Organisations are replacing traditional performance management with innovative performance solutions.

The secret is out. Many organisations used to think of performance management as a backward-looking assessment programme owned by HR. No longer. Performance management is being reinvented for a new, forward-looking purpose: to serve as an efficient, focused business process that improves employee engagement and drives business results.

Redesigned performance management processes may or may not include year-end ratings, but across the board, they tend to focus less on evaluation and more on agile goal setting, regular feedback, coaching, and development. They shift the focus away from forced-distribution rankings and much more toward helping managers coach people to succeed. By changing this one HR “ingredient,” it is possible to affect many others.

A well-functioning performance management process should facilitate good management by good managers who are trained as coaches and mentors rather than as evaluators and graders. Today’s job market is highly dynamic and transparent. High-potential young employees want regular feedback and career progression advice, not just “once and done” reviews. And companies are finding significant gaps in leadership and capabilities that need to be addressed.

As companies re-engineer performance management, many changes have occurred:

• The agile movement has permeated business, changing how companies set goals and manage people. Intel, for instance, uses a transparent, agile goal management process, that focuses on giving people stretch goals and helping them to establish regular, achievable results that others can support. This approach, which is currently sweeping across technology companies, illustrates how dynamic the process should be.

• A number of companies, including Adobe, Juniper, and Microsoft, have revamped the process to reduce the impact of ratings. This reflects a recognition that ratings-based performance management negatively impacts culture and engagement. Research has shown that giving numeric ratings undermines engagement and self-confidence.

• A new focus on managing to strengths, not weaknesses, is emerging. Research shows that a person’s best performance comes when they are given meaningful work that leverages their personal strengths and aspirations. Rather than simply evaluate people against goals, new performance models help create jobs or move people into roles where they can succeed.

• Technology now makes transparent goal setting and agile performance management easier than ever. A host of new tools permits employees to share their goals, provide feedback and recognition to others online, and even “gamify” the performance management process to make it more productive and useful.

• The link between performance management and compensation is weakening. Traditionally, organisations directly linked raises to performance ratings, making these ratings even more threatening and disruptive to employees. Today, companies are starting to base compensation decisions on the competitive value of an employee and real-world market conditions.

With the advent of more tools for real time, pulse-based monitoring of feedback and engagement, the performance management process is becoming more integrated with strategies for employee engagement.

Feedback and team management are integral to performance management redesign. New models focus on team-centric goal-setting and tools to help teams improve collaboration and performance. Bottom-up feedback from employees, often gathered through the engagement process, helps managers see their own weaknesses and improve their own performance. This, in turn, makes the performance management process more developmental for both leaders and their teams.

Finally, data is becoming an even more important part of the performance management process. For example, today, many companies model their performance process around the normal distribution or bell curve. Yet this distribution does not accurately model business performance. When companies hire top people and coach them to succeed, the performance curve often shifts to reflect many high performers and a small number of “hyper-performers.” By looking more carefully at the real distribution of performance, companies can accurately reward those who contribute the most.

Where companies can start:

• Simplify: Get rid of unnecessary, time consuming, paper-filled steps.

• Align philosophy with strategy: Explicitly define the company’s performance management philosophy and be sure that this philosophy is aligned with the organisation’s strategy and culture.

• Separate performance from compensation: Take a step back and think about the entire structure before moving ahead with process reform. Disconnect performance management conversations from compensation conversations.

• Build a new performance management culture: Encourage ongoing feedback, enable effective coaching through training, and use change management and communications teams to shift the performance management culture from an emphasis on top-down evaluation to continuous development.

• Empower local managers: Give managers the authority to recognise and reward employee performance throughout the year. Help managers learn how to coach and develop their teams.

• Ditch the curve: Tying employees to a normalised curve can inhibit performance. Relax the curve and let local management decide where to spend incremental dollars.

BOTTOM LINE

Done poorly, performance management can waste a lot of time and have a negative effect on engagement and retention. Done well, it can be one of the most inspiring and developmental events in an employee’s career, as well as drive performance improvements and organisation-wide results.

Look hard at your performance process and push toward simplification and strengths based assessment and coaching. Train managers on how to give feedback. Goals should be agile and updated regularly, and software should be simple and easy to use. The days of traditional appraisals and forced ranking are coming to an end; performance management is now a tool for greater employee engagement.

For more information about Human Capital Services at Deloitte, contact Jessica Mello, Director of Consulting at Deloitte, on 295-1500 or at jessica.mello@deloitte.bm

Deloitte’s 2015 Global Human Capital Trends report is one of the largest longitudinal studies of talent, leadership, and HR challenges and readiness around the world. The research involved surveys and interviews with more than 3,300 business and HR leaders from 106 countries. All the data from this research can be viewed by geography, company size, and industry using an interactive tool, the Human Capital Trends Dashboard, available at www.deloitte.com/hcdashboard.