Is This the Future of Performance Management?

What do the words “performance management” mean to you? If you’ve only ever been exposed to traditional performance management, it’s likely the term conjures up nothing but negative emotions, stemming from the time it takes and the awkward conversations it entails, to the notion of ranking people on a quantitative scale. You possibly also bristle at the retrospective nature of traditional performance appraisals, as if looking to the past can provide definitive clues about future performance. It’s fair to say that performance appraisal time has previously been enjoyed by very few.

How performance management has changed

Fortunately, things have changed; technology is transforming what performance management can and should be doing – and yes, it involves forecasting future performance.

First, let’s clarify something. Is past behaviour or performance the best predictor of future behaviour or performance? In other words, if we look at a sales executive’s high level of people contact and networking in their last role, does this predict similar behaviours in the role you are considering them for, hopefully translating into high revenue generation?

Research[1] suggests past behaviour may be a fairly good predictor of future behaviour in some cases, but before jumping to conclusions about just how predictive, you should factor in similarity of situations, the time period, how much the person may have changed, and how habitual the behaviour might be.

This worked fine when job tasks remained reasonably static and the pace of change was slower; it’s far less effective when working life increasingly consists of project-based work in different roles and departments (often with different employers), and the half-life of skills is getting shorter. In their book, “The 100-Year Life: Living in an Age of Longevity” (Bloomsbury, 2016), Lynda Gratton and Andrew Scott indicate the half-life of a learned skill is just 5 years, and the average tenure in a job is 4.5 years.When it comes to skills, what employees could do yesterday matters less than what they can potentially do tomorrow.

Hypothetical future performance

Fortunately, advances in artificial intelligence are providing more accurate predictions for future performance.

For example, at IBM, performance review time is not just about reviewing employees on their past accomplishments (and failures) but also on how they might perform in the future. Using AI in the form of Watson Analytics, the employee’s experiences and projects are examined to determine the potential skills and qualities each person might have to serve IBM in the future.

“Traditional models said if you were a strong performer in your current job that was the singular way you got a promotion,” Nickle LaMoreaux, Vice President, Compensation and Benefits at IBM, told Bloomberg. “Well, we certainly still care about performance.”[2]

However, that now includes hypothetical future performance, too. IBM claims Watson has a 96% accuracy rate, as compared to IBM’s internal analysis with HR experts. The company spot-checks employee performance against its predictions.

Watson also scours IBM’s internal training system to see if an employee has gained new skills. Managers then take Watson’s assessment rating into account as they make bonus, pay and promotion decisions.

A focus on future skills

This hits on another trend in performance management. A survey of more than 2,000 organisations by Willis Towers Watson found that over 40% of respondents are planning on or considering changing the focus of performance management to include future potential and possession of skills.

A McKinsey Global Institute report[3] found that by 2030, as many as 375 million workers – or roughly 14% of the global workforce – may need to switch occupational categories as digitisation, automation, and advances in artificial intelligence disrupt the world of work. The kinds of skills organisations require will shift, with profound implications for the career paths individuals will need to pursue.

IBM, like many organisations, can’t find enough candidates with the right skills to fill vacancies, especially for technology roles. IBM shows its current employees what positions it needs filled and what skills are needed to do those jobs, so they know what type of training to undertake to get high performance ratings. IBM claims its employees take an average of almost 60 hours of education each year.

Continuous performance management & performance data

One final trend worth noting is the move away from accountability being the dominant theme in performance management, in the form of ratings, rankings and annual appraisals, to new structures that factor in productivity with workplace development and engagement. Harvard Business Review[4] reports that this has resulted in human-based approaches to talent management, such as continuous performance management (CPM).

Employees crave feedback and communication, not only to get their day-to-day jobs done, but also for career direction and personal improvement. Regular “check-ins” between manager and employee – at least quarterly but sometimes more often – can offer this reinforcement and are a crucial component of CPM and similar approaches. CPM is being used to balance the practical requirements of people management, while also giving employees and managers tools to ensure their own success.

Central to this approach is data. Key decisions about who to promote, whether they deserve a pay rise and by how much, and who to move into a new role, are getting easier thanks to performance data. Ninety-one percent of organisations that have adopted CPM say they now have better data for people decisions and are making major progress towards removing bias[5].

“New rules” of performance management

Deloitte[6] contrasted established performance management processes, characterised by performance appraisals and goal-setting conducted once per year, employees being evaluated by their manager, and ranking them on a quantitative scale, with “new rules” of performance management, summarised here:

• Check-ins are conducted quarterly or more frequently; regular goal-setting occurs in an open, collaborative process
• Feedback is collected continuously and easily reviewed at end of year – often through performance management platforms or apps
• Goals are made public and transparent with increased focus on team achievement
• Managers are also evaluated by their employees
• Employees are rated on a qualitative scale; rankings are considered, not forced
• Compensation levels are more transparent, more frequently discussed, and focused more on pay for performance than on equity
• Managers are focused on coaching and developing people
• Many contribute to an individual’s performance evaluation; evaluation draws heavily on data
• The process is agile, faster, continuous, and lighter

As these new rules become more entrenched, the need for software tools to support them will become more acute.

ELMO Performance Management reinforces this fresh focus on continuous feedback and the creation of learning opportunities. The solution can be used to offer regular “check-ins” between managers and employees. It also offers a range of pre-built goals and development objectives, which can be utilised to create a library of content for use across the business. In addition, a behavioural competency library outlines the key competencies and behaviours required. Managers are able to obtain a holistic view of performance by extending feedback across teams using 360 reviews for formal assessment or capturing recommendations from colleagues. In addition, learning opportunities can be coordinated via ELMO Learning Management Software.

ELMO Software  is a cloud-based solution that helps thousands of organisations across Australia, New Zealand and the United Kingdom to effectively manage their people, process and pay. ELMO solutions span the entire employee lifecycle from ‘hire to retire’. They can be used together or stand-alone, and are configurable according to an organisation’s unique processes and workflows. Automate and streamline your operations to reduce costs, increase efficiency and bolster productivity. For further information, contact us.

[1] https://www.psychologytoday.com/au/blog/witness/201301/the-best-predictor-future-behavior-is-past-behavior

[2] https://www.hcamag.com/hr-news/is-this-the-future-of-performance-management-252164.aspx

[3] “Jobs Lost, Jobs Gained: Workforce Transitions in a Time of Automation”, McKinsey Global Institute Report, 2017

[4] https://hbr.org/2016/10/the-performance-management-revolution

[5] David Rock, Beth Jones, and Camille Inge, “Reengineering performance management: How companies are evolving PM beyond ratings”, NeuroLeadership Institute

[6] 2017 Global Human Capital Trends, Deloitte