Dr. Linda Holbeche is a consultant, author and recognized thought and practice leader in the fields of strategy and change, leadership, strategic HRM, organization design and development. She speaks frequently at national and international conferences and her clients span all sectors.
Linda is now Honorary Visiting Professor at five UK universities, a member of several advisory boards, a Fellow of the Institute for Employment Studies and of Roffey Park and President of the UK’s Institute for Organisational Development.
Linda has authored over 60 research reports on a wide range of topics. Recent books include: The Agile Organization: how to build an innovative, sustainable and resilient business (2015 and 2018, Kogan Page); Organization Development, a Practitioner’s Guide for OD and HR, 2nd Edition (2015, with Dr Mee-Yan Cheung-Judge, Kogan-Page); Engaged: Unleashing the Potential of Your Organisation Through Employee Engagement, (2012, with Geoffrey Matthews, Wiley/Jossey-Bass); and People and Organizational Development (2012, co-edited with Prof H. Francis and M. Reddington, CIPD).
What is currently missing in the way overall employee performance is being managed?’
Conventionally, the twin goals of performance management – of holding people accountable and of encouraging development – are often in tension. Current modes of performance management date back to the 1980s when the pressure was on to award pay more objectively, so the goal of accountability became a higher priority for many organizations than development. The challenge was that supervisors often failed to distinguish between different levels of performance, opting for ‘average’ assessments. To address this problem, GE’s then CEO Jack Welch championed the principle of meritocracy and the notion of performance differentiation. People were set stretch goals and were expected to succeed. Forced Ranking was used to reward top performers with both development opportunities and compensation, accommodate those in the middle and get rid of those at the bottom. This approach, known as the ‘vitality curve’ or ‘stack ranking’ hinged on the annual performance review. Employees were ranked against peers in a way that had consequences for their compensation and future in the company. Very few were in the top boxes as ‘A’ players, ‘role model’ or ‘excellent’ – these were the high-potentials chosen to advance into senior positions for whom development was reserved. Around 70 percent were in the middle ‘B’ player ‘strong contributor’ category, who were to be accommodated. The bottom percentage of underperformers (‘C’ players – 10 percent in GE’s case) were dismissed.
Not surprisingly, the system came to be referred to as ‘rank and yank’, and the annual review was dreaded by managers and employees alike. So, a key missing element of the way many firms still manage performance is a real conversation about genuine areas of development need – instead people tend to hide what they feel less able to do rather than admit to weakness. As a result, they may lack the skills required to thrive and deliver in fast-changing workplaces. Indeed, research suggests that such an approach to performance management is ineffective at boosting performance or growth since it ignores the basic assumptions of human motivation.
There were also practical difficulties with the old approach arising from other changes in corporate life. As organizations embrace more agile organization designs, structures become flatter and supervisors’ spans of control increase significantly, creating huge time demands on supervisors to both carry out appraisals and focus on employee growth. The move toward team-based project work is becoming widespread, bringing together as it does the best talent from across a business to work collaboratively on shared goals.
Conventional appraisals and individual rewards based on individual targets can become a barrier to collaboration, knowledge sharing, and innovation – key features of agility.
Given that a company’s workforce now has a significant proportion of virtual and freelance workers, how should performance management include them?
Over the last two decades, with a global marketplace and technological advances, many employers have concentrated their employed workforce around their ‘core’ operations with a contingent, outsourced or virtual workforce working alongside. Many people now find themselves on the outside, working with organizations, rather than employed directly by them. While some employers might ask why they should train or manage the performance of contractors, or people working in the ‘gig’ economy, in reality, their organizations’ reputations often hang on how well contractors deliver their service to the end-user or the conditions which outsourced workers face as they produce a brand’s products. Moreover, far from being disloyal, freelancers and virtual workers often ‘go the extra mile’ for the organization using their services, since their next contract depends on this. So, at the very least, employers owe contractors the chance for developmental feedback – and some appreciation – on their contribution, perhaps in the form of a coaching conversation. Similarly, if needed, employers should provide training to their contingent workers to ensure that they have the latest, most relevant knowledge and skills to represent the firm well.
What are employees, managers, and decision-makers looking for to make performance management more effective?
Today, pressure for change has been growing for some time. When rapid innovation is a source of competitive advantage, as it is now in many companies and industries, conventional performance appraisals have come to be viewed as a potential threat to growth through innovation and collaboration. Moreover, millennials do not take kindly to the conventional type of performance management with its annual appraisal. Instead, they want regular, ongoing coaching and feedback, together with the chance to develop their careers within or beyond the organization.
Adobe, for instance, ended annual reviews in 2011-12. They explicitly brought the notion of constant assessment and feedback into performance management, with frequent check-ins replacing annual appraisals. HR provides workshops for managers on how to give effective feedback as well as tools and materials such as videos, webinars and online sessions. The statistics indicate that the new approach is working, with the culture that employees are creating leading to low voluntary attrition rates. The idea soon spread, with companies like Juniper Systems, Dell, Microsoft, Accenture and Deloitte among the early adopters.
What are some of the new things being introduced in Performance Management that are working/not working?
Among the positives, a new focus on managing to strengths, not weaknesses, is emerging. In companies adopting this approach, significant emphasis is placed on development to rapidly upskill staff. Therefore, frequent, meaningful feedback from supervisors immediately after client engagements becomes more important for developing people than relying simply on annual performance reviews to review development needs. Regular check-ins allow managers to coach in a timely manner and subordinates to reflect and apply their learning more effectively.
US apparel retailer Gap uses performance management in a transformational way to increase speed and flexibility. Their GPS (Grow, Perform, Succeed) system involves managers and employees resetting objectives monthly in an iterative way – with the ultimate outcome for Gap being satisfied customers and shareholders as their ‘north star’. They discuss how people are progressing against goals and how these need to be adjusted for the next few weeks. It is all about building a mindset of accountability. There are no ratings or reviews; this is more about working together collaboratively.
The philosophy of continuous improvement is reflected in the new approach to performance management at GE. Annual goals have been replaced with shorter term ‘priorities’. Essentially, the approach depends on continuous dialogue and shared accountability. The goal is to promote frequent, informal conversations with employees (GE calls them ‘touchpoints’) about performance and development where they set or update priorities that are based on customer needs. Touchpoints allow managers and employees to discuss progress toward those goals and note what was discussed, committed to, and resolved. Two basic questions are revisited: What am I doing that I should keep doing? and What am I doing that I should change? The aim is to facilitate more frequent, meaningful conversations between managers and employees, and among teams, with a focus on continuous improvement. The focus is on building the workforce the organization needs to be competitive both today and in the future.
The challenge for HR is how to sustain a culture that keeps continuous feedback going without creating overly elaborate processes to ensure full participation. One area that many companies struggle with is how – without a formal performance measurement system – to create a fair, equitable and measurable system on which to base the distribution of pay. In some companies, there are ‘shadow rankings’, which means that people still do effectively the same thing as before under the old appraisal system, but more informally, in the background. To address this issue Adobe, for instance, invested heavily in support and training for managers on how to make pay decisions without rankings.
If not periodic appraisals, then what & how?
In many companies adopting such new performance management approaches, managers will still have an annual year-end summary conversation with employees where they look back at the year and set goals, but these should be more meaningful and future-focused – and less over-loaded with expectations than the formal review the company is replacing because they are simply part of an ongoing dialogue. Thanks to the new performance development approach, the manager and employee can now draw upon a much richer set of data regarding an employee’s unique contributions and impact throughout the year. A summary document, which both parties finalize and submit together, should reflect on the impact achieved and provides a look ahead.
Of course, this means that managers must be able and willing to act as a coach to their team members. GE, for instance, recognizes that some managers may find making the shift to a more coaching and empowering style of management difficult. Consequently, a global training programme, piloted in 2017 was rolled out to all 38,000 people managers in GE. This helps managers develop new skills needed to set a vision for the team and go forward together; run empowering team meetings and one to one sessions; know how to report up to their own managers; and also how to break some old habits.