Continuous Performance Management: Innovation Reigns
One of the most fundamental and difficult parts of management (and HR) is how we do performance management. As I’ve written about for years, this is a highly strategic process in companies and it has gone through a huge transformation. What used to be an annual year-end appraisal has now become a whole plethora of new practices falling into a new category we call “continuous.”
Before I try to explain what’s going on, let me start with a simple premise.
Performance Management is Management.
In other words, the process of managing performance is what we as managers do. It’s not something dreamed up by HR departments (at least it shouldn’t be), and it certainly isn’t something invented by software vendors. It has to reflect the way you want to run your company, and that’s why its so complex.
The Big Shift
Over the last two decades, we’ve seen a steady shift away from what I called the “competitive evaluation” model (ie. you rate people, rank them, and force the distribution to remove those at the bottom) to what I call the “coaching and development” model (we focus on trying to help everyone perform better, embracing a growth mindset and one of abundance). Ten years about 75% of companies were in the former model, today 75% are in the latter.
The reason for this shift is important to understand. The old model (rank and yank, ratings, forced distribution) was based on an industrial model of work – one where “management” added value and “labor” was more or less replaceable. In that type of business you can look at every employee as a little production machine, and you can simply get rid of the ones that don’t work well.
Today more than 85% of stock market capitalization is intellectual property, brand, services, and software so every person matters. In fact I’d suggest that we may have the whole thing reversed: the employees (line people) are more important than the managers in most companies, so we need to invert the whole thing and understand the “managers serve the employees” and not the other way around.
This paradigm shift means that if we want to set goals, measure progress, and improve performance in our teams, we have to create goals in a more agile way, give people lots of feedback, and coach people to succeed. And we have to respect that feedback and coaching comes from many sources: a line manager, a project manager, a peer, or a team mate.
Consider how organizations are changing (this is the focus of the book I”ll be releasing next year). In high performing companies people work in cross functional teams. They may have a project leaders and also a career sponsor or coach. (In Deloitte we call it a Career Advisor, at WL Gore it’s called a Sponsor role.) Leaders support these teams, and many leaders are functional leaders that work across many teams. (A VP of Manufacturing, for example.) The whole idea of top-down goal setting, top-down compensation planning, and top-down succession is somewhat backwards.
What if we want to reward or promote the company’s best cyber security engineer? He or she may need to make twice as much money as their manager. This type of new management model has to be considered in our new performance management process.
We’re getting there, but it’s happening in small steps. Right now HR vendors and departments have invented a whole new set of buzzwords (check-ins, checkpoints, feedback meetings, OKRs, goal reviews, calibration sessions, development plans, social recognition, etc.) all in an attempt to define and build process around this new philosophy. And almost every company I talk with is experimenting (IBM, Deloitte, Cisco, NY Life, Adobe, WalMart, and many more.) This is why the market is under so much flux.
Look at All The Possible Practices
In this new world, there are a lot of practices to consider.
I just finished reading John Doerr’s new book “Measure What Matters” and found it to be a fascinating story of Intel, Google, Intuit, and many of the iconic fast-growing silicon valley companies, and how they managed their growth. His learning is that OKRs (a simple goal setting process where you create a measurable objective and a set of key results that contribute to that objective) were fundamental to their success.
I’ve also recently read The Progress Principle, The Growth Mindset, The Purpose Economy, Good Jobs, Hit Refresh, and other books that explain how purpose, progress, and continuous growth are the engines that fuel our personal productivity. These books convincingly argue that clarity, purpose, and a sense of growth are what helps people perform, as long as they know what to do. So all these ideas belong in the performance process too.
If you read some of my earlier articles on recognition, you see how important psychological drivers like saying thank you, giving public recognition, and celebrating success are for people. Research here actually shows that hormones are released when someone says “thank you,” which in turn drives performance.
Many of the vendors I talk with are now heavily focused on AI, and the use of software to assess your style of work, coach you against that style, and give you AI-driven feedback based on your language, behavior, and interactions with others. This type of performance management, giving people AI-driven coaching, is going to grow like wild in the next few years. And we have yet to see the impact of Organizational Network Analysis on all this performance data we capture.
So this is an innovative space, with lots of things to do.
How The Market Will Shake Out
Earlier in the last decade, this same type of innovation occurred, and at one point SuccessFactors started to walk away with the market because of their relentless focus on Business Execution as a theme. During that economic cycle (the one prior to this one), companies simply wanted to execute better, so they bought the cool-aid and embraced cascading goals, rigorous goal and performance tools, and implemented this complex software. SAP then acquired SuccessFactors for $3.4 billion, Oracle acquired Taleo, and the market consolidated quickly.
This cycle, following the 2008 recession, things are very different. There are dozens of incredibly innovative and successful companies (BetterWorks, HighGround, Impraise, Lattice, 7 Geese, Glint, Globoforce, 15 Five, Reflektiv, Standout (ADP), SuccessFactors, Zugata, and many more – listed in alpha order) and each are innovating in new and different ways. The market is enormous in size (virtually every organization wants something in this category) so almost all these companies are growing. Will there be a similar consolidation and shakeout? I think not.
This time, I think the market is going to go in a different way. I believe many of these companies will grow very quickly, and over time we will see a family of different management tools, each focused on types of businesses, industries, and size and location of companies, all attached to the company’s HCM platform. Of course SuccessFactors, Oracle, CornerstoneOnDemand, and Workday will also play, but my guess is that they have too many other things to do and they will more likely partner or acquire some of these companies over time. ADP already acquired Standout, so they have a play for their customers now.
This time there are some other things that are different too: we have a huge increase in what I call “systems of productivity” at work. Software engineers use Jira, Trello, and Github. Salespeople use Salesforce. Operations people use Asana or Wrike. White collar workers use Outlook365, Microsoft Teams, Slack, G-Suite, and Workplace by Facebook. And people in healthcare, manufacturing, and other domains use other tools.
These “systems of productivity” are the real continuous performance management systems, because they are the ones that measure what we do every day. Every company that uses Salesforce, for example, can tell you each day how many leads were generated, how many sales were closed, and how many new accounts renewed. No HR software will ever be able to do this, so ultimately this new breed of HR tool has to integrate, cooperate, and share data with these systems. SuccessFactors never had to do that in the early 2000s.
Finally, this new market cycle has to embrace the ideas of continuous development, learning, and career growth too. Everyone has work goals, but they also have career goals, skills development goals, and developmental assignments to go after. This new element of performance management was always missing in the last generation, and we now have incredible systems like Degreed, EdCast, Fuel50, and others to help. I believe the performance tools and these learning and development tools will be bolted together (or merged).
How This Comes Together
Ultimately the whole thing looks like the picture below. We have features that manage goals and day to day work, we have features that manage performance improvement and coaching, we have features that manage coaching and development, and we have features that manage career growth and ultimately pay.
I’ll be diving into this in more detail in the Fall at the HR Technology Conference and Unleash conferences, but let me say for now that this is a very innovative space and still going through a lot of change.
My Role, and What Should Buyers Do
I’ve decided over the last few months that I’m going to take a greater role in this whole market. I firmly believe we are in the early stages of building a “new operating system for business” in these tools, and I want to help each and every vendor accelerate their innovation in the right direction. I am going to take some advisory roles with these vendors, I am spending time advising them, and I will continue to study the market.
As a buyer, I think you have to understand a few simple things.
- First, your own performance management process should be based on your management culture and business cycle. This is why at Deloitte we spent so much time with companies in workshops developing a performance philosophy before we helped people implement software. Just as Satya Nadella changed the management philosophy at Microsoft over the last few years, you will need your CEO and CFO involved in driving how you want to measure and manage performance in your company.
- Second, you have to keep things simple. All these wonderful tools are filled with product managers and software engineers. Find one that feels like a good fit, and don’t let feature creep make these too hard to use.
- Third, focus on the systems of productivity you depend on. If you use Salesforce heavily, make sure your performance tool integrates with it well. Ditto Slack, Teams, or anything else you’re buying. I’d get IT involved.
- Fourth, don’t be afraid to switch vendors over time. These are systems that can be replaced, and you may find that a great system today is no longer as useful in three years. At Deloitte we built our own system, and it wouldn’t surprise me if we replaced it in 3 or 4 years. While your ERP and HCM systems typically last 7-10 years or longer, these may not – so don’t “wait for the market to mature.”
- Fifth, embrace a sense of design thinking as you select and implement a solution. No product will be perfect, but the way you implement it, how your employees use it, and how it adds value will be important regardless of the tool. You should study the work practices in your company today, and make sure the tool fits these management modes now. Don’t make the mistake of thinking people will “change the way they manage” because you bought a fancy new system.
I am excited to see this space move from one of “experimentation” to one of “market growth,” and as always look forward to hearing your stories, success, and questions along the way.