Replacing the Performance Appraisal

My prior post pointed out the deleterious effects of the annual performance appraisal and how they don’t actually increase performance. So, what should replace them?

Although I will attempt to provide a superior replacement, I think the premise of the question is flawed. After all, you don’t ask the firemen who saved your home what they intend to replace the fire with.

That said, there are three strategic resources to replace the performance appraisal system:

1. Key Predictive Indicators for Knowledge Workers
2. The Manager’s Letter
3. After-Action Reviews

Key Predictive Indicators for Knowledge Workers

A critical distinction is being made between a key performance indicator and a key predictive indicator. The former is merely a measurement—such as the number of patents filed, or new clients—but lacks a falsifiable theory.

The latter, by contrast, is a measurement, or judgment, guided by a theory, which can be tested and refined, in order to explain, prescribe, or predict. It is the search for cause and effect.

Knowledge work is not defined by quantity, but quality; not by its costs, but results. The traditional tools of measurement need to be replaced by judgment. And there is a difference between a measurement and a judgment: a measurement requires only a scale; a judgment requires wisdom.

So many leaders worry that if they get rid of objective measures, they will introduce subjective bias into the decision-making process. So what? To get rid of bias we would have to give up emotions and discernment, which is too high a price to pay. Neurologist Antonio Damasio has studied brain-damaged patients, demonstrating that without emotion it is impossible to make decisions.

Admittedly, the following KPIs raise rather than answer questions, but at least they raise the right questions. Better to be approximately relevant rather than precisely irrelevant. Enlightened organizations allow their team members to decide which of the following KPIs are most important to track and develop.

I am not suggesting utilizing all of the following KPIs. These are just some of the more effective ones I have seen.

Customer Feedback

What are the customers saying—good and bad—about the team member? Would you trade some efficiency for a team member who was absolutely loved by your customers?

Effective Listening and Communication Skills

It is easier to teach reading and writing, which are solitary undertakings, than to teach listening and speaking, which always involve human interactions. But how do you measure listening and communication skills?

Risk Taking, Innovation, and Creativity

How often do employees take risks or innovate new ways of doing things for customers or the company?

Knowledge Elicitation

Knowledge elicitation involves educating others so that they are able to generate their own knowledge.

Continuous Learning

What do team members know this year that they did not know last year that makes them more valuable? This is more than simply logging hours in educational courses; it would actually require an attempt to judge what they learned.

One of the objections to investing more in people’s education is “they will leave, and possibly become an even stronger competitor.” This is no doubt true, although a company faces the risk of their leaving anyway. But what if you do not invest in their education and they stay?

Effective Delegator

Peter Drucker believed that up to one-quarter of the demands on an executive’s time could be consigned to the wastebasket without anyone noticing. Does your organization encourage its knowledge workers to become effective delegators?

Pride, Passion, Attitude, and Commitment

If you thought some of these other KPIs were hard to measure, how would you measure pride? Although not a substitute for actual talent, pride in one’s work, customers, colleagues, employer, and values are critical to operate with passion and commitment.

High-Satisfaction DayTM

I am indebted to John Heymann, CEO, and his Team at NewLevel Group, a consulting firm located in Napa, California, for this KPI. An HSD is one of those days that convinces you, beyond doubt, why you do what you do.

It could mean landing a new customer, achieving a breakthrough on an existing project, or receiving a heartfelt thank-you from a customer. Sound touchy-feely? John admits that it is. But he also says that the number of HSDs logged into the firm’s calendar is a leading indicator—and a barometer—of his firm’s morale, culture, and profitability.

We can’t measure a doctor’s beside manner—it has to be experienced. Efficiency metrics and performance appraisals cannot count all the energy, enthusiasm, and commitment that employees decide not to contribute.

The Manager’s Letter

Another practical suggestion to hold people accountable for their future contribution is what Peter Drucker called the manager’s letter, as explained in John Flaherty’s book, Peter Drucker: Shaping the Managerial Mind:

[Setting objectives] is so important that some of the most effective managers I know go one step further. They have each of their subordinates write a “manager’s letter” twice a year. In this letter to his superior, each manager first defines the objectives of his superior’s job and of his own job as he sees them. He then sets down the performance standards that he believes are being applied to him. Next, he lists the things he must do himself to attain these goals––and the things within his own unit he considers the major obstacles. He lists the things his superior and the company do that help him and the things that hamper him. Finally, he outlines what he proposes to do during the next year to reach his goals. If his superior accepts this statement, the “manager’s letter” becomes the charter under which the manager operates."

Procter & Gamble utilizes what it calls the Work and Development Plan, in lieu of performance appraisals, which lays out the work to be achieved in the upcoming year, how it links to the business plan, the measures and timing for success, and expected results.

So much for the notion that there’s no suitable replacement for the performance appraisal. P&G seems to operate quite effectively without them.

After-Action Reviews (AARs)

Reflection without action is passive, but action without reflection is thoughtlessness. Combine experience with reflection, and learning that lasts is the result. What percent of your firm’s time is devoted to improving the work, not just doing the work?

The U.S. Army’s use of AARs began in 1973, not as a knowledge-management tool but as a method to restore the values, integrity, and accountability that had diminished during the Vietnam War.

Here are the questions you need to ask in each AAR:

• What was supposed to happen?
• What actually happened (the "ground truth")?
• What were the positive and negative factors here?
• What have we learned and how can we do better next time?

The objective is not just to correct things, but rather to correct thinking, as the Army has learned that flawed assumptions are the largest factor in flawed execution—another way of saying there is no good way to execute a bad idea.

The Army also recommends answering the following summary questions to wrap up the AAR:

• What should the organization learn from this experience of what worked and did not work?
• What should be done differently in the future?
• Who needs to know these lessons and conclusions?
• Who will enter these lessons in the knowledge management system, or write the case up for future use?
• Who will bring these lessons into the leadership process for decision-making and planning?

Perfectionist and mechanistic cultures, however, resist this type of candid reflection, as they tend to be intolerant of errors, and mistakes are associated with career risk, not continuous learning.

Confucius said “being ashamed of our mistakes turns them into crimes.” The medical world has an appropriate axiom for mistakes made: forgive and remember.

[For more on After-Action Reviews, I highly recommend you read Hope Is Not a Method: What Business Leaders Can Learn from America’s Army, by Gordon R. Sullivan and Michael V. Harper].

Not Final Words

Charles Handy, once again, sums it up eloquently in his autobiography, Myself and Other More Important Matters:

Organisations are not machines that can be neatly designed, mapped, measured and controlled. The fact that some particular operations can be and have to be managed in that way has deceived people into thinking that the whole organization is just one super-project. That is what logicians call a category error. For too long management theorists appropriated the language of engineering to describe the way organizations worked. People were human resources, things that could be costed, allocated, controlled and shunted around as the need arose; they were managed, in short. In everyday language it is things that are managed, not people.

"Above all people know instinctively that there has to be trust if any organization is going to work. …Yet organizations need trust if they are not going to clutter themselves up with rules, checks and checkers. Too much time is spent in organizations making sure that what should have happened is happening. If people know what they have to do and are competent to do it, they should be left alone to get on with it.”

Ultimately, the purpose of an organization, the intensity of interactions with other intelligent people, along with great ideas, is what attracts and develops talent—not the efficiency of a firm’s administrative processes.

One of the beauties of volunteer organizations is that they take advantage of people’s gifts, whereas what we call “systems” and performance appraisals are more concerned with people’s limitations.

Why do we continue to let yesterday hold tomorrow hostage with the antiquated annual performance appraisal process that demonstrably doesn’t work? Are we not capable of doing better?