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Culture

EPISODE

25

Performance Management and Organizational Culture

Performance Management and Organizational Culture

According to an article by Harvard Business Review, performance appraisals “are seen as time-consuming, demotivating, inaccurate, biased, and unfair.

A McKinsey survey indicates most CEOs don’t find the appraisal process in their companies helps to identify top performers, while over half of employees think their managers don’t get the performance review right.”

Normally, you’ll find me interviewing incredible CEOs, or insightful Chief People Officers, but not this week. Today, I’ll be sharing my experience on how the 4 pillars of performance management framework can ultimately have one of the greatest impacts on company culture. These four pillars are research-based, yet molded through decades of experience.

My story begins with a global organization with about 100k employees and I found myself in the midst of this challenging task aiming to fuse the performance management strategies of its corporate headquarters with its diverse 13 subsidiaries.

It was clear from the outset that the path toward this unified strategy required an in-depth understanding of what worked and what didn't across these subsidiaries. This understanding was not solely derived from qualitative data gathered during my interviews with Talent Leaders, Chief People Officers (CPOs), and focus groups, but it was also deeply informed by an article by McKinsey, specifically exploring the fairness factor in performance management.

The first step I took was to explore the distinct ecosystems of each subsidiary.

Conversations with leaders, discussions in focus groups, and interviews provided a nuanced view of the strengths and pain points within their existing performance management strategies. What emerged from this qualitative exploration were the fundamental components essential to any successful performance management system.

These components were not merely theoretical constructs but practical pillars observed across the diverse subsidiaries and illuminated further by McKinsey's insights on fairness. And why does fairness matter? - because if the strategy isn’t fair, employees will not respect the process, and if it’s not valid or reliable, then why should it matter?

So, here is the McKinsey quote from their findings:

“...the data [also] crystallized what a fair system looks like. Of course, a host of factors may affect employee perceptions of fairness, but three stood out. Our research suggests that performance-management systems have a much better chance of being perceived as fair when they do these three things:

  1. transparently link employees’ goals to business priorities and maintain a strong element of flexibility
  2. invest in the coaching skills of managers to help them become better arbiters of day-to-day fairness
  3. reward standout performance for some roles, while also managing converging performance for others

Such factors appear to be mutually reinforcing. Among companies that implemented all three, 84 percent of executives reported they had an effective performance-management system. These respondents were 12 times more likely to report positive results than those who said their companies hadn’t implemented any of the three (exhibit).”

With this knowledge, immediately I knew I needed to craft a unified language that helped highlight these factors within the components of the performance management strategy.

It was about building bridges that connected subsidiaries, ensuring everyone spoke the same dialect. And so, the 4 pillars were born:

The first is Goal Creation. Goal creation lays at the foundation of this strategy, as it entails a collaborative process where objectives are co-created, fostering a culture of transparency and alignment throughout the organization, not just from top down, but also across.

Embracing transparency ensures that every member understands their role in contributing to the overarching vision. Many organizations use the traditional KPI - Key Performance Indicators, to set individual performance goals. However, if you are someone who isn’t familiar with the term OKR - Objectives and Key Results, this might be interesting.

You see, when individuals create KPI’s, what they’re doing is, they’re identifying goals for themselves that they want to chase, individually. However, this can potentially cause friction. It could be why Finance doesn’t always agree with HR, or Product doesn’t always agree with engineering, and it’s because objectives might be missing.

With OKR’s you’re actually encouraging functions to work together to identify overarching objectives where their KPI’s would compliment, not compete against each other. And so, yes, I’m a little biased when it comes to creating OKR’s vs. KPIs.

Before moving to the second pillar, I want to share a short story of the evolution of goal management. The first strategy emerged from the wisdom of Peter Drucker in the 1950s. His Management by Objectives approach, also known as MBOs, became the cornerstone for companies striving to align their efforts with specific targets.

As businesses sought structured methods, the 1980s saw the rise of the SMART criteria—Specific, Measurable, Achievable, Relevant, Time-bound—becoming a guiding principle for goal setting across industries.

However, innovation sparked in the unlikeliest of places—Intel's corridors in the 1970s. Andrew Grove formulated a new concept: Objectives and Key Results, also known as OKRs. With a focus on ambition and clarity, OKRs gained traction within Intel before catching the attention of tech behemoth Google in the 1990s.

Google's adoption propelled OKRs into the limelight, showcasing their effectiveness in blending audacious objectives with measurable milestones. Soon, OKRs became more than a Silicon Valley trend; they became a go-to framework for goal setting in various organizations worldwide.

As time progressed, OKRs evolved alongside agile methodologies like Scrum and Kanban. They seamlessly integrated into these approaches, providing a structured yet adaptable way to measure progress.

And so, the story of OKRs isn’t just about adoption—it's about adaptation. Organizations can tailor OKRs to fit their unique cultures, adjusting the rhythm of goal setting and expanding their use across teams. In essence, the history of goal management journeyed from MBO's foundational principles and the practicality of SMART goals to the pragmatic and flexible framework of OKRs.

Measurement, the next pillar, represents the vital framework by which an organization establishes the criteria for differentiating high, middle, and low performers, or perhaps on a wider scale.

This discernment allows the organization to identify top achievers while also providing insights into individuals who may require additional support. However, many organizations might also recognize that some individuals might not fit neatly into predefined categories, opting for more holistic approaches to nurture every employee's growth and development. Now, I’ve seen organizations leverage 3-point scales, 5-point scales, and their bottom point could be 2 clicks below mid performance, or it could sit in average, where the lowest performers sit in “meeting expectations.”

Organizations who shy away from numerical values have also potentially implemented ordinal values, and I’m not sure that makes a difference in the measurements, but I might argue it makes a difference in the perceived fairness of the measurement. Imagine being told, “You’re a 3,” versus being told, “You’re meeting expectations.”  

Now, what do we measure?

In many organizations, performance evaluation primarily revolves around achieving set goals, potentially overlooking vital aspects of an individual's overall contribution. However, this strategy of only measuring goals will almost always ensure cultural destruction. A more comprehensive approach to measuring overall performance involves a three-pronged strategy: allocating a third of the assessment to goals, another third to competencies aligned with the individual's role (that might include level and function), and the remaining third to cultural values.

While goals are crucial markers of productivity, competencies encompass a broader range of skills and abilities, reflecting how effectively tasks are executed. Then, evaluating based on cultural values acknowledges behaviors fostering a work environment that you, as an executive, want to encourage for your business.

This approach is critical because it encourages a well-rounded performance, recognizes diverse contributions beyond quantitative goals, supports holistic employee development, and drives a positive organizational culture. Executives play a pivotal role in advocating for and implementing this approach, shaping a culture where performance is assessed comprehensively, nurturing not only goal attainment but also competencies and cultural alignment.

The irony that often amuses me is when executive teams enthusiastically adopt a strategy like this for their business, and for their employees, but overlook holding themselves accountable to the full scope of measurement, which is the most critical component if they want the strategy to work completely. The linchpin for making this strategy truly effective lies in you, as the executive team, to actively participate and commit to embodying the competencies and values integral to the entire measurement process.

Conversations, the third pillar, is the heartbeat of the performance management, pulsating with ongoing, impactful dialogues between managers and their teams.

A lot of times, I’ll talk to managers and they’ll say, “I meet with my teams every day, we talk every day.” But, a performance conversation, a weekly conversation, such as, “Where are you on your progress? And, how can I help?”

These discussions serve as a platform for exchanging valuable feedback, addressing challenges, and recognizing achievements. These exchanges promote that collaborative environment that you need to build trust throughout the business between leaders and their teams, which in turn ignites the potential of each team member. And, this is very much an L&D or Learning & Development piece for managers, where managers can be taught how to, not to just give feedback, but how to be “arbiters of day to day fairness.”

Now, I want to come back to this concept of growing managers to become arbiters of fairness, but first there are 4 Conversations that lock into this third pillar: The One-on-One, the Career Conversation, the Courageous Conversation, and the Rewards Conversation.

The One-on-One is a weekly or bi-monthly conversation between you and your team member. There are a few structures you can create with this but overall it should be anywhere from 30 min to 1 hr depending on the frequency and level. This can change and can be unique to your function or organization, but overall it’s consistent. The main points of this conversation is to keep each other updated, show recognition and appreciation, adjust priorities, and unblock your team members.

The Career Conversation I’d recommend having once every quarter, to discuss your team member’s career development, new skills they’ve learned or need to learn, connect with mentors, training to attend, and ensuring they’re on the right track.

The Courageous Conversation is as needed. This might be with team members who need immediate feedback on how to re-align their actions, behaviors, or tasks. It’s a conversation many managers like to avoid, and then have to have heavier discussions later on because they didn’t have this one first. The important note here is to be specific of what the incident is and shy away from general characterizations like, “You always are late,” and replace it with, “You were 20 min late to work, yesterday.”

Finally, the Rewards Conversation. At the end of the day, the organization should have specific guidelines for rewards and recognition and this conversation should be had to ensure transparency and accountability. And, this discussion should absolutely occur once or twice a year.

And so, circling back to building managers to become “arbiters of day-to-day fairness,” how do we, as the organization, do that? How do we teach managers to be fair in their performance and managerial day-to-day conversations with their teams?

1. Avoid Favoritism.

Encourage managers to consciously treat all team members equally by emphasizing the importance of fair treatment in assignments, recognition, and opportunities for growth, ensuring that decisions are merit-based. Too often, I see favoritism with stay power employees. I think executive teams should ask themselves, do I want to promote loyalty, or performance? Both are important, there’s no doubt. And many times the most loyal employees are the better performers, but there might come a time when that’s not the case. And so, you need to ask yourself, what kind of culture do I want to build?

2. Bias-Free Communication.

Train managers to communicate without bias. Provide guidance on using inclusive language and avoid stereotypes or assumptions when interacting with team members. Encourage them to be mindful of their language.

A leader I was working with once…during team meetings she would habitually interrupt and dismiss ideas presented by certain team members while giving significant validation to suggestions from a select few. This communication style resulted in team members feeling marginalized and discouraged from contributing their viewpoints. And if team members don’t feel that they’re being treated fairly in basic team meetings, they’re likely not going to trust the quarterly or bi-annual performance assessment.

3. is Inclusivity in Decision-Making.

Emphasize the value of diversity of thought and perspectives, and ideas. As we learned in Episode 3 from Dr. Todd Kashdan, fostering an inclusive environment where everyone's input is valued, doesn’t just create a perception of managerial fairness, but also fosters a great degree of creativity and innovation. Ensuring people feel heard and seen, even during unpopular suggestions, directly impacts the perception of fairness.

4. Create Equal Opportunities.

Managers must provide equal opportunities for professional development, growth, and career advancement to all team members. Encourage them to create pathways for advancement based on skills, performance, and potential, rather than personal preferences.

By helping managers focus on these tangible actions during daily conversations and —avoiding favoritism, unbiased communication, inclusivity in decision-making, and equal opportunities—leaders can effectively serve as arbiters of day-to-day fairness, fostering an environment where all employees feel valued and respected.

Finally, rewards and recognition form the bridge between individual, team, and organizational performance and the acknowledgment and incentives they receive. High performers, who consistently contribute to the organization's success, rightly deserve greater recognition and rewards as an expression of appreciation and motivation. This approach cultivates a sense of fulfillment and loyalty among employees, which bolster their commitment to excellence.

If you don’t do this, then a lot of, “What’s in it for me?” will be asked, and ultimately won’t be perceived as fair.  

What is the goal of performance management?

Performance management is not a punitive or one-sided process aimed solely at employee evaluation or disciplinary actions. It should not be approached as a mechanism to micromanage employees or as a method to solely rank and rate individuals against each other. That’s a fast track way to create a competitiveness rather than a collaborative culture.

Performance management should also not be a one-time event restricted to annual performance reviews. Instead, it should be an ongoing, collaborative, and supportive process that fosters continuous growth and development, which ultimately is the fastest way to encourage employees to perform at their best.

And so, what is performance management designed to do?

Well, the primary goal is to enhance individual and organizational performance to achieve strategic objectives. It aims to align the efforts of employees with the broader goals of the organization, ensuring that everyone's work contributes to the overall success of the company.

Naturally, the next question is how do you implement a performance strategy like this?

Well, implementing any type of strategy in an organization takes great change management skills. Start by identifying key stakeholders, including employees, managers, HR personnel, ensuring that they're going to stay engaged throughout the process that might be in the form of a steering committee.

And if it is, make sure you have diverse representation, communicate the strategy's purpose. Clearly, this shouldn't be done in the dark, or behind the scenes, emphasizing its alignment with the organizational goals, and its benefits for individual growth and company objectives will go a long way.

Gain the support from top leadership to set an example and establish commitment. If your CEO is not on board, it's not going to work, we can leverage so many strategies and be the best at what we do, but unless your executive team is fully bought in, you're not likely going to budge company culture or the process. So make sure you gain support and establish commitment first, then you can start providing training for managers to proficiently handle goal setting, feedback, performance evaluations, feedback with diverse sensitivity.

Equally important is educating employees on crafting OKRs, or perhaps you're using SMART goals. It's really up to the organization and what it can handle. And really what it's ready for - readiness is important.

Meeting people where they're at is important.

If you run, they won't catch up to you, you're going to have to walk with them, introduce the strategy, gradually testing it, and specific departments to identify those challenges and gather feedback for refinement before fully implementing the strategy. This is crucial. If everyone's on board, and you completely change the strategy without testing and without piloting, it's likely that all of those challenges are going to come at you at once from different departments.

Then establish continuous feedback channels for stakeholders to express concerns and suggestions and form strategic adjustments for better efficacy. One thing to note is that if you're looking to lead this implementation and expecting no concerns, you're probably going to be unsuccessful. And that's the truth.

Change management is challenging. It's tough. You have to be able to anticipate the feedback and empathize with those who don't agree with you. And only then will you be able to build your trust, build credibility, and change minds and be persuasive.

There's an amazing episode on building trust, with Juliet Huck, just a couple episodes back and if you're being challenged with building trust in your organization, you can start there.

Moving forward, regularly monitoring progress using relevant performance indicators and adapt the strategy as needed for optimal performance. You're not just testing whether or not it works based on concerns that are lifted. You're also looking for quantitative data to see if the strategy is working or not. And so, make sure you and your stakeholders agree on what efficiency and effectiveness and strategy look like, then recognize and celebrate those achievements that result from the strategies implementation to boost morale and reinforce its value.

This is an important step often forgotten. It's important to pause and recognize what you've accomplished with your team throughout the process.

Finally, you can integrate the strategy into the organizational culture to ensure sustained alignment with the company values. I can't emphasize this enough that values should be implemented alongside the quantitative goal setting creation.

If you take this big picture of understanding how performance is truly evaluated, it's not just about hitting goals. It's about how you treat others in the organization, and how you live and breathe the values of the business.

And finally, that is the biggest takeaway. Performance Management again, isn't just about understanding an individual's performance. It's about how functions come together to create and live their values, and collaborate with each other in order to achieve organizational goals.

And it's about understanding where you are in order for you to grow in your career based on the competencies that are expected in the role. And only then will you have a true, valid and reliable understanding. That's fair, where you can look at where you're at today, where you're going, and how to get there.

The journey toward a unified performance management strategy wasn't just about data points or theoretical concepts. It was about distilling insights from real world scenarios, marrying them with expert knowledge and crafting a framework that resonated across diverse landscapes. By embracing these core components, and fostering this shared language, the organization will embark on a path toward a cohesive and effective performance management strategy.

Thank you all for listening. If you're looking to reinvent your performance management strategy or have questions, please visit CPOPLAYBOOK.com. This is your host, Felicia Shakiba. Happy New Year.

Felicia Shakiba

Felicia Shakiba

Founder, Podcast Host, and Fractional Chief People Officer at CPO PLAYBOOK

She has led several international HR teams as the Fractional Chief People Officer for clients in industries such as fintech, biotech, ad tech, and more. She has nearly 20 years of experience in people strategy and has impacted over 130,000 employees in her career. Felicia serves on the Advisory Board for Y-Combinator company, Extern (formerly Paragon One). She is also the former Global Head of Performance Management of the $12B multinational advertising and PR technology giant, WPP.

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