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The Past, Present, and Future of Performance Management

The Past, Present, and Future of Performance Management

One way for organizations to gain a competitive advantage is to maximize human capital through performance management (PM). However, research from the Corporate Leadership Council reveals that managers, human resources (HR) departments, and employees are often frustrated by their PM system1:

  • Of the managers surveyed, 95% reported dissatisfaction with their PM system.
  • Of the employees surveyed, 59% felt PM reviews were not worth the time invested, and 56% reported they do not receive feedback on what to improve.
  • Of the HR department heads surveyed, almost 90% reported their PM systems do not produce accurate information.

As a result, companies and organizations are reviewing their PM systems and practices, and experimenting with new approaches. The purpose of this article is to review the past, take stock of the present, and outline future best practices in PM.Dissatisfaction with PM

Looking back, taking stock, and moving into the future of PM

A 2017 review summarized the key trends in performance management (PM) research over the last 100 years2. PM research is a relatively new addition to studies investigating Performance Appraisal (PA). Whereas in PA the research focus is on understanding how ratings work best, in PM the research agenda is to help employees improve performance.

Historically, there have been three major themes in PM research:

  1. Overview of the PM process and how to improve it;
  2. Detailing specific aspects of the PM process, such as interventions designed to improve individual employee performance; and
  3. Suggestions on how to improve organization-level performance through HR practices.

We will now take a deeper look at these three themes by considering the past, present and future of each.Performance Appraisal vs Performance Management

1. Overview of the PM process and how to improve it

Over the last 20 years, researchers have expanded ideas about performance management systems from simply rating or ranking employee performance to comprehensive programs that align staffing, performance feedback, incentives, and supervision with the strategic goals of organizations. While the number of activities that qualify as valid approaches to PM have increased over the years, most of the research is descriptive and does not yet provide empirical insight into what works best (and for whom). These limitations notwithstanding, descriptive research can still provide interesting insights into the PM process and how to improve it.

In 2017, researchers conducted a broad survey of PM practices. The survey was completed by 101 HR leaders across diverse industries.3 The survey revealed important gaps between how PM systems are used and what the research has identified as best practices. For example, most HR leaders (87%) reported that PA reviews typically take place once or twice a year, with 39% reporting that they do not provide informal feedback between reviews. Yet, there is a general consensus amongst researchers that frequent and informal feedback is a crucial success factor in PM. In addition, despite the growing push by researchers to utilize multiple sources of data in PA and PM, very few organizations reported collecting performance data from customers/clients (8%), and just one in five reported the use of any type of 360-degree feedback in their PM process. Finally, while researchers recommend that employees across an organization are trained in effective PM behaviors, just 31% of organizations reported that they provide such training to non-managers (76% train their managers in the PM process).

In sum, although research has not identified a magic bullet for PM, organizations would be wise to complement the nuts and bolts of PA (e.g. performance ratings, type of documentation required, goal setting) with increased opportunities for formal and informal feedback, multiple sources of performance data, and training to embed effective PM behaviors (e.g. setting clear expectations, providing informal feedback, building rapport with direct reports, and working collaboratively to solve problems) throughout the organization.4

2. Improving individual performance

A large number of PM studies have examined ways to improve individual productivity and performance of employees. Early on, researchers invested heavily in understanding how to improve the accuracy of ratings. The assumption was that if researchers could create the perfect assessment, it would reveal an ultimate, irrefutable truth about employee performance. However, study after study proved that this was an elusive goal. As such, researchers switched their focus from perfecting the rating scale to understanding the rater. Today, PM research seeks to understand what drives employees to try to improve their performance. The major levers driving employee motivation to improve performance are goals, feedback, and incentives.

Researchers point out that disappointing PM results have often been caused by well- intentioned efforts to improve PM processes. However, over time these efforts have created a PM process that is increasingly bureaucratic and detached from the daily activities that it is supposed to support, such as establishing clear expectations, setting meaningful goals, and providing timely feedback. In the future, organizations need to shift their attention from perfecting formal ratings and review processes to utilizing PM systems to reinforce the everyday PM behaviors that matter most. The best PM systems will enable managers and employees to engage in continuous feedback designed to help an employee learn, grow, and develop skills that drive (a) employee engagement, meaning and purpose, and (b) organizational ROI.

3. Improving organizational performance

The ultimate goal of PM is to improve the overall performance of the organization. Ideally, PM systems help the organization reach strategic goals and deliver a healthy ROI in terms of key metrics aligned to the organization’s priorities (e.g. customer satisfaction, EBIT). Surprisingly, researchers in this area are unclear about what combinations of PM practices make an impact on firm level performance, and why some practices work but others do not.

Nevertheless, there is a growing understanding that the most effective PM systems do at least five things well:5

  1. Instead of time-consuming, long-term goal setting sessions held at the beginning of the PM cycle, effective organizations are moving to more real-time expectations and goals that change as the situation changes.
  2. Learning and development is valued and understood as part of day-to-day work, rather than limited to formal training that is often tied to annual reviews.
  3. Effective PM ensures employees receive meaningful, real-time feedback from managers, direct reports, peers, and (when applicable) customers. Unlike scheduled comments or arbitrary ratings delivered infrequently or as part of a mandatory evaluation, real-time feedback provides employees with the data they need to continuously improve their performance day to day and week to week.
  4. PM training goes beyond providing managers with instructions on how to complete the PM steps, and extends to training for all employees on effective PM behaviors (including how to set clear expectations, how to give and receive informal feedback, and how to work collaboratively to solve problems).
  5. Ratings are simplified and streamlined to minimize the time and cognitive load demanded by complicated systems that do not distinguish between employees well.

Conclusion

A bright future awaits organizations that are able to learn from the past and correctly identify how best to move their current PM practices forward. Over 100 years of PM research suggests that, although we have yet to find the perfect recipe to amplify individual and organizational performance, we do know that the most effective PM systems will (a) set clear expectations and goals, and enable revisions as the circumstances shift, (b) provide frequent opportunities for informal and formal feedback, and (c) drive specific behaviors that motivate and inspire employees to improve their performance.

References

  1. Pulakos, E. D., Hanson, R. M., Arad, S., & Moye, N. (2015). Performance management can be fixed: An on-the-job experiential learning approach for complex behavior change. Industrial and Organizational Psychology, 8(1), 51-76. https://doi.org/10.1017/iop.2014.2
  2. DeNisi, A. S., & Murphy, K. R. (2017). Performance appraisal and performance management: 100 years of progress? Journal of Applied Psychology, 102(3), 421-433.
    http://dx.doi.org/10.1037/apl0000085
  3. Gorman, C. A., Meriac, J. P., Roch, S. G., Ray, J. L., & Gamble, J. S. (2017). An exploratory study of current performance management practices: Human resource executives’ perspectives. International Journal of Selection and Assessment, 25(2), 193-202.
  4. Mueller-Hanson, R. A., & Pulakos, E. D. (2015). Putting the “performance” back in performance management. Society for Human Resource Management and Society for Industrial and Organizational Psychology.

What skills will be most in-demand in 2025 (that’s only 10 years away)?

Imagine being the HR Director at Acme Industries and attending the annual strategy meeting. The theme is ‘What will Acme look like in 2025’ and you will present ‘What skills will Acme’s employees need in 2025’.

Product Development will present on how they see Virtual Reality (VR) becoming part of the design process. Manufacturing, anticipating being seamlessly integrated with Product Design will demonstrate how 3D Printing will replace and change manual production. Marketing will share how Integrated Social Media and the automated analysis of Big Data will revolutionise identifying who, when and how Acme should be communicating with its customers and other stakeholders.

As the HR Director, you have the unenviable challenge of anticipating how such radical changes in technology and the company’s operations will translate into what skills employees should own in 2025.

Skills demand

I have empathy for this HR Directors situation. The question is too broad, and there are too many current possibilities and, even more, future unknowns.

Whenever I pose that same future skills question rather than specific answers such as Sense-Making, Social Intelligence, Novel and Adaptive Thinking and New-Media Literacy as suggested by the University of Phoenix Research Institute in their Future Work Skills 2020  research, I typically receive two polarised broader views:

  • From optimists, I hear that technology and connectivity will continue to improve, political and socioeconomic stability will prevail, and that human ingenuity will figure out the rest and employees will be an integral part of the future.
  • From pessimists, I hear about the removal of the human involvement by automation, a substantial reduction in the workforce and direct social consequences.

In a previous post I asked the question ‘How do you build a future-ready workforce?’ As the roles and the way we work changes, how can an organisation ensure the workforce will thrive?

Along with Acme Inc., Australia’s Federal Government has been asking the same questions and recently released Australia’s Future Workforce? The report shares the view that the key drivers of changes in the job landscape in future are our ageing population, technology and automation, and an increasingly globalised and fragmented workforce.

Our Professional Challenge

As human resource professionals, I believe we should be open-minded and engaged internally and externally with the changing nature of even traditional roles.

Specifically, I am referring to not pulling a role definition out of the HR documents library and requesting ‘same again please.’ Instead, I am suggesting invoking a process that seeks input from the department head as to how and why that role and its function is changing. Reviewing recruitment advertisements for similar positions can also be a valuable input to be presented to managers.

The Evolving Workplace

History presents new specialist skills that are initially sourced externally and over time brought in-house if they become mainstream. However, in part because of the pace of technological change, I believe that this transition will decrease over the next decade, and the ‘on-demand’ workforce will substantially increase.

Evolving workplace

I’ve enjoyed sharing my views about the ‘on-demand’ workforce and how your organisation can make sure you get the most out of them. Many might think of this as simply ‘freelancing’ but this is a fast, evolving, agile new version of the professional services sector.

In their paper Five Trends that are Dramatically Changing Work and the Workplace   Knoll Workplace Research highlight the ‘coming shortage of knowledge workers, the continuing distribution of organisations and the availability of technologies and social collaboration tools’ will cause organisations to utilise the ‘on-demand’ workforce.

Providing ‘on-demand’ services are lucrative and rewarding personally for the individual. Therefore, I think it’s reasonable to assume this new sector will adapt before new skills become mainstream guaranteeing their availability.

A never ending cycle of transition and transformation

I would like to reassure the pessimists that on our path to 2025 you will not hear a technological big bang, rather, the quiet turning of the wheels of a cycle of transition and transformation providing the opportunity for the workforce to hone new skills.

What did an employee learn in the last year?

Employees keep a close eye on the changes in their domain. They will change employers if they perceive their career will stall without gaining new skills that are required.

An employee’s ability to increase their perceived value to an organisation and enjoy the feedback and recognition that brings has a direct relationship with job satisfaction.

Recent history provides reliable medium-term predictions

The pessimists I meet fear that people, can’t or won’t rise to the challenge of change and sit back and watch their roles be consumed by automation. In my opinion, that severely underestimates the tenacity of the human spirit to grow, learn and adapt.

Technology has been evolving since the wheel. Our skills have been developing ever since someone had to manufacture and fit that wheel.

When one occupation declines, it is replaced by another or perhaps by an enhanced variation that’s requires new skills.

To sum up…

Rather than a list of specific domain skills that will be in the greatest demand on our journey to 2025, I believe that those skills are in fact the willingness to accept and embrace change, being adaptive to new workplace structures that combine internal and external resources and a commitment to acquiring new knowledge.