CHARLOTTE WHEELER: Welcome to our series on turbocharging HR. This session will be on performance management what's new and how AI is evolving performance management. My name is Charlotte Wheeler and I'm here with my colleague Tom Hellier. Hi, Tom.
TOM HELLIER: Hi there.
CHARLOTTE WHEELER: Performance management is back. There's lots of conversation about it. What's going on?
TOM HELLIER: So performance management is one of those things that seems to come around in cycles. And we're back in one of those at the moment. There are a few different things that have put it back on the agenda now. One is just perennial dissatisfaction. So when you talk to any organization, anyone in any organization, about performance management, generally speaking, their experiences are relatively negative one.
Secondly, the way people are working is changing. And we can see that there's some misalignment between what it is that they're doing, the way they're working, and the old kind of annual cycles of performance that characterize performance management. And the third one, and this is probably the biggest one, is around the use of technology. And again, for years we've heard how people have put performance management into technology. But we're finally at a stage now where we seem to be able to do something a bit more meaningful with it and impact the different steps of the process to improve it and to make it a more beneficial experience for everybody involved.
CHARLOTTE WHEELER: So those challenges have been relatively consistent over time. So what's happening? What's evolving with performance management? How does it become more effective?
TOM HELLIER: I think the key thing really is in that last point around technology. We're finally starting to see, through rude technology, the ability to improve the efficiency of several process steps, but also improve the consistency of the experience of performance management for employees. Historically, I think we've always relied on managers, and managers doing a good job, in terms of things like goal setting, calibration, et cetera. We don't necessarily need to rely on them in quite the same way anymore. We can use technology to drive a much better calibration process. So we're able to focus just on those areas, for example, that present issues with goal setting. We can ensure that goals are consistent across large groups of employees, particularly those in similar jobs or who have similar levels of accountability.
CHARLOTTE WHEELER: So it sounds like there's consistent challenges in performance management that always has been over the years. What is it, in your view, that makes performance management effective?
TOM HELLIER: So it's a great question, and I think there are a few things that companies can focus on to drive a really effective performance management process. The first is being really clear on what the purpose of performance management is within the organizational setting. For most companies-- and we've got research that backs this up-- the number one priority is aligning individuals to organizational goals. So being clear on that, being upfront on that, is really, really important.
When we then look at some of the other aspects of performance management that need to be improved to drive greater effectiveness, it's things like goal alignment, goal cascade, being clear around what performance management is going to drive in terms of outcome. Will it link to reward? Won't it link to reward, for example? And critically, having capable managers who are going to drive the process well.
CHARLOTTE WHEELER: And thinking about those elements, and maybe some others, what's evolving in performance management? What are you seeing organizations do differently? What's the kind of new thinking?
TOM HELLIER: So interestingly, we've heard a lot of talk but not seen too much action around introducing, for example, hybrid approaches to performance management, where, for example, aspects of the annual performance management process may be retained. But for certain types of work that are shorter term in focus-- or even longer term in focus, if it's a big CapEx project, for example-- the performance cycles might look different. The goal-setting approaches could look different. And the assessment periods might look different. So moving things on to be a bit more work-centric is one area where we're seeing some change.
CHARLOTTE WHEELER: So there might be multiple approaches in one organization, depending on the population?
TOM HELLIER: Well, perhaps not multiple, but certainly more than one. So what we're starting to see is organizations stepping back a little bit, thinking about how work is done, and aligning performance management in a sensible way to that. That doesn't mean doing things differently for every population, but it might mean no longer operating a one-size-fits-all model.
CHARLOTTE WHEELER: Can we spend a few minutes talking about AI? So this series is focusing on how AI is turbocharging HR. What impact, if any, are you seeing AI in the performance management process?
TOM HELLIER: AI has got a really interesting role in the performance management process, largely because it's one that's been seen as quite administratively burdensome in years gone by. So what we're seeing is that AI is being used to strip out a lot of administrative inefficiency and drive a lot more effectiveness. So things, for example, like goal setting, we've seen the use of generative AI in suggesting goals to individuals based on their level in an organization and their accountabilities in terms of the role that they do. And that speeds up the process. It strips out the need for managers and employees to have lengthy back and forth, because really, it's simplifying it all.
Equally, we're seeing things like AI-driven nudges for individuals who've got KPI-focused goals. And you're able to monitor how on track or off track they may be. Finally, things like calibration processes when it comes to the year end. Historically, it might have involved managers sitting in a room with a big long list of people and having to go through them all. Now, AI allows you to focus in specifically on the cases that require most attention. And make sure you're having meaningful conversations that get to the point very, very quickly.
CHARLOTTE WHEELER: So it sounds like AI is changing the role of people in the process rather than the process itself?
TOM HELLIER: Yeah, I think that's fair to say. And historically, when people have talked about performance management being broken, it's rare that what they've actually meant is the process itself. It's more often than not managers, their role in it. Employees not liking the process. It's got less to do with the actual process itself.
CHARLOTTE WHEELER: And given what you've said just there, is there still a case for performance management as a process? Are there business impacts? Is it delivering an ROI?
TOM HELLIER: Yeah, I mean it's hugely important for any business. Again, if we go back to the number 1 priority that most companies have for performance management, is to drive alignment. It's to drive understanding between an individual, their role, their goals, and what the organization is trying to achieve. So if you can make that connection in a clear way and in a consistent way, it builds trust. First of all, with employees, they can see visibly how they're able to impact business results. And ultimately, if everybody's pointing in the same direction, the results are going to be better.
CHARLOTTE WHEELER: Do you have any facts or figures you can share with us around the impact or the return of investment on performance management?
TOM HELLIER: So one of the areas of research we do is called HPEX, the high performing ex companies. And quite clearly, when we look at organizations with a high HPEX score, one of the key underlying characteristics is that they're very clear in terms of how goals are set and how performance is managed. When we look at the benefits for those organizations, generally higher engagement will lead through to higher customer satisfaction, leads through to higher revenues, profitability, et cetera. So while the connection can be quite difficult to establish, it's definitely there to be seen.
CHARLOTTE WHEELER: Brilliant Thank you, Tom. Really appreciate you spending some time with us talking about all things performance management. Thank you for joining us. And we hope that you join the rest of our sessions.
