Does HR Hold the Key to Reshaping Performance Management?

Deloitte created quite a buzz among employers when the global consulting group unveiled its new performance management system in the April 2015 issue of the Harvard Business Review. The new system does away with cumbersome numerical rating systems, 360-degree feedback reviews and “cascading objectives” that attempt to tie employee goals to overall organizational strategies.

Deloitte’s new system has been rolled out as pilot program to 10 percent of it employees and revolves around four questions that supervisors and team leaders ask about individual employees. These questions, and the stripped-down process itself, have generated debate among business and human resource leaders about the efficacy and thoroughness of using only a handful of queries to review and rate job performance.

The interest in Deloitte’s initiative, however, points to a larger trend as more and more employers look for ways to reinvent performance evaluations and reshape the process for the 21st century.

“We are seeing a very big shift in the way companies view performance management systems,” said Josh Bersin, principal and founder of Bersin by Deloitte. “Over the past two to three years, things have really begun to change as more and more businesses are throwing out their old performance management processes and looking for ways to evaluate job performances faster, more efficiently and more accurately.”

According to Bersin, traditional job evaluation processes are based on 19th century models that were rooted in the Industrial Revolution and the rapid expansion of U.S. corporations. The systems were adopted by most businesses and became entrenched in U.S. corporate culture during the 20th century with some adaptations—most notably stack-ranking systems developed by General Electric Corp. in the 1980s. The traditional models were perpetuated by performance management software developed in the 1990s and early 2000s, still used by most U.S. employers.

“The performance management software packages that most businesses use today were developed 10 to 15 years ago,” Bersin said. “And how we work and communicate with each other has changed drastically since then, so the software just isn’t reflective of the reality in most workplaces today.”

Opening a Floodgate of Change

For years, research had indicated that corporate performance management systems were ripe for change. For example, a report released by the Society for Human Resource Management in 2000 stated that: “Stronger executive support for performance management and increased employee participation in development activities is needed in order for performance management systems to truly become a tool to help attract and retain talent.”

While many business leaders have acknowledged that change was needed, nothing substantive happened until 2012, when Adobe Systems Inc. jettisoned its traditional performance management system for a drastically streamlined, simplified process. Microsoft Inc. followed Adobe’s lead several months later when officials at the software giant announced they were getting rid of the company’s traditional stack-ranking system for a more simplified process.

The changes announced by these high-profile businesses created something of an “aha” moment for businesses around the globe, according to sources familiar with the issue.

“When business leaders heard about and saw what Adobe and several other businesses were doing, then they said: ‘If they can do it, then why can’t we?’ ” said Marcus Buckingham, chairman of the Marcus Buckingham Co. and well-known business trends writer.

Most businesses then became anxious to abandon old processes and create something new—and a floodgate of change opened. Buckingham claims that within five years, the way businesses evaluate and manage the performance of their employees will be radically different.

Team Leader-Focused

According to Buckingham, performance management systems will become more team leader-focused. He said that instead of gathering performance data through periodic check-ins once a year or once a quarter, check-ins will be more frequent and done in real time. The performance data gathered will be more constant and more relative to what business teams are doing at the moment, instead of reviewing what they did six months to a year later.

“This kind of performance feedback builds a team leader’s data so that they get a much better picture of their team’s performance,” said Buckingham, who was an architect of Deloitte’s new performance management system.

He added that leaders must answer three basic questions about their teams:

• What are the traits and capabilities of the team members?
• What are they doing?
• How are they doing?

To get the best and most accurate evaluations of performance, team leaders must have the tools that provide the answers to these questions, Buckingham asserted.

“This is why performance management systems must and will become more team leader-focused,” he said. “And really, HR has the power right now to influence and improve this process. This is no time to fumble the ball, business leaders are looking for change, and HR must deliver.”

Simplicity Is the Key

When Deloitte officials began examining their performance management processes, they found that cumulatively, the organization spent nearly 2 million work hours on performance evaluations. Much of the work was spent on developing unrealistic goals, filling out forms and evaluating job rankings. In addition, the data gathered on job performance had little or no practical application for team leaders and was applied toward overall business goals and strategies.

“Think of the productivity lost or misdirected within an organization when you talk about 2 million hours spent on a process that many people don’t trust completely,” Buckingham said. “The goal must be to direct the effort into a process that has a direct impact on improving an organization's performance."

A Deloitte survey of nearly 3,000 executives from companies around the globe found that nearly 58 percent of the respondents reported they did not believe the company’s performance management processes drove either employee engagement or high performance. Dozens of other research projects on performance management conducted over the past 10 years have reached similar conclusions.

“Research shows there’s just no faith in the current processes,” said Buckingham. “We’ve found that CEOs want change and are looking to HR to make that change. Ironically, the best thing HR can do now is ignore the CEO and concentrate on team leaders. Also the system must be simple—the simpler the better.”

The four questions fashioned for the new Deloitte performance management system are a good start, according to Buckingham and Bersin.

“I won’t claim that the Deloitte system is now perfect, and it is certain to change. The thing is that we understand that and are willing to change and adapt,” Bersin said.

Buckingham advocates a much more radical approach to achieving simplicity by doing away with all numeric evaluations and 360-degree feedback efforts.

“The data collected through these processes is inherently flawed,” he said. “How can HR expect to earn and retain any credibility if it advocates using flawed data and outdated processes?”

Bersin doesn’t completely agree with Buckingham about scrapping 360-degree feedback and says some level of feedback from every person on a work team is needed. However, the need for simplicity is paramount, he added. CEOs and other senior-level managers want their jobs simplified and will not respond well to any process that adds to their workload and is overly complicated, he claimed.

“The HR profession has to reinvent itself through simplicity,” Bersin said. “Simplifying and making performance management systems more responsive and reflective of how we work today is a really big trend, and I believe it’s going to drive the way management operates in the future.”

Bill Leonard is a senior writer at SHRM.