Most employees consider annual reviews as the worst time of the year. Performance management 2.0 is all about looking at performance from a different perspective. Changing the aura around performance management from negative to positive. In this blog you will learn 5 big ideas on how to implement next generation performance management.
A definition and some history
Conventional performance management (PM) was a set of tools and initiatives based on setting standards and scoring individuals. Performance management 1.0 was costly, impersonal, and stressful for both employees and managers. In the 1980s, “pay for performance” became so popular, that 40 years later we are still struggling to get rid of the paradigm. Only at the end of last decade businesses started to realise that things had to change. In September 2015, Accenture ditched the annual performance review and rating process. The same year, HBR published an article on how Deloitte was reinventing performance management. 3 years before that, Microsoft had thrown out the “stack ranking”. According to HBR, more than one-third of the US companies had moved on from PM 1.0. Performance Management had become a swear word.
In February 2020, the Society for Industrial and Organizational Psychology (SIOP) published a video on how to update performance management practices for success. Alan Colquitt PhD (*), presented the webinar video “Big Ideas in Performance Management 2.0” (see the video link at the end of this blog). The video provides actionable, evidence-based insights to create better outcomes for workers and organizations. Alan explains that industrial-era performance management practices are outdated and ineffective in the modern VUCA work environment. VUCA is short for volatility, uncertainty, complexity, and ambiguity. It’s a catchall for “Hey, it’s crazy out there!” In the video, Alan offers scientifically grounded recommendations for change, which he calls it the “5 big ideas for PM 2.0”.
5 big ideas for performance management 2.0
1. it’s about performance, not rewards
First, don’t use the PM system to evaluate, differentiate or distribute rewards. Use it to keep people aligned to the company objectives. Use it to answer the question: what do we focus on? Translate strategy into meaningful work and create purpose and meaning in addition to direction and alignment. At Big 5, that is exactly what we implemented. In the MyBig5 app, Directional Alignment is at the core of the software. A company owner sets Objectives and Key Results for the company. That is the north star. Then, each employee enters 5 weekly goals that align with this north star.
2. Goals are at the centre
Secondly, use goals. They science is clear: goals work. Goals direct, they energise people, they make employees persist, strategize, and think. Goals provide a link to what is important to employee and organisation. In our MyBig5 app, goals are at the core of everything. You can set the cadence (fancy word for rhythm) of how often you set employee goals, from weekly, over fortnightly, to monthly. We believe that weekly goals are the best cadence, which ties into Alan’s third big idea: focus on progress.
3. focus on progress
Thirdly, focus on progress towards goals, not achieving goals. In a way, performance management (PM) becomes “progress management”. Day to day, week to week, it’s more important for team leaders and managers to ensure progress. Not to provide feedback to team members. In the last few decades, managers and team leaders felt like they had to focus on correcting people when they made mistakes. Science has proven that it is better to focus on making progress towards goals. In MyBig5, measuring progress is front and centre of our app. Every weekly goal needs to have progress recorded.
4. PM 2.0 is a team sport
Performance management 1.0 was all about the individual. Performance Management 2.0 focuses on teams. How are teams performing? How can we make teams better? What strengths are we missing in our team? Are our team goals clear? In MyBig5, it is impossible to use the app without being part of a team. MyBig5 creates transparency, as the goals of all team members are visible to each other. Team objectives can be set by team leaders. Teams are the foundation of MyBig5.
5. Stop PM 1.0
Finally, the hardest big idea to implement for most companies: let go of old and bad habits. Give up (or strongly reduce) individual pay for performance. Let go of ratings and give up competitive rewards. This is where many businesses may dig in their heels, but – again – the science is clear: to motivate people sustainably, money doesn’t work. A salary increase only has a very short positive effect, as people get used to the new salary a few months after receiving it. So, pay people well: at market rate, or above market rate for your best performers. Grow their pay according to the cost of living index changes.
Daniel Pink’s “Drive” is crystal clear: autonomy, mastery and purpose are the three key ingredients to motivating people. Not money. Give people autonomy in their job. We implemented that in MyBig5: employees are choosing their goals for the week (obviously, in line with their role at the company). Purpose comes from setting company objectives and sharing them with everyone. Tick. Mastery is all about supporting people in becoming really, really good. That’s a no-brainer, because that’s a win-win for the company and the employee.
Book your demo of MyBig5 today.
You can watch Alan Colquitt’s video here:
(*) Alan Colquitt is a talent management, organizational change and human capital analytics expert. Alan has experience in several economic sectors. He is a frequent speaker and presenter at professional meetings and conferences. Alan’s knowledge spans a wide variety of talent management and human capital analytics topics. Alan is the author of the book, Next Generation Performance Management: The Triumph of Science Over Myth and Superstition. Colquitt was named a SIOP Fellow in January, 2020.