The New Direction For Performance Management: The Why

by Mark Ward / January 10, 2023 defines performance management as “an assessment of an employee, process, equipment or other factor to gauge progress toward predetermined goals. The field also includes the sub-fields such as organizational development (OD), performance appraisal, application performance management (APM), business performance management (BPM), operational performance management (OPM).”

A May 2016 McKinsey Report on The Future of Performance Management states: “the performance of employees epitomizes the absurdities of corporate life. Managers and staff alike too often view performance management as time consuming, excessively subjective, demotivating, and ultimately unhelpful. In these cases, it does little to improve the performance of employees. It may even undermine their performance as they struggle with ratings, worry about compensation, and try to make sense of performance feedback.”

That said, nearly nine out of ten companies still use the above model as a basis for compensation decisions.

The fact is most performance management programs are based on a model developed over a century ago by Frederick B. Taylor. “Many companies”, according to McKinsey, “struggle to monitor and measure a proliferation of individual employee KPIs.”  This is made even more difficult in our current business context given how the COVID-19 pandemic has forced a large number of employees to work from home.  The need for a new performance management model, and one that accounts for a new normal, makes this discussion especially important and timely.  

In a Harvard Business Review article titled “The Performance Management Revolution”, Peter Cappelli and Anna Travis reported “traditional performance appraisals have been abandoned by more than a third of U.S. companies.” The biggest limitation of the annual performance review, the authors argue, is its emphasis on holding employees accountable for what they did last year, at the expense of improving performance now and in the future. Therefore, many organizations are moving to more-frequent, development-focused conversations between managers and employees.

The authors explain how performance management has evolved over the decades and why current thinking has shifted:

  1. Today’s tight labor market creates pressure to keep employees happy and groom them for advancement.
  2. The rapidly changing business environment requires agility, which argues for regular check-ins with employees.
  3. Prioritizing improvement over accountability promotes teamwork.

After over 25 years in the consulting and training industry, I see that all training and consulting comes down to one thing – improving performance.  Now, performance can come in many different forms or functional areas like increased sales or profits, improved corporate culture, team motivation, greater efficiencies – to name but a few. 

When I talk to leaders of organizations and ask them if they have a formal performance management program, most say no – and the few that say yes have it wrong.  Most – which works out to almost 100% of the thousands of leaders I’ve talked to – show that what they have for a performance management program is actually a corrective discipline process for those not reaching company goals or for those that are exhibiting bad behaviour. Also, most use a backwards-looking approach and focus time on covering the things they can no longer change in the hope the future will be better if they make changes in the areas identified for improvement. This is backed up by the research as well.  However, to build a high-performance culture, training needs to be effectively delivered and transferred to the job using environmental cues, tools, and reinforcers that drive behavioral change.

My research from interviewing a few hundred leaders gleaned the following insights:

  1. Current system not working as it should
  2. Tiered (tailored) approach makes most sense but some common threads throughout each level (i.e. customer service)
  3. Needs to be motivating not demotivating
  4. Need measurables and minimize the level of subjectivity
  5. Linked to strategic plan and goals for organization
  6. Needs to be project based but flexible to changing organizational needs and to compensate for things outside a leaders’ control (i.e. regulatory approval for expansion to new market)
  7. Reviewed more than once a year
  8. Should be mutually agreed upon goals and targets to increase buy-in
  9. Improved accountability

Another article – “Performance Leadership and Management In Elite Sport: Recommendations, Advice and Suggestions From National Performance Directors” – found five higher-order themes which have emerged for leaders and managers: establishing an approach, understanding roles within the team, developing contextual awareness, enhancing personal skills, and strengthening relationships. There were also five higher-order themes for sport organisations: employing the most appropriate individual, creating the optimal environment, implementing systems and structures, developing an inclusive culture, and providing appropriate support.

Performance management for organizations with a strong, cohesive, and high performing culture will shift focus from attempting to solve performance issues to seeing the opportunity in investing in the success of employees.  One study found that “high performers on average perform up to 400% more than the average employee.” High performers have a growth mindset and are always looking to improve and embrace constructive feedback.  According to an article in Harvard Business Review, 50% of high performers say they expect at least a monthly sit down with their Managers, but only 53% say their manager delivers on their feedback expectations.”

So, how do we get there?  How do we close that gap so we can drive high-performing habits not only in top achievers, but also in those who struggle, so we move away from what amounts to corrective performance management and into a space where there are ongoing, proactive, discussions which are ultimately more positive, more impactful, and more appropriate for the current workplace context?  This is what we will dive into in part two of this topic.

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Mark Ward

Mark Ward

Consulting Partner at Mentor Group focused on sales revenue growth, organisational effectiveness, and leadership.