In recent times, performance appraisal has been a subject of intense ideological debates. Performance appraisals have traditionally served as a mechanism to basically assess an individual’s performance in the previous year to reward employees in terms of compensation and career progression in the coming year. On one hand, organizations, at least the reasonably larger ones, need some systematic and transparent way to deal with employee’s performance evaluation. On the other hand, with more part-time and virtual employees entering the workforce on a very mission-based engagement as opposed to building a long-term career, the whole idea of formal performance management systems seems to be rather backdated. So, what’s the real deal?
The discipline of performance management has been relatively recent, and rather controversial. Taylor pioneered the subject with his famous Time and Motion studies that highlighted the notion of individual worker productivity, and demonstrated, rather successfully, how application of scientific management could be used to tremendously improve such productivity without exhausting or shortchanging the worker. His thoughts on The Principles of Scientific Management are a great peek into the social system and division of responsibilities between management and workers at American workplace at that time, and should be considered as just that – a journey in time where human society was coming together for the very first time to engage in large-scale machine-based manufacturing, and the theories and practices were still very raw and constantly evolving.
He criticized that the ‘best system’ at that time, the so-called ‘initiative and incentive’ management was really not the best because it relied completely on the workman, and, in turn, made management unconditionally responsible for this. His fourth principle states – “There is an almost equal division of the work and the responsibility between the management and the workmen. The management take over all work for which they are better fitted than the workmen, while in the past almost all of the work and the greater part of the responsibility were thrown upon the men”. He further writes – “It is this combination of the initiative of the workmen, coupled with the new types of work done by the management, that makes scientific management so much more efficient than the old plan”. While I believe Taylor’s intent must have been to apportion the accountability to the one best-suited to influence and ultimately achieve the results, thereby protecting the innocent workers for collective outputs beyond their scope of control or influence, I think this has also led to some serious long-term challenges. However, in an unfortunate way, in one sweeping shot, Taylor condemned an entire generation of workers to subservience by keeping them outside the decision-making process, which subsequently rose on to become an elite preserve of the new management class. This further championed the era of Fordism where ‘division of labor’ and moving assembly line lead to unprecedented growth in productivity, faster production times and worker wages, but also led to lower skill requirement from the workers. Here’s an interesting piece on this counterintuitive thinking from Henry Ford and Innovation, which was a marvel at that time, and literally led to creation of an America middle class and a culture of mass consumption:
“Ford’s $5 day is often cited as a key factor in expanding the middle class. But less often understood is just how that happened. The $5 day did more than simply increase wages. It reversed the historical relationship between wages and skill.
Throughout history, the way for workers to increase the price they demanded for their services was to increase their skill level. The master craftsman always made more money than the journeyman. Conversely, the way for an employer to lower labor costs was to lower the skill required to do the work. For example, mechanization in the textile industry and the shoe industry lowered the skill level required to spin yarn and make shoes, and lowered the value of the labor of the workers in question. But the $5 day turned that relationship on its head by creating something the world had never seen before: the low-skill/high-wage job. Suddenly high-wage jobs were available to large numbers of people who could never have had them before, especially people from rural areas and from foreign countries. The Georgia sharecropper and the Polish peasant both found in Detroit or other industrial cities the opportunity to make a good living despite their lack of industrial skills. Unfortunately, this process led to a devaluing of education on the part of many workers and their children. Why do I need an education, they asked, to work on the line? A willingness to work, not a high school diploma, is all that is required.”
Taylor’s work in 1911 also had significant impact on industrial management theories and practices at that time, and was subsequently built-upon by the pioneering industrial psychologist Walter Dill Scott in his ‘man to man scale’ in 1923. Scott’s work, especially for the army had major influence on how performance is evaluated, and even compared among workers.
In subsequent years, the great management guru Drucker felt there was a need to have a system to assign goals lest managers lost sight due to the so-called ‘activity trap’ of being immersed in fighting daily battles. Drucker introduced the idea of Management by Objectives, or MBO in 1955, which “… is participative goal setting, choosing course of actions and decision making. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.” However, apparently, Drucker himself got disillusioned with MBOs as he felt “…MBO is just another tool. It is not the great cure for management inefficiency … Management by objectives works if you know the objectives: 90% of the time you don’t.” There has been criticism from other thinkers and practitioners that MBO tends to overemphasize control as opposed to fostering creativity to meet their goals.
Meanwhile, another great guru, the quality guru Deming was also one of the critics of Drucker’s approach. Deming identified evaluation of performance, merit rating or annual performance review as one of the Seven Deadly Diseases. He wrote in The Deming System of Profound Knowledge (SoPK) – “A manager of people needs to understand that all people are different. This is not ranking people. He needs to understand that the performance of anyone is governed largely by the system that he works in, the responsibility of management.” Clearly, there were growing concerns among leading thinkers if conventional system of rating and ranking people were effective in the long-run.
However, notwithstanding such criticism, another bold experiment was in the offing. The great manager of all times, Jack Welch introduced the tough system or ‘rank and yank’ at GE that earned him the moniker of Neutron Jack but led to unprecedented gains in productivity and performance. However, similar experiments at knowledge companies such as Microsoft seem to now have been recently criticized as a failure that led the lost decade.
However, the advent of 21st century changed everything. The notion of tech-savvy, highly confident and fiercely independent Gen X and Gen Y knowledge workers working on small and highly collaborative teams in a highly empowering culture of self-organization became the new normal. Simultaneously, the concept of leadership underwent major transformation where the Command and Control leader had to finally cede its position in favor of a more democratic and collaborative leader who provided servant leadership which was led by influence (rather than authority) and knowledge was bigger source of power than titles (or corner office). In such an environment, managing talent the old way was bound to be detrimental to employee motivation, team productivity and company performance in the long run. During this last decade, the hitherto employer-centric jobmarket became a predominantly employee-centric. Internet and globalization created opportunities for the best talent to chart their own course rather than work for big brands. In software development, the advent of agile manifesto signaled an era of managerless teams. How do you manage talent in such teams? And who manages it – remember, there is no manager here!
We all might not be in utopia yet. The reality is that not every organisation or team will be able to achieve such self-organization, at least in the forseeable future, and perhaps it might not be the most effective management system for every kind of industry. So, there will always be a need to have traditional system of performance management, but adapted to the newer environment. Instead of making performance appraisal as an annual event, we all know that we need to make it more like an ongoing process round the year. We know that it’s not just the employees, but even the managers that are uncomfortable with the idea of performance appraisals. We need better mechanisms to collect 360 degrees of feedback from top, down and sideways. We need stronger linkages to company goals and a more meticulous follow-ups, and clear demonstration of the accomplishments. We need more objective ways to apply standards of performance consistently across the organization. And, we need to do all this without making the process complex, bureaucratic, or time-consuming. We need to recognize that support systems should keep pace with the pace at which business is being asked to deliver results. And finally, clearly staying focused that this is simply one of the means to eventually deliver the ends.
For startups and new businesses, this is less of a challenge, for they are invariably formed with different objectives and are low on traditional symbols of performance or career progression. It is normal for most team members of a startup to take lower salaries and equal (and multiple) roles in a team. There is no notion of career progression – rather, the opportunity to work on bleeding edge problems is the biggest reward these individuals crave for, and the IPO dreams keep them going beyond the thresholds of sanity and hard work.
However, I think any non-trivial organization needs some systemic solution to ensure that standard processes are applied consistently and are executed free of individual manager biases and prejudices. In such organizations, apart from having a centralized performance management system, there might even be a requirement to connect-up information with/from/to other adjacent HR functions – compensation, recruitment, learning and development, compensation management, and finally succession planning. In such situations, solutions such as Halogen eAppraisal might make sense, because they can ensure compliance with organization-wide standards and timelines, while ensuring that information from associated HR functions doesn’t get lost out while conducting performance appraisals.
So, whether you are a large multinational or a startup, the basics of talent management are critical – in fact, they haven’t been more important ever. We are in the era of talent scarcity and with everything else being equal and openly available to anyone across the globe, the success depends on having the best talent which is then let loose on solving the most complex problems.
So, how are you managing your talent?