Transforming Your

6COMPANIESLEADINGWAY

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Management System:Performance

By Sherman Morrison&Don Weobong

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Table of Contents

Introduction .........................................................................................................................................................................3What’s Wrong with Performance Management & Annual Reviews? ............................................................3 10 Statistics About Performance Management That Will Blow Your Mind ..............................................3 Getting Back to Basics .................................................................................................................................................3Diagnosing Your Ailing Performance Management System ............................................................................4 The Downside of Annual Performance Reviews.................................................................................................4 Why Changing Your PM System is Hard ................................................................................................................4 Evaluating Your Performance Management System ........................................................................................5A New Approach to Performance Management ...................................................................................................5 Manage like a Coach or Mentor ................................................................................................................................6 Less Bureaucratic, More Agile ...................................................................................................................................6 Let the Employee Take the Lead ..............................................................................................................................6 Play to Their Strengths .................................................................................................................................................6 Focus on the Future ......................................................................................................................................................6 Hire Fewer Low Performers ........................................................................................................................................6Case Study #1: Autodesk ................................................................................................................................................7 Introduction ......................................................................................................................................................................7 Indications of the Problem .........................................................................................................................................7 Minor Fix or Major Overhaul? ....................................................................................................................................7 Elements of the New System .....................................................................................................................................8 Implementation ...............................................................................................................................................................8 Tracking Progress, Iterative Design .............................................................................................................................9Case Study #2: Adobe ..................................................................................................................................................... 10 Introduction ...................................................................................................................................................................... 10 Back Story ......................................................................................................................................................................... 10 Change Course ................................................................................................................................................................ 11Case Study #3: Atlassian ................................................................................................................................................ 13 Introduction ...................................................................................................................................................................... 13 What Wasn’t Working ................................................................................................................................................... 14 Starting from Scratch ................................................................................................................................................... 15 Concentrating on Performance ................................................................................................................................. 15 Lessons Learned ............................................................................................................................................................. 15 Results Achieved ............................................................................................................................................................ 16Case Study #4: Cargill ..................................................................................................................................................... 19 Introduction ...................................................................................................................................................................... 19 Why Change? ................................................................................................................................................................... 19 Overcome Initial Concerns ..........................................................................................................................................20Case Study #5: Microsoft ...............................................................................................................................................22 Introduction ......................................................................................................................................................................22Case Study #6: Juniper ...................................................................................................................................................25 Introduction ......................................................................................................................................................................25 Background ......................................................................................................................................................................25 Forging a new path........................................................................................................................................................26 Coaching for High Performance ...............................................................................................................................26 Lessons Learned .............................................................................................................................................................27 Coaching and Mentoring ................................................................................................................................................29Conclusion ............................................................................................................................................................................31

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IntroductionWHAT’S WRONG WITH PERFORMANCE MANAGEMENT & ANNUAL REVIEWS?

The short answer to the above question is plenty. Few things in life produce more moans and groans in the workplace than the mind-numbing, fear-inducing ritual of annual performance reviews. In recent years, there have been calls for companies to free themselves from this burdensome practice. If you don’t believe that the performance review or performance management (PM) in general is in dire straits, read on.

10 STATISTICS ABOUT PERFORMANCE MANAGEMENT THAT WILL BLOW YOUR MIND1. 45% of HR leaders do not think

annual performance reviews are an accurate appraisal for employee’s work.

2. CFOs spend at least 40% of their time on business performance management, but they estimate that 30% of their company’s performance potential is lost due to ineffective performance management processes and behaviors.

3. Only 23% of HR executives think that their PM process accurately reflects employee contributions.

4. Only 8% of companies report that their performance management process drives high levels of value, while 58% said it is not an effective use of time.

5. A poll with 2,677 respondents revealed that 98% find annual performance reviews unnecessary. Among the respondents were 645 HR managers, 232 CEOs, and 1,800 other employees.

6. Only 14% of organizations are happy with their performance management system.

7. Two-thirds of performance management systems misidentify high performers.

8. In 2013, most organizations

needed a 20% improvement in employee performance, but typical performance management can only improve performance by 5%.

9. 58% of organizations rated their performance management systems as “C Grade or below.”

10. 30% of performance reviews end up in decreased employee performance.

Clearly, something is amiss when it comes to performance management and annual reviews. In fact, given the above statistics, it’s a relatively safe bet to say that performance management in your own company is lacking in some way or not delivering the kind of value you wish it could deliver.

GETTING BACK TO BASICS

According to PM expert Edward Lawler, Director of the Center for Effective Organizations housed at the University of Southern California’s Marshall School of Business, you need to keep in mind the four primary objectives of PM:

Define What Performance is neeDeDYou have to know what needs to be done and how it should be done, and there has to be agreement on this throughout the organization.

DeveloP emPloyeesThe point of PM has to be to help employees develop the skills and knowledge they need to contribute to the needed performance that has been defined.

motivate emPloyeesThe third thing your PM system should do is motivate employeves to perform as effectively as possible. You can have all the highest talent in the world, but if they aren’t motivated to perform, you’re not going to get very far.

ProviDe UsefUl DataYour PM system should be your go-to source of data on that can measure the skills and knowledge of your workforce, as well as whether or not employees are performing as well as you need them to perform.

1 Globoforce: http://www.globoforce.com/news/press-releases-archive/shrmglo-

boforce-survey-reveals-growing-impact-vof-recognition-programs-on-perfor-mance-management/2 CEB: http://news.executiveboard.com/index.php?s=23350&cat=26823 CEB Blogs: https://www.executiveboard.com/blogs/three-key-shifts-shaping-hrs-agenda-in-2014/4 Deloitte University Press: http://dupress.com/articles/hc-trends-2014-perfor-mance-management/5

HRMagazine: http://www.hrmagazine.co.uk/hr/features/1075041/is-perfor-

mance-appraisals6 Harvard Business Review: http://blogs.hbr.org/2013/06/give-your-perfor-mance-manageme/7 CEB Blogs: https://www.executiveboard.com/blogs/is-the-performance-man-agement-system-dead-or-creating-zombies/8 CEB: http://www.executiveboard.com/exbd/shl/talent-expert-series/perfor-mance-in-new-work-environment/index.page9 WorldatWork: http://www.worldatwork.org/waw/adimLink?id=4447310 Psychology Today: http://www.psychologytoday.com/blog/wired-suc-cess/201006/its-time-abolish-the-employee-performance-review

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Think through your PM system again in greater detail using these four basic PM objectives to help pinpoint areas where your system is clearly falling short. When it comes to effectively addressing organizational problems, getting a clear picture of the situation is more than half the battle.

DIAGNOSING YOUR AILING PERFORMANCE MANAGEMENT SYSTEM

Annual reviews have received a seriously bad rap in recent years, as indicated by such headlines as Time to Scrap Performance Appraisals? Is it Time to Give Up on Performance Appraisals? and It’s Time to Abolish the Employee Performance Review. Typical problems with performance reviews are summarized below. How many of them feel all too familiar to you?

THE DOWNSIDE OF ANNUAL PERFORMANCE REVIEWS

the Zombie effectIf you’ve ever felt a kind of mind-numbing effect when it comes to performance reviews, you’re not alone. As one author put it, “A friend of mine was recently dinged in a performance appraisal for being ‘too enthusiastic.’ Translation: Be less alive, more like a zombie.” Some neuroscientists are beginning to apply knowledge from their field to leadership, and when it comes to performance appraisals, the news isn’t very good. By focusing on what an employee did or didn’t do well during the year, the annual review creates a fear-state in the brain that then limits the ability to absorb any useful information.

enDless tinkeringYour company might actually be paying attention to its PM system, even making changes from year to year, but is it real change or just tinkering with an already broken system? If the tweaking of the system amounts to changing from a 3-point to a 5-point rating scale, or making slight adjustments to the rating criteria, your company is missing the more substantial issues at the root of performance management. This

endless tinkering simply won’t result in significant improvements.

rank-anD-yankThen there’s the temptation to use performance appraisals in the kind of force-ranking system popularized by Jack Welch at GE, wherein managers are only allowed to hand out so many appraisals at each performance level, and those that are forced into the bottom ranks can expect to kiss their jobs goodbye. It’s still a surprisingly popular approach in spite of the fact that Microsoft is the latest company to scrap the system because it does more harm than good. Meanwhile, Yahoo! is actually ramping up its forced-rankings system. When you set up a system in which failure is inevitable for some people, you’ll wind up with employees who will do whatever it takes to beat the system. That’s hardly the kind of positive atmosphere we want for our organizations.

too little too lateThe way most performance reviews are constructed lead to a baffling set of questions: If performance is so important, why in the world would we review it only once, or in some cases, a few times a year? Shouldn’t employees be receiving valuable feedback all the time? Can one single person really do an adequate job of analyzing an employee’s entire productivity over the course of 12 months in one sitting? Since when does any employee’s work involve primarily a 1-to-1 relationship with a single manager or supervisor? If someone really is a poor performer, wouldn’t you want to show them the door before an entire year has passed?

WHY CHANGING YOUR PM SYSTEM IS HARD

Given the depressing statistics and outlook on annual performance appraisals, you’d think companies would be jumping at the chance to overhaul or even abolish such systems. Think again! There’s an incredible amount of inertia to making such changes. Besides the general resistance to big changes in modern organizations, there are many reasons

12 Forbes: http://www.forbes.com/sites/joshbersin/2013/05/06/

time-to-scrap-performance-appraisals/13 HRMagazine: http://www.hrmagazine.co.uk/hr/features/1075041/is-perfor-mance-appraisals#sthash.O7sq1Ik0.dpuf14 Psychology Today: http://www.psychologytoday.com/blog/wired-suc-cess/201006/its-time-abolish-the-employee-performance-review15 CBS Money Watch: http://www.cbsnews.com/news/is-your-company-turn-ing-you-into-a-corporate-zombie/

16 CEB: https://www.executiveboard.com/blogs/is-the-performance-manage-

ment-system-dead-or-creating-zombies/17 Harvard Business Review: http://blogs.hbr.org/2013/06/give-your-perfor-mance-manageme/18 Forbes: http://www.forbes.com/sites/petercohan/2013/11/13/marissas-sec-ond-epic-fail-microsoft-abolishes-stack-ranking-as-yahoo-ramps-it-up/19 SHRM: http://www.shrm.org/about/foundation/research/Documents/1104Pu-lakos.pdf

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why only about 3% have dropped annual reviews:

traDitionYour company has probably always done annual performance appraisals. But just because it’s a deeply embedded tradition doesn’t mean it should continue.

investmentIt took a lot of time, effort and money to develop and implement whatever system is in place, which creates that much more resistance to changing the system.

lack of alternativesIt’s one thing to realize your PM system is broken, but it’s another thing entirely to figure out how to overhaul it and/or replace it. After all, your company needs real data about employee performance, if for no other reason than to document and justify terminating poor performers. This is a lackluster rationalization for perpetuating bad PM systems.

EVALUATING YOUR PERFORMANCE MANAGEMENT SYSTEM

Maybe it’s time to give your company’s performance management system its own performance review. Try this quick-and-dirty method: Think about your PM system and give it a rating from 1 to 10 where 1 means your PM system is essentially worthless and 10 means it is giving you absolutely everything you ever dreamed a PM system could give you. If you give your PM system anything less than 8, then it is probably in need of some serious attention.

A more robust approach to evaluating your PM system might involve digging deeper by gathering feedback from users. The Society for Human Resource Management recommends the following:

Survey or focus group information should be collected periodically to assess user reactions to the performance management process and to modify the system in ways that will be more acceptable to users. One effective strategy that not only gathers useful information but also promotes feedback is to survey managers and employees on the extent to which they are seeking, giving and receiving quality

feedback. Experienced practitioners have found that reporting these results back to individual managers and employees can increase the frequency and quality of the performance feedback over time.

Additional questions you can ask about your PM system include the following as recommended by the US Office of Personnel Management:

Are the stated objectives of the appraisal program being met?

Are employees and managers satisfied with the equity, utility, accuracy, etc., of the program?

Do the benefits of the program outweigh the costs?

Has there been an improvement in employee, unit, or organizational performance?

Has the attitude or the behavior of employees and/or managers changed as desired?

Are there signs of different treatment in the results of performance appraisal processes?

Has there been an improvement in the efficiency or the effectiveness of related human resources programs?

Finally, consider creating a robust self-assessment tool to evaluate your PM system. A great example is one you can find on the website of the Public Health Foundation at the following URL: http://www.phf.org/resourcestools/Documents/PM_Self_Assess_Tool.pdf. Although it is geared specifically to public health organizations, it could easily be modified in order to apply to your company or organization.

A NEW APPROACH TO PERFORMANCE MANAGEMENT

Far too many PM systems in organizations today are broken and fail to deliver the kind of value that they should provide. The dreaded ritual of the annual performance review or appraisal is probably the single worst aspect of PM that is in desperate need of a major overhaul if not complete elimination. But all of that clearly begs

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the question – What does a better way to do performance management look like? There are plenty of options, some big and some small, but either way you can change your PM system for the better. Here’s how:

MANAGE LIKE A COACH OR MENTOR

Rather than a one-a-year ritual, performance appraisal should be happening on a continual basis and look more like a coaching or mentoring relationship between the manager/supervisor and the employee. It’s the only way to do performance management in a business world where change is both constant and rapid. In this kind of real-time, feedback-rich approach to performance management, substantial check-ins would occur at least monthly, but weekly would be even better. Goal-setting should also occur on either a quarterly or monthly basis. Companies that do this are getting much better results from their PM systems than companies relying on the annual approach.

LESS BUREAUCRATIC, MORE AGILE

Part of the reason the annual performance review is such an awful PM tool is that it has evolved into something that feels like an overly complicated homework assignment – a nightmare of forms and boxes to check and narratives to fill out and ratings to be given and on and on and on. Imagine the freedom of just asking an employee two simple questions – What does the coming week look like for you? How can I support you in accomplishing what you need to do? That immediately feels more collaborative and supportive than talking about what did and did not go well for the entire past year.

LET THE EMPLOYEE TAKE THE LEAD

The beautiful thing here is that we’re not talking about asking managers to take the responsibility for initiating this kind of performance management. The data clearly show that employees want this kind of support, so let them take the initiative in getting what they need for feedback and development. They’ll be a whole lot more invested in the process than they are in any kind of annual review context.

PLAY TO THEIR STRENGTHS

A major flaw in most PM systems is that they approach the entire project from a remedial viewpoint. Here are the performance criteria and here’s how you fell short, so please do better. It just doesn’t work. People need positive feedback. This is another area where neuroscience comes into play. When it comes to learning and growing, the brain does both much better in areas where there’s already a strong foundation of neural networks, not in the weaker areas. Build on a people’s strengths and they’ll really shine. Don’t ignore the weaknesses, but also don’t expect them to be areas of primary growth.

FOCUS ON THE FUTURE

This one almost seems like a no-brainer when you stop and think about it. Traditional PM systems that use annual reviews are illogically focused on the past that is, for better or worse, done and over and never to be changed. Everything about performance management would be much better off if focused on what can be changed, which is the future.

HIRE FEWER LOW PERFORMERS

The unfortunate thing about many PM systems (and especially those that utilize forced rankings) is that they just assume a certain percentage of employees will be low performers. Wouldn’t it be great if your recruiting and hiring practices were improved to the point that you rarely hired any low performers to begin with? It’s like a self-fulfilling prophecy – if you assume a certain percentage of people are going to fail, you’re practically guaranteeing that will be the case.

Those are six very worthy approaches to performance management that might look a whole lot different from your current system. Making the switch might feel like an overwhelming proposition, but the benefits in terms of better results on the other side are well worth it.

What follows are case studies of six companies that are leading the way in rethinking performance management, providing you with real-life examples of how it can be done in a way that adds value and drives business results.

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Case Study 1

INTRODUCTION

If you’re considering making significant changes to your company’s PM system, it’s very useful to hear from someone who’s gone through the process. Autodesk is a company that first made a name for itself with AutoCAD, the computer-aided design application that allows users to create detailed technical drawings of all types. For decades AutoCAD has been the most widely used program for 2D non-specialized applications. After creating many specialty versions of the software for more specific use in architecture, civil engineering, and manufacturing, Autodesk began expanding into other types of design software, including parametric building modeling and parametric mechanical design applications. Jonathan Levy, Director of Training and Organizational Development at Autodesk, was deeply involved in what turned out to be a major overhaul of the company’s PM system. What follows is the transcript of an interview with him that details how it happened.

INDICATIONS OF THE PROBLEM

sherman: When you first arrived at Autodesk, was a PM system overhaul already on your agenda or was it something that developed over time?

Jonathan: Performance Management was not on my radar screen when I first arrived to Autodesk. I joined Autodesk back in 2009, and at that time we had a fairly traditional performance management system in place. There was a written review that included a ranking on a three-point scale, which had previously been a five-point scale.

When I came on board, the company wasn’t actively looking at changing its overall PM system. But the turning point came when Autodesk underwent a huge transformation around 2011, when it decided that in addition to the desktop platform, it would also move into cloud and mobile platforms. This move resulted in all kinds of new processes and metrics, all of which required a drastically more collaborative and agile approach in the workplace.

Jan Becker, the Senior VP of HR, and Ian Mitchell, the VP of Training and Organization development, noticed that the most maligned process on the annual employee engagement survey was the performance management system. Many employees thought that the written performance reviews had become nothing more than a “check-the-box” activity that wasn’t adding any real value. They also shared that there was little ongoing feedback as managers put most of the effort into the written documents, and conversations were taking place, if at all, only once a year. So while the way we did business at Autodesk was undergoing high-level change, the PM system was fundamentally unchanged.

MINOR FIX OR MAJOR OVERHAUL?

sherman: When you realized that the PM system at Autodesk wasn’t adding the value that it should, what came next? How did you decide if you were going to just tweak the system that was in place versus doing a major overhaul?

Jonathan: I was asked to facilitate a meeting of Autodesk HR leaders, and the focus of that meeting was entirely on the PM system. I made sure from the outset that we were looking at PM systems from within the unique context of Autodesk in order to figure out what outcomes we wanted such a system to optimize. And this is an important point that people at different companies should keep in mind – what is working at Autodesk may or may not work at other companies. You simply can’t take a cookie-cutter approach. You want to look at your company’s unique context, its strengths and weaknesses, and so on.

At this meeting of HR Leaders, we set up a hypothetical scenario. If we were starting a new PM system from scratch what would be some of the guiding principles? There was widespread agreement that we wanted performance management to be ongoing and not an event. We also agreed that the system would need to focus not just on what gets done, but also on how it gets done. In other words, you can have people getting lots of results, but if the way they get those results is causing a lot

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of problems and dysfunction, then that is not effective performance. We also agreed that the greatest potential value was in the performance discussions, not in a written document.

To help employees develop well, we also saw value in making feedback more ongoing rather than only annual, which fit nicely with the overall changes at Autodesk that were requiring us to be much more agile. We wanted a PM system that would reflect that increased agility. We were identifying not just what a PM system should be, but what Autodesk specifically needed from a PM system.

ELEMENTS OF THE NEW SYSTEM

sherman: That must have been both exciting and nerve-wracking. What did you come up with for a new PM system?

Jonathan: We decided to make a major overhaul. It was apparent to us that merely tweaking the system wouldn’t satisfy these objectives. The most major change was to abolish written reviews entirely. We wanted coaching and feedback to be ongoing, not event-driven, and so we shifted the focus to having ongoing/high-impact discussions. We also doubled down on “calibration sessions” that helped everyone understand what excellent performance looks like in their areas. These sessions provide managers with a forum to get a more in depth view of how others’ view their employees and to create more consistent approaches to evaluating performance.

IMPLEMENTATION

sherman: Knowing what you want is one thing, but implementing it is another. How did you go about doing that?

Jonathan: As performance is ultimately linked to business outcomes it is imperative that the PM process be looked at as a key enabler of business and not simply an HR-driven process. After that meeting, Jan received support from the C-Suite and other senior leaders to make this type of change to the PM system. We launched the system in 2012 – the launch included the creation of a compelling video graphic explaining the history of PM at Autodesk and the

reason for the current changes. We also involved senior leaders and HR business partners speaking about these new changes.

Tracking Progress, Iterative DesignSherman: Having the support of senior leadership was clearly essential in making this happen, but what was the reaction among the rank-and-file employees? Were they able to perceive the value of taking this new approach? Was there inertia or resistance to the change? If so, how did you deal with that?

Jonathan: In order to monitor changes to the PM system, we conducted additional surveys in addition to the usual annual employee engagement survey. In general the new system was well received, and it helped that senior leaders throughout the company played an integral role in launching the new system. In year two, the surveys reflected that both managers and employees supported the overall direction, but needed more specific tactics for how to make it happen. They wanted to know more about what good performance conversations looked like, how often they should really take place, and so on. This was fine because we knew from the outset that this would be an iterative design process that would need to be modified over time as we saw how it actually functioned when implemented. This is important for everyone to understand, because otherwise you might be surprised or even derailed when it doesn’t go perfectly after launching it.

ABOUT TWO YEARS INTO THE PM transformation we launched a campaign to drive the new process more deeply into the organization because people wanted more. My colleague Mari Capps and I took this effort on with three foundations we thought were essential to making it happen. We needed to do the following: rebrand the PM approach; inspire and motivate, and we needed to empower people.

One thing we wanted to do was to stop calling the whole thing a performance management system, because that felt too synonymous with the old

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approach. We wanted to come up with a name that would not only capture a more holistic approach but also link to business results. What we came up with was Performance Matters, which offered a nice double entendre of not only covering matters of performance, but that performance really matters to Autodesk. We also came up with three tag lines to go along with it: Performance Matters for Autodesk; Performance Matters for your development; and Performance Matters for you and your team.

Then we conducted interviews throughout all levels of the company, asking open-ended questions about performance and people’s experience of performance at Autodesk, how the feedback they received was affecting them and changing their careers. So then you have people hearing from each other what felt important and significant about performance. We had video presentations about this along with sessions we called “Lunch and Learns” to engage people in discussions about performance and best practices around development and coaching and ongoing feedback.

All these kinds of events helped achieve the inspiration and motivation pieces we felt were important. For the empowerment piece, we created a variety of tools, resources and trainings that helped people learn how to more fully engage with the different elements of the system.

sherman: Where do things stand now at Autodesk with performance management?

Jonathan: We’re now tracking how that whole second phase campaign is successfully driving Performance Matters much more deeply into the organization. We will continue to monitor results and make changes because that is at the heart of this type of iterative design approach. Two years from now the PM system will be different, just like the software we produce as a company doesn’t stay the same over time. It’s an ongoing, iterative process.

ONGOING EVALUATION

sherman: How do you evaluate the impact and effectiveness of Performance Matters? Not just in terms of how it’s working for people, but also in terms of bottom-line impact to the company.

Jonathan: As I mentioned, we did two years of focused surveys about the new PM process. It was the data from those that led directly to the development of the second phase to drive the system deeper into the organization. But there’s also our annual employee engagement survey, and this is something taken very seriously throughout the organization. In fact, among our 8,000 employees, the response rate on this survey is always at least 92% or higher, which is pretty amazing. Part of the reason for that high response rate is because the company, right up to the very top leaders, uses the data from that survey to make changes in the organization. The company is committed to taking that input and acting on it.

Every time we do a Lunch and Learn we collect additional data on how Performance Matters is working. The Holy Grail, of course, would be to make a link between these changes in the PM system to business results, but we haven’t found a way to do that. There are just too many other intervening variables and forces and other changes happening that get in the way.

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Case Study #2:

INTRODUCTIONTalk is cheap when it comes to bashing performance appraisals, as you saw in the introductory sections of this white paper. Very few companies, however, actually have the courage to do anything about it. Adobe is one of those few.

The work that software manufacturer Adobe has done to change up its performance management system is substantial. Everyone knows how most managers complain about the traditional performance review process taking precious time away from more important activities. Adobe abolished its previously very rigid system and in 2012 put in place something a bit more relaxed. It estimates the new system saves the company no fewer than 80,000 hours each year. That’s a substantial amount of time for a company made up of 13,500 employees.

Adobe has been around since 1982 and is best known for some of the most iconic creative software, including Photoshop and Illustrator, as well as the ever-handy Portable Document Format (PDF). Any software company that’s been around for more than 30 years has also been around the performance management block a few times. One quick glance at Adobe’s old approach to annual performance reviews reveals the following:

80,000 hours of work on the part of 2,000 managers each year – that adds up to same as 40 full-time employees in one year. Managers felt like it pulled them away from their other important duties.

That’s a lot of time, effort, and resources to pour into something everyone hated. People routinely reported feeling less motivated and less inspired after going through the process.

The real clincher to the whole thing, though, was that turnover was continuing to increase.

THE BACK STORYDonna Morris was hired by Adobe back in 2002 to fill the role of Senior Director of Global Talent Management. That meant she was largely in charge of the company’s annual performance review process. It was cumbersome, to say the least. She noticed that just the planning process of getting ready for annual performance reviews was a nine-month marathon and felt like giving birth every year, year after year.

Another thing she noticed was a rather disturbing trend that occurred annually in the month February. That’s the month that inevitably saw a good number of Adobe’s best and brightest exiting the firm. It should come as no surprise that February was also the month in which the results of the annual performance review process were made known to everyone. She could see this, but didn’t feel especially empowered to do anything about it. It’s just the way things were done at Adobe. Never mind that the performance review process was clearly viewed by most employees as about as fun as a root canal.

As with many companies, Adobe’s approach to performance reviews included a stack-ranking process, a forced distribution where only so many employees can be placed into the different pre-defined performance levels. The top performers, so-called “A players,” would be slotted into the top 20%, productive employees filled in the middle 70%, and unproductive employees were assigned to the bottom 10%. It’s important to realize that this forced-ranking system was the decisive factor for determining compensation, both cash and equity. The bottom ten percent were always let go (the rank-and-yank effect), but many other outstanding employees, frustrated by the infighting and contentious culture created by the system, also left. The whole notion of actually helping people improve was lost in the process. It was creating a toxic environment that not only kills morale but leads many managers to figure out ways to game the system so they don’t have to fire their people.

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there. When the reporter asked her about what was happening in the world of human resources, Morris mentioned that the company was planning on abolishing the performance review format. She didn’t think anything of it until she saw that remark on the front page of the newspaper the very next day. Now she had to do it.

Changing CourseAt the beginning of 2012, and with the full blessing of senior leadership, Morris assembled a team to tackle the challenge of how to shake things up in Adobe’s performance management system. They engaged in months of brainstorming and also decided to enlist the help of the very employees so deeply affected by Adobe’s performance management system. This made perfect sense to them – if one of the complaints about the old system was that it was a barrier to the kind of collaborative atmosphere needed in a highly creative company, then how could they create a new system without collaboratively co-creating it with employees? As a result, March 2012 saw the posting of a blog entry on the company intranet site that not only informed everyone of the plan to overhaul annual performance reviews by abolishing the ranking system, it also asked employees what they thought should replace it. The message received loud and clear was all about feedback and expectations.

In the end, what they came up with was surprisingly simple, a process they call Check-in. It included doing away entirely with ratings, rankings, and written documents. Instead, the idea is for managers to provide three main items: Clear expectations, frequent feedback that is both positive and constructive, and opportunities to improve. By sweeping away the old system, they completely eliminated the competitive, adversarial nature of the old process that made interactions between employees more divisive than collaborative, an inevitable result when you compare employees against each other.

There’s even a good deal of flexibility

Here’s a summary of the main problems that lurked underneath Adobe’s old performance management system:

An annual process is simply not frequent enough to truly manage performance. It inevitably winds up focusing on only the most recent events rather than fully covering everything that happened in the previous year.

It felt adversarial, pitting employees and managers against one another rather than fostering a more collaborate atmosphere.

The process was focused entirely on the past rather than being oriented on forward progress.

Forced ranking is disingenuous when reality doesn’t fit the pre-determined spreads.

Any bureaucratic system that can lead to unethical behavior should be eliminated.

In 2007 Morris was promoted to Senior Vice President of People and Places. At the same time, the company was changing rapidly, evolving away from packaged, licensed software that could take more than a year to develop and towards cloud-based functionality, digital marketing, and offering its creative products as real-time subscription services. This strategy shift had been brewing for years, driven largely by developments in mobile technology, but was more formally stated by the company in November 2011. But the human resources side of the company was clearly stuck in a time warp that wasn’t adding any value or getting the desire results.

Still, taking on a major overhaul of an HR process affecting just about every single employee in a large company is a daunting task. Morris needed some kind of spark to make it happen, which came about in a surprisingly subconscious way in 2011. She was visiting Adobe’s offices in India and giving an interview with a newspaper

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in the moment – you need to let the information sink in for a while before returning to the conversation.

The Results of Check-inIf anyone has any doubt about just how widespread the impact can be of overhauling a performance management system to be more in tune with the ideas presented earlier in this white paper, you need only see the following results of Adobe’s new system:

Perhaps the most important result of overhauling the performance management system at Adobe is the palpable sense of relief that has collectively washed over its workforce. The old system was described by one employee as “a soul-less and soul crushing exercise.”

As many as 70% of employees report their managers are open to feedback from them, which is a substantial improvement from before the switch.

Voluntary attrition has declined by 25-30%, and those that do leave mostly aren’t doing so out of frustration. Top performers clearly feel valued supported.

Involuntary departures have risen by 50% because managers are more constantly aware of low performance issues and can take care of them without waiting for an annual review process. This means that Check-in is more efficient at weeding out low performers than the old system.

Teamwork and collaboration have been enhanced with the new process rather than hindered by the old process.

People are more aware at any given moment of where they stand on their own performance than ever before because performance conversations are happening all the time.

Morris has only one regret about the whole performance management system overhaul: That no one had the courage to disrupt such a bad process earlier.

among departments as to when they hold their Check-in conversations so that they occur when it makes the most sense for that part of the business (once each quarter is the minimum expectation). In fact, HR explicitly doesn’t meddle with the details of the process at all – completely the opposite of what the old approach required in terms of top-down control. It also makes the feedback process a two-way street – employees are expected to use Check-ins to provide quality feedback to their managers as well. As for compensation, managers are given a budget and the freedom to distribute it as they see fit. Managers praise the system for being a more organic approach over which they have control since its based on the frequent feedback process of Check-in.

That’s not to say making the switch was always smooth or easy. Decentralizing the process and training managers in the new approach has required much ongoing education. HR started rolling out the new process in July 2012 with the goal of having it be fully operational by 2013. The educational campaign included leader-led learning events utilizing Adobe’s own Connect web-based meeting platform. There were also plenty of informal interactions with employees to spread the word and get feedback on how the new process was viewed.

The biggest challenge by far is making sure everyone understands the finer nuances of giving and receiving quality feedback. Leadership consultant Stephen Miles was brought in to help with that task. He trains people to give feedback that highlights what people are doing well so that those behaviors can be further reinforced. Giving quality feedback means everyone has to be gathering data all the time so that when a Check-in conversation takes place, there is plenty of meaningful, detailed, specific content to talk about. For those on the receiving end of feedback, Miles tells them to begin by assuming the intent of the feedback is good. Listen deeply to what is being said without getting defensive. Ask thoughtful questions to get at the finer points and never allow yourself to react

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Case Study #3:

INTRODUCTIONAtlassian has made waves in the enterprise software field because of its innovative way of pricing and offering its products. An Australian company founded in 2002 by Mike Cannon-Brookes and Scott Farquhar who met while studying at Sydney’s University of New South Wales. The pair actually financed the startup by incurring a $10,000 credit card debt. Just eight short years later in 2010 the company obtained $60 million in venture capital from Accel Partners. The Atlassian innovation is that the company has no traditional sales department. Everything about its products is listed clearly on its website. Any of its products are available as hosted or installed versions, and a starter pack of 10 licenses is just $10.

Atlassian applications are targeted to software developers and project managers. Its flagship product, first released in 2002, is the project and issue-tracking application called JIRA (which is not an acronym, it’s a shortened version of Gojira, the Japanese name for Godzilla). Another of its most popular applications is the collaboration and content sharing platform called Confluence, first released in 2004. Its third most popular application is HipChat, a social media collaboration tool that allows the sharing of ideas and files in persistent group, video, and one-on-one chats that the company acquired in 2012. It’s other applications are very specific to various aspects of software development and coding.

Atlassian’s motto is We’re for teams. On its website it expands on the motto by saying, “Big teams, small teams, virtual teams, creative, business, academic, or nonprofit teams. If you depend on others to see your vision realized, we’re for you.” The way it explains its unconventional approach is worth examining as well:

In 2002, our founders, Scott Farquhar and Mike Cannon-Brookes, set conventional wisdom on its ear by launching a successful enterprise software company with no sales force. From Australia. Our first product, JIRA, proved that if you make a great piece of software, price it right, and make it available to anyone to download from the internet, teams will come. And they’ll build great things with it. And they’ll tell two friends, and so on, and so on. We’re for teams because we believe that great teams can do amazing things. We’re not afraid to do things differently. And we’re driven by an inspiring set of values that shape our culture and our products for the better.

In spite of those last couple of sentences, however, Atlassian hadn’t yet put its money where its mouth was as far as performance management. But with more than 40,000 customers encompassing millions of users, $150 million revenue in 2013 and 1,148 employees in 12 cities around the world, the time had finally come.

WHAT WASN’T WORKINGYou see for years Atlassian did what nearly everyone did, what was in-line with standard human resources practices. In Atlassian’s case, that was a twice-a-year 360-degree review. The final output was an overall performance ranking for each person on a simple five-point scale. It was the simple rating that would largely determine an employee’s bonus.

As is often the case, it didn’t take much to notice the review process pretty much did the exact opposite of what it was intended to accomplish. It used up a whole lot of time even in spite of its relatively lean design, caused a lot of anxiety, and seemed to demotivate people rather than inspire them to reach peak performance levels. It simply wasn’t delivering the value Atlassian needed it to deliver.

Interestingly enough, what also wasn’t working was finding a decent solution out there that could be copied or modified and adapted. What the company discovered was

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What was roundly jettisoned from the process was the more unconstructive aspect of ratings and using a distributed curve for comparative performance rankings. In an even bolder move, the company stopped paying individual performance bonuses. Everyone loves bonuses, but wouldn’t it be better to just bump all salaries up to put them at the top of the market’s compensation levels? That made sense to everyone. However, that doesn’t mean Atlassian has given up on bonuses entirely. Instead of paying individual performance bonuses, what the company does is pay an organizational bonus so that when the company is successful, everyone shares in that success. They also put stock options in the mix, which is another way that people can share in the company’s growth and rise in value over time.

It’s important to not underestimate the impact of focusing on strengths. In spite of the old system’s good intentions, it almost always ended up focusing on two major aspects of the review, which were the manager ratings of employees, and the inevitable highlighting of an employee’s weaknesses. Even when an employee is given a good rating, they’re very naturally curious about that rating and want to know why that particular rating was given, and even more so when it’s tied to an individual performance bonus. Managers then feel obliged to provide a rationale for why the rating wasn’t higher, and they only way to do that is by explaining an employee’s deficiencies that prevented them from receiving a higher rating. When you focus on weaknesses, the entire process becomes colored by always justifying what rating was given, which ends up being a total waste of everyone’s time. That’s the impact of not focusing on strengths. It’s an important but sometimes subtle recognition that you can only perform on your strengths, not on your weaknesses. This makes good common sense with a bit of reflection. You can spend inordinate amounts of time trying to improve on weaknesses, but what will that really get you? At best it might raise your performance

that while many tech companies were experiencing the same problems with their performance review process, none of them had figured out or implemented a better way. Atlassian was secretly hoping that the drawbacks to the traditional process would eventually just fade away, but the longer-lived tech companies said loud and clear that the drawbacks were persistent and wouldn’t just quietly go away.

When Atlassian delved deeper into the literature, more disappointment awaited. The materials were long on criticism of the traditional approach, but short on practical solutions. The problem was that most of the solutions offered didn’t seem to offer the substantial performance feedback that the company desperately needed to maintain. The solutions also didn’t seem like anything that standard HR systems would be able to adequately support.

Starting from ScratchAtlassian decided it was time to muster its courage and start over from scratch to figure out what would work for the company. The process began by conceptually ripping apart the traditional performance review. In its place, they came up with something that felt a lot lighter in terms of the concentrated time commitment. By making performance feedback a more continuous process, it wouldn’t feel like this huge burden that comes along once or twice a year for which a person had to set aside other important tasks in order to engage in a cumbersome performance review process. Making feedback continuous meant that it was something managers and employees were engaged in all of the time, incorporating it into their daily and weekly routines. The more constructive aspects of one-on-one conversations were retained. These weekly conversations with team members were continued, with the added feature that once each month the conversation would be explicitly directed at ways team members could enhance their performance, and specifically do so by playing to their existing strengths.

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they wanted to recognize this form of achievement. It’s a way of honoring instances where employees are not only making extra effort, but also getting results.

Frequency of behaviors came into sharper focus. A manager might highlight that a certain behavior is really helpful, and then the conversation can turn to how to make that behavior even more frequent.

Lessons LearnedPerhaps the most important lesson of all that Atlassian learned from this process is that when the literature and tools out there just don’t fit for what you have in mind, you have to have the courage to step out on a limb and create your own solution. For Atlassian, that meant combining elements of strengths-based coaching, motivational theories, and trying out a slew of different evaluation scales to come up with what would fit their unique company – and each company is unique. There simply is no one-size-fits-all approach, so skip the cookie-cutter tools and spend the time to figure out what’s right for your company. Based on what Atlassian wanted, the company had a terrible time finding an HR technology system that would allow them to integrate the features they felt they needed to incorporate in their performance management process. Packages like SuccessFactors and SumTotal just weren’t going to work. Rypple was one continuous feedback tool that was very helpful, but again didn’t offer the level of overall integration needed, though that was changing at the time. What they settled on was start-up Small Improvements, which helped facilitate performance check-ins and continuous feedback through coaching. For companies trying to implement these kinds of cutting-edge new performance management models, it’s a solution worth checking out.

Don’t underestimate how much handholding and training your managers will need in terms of learning how to facilitate coaching conversations. If needed, hire an

on those specific items to a mediocre level. It’s almost always better to play to your strengths. Take something you’re already good at and improve it even further to become excellent at it. It’s likely to happen because you’ve already got a solid foundation upon which to develop further.

That once-a-month one-on-one conversation that focuses on improving individual performance happens within a coaching approach and framework. This is important because without explicitly making it happen, the continuous performance review process would always wind up focusing on various aspects of daily operations, potentially losing sight of other important aspects such as 360-degree feedback and overall career development. Thus, there is a monthly coaching conversation, and the company provides guides that help managers facilitate these important conversations so that they stay on track and add real value to the performance review process. And that’s another point to keep in mind – the company still urgently needs real performance review to take place, but evaluating performance now takes place in a different way. Atlassian knew it couldn’t afford to shy away from providing solid, honest performance feedback, but it also wanted to make some clear adjustments to the process as follows:

Concentrate on performance conversations rather than the details of ratings.

Rather than giving a numerical rating, the managers give an approximate indication of how many times during the past 6 months an employee has demonstrated exceptional performance.

In addition to evaluating performance achievements, there is a scale related to how often you have stretched yourself. That can take the form of putting time and energy into improving company processes that fall outside the person’s normal array of responsibilities but that add value to the company. Interestingly, it was the managers who were saying

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but people did eventually respond to the call to take on these leadership roles. Atlassian made sure that people who stepped up to the plate received adequate training by developing a two-day course called the Atlassian People Management Toolkit with the help of the Australian Institute of Management. This was a top-notch crash course, and the feedback about it from those who took it was very encouraging. You can’t afford to skimp on these important training efforts!

Atlassian also knew that completely abolishing all numerical forms of performance feedback would leave many people feeling nervous. After all, people love numbers because they seem so objective and offer obvious entry points for analysis. Getting through that nervousness just takes time and patience. Once people realize that they will still receive solid feedback that lets them know where they stand performance-wise, anxiety about the lack of numbers does eventually subside.

Results AchievedYou’ll recall from the previous case study at Autodesk that the Holy Grail would be saying that changes in a performance management and review process impacted the bottom of line of the business by some kind of real dollar figure. Unfortunately, that kind of direct link between a performance management system and business results remains elusive. Difficult as they are to quantify, however, you can still get a sense of outcomes that are worth reviewing.

People love the focus on strengths. Every single employee at Atlassian has had and continues to have one-on-one conversations with a manager about their strengths and how to take them even further. They get to discuss what’s going great as well as some of their dislikes about what’s happening. When you let people talk about how they can spend more of their precious time on doing the things they love and are good at, it does wonders for morale, engagement, retention, and overall good will.

executive coach who knows this topic inside and out to train your managers. It is money well spent because there’s nothing worse than implementing a new system based on continuous feedback coaching and having it utterly fail because your managers don’t know how to coach employees for peak performance. If you don’t take the time to get this coaching angle correct, your efforts will be in vain. This is a message that needs to be received loud and clear!

You also need to take the time to think through how a new performance review and management process will impact some of your business basics. Take something as basic as team size. If your teams tend to be on the large size, it doesn’t take much to outstrip a manager’s capacity to provide the kind continuous and meaningful conversations Atlassian was aiming for in its revamped system. What happens in this scenario is that inevitably some team members will not receive the kind of one-on-one attention they should be getting. The way Atlassian decided to deal with this was to begin making teams smaller and more agile, keeping them to a size where one team leader could handle the continuous performance review and feedback of the new system. The company wound up experiencing all kinds of other benefits from making teams smaller. It allowed for a wider distribution of team leadership among more people. Rather than actually breaking teams up, what it did was to train a new layer of team leaders within a team who would then have a limited number of direct reports with which to deal. In turn, more employees felt more intimately involved with their teams, and felt like they had more autonomy, ownership, responsibility, and accountability in making things happen. In practice, however, this was difficult to achieve. Where Atlassian needed the streamlining was in its various product teams made up of brilliant software engineers. They love what they do. In fact, they love it so much they don’t really want to feel distracted from that by taking on people management roles. It took a bit of patience and cajoling,

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suggested the kudos bot, we came up with the Employee Recognition – SAYING THANKS program. Since starting the Saying Thanks program, we average 10 kudos a month and during each quarterly staff meeting our founders make it a point to highlight those receiving kudos.

Increased engagement. Whether its independent or internal staff engagement surveys, Atlassian employees are clearly loving the new system. Engagement levels are consistently in the 83-87% range. Atlassian also wins awards on a regular basis for being such a great place to work.

Companies who want to take a few cues from Atlassian need to do their homework. For a better understanding of taking a strengths-based approach to performance, there’s not better starting point than the books of management guru Marcus Buckinham, including Now, Discover Your Strengths; Go Put Your Strengths to Work: 6 Powerful Steps to Achieve Outstanding Performance; and StandOut: The Groundbreaking New Strengths Assessment from the Leader of the Strengths Revolution. In terms of more deeply understanding what motivates people in the workplace and to muster your courage in doing compensation and bonuses differently, a great starting point is Dan Pink’s TED Talk, The Puzzle of Motivation and then his book, Drive: The Surprising Truth About What Motivates Us. And of course you can spend some time reading through Atlassian’s many blogs, and especially its talent blogs, to get a sense for how the company handles various aspects of the performance management process.

In the final analysis, Atlassian’s story is largely about being willing to challenge the HR status quo and finding the courage to break with traditional ways of doing things. That includes questioning the following assumptions:

Performance must be rated on some kind of numerical scale (and perhaps even forced onto a distributed curve of

Getting rid of performance incentives was the right thing to do. Encouraging more of the desired behaviors through coaching simply works better. It also helps greatly to put in place adequate recognition practices and programs. Atlassian did this by creating a Kudos model using the company’s own issue tracking application, JIRA. This is worth spending some time on because it’s so important. Here’s how the Atlassian program was described by Experience Manager Ernie McGray in a blog post:

JIRA, the issue tracker, gives employees the ability to nominate a workmate for a kudos, or a thank-you, for something they have done really well, by creating an Employee Recognition – SAYING THANKS issue. An employee fills out this simple form on JIRA in order to nominate another employee. Each Atlassian employee has up to 2 people they can nominate a kudos to, annually, and no manager approval is necessary. From these nominations employees may receive a bottle of wine, 2 movie tickets, an iTunes card or another, more personalized gift, valued up to $30. In addition, each manager has a budget to spend on big kudos nominations that include gifts such as a stock car ride, tandem skydiving, hot air balloon rides, or a Swedish massage. A big kudos is a nomination from a fellow Atlassian who feels a person has exemplified Atlassian’s Values and done a kick-ass job. A big kudos does require a manager’s approval. The managers try to give gifts that they know the employee will really appreciate. JIRA’s workflow and assignee section is so easy that we can give a kudos gift out the same day a person is nominated. It also allows other employees to leave comments for a kudos nomination. When we first looked at an employee recognition program, it was complicated and had many layers of approvals and it could be weeks before a person would ever receive their appreciation gift for a job well done. But this is not how Atlassian likes to work, and while we were looking at streamlining the plan an employee suggested a kudos bot. After working with the employee who

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some sort).People need and want numbers related to performance.People need to know where the weaknesses are in order to improve them. The best way to determine compensation and bonuses are through individual performance ratings.

That last one can be one of the hardest to overcome because most of the existing technologies out there to support performance reviews are built with that in mind. That means you’ve got entire industries geared towards making sure you keep doing things that way because otherwise the systems and software they’ve created become obsolete. It becomes a huge wall of inertia that can be very difficult to scale in order to see what possibilities might exist on the other side.

Above all, however, it’s important to keep in mind that any time you do a major overhaul of a long-standing HR practice, it is incumbent upon you to make sure you provide the necessary training that will make implementation of the new system a success.

It was in August 2010 that Joris Luijke, Atlassian’s global head of talent, announced a 12-month “public trial” of the company’s new approach to performance reviews. It caught the attention of Fortune magazine, which ran a significant story on the experiment in early 2011. Just a month later in March, the Human Capital Institute (HCI) and the Management Innovation eXchange (MIX) announced that Atlassian was a winner of the 2011 M-prize. The prestigious award was handed out at one of the world’s largest HR events – the Human Capital Summit in Atlanta to celebrate innovation in HR. Clearly, Atlassian’s grand experiment is not only getting results, it’s getting some much-deserved media attention as well.

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INTRODUCTIONCargill is a fascinating company to look at in terms of performance if no other reason that its sheer size. If this privately multinational corporation company with its $134.9 billion in 2014 revenue and 143,000 employees were public, it would come in at #9 on the Fortune 500 list. When a company of that size can figure out how to do performance management differently, and do it successfully, it’s definitely worth paying close attention to it.

Cargill is in a bunch of different businesses, such as trading, purchasing and distributing grain and other agricultural commodities; trading in energy, steel and transport; raising livestock and production of feed; producing food ingredients such as starch and glucose syrup, vegetable oils and fats for application in processed foods as well as for industrial use. Cargill also operates a large financial services division to manage financial risks in the commodity markets for the company.

WHY CHANGE?Cargill already had a culture that valued its employees, but it also sensed that employees need to ramp up their ability to respond to rapid changes in the market environment. It also wanted to make an increasingly complex organization a bit simpler in this regard. It thought the best way to do all of this would be by overhauling the way it does performance management. But it also knew the first step would be to understand how the current system was really functioning. Drawing upon employee engagement surveys, historical performance management surveys, and interviews with employees, managers, and leaders around the world, it was able to piece together a tapestry that revealed significant disparities between what the system was measuring, how it was being used, and how employees went about accomplishing their daily work.

Not surprisingly, it found that many employees viewed the entire performance management process as a burdensome administrative drill that took people away from their more important work keeping the company successful. Although this is a very common scenario in the world of performance management, the more disturbing finding was that there was a clear reluctance on the part of managers to give candid feedback to employees.

When Cargill started conducting deeper research related to its own performance management systems, it found plenty of confirming evidence to back up what it perceived was lacking from its own process:

59% of employees think performance management reviews are not worth the time and effort involved.

67% of employees with the highest performance ratings were in fact not the top performers.

56% of employees do not received focused feedback on what to improve.

The research confirmed what has been discovered by other organizations who have endeavored to get to the bottom of performance management: Most formal PM systems have been so over-engineered that they have become little more than check-the-box exercises that don’t add real value, but that continue to be used because they’re tied to compensation and bonuses. What was really needed was to stop focusing on the formal system and hone in directly on the key behaviors that matter on a day-to-day basis for driving performance.

Everyday Performance ManagementCargill’s Everyday Performance Management program is a recognition that performance management is best conceived as an ongoing process rather than the mind-numbing annual or semi-annual event with lots of forms to complete. It realized that the best way to predict quality performance was not based on rating scales and forms, but the day-to-day activities and practices

Case Study #4:

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work together as partners to mutually determine the deliberate and empowered choices employees can make to reach peak performance.

The coach approach at Cargill is built upon the following core principles:

Asking Questions. The goal here is to help others surface their underlying assumptions about themselves, their work, and their teams. Everyone is encouraged to ask about progress on goals and results, as well as key learning, successes, and challenges.

Listen Actively. This one is about being fully present and listening intently in order to understand others rather than to direct or persuade them. This active listening aims at a deeper understanding of what employees are saying about performance, as well as how managers can support them to be more successful.

Give and Seek Feedback. Quality feedback is meant to become a routine process that is constructive and candid about an employee’s unique potential. The feedback should be very specific around progress, strengths, and opportunities for development and improvement.

Overcoming Initial ConcernsRolling out a whole new way of doing performance management is a big undertaking for any organization, but even more so for a corporate behemoth like Cargill. There were plenty of initial concerns as summarized in the following quotes from various people involved:

“The process is only as good as we make it. I question whether my manager will actively discuss this with me throughout the year.” (76% were confident they would have ongoing discussions).

“We already have 1-on-1 discussions once per month but these aren’t meaningful. My manager does not contribute to these.”

“Removing the leadership model from the performance document will generate less discussion about it.”

of managers and employees interacting about performance.

Those manager-employee relations are really at the core of getting to more effective performance management. It also recognized that PM systems need to embody the core principle of flexibility if they are to meet a variety of business needs throughout the organization, as well as in a rapidly changing environment.

Cargill also didn’t deceive itself into thinking results would somehow be instantaneous. At an organization of its size, the iterative nature of rolling out and adjusting new processes company-wide would and did take several cycles. Luckily, senior leadership was fully on board and supportive – they were in it for the long haul, the only way to accomplish lasting corporate change.

Part of what was involved included strengthening both employee and manager capabilities such as building trust, effective communication, and effectively delivering and receiving feedback.

The key differences between the old and the new systems can be summarized as follows:

Taking a coach approach was another key feature of the new system. Cargill came to understand that coaching was the best approach to develop the kind of leadership styles among managers that would have the greatest impact on both climate and performance. It cited research showing that the coaching approach tended to create the most positive environment, which in turn helps motivate and align employees to business needs. This creates a virtuous cycle of employee engagement that has huge positive impacts on performance, boosting it by as much as 20% while at the same time reducing turnover.

Developing one-on-one coaching skills and opportunities goes a long way towards building a more trusting and collaborative atmosphere in the workplace. Managers and employees

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Management, which represents an industry best practice. Focusing on ongoing one-on-one discussions and coaching ensures continued strong performance from both Cargill employees and teams. Everyday Performance Management enables both managers and employees to be more focused, agile, and aligned with our business strategies creating positive outcomes for all employees and Cargill as a whole.

That helps explain why Cargill won a 2014 Human Resource Management Impact Award for its Everyday Performance Management program.

Sustaining the New SystemMaking the change is one thing, but sustaining it can be something else entirely. What Cargill did to further embed the new approach was to make sure they rewarded and recognized managers who showed excellence in their day-to-day performance management behaviors and practices. It made sure to document what those successful managers were doing so that others could learn from their demonstrated tips and strategies. It was also very clear in holding managers accountable for getting it right while at the same time providing the training and support needed so that managers could develop the skills and knowledge needed to make it happen, including feedback skills, two-way communication skills, and coaching skills. Cargill’s continued focus on sustaining the new system revolves around the following key levers:

Messaging to reinforce the shared mindset

Modeling effective everyday PM practices and behaviors

Manager accountability

Manager capability

When an organization with 143,000 employees can manage to completely overhaul its performance management system to such great effects, it should serve as a sign that an organization of any size can do the same.

“There are still a lot of questions about how incentives will be determined in the new ‘no rating’ approach.”

Results from the SwitchCargill is seeing profound results from making these changes to its performance management system. Its latest research in 2014 revealed the following:

85% of survey respondents are having ongoing performance discussions.

85% of employees agree that effective discussions made them feel valued.

84% of employees agree that effective discussions helped them perform at their full potential.

82% of employees agree that effective discussions increased their engagement

Participation in the ‘No Rating’ approach did NOT have a negative impact on the quality of performance discussions or employee understanding of the link between performance and compensation.

Below are quotes from some employees about the change process:

“The simplified process made things much easier so we could spend more time on the things that mattered.”

“I am having more candid discussions during the year, focusing on accomplishments and future plans.”

“This process has given me more time to spend talking with my people rather than do paperwork.”

“There was more focus on content, business outcomes and observations. Ratings tend to be subjective and often serve only to reinforce the boss-subordinate relationship. I was energized by the discussion this year.”

Here’s how Cargill’s Chief HR Officer and Corporate Vice President, LeighAnne Baker, summarizes what the program accomplishes:

Cargill is honored to receive recognition for Everyday Performance

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Case Study #5:both cumbersome and confusing as managers had to figure out separate increases for each of those categories of rewards.

In an effort to simplify the process, in 2011 Microsoft implemented a new system of performance reviews where each employee would receive just one simple rating on a five-point scale that would determine increases in all three categories of rewards. On the five-point scale, a 1 was considered the highest performance rating and a 5 the lowest. In this system, a 3 would indicate compensation levels commensurate with the local market. It also instituted a forced-distribution wherein only a certain percentage of employees could be rated into each category. The size of increases in pay were further weighted by company areas so that the biggest increases would go to departments deemed most critical to the company’s success.

What does a manager in that system consider in rating an employee? Ostensibly the following:

Employee accomplishments during the year relative to their own goals and commitments as well as relative to the achievements of their colleagues.

The behaviors utilized in achieving those results as reflected in feedback from peers and managers.

The proven capabilities of an employee based on both the above inputs as well as their long-term performance record.

Employees could access a portal wherein they could see how different performance ratings would affect their actual compensation. This was an effort to improve the “line of site” between employee performance and compensation.

The Demise of Stack Ranking at MicrosoftJust two years later, however, Microsoft announced it was ending its stack-ranking performance reviews, even as Yahoo! was ramping up the same approach. What has come to be known

INTRODUCTIONCargill was an important example of a large organization making a major PM system overhaul, but it’s not the only big corporation to do so. Cargill is also not a company with which many people are familiar, which is why well-known Microsoft is the subject of this next case study.

Microsoft is ubiquitous in the computer industry, dominating the PC operating system market with Microsoft Windows as well as the office software market with Microsoft Office. It also does well in the video game industry with its various Xbox consoles and finally got into computer production with its Microsoft Surface line of tablet computers.

With its more than 128,000 employees, Microsoft is another corporate behemoth that you might think wouldn’t be nimble enough to take on a performance management system overhaul, but it has in fact done so, though perhaps not in as deeply a transformative way as some of the other companies studied so far.

The Evolution of the Performance-Pay Link at MicrosoftBack in the 1990s, Microsoft employees were generously showered with stock options as a primary component of compensation. This was natural given the surge in the company’s stock prices during that decade. After the bursting of the tech bubble, however, Microsoft changed that mix significantly in favor of cash over stock. As things stabilized in the early 2000s, it again shifted, this time focusing more on restricted stock units (RSUs) that reward retention over time.

More changes came in 2006 aiming at greater flexibility. The MyMicrosoft rewards system was implemented to give employees three different kinds of rewards – merit pay increases, annual bonuses, and the previously mentioned RSUs. The flexibility, however, came at a cost in terms of the system being

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months employees would also be surveyed, and the company certainly got an earful each and every time about how the stack-ranking system was hurting the company.

The dirty secret of forced rankings is that once you’ve done it that way for several years, you will have weeded out most of the low performers. But the curve is still there, and managers still have to force rank some employees into the lowest category, but now those are no longer low performers, they’re decent performers who maybe didn’t promote themselves as visibly to management. Is that any way to run a company?

It’s no secret that in the tech world, the best talent naturally gravitates to companies offering the best rewards, which is why so many Microsoft people end up bailing and heading off to Google and Facebook, or promising startups. In the startup environment, the idea is entice the best talent with plenty of stock options, get them to work frenetically so that the company gets to market fast with its disruptive tech offering, and then when the company goes public, everyone reaps the benefits. The last thing any such company would ever do is pit those valuable employees against each other – but that’s exactly what forced-ranking systems do. As one reporter put it, who wants to have to play Game of Thrones at the office?

Now What? Wait and See…It’s easy enough to do away with something that’s not working, but it’s much trickier to replace it with something better. It was November 2013 when Microsoft announced the end of stack rankings. Lisa Brummel, Microsoft’s chief HR officer, noted that the company would instead focus on teamwork, collaboration, and the growth and development of employees along with giving managers more discretion for deciding bonus compensation. But what does that really mean? What has happened in Microsoft’s performance management system in the nearly 18 months since abolishing its rank and yank system?

in many circles as “rank and yank” is still surprisingly common, and not just among tech firms. By 2012, fully 60% of Fortune 500 firms were using some form of rank and yank. Why did Microsoft finally bail on it? Better yet, why did it take so long?

In short, the forced-ranking approach at Microsoft took a workplace where corporate politics were already deeply entrenched and intensified it to the point of toxicity. Look at it this way: When you’re on a Microsoft team of 10 people, you know at the outset that no matter how great everyone does, two members will get outstanding reviews, seven will get mediocre reviews, and one will get a terrible review. There was simply no way around it because of the dreaded bell curve managers were forced to use in handing out ratings. Who among the ten wants to be the one at the bottom? No one. Who wants to be among the two at the top? Everyone. Suddenly, what’s good for the company and its products and customers is no longer the primary focus. Instead, everyone’s vying for positions, even openly sabotaging each other to try to either avoid being at the bottom of the stack (which often resulted in being shown the door) or to claw their way to the top. It’s not a healthy environment.

These reviews happened every six months, which gave people a kind of tunnel vision around short-term performance rather than keeping an eye on the bigger picture of long-term innovations. Actual conversations about performance, when they did take place, nearly always returned to the same topic of paying attention to one’s political game instead of anything about actually improving one’s performance. When people spend more time second-guessing the political ramifications of every move they make rather than striving for excellence for the good of the company, no one benefits. The system was essentially blocking people from collaborating with others to do their jobs – developing top-notch software.

What’s interesting is that every six

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That’s a much more difficult question to answer.

The press went crazy running stories about Microsoft finally ditching its force ranking system, but there’s been next to nothing published about what the company is doing now, or how it’s going. This may be an indication that Microsoft has yet to really figure out what to do next, which means the rest of the world will just have to wait and see what it comes up with.

The danger, of course, is that Microsoft might not be going the route of the previous companies studied. Notice how in each case the company engaged in a very deliberate, well-thought-out major change initiative specifically focused on performance evaluation and management. On most cases the new approach was carefully named and branded, fully developed and rolled out, evaluated, and then tweaked some more to get it right. There doesn’t appear to be any such effort happening at Microsoft, at least not that anyone knows about. Pulling the plug on stack ranking was the right thing to do, but not clearly replacing it with something else that’s part of a deliberate change process could spell continued troubles for performance management at Microsoft.

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Case Study #6:

INTRODUCTION

Juniper Networks is another tech company, this time specializing in networking solutions. Founded in 1996 and headquartered in Sunnyvale, CA, Juniper designs and sells high-performance Internet protocol network products and services. Its main products include routers such as the T-series, M-series, E-series, MX-series, and J-series families, as well as EX-series Ethernet switches and SRX-series security products. During the Great Recession, when other companies were experiencing painful contractions, Juniper was able to continue growing its workforce throughout the economic downtown and took in $4.63 billion in revenues in 2014. With just under 10,000 employees in more than 46 countries, the company was put on the Fortune Magazine list of 100 Best Companies to Work for, and has won plenty of other awards since then. A big part of that can probably be attributed to how its performance management processes were overhauled.

BACKGROUND

Juniper is somewhat unique in the way that it embraces lofty ambitions, what some would call BHAGS – Big Hairy Audacious Goals. Back in 2011, one such goal the company adopted was to end worldwide slavery. And how exactly does developing and selling hardware and software for high-performance networks have anything to do with ending slavery? In a way, it doesn’t really matter. The company’s employees see it as a goal that aligns with the company’s values and talents, and that’s good enough. Juniper puts its money behind such commitments, using its corporate foundation as well as its networking know-how to support a group like Not for Sale, a group that works to achieve the very same goal of abolishing slavery and all forms of human trafficking and servitude. The whole idea is to align what the

customers see of the company outside to what’s happening on the inside. It’s about translating words into real-world behaviors that make a difference.

The company strives to embody five distinct values that comprise The Juniper Way: “We are authentic, we are about trust, we deliver excellence, we pursue bold aspirations, we make a meaningful difference.” Steven Rice joined Juniper in 2006 as its VP of Human Resources, and before that he spent 25 years in HR at Hewlett-Packard. He takes the Juniper Way very seriously, considering himself an executive caretaker of the company’s culture. 2009 was the year Juniper began seriously defining its vision, brand, values and aspirations that became The Juniper Way. What that translated to for desired values on the inside among employees was collaboration, authenticity, and trust.

One of the things Rice wanted to find out was how employees viewed the values in action from inside the company. As he polled employees through conversations and other ways, he kept asking where employees felt the Juniper Way falls short in practice. Time and again the answer came back loud and clear: Trust. Perhaps not surprisingly, the annual performance review process was seen as a major stumbling block in living out this core value. Employees cited a lack of positive feedback, a completely backward-looking event that included forced ranking and all the other mind-numbing aspects of traditional approaches. They also wanted to decouple performance reviews from compensation and bonus determinations. Here’s how Rice himself puts it:

“The critical practice of letting someone know where their performance authentically stood became hijacked by artificially categorizing individuals into forced ratings in order to meet a fixed compensation budget. The process lost its integrity. In the majority of situations, it rendered the performance feedback incongruent with compensation and the rating.

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in distributing merit pay, rather than linking it to forced rankings.

What Juniper does now is a relative laddering within each occupational and geographical group instead of stacked ratings.

Detailed talent scenarios for each group now give managers and employees guidance for steps to take based on the scenario in which each employee best fits.

Even more importantly, because the entire process hinges of quality conversation, a lot of training had to take place to make sure people were equipped to engage in that kind of positive dialogue. To do this, it rolled out the Neuroscience of Quality Conversation program under the guidance of the NeuroLeadership Group. The goal was train managers in the following critical areas:

Deepening the climate of innovation and creativity.

Facilitating positive change.

Coaching for high performance.

The signs of a quality conversation at Juniper include results of improved thinking as well as the creation of a climate of increased engagement and innovation. It was made clear that these quality conversations were intended to take place not only between employees and their managers, but also among colleagues, peers, and even customers. A custom program was developed and three pilot sessions were delivered to 45 managers around the world. It consisted of four teleconference classes (1.5 hours each) in groups of 16 participants and utilized NeuroLeadership Group’s HIVE (High Impact Virtual Experience) technology. NLG also initiated a train-the-trainer process for four internal Juniper facilitators that allowed the organization to continue delivering the program to managers around the globe.

Another supporting process that

Ironically, an HR process designed to drive fairness resulted in mistrust.... Managers blamed it for tying their hands and wrote the whole process off as unhelpful.”

Forging a New PathRice was crystal clear on what should happen next. If there’s an HR process that is out of alignment with The Juniper Way, then that process must be overhauled and brought into alignment.

But even when people complain about a process, they still get nervous about making major changes to something they’ve come to understand. Juniper turned to Results Coaching Systems LLC and founder/CEO David Rock with his notion of neuroleadership. His research gave Juniper the hard evidence it needed to convince skeptical engineers and scientists that pursuing a new course was not only warranted but essential. After all, the neuro-scientific evidence was clear – the traditional process sets off all kinds of alarm bells in the more primitive areas of our brains, often triggering less-than-desirable behaviors in reaction to the stress being experienced.

What they came up with as a replacement was abolishing most of the old system altogether, including written reviews and ratings on a distributed curve. Instead, Juniper has a semiannual Conversation Day – no documents, no grades. Employees and managers discuss performance improvement and growth, set stretch goals and align them to an overall career trajectory. But there were many supporting systems that had to be put into place for it all to work, including the following:

Goal alignment was siphoned off into a separate activity. Employees and managers set goals aligned with the goals of the unit and the overall company.

Compensation planning was decoupled from performance reviews and now involves a statement of guidance giving local managers more flexibility

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to be willing to fearlessly challenge assumptions, and then lead change efforts to make things better.

Another lesson was that a new performance management system needs the support of good learning system as well. At Juniper, that meant making learning available in smaller chunks better suited to having it at one’s fingertips when needed. If, for example, a manager was getting ready for a coaching conversation but wanted to bone up on how to do it well, the old system would have involved attending a communication class on a set date. In the new system, however, the manager can access a YouTube video that walks them through the basics in a matter of minutes. That’s how learning needs to take place in the digital age of the 21st century. Juniper calls these bite-sized learning chunks molecules.

There’s also an overall approach to HR that gets increasingly radical in supporting new directions in performance management. Rice actually wants to do away with the entire HR website and replace it with a simple search box that asks what would you like to do? In other words, it’s not about the HR Department and its talents and resources, it’s about giving your employees what they need.

Also, although a company can abolish the traditional systems and its rankings, there’s still a need to do some kind of overall rating to determine if there’s a basic fit with the company’s culture or not. At Juniper, that means being assessed as either a J-Player or a Non-J Player. Being a J-Player means the employee is aligned to The Juniper Way and performs reasonably well. This entails making sure everyone knows what the behavioral expectations are so that employees can self-select out, and fully 80% of employees rated as Non-J Players do exactly that.

Juniper revamped was its employee survey. Instead of the usual huge, company-wide instrument, individual teams get climate surveys that furnish managers with specific, actionable information that is more immediately useful than waiting around to extrapolate pertinent information from firm-level data.

ResultsFollow-up research after the first Conversation Day revealed record participation among employees, to the tune of 93%, and 63% employees rated the dialogues they had as “helpful” or “extremely helpful.”

In terms of the quality conversation trainings, participants reported the following:

88% reported increase in engagement levels.

75% reported peers/colleagues enhanced ability to facilitate positive change.

75% reported increased quality of work relationships.

75% reported being happier at work.

90% reported using new skills in daily interactions.

84% reported improvement in leadership skills.

75% reported improvement in ability to coach for high performance.

70% reported improvement in ability to facilitate positive change.

70% reported improvement in ability to deepen climate of innovation and creativity.

Lessons LearnedOne of the important lessons learned at Juniper was the importance of forward-thinking HR leadership. Rice keeps on the leading edge of the curve by constantly questioning all assumptions encountered in HR, and he requires his peers to do the same. You have

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COACHING AND MENTORING

Much of what’s new in terms of alternative performance management practices has to do with coaching and mentoring, which leaves many people wondering if coaching or mentoring is more important.

According to the Robert Walters 2013 Employee Insights Survey 83% of nearly 10,000 survey respondents said they would benefit from mentoring, but only 29% work for companies that offer any mentoring programs. Coaching fares somewhat better, with nearly half of all companies making use of coaching, although typically only for midlevel and senior staff. Only 38% of companies make coaching available to anyone. This begs the question of which one is more important – coaching or mentoring? An even more basic question that many have is what’s the difference between coaching and mentoring to begin with?

Task-Oriented vs. Relationship-OrientedCoaching tends to be focused on a particular skill or set of skills in which a person needs improvement, such as delegating work, making presentations, strategic thinking, and so on. In those cases, you would look for a coach who has content expertise in those areas. Mentoring, on the other hand, is more focused on the mentor-mentee relationship and the value that the ongoing relationship brings to the mentee’s career and life in a bigger-picture way.

SHORT-TERM VS. LONG-TERM

When you need help developing a particular skill or set of skills through coaching, the relationship ends when you’ve achieved the level of master you were seeking. This could happen in just a few sessions over a relatively short period of time. With mentoring, the big-picture focus on broad directions and themes in career and life require the relationship to be long-term from the beginning, typically at least a year, but often lasting for many years.

Performance-Driven vs. Development-

DRIVEN

You engage in coaching because you need to specifically boost your performance by improving your mastery of one or more skills. A mentor helps you take a longer-range future orientation about where you’re headed in your career and the kinds of relationships you need to nurture in order to get there.

Specific Design vs. Organic AgendaWith coaching, you find a person who knows how to teach the skill(s) you want to enhance or learn, and it may even just come as part of the job or be assigned based on your manager’s assessment of your skills. The coach has developed a specific way to teach the skill(s) in an accelerated one-on-one format. Mentoring involves a much more organic agenda that emerges and probably changes over time. It’s more about developing self-knowledge and awareness of where things are going in the bigger picture. A mentor may be internal, but is more often from outside the organization, and your manager usually isn’t involved in it at all.

A mentoring relationship is usually going to be a pairing between two people where the mentor is a more senior, skilled and experienced person from the same field of work and the mentee is newer or just reaching a mid-level point in their career because the relationship is about long-term personal and career development. A coach doesn’t usually need any specific experience or knowledge of your field of work because it’s more about teaching you a specific skill that you need to learn or enhance.

It should now be clear that coaching and mentoring are very different. They each have a valuable role to play in organizations, which means trying to figure out which one is more important is asking the wrong question – you need both. And fear not, the return on investment justifies the cost of engaging in such programs. Sun Microsystems has developed very robust mentoring programs over the last 20 years, and estimates the ROI to

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Author Malcolm Gladwell in his book, David and Goliath: Underdogs, Misfits, and the Art of Battling Giants, makes use of this notion in trying to explain how something that appears at first to be a strength can wind up being a disadvantage. Instead of calling it the law of diminishing marginal utility, he simply calls it an inverted-U curve. It shows how doing more of something helps for a while (left side of curve), then the benefit levels off (top of curve), and then doing more of it does damage (right side of curve). This applies to a whole variety of phenomenon in ways that fly in the face of conventional wisdom. Take, for example, class size. Everyone knows that smaller is better, right? But the inverted-U curve dictates that eventually you pass a point where smaller is not better, and actually does more harm than good, both research and the experience of teachers in the trenches bear this out. Gladwell even applies it to punishment in the criminal justice system, wherein being on the right side of curve means more punishment not only fails to deter crime, it might actually cause it.

I am suggesting that the same applies to employee feedback. Clearly, once or twice a year is not enough. But if you take greater frequency of feedback to its logical extension, you might find yourself dropping down the right side of the inverted-U curve where more is just too much.

Complicating this picture, however, is the nature of feedback, which can be either positive, negative, or mix of both. I believe that the mix of positive and negative feedback has a powerful mediating effect of where feedback falls on the inverted-U curve. Too much negative feedback pushes over the hump of utility and into the realm of too much, where damage happens. How feedback is delivered can also play a role in this as well – negative feedback poorly delivered can literally give a person whiplash as they round the inverted-U curve, and that doesn’t do anyone any good. Here are six ways to make sure the negative feedback

be more than 1,000%. Meanwhile, a PriceWaterhouseCoopers study found a mean ROI from coaching of 7 times the initial investment, with many clients reporting ROIs of 10 to 49 times the cost.

When it comes to coaching vs. mentoring, it’s not an either/or choice between the two. Instead, organizations would do well to take a both/and approach, leveraging both coaching and mentoring for greater organizational success.

THE ART OF FEEDBACK

Another theme that comes through loud and clear in the case studies presented in this book is need for quality feedback in performance management efforts. Most of what is written about giving employees feedback laments how often it is lacking. In far too many organizations, feedback is consolidated into a performance appraisal that often happens only annually or semi-annually at best. People need ongoing feedback on a regular basis if you want them to reach the peak performance levels that will result in organizational success. Many organizations have jumped onto this bandwagon wholeheartedly, and rightfully so. But is it possible to take the whole notion of feedback too far? When does too much of a good thing begin to go sour?

The idea is nothing new for anyone who has sat through an Economics 101 course. After all, who isn’t familiar with the whole law of diminishing marginal utility? This basic macroeconomic principle states that as a person consumes more of a product or service, the amount of utility derived from each successive round of consumption eventually declines. The classic example of this is ice cream cones – the first one or two may be quite enjoyable, but try to stuff down a few more and you’re enjoyment will definitely take a nose dive, especially if you wind up with a serious tummy ache. If you make a graph this effect, it comes out as a curve shaped like an upside down U.

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you give doesn’t do more harm than good:

Relevancy. Link the negative feedback to forward progress in their development, which means you need to know a bit about them.

Concern. A sincere commitment to helping people be their best softens the blow.

Clarity. Define expectations clearly. People need to have a clear picture of what success looks like.

Positivity. Rather than thinking of negative feedback as corrective action, think of it as providing constructive encouragement to improve.

Kindness. You’ve probably been the recipient of badly delivered negative feedback, so have a little empathy.

Privacy. Dressing people down in public is not feedback; it’s humiliation.

Keeping those 6 guidelines in mind will help your feedback stay on the useful side of the inverted-U curve, adding value as it’s meant rather than making things worse.

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Conclusion

Every organization wants its employees to perform at peak levels. Coming up with a system that effectively tracks and evaluates that performance is no easy task, especially when you have an entrenched system that may or may not be working very well. However, Rolling up your sleeves and really tackling the performance management system at your company offers one of the best ways to make real and lasting changes that can potentially take you to a whole new level of success. And yes, those potential benefits do outweigh the discomfort and effort it takes to engage in a PM system overhaul.

It begins with diagnosing what does and doesn’t work with your current system, then engaging in a change process with support from the top to determine what kind of performance management system features are needed in the unique context of your organization. From there, implementation then becomes the focal point, realizing that an iterative design process means changes and revisions as the process rolls out. Finally, more steps must be taken to then drive the new system as deeply as possible throughout all levels of the company. It takes real time and effort to do this and do it right, but a new system that meets the needs of your company is worth its weight in gold. Just ask the six companies I’ve reviewed here – they unanimously agree the results have been more than worth the effort.