Performance Management: Who’s in the Driver’s Seat at Your Organization?

Few institutional practices are as old, or have been hated as long, as the performance review. Job ratings were used (and criticized) in China as early as the third century; in the early 1800s, an owner of cotton mills in Scotland hung color-coded wooden blocks over employees’ workstations to indicate their merit. The bureaucratic corporate culture of the 1900s—the century of cubicles, assembly lines, and Six Sigma—enshrined performance reviews in corporate handbooks. In far too many places, it survives intact.

This despite research at Kansas State University and Colorado State University that “basically everyone hates performance reviews,” and annual reviews actually hurt performance one-third of the time. What’s more, numerous studies suggest that more than half of a given performance rating has to do with the traits of the person conducting the evaluation, not of the person being rated.

What’s Wrong with Classic Performance Reviews?

In the last decade or so, the annual performance review has been falling out of favor in some quarters. Microsoft, Adobe, Deloitte, and Gap are among companies that have reformed their evaluation processes in recent years.

At Deloitte, management discovered the organization was spending 2 million hours a year on performance reviews. Deloitte realized many of those hours were eaten up by leaders’ discussions behind closed doors about the outcomes of the process. The Company decided to shift its investment of time from talking about ratings to talking to its people about their performance and careers—from a focus on the past to a focus on the future.

Managers have incentives to inflate appraisals; even accurate feedback can feel biased and unfair, making people less motivated and hurting relationships between supervisors and subordinates; and organizations don’t do a good job of rewarding good evaluators and sanctioning bad ones. As a result, annual appraisals end up as a source of anxiety and annoyance rather than a source of useful information.

Organizations need to make sure their performance-evaluation process attempts to minimize bias – which often involves collecting more, not less, information and documentation, and having more, not fewer, people weigh in on an employee. It’s crucial to make performance appraisals more objective and bias-free.

360-Degree Reviews

One way employers have tried to achieve this is through the use of 360° feedback, which consists of a manager/appraiser interviewing peers, colleagues, supervisors, and managers of the person being appraised for feedback relating to the employee. An employee is assessed based on technical elements as well as their behavior and character throughout the time period. This level of subjectivity means that a broader range of assessments feed into evaluating each employee’s performance.

This performance appraisal method is popular in consultancy houses and companies where individuals work on several different projects. Employees who move from project to project won’t have set supervisors for long periods of time so more rounded and all-inclusive types of performance appraisal methods are required.

 Here are a few benefits of 360-degree reviews:

  • They do away with the danger of one bad appraisal affecting an employee’s promotion opportunities.
  • They are highly effective for organizations where employees are involved in several projects, responsibilities or roles. Staff performance appraisal comments can come from several managers and supervisors of your employee.

 Employee-Driven Reviews

The next step up the evolutionary performance management (PM) ladder is employee-driven PM. Instead of one annual conversation that suffers from all the potential weaknesses mentioned above, employee-driven PM consists of frequent conversations throughout each year focused on employees’ growth and development.

From a standardized “one size fits all” approach, employee-driven PM provides flexibility for meaningful conversations tailored to each employee. Shifting from supervisor-driven to employee-driven gives employees more ownership while reducing managers’ bureaucratic tasks.

From a demotivating process focused on fixing employee weaknesses, employee-driven PM is designed to enhance employee performance and engagement by focusing on applying employees’ talents and strengths to the organization’s core vision and mission.

Finally, employee-driven PM shifts focus from formal goal-setting to an ongoing discussion of aligning the employee’s performance with the dynamic and agile priorities of the organization.

During employee-driven sessions, the employee and manager explore:

  • Notable accomplishments since their last conversation
  • The tasks or projects that contributed most to the organization as well as the employee’s engagement, pride, and job satisfaction
  • Areas where the employee feels they’ll make a significant impact
  • Projects that the employee will be working on in the future
  • How those projects place demands on the employee’s time
  • Tasks that will coincide with the employee’s strengths
  • Parts of the job that increase the employee’s energy; parts that sap energy
  • New ways in which the organization can use an employee’s strengths
  • Challenges that keep employees from performing at their best, and how to overcome/change them

 Objectives and Key Results (OKR)

Initiated by Intel President Andy Grove in the 1970s and since adopted by such industry leaders as Google at the urging of early investor John Doerr, Objectives and Key Results (OKR) is a popular technique for setting and communicating goals and results in organizations. Its main goal is to connect company, team, and personal objectives to measurable results, making people move together in the right direction. OKRs are a simple way to create structure for companies, teams, and individuals.

OKRs have gained popularity due to its focus on execution. Many goal setting methodologies help with the “What” but don’t emphasize the “How.” Also, to execute as a company, it’s necessary to discover the “Why” factor. It’s important for employees to understand what is driving the company. When a company is able to strongly define what it’s doing and why, it allows for more transparency and insight for employees on what success is and how it can be reached.

OKRs are about goals, not tasks. The biggest mistake leaders make is developing key results that are tasks. Key results on an organizational level should be indicators of success. OKR is not about micromanaging every step towards reaching employee objectives; it’s about providing the framework of what constitutes success, and allowing teams and individuals to figure out how to work towards the finish line.

A big part of OKR is making sure each individual knows precisely what’s expected of them at work. OKRs are kept public in front of everyone, so teams move in one direction and know what others are focusing on.

OKRs consist of a list of objectives. Objectives should be ambitious, qualitative, time bound and actionable by the person or team. Under each objective are listed 3-4 key measurable results, with a progress indicator. Each key result has a progress indicator or score of 0-to-100%. Objectives should be definitive and measurable. Don’t say, for instance, I want to make my website prettier. Say you want to make your website 30% faster. Or you want to increase engagement by 15%.

As people start working, they update their result indicators regularly—weekly is a good period. An objective is considered done when 70-to-75% of results have been achieved. If 100% of objectives get done, the OKR plan was not ambitious enough to begin with.

OKR is often loved by leaders and managers seeing their people moving steadily towards important goals, not small unimportant tasks. Employees love it for the clarity of knowing what’s expected from them.

At Google, all OKRs are public from Larry Page on down. Everyone can look up what their coworkers’ OKRs are in the employee directory. It’s right there as a piece of their internal profiles, including OKR scores through the years. This might seem intimidating, but it helps Googlers understand what everyone’s working on.

 OKR examples:

Objective: Make the company profitable

  • Key Results #1: Increase our MRR (Monthly Recurring Revenue) by 10%
  • Key Results #2: Sustain 98% of our customers through annual subscription renewals
  • Key Results #3: Develop a new competitive tiered pricing structure

Objective: Improve our development process for better product

  • Key Results #1: Reduce our current process from 15 steps to 10 steps
  • Key Results #2: Improve the quality assurance standard
  • Key Results #3: Transfer our front-end development to best version available

Objective: Make our company the No. 1-rated workplace

  • Key Results #1: Improve our internal NPS score to +90
  • Key Results #2: Maintain healthy retention of employees
  • Key Results #3: Reinforce our brand image in local tech community

Connecting the goals of the individual with those of a larger team and the company as a whole is a major step up the evolutionary performance management (PM) ladder.  But there’s one more significant rung to climb to truly make the most out of your organization’s talent management.  In part two of this article (coming tomorrow, October 11), we’ll delve into the benefits of a network-driven model of performance management.

Kelly Max
Kelly Max is the CEO of Haufe US, provider of employee-centered enterprise transformation solutions and programs.

Haufe is a leading global provider of Success as a Service (SXaaS) HR solutions that transform company culture and enhance businesses ability to attract and retain top talent. Working with over 600 companies across 28 countries, Haufe offers a combination of consultative services and people-centric software that empowers clients to address real challenges and build flexible solutions that evolve to meet organizational goals. Haufe’s newly launched HR Operating System, Rhythmix, combines scientific tools and a human-centered methodology to align company culture, organization and tools while also optimizing each employee’s career journey through talent acquisition, onboarding and performance.

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This post originally appeared on HR Daily Advisor
Author: Kelly Max, CEO of Haufe US