The Past, Present, and Future of Performance Management

Performance management developed out of, and in part in reaction to, traditional performance appraisal systems. Despite frequent claims in the business press that performance appraisal is dying, fairly traditional appraisal systems are still common in work organizations. However, there is evidence of an ongoing shift toward performance management systems that differ from traditional performance appraisal systems in several important ways. The types of performance management systems exemplified in the case studies included in this volume place more emphasis on frequent, informal evaluation; real-time feedback; and alignment with organizational strategies and goals than is common in traditional appraisal systems. These types of performance management systems have a lot to offer, and the case studies illustrate the potential advantage of modern approaches to performance management. Unfortunately, these case studies also exemplify a deeply worrying trend in performance management: a frequent failure to even ask whether (much less to demonstrate that) performance management has any real effect on performance or effectiveness. Some recommendations are made regarding research strategies for evaluating performance management; several of the most pressing challenges in this endeavor are identified, notably the problematic status of feedback and the trade-offs involved when moving from formal appraisal systems to systems built around informal feedback.

Technology’s Impact on the Performance Management Transformation

Organizations are facing unprecedented levels of change as forces like hypercompetition, knowledge commoditization, and technology are having a significant impact on performance and threating organizational survival. These pressures, combined with the shortcomings of existing performance management (PM) approaches, are forcing organizations to develop more effective PM practices. Competing effectively in this environment demands novel, cutting-edge, and more impactful approaches. There has been a movement toward processes that are data driven, flexible, continuous, engaging, future focused, and development oriented and that allow for more informed decision-making by organizations, managers, and employees. To support and drive this transformation, organizations are increasingly relying on technology, people analytics, and data science solutions. This chapter reviews the evolution of PM technology, examines its potential to add value and lead to behavioral change, reviews possible limitations and barriers to implementation to ensure the hype is not outpacing reality, and provides practical guidance for organizations looking to implement these new technologies. It is argued that advances in technology can support the activities needed to truly drive performance, but that it does not create change in and of itself. Emergent technology must be combined with organizational change strategies and evaluated for its individual, team, and organizational impact. In addition, it is imperative to examine how technology can be most effectively leveraged to improve specific performance-driving behaviors that the research has shown lead to more impactful performance management approaches rather than simply automating processes that have not worked well in the past.

Context Matters

Contexts shape the way the performance appraisal (PA) and performance management (PM) systems are designed and utilized. Yet, the analysis of situations, especially more macro-context, including cultural, economic, and political/legal values, is one of the most underresearched areas in applied psychology despite the fact that context is likely to be critical to understanding the success and the failures associated with individual and team PM in organizations. To date, most research on situations has focused on proximal factors that impinge directly on raters’ and ratees’ motivation and goals, with less attention given to variations in macro and meso context across and within organizations, nations, and cultures. In the present chapter, the current research linking context with PA and PM is reviewed. Drawing from both situational strength and institutional theories, the mechanisms (e.g., norms and constraints) by which situations can shape the design and process of PA/PM within and across organizations are discussed. The chapter concludes by translating key features from the context and situation assessment literature into action that can be taken by industrial and organizational psychologists to help improve PA/PM research and practice in organizations.

The Move to No Ratings

In 2014, a large multinational healthcare company made the decision to move from a performance management (PM) system from a traditional process focused on assigning performance ratings to one in which managers have accountability to provide ongoing coaching and feedback throughout the year and allocate compensation rewards differentially based on each employee’s contribution and impact. The new ratingless PM system aligned with the organization’s cultural aspirations to have all employees take accountability for their role in the company’s success, treat each other with respect, and build trust through candid conversations, while maintaining a strong focus on performance. The new process was implemented on a global scale, with diligent change management processes to support managers and employees to be successful through the transition to a new process. Four years into implementation, feedback from managers and employees on the new process have been consistently positive, and other objective organizational measures provide further evidence that the new PM process implementation has been successful for the company.

Reinventing Performance Management at Gogo, the Inflight Internet Company

Gogo, the inflight Internet company, recently underwent significant transformation. The ecosystem for business operation had shifted rapidly. These changes required the company to quickly adapt elements of its business strategy to increase focus on both innovation of new technology and mature operational practices in order to grow and scale the business globally. To enable these changes, the way employees worked together inside the organization also needed to be transformed. This was the impetus to change the PM process. At its core, the philosophy driving Gogo’s changes to PM centered on building a culture of agility. Internal research in partnership with leaders, people managers, and individual contributors was conducted along with external research. Based on the findings from this research, PM practices were redesigned to focus on changes in four key areas: (1) creating a feedback-rich environment; (2) ensuring focus and alignment on meaningful goals; (3) building a cadence for reflection and planning at both the organization and group levels and between employees and their managers; and (4) enabling a culture of development. This case provides insight into the first 2 years of Gogo’s journey—beginning with the discovery process and continuing through the design, implementation, and evaluation (inclusive of ongoing adaptation). Throughout the process, significant time and energy were invested in stakeholder engagement, which was imperative for making significant cultural change stick.

Transforming Performance at Patagonia

In the summer of 2015, Patagonia began a transformation to an entirely new approach to employee performance, one that would reinforce the company culture and empower employees to drive their performance continuously throughout the year and more directly connect their work to the company mission. The new approach drew on the latest research and emerging practices in performance management (PM) and was built on more frequent goal setting and performance conversations, supplemented by continuous crowdsourced feedback. At the heart of the approach is the belief that employees need to be the best drivers of their own performance, leading to an employee-centric design for each action or tool that enables the new approach. This case shares Patagonia’s journey to transformation from a traditional PM system to a more dynamic and employee-centric approach to performance.

Optimizing Performance Through Alignment With Mission and Purpose in a Global Nonprofit Organization

PYXERA Global facilitates partnerships between public, private, and social sectors worldwide to create social impact projects that enrich lives and livelihoods, inclusively and sustainably. A nonprofit based in Washington, D.C., PYXERA Global has worked in over 90 countries—navigating economic, geographic, and political realities to find common ground between corporations, development agencies, governments, and nongovernmental organizations. In 2017, PYXERA Global opted to revitalize performance management (PM) practices. Previously “one size fits all,” goals were organized around operational efficiency, which ensured that staff followed consistent rules of engagement in getting the work done. Missing in the process were the organization’s three Strategic Pillars—Smart Growth, Impact, and Influence—which aligned daily work with the organization’s mission. By explicitly incorporating the pillars (the “what”) with mission- and client-centered imperatives, senior leaders shifted the paradigm. Similarly, replacing conventional competencies with Organizational Imperatives focused on the “how” to achieve goals. After 1 year of the new practice, staff reported deeper and more personal connections to what work gets done and how. Often cited is the Organizational Imperative, “No money, no mission,” a well-described imperative for employees that was disconnected from day-to-day activity. That imperative became an umbrella for financial responsibility at all levels; employees are clearer how budgeting is core to impactful engagements for clients, that attending to cost requirements and expense overruns reflects the staff’s commitment to the financial well-being of the organization. In addition, staff report having regular conversations about performance, solving problems, and removing obstacles and giving and receiving feedback more often.

Performance Management Reform at Toyota Motor North America

Toyota’s entire competitive landscape is beginning to shift. Toyota is no longer just an automotive manufacturer; it is transforming into a mobility company. As the company embarks on this transformation, it is critical to have agile programs and processes in place that will facilitate this growth and transformation for the organization and team members. This chapter discusses the impetus for performance management (PM) reform at Toyota; this involves how the company’s PM process was carefully studied and reviewed in order to glean insights and pain points. Process design and piloting of Toyota’s new PM process are discussed, followed by implementation, lessons learned, and potential future directions for PM at Toyota.

State of the Practice in Performance Management

Performance management (PM) is one of the few organizational processes that touches every single employee and requires their active participation. In spite of its ubiquitous position in organizations, there has been a groundswell of questions emerging about the usefulness, value, and effectiveness of PM. This introductory chapter addresses the current state of PM, including its history. It provides an overview of academic research highlighting the evolution from performance evaluation to performance management and the current status. Then, the practical realities and challenges people in organizations experience with performance management every day are discussed. This includes performance management being viewed as an administrative “human resources activity” with a lack of strategic alignment to business goals; lack of manager capability to manage employee performance effectively; and an overreliance on system automation. The chapter continues with an outline and overview of the book, including nine case studies written by in-house talent and human resources practitioners and six chapters (written by scholars in the performance management and feedback arena) describing next-generation research as well as future research trends.

Performance Management at AbbVie

This case study describes design and implementation of the performance management process (PMP) at AbbVie, a global, research-based biopharmaceutical company with approximately 30,000 employees worldwide; it is dedicated to developing and delivering a consistent stream of innovative new medicines. Following its separation from Abbott in 2013, over the course of 5 years AbbVie built a tailor-made PMP, guided by scientific knowledge of human behavior and the unique cultural imperatives of the new company. This case study demonstrates how traditional human resources tools can be used to create a culture of high performance and innovation. The company posits that business strategy, culture, and leadership precede any system design considerations and need to be primary drivers of these. The success of implementation is in the vertical and horizontal integration of all the elements of the performance management (PM) system. The chapter discusses the challenges and key principles of PMP design in a global matrixed organization and shares the company’s perspectives on the successes, opportunities, and future directions of the AbbVie PMP evolution.