The Performance Management Revolution
Microsoft, Google, Gap, Pfizer, Deloitte… these are just some of the companies currently leading a movement to de-emphasize and, in many cases, eliminate performance ratings altogether. They aren’t alone either. It is estimated that more than one-third of companies are reconsidering the way they do performance management, placing more emphasis on driving future performance rather than rating past performance. Even General Electric, widely known for its controversial forced ranking system back in the day, is on the move. A decade ago, this would have sounded altogether crazy. No ratings? But how will we drive performance? How will we hold people accountable?
Mounting evidence is building a case that is hard to ignore. At the heart of it, many are finding that performance management systems are often more focused on the system than on actual performance. In some cases, companies are finding that their systems are actually working against organizational strategy. Further, cutting edge research in neuroscience demonstrates that ratings can create a threat response in one’s brain, priming individuals to “prove instead of improve.” This naturally stifles innovation, collaboration, and growth. Finally, research shows ratings often do not correlate with actual business outcomes, leaving many to question why they are used.
In their Harvard Business Review article, Cappelli and Tavis discuss three business imperatives that are inspiring organizations to drop performance ratings.
1. Developing people – In a tight labor market, developing and retaining talent is more important than ever. Appraisals can sometimes overshadow this process though. Conversations can quickly become more about the nuances of a rating rather than about what it takes to grow. Because of this, many companies are rolling out systems that promote meaningful, frequent, and informal feedback.
2. Staying agile – The new approach to performance management is also less cumbersome than ways of the past. For example, Deloitte estimated that before revamping their approach, they were spending approximately 1.8 million hours each year on performance management. Many of these hours revolved around the rating process. In an age of innovation and constant change, an end-of-year, over-engineered approach is not flexible enough for many organizations. In response, there is an emphasis on simplification to remove waste.
3. Promoting teamwork – The traditional approach to performance management is inherently focused on individual accountability. With the rise in teams, a move away from this approach helps promote team-level performance. One of the key outcomes seen in organizations moving away from ratings is increased collaboration – because it’s not about comparison amongst peers, but instead about growing as a team.
It is important to recognize what a large undertaking such changes require. Companies doing this most effectively are creating extensive pilot programs, for example. It can be helpful to start by testing out the new system in a low-risk group such as HR, collecting feedback, and then slowly expanding as the system evolves. Engagement and buy-in, particularly from senior leadership, should also not be underestimated.
Of course, revamping one’s performance management system may not be for everyone. The question should not simply be, “Should we drop our rating system?” Rather, it should be, “To what extent are ratings in service of our organization’s strategy and mission?” The answer will be different for everyone. Organizations are also still grappling with how a “no rating” system aligns with their ability to reward performance, differentiate high and low performers, and avoid legal troubles, to name a few. Further, without skilled and motivated managers, this process is unlikely to work. In response, many organizations are offering training to help managers use targeted language to assess, document, and drive performance, providing them with an outlet (e.g., HR) to discuss performance-based decisions. Still, the reality is that many HR processes revolve around ratings, and as cumbersome (and sometimes biased) as they can be, ratings provide managers with a process to follow to rate performance. Without ratings, many traditional, familiar processes are upended, and change can naturally come with resistance. Given these realities, some organizations are finding an innovative middle ground in which they retain, yet de-emphasize, ratings in exchange for a process that offers a more simplified, conversational-based approach to performance management.
As Cappelli and Tavis point out, “Performance appraisals wouldn’t be the least popular practice in business, as they’re widely believed to be, if something weren’t fundamentally wrong with them.” While many companies have submitted to the fact that performance management must be painful, organizations that have made changes are seeing hopeful results. For example, after overhauling their system, Cargill found that 90% of their employees said they “loved” the new system, and at Google, 87% of employees reported that they were satisfied with their new system. Imagine a world where your employees actually liked your performance management system… Even if a full overhaul may not be appropriate, such results might just inspire you to re-evaluate your approach to performance management.
Interested in CMA’s performance management services? We would be happy to discuss your performance management system with you. E-mail us at: cmaconsult@cmaconsult.com.
By: Kelli Huber, M.A.
