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The "Next Generation" Agile Performance Management System

A traditional annual performance appraisal is the funnel through which employee talent is rewarded or penalized. Though this has been in practice for a longer time, Agile has changed the way team members work together and re-defined the responsibility/accountability. With that, organizations started looking at “Continuous Feedback Management” system.

What are the differences between these two systems?

Top-down Annual Performance Process

  • Top down approach with Cascading goals
  • This is done as an annual Event
  • Lots of forms, processes to follow
  • Focused on rating and forced ranking
  • Compensation tied directly to rating
  • HR-Driven, HR-Centric process

Continuous Feedback Management

  • Team-centric based of the team’s achievement, aligned-but-local goals
  • On-going, more frequent like monthly
  • Simple tools to use, more agile…
  • Focused on continuous development, not based on ranking
  • Compensation based on multiple factors, not connected to a single rating
  • Leadership-driven, driver of culture

Here are few reasons as to why should we drop annual performance management (PM) system.

1. Effectiveness of PM is a question mark. Few facts about traditional performance management effectiveness are,

1. 3% reported the performance management system delivers exceptional value
2. 39% of companies have lately reviewed their performance management
3. 23% said their company was above average in the way PM is conducted

1. Lot of effort is spent on performance management, without much results.

1. 10K employees-sized organization spends 35M $ per year on performance management
2. Deloitte spent 2 Million hours per year
3. The Gap spent 1.3 lakhs hours & 3.3M $ per year
4. Adobe spent 80K hours, equivalent to 40 FTE working fulltime throughout the year
2. Focus on People Development – Having companies focus on development is key to manage the competitive pressure. If its done as part of annual cycle, it loses its effectiveness.
3. When it’s done for a longer term, biases hit the system – Rater-bias, Self-rater bias, structural bias and Calibration bias. 4. The need for Agility: The rapid innovation and product development, through Agile, drives the performance management to align with rapid pace, which leads to shorter performance cycles.
5. Centrality of Teamwork – To have better success, organizations focus on team work than individual accountability. Agile brings in and focuses on team work like team delivery, continuous improvement etc, it is important to look at the performance management system to align the engineering execution.

There are many organizations that have moved away from traditional performance management system. Here are few organizations that follow alternate performance management systems

  • Microsoft
  • Deloitte
  • Juniper
  • NetFlix
  • Master Card
  • GE
  • Adobe
  • Motorola

How can this be implemented?

Here are few proven models tried by few large enterprises.

  • Crowdsourcing Feedback
  • Through Coaching & Development
  • Continuous feedback cycle for the team and individual

Persisting challenges in the new approach that need to be taken care

The following challenges need to be managed well in the new system.

  • How do we align Individual and organizational goals?
  • How do we reward top performers?
  • How do we identify the poor performers?
  • How do we manage legal issues related to salary hikes and promotions without numeric ratings?

We will discuss in detail about these models in “Agile HR” workshop.

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