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Why the Annual Performance Review Isn't Enough

How can HR create sufficient executive and managerial engagement in performance management so the organization remains agile, keeps its employees engaged, fosters the future skills it needs and, ultimately, thrives?

This article accompanies There's Got to Be a Better Way.

Monday, July 16, 2012
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Organizations today face a multitude of challenges -- a slow recovery from a deep recession, a global shortage of talent, the rise of a younger generation that expects more coaching and development, the globalization of much of the workforce, and a business environment that demands unprecedented agility. As Bersin & Associates High-Performance Management research shows, this mix of challenging trends is forcing many organizations to rethink their approach to performance management, including a shift away from the annual performance review.

At a high level, many organizations are evolving from a view of "performance management is the annual appraisal" to one that emphasizes that appraisal is just one element of an ongoing performance-management process -- a process that includes both frequent goal-setting and effective coaching and development. The addition of these elements enables companies to manage their people in a more agile, focused fashion, allowing organizations to respond more quickly to changing business, market and workforce demands.

In a world where business changes at light speed, and survival depends on how fast a business can master change and an increasing flow of data, no business can afford to set goals only once or twice a year. Yet that is exactly what happens today in most cases. Fifty-four percent of organizations revise their goals once per year ? or not at all. Moreover, while 56 percent of senior leaders revise their goals, that figure drops to 36 percent and 18 percent for middle managers and employees, respectively. As a result, the goals of most organizations' leaders are out of step with those of the bulk of their employees. However, those organizations that frequently revise their goals have better business outcomes (see Figure 1), indicating that the way forward is not to abandon goals but, instead, to evolve and target them better.

To effectively set goals more frequently, managers need to better understand, direct and encourage the performance of their employees. It should therefore come as no surprise that 81 percent of organizations that had strong senior-executive support for coaching had strong business results -- and none had below-average business results. In comparison, only 35 percent of organizations with infrequent executive engagement with coaching had strong business results.

Despite these potential benefits, coaching and development and goal-setting face considerable challenges in today's average workplace. First, many executives find performance management a waste of time and fail to support it. Second, executives see performance management as a process only designed to assess performance and facilitate compensation decisions -- not one that can be used to strategically upgrade and improve the organization. Since executives set the standard in many organizations, it is hard to change the perception that performance management is really about management (and not about assessment). 

So, how should an organization overcome these dual sets of challenges? First, organizations need to help managers understand how to set goals so they can do it effectively. Second, managers need to develop the skills to have effective, continuous conversations with their employees about performance. Third, the organization needs to encourage ongoing discussions about goals.

In all of these instances, the key question remains: How do you create sufficient executive and managerial engagement in performance management so the organization remains agile, keeps its employees engaged, fosters the future skills it needs and, ultimately, thrives?

To overcome senior leaders' reticence to get involved, HR needs to work with executives to develop a clear performance-management strategy. This is a high-level view of the purpose, values and objectives of performance management. It is the outcome of the strategic decisions an organization's senior leaders make about several factors, including:

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      * What the organization expects from performance management;

      * How the organization's management approach aligns with its business and talent strategy;

      * How performance management activities should be assessed for continued relevancy; and

* How performance management activities should integrate with other talent-management processes.

Without clarity on these fundamental points, even the most well-intentioned performance management efforts are doomed to provide few lasting benefits for an organization. High-impact organizations understand this and focus on developing a clear strategy that brings the fundamental elements of performance management into a mutually reinforcing network of activities.

To learn more, check out High-Impact Performance Management: Executive Summary, which provides an overview of a study on performance management that shares best practices and benchmarking data from organizations of differing sizes and industries.

Stacia Sherman Garr is principal analyst for talent management at Bersin & Associates, a membership-based provider of world-class research, tools and advisory services in talent management, corporate learning, leadership development, talent acquisition and human resources. More than 5,000 organizations worldwide, including more than 60 percent of the Fortune 100, use Bersin & Associates research and consulting to guide their learning, talent, and human resources strategies. For more information, go to www.bersin.com.

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