In last week’s post I criticized the traditional performance review process as little better than a tool for an organization to eliminate those that threaten the status quo. That’s partially because the classic performance review process has never provided the promised panacea of organizational improvement that its proponents would have us believe is possible. So the question is this: if the performance review process doesn’t work for its stated purpose and (unfortunately) isn’t going away any time soon–how might it be changed so that it does serve the purpose of helping to make an organization more effective and successful? With that said, this post offers a proven new approach to make the performance review a useful tool–by motivating employees to better align with the organization’s vision and overall goals.
In their book, More Than A Motorcycle – A Leadership Journey at Harley Davidson, ©2000 authors Rich Teerlink and Lee Ozley explain that a key part of the turn-around of Harley Davidson was the development of a replacement for the traditional performance review process which they saw as a holdover of the old command and control management mentality. One of their overriding goals in developing their new system–the Performance Effectiveness Program (PEP)–was to align the individual efforts of each employee with the overall values and strategies of the larger organization. The new system they developed serves as the foundation for Harley’s individual performance review, compensation review and career development processes.
While alignment of individual effort with the goals of the overall organization is the stated goal of most performance review systems, most fall short of actually achieving this kind of alignment. So how did Harley accomplish this lofty task?
They started with a top-down approach. I noted in an earlier post how Harley had started their top down approach not with a vision statement but with the stated values they wanted to demonstrate. They then identified the major issues facing the organization, from both a survival and growth perspective, and the myriad stakeholders that were crucial to the success of Harley. These (values–issues–stakeholders) then formed the basis for developing their organizational vision.
Once they formulated a vision that the whole organization bought into (developing it was a collaborative process) they developed the mission, objectives and strategies to meet that vision. Harley’s new system revolved around developing targeted performance measures at four major levels of planning: overall strategic plans, company operating plans, work unit plans and then personal plans. It’s this important stage where most performance review systems disconnect–if they were ever connected in the first place. Most performance review systems are developed in a vacuum divorced from the actual objectives and strategies of the organization.
The measures they developed for the “work unit plans” are the key to how their system worked. These plans were a detail of how each work unit would execute the organization’s strategy, meet the objectives and fulfill the mission. It’s these “work unit plans” that then formed the basis for developing the individual employees’ goals for the year. It was these specific plan goals that the performance review system was meant to measure.
So what did they do to the actual performance review process? Throughout their decade long transformation of Harley Davidson, management realized that the typical Performance Rating Form and it’s measures of non-specific traits and characteristics like: “effective communicator,” “global thinker,” “effective problem solver,” “gets results,” “acts as effective role model,” actually represented a real impediment to the organization reaching its goals.
As they noted, “Neither party to the review dialog could figure out exactly how to apply these measures. [For example] Which specific “behaviors” demonstrated objectively and conclusively, that an individual was an effective communicator or global thinker? If an employee wanted to improve along a given dimension, such as problem solving, what specific things could they do? No one could agree.”
This is the same problem faced by any organization that clings to the traditional subjective performance review format. So what exactly did Harley do to solve this problem? Harley believed that most typical performance review processes focus on measuring little more than the employee’s attitudes (disguised as a list of subjective “traits” that the organization feels are critical for an employee to possess to be successful). Thus Harley began a significant transition in its approach to the performance review process getting away from focusing on the individual’s traits, or “attitudes” and focusing instead on that person’s “behaviors.”
In their words, “When most companies have what they call a ‘problem employee’ they assume that the employee has an attitude problem. So the plan then is to attempt to change the employee’s attitudes.” The dictionary definition of an “attitude” is: a settled way of thinking or feeling typically reflected in a person’s behavior. Harley believed that an attitude only serves as an excuse for a behavior, thus they felt that more could be accomplished by focusing exclusively on behaviors. They believed that a person’s values drive their beliefs, which drive their attitudes which in turn drive their behavior and that the process should side-step values, beliefs and (especially) attitudes and focus strictly on behaviors.
Behavior is defined as; the way in which one acts or conducts oneself, esp. toward others, or; the way in which a person acts in response to a particular situation or stimulus. Isn’t this exactly what the workplace is all about: how an employee interacts with peers and how he/she reacts to everyday situations? On top of that, when an employee is told they have a bad attitude they get defensive. Also, no one likes to be told what to value or what to believe.
How did this new approach change the actual performance review form? Here’s an example’ of how a specific performance review “trait” was changed into a behavioral measure. The old measure: “Communicates Effectively” now comprised between three and five specific behavioral descriptors, such as “communicates in a way that permits full understanding” and “listens actively to a person when he/she is speaking.” Another key to their new system was that each specific “work unit” then added specifics that reflect priorities in their own area. Thus there was no single “one size fits all” performance review form in use across the whole organization. Each “work unit” had its own goals, measures against those goals, and its own supporting behaviors judged to be crucial to meeting those goals.
Another important facet of their overall new PEP schema was that the individual employee’s performance review, his compensation review (and adjustment), and career development reviews were scheduled on different occasions, separated by weeks or months. The reason is that they felt that when they are given at the same time they are counterproductive.
In their words, “If the supervisor begins the review session by revealing the amount of the raise, then the employee feels either pleased or displeased. In either case, he or she remains distracted by that number. Maybe he dwells on how the extra money will be spent, or he spends the remainder of the session deciding how to demonstrate his unhappiness. Even if the raise information is withheld until the end of the review the employee is equally distracted. They wonder ‘why is this being held back? How much did I get? Is it bad news?’”
They separated compensation from the performance review so that on a single target date everyone in the organization got an increase that was separate from their individual review. Of course you can’t completely divorce the two, but they were no longer tied together, driving each other. I’ve personally found the practice of giving a salary adjustment at the same time as the performance review to be a major detractor to the whole process working effectively.
Also Harley introduced a variable compensation policy. They split an employee’s compensation rate to 67% fixed and 33% variable. An employee received the variable portion of his/her pay if the “work unit” achieved its goals and if the employee met his/her personal goals established in the career development phase.
The bottom line is that while even Harley’s approach doesn’t completely eliminate some subjective measures of an employee’s performance, their approach is much more objective since it focuses on how an employee contributes to the overall “objectives” of the organization–and that’s really what’s important for the long-term health and success of any organization. Isn’t that why we supposedly do performance reviews in the first place?
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