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The Performance Management Puzzle

Human Capital Trends 2013

Many companies continue to rely on traditional performance management processes because they provide a consistent way to evaluate employees and apportion rewards. Year after year, managers follow a well-worn routine: Fill out goal forms, track progress, fill out more forms, conduct a formal annual assessment, and then fill out more forms. But when it comes to motivating and engaging people, these conventional processes seem increasingly obsolete.

According to a recent World at Work study1, 58 percent of HR leaders gave their performance management process a “C” grade or worse. Few other processes in an organization are allowed to perform so poorly, and performance management should not be allowed to any longer.    

The challenge is that while the way work gets done has changed dramatically over the last few decades, performance management processes at many organizations have remained essentially the same. In this new world of work, team relationships often influence an individual’s performance more than a supervisor. For team members, on-the-spot improvements based on immediate feedback from their peers can have a big impact on performance. Plus, as individual and organizational goals are increasingly tied to project cycles that last a few months or weeks, the fiscal year can become less relevant. Add in the matrix organization—with individuals migrating from one cross-functional team to another, each with a different leader— and performance management can turn into chaos.  

What has not changed is what leaders and employees want from performance management: A broad view of the organization’s human resources and a fair and valid assessment process, respectively. To achieve these somewhat paradoxical goals in today’s fast-paced workforce, some leading organizations are ushering in a new era of workplace democracy. To offset top-down annual performance evaluations—which can often be based on aged feedback or vulnerable to the “recency effect,” the behavioral principle that the most recent is the most likely to be recalled—some organizations are looking to social tools to access in-the-moment feedback from peers, customers, and other stakeholders to promptly improve performance. These pioneers could point the way for other organizations as Gen Y’s digital natives expand to dominate the workforce over the next ten years.

While no single answer has emerged that spans the conflicting needs of the organization and its individuals, the search for innovation in performance management is accelerating.  

What’s driving this trend?

  • Aggressive growth targets in global and converging markets. Rapid expansion into new markets demands leadership that can handle the unknown. With growth as a dominant business driver — and the increasing importance of differentiation — companies require leaders who can make change and innovation happen across converging industries and diverse cultures.
  • Severe leadership pipeline shortages. High-potential leaders are scarce — especially executive succession candidates. Many companies are finding it increasingly expensive and risky to source senior leaders externally, particularly for top jobs in global growth markets and critical product/service segments.
  • Increased scrutiny from boards and investors. Boards, investors and analysts are taking a closer look at leadership risks across the organization, not just at the CEO level. They are asking tough questions about the numbers and types of leaders necessary to meet growth commitments and navigate uncertainty. Also, they are demanding multiple options for critical positions — and aren’t willing to wait 10 years for an organization to close the leadership gap.
  • Rising expectations and declining loyalty of top talent. Companies want more from their leaders — and leaders want more from their companies. When next-generation leaders believe their companies are underinvesting in their development, they will look elsewhere for opportunities to grow — often with competitors. They are expected to do more with less yet are not being sufficiently challenged with the diverse set of experiences that can help them expand their personal brand and value proposition in the enterprise. As a result, they grow impatient, especially as opportunities start to open up elsewhere.
  • Demand for leadership ROI. Although the C-suite recognizes the importance of developing the next generation of leaders, it wants to see a tangible return on its development investments. Are the right investments being made? What are the returns? How do you measure current investments when they are building future capabilities? Beefing up the leadership pipeline can drive a company’s growth agenda, reduce succession risk and deliver tangible business results.

Read more about this trend.

Meet our authors

Tom Hodson, Principal, Deloitte Consulting LLP
Daniel Roddy, Specialist Leader, Deloitte Consulting LLP

 


1World at Work / Sibson Consulting, “2010 Study of the State of Performance Management.” http://www.worldatwork.org/waw/adimLink?id=44473.

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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