Traditional Performance Management Doesn’t Drive Performance nor Engagement. What Does?

A public survey released by Deloitte (quoted by the Harvard Business Review here) more than half the executives surveyed said that their current performance management approach didn’t result in high performance or in increased employee engagement. Those surveyed are not alone – and the most recent announcement was that Accenture was getting rid of annual performance rankings and reviews. But wasn’t performance management – with all employees then rated on a bell curve – considered as a best practice for optimal organizational management? Let’s look at the drivers behind this new understanding of performance.

Accenture has 330,000 employees – and managers spend thousands of hours on getting trained on performance management and following the practice. What’s behind this huge departure from tradition, and what does it mean for the future of performance management?

Why say goodbye to performance management?

This is what Deloitte’s people have to say about the move (Deloitte is piloting a new system, Accenture is abandoning it altogether):

“They, and we, are in need of something nimbler, real-time, and more individualized—something squarely focused on fueling performance in the future rather than assessing it in the past… We’ve arrived at a very different and much simpler design for managing people’s performance. Its hallmarks are speed, agility, one-size-fits-one, and constant learning, and it’s underpinned by a new way of collecting reliable performance data.”

Performance management is time consuming: Counting the hours dedicated to the performance review process, to year-end assessments and to the consensus-building process of how employees are ranked against each other Deloitte found that creating the ratings consumed 2 million hours a year!

Rating skills isn’t science nor art and ratings reflect very little truth: this is what Deloitte says about rating people in HBR:

“The most comprehensive research on what ratings actually measure was conducted by Michael Mount, Steven Scullen, and Maynard Goff … Their study—in which 4,492 managers were rated on certain performance dimensions by two bosses, two peers, and two subordinates—revealed that 62% of the variance in the ratings could be accounted for by individual raters’ peculiarities of perception. Actual performance accounted for only 21% of the variance. This led the researchers to conclude … most of what is being measured by the ratings is the unique rating tendencies of the rater. Thus ratings reveal more about the rater than they do about the ratee.”

Perfromance management didn’t focus on people’s strengths and what made the best teams work best. Good teams were driven by intrinsic motivation.

Most performance management ended up focusing on the past and not providing guidance for the future.

So, what lies ahead for performance management?

Most companies choosing to discontinue traditional performance management spoke about the need to provide timely feedback and abandon forced rankings altogether. According to research by CEB 6% of Fortune 500 companies have gotten rid of rankings, which used to be the golden rule for human resource management.

Timely feedback: timely feedback is feedback that is timely enough to allow an employee to re-work what they are doing, instead of gazing at the past and regretting it. Mario Herger, a gamification guru, told me once that what he likes about gamification is that you can fail, get up and do it again. I think this is an important observation: just like in a real game you lose lives again and again till you figure out a certain level, good feedback is timely enough to let you fail, get up and fix your act. Gamification, in many senses, is just that since it tells you how you’re doing almost immediately, based on the actions you’ve performed in enterprise applications.

Fair and transparent: performance management should be perceived as fair, transparent and objective. Again, looking to gamification, we can imagine a system where everyone is rated based on the same elements in the same way. A lot of the psychological distress and dis-engagement associated with a sense of unfairness can be avoided this way. It also helps the organization to better calibrate itself.

Visibility: employees need to feel there is a connection between the performance expected of them and the needs of the business. They need to know how it all fits together. This is where companies like Betterworks are changing performance management and where gamification, by communicating corporate goals, are attacking one of the weaknesses of traditional performance management.

No rankings: Labelling people  by ranking them doesn’t create motivation – it creates a “fight or flight” response. Imagine an employee has gone overboard to perform, but the forced ranking system makes the employee end up ranked 4 out of 5. Imagine that employee performed at level 2 in the past. Ranking the employee 4 is then a disheartening experience. Rather than highlight that employee’s enormous improvement relative to himself, it highlight other employees, creating a sense of competition. We’ve written about this problem of forced rankings when we spoke about leaderboard mistakes to avoid. The experience of ignoring the employee’s accomplishments and drive and a forceful comparison to others will also cause a defensive reaction which will include the employee’s ignoring of feedback, undermining the entire performance review process. This avoidance of implicit competition and focus on intrinsic drives is also changing gamification, as we’re written here.

Paying attention to growth: Additionally, focusing on performance rankings creates an atmosphere where employees are ranked on “fixed” characteristics such as talent or intelligence and not on how much they grew relative to themselves. This creates a deterministic atmosphere and results in a natural reaction by employees – distancing themselves emotionally from the performance review process.

This excellent article describes the problem thus:

“Kansas State University management professor Satoris Culbertson, who studied the response to more than 200 performance reviews, argues that the mere act of receiving a numerical rating can be perceived as negative feedback, and even people with a growth mind-set don’t react well to negative feedback”.

Focus on the future: The main driver cited by Accenture was the need to focus on the future and not provide feedback about the past. New performance management is focused on shorter term goals, rapid feedback cycles and on-going feedback, just like gamification – giving people the tools to grow instead of forcing them to focus on the past and on winner-takes-all competition. Performance management is changing – the dogma of forced ranking is cracking – and new technologies, such as gamification (but also many others), will become the performance management of the future. These technologies will win not as a result of sophistication or algorithms, but as a result of empathy and a design which is made to make people feel better, and help them obtain meaning, satisfaction and a sense of control and autonomy from the performance review process.
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