Performance Management is changing. A lack of agility inevitably leads to the failure of digitalisation strategies.
We understand. Companies must be agile, or at least try to be. A lack of agility inevitably leads to the failure of digitalisation strategies, however technologically sophisticated they might be. As agility is all about speed and fast responses to new dynamics. If an organisation is sluggish and hierarchical, even the most modern software cannot bring about that desired quantum leap.
So far so good. It is therefore logical that HR also needs to get involved and ask how it can achieve maximum impact. And this is where the traditional MBO process comes in; a process with which we all have a love-hate relationship.
Do annual objectives still make sense today? Fifteen years ago, financial controllers were already beginning to grapple with concepts such as “beyond budgeting”, which involves replacing frozen annual budgets with more flexible, i.e. more agile, models. Why? So that managers stop chasing after senseless annual budgets and ignoring essential business challenges. Because sticking to the budget = fulfilling objectives = bonus = new car = prestige. It pays off!
But, if we’re honest, lots of employee objectives and team objectives are still budget objectives today. Partly because they are so easy to measure. As an account manager will happily tire him/herself out, in order to make up the missing thousands through new clients. The fact that, at the same time, a major long-term client might cancel a contract, which could perhaps have been avoided, is not important if the objective is to win new clients. Common sense is overshadowed by the power of the MBO process.
But a new approach is finally on the horizon. No more rigid objectives. No more annual targets. A move towards agile objectives and continuous coaching, short feedback loops and motivated employees. It sounds too good to be true. But even software producers are coming up with new solutions to support this new focus on agility in management.
But do we all want it? And can we all do it? Are managers and employees overburdened by this coaching approach? If you lead a large team, you will understand the problem. Regular bilateral meetings with every single team member, even if they are short, soon result in a jam-packed schedule. Does it make sense for all employees?
So-called situational performance management would be perfect. A bit more coaching and stronger dynamics for some employees and a traditional annual approach for others. How dynamic is the employee’s work environment, how mature is the employee, i.e. how much management does he/she need?
But this then causes difficulties for HR departments. How can HR ensure transparency and quality when every manager/employee team interprets performance management differently? And when a lack of management is easily concealed behind the flexible notion of situational management?
We therefore recommend that you perform a thorough culture check before HR turns existing processes completely upside down. What type of management culture exists within the company? How important is the MBO process and is it effectively employed or is it only tolerated? Experience shows that HR IT tools only add value to the performance process, if the process is fully implemented and is uniformly accepted. If managers only see the extra time investment required for “continuous performance management” and employees feel even more controlled, then caution is essential.
However, a first step in the right direction can consist of systematically separating performance evaluation and bonuses. The rigid link between performance evaluation and bonuses prevents genuine analysis of performance, since, in essence, it is all about the “defence” of the bonus. Companies do well not to link bonus allocations to individual objectives, but instead to overarching company-wide objectives. Then employees and managers no longer work with tunnel vision on “their” objectives, but instead see the “overall picture”. Teamwork and cooperation are also improved.
When employees understand their contribution and that of their colleagues to the success of the company, then you have made the first important step on the path towards agile performance management. Regular bilateral feedback discussions then make sense and are not felt to be another method of control. They are also a valuable tool in the continuous adjustment of objectives to changing circumstances and provide the basis for continuous improvement on the path towards shared objectives.
Would you like to take the first step towards agile performance management? Our strategy advisors can help you determine the right path for you and support you in the realisation of your vision. Find out more about the HR Strategy Services offered by HR Campus.
Published: 13. September 2017