What Makes an Effective Performance Management System?
Hint: It's Not the Forms
Appraisals, forced ranking, performance targets. The words swirl around some very noble intent. But performance management systems, designed to drive business success, often fall short. Why?
Because, for one reason or another, there's too much emphasis placed on building a better tool.
It's as if the tool itself, coupled with high utilization rates, will magically raise a company's performance. It won't. The tool is by nature limited; it organizes and holds information.
It is the organization's attitude toward that information, what it does with it, that transforms a performance management (PM) system from a "scorecard" into an effective instrument for raising organization-wide levels of contribution.
So what are the real differentiators of effective performance management systems, if they're not in the mechanics?
Interviews with our clients revealed some important insights into the mystery.
Mirroring the Culture
A company's approach to performance management must mirror the established culture or the one that senior leaders are trying to build. That is why no one system works — or — should it for every organization.
At Siebel Systems, says Lori Hick, a director of HR, performance management reflects the company's culture of "knowing things in real time at any touchpoint." Information sharing is embedded in what and how the company sells to its customers. The PM system works the same way.
Everything from meeting updates and sales wins, to where people sit and the projects they work on is posted on the MySiebel portal. So are quarterly goals — from the CEO's down to those of each employee. Access to this kind of information makes it easy to link individual objectives to corporate ones, and to other people and projects.
Senior Teams As PM Champions
Senior leaders need to visibly champion the elements of performance management that connect the process to improved business results — the "What are we doing with this information?" piece: development, coaching, and manager-employee shared accountability.
At Dynamics Research Corporation, a defense contractor, the senior team is driving the cultural shift necessary to replace the quasi-military "score five on the ratings, or you're out" tradition with a process that holds managers accountable for an ongoing partnership with their employees.
"You don't do performance management to someone," is the philosophy, explains Maria Grasso, DRC's Director of Organizational Development. She sees signs of successful change in the results of the latest employee survey where the statement, "My last performance appraisal was both fair and accurate," scored a 75% approval rating — 18 points above the national norm.
At Eaton Corporation, a diversified industrial manufacturer, the CEO and other senior leaders spearheaded the PM redesign and continue to lend huge support, says Nikki Paul-Deskovich, Manager of Organizational Development. Managers are being trained to be better coaches at sessions that begin with a videotaped message from the CEO.
Managers Who Coach and Inspire
A performance management system increases individual contribution by:
- Providing the context for managers and employees to have ongoing conversations around goal setting and development, and
- Encouraging managers to give serious and direct performance feedback.
Guidant Corporation considers both these elements so important, it is moving way beyond "check-the-box metrics" to track them, according to Pete Brunner, Employee Relations Manager.
A new assessment survey, to be sent out electronically by business unit heads twice a year, explores the relationship between employee and supervisor with questions like: "Has your manager helped you set goals? Has he/she asked you how you want to be coached? How often do you discuss your goals/development with your supervisor?"
One of senior management's goals for a unified PM system at Pharmacia was "to drive the development of people with honest and transparent coaching from managers," says Philip Sleeman, now Senior Director/Group Leader, Leadership Effectiveness at Pfizer. Including development and coaching explicitly contributed to how readily the restructured PM system penetrated the large global workforce of two organizations (legacy Pharmacia & the Upjohn and Searle companies) with historically different PM histories.
Employees Engaged in Their Own Development
Effective performance management means that development is a partnership between manager and employee. Employees are held equally accountable, along with their managers, for both their performance and for moving the PM process along.
"Critical decisions to encourage ownership of the PM process," were made by senior management in the redesign of the PM system at McDATA, a designer and manufacturer of storage area networks, says Shelie Tucker-Gustafson, Manager of Organizational Development. Managers' merit raises are now tied to completed reviews, and grants to employees of key equity (stock), to the creation of development plans.
At Merck & Co., leadership has made the connection between increasing productivity and getting employees more fully engaged. And that means improving the quality of conversations between managers and employees. Objectives are now set using critical performance "dimensions "(the "what" as well as the "how" of accomplishments) and identifying pertinent stakeholders. End-of-year reviews involve an objective-by-objective rating (overall ratings are gone) with accompanying stakeholder feedback.
"Yes, it's more work for everyone, " says Ray Henson, Director of Corporate Organization Development, "because more time thinking and talking is needed." But those activities are precisely what take performance management beyond being a static system of measurement to having a positive — and reliable — impact on business results.
The Real Goal of Performance Management
If the goal of performance management is simply to get everyone to use the system, then being user friendly and linking performance to pay should do it.
But if the goal is to actually help improve performance, then an organization needs to rethink its entire approach — the context, the outcomes, how performance management is framed in the organization, and how it's linked to the culture.
Once those decisions are made, the forms will take care of themselves.
