The field of HR has come a long way from the early days of the 1900’s. Back then, HR was better known by the term, ‘industrial and labor relations’. Now, it’s a ubiquitous part of every organization and is known by the more prosaic term, ‘HR Department’.
The HR department was initially only tasked to deal with administrative issues such as payroll and benefits administration. Today, with the way the work landscape has changed, the scope of what an HR department can do has broadened as well.
HR administrators today drive a number of functions such as:
Since most of these functions have overlapping areas, the HR department of an organization may choose to have a number of HR administrators who are solely responsible for one function.
While it is clear that each of these functions plays an important role in an organization, there is no function of HR that is as hotly debated as the performance management function. The pendulum swings wildly when it comes to deciding whether performance management should play a big role in an organization or not.
If there’s one thing that everybody seems to agree upon, it is this, that the performance management process needs an overhaul. But we just can’t seem to decide if we should do away with it or if we should dismantle existing performance management processes and rebuild them, preferably in a way that better reflects the dynamic of workplaces today.
In short, a lot of the performance management practices that are currently in use were developed a few decades ago. What worked then definitely does not work now.
But to put it so brusquely would actually undersell the fact that there are myriad reasons why performance management is the bitter pill that nobody in an organization likes, and yet everybody is forced to swallow.
CEB Gartner took the initiative of calculating how much annual performance reviews cost an organization. An organization that is 10,000 employees strong spends around $35 million a year on performance reviews. Using this as a benchmark, even an organization that is 500 employees strong ends up spending close to $25,000 annually on performance management. Mind you, this is a rough estimate.
And it might seem like it’s not a lot of money. But when you factor in money and the time spent by both managers and employees on an activity they don’t believe in, this is where the cost hurts organizations.
Even if one were to keep aside the cost of performance reviews and write it off as a necessary organizational experience, it does not change the fact that managers have to spend an average of two working days per employee preparing for their performance review. Two working days might still seem acceptable in an organization that is small.
But what about enterprise-class organizations like Deloitte, who found out that annually, they spent 1.8 million hours talking about performance reviews alone? For context, Deloitte is an organization that 65000+ employees strong. Time and money are some of the most valuable assets in an organization. Once gone, they cannot be brought back.
Though the drudgery of performance management is one big reason why managers and employees abhor it, a bigger and more prevailing reason as to why they dislike the process is because they believe that the end results are inaccurate.
One of the reasons why employees believe that most review systems do not establish clear performance goals, define realistic and fair performance standards, or generate honest feedback (Watson Wyatt Worldwide(2004)).
Furthermore, it can be argued that performance management systems are ineffective because overwhelmingly, the focus tends to be more on administrative processes (such as documentation, ratings discussions etc) than on training both employees and managers as to how they should effectively participate in a performance manage process. (Pulakos and O’Leary (2011))
Also, there is the issue of bias at play. If one were to keep aside bias informed by prejudice which accounts for gender, sexuality, race, etc, one of the most common biases that managers tend to fall prey to is the Leniency Bias. Afraid of damaging or hurting the feelings of their direct reports or even worse, running a work relationship, managers tend to err on the side of caution and give ratings or reviews that do not necessarily reflect an employee’s performance.
Additionally, it is also possible for managers to fall prey to the Recency Bias, especially if one is to take into account the traditional model of performance management. Recency bias ensures that no matter how an employee performs, a manager can only remember their latest accomplishments or lack of it when it comes to reviewing performance.
If it were only managers and employees who believed that the review process produced inaccurate results, it would still be possible to suggest alternate viewpoints as to why they believed so. However, when 90% of HR professionals themselves have no faith in the review process[1], it just goes to show how flawed the entire process is.
Since the time of HR’s inception as a legitimate department in an organization, a lot has also changed with respect to managing people. Early on, organizations were defined by hierarchy. Levels of hierarchy ensured a manager had to concern himself with only two or three, or at the most four direct reports.
However, in recent times, organizations have grown flatter. And incidentally, a manager’s span of control increased as well. Nowadays, it’s not uncommon for managers to have at least ten or more employees reporting to them.
But the effort to do away with hierarchy has ensured that now more so than ever, managers are burdened when it comes to performance management and feedback. With the traditional method of performance management, it is not possible for managers to give fair and just reviews or even spend an adequate amount of time helping employees grow and develop and additionally share feedback on a consistent and ongoing basis.
When it comes to performance management, not considering the number of direct reports a manager has, ensures that not only are managers pressed for time when it comes to the review process, but also employees lose faith in the review process because it produces results they weren’t expecting.
Game In most organizations, performance management is linked to compensation. So what happens when the performance management process gets the short shrift? Compensation suffers.
Managers are expected to make compensation decisions on the fly and are not able to give compensation the attention and time it requires. As a result, employees who fall with a certain ranking or rating scale get one chunk of compensation, and employees who fall on the other end of the scale get nothing at all.
A hasty performance management process, and by extension compensation process does not account for outliers such as the fact the employee took on a new challenge this year and was able to successfully transition from one job role to the other. Nor does it acknowledge the fact an employee is highly skilled but is a poor fit in his current department.
The traditional performance management approach has always looked into the past, as opposed to the future. And that is why, it so often fails at pleasing managers, employees, and HR administrators. The past cannot be changed, and yet an employee’s performance is judged on the basis of what she has done.
A manager has to remember an employee’s work throughout the year, keep track of what they excelled at, and what they struggled with and the HR administrator has to keep track of how both the manager and the employee have survived the year.
Performance management’s biggest stumbling block is its inability to let go of the past. Holding onto methods of the past, such as rating scales, stacked rankings, manual performance reviews, annual reviews, etc all combine to drag down the efficacy of the performance management process.
Much is written about the ills that plague performance management systems. The real question we need to ask is, what are the after-effects of a poorly structured PM process? Who wins and who loses? Poorly structured performance management processes are a breeding ground for disengagement.
Nothing makes an employee check out faster than a review process that judges them unfairly. When high performers feel like they aren’t getting their due, they start withdrawing and doing only the bare minimum. Eventually, they move on to greener pastures. A poorly structured process also affects managers.
If the annual performance reviews increase their burden, and cause more stress than necessary, managers too begin to not care about the review process. They disengage from the review process, and just participate in a cursory fashion and give reviews and feedback which don’t fall on either end of the spectrum.
Even worse, poorly structured performance management processes can kill employee morale, which in turn swiftly affects organizational productivity. This cause-and-effect phenomenon ensures that the cycle will continue to repeat, viciously, until something changes. And to answer the question, when it comes to a poorly structured review process, nobody wins and everybody loses.
Quite a few organizations have restructured or attempted to restructure their performance management processes. Some of the most prominent ones are Adobe, Deloitte, Accenture, GE, and Microsoft to name a few.
Restructuring a performance management process is not a simple task, especially when the number of employees in the organization runs into thousands. But all the same, how did they fare, and what spurred the change?
Though Deloitte had been wanting to restructure its performance review process for a long time, the need for change was not overwhelmingly certain until they figured out how much time they were actually spending on performance management processes. Mind you, it was just the preparation for the review process. They did not include the review process itself.
To their surprise (and horror one would imagine) Deloitte found out that yearly they were spending 1.8 million hours preparing for the performance review process alone. For context, Deloitte is an organization that has 65000+ employees strong. If we were to do a little math, Deloitte was investing close to 4 working days on each employee, just to prepare for the review.
The adage ‘time is money’ seems especially relevant here. Deloitte realized performance reviews were essentially a drain on their time and resources and that is what changed. They still wanted performance management to be a part of their organizational processes, but in a way that better utilized the organization’s time.
The first thing Deloitte decided was what practices they would no longer follow. These were:
The next thing they did was to change the way they approached evaluating an employee’s performance. They did away with the concept of peers rating their peers and instead focused on managers talking about how they would work with their team members in the upcoming year, not what they thought of them in the past year.
Deloitte named this practice ‘performance snapshot’, a way of evaluating an employee without falling prey to the idiosyncratic rater effect*.
And finally, Deloitte made the decision to have weekly check-ins. These weekly check-ins would be initiated by the direct report, as opposed to only the manager. By making these weekly check-ins a part of the manager’s work as opposed to an additional responsibility, Deloitte was able to integrate this into their workflow.
First developed by then GE CEO Jack Welch, and then developed into something of an art form by GE, stack ranking, which is also known as the vitality curve or the rank and Yank system, is infamous in the world of performance management.
According to the 20-70-10 system developed by Jack Welch, the top 20% of the workforce is the most productive, the next 70% work adequately and are vital to the workforce, and the bottom 10% are poor performers, who should be fired.
The reason why stack rankings are so contentious is that not only do they pit employees against each other, but they also kill qualities such as collaboration and teamwork and make employees afraid of working with other talented employees.
And yet, for the longest time, stack rankings were extremely popular despite the many criticisms leveled against this system. Some of the companies that were known for their use of stack rankings were Goldman Sachs, Juniper Systems, and Microsoft.
Microsoft in particular faced a number of lawsuits with respect to its ranking system way back in 2001 itself. It was also the subject of an article later on, in 2012 by Vanity Fair, called ‘Microsoft’s Lost Decade”. The article by Kurt Eichenwald heavily criticized Microsoft’s ranking practices and also brought the company a lot of media attention.
It was only in 2013 that Microsoft did away with stack rankings. However, by that time, considerable damage had been done to the organization.
Microsoft revamped its performance management process by doing away with any semblance of a rating curve. Instead, they focused on employee growth and development and also began placing major emphasis of teamwork and collaboration, two qualities that a decade or so of stack rankings had killed.
Additionally, Microsoft created a generous reward fund and instead of a targeted distribution which is what happened earlier, managers were given permission to reward their direct reports accordingly, as long as it fell within the budget.
Two years after Microsoft denounced stack rankings, GE followed suit in 2015. While they had given up stack rankings in 2005 itself, in 2015, they once more overhauled their performance management process by introducing a new app known as PD@GE. By abandoning their legacy performance management system, GE wanted to show its 300,000 plus employees that they were willing to change to keep up with the times.
Through the PD@GE app, GE wanted to set up a less strictly regimented performance management system whose main hallmark would be more frequent feedback.
Though Jack Welch seems to be GE’s most enduring legacy, a lot of senior executives realized that Welch’s ways were better suited to a time when GE needed to establish itself as a tour de force. They have now realized that the old ways will not work in a workforce that has more millennials in it than before.
Despite organizations dropping performance reviews, how much has really changed in the past few years?
The answer is, not much at all.
Quite a few organizations still continue to stick to the old ways of doing performance management. This includes stack rankings as well. We must understand that a lot of organizations still practice stack rankings without outright saying that they do so. They just call it a performance measurement tool without elaborating any further on it.
The thing about overhauling performance management is that it only works when you have a good backup plan in place. If you choose to overhaul your performance management process without giving much thought to how it affects other factors such as compensation, bonuses, promotions, etc, then your new process is going leave the organization feeling even more adrift than before.
Adobe’s new performance management process worked because they distilled down their performance ethos into three distinct subsets. They were able to do away with ratings because they figured out how managers would measure performance and account for compensation, without the help of ratings. This might not be the same in many other places.
A study by global research firm CEB Gartner reported that when ratings were removed from the performance management equation, managers often felt adrift and unsure of how to measure performance. [2]
So what is the solution? How can performance management be revolutionized without it losing its essence?
The answer is technology. In today’s digitally connected world, technology can help bridge the distance between performance management and employees.
Performance management software can do a lot more than just act as a repository for holding performance data. It can prompt employees and managers to share feedback. It can act as a place for them to communicate socially, without the titles of employee/manager holding them back.
The software can run the numbers and show you how many employees are participating in the annual review cycle, where they fall on a leadership scale, how much feedback managers have shared with others, etc.
A good performance management software can help organizations rejuvenate their performance process without turning the entire thing upside down and making it seem like a tornado has blown through the organization.
And even better, good performance management software can reduce the amount of time that is spent on performance processes. And isn’t that what organizations are really looking for?
The HR market today is inundated with a number of different software. The mantra is to automate everything since all we want to do is make all our day-to-day processes easier. It can seem overwhelming when you set out to look for software that matches your needs and instead end up wondering if you should just stick to your current performance management process because it is the lesser of the two evils.
You are not alone in thinking so. There’s a reason why performance management has not undergone a sea change for so long. Traditional processes are so entrenched in our workflows that we cannot imagine life without them. We complain about performance management being a chore and yet we dutifully fill out forms, stress over the year-end review and think about what to do next, and then repeat the entire cycle the next time.
The first thing you need to do as HR is seek the buy-in of those who make the big decisions. The obvious decision might be just getting the CEO on board but in actuality, it also involves getting the buy-in of the people who are going to use the software, that is the managers and the employees.
Here are a few more aspects you need to consider before you invest in performance management software.
What are the components of a good performance management system?
This is a good question to ask yourself before you embark on the hunt for performance management software.
Performance management is not just about reviews. In fact, performance reviews make up a very small portion of the entire process. Good performance management includes continuous feedback, consistent goals and objectives, frequent communication, and learning and development. The software you are looking for should have these modules and additionally, if these modules can be integrated, that’s even better.
Do not look for standalone applications and then try to integrate them. That way lies disaster. A lot of performance management software is available in the form of complete application suites. Those are the ones you should have your eye on.
Easy Setup and Accessibility
Choosing a cloud-based application or a software that must be installed manually does make a difference when it comes to performance management software. Cloud-based software applications do not need any set-up. All they need is a device and a connection to the Internet for users to access them.
On the other hand, software applications which need to be installed required a set-up process that can be short or lengthy depending on the size of the application. We recommend using a cloud-based software application.
Not only is easy to use and fuss-free, but it also ensures that employee data is securely stored on a server and not on the device. So in the event of a device crash, you won’t have to stress about retrieving data. It’s already been securely backed up elsewhere.
We cannot stress how important it is that you pick a performance management software that is easy to use. The main problem with traditional performance management processes is that they can get tedious and cumbersome. When you begin using a software application and find it even more tedious than your previous performance process, you’ve already lost the battle.
Do not just request demos and download brochures and make a decision. Do your homework and request a free trial. And if you have the option of doing so, take the application for a test run with a control group. If your software of choice stymies users and causes more confusion than is worth, you know you need to look for something different.
Alignment with Your Organizational Needs
When choosing a performance management software, it is absolutely vital to have that software align with your own expectations about performance management. It helps if you have a list of what you would like to change in your performance management process or what you want to introduce to it.
If your list of requirements includes, a flexible and customizable performance module, integration with other secondary modules, and a goals module, then you should look for software that fits those needs to a T. Because it is absolutely possible for software applications to be great in every which way and yet be completely unsuitable for your own organization and performance management culture.
For software to be useful, you need to be able to customize it in order to serve the needs of the end-users better. Performance management software that lends itself to flexibility and customization is what you should look for.
Because this software makes it easier for organizations to enact change when it comes to review processes. If they can be tweaked to suit your needs, that’s how you know the software is going to be a good fit.
Analytics can reveal so much, especially when it comes to performance. On one hand, you have your basic reporting, which gives you an idea of how your organization fares when it comes to participating in performance management processes. On the other hand, there is in-depth analytics such as leadership potential, nine-box analytics, recommendation analytics, etc.
These analytics can be of great use to both HR and managers as not only do they help review employee performance, but they also help HR and managers make other important decisions such as promotions, discovering leadership potential, identifying high performers, making compensation decisions, etc.
One reason why traditional performance reviews get so frustrating to do is that no one wants to be that person who has to send out company-wide missives asking managers to submit performance review templates or remind them that employee performance reviews are due.
An ideal performance review software will send out reminders and notifications like clockwork, thereby reminding employees of overdue tasks and also reducing the burden that is placed on HR when it comes to administrative tasks such as these.
A performance management software is only effective when in addition to the software being the right match for your organization, you also receive excellent customer support from the vendor.
Good software providers are willing to meet organizations halfway and ease the transition process from paper to software or software to software as much as possible. Though it might be explicitly stated, take the liberty to check with service providers if they are willing to help you with onboarding, support, technical issues, etc and to what extent do they provide customer support.
We cannot stress this enough but do not blow your budget on software you cannot afford or vice versa, skip out on great software in order to save costs. The beauty of the HR software market is that there is something there for everyone.
And to be honest, enterprise-class software may not be the best fit for you, if you are a small-sized business no matter how many bells and whistles it has. Similarly, simple performance management software may not suit the needs of an organization that has some very specific needs and requirements.
Scalability for Growing Organizations
When making the shift from traditional processes to more progressive performance management approaches, it is important to start small and then slowly scale up. When an organization makes an abrupt jump from traditional to progressive processes, there’s a good chance many employees will suffer from whiplash at the sudden change.
After all, not everyone can adapt to change right away. The idea is to grow and adapt as your own needs grow. Software that can scale up as an organization grows can make the transition from traditional processes to progressive management seamless.
Performance management when done right can be a phenomenally useful tool when it comes to improving organizational productivity, boosting employee development, and of course, maintaining a steady state of employee engagement.
Performance management at Engagedly is a process that continually changes. We did not get it right at the first try. But each year, we review and reinvent and keep moving forward.
We do not believe in performance reviews that happen only once a year and feedback that is only shared once a year, usually during the time of the review. We know how dangerous it is to leave it until the last minute. Instead, we focus on continuous feedback, measurable goals and objectives, and frequent check-ins.
We encourage frequent dialogue, both formal and informal (and not just the one-sided kind) because constant communication is the foundation of good performance management.
We also use the Engagedly application to keep track of goals and objectives and feedback which ensures that all the information with respect to a performance review is stored in a place that is easily accessible to both manager and employee.
When it comes to the end of the year, we too have performance reviews. Because the groundwork has already been laid out throughout the year, performance reviews are easy.
No stress, no fuss. And that’s the way they should be.
Capelli, Peter, and Anna Tavis. “The Performance Management Revolution.” hbr.org/: 2016/ 10/the-performance-management-revolution.
HR, CEB. “CEB Blogs.” CEB Blogs Corporate HR The Real Impact of Removing Performance Ratings on Employee Performance Comments, 12 May 2016, . www.cebglobal.com/blogs/corporate-hr-removing-performance-ratings-isunlikely-to-improve-performance/.
Watson Wyatt Worldwide (2004). Performance management programs earn failing grade. ‘WorkUSA 2004: An Ongoing Study of Employee Attitudes and Opinions-PM Summary. http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=13243
Ewenstein, Boris, et al. “Ahead of the Curve: The Future of Performance Management.” www.mckinsey.com/business-functions/organization/our-insights/ahead-of-the-curve-the-future-of -performance-management.
Buckingham, Marcus, and Ashley Goodall. Reinventing Performance Management. Apr. 2015, hbr.org/2015/04/reinventing-performance-management.
Adobe. Full Study: Performance Reviews Get a Failing Grade. 11 Jan, 2017, www.slideshare net/adobe/full-study-performance-reviews-get-a-failing-grade.
Meinert, Dori. Is It Time to Put the Performance Review on a PIP? 1 Apr. 2015, www.shrm.org/hr-today/news/hr-magazine/pages/0415-qualitative-performance-reviews.aspx.
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