Coincidentally, Microsoft and Yahoo have made the news recently for their changes in approach to performance management.  Journalists have conjured up a debate that pits these systems as good against evil or good and bad or the theoretically neutral “people” versus “process”.  I’m not sure if the writers really don’t understand the complexity of performance management or they are simply trying to drive traffic to their blogs.  For me it’s a reminder where not to get useful management information.

I do not have inside access to the decision-making process at either place, so I am speculating based on public information and what I know about corporate processes.  These giant companies are at very different places in the organizational lifecycle.  Yahoo is fighting for survival and signaled the need for massive change by hiring Marissa Mayer.  Some of her more public moves such as reducing telecommuting and instituting a more rigorous employee evaluation on top of poor financial performances are signs that the work environment was too loose and complacent.  Microsoft on the other hand is struggling for relevance.  Under a highly structured management system, their financial performance continues at high levels, but their products and services appear to be only incremental adjustments to current ones and Steve Ballmer, a long time insider is on his way out.  It tells me they want to sustain the values and performance of the present while unleashing creativity and innovation throughout the ranks.  To do this requires loosening up on the reins a bit.  For Microsoft, the discipline of forced ranking needs to be replaced with a system that facilitates more coaching and mentoring.

In the multi-variable world of performance management one size does not fit all.  Nor does one system fit any place forever.  It is crucial to consider where a firm is positioned in its organizational lifecycle – start-up mode, stable maturity or headed toward obsolescence.  Does the current workforce have the capacity to perform in the business environment of the future?  Do the leaders have the technical and interpersonal skills to manage cultural and operational complexity?  What are the organizational objectives?  These are important factors to consider when designing a performance management system.  Note that I used the word “designing”, not borrowing something that worked for someone else or from the last place you worked, but a system developed for the unique circumstances and culture of an organization.

The other key ingredient, arguably the most critical, is the effectiveness of the managers who deliver the evaluation and supervise the employees.  A recent Gallup study quoted below demonstrates a strong correlation between employees’ perceptions of their manager and their attitude toward their company’s performance evaluation system.

Our analysis revealed that employees who gave their managers “best” ratings found the performance management system to be much more effective than employees who gave their managers “below average” ratings. 

• 70% of employees who gave their managers “best” ratings rated their performance management system as “very good.” 

• In contrast, only 2% of employees who rated their manager as “below average” gave their system a “very good” 

Firms should avoid mimicking another company’s program.  They must do the homework:  identify corporate objectives, evaluate management strength and factor in the culture.  It takes addition thought and effort, but the potential returns on alignment are enormous and the pitfalls of misalignment are disastrous.

 

What is the best (or worst) performance management system you have ever been involved with?