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Why Performance Management Fails to Improve Performance

Performance management has become a burdensome process that promotes fear and uncertainty.

Numerous companies have now thrown out the traditional performance review processes because they don’t actually improve performance.

CEB’s research would agree with their assessment: it shows there is no correlation between business unit success in hitting profit goals and performance management scores – if anything, the data show a tiny negative correlation.

More research and ideas about real performance impact here.

Where Did It All Go Wrong?

The problems with performance management stem from mixing and matching different intents into one flawed, corrupted, process. It’s generally agreed that the concept grew out of work done by one of the world’s first consultants  – Frederick Winslow Taylor – in a factory in Philadelphia, which then was developed into the concept of time and motion studies.

Then, in the 1950s and 60s, the US government institutionalized the idea by introducing the concept of performance ratings and the link between pay and the score civil servants received with the Performance Rating Act (1950), the Incentive Rewards Act (1954) and the Salary Reform Act (1962).

Fast forward to the 1970s, and Aubrey Daniels coins the phrase “performance management”, and develops a process for firms to use it based upon three principles – measurement, feedback and positive reinforcement. “That’s our business – helping managers get employees to perform to their potential through positive means,” Daniels once said.

Then Peter Drucker’s famous “management by objectives” began to become popular. Instead of measuring performance with the intent to provide feedback, companies began measuring their employees’ performance against set targets. Finally, the means became available to easily “cascade” goals so that employees took on a part of their boss’s goals, and measure everyone’s performance against set targets more and more precisely.

This allowed firms like GE and Microsoft to famously start managing out low performers. In GE this was known as the “vitality curve” and more informally as “rank and yank,” a process the firm is now doing away with.

The Ratings Trap

When you add up all of these elements, it’s easy to see where this goes horribly wrong. Instead of using performance management to actually “improve performance” based upon measurement, feedback and positive reinforcement, it became no more than a “ratings system” that sowed internal competition for more money, prestige and power; all motivation came through through fear (of a low rating).

As managers concentrated more intently on creating performance management best practices (many HR professionals were employed to do exactly that), it became more and more disconnected from the original intent, feedback actually happened less, companies weren’t measuring improvement but progress toward an objective (which when used incorrectly encourages all sorts of behavior that doesn’t help the company).

Instead of teaching managers how to improve their direct reports’ actual performance, firms burdened them with what they view as a compliance driven administrative task with little business value, while at the same time forcing them to give high stakes reviews with assigned ratings that caused really uncomfortable and sometimes career compromising situations.

In short, businesses have disconnected the original intent, discouraged employees and managers, and created a state of fear around the entire process. Also, a lot of managers you speak with will say the process is really used to hire, fire, promote, and pay. Which means it’s perfectly rational for employees to be fearful.

Dr. David Rock at the Neuroleadership Institute shows how these kinds of fear states actually shut down the thinking part of the brain, invoke fight or flight responses, and cause employees to focus on blame, take a narrow self-interested view, avoid rather than approach, work with trepidation and avoid risk. Those behaviors are directly opposite the ones employees need to be enterprise performers.

Granted, it’s much easier to see the problems when reviewing the history, but it’s not hard to see why the performance management process has devolved, and why companies are now turning to new ideas.


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