The Future Of Performance Management: Rethinking Traditional Approaches For a Changing Landscape

If there is one activity in organizations that employees and managers dread alike, it is the annual performance appraisal process. Intended to bring out the best in people, unfortunately more often that not, the appraisal process and the associated conversations often bring out the worst of human behaviour. As eminent management guru and an expert in Performance Management area Peter Cappelli famously remarked, “Performance appraisals wouldn’t be the least popular practice in business, as they’re widely believed to be, if something weren’t fundamentally wrong with them”. A relic of the pre-industrial revolution era, the performance management system as it exists in its current form, is way past its sell by date and needs a serious rethink.

Performance is Contextual

Is Performance Management a system or is it a process? Or a policy or a reward distribution mechanism? Or a tool to identify and groom leaders for the future or a method to improve performance of those who are languishing? Or maybe a lever to cascade organisation strategy & goals to all employees and drive alignment. The answer is, well, a combination of all of the above. Different companies, depending on their lifestage of evolution, strategic imperatives, and leadership beliefs focus differently on different aspects of this marvel, which is at the core of any organisation’s success, or survival. The irony is, in most organisations, HR practitioners, and Business leaders do not fully understand, or are unable to pay adequate attention to the phenomenon of “Performance” in Performance management system. Individual performance of an employee is not driven by a company’s process, system, policy or training programs. It is driven by the inherent motivation, skills, and very importantly the temperament of an employee which are unique to each individual.

“The Winner takes all”

Imagine, if we put a marathon runner in a sprint and a sprinter in a marathon, the outcome will be a loss in both even if the goalsheets for both the individuals had winning as a target. Similarly, the skills and temperament of a player playing test cricket is very different, which requires patience, technique, and immense focus, than someone who succeeds in a T20 format that thrives largely on aggression and risk taking – completely contra temperament to the Test format. To say that one who doesn’t succeed in a specific format is a non-performer would be grossly incorrect as the same player may perform very well when the context changes and aligns to his/her temperament and skills. Yes, there will be a very small fraction of players who can succeed in multiple formats, and unfortunately that is what most companies expect of all its employees, leading to a “winner takes all” outcome which is the biggest bane of present-day performance management system.

Flattening the (Bell) Curve – what does future of Performance Management look like?

In a 2023 study by Gartner, 52% of CHROs responded that they believed their Performance Management program is not rewarding the desired behaviour in their employees, and less than 1/3rd of HR leaders believed that their performance management deliver what employees need to perform.

And while many large global organizations have self-declared the abolishment of forced ranking-based appraisal system, what and how has it been replaced with and the efficacy of it is still in the shadows.

The future of performance management will need to kill some of its most glaring existing shortcomings.

1. Most performance management systems function like rear-view mirrors – telling something about the past but nothing of the future. They do not drive the right behaviours on teamwork & collaboration, innovation, empathy, customer focus –the core pillars of success in a modern organization. Future oriented PMS systems will need to focus a lot more on what can be accomplished through continuous developmental feedback and building a sense of purpose through meaningful conversations.

2. Business leaders and HR practitioners see performance management as a singular tool to distribute rewards at the end of the year. Employees see it as a rite of passage to get a label or a number at the end. Companies need to repivot their performance management systems from an annual dreaded rigid exercise to something that is more continuous, evolving and personalised. Quarterly check-ins with objective feedback on what’s working well and what needs focus can be a good starting point. Understanding individual aspirations, skills and traits of employees can help managers empathise with their team members and contextualise performance.

3. Spending more time on designing the goals & Key Result Areas (KRAs) mindfully, with proper linkage to the job role and clearly defining metrics of measurement can save a lot of time & effort in dealing with the slip between the cup and the lip situations during year end reviews. By monitoring objective data and metrics on these well defined KRAs, managers can help their team members with timely data based feedback and course correction.

4. Artificial Intelligence (AI) based nudges can reduce the drudgery of managerial workload on regularly following up on input metrics, and this time can be otherwise used in coaching the team members to deliver better.

5. Existing PMS processes lay inordinate focus on individual brilliance & success, whereas it’s the larger team or the entire organisation needs to collectively deliver successfully on their goals. A cricket team where individual players score centuries but lose the championship is less valuable than a team where there are no 1 or 2 outstanding players but they still win the cup by functioning cohesively as a unit. PMS systems in the future need to lay emphasis on collective achievement of goals and drive shared success of the organisation.

6. Alignment of organisation’s Values to that of its performance management system is going to be increasingly important, and companies will need to seriously think of measuring and fixing the alignment.

In another 10 years or so, more than two-thirds of the workforce will be either Millenials or Gen Z. Not swayed by the carrot or stick approach, that worked for baby-boomers and Gen-Xers (to some extent), managers will need a fundamental and radical shift in managing performance of this cohort. The time to build a bridge to that fundamentally different performance management system is now.