As the world changes at an increasingly rapid rate, organizations need to be more agile and change friendly. In the minds of many critics of performance management systems, this is one more reason why organizations should abandon performance appraisals. They are said to be one of the many parts of an organization's HR system that makes it difficult for organizations to change in significant and important ways.
The argument is straight forward. Most performance management systems demand commitments to specific performance goals and skill growth over a specific period of time, often a year. As a result, if they motivate behavior at all, they cause individuals to focus on achieving preset goals and acquiring skills that are out of date. All too often, the argument goes, even though the skills and goals quickly become outdated, employees resist changing them, and they continue to pursue preset goals.
There are those that say no performance appraisal can effectively motivate any kind of performance or skill acquisition. As a result, they are simply a waste of time rather than a cause of resistance to change or cause of failed change efforts. However, the research evidence does not support this view. It is clear that performance management systems that result in clear achievable goals and a clear connection between performance and rewards do, in fact, significantly influence behavior. But, there is the danger that they motivate yesterday's right behavior rather than tomorrow's right behavior.
Designed correctly, there is reason to believe that performance appraisal systems can be a major force in making change efforts successful. Indeed, the argument can be made that it is more important in today' s rapidly changing business environment that organizations have effective performance management systems. When organizations operated in relatively stable environments much of what needed to be done to make them successful was well-known and clear and thus, even without a performance management system, individuals often knew what to do, how to do it, and in many cases were motivated to do it. In today's world this is simply no longer true. Rapid successful change requires frequent alteration of what people do, and often in the skills that they have. One way to help ensure that this change occurs is to have a performance management system that is designed to support organizational change.
In order to be change friendly, there are a number of key features that a performance management system should have. Let's look at three of them, and identify the features of an effective performance management system in a rapidly changing organization.
#1) It is critical that a change oriented performance management system focus on the skills that individuals need in order to be successful in the future. The system should not focus on traditional job descriptions and just the skills that are needed for someone to execute their current job. The skill acquisition part of the system needs to be sure that the job holders have the skills they need to perform their current job. But, it also needs to be constantly pushing the frontier with respect to skills that are critical to the future. It is also critical that the skill acquisition process be tied to the reward system of the organization. Bonuses and/or pay increases should definitely be contingent upon the successful acquisition of new skills. This means paying the person for what they can do instead of the value of their job.
There is no magic timing for how often the skill portfolio of an individual needs to be assessed, but it is certainly important for the performance management system to review it more often than the traditional rate of once-a-year. At least every three months there should be a review of the skills that individuals should be learning, and an assessment of how their learning has gone over the last three months.
#2) Clear performance goals are a powerful motivator and should be the major focus of performance management systems. They are a motivator even when they are not tied to financial rewards, but they are even more powerful when they lead to bonuses, salary increases, stock, promotions, etc.
For goals to be meaningful and motivate the right behavior, they often need to be both short-term and long-term. Short term goals can be 30-day goals, for example, while long-term may be 2 or more years. Short-term goals are particularly important in a rapidly changing environment because what individuals need to do in order to make a business succeed may in fact change every month or so. Long term goals are also important because they can ensure that an individual doesn't become overly focused on short-term results and fail to behave in ways that will build a longer term successful business. For example, building good relationships with customers and making investments that will not pay off immediately.
#3) It's important in some instances to reward failure, or at least to not punish it. All too often individuals fail to take risks and fail to change because they are concerned about punishments. This is particularly likely if they are on a financial incentive performance management system. The best way to get individuals to take risks and change is to reward them for it, and in some cases to reward them even if they are not successful. Organizations need to build into their performance management and reward systems the concept of good failures.
Until recently, the type of performance management system that supports change was often impossible to implement. It requires a considerable amount of flexibility with respect to when and how the appraisal is done, and a considerable amount of information being shared in work areas and up and down the hierarchy. Only if this is done can the right goals be set and changed, the right skills incented, and good failures identified.
But, the world has changed with modern information technology and social networking. It is quite possible to develop performance management systems that support change and organizational agility. Rewards can be distributed on a flexible schedule. Data on performance and skill acquisition can be collected from multiple sources. Goals can be changed and adapted as the business environment changes, and needed skills can be identified and incented on short notice.
In addition to having the right structure and technology, a change friendly performance management system requires managers who are skilled in managing performance. This is a must-exist condition that my research shows is often lacking. Organizations seem willing to spend money on information technology support for performance management systems and even for performance based rewards, but they still don't train and develop managers who can operate systems in a way that makes them motivating and supportive of change. This is simply unacceptable in a world in which organizational agility is a key differentiator with respect to organizational performance. More than ever, organizations need performance management systems and managers that effectively support change.
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Crossposted from forbes.com