Does performance management do more harm than good?

Written by
Professor Nick Holley

20 Nov 2015

20 Nov 2015 • by Professor Nick Holley

We often coach HR functions to rank everything they do against impact on the bottom line and how easy it is to implement. It’s interesting how often performance management fits into the almost impossible to do and low discernible impact box.  We have seen a growing trend where many people recognise this and are moving away from the systematic HR centric approach to performance management where the main outcomes are a rating that makes HR’s life easy and managers and employees who are totally demotivated by the process.

Over the last few months we have carried out 48 interviews and the majority of the organisations we spoke to are dissatisfied with their current approach and have changed or are planning to change it.

There is a widespread feeling that whilst performance management has a theoretical underpinning, in the way it is implemented in most companies the potentially beneficial outcomes seem to be outweighed by the time invested in it by HR and line managers. 



Over complexity.
The processes are often so complex and overdesigned to meet multiple HR needs that the amount of time spent on the process is not reflected in the relative value added to the business.  

Process Focus.
The focus on the process and its completion means the underlying purpose gets lost, especially the importance of having great conversations.  

In many cases the impact wasn’t just neutral in terms of not achieving what it set out to achieve it was actually negative as the way it was implemented on the ground by line managers resulted in demotivation and lower performance.  

Short termism.
This was especially true in that the focus of many performance management processes on short-term individual performance which undermines innovation, collaboration and long-term thinking.

Internal Competition.
The most negative element of all was the calibration of performance against a forced ratings distribution, which produced highly negative competitive behaviours.

Management bias.
In many cases it was recognised that this systematic data driven approach is underpinned by the ability of managers to measure performance objectively.  The simple fact is that most managers are driven by their own unconscious biases about what good looks like so the rating is an opinion not a fact but is still treated as an objective fact for decision making on compensation, etc.   By the way the calibration of one person’s subjective view by a larger group of equally subjective people doesn't make it objective!

The conclusion is that performance management as it is often implemented does more harm than good but a number of organisations are stripping away the bureaucracy and creating processes that focus more on developmental dialogues  that have the potential to drive higher performance. Their focus is:

•    Less about a process more about a conversation
•    Less historical more forward looking
•    Less negative more positive
•    Less rating performance more improving performance
•    Less measuring the past more focus on doing better in the future
•    Less on addressing weaknesses more on building on strengths
•    Less individual more collective

Amongst many of these organisations there is a move away from one universal model of Performance Management. The interesting thing wasn’t the models they were moving to, which were many and varied, but the way they have decided to change what they are doing:

Research, Focus, Consult, Measure, Dialogue.

1.    They do deep research, not just about Performance Management as a process, but also about people and what motivates and engages them.
2.    They collect facts about the impact their current approach is having at an organisational and individual level.  

3.    They understand where their organisation is going.  They focus performance management on helping it get there.  

4.    They don't try to do too much but focus on one or two desired business outcomes.  They don't see Performance Management as the answer to all HR’s needs whether they are around development, engagement, or compensation.  They see it as a key strategic deployment tool not an HR tool.

5.    They don't go away to a darkened HR ‘bat cave’ and concoct something no one else sees the need for.  They involve, consult and listen to their key stakeholders.

6.    They don't pretend they have all the answers. They are flexible in implementation and adjust as they go along to respond to reality.  

7.    They are rigorous about measurement, but they measure the impact and outcomes not the process - the fact everyone completes a form doesn't mean the form is adding any value.

8.    They don't focus on the process and system.  They recognise that the differentiator is the dialogue between managers and their people, not the process itself, so they focus their time and money on helping managers and employees hold great conversations.  They help managers who can't but they are intolerant of managers who won’t.

This final point is the key differentiator.  It’s not the process, though simpler seems to be better.  It’s the focus on the employee:manager dialogue and the investment in this capability that is the key to better performance management.
So the message isn't:

‘There is a new way to manage performance that we would recommend organisations follow and which will answer all your prayers’


‘Challenge your current approach to Performance Management.  Does it fit the current and future needs of your business not some theoretical model or the needs of HR?  If it doesn’t rework it till it does.’