Armstrong on Reinventing Performance Management: Building a Culture of Continuous Improvement

The book's title might suggest content that only presents the author's own theories, but, in fact, it draws on the research and experiences of numerous fellow practitioners in this field. This is a compelling read that's relevant to managers, human resource departments, and CEOs in all organizations. It presents clear and practical examples of how to approach performance management in today's fast-moving business culture.

Armstrong is a former chief examiner of the Chartered Institute of Personnel and Development in the U.K., a joint managing partner of the HR organization E-reward, and an independent management consultant. He's written several best-selling human resource books.

So keep listening to find out how you can revolutionize the happiness and productivity of your team, why annual reviews ask the impossible, and why ratings should be a thing of the past.

This book is an informative and helpful examination of performance management today, based on what's actually happening in organizations around the world. Be prepared. Armstrong believes the traditional performance-management system is broken and failing. He's thorough and clear in his explanations of what's wrong - and there's a lot to address. But he's equally thorough and generous with his advice on how to make commonsense improvements that will benefit everyone. Anyone involved in people management, and especially those with the power to make change, should read this book.

As with any controversial topic, it's helpful to understand the origins of performance management. Armstrong's first chapter runs through its history, from its emergence as a way to rate officers in the First World War, to the addition of objectives in the 1950s, and on to results-oriented appraisals in the 1970s. From this whistle-stop tour, it's clear that many of the work places and practices that created performance management are no longer relevant to the world we live in. What's needed is a system that suits modern organizations.

Armstrong calls for performance management to be renamed and restructured, so it's truly based around performance and development. It shouldn't be something people are forced to simply "manage." Rather, it should be a non-stop effort to enhance the career of each individual employee, so he or she can add value to the team and advance the success of the organization as a whole.

Armstrong points out that performance management has become a bureaucratic process. Too much emphasis has been placed on the design of the system, rather than how to implement it successfully. Plus, managers lack the training they need to get the best out of their discussions and to set effective goals. In short, it's become a burden on managers and human resource departments everywhere.

At the heart of this process is the traditional annual review, and this is the focus of chapter seven. Armstrong explores its eight key purposes. These are: assessment, objective setting, development planning, motivation, communication, reward, talent management, and poor performance. This list alone, with its range and high expectations, is enough to see where the problem lies. This one-off meeting is trying to achieve too much and often asks the impossible of the people involved.

Armstrong also sets out 12 golden rules for conducting the ideal annual review meeting. This section helps managers understand the extent of their role. It also serves to further highlight the difficulty they face in trying to accomplish everything well.

Armstrong's golden rules include being prepared, providing good feedback, letting individuals do most of the talking, inviting self-assessment, and talking about performance, not personality. Discussion should take place in as informal and relaxed a setting as possible. It should provide honest and sincere praise, be based on factual evidence rather than opinion, and should not address unexpected criticisms. It should conclude on a positive note by looking ahead at mutually agreed objectives and a plan of action.

Armstrong points out that the main problem with annual reviews is that they're only held once a year. This means participants need to recall and assess work done up to 12 months before the meeting, so most attention will naturally fall on the most recent work. Strengths and successes, weaknesses and problems, aspirations and relationship building can't be sufficiently acknowledged and nurtured once a year or all in one go.

And so, what should organizations strive for?

The answer is a commonsense approach that recognizes the need for performance review to be all year round. This book advocates regular, less formal meetings that take place at least quarterly, though in some companies they may be as much as monthly. Armstrong calls these "performance and development conversations" or PDCs.

These regular check-ins between a line manager and team member are personal, positive and forward looking. PDCs aren't what Armstrong calls "post mortems" of past performance. Shorter, informal, regular meetings provide a trusting forum for any issues to be openly discussed and nipped in the bud, so there should be no nasty surprises for either party.

PDCs focus on the goals individuals set for themselves and their progression toward them, along with their contribution to the company, providing a continuous and flexible approach to objective setting. Gone are the days of half-hearted targets being ignored in the bottom of a desk drawer, year on year.

Perhaps most importantly, these meetings have nothing to do with ratings, report writing, or pay rewards. Armstrong provides evidence of how companies have been transformed by the PDC approach, including an almost immediate surge in job satisfaction and performance.

Chapter four also presents examples of leading organizations that have decided to reinvent the way they approach several aspects of performance management. These include Adobe, IBM, Gap, and Microsoft. Again, all have experienced a surge in employee satisfaction and overall company success. The revolutions in people management undertaken by Gap and Microsoft are detailed in the appendices, and make for inspirational reading.

As an example, Gap launched its performance management process, GPS – which stands for Grow Perform Succeed – in 2004, and hasn't looked back. Formal reviews and ratings have been replaced by 12 touch-base conversations with line managers. What's more, it's done away with paperwork, so these meetings are undocumented.

Gap states that this approach has created far more meaningful relationships, based on honesty and trust. Staff feel the meetings are there to help, rather than to judge and hinder progression. The company's also saved thousands of hours and millions of dollars by abandoning a process that didn't yield high performance, in favor of one that does. It's a resounding win, win.

In the book, Gap's managing director, Rob Ollander-Krane, explains that, under the traditional system, most employees saw the annual review as something to grit their teeth through. It was mainly about discovering the rating that would determine their bonus for the year. Money became the focal point, rather than discussions about personal career progression. Relationships would often be strained further by the fact that the bonus rating given at the meeting could later be altered to fit the company's overall budget. So a manager could be faced with the awkward situation of telling an employee he or she had fallen from an A to a B reward. It was a recipe for confusion, resentment and hostility.

Thankfully, all this has changed. So, how did Gap do it?

Ollander-Krane and his colleagues spent a year making it happen. In the first four months, they researched the current system, which made the case for a new approach. Following this, a team was assembled from across human resources to design this new system. The team met for one hour, once a week, over several months. Then, an external company was brought in to help finalize the revised process and branding over a two-day brainstorming session.

A senior advisory group of unit managers was also brought on board, to provide feedback and pilot ideas. A lot of work was done to ensure as many people as possible were informed about the change to come. Then, at the end of the year-long process, there were two important meetings to announce the final plans for Grow Perform Succeed – GPS.

The GPS scheme has four parts: Performance standard; Goals; Touch-bases, as you've heard; and, lastly, Rewards. Having discarded ratings, Gap created an annual rewards conversation that's separate from the touch-base meetings.

In chapter eight, Armstrong explains the problem of rating and how best to tackle it. According to Armstrong, ranking is often mistakenly viewed as the true goal of performance appraisal. This approach to managing involves placing your employees in order, top to bottom, and forcing them into a predetermined percentile. For example, 20 percent high flyers, 70 percent acceptable performers, and 10 percent unacceptables. This serves as a blunt tool to identify and reward high-flying leaders of the future, and get rid of the bottom performers.

Unsurprisingly, research has found that this system is entirely to the detriment of good teamwork. Those ranked highest are less cooperative during group tasks, because they feel the need to compete and maintain their high individual status. Ranking breeds an inward-looking, back-stabbing culture, more concerned with office politics than working together to build a world-class organization. According to Armstrong, this was certainly the case at Microsoft before it reinvented its people management system.

And what about the majority 70 percent of acceptable Joe Averages? What good can come from labeling most of your employees mediocre? Rating seems a problem wherever you're positioned on the scale. It encourages comparison and competition with others, a sense of not being good enough, or feeling threatened, demotivated and undervalued.

The cons of rating are passionately and persuasively argued in this chapter, and Armstrong's objective is clear from its title: "Abolish rating." However, he recognizes that even companies who accept the need to rethink the way they review performance remain beholden to a rating system because they can't see any alternative.

To help, Armstrong concludes the chapter with some workable models that give a good indication of how an individual is performing, while minimizing the negative effects of numerical ratings. These are based on matrices or grids that highlight the how and what of performance. One example, the Assessment and Action Matrix, is used by Unilever. There isn't time to go into it further here, but this section is well worth a read.

Whatever changes and reinventions a company makes, training is at the heart of good people management. It's vital to ensure your managers and employees are onboard and are properly equipped with the knowledge and skills they need. In recognition of this, Armstrong's penultimate chapter gives a wealth of practical advice on providing quality training for your line managers. This can take the form of guided discussions, role plays, exercises, and workshops.

The chapter concludes with five excellent training workshop guides covering the key aspects of good management practice. These cover how to structure and conduct performance and development conversations, and how to approach feedback, set objectives, and handle challenging conversations. The final workshop is concerned with coaching, a way of using situations that arise during the job itself as a learning opportunity for your team. Each workshop provides step-by-step instructions on how best to prepare and equip managers in their roles.

In its traditional form, performance management can be a costly, complicated system that fails the very people it's supposed to nurture and progress. This book includes extracts from a range of studies by management theorists and practitioners that look at how performance management is currently run and how it can be reinvented.

Armstrong and his fellow experts champion a simplified and personal approach that builds a strong relationship between line managers and their team members. A system that focuses on staff development and happiness will, in turn, create a stronger organization. Another key message is to shape your management system to suit the size, needs and goals of your company, but leave a degree of flexibility so that managers can tailor it to best serve their team.

Reinventing performance management requires time, effort and persistence, plus support from senior management, but the need to ditch the old and embrace the new seems hard to refute. If this book's anything to go by, and we believe it is, you won't be sorry if you do.

"Armstrong on Reinventing Performance Management: Building a Culture of Continuous Improvement" by Michael Armstrong is published by Kogan Page.

That's the end of this episode of Book Insights. Thanks for listening.