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Why Performance Management Still Matters

Posted by Mathew French

19 November 2019

Apparently, many organisations still rely solely on an annual performance review. However, Gallup's 2018 report 'Re-Engineering Performance Management' makes it clear that workers are asking for something different. They want a coach, not a boss. They want clear expectations, accountability, a rich purpose, and most importantly, they want ongoing feedback and coaching. Because the future of work is being shaped by extraordinary changes in technology, globalisation and overwhelming information flow, how we work must also be reimagined. The process of managing performance in the workplace needs to inform, engage and inspire. The means for achieving this, according to Gallup (and many others) requires 're-engineering.' Because performance management is such a big topic, we'll explore what the future of managing performance might look like over the next few weeks and discuss how to implement such change in your organisation. First, let's look at why managing performance really does STILL matter.

Performance Management Still Matters Because the Cost of Getting it Wrong is SIGNIFICANT

Gallup estimates the cost of poor management and lost productivity from employees in the U.S. who are not engaged (or are actively disengaged) to be between $960 billion and $1.2 trillion per year. The cost of lost time spent on traditional approaches to performance evaluations alone is estimated to range from $2.4 million to $35 million per year for a company with 10,000 employees. You can extrapolate from those figures some assumptions about smaller organisations in other Western countries like Australia and it doesn't paint a pretty picture.

"Only 2 in 10 employees strongly agree that their performance is managed in a way that motivates them to do outstanding work."

More conservative estimates tend to exclude lost productivity costs and overhead costs, such as the cost of employee benefits, or technology, or human resources staff time spent on performance reviews. In 2016, Accenture estimated spending over 2 million hours on performance evaluations alone, which was a major contributing factor in them choosing to stop relying solely on annual performance reviews in favour of an ongoing performance management approach.

"Only 14% of employees strongly agree that the performance reviews they receive inspire them to improve."

Gallup’s earlier 2016 investigation into the current state of performance management revealed that many employers are not fulfilling their employees’ most basic performance management needs — from knowing how their job description connects to the work they do, to having control over the metrics used to measure their performance. At the core of the performance management problem, is a vivid and distressing picture of employees going to work every day and facing unclear job expectations, little coaching from their manager, unfair accountability practices and a lack of opportunities for development.

"29% of employees strongly agree that the performance reviews they receive are fair, and 26% strongly agree they are accurate."

If you translate the feedback contained in the above quotes, you can start to get a picture of how productivity gets negatively impacted.

Millennials, who now make up approximately 32% of the workforce, want to receive feedback 50% more often than employees of other generations, preferring monthly (or more often), as opposed to a quarterly or annual program of feedback.

According to Gallup's findings, to re-engineer the performance review process, managers and leaders must understand why employees feel their performance reviews are inaccurate and unfair. Their analysis reveals that employees’ aversions to traditional performance reviews are strongly tied to five primary psychological obstacles:

  • Lack of frequent feedback

  • Lack of clarity.

  • Manager bias.

  • Adverse reactions to evaluation and feedback.

  • Too much focus on pay incentives.

"Only 21% of employees strongly agree that their pay and incentives motivate them to achieve their goals."

Gallup 12 Elements Engaged Workforce

More Regular Feedback as Part of Performance Management

The data from Deloitte’s Global Human Capital Trends 2017 Report identified that 70% of companies were in the process of reinventing their HR performance management process. Just a year later, 76% of companies surveyed for 2018 had transformed the way they manage performance to make it a regular process that will become an ongoing habit of feedback as opposed to intermittent (or only annual) formal reviews. Organisations realise that only using the backwards looking way of doing performance management is no longer fit for purpose in today's business environment - forward and backward facing feedback in the way forward.

Today’s workforce desires more authentic, 'human' relationships between employees and managers, as well as opportunities for employee development and advancement. That means implementing regular individual and team feedback to drive engagement. This will be even more prevalent as automation and AI become ubiquitous in the workplace.

According to Josh Bersin, the habit of continuous, or regular and ongoing performance management is gaining traction in the workplace because it works, and it can transform workplaces and work for the better. To be clear, Bersin IS NOT talking about doing away with ratings or annual reviews, instead he's pointing towards building 'a new, ongoing process for goal setting, coaching, evaluation, and feedback.'

Very few HR software solutions integrate all of the HR Technology tools that companies need to develop and advance their employees by conducting regular catch-ups throughout the year. Look for performance management solutions that incorporate goals and development setting and management, as well as customisable functionality that enables regular catch-ups, feedback surveys, 1-on-1 meetings, quarterly (bi-annual and annual) reviews PLUS the capacity for you to build and nurture performance development. (HINT: Subscribe-HR's Performance Management solution does all that and more).

A more ongoing and regular approach to managing performance and performance feedback allow your business to align business / KPI based expectations with employee input and expectations. It is important to acknowledge here, the importance of the elements that make up the overall culture of the business and how these will trickle down to everyday employee focus.

Traditionally, employee performance reviews were backward facing, allowing employees and managers to sit down and record what had happened over the past period - usually an entire year. Generally, this was done using paper, and was very difficult to administer and manage. As many know from experience, it was even harder to report on and change. An employee's good or poor performance could go unrecognised for a long period of time, which ultimately would have a negative impact on the business.

Now with HR technology and best-of-breed Performance Management and performance feedback software, back and forward-facing appraisal and development processes can be used to good effect. Reason being, that the 'intelligence' of the appraisal software can quickly engage the right people at the right time, collecting information and allowing managers and HR professionals to have key insights into performance information, quickly, at the right time.

Performance management software that facilitates this type of regular, backwards AND forwards looking performance development cycle will make it easier for both managers and employees to work together and collaboratively map out objectives, goals and career development trajectories. Fit-for-future purpose software will also enable and enhance the coaching and mentoring that people need to develop their capacity for great performance, whilst filling the gaps in their skills and aligning individual and team performance with the values and objectives of the business.

Now, a combination of forward and backward-facing performance engagement is the most desirable performance management methodology, because it allows for micro-engagement on an ongoing basis, which can expedite the learning process, tapping into the business / people / IP in real time to arrive at good outcomes. It also facilitates for processes to modify behaviour to be put in place sooner rather than later during the first 3 – 6 months of an employee's tenure, and understand individual performance based on a range of overall performance measures. Back-facing processes still play an important part of the more formalised pat of the review process, because they allow for time out and reflection. Whether your organisation conducts this more formal, backward facing part of the performance appraisal every 3-4 months, 5-6 months or 12 months, the informal, regular and ongoing nature of the check-ins will make these traditional catch-ups more effective and productive, because more regular / fresh information can be used, which will mean any assessment and review is more accurate.

The content of catch-ups and reviews is important because it allows for quantifiable data to be used in rewards and recognition. For example, during the regular catch-up, it is unlikely that there will be any scoring performed. Catch-ups or check-ins will be short and based on in the moment issues and real-time feedback. The actual performance review can be used to score against skills, goals, values and behaviours for example, so that the business knows what rewards and recognition is contained in the overall process. Without some semblance of scoring, the impact of the review process is greatly affected, because of the inability to quickly analyse data to make decisions.

Why Engagement Matters To Performance

In Gallup's work with organisations across various industries, they discovered something that was both surprising and interesting: highly talented employees who are not engaged were among those who had the highest turnover in each organisation. Their level of turnover was on par with low talent, disengaged employees. That means, when your best employees are not engaged, they are as likely to leave your organisation as your employees who tend to have performance issues and are unhappy.

The winning formula for long-term high performance is this: Talent x Engagement x Tenure = High Performance

The first step is to hire for talent. When people are a natural fit for their role and assigned to do what they do best, an opportunity for achieving performance excellence is created. Once you have talent, engagement is essential -- it is the passion to show up every day and do your best work. It is much easier and more effective to engage employees who are a natural fit for their roles.

Finally, there's tenure. Many people wonder how valuable tenure is. Gallup's analysis shows that tenure without talent or engagement has a relatively small impact on performance. (In short, you're getting about the same result year after year). But when you have high talent and engagement, tenure pays dividends, as your best employees hone their craft into mastery. How many Millennials or younger plan to (or do) stay in a role for 10 years or longer....? If tenure is a major contributing factor for performance, how does your business ensure that your employees want to stay and what strategies do you have in place to make it so?

Employees with good fit, high engagement and 10+ years at an organisation dominate the high performance cohort. They perform 18% higher than the average employee and 35% higher than a worker who lacks all three elements. While the formula appears to be quite straightforward, the reality is that Gallup's data illustrates only 5% of employees have the right fit, high engagement and 10+ years at the same organisation. How can business inspire longevity in tenure? By focusing on performance development.

Accelerate Performance Development by Focusing on Engagement

Engaging employees takes work and commitment. Gallup’s employee engagement approach identifies four types, or levels, of performance development needs:

  1. Basic Needs.

  2. Individual Needs.

  3. Teamwork Needs.

  4. Growth Needs.

Employees must be equipped to perform and then positioned for individual and team engagement and success. The first, second and third levels create an environment of trust and support that enables managers and employees to get the most out of the fourth level. Though managers may not follow this order specifically when addressing performance development needs, it provides a simplified summary for understanding how to best support employees and remove barriers to success.

Performance development is strengths-based and engagement focused. It focuses on the individual as well as the team. Team goals and 360 degree team engagement / feedback are part of the process because no individual operates in a vacuum. So it follows that when managing performance becomes strengths-based and engagement-focused, managers move beyond the role of autocratic 'task master' and into the role of 'performance coach.' Strengths-based coaching teaches managers to understand how employees are innately wired to think and what they naturally do best on the job in relation to the team in which they work. Engagement-focused coaching teaches managers to understand employees’ performance needs and barriers to success from both the individual and the collective perspective. Only through an appreciation of both who employees are as people and what they need to be engaged at work, can a manager effectively coach them to develop to be their best.

“When managers take multiple sources of measurement into consideration, measurement becomes much more reliable and accurate.”

A Culture of Engagement Begins with Leadership

The key word is here is ‘culture.’ That is 'how we do things around here'. To truly integrate a new new model of performance management (as well as ensuring that it is impactful and lasting) organisations need to make it consistent, frequent and employees need to be able to see that EVERYBODY is doing it ALL THE TIME.

When senior leadership commits to move from backward looking performance evaluation to forward-looking performance development, they commit to increasing engagement and the results are significant. Integrating this approach into your organisation will be one of most important investments you can make.

In the next Blog in this series, we will continue our investigation into the evolution of performance management into performance development and the essential ingredients for an engaged workplace that generates high performance and drives growth. Hint, you need to leverage the right Performance Management Software to make it work.

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Topics: performance management, Performance Management Software, Coaching for Performance, Managing performance, Performance development, Continuous performance management, Performance appraisal

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