Insights from IMPACT posted on April 17, 2019
Over the last 20 years, organizations have redesigned, reworked, and revamped performance management time and time again. They’ve tried different rating models, feedback tools, manager coaching, recognition programs, continuous performance management, and more. But in 2019, the debate about what works best still rages.
The state of performance management and how to reinvent it for the age of the social enterprise was the topic of a session led on Day 2 of IMPACT by Kathi Enderes, PhD, vice president, talent and workforce research leader at Bersin™, Deloitte Consulting LLP, and Dr. P.V. Ramana Murthy, EVP and global head of HR for the Indian Hotels Company.
Bersin’s 2018 High-Impact Performance Management study, which surveyed 1,000 organizations globally, revealed just how much people dislike the performance management process: it received an abysmal Net Promoter Score of -60.1
As long as organizations think they are getting the results they need, the problems with performance management will likely be easy to dismiss. But even the best performance management approaches typically don’t contribute to innovation, change, agility, or risk-taking. And these are all capabilities needed in the new world of work—a world that is all about empowering employees to do their best work, not about performance ratings. It’s about teaming and collective thinking, not hierarchies and individual achievements.
This is why process-focused approaches can stifle performance by focusing on compliance and competition at the expense of the human experience and meaning in work. They don’t give people the feedback they need to do their best work. And because they are not based on a collective mindset, these approaches don’t motivate people to work together.
To truly reinvent performance management, we need to leave the old ways behind—we should think big and think human about the path forward. We need to question what performance management is all about. Is it to evaluate people so organizations know whom to reward, recognize, and promote? Or is it to help people grow, develop, and find meaning in their work lives?
If the answer is the latter, then organizations have to put humans at the center to enable performance. When they do that, everything changes. People work together, not against each other. They can focus on doing their best work. Critical to maintaining a human focus in performance management is:
- A commitment to helping people find meaning in the work they do
- A collective culture that prioritizes the good of the team and the organization over individual goals
- Team feedback that is bottom-up to help employees learn more from these insights
- Supportive leaders that coach, inspire, and help employees learn from their mistakes
- Technology that puts puts performance indicators in the flow of work, not in a separate system
As the EVP and global head of HR for the Indian Hotels Company, Dr. P.V. Ramana Murthy knows firsthand what it’s like to reinvent performance management with a human focus. When he took on his role in 2014, attrition was high and compensation was below market, yet performance ratings were higher than he expected. After analyzing the situation, he realized managers were giving high performance ratings to trigger a form of sympathy pay for the compensation gap.
But instead of just fixing one part of the larger performance management problem, Murthy seized the opportunity to reinvent. He and his team worked to envision and create an ideal performance management system—one that promotes collaboration, improves productivity, increases guests’ delight, and improves business performance. They reasoned that if creating a quality guest experience is a collaborative effort by all employees, then performance management ought to work the same way. Employees should have the same experience and it should set the tone for the entire culture.
Key to the reinvention effort was a new pay-for-performance system that created team-based appraisals, with each hotel acting as a team. A companywide scorecard was established to measure the collective performance of each team across financial performance, process / guest satisfaction, and leadership behavior. The system tied bonuses to each team’s scorecard rating, so it incented them to work collaboratively. Additionally, as part of this new system, the organization matched base compensation to market rates, thereby removing the competition among employees for ratings and raises. And perhaps just as critical as the new system itself, Murthy’s teams communicated and managed the changes effectively, bringing executive sponsors on board and meeting with all their employees at all their properties to explain the changes.
The results of the Indian Hotels Company’s reinvention effort are impressive. The new system is driving consistent improvement across all benchmark metrics: team performance, employee engagement, retention, guest satisfaction, and business performance.
And as Enderes reinforced in her closing remarks, when an organization with a highly effective performance management system can improve financial performance by 92 times earnings per share, all companies should take notice—and hopefully action.
Stay tuned for more Insights from IMPACT 2019 all week, and follow the conference conversations on our Twitter handle: @Bersin.
1 – Seven Top Findings for Enabling Performance in the Flow of Work, Bersin, Deloitte Consulting LLP / Kathi Enderes, PhD, and Matthew Deruntz, 2018.