Performance Management Paper

Human Capital Institute The Global Association for Strategic Talent Management

Agile Performance Management: HR’s Next Big Move

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 2

I N T R O D U C T I O N

It’s no secret that the shortfalls and failures of traditional performance management have become glaringly apparent for most of today’s organizations. Widely debunked are the conventional talent management and performance measurement models that rely on tools such as annual performance reviews or even the more recently embraced 360-degree feedback process.

The reasons that traditional performance management no longer

works are myriad. They range from the academic (the traditional model

is based on an archaic view of worker performance) to the everyday

(it’s viewed as a hassle and time drain that doesn’t truly benefit the

employee, the manager, or the organization).

The perceptions are not anecdotal. HCI’s 2014 Talent Pulse survey

and research report, “Conducting Dynamic Performance Appraisals,”

found that:

�� Barely half of all respondents (55 percent) believe annual performance reviews are accurate evaluations of their workforce’s production and capabilities

�� Not quite 4 in 10 (39 percent) agree that their appraisals are effective at improving performance

�� Nearly 6 in 10 (58 percent) dislike their organization’s performance review system

The irony is that performance management remains a critical concern

for most organizations. A meaningful 75 percent of respondents

in Deloitte’s “Global Human Capital Trends 2015” rated performance

management as “important” or “very important.”

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 3

I N R E S P O N S E , C H A N G E I S H A P P E N I N G :

Companies are slowly abandoning traditional performance

review models in favor of systems that simply work better

in today’s business environment. That movement is driven by

a model that is more dynamic, sets goals that are more agile, and

favors constant learning. Different from traditional performance

management, the method that HCI sees emerging is valued for

focusing on goal setting, coaching, and providing more continuous

feedback. As more and more companies are openly questioning

the value of traditional performance management and looking

for options, they see recognized, respected companies in myriad

sectors moving to agile performance management.

89 percent of respondents

to the Deloitte survey

said they had recently

changed their performance

management process

or plan to do so within

18 months.

HCI has seen a

significant increase

in requests for

training in a new

kind of performance

management.

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 4

Until now, however, one barrier has impeded faster and more

widely accessible change: the lack of a recognized and accepted

model, approach, or certification program for organizations to learn

and put agile performance management into practice in their own

organization. That’s about to change.

This paper explains:

� Why the traditional method of performance management doesn’t

work and what’s changing

� The key components for any organization to understand to begin

implementing agile performance management

� A brief look at the first course developed specifically to help any

organization gain a working model for how to think about and

conduct agile performance management and effect change in

their organization

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 5

W H Y T R A D I T I O N A L P E R F O R M A N C E M A N AG E M E N T H A S B E E N W I D E LY D E B U N K E D

Perhaps the primary reason for the failure of the traditional performance management system is that it dates back to the late 1800s. In that age, employees were viewed only as laborers, or, at best, as “workers.” Performance could be accurately measured by an employee’s output: the number of hours worked, the volume of goods produced, or some other very real numerical value.

Today, more than 70 percent of the U.S. workforce is employed

in service or knowledge-related jobs. In fact, some economists and

sociologists argue that we have evolved out of being a service

economy and into being a knowledge economy. What is clear is that

creating output is no longer the benchmark of performance. Despite a

few innovations, traditional performance management hasn’t kept pace

with the shifting value that most of today’s employees bring to

their companies.

N O W O N D E R D E LO I T T E F O U N D T H AT:

Only 8 percent of

enterprise companies

believe that the

traditional performance

management process

drives business value.

Only 10 percent believe

that performance

management is a good

use of time.

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 6

First, the traditional system fails to acknowledge the value of an

employee’s skills and attitude, and an employee’s ability to innovate

and drive change. The traditional system also doesn’t account for

how these skills and attributes are created, developed, and shift

over time and as company goals and needs change.

More specifically, traditional performance management is out of sync with today’s businesses and their employees because it:

1 | Focuses on evaluation, rather than on employee growth and development

2 | Relies heavily on forced-distribution rankings, rather than also considering team performance, collaboration, and development

3 | Fails to provide real-time feedback

4 | Is a poor use of time and fails to show tangible benefits for the employee, the manager, or the organization

5 | At best, fails to support — and at worst damages — employee engagement, retention, and performance

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 7

C H A N G E I S H A P P E N I N G A N D T H E T R E N D I S T O WA R D AG I L E P E R F O R M A N C E M A N AG E M E N T

Several recognized brands in various market segments have

recently been in the news for dropping traditional performance

management in favor of a system that is more in tune with today’s

business world and its workforce.

Adobe, Deloitte, Gap, Microsoft, and more recently Accenture and GE —

two of the largest companies in the world — have all transformed their

performance management models.

Accenture announced in July that it is getting rid of annual performance

reviews starting in September, the beginning of its next fiscal year.

The Post reported that Accenture will implement a “more fluid system,

in which employees receive timely feedback from their managers on an

ongoing basis following assignments.”

According to CEB, the management research firm, Accenture is part of a

small but significant share (6 percent) of Fortune 500 companies that

have “limited the value they place on scores and rankings” as part

of performance reviews and management. Instead, they are moving

toward agile models of performance management.

“Imagine, for a company of 330,000 people, changing the performance

management process; it’s huge,” Accenture CEO Pierre Nanterme told

The Washington Post. “We’re going to get rid of probably 90 percent of

what we did in the past.”

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 8

In an April 2015 article, “Reinventing Performance Management,”

Harvard Business Review said agile performance is valued for

focusing on “speed, agility, one-size-fits-one, and constant

learning, and is underpinned by a new way of collecting reliable

performance data.”

More specifically, agile performance management focuses on:

�� Setting goals

�� Helping managers coach individuals

�� Providing more continuous feedback, support, and growth or

change (shifting the focus from annual evaluation and rankings

to continuous feedback and development)

�� Being more collaborative, social, and faster-moving

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 9

B U T W H AT I F YO U ’ R E N O T A D O B E , D E LO I T T E , GE, OR ACCENTURE?

“There’s a lot of the why and what in the conversations and news around more dynamic and more agile performance management, but there isn’t much about the how of this practice,” said Carl Rhodes, HCI chief executive officer.

This is true not only for small and midsize organizations, but also for

large and enterprise companies that don’t perceive themselves as

ready to leave traditional performance management models or see a

clear path to reinventing their current systems, Rhodes pointed out.

“Many HR and training leaders read those articles and say, ‘Yeah, that’s

great, but we’re not an Adobe, a Deloitte, or an Accenture,’” Rhodes

added. “But they want to change; they just don’t know where to start.

The single, most frequent request HCI has been getting for new

courses is to help our member organizations see the trees from the

forest in transforming performance reviews.”

The biggest challenge has been that no recognized and accepted

model, approach, or certification program exists for organizations

to learn the characteristics of dynamic and more-agile performance

management and how to put that kind of system into practice in their

own environments.

The essential starting point is to understand the six key elements

of an agile performance management system that can help any

organization begin implementing a new model for performance

management. With that awareness, you can begin to see how the

model can apply to your organization.

The second-biggest challenge is overcoming the misconception that

agile performance is an all-or-nothing practice. The truth is that any

organization can gradually transform its talent management system

by adopting the parts of the agile model that work for them. The path

doesn’t need to be all or nothing, and it certainly doesn’t all need to be

done right now.

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 1 0

There is a continuum of agile performance management that any

organization moves along. The key is to determine where your

organization currently is on that continuum. HCI’s Agile Performance

Management Scale is one tool that helps companies identify where

they are on that continuum.

A company determines where it is on the scale by conducing an

assessment such as the one HCI developed as part of its new Agile

Performance Management certification course. The assessment is

based on several factors, including:

�� Overall company culture

�� Openness to change at various levels of the organization and among key stakeholders

�� Current performance management processes (ranging from very traditional to fully agile)

With that information in hand, you can determine what about your

performance management system you want to change, what you can

change, and how you can best move forward.

“The bottom line is that you don’t need to do every part of agile

performance management, nor do you need to do it all at once,”

Rhodes said.

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 1 1

T H E S I X K E Y E L E M E N T S O F AG I L E P E R F O R M A N C E M A N AG E M E N T

As defined by HCI, agile performance management has six key elements that clearly and compellingly differentiate it from traditional models.

1 | Strengths-based development Agile performance management seeks to develop an employee’s

strengths and potential, rather than focus on limitations, making

corrections, or being output-driven. It shifts the conversation

from remediation to being more growth-focused. The need for

strengths-based development has become apparent as an increasing

amount of research has shown that with traditional performance

management, employees who score highest are not necessarily

the highest performers.

Research by CEB found, for example, that two-thirds of employees

who receive the highest scores in a typical performance management

system are not actually the organization’s highest performers.

2 | Agile goal setting What’s the best method for setting goals for employees? With the

transformation to a knowledge economy, the answer obviously is

not to dictate the amount of work that needs to get done or the

output that needs to be accomplished. Nor is the answer to fixate on

feedback about the past. Also, with the quickening pace of product and

service development and the increased awareness of the benefits of

continuous employee development, the annual performance review

has severe limitations.

Agile performance management considers goals that set expectations

that effectively align with the goals of the employee and their team, and

that also align with strategic business goals. It involves understanding

the difference between traditional SMART goals (goals that are specific,

measurable, achievable, and relevant) and the more dynamic model

of OKRs (objectives and key results). OKRs focus on giving people

“stretch goals” and helping to establish regular, achievable results that

individuals and their co-workers can support.

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 1 2

3 | Effective, continuous feedback Today’s work environment is dynamic. It’s become increasingly

ineffective to inform employees of their performance months after

a task has been finished or an incident has occurred.

Yet barely half (55 percent) of the respondents to HCI’s 2014 Talent Pulse

survey and research said their organizations are committed to having

recurring conversations between managers and employees.

By comparison, among companies with dynamic evaluation models,

as defined by HCI, 88 percent of respondents are committed to

recurring conversations. HCI defines Dynamic Evaluators as companies

that adhere to eight performance review principles in creating a

transparent appraisal system that keeps employees well informed

and included the process; can enhance perceptions of fairness with

evaluations and increase the likelihood that employees will accept

feedback; facilitates a collaborative review system; and keeps senior

leaders invested in the process.

For more information, download HCI’s “2014 Talent Pulse: Conducting

Dynamic Performance Appraisals.”

4 | Coaching for performance In a nutshell, the agile model encourages a culture of coaching

for development, compared with the traditional performance

management model of an annual performance review followed up

with recommendations for learning or training programs. In a coaching

culture, managers are responsible for the growth and development of

their employees. It requires managers and team leaders to look past

what they think of an employee, and instead ask themselves what they

can do to help that person heighten their performance.

“We ask team leaders not about the skills of each team member

but rather about their own future actions with respect to that person,”

two representatives of Deloitte wrote in Harvard Business Review in

April 2015.

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 1 3

5 | Rewards Rewarding people for a job well done — whether through pay-for-

performance or another compensation model — will always be a

critical piece of performance management. But how can you determine

rewards and compensation without the benchmarks that the traditional

performance model provides? A better question is this: How can

rewards in the agile model do a better job of enhancing performance?

In the agile environment, rewards are more fluid than they used to be

and are more tightly aligned to real-time results and business goals.

“The compensation process is being broadened,” according to Deloitte.

“Companies are starting to base compensation decisions on the

competitive value of an employee and real-world market conditions.”

6 | Social recognition Companies that hone a culture of recognition drive greater employee

engagement and higher performance. However, there is a vast

difference between having a recognition program and having a culture

of recognition.

A culture of recognition not only recognizes the value of both formal

and informal rewards. It also encourages managers to offer rewards

and recognition more frequently and to make sure rewards are timely

and personally meaningful to employees. It encourages and empowers

employees to leverage social media of all sorts to recognize their peers

and share that recognition outside the company walls.

Annual (or even quarterly) awards for the highest performance,

or anniversary rewards for simply staying with the company, are

insufficient to inspire commitment and dedication in today’s workforce.

More to the point, they fail to support the more-frequent feedback

and ongoing support that the agile performance management

model promotes.

A G I L E P E R F O R M A N C E M A N A G E M E N T : H R ’ S N E X T B I G M O V E | 1 4

S U M M A R Y

Agile performance management represents a true tipping point for HR. It marks a place on the path where HR can either lead or follow. As a global clearinghouse and catalyst for new ideas and next practices, HCI believes that agile performance management is a very real opportunity for HR to be a business leader and take advantage of changes that are happening on the front lines of talent management right now. HR professionals who choose to lead will help their organizations remain competitive and get credit for doing so.

“The change is coming regardless,” HCI’s Rhodes said. “Those who

choose to follow will be dragged into the new world of performance

management, resisting, and with worse outcomes for themselves

and their companies.”

One big reason that agile represents a bold opportunity for HR is

that HR has always been viewed as process-heavy, compliance-

oriented, and disconnected from the reality of the business. Traditional

performance management is one glaring example of why that

sentiment exists.

In response, HCI is proud to be the first organization to offer a

certification course for agile performance management. It’s the first

training of its kind to address this hugely important current topic.

“Now is one of those moments that HR leaders dread,” Rhodes said.

“It’s the moment when the CEO says, ‘I read about this in the in-flight

magazine yesterday. Why aren’t we doing this?’”

HCI Member Relationship Centers

�� 1110 Main Street | Suite 200

Cincinnati, Ohio 45202

�� 20 Jay Street | Suite 1018

Brooklyn, New York 11201

1-866-538-1909 | [email protected] | www.hci.org

HCI is the global association for strategic talent management and new economy

leadership, and a clearinghouse for best practices and new ideas. Our network

of expert practitioners, Fortune 1000 and Global 2000 corporations, government

agencies, global consultants, and business schools contribute a stream of constantly

evolving information, the best of which is organized, analyzed, and shared with

members through HCI communities, research, education, and events.

HCI Agile Performance Management Certification includes:

�� A pre-assessment to determine where on the Agile Performance Management Scale each participant’s organization is

�� A two-day, hands-on interactive course that will teach participants how to reinvent their organization’s performance management process by replacing the ineffective traditional annual process with a simpler, more agile approach that focuses on critical outcomes like feedback, coaching, goal setting, and manager and employee relationships

This is the first HCI certification course to integrate resources from

across the organization’s vast library of case studies and other

assets from industry thought leaders, practitioners, and HCI member

organizations. Students will receive the benefit of actual case studies

and experiences. Also reflecting the collaborative spirit of the current

reinvention of performance management, course participants will have

access to a robust set of best practices, tools and toolkits, and new

thinking on this crucial aspect of business today.

The way business gets done today rarely aligns with the annual

performance review cycle. Businesses adjust their strategies as their

markets evolve, not just in step with their budget year. Products move

more quickly from concept to market. Employees are more likely than

ever to move from one project to another during the course of a year,

and to collaborate in teams with different leaders.

“In short,” Rhodes said, “the agile movement has permeated

business. HCI is taking a leading role in helping organizations

move into a new era of performance review that reflects today’s

workplace and business realities.”