What’s gone wrong with performance management?

Business networking event

Performance management is broken and employee engagement is suffering as a result.

I’ve been in some sort of performance management system since I started in corporate life straight out of university. I have seen the world around me changing rapidly, and yet the performance review has atrophied.

My goals have moved, strategies have evolved and I have regularly found myself working across teams and on multiple projects. I have needed to build my skills continuously and I have wanted much more frequent, real-time feedback on how I’m progressing and what more I need to be doing. The traditional PM system that has creaked into action twice a year (at best) just hasn’t done the job.

Even when I left the corporate world to become a consultant, my husband joked that he should take over the job of setting my objectives. After all, how could I possibly do my best work without them? I won’t repeat what I said in reply!

As it turned out, despite not working towards pre-agreed objectives or metrics, I carried on developing well enough, I think – and my performance reflected that. As well as developing new technical skills, I learned how to be a consultant, how to help my customers succeed and how to manage myself in delivering on multiple projects. And I got great and regular feedback from the people I worked with, too.

How we work is changing and yet most of the current performance systems in use today date from a time of command-and-control management when business priorities were set according to a predictable annual cycle. As a result, they don’t deliver in the modern world.

The promise of good performance management

But it doesn’t have to be like that. According to the 2009 Macleod report by David Macleod and Nita Clarke, effective performance management gets employees more engaged in their work and their organisation. This is achieved through on-going conversations between employees and their managers. And with improved engagement comes positive business results.

Those claims are supported by solid data. According to a study by the Society for Human Resource Management in 2012, managers who engage in effective performance management deliver 50% less staff turnover, 10-30% higher customer satisfaction, 40% higher employee commitment and double the net profits.

Google is a great example. The organisation’s Project Oxygen (HBR, 2013) used stringent data analysis to demonstrate the critical role managers play in the creation of high-performance teams. Google employees with high-scoring bosses consistently reported greater satisfaction in areas including performance management, career development and innovation.

The harsh reality

Sadly, that’s just not happening in the majority of organisations. In a survey Axiom helped conduct as part of our role in the Engage for Success (E4S) movement this year, only 33% of organisations felt their performance management system delivered significant value and 42% said it didn’t deliver value at all. (Download a summary of our survey findings – including what employees think, the negative ripple effect of a bad performance review and what a good performance system should look like – at the end of this post).

Perhaps just as worryingly, 45% of HR staff – the very people who own and run the PM system – don’t think it is effective.

Worst of all, the poor souls on the receiving end of these systems are far from impressed. Most employees do not find performance appraisals engaging.

It’s a problem that’s almost certainly contributing to the low levels of employee engagement we are seeing worldwide. After all, many firms try to use performance management to cascade corporate objectives. They do this because they need employees’ efforts to be aligned to strategic priorities. But our survey found a significant shortfall here. Almost 90% of leaders understand the goals of the business – just about acceptable, perhaps, even if it does mean one in 10 leaders don’t know what their own organisation is aiming for! For middle managers, this figure is down at 75% and, with frontline staff, it’s a mere 50%. If half the workforce don’t know what the organisation is trying to achieve, can it really be effective?

So what’s gone wrong?

Everyone is experiencing the increasing pace of change. The dynamic global economy means goals are unlikely to be relevant for more than a few months. Traditional performance management systems just cannot keep up.

Meanwhile, technology is transforming how we work. Employees no longer need to be co-located. They work collaboratively on multiple projects, with different managers. However, traditional performance management systems often rely on a single manager completing the assessment. Many employees do not trust that all their work is appropriately reviewed.

Today, more than 70% of all employees work in service or knowledge-related jobs. Their performance is driven by their attitude, customer empathy and ability to work in teams and innovate. These skills must be built over time and good performance management must be focused on constantly developing those capabilities rather than ranking employees at a given point in time.

Employees’ expectations have changed. They are looking for a performance management system they can trust, is designed for their needs, focuses on their strengths and helps them get even better. In the new world of work, employees want more involvement, accountability and transparency.

Where do we go from here?

Effective performance management remains elusive, but it’s clear that organisations need a better way to develop employees’ capabilities and performance, align their efforts behind organisational goals and drive genuine engagement.

In the new year, I’ll post the practical steps we can take to build performance management systems that are fit for purpose. Watch this space.