When HR departments all started, a decade or so ago, to re-christen their often disliked, control-oriented performance appraisal systems as “performance management”, they were setting out a much more positive, employee engagement-oriented and organisational performance-related agenda. Aided by rapidly improving HR information systems, performance management has become a key tool for HR professionals.

What better way for the function to demonstrate its contribution to improved organisational performance than to design the policies and processes to manage the people aspects of performance? Yet, as more ideas get added into the concept, HR departments may be setting themselves a formidable – some might say impossible – agenda to deliver.

The shift in terminology from performance appraisal to performance management was intended to make the process more relevant to the business. As Michael Armstrong and Angela Baron explain in their book, Managing Performance: “Performance appraisal has a reputation as a punitive, top-down control device, an unloved system. Performance management is a holistic, total approach to engaging everyone in the organisation in a continuous process to improve their performance and thereby the performance of the whole organisation.”

In our research at the Institute for Employment Studies, Performance Management: The Implementation Challenge, we’ve been delving in detail into this evolution, with a comprehensive literature review and case study work carried out with seven organisations.

We’ve certainly found no let-up in the scale of HR’s ambitions. In one case study, for instance, the objective of performance management is to raise the performance of everyone in the organisation and for it to become the number-one people programme. Desired outputs include improved role clarity; linking personal and organisational objectives; performance-linked reward; talent management; and the exiting of poor performers. With the abolition of the default retirement age, retirement planning will also be added to this shopping list of desired outcomes.


Important, but impossible to implement?

Our project, however, suggests that HR should pay more attention to the well-researched difficulties of appraising performance. As one HR director told us: “It’s expected to be part business planning, part employee and career development, part performance pay, part communications process. No wonder it is often seen to fail.”

There are many studies showing powerful links between people management practices and organisational performance, and appraisal usually comes out as a key practice in this regard. For example, working in the NHS, Michael West and colleagues found that: “A hospital that appraises around 20 per cent more staff and trains about 20 per cent more appraisers is likely to have 1,090 fewer deaths per 100,000 admissions.”

The key conclusion to be drawn from our work is that performance management is indeed a vitally important process for employers. But it is also extremely difficult to implement effectively. We lost count of the number of times that the process was described to us as a turgid exercise in “box ticking” or “form filling” – “something you do to keep HR quiet”.

Our research paints a common picture of less-than-effective implementation, with typical difficulties including:

• the quality of one-to-one manager/employee discussions;
• complaints at standardised, jargon-filled, prescriptive and overly-detailed paperwork;
• line managers lacking the required competence and commitment for the process;
• employees having a poor understanding of the goals and point of the process;
• rating and pay agendas tending to dominate and irritate, driving out feedback and development planning;
• lack of follow-up and practical action being taken between the formal reviews.

A study by E-reward in 2005 found that 74 per cent of the organisations surveyed had changed their performance management process in the previous three years. Yet the majority remained dissatisfied and had further changes planned, most often to encourage more regular feedback and streamline the process. This point was also made by another of the HR directors in our research, who said: “We’ve gone back to basics, cut back on everything else and said that, first and foremost, it’s about communications and having good one-on-one conversations.”

So how can the promise of performance management be realised in practice? And how can these processes be implemented and operated successfully? Two of our case studies illustrate the current trends and improvements that can be made to performance management processes.


Case study: BT Operate uncrosses its wires

The part of BT that runs the core networks, systems and security, BT Operate employs nearly 18,000 people globally. The business has genuinely been transformed over the past three years, delivering significant cost savings and service improvement. Focusing on performance standards and good performance practice has been central to this business transformation.

BT Operate has been applying the principles set out in the corporate review of performance management that BT undertook 18 months ago. This has meant a sharp focus on getting personal objectives aligned throughout the organisation, clarity about performance standards, and a clear line of sight between individual, team and business performance. There has also been significant support and training for “people managers” to enable them to deliver great performance practice.

The road, however, has not been an easy one and implementing better performance practice has had its challenges. These included:

• Some employee concerns at inconsistent and poor performance management practice, as well as examples of a command-and-control style from some managers.
• The quarterly “levelling” process of comparing and standardising performance ratings across the company was the focus for much of this concern. This was generally perceived as rigidly applying a forced distribution to deliver a targeted proportion of under-performers.
• The process was seen to be largely driven by the HR function and this gave some managers an excuse to avoid responsibility for the final rating awarded to their people.

 
These concerns have in many ways been symptoms of an organisation impatient to improve performance practice and business performance – the sense of pursuing “revolution”, when the organisation was equipped for “evolution”.

BT Operate is learning from these experiences and is firmly on the path to better performance practice. There are some encouraging signs of this:

• Personal objectives were completed on the e-performance system and aligned throughout the organisation within the first six weeks of the current performance year.
• There are clear job standards in place for all employees.
• Quarterly assessment and levelling continues with the principles of the process now stressing that everyone should know what “expected performance” looks like for their job and be “supported to meet those expectations”.
• A common framework of five performance ratings has been introduced for all employees, which more clearly differentiates between ratings of “unsatisfactory” and “development needed”. There is now clarity that “we won’t force a predetermined distribution of performance”.
• There is a strong application of a “two-way performance deal”, which sets out the responsibilities of people and their managers in the process.
• Improved communications and training are now provided for employees and their managers.
  

The HR team at BT Operate certainly feels that the main performance management tools are in place and believes that further progress now rests on their skilled and authentic application.


Case study: Personal development at Oxfam

The culture of Oxfam GB, the international development charity, presents both opportunities and challenges for performance management. Staff are highly motivated by the mission, but that can tempt them to set unrealistic work goals and to be reluctant to take time away from immediate tasks to focus on their own performance and development. Employees like to have very positive relationships at work and do not find it easy to give feedback that could be taken as criticism.
 
Managers are empowered to find ways of doing things that suit their local situation, but this leads to considerable variability in the quality of people management. The performance management process at Oxfam has three components: day-to-day management, including regular communication about work issues and regular progress checks on objectives; agreeing objectives and performance development; and annual performance review – an interim and annual meeting incorporating discussion of performance rating for the year.

There are a couple of striking things about the way Oxfam communicates this approach. The first is that it puts the day-to-day management first. This moves performance management away from being simply another name for an annual formal review, towards a continuous management process. Both managers and employees “get” this idea.

The second is that everything you need to know about the process is in one short, clear and attractive booklet, which also makes a strong link between performance management and the Oxfam mission. This may not be unique, but it is quite unusual in these days of endless pages of dull text on intranet sites to find something so clear and eye-catching.

Staff and managers interviewed for our research understood the performance management system, which has been kept deliberately stable for about seven years, and over 90 per cent of employees complete their performance review document. They were more critical, though, of the relatively weak use of the system to drive staff development and the difficulty of giving recognition to individuals who perform well when most are rated proficient/good.

By far the most significant issue to emerge was the variability in quality with which the performance management system is used by different managers. Our research also raised the question of who would be best placed to coach managers in performance management. This was a lot easier in those divisions where HR/L&D had a stronger local presence and could support managers in informal ways.
Some of the less experienced managers would appreciate early and stronger management training and, as a result, HR is introducing a mandatory manager induction for all new managers, along with refresher sessions. All managers will also have one of their annual objectives focused on this aspect of their work.


The route to genuinely performance-enhancing management

In spite of all the criticism we heard in our research (whether of overly-complex paperwork, recalcitrant line managers or lack of clear purpose and HR “enforcers”), our research participants all saw the value of a formal, fair process for performance management. Some employees – but certainly not all – could give us concrete examples of valuable performance discussions. So how can HR build more effective performance management? Based on our research we would highlight the following areas:

• Get strategic. HR needs to think less about performance management as a “process” and more about how it can support all employees to achieve their individual objectives in support of the organisation’s strategy. Oxfam most clearly shows this link between performance management and its mission and values. As Tom Coens and Mary Jenkins argue in Abolishing Performance Appraisals: Why They Backfire and What to Do Instead, this clear link to organisation purpose and performance is critical. A number of our case study examples chose to explicitly specify both organisational and employee responsibilities in the performance management process.
  
• Keep it simple. Many employees and not a few managers seem to be just plain confused about the plethora of aims and components in their performance management process, so no wonder it often doesn’t function as intended. While not relaxing their ambitions, our case study employers nonetheless were all working to simplify and clarify their processes.
  
• Focus on the feedback. Case study employers were also working to improve the essential heart of the process: open, two-way, year-round dialogue between an employee and their immediate manager. As Lynda Gratton and Sumantra Ghoshal wrote in 2002, the priority has to be on “improving the quality of the conversations” rather than going through the motions of “dehydrated rituals”.
  
• Equip the managers. Where employees felt the process was unfair, they attributed this to a culture in which managers did not take their people management responsibilities seriously. Training in performance management was haphazard, even cursory, in some of the cases, and of the generic “sheep dip” variety, rather than tailored to each manager’s needs. In response, we are seeing a return to strengthened accountability for people management, along with mandatory training, plus better and more immediate support for managers through a variety of channels. BT Operate, for instance, has invested millions in recent years in improving these skills.

Our research suggests that a focus on these four priorities – together with a more realistic appreciation of the effort, investment and time it takes to implement effective performance management – can start to close the yawning gap between the high aspirations for performance management and how it is experienced in practice.

Chris Jullings, HR director, organisation development at BT Operate, sums it up: “You can’t change a mature organisation culture overnight; it has to be an evolutionary approach, to positively resonate with everyone it affects.

“We created an early tension in the organisation with the speed and expectation to move to a new practice,” he says. “We are about halfway through our journey, we have made significant strides in transforming performance but there is much more to do. Now it’s about the leaders, line managers, all of us, owning it, embedding it and making it sustainable. There are no shortcuts.”


Duncan Brown is principal, reward and engagement at Aon Hewitt and an associate of the Institute for Employment Studies (IES).
Wendy Hirsh is principal associate at IES, where she leads the programme on employee development