer than one in three respondents believe performance management is providing a clear line of sight between the performance of the organisation and that of its people – a severe impediment to a company being agile and responsive.
The problem is performance management systems have generally struggled to keep up with changes in the workforce, the workplace and the ways in which work is carried out.
Just as consumers demand personalised experiences, employees are expecting to be evaluated and encouraged in more personalised ways. Employers need to recognise increased workforce diversity is creating a greater variety of employee motivations and expectations.
The ‘one-size-fits-all’ approach seems to be having a strongly negative impact on performance management – three out of four respondents said if the needs of the workforce of the future are to be met, personalisation for individuals or groups is mandatory.
Ratings and rankings too came in for heavy criticism. Sixty per cent of respondents said using them creates a negative experience for everyone except the few at the top.
Around 63 per cent of leaders who use forced rankings believe eliminating them would simplify performance management and improve the performance of their people.
But scrapping them is not necessarily the solution. A high proportion of leaders (92 per cent) and employees (89 per cent) alike believe traditional rankings and ratings should have some role in determining rewards.
The insight here is some sort of evaluation guidance and standards is important, as long as sufficient attention is given to employee uniqueness.
This will require new behaviour from leaders who, with a much less prescriptive set of guidelines, must have intimate knowledge of the impact of each individual and then translate that into rewards.
Another problem with many current performance management systems is they are characterised by top-down control, and focus on assessment of the past rather than development for the future.
Employees, to an increasing degree, expect their work to be framed around opportunity and active participation, with real-time feedback and ample motivation and development opportunities.
Almost one-third of leaders complain practices have too many top-down rules and have become a mere ‘box-ticking’ exercise.
They say they spend too much time on formal documentation (one organisation spent right million person-hours a year on its performance management process) and too little on employee conversations and coaching.
Fifty-two per cent say the annual review process is used as an alternative to engaging in actual performance development. That said, there is recognition some structure is needed – without it, those employee conversations will often drop to the bottom of the top-do list.
There is little doubt performance management needs to lift its game. Many organisations are working to enhance their approach, with 45 per cent of survey respondents reporting their companies have moved from annual to ongoing feedback. That’s big news.
Yet the majority still lack confidence the changes being made will achieve the greater goal of aligning employee performance with business performance, especially as the nature of work and the workforce changes rapidly.
So what’s to be done? The research suggests five major changes will result in improved performance for employees as well as the business:
• Develop people through constructive conversations and coaching. Performance management is not just the formal assessment of performance.
It’s about the vital information employees need from their leaders and from one another to develop to their full potential. This is not news but we now have the data to prove high performance is not achieved without it.
• Create a culture of openness and transparency. Employees are rightfully suspicious — and can become unmotivated — when performance management is a ‘black box’ where both inputs and outputs are obscure and inconsistent.
Seventy nine per cent of leaders and 69 per cent of employees believe transparency is expected and even required in an era of open information sharing.
In a connected world, feedback will often become available through informal sources anyway. Organisations might as well get on the front foot.
• Personalise performance management. Some organisations are increasingly customising coaching and feedback, the goal-setting process and types of rewards and compensation, all based on the needs of individual employees or workforce segments.
They are doing away with annual performance reviews and moving to an approach that allows the company to better understand its people’s performance, skills, abilities and aspirations throughout the year.
• Move people decisions closer to the people. Many leading companies are eliminating ratings. This moves further towards business-led decisions, placing more decision-making power in the hands of leaders — or, sometimes, in the hands of employees themselves.
Supervisors are given flexibility in allocating rewards based on sound insight reflecting the business strategy as well as the budget. For example, rewards can be allocated based on real performance data which is often available from multiple sources in real time or survey data from all of an employee’s project leaders.
In some leading-edge cases, employees determine rewards for one another in a crowdsourced approach.
• Clearly define high performance and then track toward that vision. Sixty-five per cent of respondents (56 per cent of leaders, 73 per cent of employees) feel performance management does not adequately identify what high performance is and, correspondingly, who the high-potential employees are.
The changing nature of work in the digital, networked economy is causing organisations to radically rethink the very definition of exceptional performance.
They are redefining high performance to take into account collaborative work, effort or the ability to quickly learn new skills, as well as cultural criteria they want to encourage.
Performance management must do better. Achieving better business agility and responsiveness depends on continuously aligning employee performance with business goals. This will play an increased part in the decision making of prospective recruits.
Although there are signs of change, organisations need to move faster to revitalise their performance management practices to become more aware of the diversity of different segments of the workforce, to become open and more transparent, to foster real-time conversations and coaching, and to move people decisions closer to the people.
Perhaps most important, it’s time to make sure performance management supports high performance for the business, its leaders and the workforce of the future.
Accenture’s CEO Pierre Nanterme surprised both industry watchers and most of the company’s 330,000 employees when he announced, in an interview with the Washington Post, it was scrapping rankings and annual performance reviews.
“Leadership is about letting go. Trust people,” he said. “The art of leadership is not to spend your time measuring, evaluating. It’s all about selecting the person. And if you believe you selected the right person, then you give that person the freedom, the authority to innovate and lead with some very simple measures.
“Performance management is extraordinarily important. But we are not sure spending all that time on performance management has been yielding a great outcome. And for the millennium generation, it’s not the way they want to be recognised and measured.
“Performance is an ongoing activity. It’s every day, after any client or business interaction. It’s much more fluid. People want to know on an ongoing basis, am I doing right? Am I moving in the right direction? Am I progressing? Nobody’s going to wait for an annual cycle to get that feedback.
“We’re going to evaluate you in your role, not vis-a-vis someone else who might work in Washington or Bangalore. It’s irrelevant. It should be about you. How are you performing now and do we believe you are ready to move to another role? We are getting rid of all this comparison with other people.
Andrew Woolf is the Global Human Capital Lead for Accenture Financial Services.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
09 Dec 2016
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