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Fixing Performance Management

The trend may be ironic, but it’s definitely not funny. Various studies show that a lot of performance management systems just don’t perform very well. So it’s understandable that many organizations badly want to improve their systems. The question is whether this can be achieved via relatively minor changes, major overhauls or radical shifts in how managers think about managing performance.

Many surveys confirm there’s a problem, but the extent of it varies depending on the source. Top executives appear to be among the greatest skeptics, with only 6% of U.S. CEOs saying they believe their organizations’ performance management (PM) systems are useful, according to research conducted by People IQ, a company that provides Web-based performance appraisal systems. HR leaders are not highly impressed by PM systems either. Just 5% of HR leaders at larger companies (2,500 or more workers) are very satisfied with how performance management operates in their firms, while 42% are somewhat satisfied, according to a survey conducted by Workforce Management in conjunction with Lisa Rowan of the advisory firm IDC.

As for workers, many see PM systems as being unfair, especially in the area of assessments. Only 38% of public-sector employees and 42% of employees in the manufacturing and service sectors consider their employers’ performance evaluation systems to be fair, according to a 2005 survey by The Hay Group HR consultancy. The People IQ study found that only 13% of managers and workers believe their organization’s PM system is useful.

So, why are many PM systems viewed as flawed, unfair or even useless by the people who depend on them? Every PM system—and the organizational environment in which it operates—is going to be different, of course. But the experts point to a number of common threads, the awkwardness of antiquated tools being among them.

“Companies are using Ozzie-and-Harriet-era tools to measure performance in a Jetsons world,” claims a report from the AberdeenGroup (“How to Close,” 2004). Indeed, the Workforce Management survey found that about two-thirds of respondents said their systems include little automation. Another survey, conducted by Bersin & Associates in 2005 found that just 35% of respondents had an automated PM process, and the majority (58%) said they use paper-based systems.

But it’s quite possible the status quo will shift soon. Among the Workforce Management survey respondents who don’t use automation, about 45% say they plan to automate within the next year and a half. The Bersin study, "The Convergence of Learning and Performance Management," predicts that the automation of the PM process will “become a major trend in the next several years,” and it points to dozens of organizations selling software solutions.

Still, some experts warn that technology isn’t a silver bullet. It does little good to automate an existing PM process that never did work very well. Indeed, the Workforce Management survey shows that many respondents (38%) in companies that already have an automated system are dissatisfied with it to some degree. Before they computerize their existing systems, companies should determine how they might improve processes.

For instance, most performance appraisals are conducted on an annual basis, but a format that provides more frequent feedback could be an improvement. Whirlpool Corp. is an example of a company that had streamlined and automated its processes to such a degree that it reduced face-to-face meetings. When employees complained that they weren’t getting enough useful feedback, Whirlpool changed its procedure so that supervisors now meet with employees at least once a quarter.

But automating or tweaking today’s existing systems may not be enough over the long haul, and experts seem to be of at least two minds when it comes to envisioning the future of performance management. On one side are what could be termed the techno-optimists, who believe that PM processes will ultimately be integrated into a larger and more effective “talent management” system of some sort, perhaps one that incorporates tasks such as learning and development, workforce planning, pay for performance, recruitment and retention and succession planning. The techno-optimists believe that the best of the integrated applications will eventually result in comprehensive and efficient ways to manage performance.

On the other side are those we could call the convergence-skeptics. They tend to believe that much of conventional performance management doesn’t work as advertised. In fact, they argue that some PM tools may do more harm than good. A simple performance review, for example, “can transform a vibrant, highly committed employee into a demoralized wallflower who reads the want-ads on the weekend,” note coauthors Tom Coens and Mary Jenkins in "Abolishing Performance Appraisals: WhyThey Backfire and What to Do Instead." And trying to link appraisals to compensation can be even more damaging if an employee sees the appraisal as unfair or if the company doesn’t have the funds to pay top performers significantly more than others. The convergence-skeptics tend to want to “unbundle” aspects of performance management. They believe more in continuous feedback than in formal appraisals, and they tend to think pay should be linked to skills or the performance of work groups rather than yearly assessments of individuals.

For now, at least, the techno-optimists are on the ascendancy. Many managers hope that a combination of best PM practices and new software applications will ultimately fix the rather undependable engine of performance management. Until then, however, managers must try to keep the complex machinery of PM systems running as smoothly as possible in an imperfect world.

For more information on this and related issues, including a newly published Highlight Report, visit HRI’s Website.

Documents used in the preparation of this article include:
“Alternatives to Performance Reviews.” Harvard Management Update, June 6, 2006, pp. 3–4.

Bersin & Associates. "The Convergence of Learning and Performance Management: Has Talent Management Arrived?" August 2005.

Brown, David. “Performance Management Systems Need Fixing: Survey.” Canadian HR Reporter. ProQuest. April 11, 2005, pp. 1–2.

Hay Group. “Companies Risk Productivity and Profits by Paying for Dead Weight.” Press release. September 27, 2005.

“How to Close the Gap Between Corporate Goals and Employee Performance.” IOMA’s Pay for Performance Report. ProQuest. August 2004, p. 1.

Ruiz, Gina. “Performance Management Underperforms.” Workforce Management. ABI/INFORM Global. June 26, 2006.

White, Erin. “For Relevance, Firms Revamp Worker Reviews.” Wall Street Journal Online, July 17, 2006.