6 Steps to Bringing Your Performance Management Into the 21st Century

The purpose of a business is to create customers. Sharper performance results in more and happier customers

Thus, we aim to optimize performance, hence the business term: Performance Management.

Sounds simple, but of course it isn’t. Humans have a lust for control and have developed quite a few mental concepts to ‘control’ performance management; processes, ratings, manuals, competency frameworks, forms, collective labor agreements, etc. While all these things once had a purpose, the sum of it is not fit for duty 16 years into the 21st century.

It doesn’t take an academic study to know — to feel — that these concepts are obsolete when we like to advance team collaboration. In today’s fast changing environment, collaboration is the key, because it’s the only path to innovation, which is the only path to happy customers.

What really matters is this: People connecting and leaving each other valuable feedback to improve the way you work. That will drive performance.

Changing the way you manage performance is a fundamental component of business transformation.

Let’s look at what we need to stop doing (the old) and what we need to start doing (the new).

While some things (need to) change, others remain pivotal. The following six topics are fundamental for any performance management process and culture. Including six questions to challenge yourself how your transition to modern performance management.

1.Workforce alignment is fundamental

Aligning the employees to the right set of objectives remains the success factor. Showing employees the purpose of the company and what is expected of him/her is the most important factor in performance management.

Without workforce alignment, any performance management process – annually or instantly – has no frame of reference and is entirely useless.

If your mission and strategy is sound and your workforce is connected and engaged, then all they need is real time meaningful feedback, peer coaching and mentoring.

Pro-active alignment is more important than reactive measurement.

Ask yourself: How is goal alignment incorporated in your new performance management process?

2. Feedback is magic

Feedback is essential for people to connect and learn from each other. The better people can exchange feedback, the stronger their network and its outcomes in terms of collaboration and cooperation. This feedback needs to be constructive and authentic to become meaningful and instrumental in animating teams and corporate culture.

And it needs to be real-time! Why? Well if there is one thing our multitasking social media world is messing with, it’s our ability to remember. If I make mistakes helping out a client, then immediate feedback is needed. Not 11 months later in my performance review. You have to make hay when the sun shines! This has nothing to do with generations Y (millennials) or Z (iGeneration). It’s the world turning faster.

Giving feedback is a skill. Educating the workforce to give each other authentic feedback is the single most important aspect of performance management

Ask yourself: How have you integrated real time, continuous, open feedback in performance management?

3. Space for mistakes is crucial

Everybody knows that people learn from mistakes. That’s how children grow up and how we evolve as a species. But how many performance management processes allow employees to make mistakes? They are often constructed to do the opposite. Employees cover up mistakes, because their sole focus of the performance management meeting is to get a salary increase. And managers are breaking their minds on how they should apply the mandatory forced rankings. Both are not helping to create an environment for healthy mistakes.

Ask yourself: How do you allow people to make errors and learn?

4. From judging to mentoring

Too many performance conversations are one-way where the manager is ‘judging’ the employee. Stop managing. Start leading. Don’t tell employees what to do. Involve them, explain things to them and demonstrate how it’s done. Not annually, but constantly and empathically.

Coaching and mentoring programs are often separated from the performance management process. While rethinking the performance management process it’s worth weighing a tighter integration between them. Coaching and mentoring are the real-time components that drive the effectiveness and productivity of teams — a crucial component of performance.

Ask yourself: How are protégé, coach and mentor relationships incorporated in your new performance process?

5. Time to rethink performance vs compensation

This might be the biggest paradigm shift for organizations, their work councils and the trade unions. Let’s rethink the way that performance and compensation are connected. Yes, money can stimulate performance, but it remains an extrinsic motivation. It’s the intrinsic motivation that deserves more attention, because that is what really motivates us in a deeper and sustainable way.

And if it’s the intrinsic motivation we need, then we should ask ourselves to what extent can we decouple the compensation from the performance ‘cycle’, without losing a performance culture.

Why not decouple remuneration from tenure and yearly performance cycles and move towards compensation based on certain gigs, projects and/or roles that are performed by the employee? Trust people to do their job and only act if they don’t. And then coach them to better performance and keep on giving them other challenging gigs, preferably even connected to customer satisfaction ratings.

The biggest naysayers are usually work councils and trade unions, responsible for complex collective labor agreements that have the lion’s share of HR’s attention. The focus should be on creating an open, authentic and constructive feedback culture. Only such a culture will enable the company to progress and that will be the most significant contribution to employee happiness and engagement, which ultimately drives revenue. A disrupted bankrupt company pays no compensation at all.

Ask yourself: How is customer satisfaction connected to compensation?

6. Time to rethink the purpose of ratings

If you don’t pay based on performance ratings, do you then still need them? Well, ratings have a purpose of their own. Ratings can drive performance; but also the opposite.

There are studies that show big benefits of using ratings in a competitive way, utilizing the competitive nature of people and in that way driving performance. Other studies show the reverse; using ratings in the wrong way can also demotivate people.

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It ultimately comes down to thinking carefully about what you like to rate and why. And which way to create transparency in those ratings. If you measure ratings, you better do it right, otherwise it will backfire on your ultimate goal: increasing performance.

Ask yourself: How are performance ratings contributing to a performance culture?

Performance of contractors needs to be managed too.

Teams deliver results, not individuals. This aspect is often addressed with a team target that rarely motivates the individuals of a team to step up their game. What’s really needed is a collaboration platform where the entire team can monitor its own performance. Where they can instantly give feedback to each other to steer the team in the right direction.

The rise of the freelancer is adding a layer of complexity. This group of contractors is growing exponentially (globally), but are often excluded from performance management, because presenting contractors with a yearly performance form is like asking Kanye West to spend a year in a silent monastery.

But presenting a yearly form is not the goal here. Improving performance is the goal. If you want to manage the performance of the entire team, then flex workers are part of it and sharing instant feedback should go beyond employees on the payroll.

And there is more we can learn from freelancers. Their ‘simple’ compensation model is a blueprint for how we can deal with compensating performance (point 5). Freelancers have a job for which they get paid. They receive feedback and gain experience to improve their skills, which they use to take on other gigs, for which they get paid a different compensation.

Ask yourself: How is your new performance model supporting team output including contractors?

Where to go from here?

A new performance management ‘system’ can only be applied in a new paradigm. I do not believe that you can have a hierarchical management structure/culture and then move to team based feedback. This would be a step back from traditional performance rating as most of us have today.

There is no way around it: To be successful you have to animate the culture, management style, and attitude that propel performance management to the next level.