Having worked in the HR industry for many years, I find that there are certain human capital issues that seem cyclical. Performance management is one of them. While recently the topic has been somewhat quiet, as we emerge from the pandemic, we’re now starting to hear from companies that are reexamining their PM practices and placing more of a focus on goals or outcomes.
This is understandable. With a slowing economy and productivity at historic lows, companies are more focused on the output of the workforce.
An effective performance management process is critically important to a healthy culture. Done right, it reinforces culture and can make an organization incredibly efficient, transparent, and successful. But done wrong, it can be the Achilles’ heel of a company, with the potential to seriously weaken an otherwise strong business (Microsoft’s forced-ranking system which I outlined early in the book is a great example).
There’s not enough space to explore the endless arguments of annual performance reviews vs. ongoing managerial discussions, or ratings vs. no ratings, or even the various types of rating systems and performance methods used in practice today. i4cp members will find much of that in our Performance Management Knowledge Center.
What is important in renovating culture is that the mere act of changing the performance management process takes on new meaning—it’s a signal to the workforce that we aren’t doing things the way we used to, and that we are going to measure the performance and compensation of our workforce differently in alignment with our new direction. Our research found that 55% of organizations that successfully renovated their culture reported making changes to their performance management practices as part of the overall change initiative.
Top companies resist cyclical human capital issues. But when deploying and maintaining a renovated culture, they ensure that measuring performance aligns with the behaviors they want emulated throughout the organization.