WorldatWork Journal Q1-Q2 | 2016 | VOL. 25 | NO. 1-2 2Q | 2016 06 The Special Issue on Performance Management: Guest Editor’s Introduction By Gerry Ledford Jr., Ph.D., Center for Effective Organizations, University of Southern California 08 A Study of Cutting-Edge Performance Management Practices: Ongoing Feedback, Ratingless Reviews and Crowdsourced Feedback By Gerald E. Ledford Jr., Ph.D., Center for Effective Organizations, University of Southern California; George S. Benson, Ph.D., University of Texas at Arlington; and Edward E. Lawler III, Ph.D., Center for Effective Organizations, University of Southern California 25 Death to the Performance Review: How Adobe Reinvented Performance Management and Transformed Its Business By Donna Morris, Adobe 35 Enabling New Levels of Performance at Sears Holdings Corp. By Holly Engler, Sears Holdings Corp. and Chris Mason, Ph.D., Patagonia 47 Engaging Employees to Transform Performance Management at Cardinal Health By Lisa George and Julie Holbein, Cardinal Health 60 Transforming a Company: How Microsoft’s New Employee Performance System Supports Its Business and Cultural Transformation By J. Ritchie, CCP, Microsoft Special Edition: Performance Management
Transcript
Wo
rldatW
ork Jo
urnal Q
1-Q2 | 2016 | V
OL. 25 | N
O. 1-2
2Q | 2016
06 The Special Issue on Performance Management: Guest Editor’s IntroductionBy Gerry Ledford Jr., Ph.D., Center for Effective Organizations, University of Southern California
08 A Study of Cutting-Edge Performance Management Practices: Ongoing Feedback, Ratingless Reviews and Crowdsourced FeedbackBy Gerald E. Ledford Jr., Ph.D., Center for Effective Organizations, University of Southern California; George S. Benson, Ph.D., University of Texas at Arlington; and Edward E. Lawler III, Ph.D., Center for Effective Organizations, University of Southern California
25 Death to the Performance Review: How Adobe Reinvented Performance Management and Transformed Its Business By Donna Morris, Adobe
35 Enabling New Levels of Performance at Sears Holdings Corp. By Holly Engler, Sears Holdings Corp. and Chris Mason, Ph.D., Patagonia
47 Engaging Employees to Transform Performance Management at Cardinal Health By Lisa George and Julie Holbein, Cardinal Health
60 Transforming a Company: How Microsoft’s New Employee Performance System Supports Its Business and Cultural Transformation By J. Ritchie, CCP, Microsoft
Sp
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ment. All older practices are used to some degree with each pattern of cutting-edge
practices. A majority of companies use cascaded goals, 360 feedback, competency
assessment and calibration in combination with at least one of the cutting-edge
practices. Second, the table shows that the use of ongoing feedback, plus rating-
less reviews is associated with less use of all older practices. This is consistent
with the statements of many advocates of ratingless reviews. They are hostile
to traditional performance management and advocate for a less structured, less
bureaucratic approach. However, the lesser use of older practices is only a matter
of degree. Third, the use of ongoing feedback plus crowdsourced feedback and
the use of all three practices are associated with the greater use of older practices.
This suggests that these patterns are an attempt to create a more complete and
systematic performance management process.
Who Uses Cutting-Edge Practices?
Most media report of changes in performance management practices feature either
technology or professional services firms. There is a natural question of the degree
in which cutting-edge performance management practices appeal to specific kinds
of organizations or workforces. Survey results clearly indicate widespread interest.
The respondents ranged from small private companies to some of the world’s
largest multinationals. They also included nonprofits, nongovernment organiza-
tions (NGOs) and even public-sector organizations. We find that organizations
TABLE 2 Patterns of Use Versus Established Practices
N =236
Ongoing Feedback
Only
Ongoing +
RatinglessOngoing +
CrowdsourcedAll Three
Greatly simplified ratings
34% 30% 28% 47%
Cascaded goals 87% 80% 93% 89%
360 feedback 59% 51% 83% 83%
Assessment of team or unit performance
48% 43% 83% 75%
Assessment of employee competencies
80% 62% 90% 83%
Calibration meetings 82% 70% 93% 81%
14 WorldatWork Journal
of nearly all types, sizes and sectors are adopting ratingless systems, ongoing
feedback and crowdsourced performance feedback.
Table 3 reports practice adoption by industry. While tech firms and professional
services certainly are early adopters, we also find that manufacturing firms are
leading adopters. Industries for which most of the labor force is unlikely to receive
a traditional annual performance appraisal – agriculture, construction, extraction
and personal services – are least represented in the sample.
Table 4 on page 15 shows the percentage of respondents by number of full-time
employees. We find that most of the respondents were small and medium-sized
companies with fewer than 10,000 employees. This reflects the size of U.S. corpo-
rations; there are far more small and midsized businesses than large companies.
TABLE 3 Patterns of Use by Industry
N =236
Ongoing Feedback
Only
Ongoing + Ratingless
Ongoing + Crowdsourced
All Three
Agriculture, forestry & fishing
2% 1% 0% 0%
Mining 0% 2% 0% 6%
Construction 0% 0% 0% 0%
Manufacturing 27% 17% 24% 8%
Information technology 9% 15% 24% 39%
Transportation & Utilities 8% 4% 3% 3%
Wholesale trade 1% 2% 0% 0%
Retail trade 8% 4% 3% 3%
Finance, insurance and real estate
25% 17% 14% 14%
Services: Hotels, personal services, repairs and similar
2% 4% 0% 0%
Professional services 13% 28% 28% 19%
Public administration 2% 4% 3% 0%
Other 2% 2% 0% 8%
15 Second Quarter | 2016
Clearly, cutting-edge practices are being adopted by far more of these firms than
the large, prominent companies featured in most business press articles.
Why Use Cutting-Edge Practices?
We asked respondents about the importance of 18 different reasons for adopting
cutting-edge practices. Using factor analysis and reliability testing, we condensed
these causes into three primary categories: strategic alignment with business
needs; performance management process; and reward system objectives. Strategic
alignment with business needs included: increasing performance; supporting the
company’s values and strategy; and developing a performance culture. Improving
the effectiveness of the performance management process included: providing
useful feedback; improving managers’ and employees’ experience with the process;
and using a real-time rather than calendar-driven process. Meeting rewards system
objectives included: employee motivation; development; rewards for performance;
and retention. Three reasons did not fit in any cluster: focusing more on employee
strengths than weaknesses; identifying poor performers; and reducing the time
spent on performance management.
Figure 2 on page 16 shows the reasons for adoption of cutting-edge practices. All
three primary reasons for adoption are at least moderately important, but strategic
alignment and process effectiveness are somewhat more important than reward
system objectives. Looking at items within the clusters, the most important specific
TABLE 4 Patterns of Use by Company Size
N =236
Ongoing Feedback
Only
Ongoing + Ratingless
Ongoing + Crowdsourced
All Three
Less than 500 FTEs 15% 23% 10% 26%
500 – 2,500 FTEs 19% 26% 28% 20%
2,501 – 5,000 FTEs 13% 6% 14% 11%
5,001 – 10,000 FTEs 17% 22% 10% 17%
10,001 – 15,000 FTEs 5% 2% 14% 9%
15,001 – 20,000 FTEs 5% 2% 3% 6%
20,001 – 30,000 FTEs 3% 6% 0% 3%
30,001 – 50,000 FTEs 5% 2% 14% 0%
16 WorldatWork Journal
reasons for adoption are providing useful feedback to employees, increasing
organizational performance, motivating employee performance and supporting
company values. The least important reasons for adoption are attracting potential
employees, identifying poor performers and reducing time spent on performance
management. Using the new process for attraction and identifying poor performers
FIGURE 2 Reasons for Adoption: Mean Responses
Strategic Alignment
Increasing the organization’s performance
Supporting company values
Supporting business strategy
Developing a performance culture
Performance Management Process Effectiveness
Providing useful feedback to employees
Improving employees’ experience with performance management
Improving managers’ experience with performance management
Increasing the time managers spend on performance coaching
Creating a real-time instead of calendar-driven process
Rewards System Objectives
Motivating employee performance
Developing employee skills and knowledge
Rewarding top talent
Retaining existing employees
Rewarding employees more effectively
Attracting potential employees
Other
Focusing more on employee strengths than weaknesses
Identifying poor performers
Reducing the time spent on performance management
1 2 3 4 5 6 7
Not at all important
N = 244 Moderately important
Extremely important
4.36
4.38
4.91
4.05
5.25
5.26
5.62
5.90
6.02
5.34
5.51
5.77
5.81
5.98
6.43
5.90
5.86
5.93
6.00
6.14
5.98
17 Second Quarter | 2016
poses practical problems, so the lower importance of these reasons is understand-
able. However, the relatively low emphasis on reducing time spent is surprising,
given that total hours required by older processes is such a common criticism of
traditional performance management.
We performed additional analyses to look at how the reasons for adoption are
related to each pattern of cutting-edge practice. We found few significant differ-
ences in reasons for adoption except for rewards system objectives as shown on
Table 5. Rewards system objectives are significantly more important for ongoing
feedback plus crowdsourced feedback, and less important for ongoing feedback
plus ratingless reviews. This pattern is especially pronounced for attraction, reten-
tion, development and rewarding top talent. In all cases, these reasons were
significantly less important for ongoing feedback plus ratingless than for ongoing
feedback only and/or ongoing feedback plus crowdsourced feedback. The same
pattern holds for identifying poor performers.
DESIGN AND IMPLEMENTATION PROCESSES The vast majority of respondents were established companies that were changing
to cutting-edge practices from an older performance management system. We
asked a number of questions related to the ways in which the three cutting-edge
practices were designed, implemented and evaluated as shown on Table 6 on
TABLE 5 Patterns of Use Versus Reasons for Adoption: Mean Responses
N =236
1 = Not at all important; 4 = Moderately important; 7 = Extremely important
Ongoing Feedback
Only
Ongoing + Ratingless
Ongoing + Crowdsourced
All Three
Rewards System Objectives
5.41 5.08 6.01 5.44
Rewarding employees more effectively
5.38 5.04 5.66 5.11
Attracting potential employees
4.02 3.64 5.31 4.22
Retaining existing employees
5.43 4.94 5.76 5.36
Motivating employee performance
6.09 5.85 6.31 6.19
Developing employee skill and knowledge
5.76 5.85 6.43 6.11
Rewarding top talent 5.89 5.26 6.15 5.61
Identifying poor performers
4.70 4.02 4.90 4.11
18 WorldatWork Journal
page 18. Respondents indicated that HR executives are driving adoptions of new
performance management practices with support from top executives in the orga-
nization. This suggests that performance management is one area in which HR
leaders are playing a strategic role in the change process. Respondents indicated
that the change process is guided by a clear strategy and is based on a clear busi-
ness need or opportunity “to a moderate extent” or greater. The rewards function
and local management have some involvement in the process, but are not leading
the change effort in general. Employee involvement in the change is limited, with
few companies reporting that the process is driven from the bottom up. Table 6
also indicates that there are no sharp differences in the change process used for
different combinations of cutting-edge practices.
It is interesting that cutting-edge practices are being adopted boldly rather than
cautiously. Sixty percent of organizations, particularly smaller ones, reported that
all changes to performance management practices in implementing ratingless
appraisal, ongoing feedback or crowdsourced feedback were made for the entire
organization at the same time. The remaining 40%, especially larger organizations,
piloted or tested practices before rolling them out to all employees.
Organizations are providing training to both managers and employees to make
cutting-edge practices work effectively. Three-quarters of companies provided
TABLE 6 Description of the Change Process: Means
N =236
* 1=Little or no extent; 2=Some extent; 3=Moderate extent; 4=Great extent; 5=Very great extent
Ongoing Feedback
Only
Ongoing + Ratingless
Ongoing + Crowdsourced
All Three
Led by top executives for the organization
3.30 3.35 3.17 3.06
Led by HR executives 3.81 3.99 3.90 3.77
Led by the rewards function (compensation, compensation and bene-fits, total rewards, etc.)
2.63 2.71 2.72 2.32
Led by managers in local business units
2.77 2.48 3.03 2.86
Guided by a clear strategy
3.48 3.44 3.17 3.20
Based on a bottom-up implementation approach
1.85 1.90 1.93 2.20
Based on clear business need or opportunity
3.15 3.05 3.11 3.33
19 Second Quarter | 2016
training to managers for skills in giving feedback, calibrating across employees
and documenting in the new systems. Managers received from 5.4 to 18.2 hours of
training, depending on the specific practices implemented. While the likelihood of
providing training to employees was similar across the three practices, companies
implementing crowdsourced feedback reported much more training – 13.4 hours
on average – for employees working with the new system. Given that social media
is a technology that has the potential for abuse, this investment is understandable.
EFFECTIVENESS OF CUTTING-EDGE PRACTICESAny assessment of the effectiveness of cutting-edge practices must be prelimi-
nary because these practices are so new. In the sample of cutting-edge practices
users, 59% of ongoing feedback, 66% of ratingless reviews and 72% of crowd-
sourced feedback adoptions have taken place within the past two years. It will
be important to consider whether the conclusions reached in this section change
as companies gain more experience with these practices. In addition, all data in
TABLE 7 Implementation: Means
N =236
Ongoing Feedback
Only
Ongoing + Ratingless
Ongoing + Crowdsourced
All Three
Hours of training provided to:
Employees 5.2 3.2 13.4 3.2
Managers 18.2 5.3 6.8 5.4
Topics covered (Percentage of users indicating ‘Yes’)
Employee skill building 53% 59% 56% 66%
Manager skill building 71% 70% 74% 72%
How rewards are tied to performance in the new system
65% 73% 73% 67%
Performance calibration across employees
67% 37% 74% 47%
Performance documentation
91% 74% 81% 75%
20 WorldatWork Journal
this study are perceptual. “Hard” measures of effectiveness are very difficult to
collect in a large-scale study.
Figure 3 indicates that cutting-edge practices as a set are considered to be some-
what effective by the sample. We asked about the same items on effectiveness
FIGURE 3 Effectiveness of Cutting-Edge Practices: Mean Responses
Strategic Alignment
Supporting company values
Developing a performance culture
Supporting business strategy
Increasing the organization’s performance
Performance Management Process Effectiveness
Providing useful feedback to employees
Increasing the time managers spend on performance coaching
Improving employees’ experience with performance management
Improving managers’ experience with performance management
Creating a real-time instead of calendar-driven process
Rewards System Objectives
Motivating employee performance
Developing employee skills and knowledge
Rewarding top talent
Rewarding employees more effectively
Retaining existing employees
Attracting potential employees
Other
Focusing more on employee strengths than weaknesses
Identifying poor performers
Reducing the time spent on performance management
1 2 3 4 5 6 7
Not at all Effective
N = 244 Very Effective
4.13
4.29
4.66
3.15
4
4.37
4.59
4.63
4.64
4.22
4.70
4.89
4.90
4.97
5.38
4.98
4.85
4.98
4.98
5.21
4.99
21 Second Quarter | 2016
that we used in the examining reasons for adoption. The results indicate that in
general, companies are seeing their greatest positive effects where intended (stra-
tegic alignment and process effectiveness), with somewhat less impact on reward
system objectives.
The effects are positive, with means of around 5.0 on a seven-point response
scale, for strategic alignment and process effectiveness outcomes. Inspection of
specific outcomes indicates that cutting-edge practices have the most positive
impact on providing useful feedback to employees, supporting company values,
developing a performance culture, supporting the business strategy and increasing
the time managers spend on coaching. There was only one negative outcome:
attracting potential employees. This suggests that it may be important to explain
cutting-edge practices to new hires and prospects to turn this negative into
a positive. Cutting-edge practices do not appear to be especially effective in
reducing the time spent on performance management. Time saved by freeing
managers from doing ratings perhaps is being spent in additional coaching and
feedback for employees
Table 8 examines patterns of cutting-edge practices versus effectiveness
outcomes. The combination of all three practices tends to show the highest
effectiveness on outcomes in general. There are no sharp differences in effec-
tiveness for other patterns of practice on process effectiveness outcomes.
However, ongoing feedback plus ratingless reviews tends to be associated with
the lowest level of effectiveness on strategic alignment outcomes (especially
developing a performance culture, supporting business strategy and increasing
organizational performance) and reward system objectives (especially rewarding
employees more effectively and rewarding top talent), as well as identifying
poor performers. The areas of lowest effectiveness for ratingless appraisal map
to the greatest concerns typically expressed about this practice, including time
spent on performance management, rewarding employees effectively, retaining
talent and rewarding top talent. On the other hand, use of ratingless appraisal
in any combination appears to be more effective at focusing on employee
strengths rather than weaknesses.
We used a number of items on effectiveness of the performance management
process in both this study and the 2012 study. It is very interesting that for
every outcome but one, respondents to the 2015 survey (who used cutting-edge
practices) reported higher effectiveness of their process than did respondents to
the 2012 survey (who used more traditional practices). Respondents to the 2015
survey reported more effectiveness at motivating employee performance, devel-
oping employee skills and knowledge, providing useful feedback to employees
and supporting the company’s values. The only area in which the 2012 respon-
dents rated their effectiveness more favorably was in identifying poor performers
– which is not a goal of cutting-edge practices. These differences suggest that
the transition to a new style of performance management is only beginning.
22 WorldatWork Journal
TABLE 8 Patterns of Use Versus Effectiveness – Means
N =236
Ongoing Feedback
Only
Ongoing + Ratingless
Ongoing + Crowdsourced
All Three
Strategic alignment 5.03 4.87 5.02 5.35
Developing a perfor-mance culture
5.16 4.76 5.04 5.15
Supporting business strategy
4.99 4.85 5.04 5.44
Supporting company values
5.21 5.13 5.08 5.71
Increasing the organiza-tion’s performance
4.90 4.71 5.31 5.18
Process effectiveness 4.84 5.08 5.00 5.34
Increasing the time managers spend on performance coaching
4.91 5.08 4.96 5.34
Creating a real-time instead of calendar-driven (such as annual) process
4.59 4.68 4.88 5.24
Improving employees’ experience with perfor-mance management
4.58 5.08 5.00 5.29
Improving managers’ experience with perfor-mance management
4.66 5.07 4.85 5.21
Providing useful feedback to employees
5.32 5.40 5.31 5.74
Reward System Objectives
4.21 4.13 4.31 4.56
Rewarding employees more effectively
4.48 4.36 4.54 4.31
Attracting potential employees
2.97 3.08 3.50 3.58
Retaining existing employees
3.95 3.89 4.12 4.39
Motivating employee performance
4.71 4.51 4.54 5.03
Developing employee skills and knowledge
4.52 4.67 4.42 5.06
Rewarding top talent 4.64 4.46 4.73 4.91
Unscaled items
Reducing time spent on performance manage-ment
3.90 4.23 4.31 4.50
Focusing more on employee strengths than weaknesses
4.47 4.88 4.31 4.97
Identifying poor performers
4.66 3.96 4.46 4.32
23 Second Quarter | 2016
CONCLUSIONPerformance management practice is clearly undergoing a period of rapid change
in the United States. When we conducted the last CEO survey of performance
management practices in 2012, there were only a handful of companies reporting
anything other than a traditional annual rating process based on goals and
employee behaviors. Only three years later, we identified some 244 companies that
have adopted cutting-edge practices. The results of our study suggest that there
will be far more adoptions of cutting-edge practices in the future. The reasons that
companies are adopting them apply to most organizations today, and companies
that are using these practices report that they are effective in general.
Our study has provided the first data from a large sample of users of cutting-
edge practices. The key findings from the study are:
1 | Almost every company in the study (97%) uses ongoing feedback; 51%
use ratingless reviews and 27% use crowdsourced feedback.
2 | Companies are not adopting either ratingless reviews or crowdsourced
feedback without also adopting ongoing feedback.
3 | All three cutting-edge practices are being used in addition to, rather than
in place of, many older performance management practices.
4 | Companies adopt cutting-edge practices for many different reasons that
fall into one of three categories: alignment with company needs, the perfor-
mance management process or meeting rewards system objectives.
5 | Rewards system goals are less important for companies adopting ratingless
reviews and are more important for companies adopting crowdsourced feedback.
6 | Cutting-edge practices are somewhat effective in general. It is possible
that effectiveness is not higher in part because these practices are still new in
most organizations that use them.
7 | The combination of all three practices appears to be the most effective
pattern of practice.
8 | The combination of ongoing feedback and crowdsourced feedback is more
effective on many outcomes than either ongoing feedback alone or ongoing
feedback plus ratingless reviews.
9 | Ongoing feedback plus ratingless reviews is less effective for strategic
alignment and rewards system objectives than other patterns of practice.
10 | A comparison of responses to the survey of cutting-edge practices to the
responses from earlier surveys suggests that cutting-edge practices are more
effective than traditional practices.
AUTHORS
Gerry E. Ledford Jr., Ph.D., ([email protected]) is a senior research scientist in the CEO at the University of Southern California’s Marshall School of Business. Ledford returned to CEO in 2012, where he was previously a key contributor from 1982-1998. From 1998-2003, he was at Sibson Consulting, where he was senior vice president and practice leader, employee effectiveness. Since 2004, he has been president of Ledford Consulting Network. He received his Ph.D. in psychology from the University of Michigan. He is the
24 WorldatWork Journal
author of more than 125 articles and 10 books and is the winner of the 2012 WorldatWork Author of the Year award. For more information, visit http://ceo.usc.edu.
George S. Benson, Ph.D. ([email protected]) is an associate professor at the University of Texas at Arlington. Benson earned his Ph.D. from the University of Southern California and is an affiliated researcher at the Center for Effective Organizations. He previously worked as a research analyst at the American Society for Training and Development. He also holds degrees from Washington and Lee University and Georgetown University. For more information, visit https://wweb.uta.edu/management/Benson/benson.HTML.
Edward E. Lawler III, Ph.D., ([email protected]) is distinguished professor of business and director of the CEO in the Marshall School of Business at the University of Southern California. He has authored more than 400 articles and 50 books and has been honored as a top contributor to the fields of organizational development, organizational behavior, corporate governance and HR management. His most recent books include “The Agility Factor” (2014), “Global Trends in Human Resource Management: A Twenty-Year Analysis” (2015) and “Corporate Stewardship: Achieving Sustainable Effectiveness” (2015). For more information, visit http://www.edwardlawler.com and http://ceo.usc.edu.
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Buckingham, Marcus and Ashley Goodall. 2015. “Reinventing Performance Management.” Harvard Business Review 93(4): 40-50.
Cunningham, Lillian. “In Big Move, Accenture Will Get Rid of Annual Performance Reviews and Rankings.” Washington Post, July 21, 2015. Viewed: Feb. 18, 2016. https://www.washingtonpost.com/news/on-lead-ership/wp/2015/07/21/in-big-move-accenture-will-get-rid-of-annual-performance-reviews-and-rankings/
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Mosley, E. 2015. “Creating an Effective Peer Review System.” Harvard Business Review (online only). Aug. 19. Viewed: Feb. 22, 2016. https://hbr.org/2015/08/creating-an-effective-peer-review-system?cm_sp=Article-
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25 Second Quarter | 2016
Donna MorrisAdobe
Death to the Performance Review: How Adobe Reinvented Performance Management and Transformed Its Business
In March 2012, Adobe was at a crossroads: It was on
the cusp of transforming its business dramatically,
from an 18- to 24-month product cycle company that
sold its software through one-time customer purchases
to a cloud-based software company releasing frequent
innovations through an ongoing subscription model.
Adobe’s employee culture needed to change quickly to
adapt to the new business direction.
Adobe’s People Resources leaders decided that annual
performance reviews were too time consuming, nega-
tive and slow to be the foundation for performance
management moving forward. Through an unplanned
conversation with an Indian journalist, events were set
into motion rapidly and the company announced the
end to annual performance reviews a few months later.
The “Check-in” – a two-way, ongoing dialogue between
managers and employees – became the new standard
at Adobe, resulting in dramatic efficiency gains, more
effective performance management and higher employee
ORGANIZATIONAL CONTEXTAdobe is one of the largest and most diversified software companies in the
world. It is headquartered in San Jose, Calif., in the heart of Silicon Valley, and
has about 13,500 employees globally. It sells to a broad range of customers, from
multinational brands such as Nissan, CNN and American Express to individual
consumers. Its go-to-market model includes an enterprise salesforce, partners
and e-commerce via Adobe.com. Adobe’s tools and services allow customers
to create groundbreaking digital content, deploy it across media and devices,
measure and optimize it over time and achieve greater business results.
Adobe’s main product offerings are three cloud-based services: 1) Creative Cloud
to create standout content that spans media and devices, which includes well-
known software applications such as Adobe Photoshop, Illustrator and InDesign;
2) Adobe Document Cloud to create and collaborate on documents and streamline
how work gets done, which includes Adobe Acrobat and the PDF document stan-
dard; and 3) Adobe Marketing Cloud to deliver experiences that are personalized
and effective across every customer touchpoint, which includes eight solutions,
with the core of the offering, Web Analytics, having come from the acquisition of
Omniture in 2009.
At the time that Adobe began transforming its performance management process,
the company was at a crossroads as a business, facing the move from its tradi-
tional desktop software business to a new cloud-based model. Its core software
offerings were still sold as desktop applications, with customers not upgrading
for several years or more. These version-skipping customers did not benefit from
new product innovations, which were becoming increasingly critical as the land-
scape for content and devices changed rapidly. It also hurt Adobe’s stock price, as
investors viewed the company as a reliable product-cycle company without major
growth potential.
Culturally, Adobe’s employees had become accustomed to 18- to 24-month
product development cycles as well. They worked with discipline against long
development cycles, but were generally not agile in their approach. While Adobe
had strong overall retention, some high performers would leave each year after
annual bonuses were paid out, and the lure of other Silicon Valley-based startups
was a continuing pressure relative to talent.
In spring 2012, the company marked a major transition point in its business
when it launched Adobe Creative Cloud and began selling its creative software
through ongoing subscription. The following year, Adobe announced that it would
no longer develop creative tools for the previous desktop sales model. This move
created major internal pressure to reinvent the company’s culture because the
employees would need to move away from the very structured way they had
been accustomed to working into a fast-moving product development culture that
releases frequent product updates and innovations.
27 Second Quarter | 2016
As a People Resources organization (Adobe’s term for human resources), we knew
that we would could lead this cultural change by rethinking our own processes.
The annual performance review was an obvious candidate for reinvention.
ORIGIN OF THE CHANGESAdobe’s previous performance management process was typical of other compa-
nies in the tech industry. Once a year, the company would roll out a process that
went like this:
❚ People managers would solicit written feedback from stakeholders who had
worked with their employees.
❚ Employees at all levels would respond to these requests for feedback via email,
sometimes needing to respond to 10 or more individual requests.
❚ Leaders in each organization would participate in a rating and ranking exercise,
usually several hours in length, where each employee was assigned a rating –
high, strong, solid or low – and would be stack ranked relative to other employees
across the organization.
❚ People managers would then write a performance summary on each employee,
typically one or two pages, incorporating the feedback received, observations
on performance and the performance rating.
❚ People managers would then deliver the performance review directly to the
employee and discuss it. These were sometimes difficult conversations, with
employees not understanding their rating or feeling surprised at critical feedback.
❚ Salary raises and equity grants were prescribed based on the employee’s level,
rating and ranking.
❚ The review was routed electronically, and employees had the opportunity to
provide comments.
❚ The People Resources team would invest multiple cycles ensuring that each
step of the process had taken place and handling escalations from unhappy
employees and managers.
The list includes many administrative activities but does not include the time that
managers may have spent in conversations with employees during the year about
performance and development. These administrative actions equaled eight hours per
employee. The average manager had five employees, so five employees times eight
hours each equaled an average time investment of 40 hours per manager. Adobe had
about 2,000 people managers, so in total that meant 80,000 working hours, or the
equivalent of 40 full-time employees, invested in the process side of annual reviews
outside of the actual end-of-year feedback session with the employee.
Beyond this enormous time commitment, the annual review was having a nega-
tive effect on employee engagement. During annual employee engagement surveys,
employees frequently cited the annual review as one of the top processes that
needed improvement. There were often negative surprises for employees relative
28 WorldatWork Journal
to feedback or rating because people managers had not effectively been giving
feedback to these employees throughout the year. Some people managers were
reluctant to give any constructive feedback, which meant that the written reviews
did not fully reflect the employee’s performance. Finally, when the feedback was
received, often many months had been lost when employees could have adjusted
their priorities or behaviors to be more effective.
Adobe’s People Resources organization modified the process each year, trying
to make it less time consuming and more effective. This included adding better
automation for the written reviews, additional employee and manager training and
resource documents. But the leadership team eventually came to the conclusion
that the company may be best served in eliminating this process altogether, and
thinking about performance management in a totally different way.
CHANGE IN ADOBE PERFORMANCE MANAGEMENT PRACTICESIn March 2012, after having just completed another onerous annual review cycle,
I, as senior vice president for customer and employee experience, had decided
that annual reviews had to be eliminated if we were going to be as productive
and agile as a company as we needed to be. Adobe was evolving as a company
and its practices had to reflect the changes: agility, ongoing innovation and team
orientation. The People Resources leadership team would need to shape an alter-
native, then get buy-in from the CEO and executive team before rolling it out to
employees over the course of the year.
Things took an unexpected turn when I flew to Bangalore, India, for business meet-
ings. The local marketing team had scheduled a press interview with the Economic
Times of India, one of the country’s most widely read business newspapers. I was
very jet-lagged, and the journalist interviewing me was quite aggressive, pushing me
on whether the HR function really has any strategic impact in an organization. In an
unfiltered moment, I shared my opinion that annual performance reviews were an
outdated and unproductive process, and we intended to eliminate them at Adobe.
Later that day, the marketing team told me that the journalist planned to run a
front-page story. It ran eight days later, “Adobe Set to Junk Annual Performance
Appraisals.” This was definitely not the way I would have chosen to launch my
idea, especially when I had not yet shared it with the CEO!
I made maximum use of those eight days, giving our executive team a heads-up
and then writing an internal blog for employees entitled, “It’s Time to Radically
Rethink the Annual Performance Review.” In the blog, I raised the idea of elimi-
nating the process and moving to a more ongoing approach rather than once-a-year
event and invited feedback. There were hundreds of posted replies from Adobe
employees, with the large majority expressing strong support and enthusiasm for
change. Employees suggested their own alternative ideas, areas of concern and
appreciation for being included in the dialogue before a decision was made. In
just a few days, we felt confident that this was the right path forward.
29 Second Quarter | 2016
Over the course of several months, I led a global team of more than 10 indi-
viduals ranging from the VP to senior manager level across business partnering,
compensation, organizational development, talent development and employee
communications to shape a new performance management process that we
branded the “Check-in” and rolled out to all employees globally. In sharp contrast
to the previous resource-intensive process, the new process was framed as a fluid
two-way dialogue between a manager and employee. It includes:
❚ Setting written expectations at the start of the year, which are revisited regularly.
The company suggests quarterly meetings at a minimum. A goal-setting form is
provided for employees who would like to use it, but no set format is required.
❚ Providing ongoing feedback focused on performance throughout the year, and
ideally as real time as possible so the right behaviors can be reinforced.
❚ Eliminating all mandates around timing, methods and written reviews.
❚ Providing a budget for salary raises and equity grants, which happen once annu-
ally in the Rewards Check-in, so people managers and senior leaders can adjust
awards based on their best judgment. There are no ratings, rankings or prescribed
awards required.
The role of the People Resources team in the process has shifted heavily toward
manager and employee enablement to ensure that people are building their ability
to give and receive feedback. The largest and most critical investment was in
the first year of the program, but it continues to be a major focus for the team
now more than three years later. Investments included a dedicated section of
Adobe’s intranet highlighting templates for goalsetting and planning a feedback
conversation; videos showing effective model Check-in conversations; and tips
for both people managers and employees for how to make the Check-in more
effective. The team also created a robust training program for both managers
and nonmanagers to build stronger skills in providing constructive (not critical)
feedback and utilizing feedback as a development tool. In 2015, there were more
than 12,000 visits to this section of the intranet site, with the average site visitor
returning three times.
In tandem with the introduction of the Check-in, People Resources rolled out
a shared services model to better meet employees’ daily HR needs. Called the
Employee Resources Center (ERC) it provides employees with a regional resource
by phone and online to ask questions. The ERC is the first escalation point for
people who need help with Check-in or have a concern. This very accessible
resource has ensured that employees know where to go for advice and resources
when the need arises.
As noted earlier, Check-in conversations are suggested quarterly but teams are
given the flexibility to build a cadence that works for them – for example, in
engineering, it may be at the end of each major “sprint,” which typically occurs
every six weeks. Many teams meet face-to-face, but some managers with remote
employees conduct Check-ins via phone or video conference. (Face-to-face is
30 WorldatWork Journal
ideal, but with a distributed workforce in more than 40 countries, it is not always
feasible.) Some teams and managers have elected to document performance and
formally solicit feedback as part of the Check-in, but the majority have chosen
to keep most of the feedback more informal and verbal. Each manager decides
whether to ask for feedback from other team members or partners. In the most
recent global employee engagement survey in 2014, 72% of employees said they
are regularly receiving Check-ins from their manager.
Growth and development is intended to be a core part of the Check-in conver-
sation, where managers and employees can discuss the employee’s long-term
goals, development needs and progress. Suggestions for further training, stretch
assignments, rotations and other development opportunities should arise as part
of these dialogues. It is emphasized to employees that they are their own career
managers, and they should come to Check-in conversations with their own ideas
for growth rather than expecting the manager to chart a course for them.
The rewards Check-in is held in the December-January timeframe, tied to Adobe’s
annual equity grant calendar. Budgets are determined by the executive leadership
and put into an online tool called the Rewards Tool. Within the allocated budget,
people managers are given the freedom to adjust each employee’s raise based on
performance against goals and potential in the organization. Senior leaders review
and adjust those recommendations, as well as allocating annual stock grants to
their organizations’ highest performers. Entering the recommendations into the
online tool typically takes managers 30 to 60 minutes.
Escalations and issues have been rare in the Check-in process, but when they
occur, the People Resources team will engage with the employee and manager
to assist in clear two-way communication. People Resources has utilized annual
employee surveys to spot organizations where Check-in may not be happening
effectively, and then has done hands-on training as needed. In rare cases, managers
who are not comfortable with providing active feedback have been moved into
individual contributor roles where they can continue to progress their career
without having to manage a team.
Promotions are conducted throughout the year when merited as well as during
the Rewards Check-in process. When there is a low-performing employee, he/
she is put on a performance management plan with heavy use of documen-
tation and short-term expectation setting. Because of the ongoing feedback
inherent in Check-in, these situations are usually addressed quickly at all points
of the year and are not tied to the Rewards Check-in timing, unlike the former
annual review model.
IMPLEMENTATION OF CHANGESThe shift from the annual performance review to the Check-in took place over nine
months in 2012. It began with the internal blog in March 2102, raising the idea of
eliminating annual performance reviews, and went into execution in December
31 Second Quarter | 2016
2012 when the company provided the tools and training to replace the usual
annual process.
One significant challenge was navigating the global requirements since some
countries have work councils (Germany and France) or other legal regulations
that require specific performance processes (China). But an even larger challenge
was the intense change management required for the People Resources organiza-
tion. Some roles became more critical dependencies — the business partner, ERC
and talent development teams — while the former team that executed annual
performance reviews was disbanded. People Resources needed to focus a much
larger share of its investment on building manager capability, ensuring it was
equipped to set expectations and have ongoing performance discussions. In addi-
tion, managers needed education on how to recognize and reward performance
through compensation. While the overall distribution of salary increases remained
unchanged, managers tended to show more differentiation at the high and low
ends of performance than in the past. They also took more ownership of the
rewards decisions. Unlike the prior approach, managers could no longer default
to “the human-resources matrix determined your base pay adjustment.”
The overall reaction of the employee base was one of enthusiasm and relief.
However, some employees did raise concerns about what would happen if their
managers did not effectively adopt the Check-in methodology. Through many
training sessions and one-to-one People Resources discussions, the first year
without an annual review went very smoothly.
Since 2012, People Resources has worked on identifying areas where Check-in
is not working as effectively as it could, primarily at the individual manager level,
and providing coaching. The team identifies these gaps through a combination of
annual employee surveys and direct employee feedback to the ERC. The company
has also focused on building the feedback skills of the organization so that people
are more comfortable providing feedback and asking for feedback as part of their
daily work. This is a “soft skill” that has been challenging for some members of
the workforce, especially those with highly technical roles who have historically
been promoted and rewarded for technical competence rather than people skills.
From a systems perspective, Adobe utilizes Adobe Connect, a web-conferencing
solution, for training sessions and has posted tools and videos to the intranet. But
overall, the Check-in process has meant very little required process or systems
work, a dramatic change from the prior process, which relied heavily on form
routing and automation. It is ironic that a technology company has moved away
from technology as a solution for performance management. But in the People
Resources team’s experience, it is the one-to-one human interaction that matters.
OUTCOMES OF THE CHANGEThe positive effects of moving to Check-in have been dramatic for Adobe, from
both a talent and business perspective. In its recruiting efforts, the company
32 WorldatWork Journal
highlights Check-in to pursue candidates who work for companies that still have
formal performance review systems, utilizing this unstructured approach as a key
differentiator. Eight out of 10 new hires have discussed the Check-in process as a
key tenet of the Adobe culture before the first day on the job.
With strong expectations established at the onset, employees and managers
continue building their capability to enable robust discussions regarding expecta-
tions, feedback and development, with nearly 50% of all virtual and live training
focused on different dimensions of the Check-in process. Based on employee
survey results, from 70% to 80% of employees are aligned on expectations, receive
regular feedback regarding their development and feel that their managers are
open to feedback as well. As managers continue to raise the bar, they are holding
more frequent performance feedback conversations and are quicker to address
those who are falling short of expectations.
From a performance management perspective, since the implementation of the
Check-in process, turnover attributed as non-regrettable and involuntary attrition
has increased by about 2%–3%, which the company considers a positive outcome.
Under the previous annual review model, managers typically addressed poor
performance at the end of the year, when the process forced them to do so. With
Check-in, managers are more actively managing performance on an ongoing basis,
leading to active performance management (terminations) when needed and many
underperforming employees choosing to leave after open discussions with their
managers. In addition, Adobe’s employer brand has also become stronger, with a
higher percentage of former employees stating that they would recommend Adobe
to a friend. Adobe’s current exit survey, given to employees leaving the company,
shows 75% as stating “I would recommend Adobe as a great place to work.”
At the same time that the Check-in became core to Adobe’s talent manage-
ment, the company’s move to transition its core software offerings to a cloud and
subscription-based model has been a recognized industry success. Since March
2012, Adobe’s stock has risen from about $33 to $90 per share, and Adobe has
risen 10 spots on the Interbrand Top Global Brands ranking to 68, ahead of brands
such as Lego, FedEx and MasterCard. Adobe is viewed as an industry success
story, having moved to the subscription model faster than any other major software
company in history.
While I cannot claim that the elimination of the annual performance review is
responsible for company’s business transformation, I believe it played a key role.
It was vital to redeploy 80,000 manager hours from administrative tasks required
by the old performance management process to more important business priorities.
Note that the time savings scale has grown because it is directly proportional to
the number of managers and employees. Adobe’s 30% headcount growth since
adoption of Check-in in 2012 means that the total savings is now more than
100,000 manager hours per year.
33 Second Quarter | 2016
The move to ongoing feedback ensured that employees understood what was
expected from them in a very dynamic and fluid time when business needs
were rapidly changing. Not only were these conversations more effective than
the older process, they required about the same amount of time as the perfor-
mance and development discussions held previously. And the more positive and
constructive tone set with the Check-in resulted in more motivated employees
who were able to embrace the challenges Adobe faced as a business. Finally,
the quicker move to performance actions when employees were not meeting
expectations helped ensure that employees were all working effectively together
to transform the company.
WHAT WILL HAPPEN TO PERFORMANCE MANAGEMENT IN THE FUTURE?Based on the three and a half years without annual performance reviews, Adobe
leadership believes the Check-in is the right model for the company moving
forward. However, we continue to closely evaluate its success. The People
Resources leadership team holds a “Check-in on the Check-in” work session
quarterly, where it looks at metrics such as employee attrition, ERC escalations
and leadership performance to discuss whether there is any aspect that is not
working effectively.
The biggest overall focus and concern continues to be on equipping people
managers to provide useful feedback. People Resources is especially focused on
senior leaders, because they provide a role model of this skill to the rest of the
organization. Each time the company makes a senior hire, there is new investment
required to ensure this skill and the philosophy of Check-in are effectively built
into that person’s onboarding and coaching.
If and when it ever makes business sense to change our model again, we will.
CONCLUSIONFor companies considering eliminating the annual performance review, here are
five top lessons Adobe learned:
1 | Executive sponsorship is critical. Check-in needs to be role-
modeled from the top.
2 | Manager capabilities and development will make or break your
success. We held numerous training sessions and staff meeting discussions to
ensure understanding and adoption.
3 | Communicate early and often. We engaged our employees in a dialogue
before we made the move and regularly communicated progress.
4 | Build a shared services model. Our introduction of an Employee
Resource Center allowed the Check-in process to scale effectively by providing
adequate help and resources.
34 WorldatWork Journal
5 | Keep your global lens. Internationally, there can be legal entities such
as work councils or cultural differences. Vet those concerns early.
Radically changing a long-held process such as performance reviews carries risk,
and it is likely not the best choice for every company. But it has had a tremendous
impact at Adobe and encouraged us to look at other processes through the same
critical light, looking for opportunities to disrupt the status quo.
AUTHOR
Donna Morris ([email protected]) is Adobe’s senior vice president of customer and employee experience, leading the global organization’s focus on its customers and employees – including all aspects of customer service, technical support, human resources and the workplace. Prior to becoming senior vice president in 2007, she held several other management positions providing leadership to the company’s global organiza-tional and people activities. Before joining Adobe, she was vice president of human resources and learning at Accelio Corp., a Canadian software company acquired by Adobe in 2002. Morris has a bachelor’s degree from Carleton University, Ottawa, Canada.
35 Second Quarter | 2016
There is a rapidly growing sentiment among HR prac-
titioners that traditional approaches to performance
management often fail to deliver the desired result
of continuously improving performance. Starting in the
fall of 2013, a team at Sears Holdings Corp. (SHC) set out
to learn from what other leading-edge companies have
done to transform performance management and from
the latest research in neuroscience and psychology in
order to overhaul its traditional performance processes
for its salaried associate population of about 20,000.
The result was a completely new approach to perfor-
mance built around quarterly goal setting leveraging
objectives and key results (OKRs), continuous crowd-
sourced feedback and quarterly Check-in conversations.
Early results indicate a strong relationship between
use of the new approach and performance tools and
improvements in broader performance trends for
these associates.
ORGANIZATIONAL CONTEXT SHC is a leading integrated retailer focused on seamlessly
connecting the digital and physical shopping experiences
Chris Mason, Ph.D.,Patagonia
Holly Engler,Sears Holdings Corp.
Enabling New Levels of Performance at Sears Holdings Corp.
2.4); and unsatisfactory (<1.5). As a practical matter, the only divisions in scores that
really mattered for future actions was whether an associate scored above a 3.5 (this
led to a higher chance for pay increases and advancement) or below a 2.5 (which indi-
cated underperformance and the need for a more formal performance improvement
plan to go in place). However, managers spent significant time in these calibration
sessions debating more trivial differences such as moving someone from a 3.2 to a
3.3, calling into question whether all that time in calibration sessions was worth the
effort. Adding to that concern was the fact that managers would come together a
second time later in the year to calibrate broader performance again along with poten-
tial trends of individuals utilizing a nine-box grid modeled after a similar grid used
by General Electric Corp. The nine-box grid consists of a performance axis (high,
medium, low) and potential axis (high, medium, at potential) creating a matrix with
nine separate designations. Associates are categorized into one of the nine designa-
tions based on their broader trends of performance (the value they are delivering in
their current role) and potential (the likelihood that can deliver value in the future at
a higher level in the organization). Depending upon where an associate is designated,
managers are expected to take different types of actions to support the associate’s
continued performance and growth. For example, if an associate is designated as
high performance/high potential (a designation that typically occurs for less than 2%
of the population), appropriate managerial actions could include identifying a stretch
assignment and/or a coach or mentor for the associate, as well as more exposure to
more senior leadership. On the opposite end of the spectrum, if an associate is trending
in the low performance/at potential designation, the actions would likely include a
discussion about the need for performance support or even a more formal performance
improvement plan. This nine-box calibration discussion took a similar amount of time
for managers as the annual performance review calibration and it was becoming clear
that both of these calibration sessions were not needed in a future approach.
39 Second Quarter | 2016
CHANGE IN SHC PERFORMANCE MANAGEMENT PRACTICES Effective August 2014, performance management was rebranded across the enter-
prise as performance enablement. The practice consists of a set of processes
and tools that helps associates deliver more value every day by aligning their
work and development with the strategic priorities and culture of the company.
The initial launch included roughly 20,000 salaried associates in all business
areas in the company. The remaining hourly associate population continued
to be evaluated by performance reviews. But since the launch, use of the
Performance Enablement tools has been progressively expanding to targeted
hourly audiences. Plans are already underway to continue to assess the impact
of these tools among hourly populations and consider when and where it makes
sense to expand their use.
Core to the new approach is a new performance framework that focuses on three
areas, how well associates: 1) live the SHC culture and demonstrate seven cultural
beliefs; 2) lead others and demonstrate 14 leadership capabilities; and 3) deliver
value-added outcomes and results. This framework communicates a consistent
message to associates and creates alignment across all business units about how
to measure, coach and develop performance around common criteria. The tools
and resources in the new approach to performance at SHC were all designed to
help enable associates to demonstrate more value every day by living the culture,
leading others and delivering results.
With that overarching framework in place, it was then necessary to find a
simple, yet agile way for associates to focus their efforts on work that would add
the greatest value. At SHC, the new approach leverages the objectives and key
results (OKRs) methodology. OKRs is a methodology that originated in the 1970s
by Andrew Grove at Intel and provides associates a structured framework for
thinking about what they will achieve just this quarter in order to make progress
on broader objectives or priorities. In recent years, OKRs have gained significant
traction with technology organizations that are consistently adapting to rapidly
changing business demands and customer needs. Google, IBM and LinkedIn
are well-known users of the OKR methodology. OKRs guide personal actions to
achieve measurable results over the following quarter. In traditional performance
management, associates often “set and forget” their annual goals by the end of
the year. In contrast, OKRs provide a way for associates to update objectives more
frequently and shift their efforts as needed throughout the year.
Embracing feedback is the next core component in the new Performance Enablement
approach. Instead of relying on feedback from a single subject (in the past this was
typically the manager), associates are now equipped to provide and request feedback
every day. Using an internally developed technology called SoundBoard, associates
can provide and request feedback to all other associates with access to the tool across
the organization (roughly 20,000 associates in total) including their direct or indirect
managers, partners or peers, direct or indirect reports and/or internal customers.
40 WorldatWork Journal
Feedback that an associate gives and receives can be viewed by that person’s
direct and indirect managers and HR business partner, similar to the visibility
guidelines of traditional performance reviews. Feedback is not public and cannot
be viewed by other associates within the organization. However, the source of
feedback is not anonymous. It is important that associates know who the feed-
back is coming from so they understand the context of the feedback they receive.
Whenever an associate receives feedback from someone else, that employee imme-
diately receives an email notification of the feedback that says when and who sent
the feedback and the topic of the feedback. This allows associates to target specific
changes in their behavior to specific audiences if needed. Despite not facilitating
anonymous feedback, more than 70% of the SHC targeted populations are active
users of the SoundBoard tool.
Feedback can be requested on each area of the performance framework: living
the culture, leading others and achieving results. The associate making the feed-
back request also designates whom he/she is requesting feedback from and what
the relationship of that person is to the associate (manager, partner, direct report
or internal customer). Once made, the feedback request will expire in 15 days to
ensure that any feedback given is both timely and relevant. The associate giving
the feedback completes two sections of the feedback form. The first section asks
for positive feedback (e.g., what has this associate done well in this particular
observation?). The second section asks for constructive feedback (e.g., how can
this associate add more value?). Each section includes an open text box where the
giver of feedback can write up to 500 characters. The limited space forces indi-
viduals to be specific about their feedback. In each section, the giver of feedback
also indicates from one to six stars associated with this particular observation of
performance (with six stars indicating this was a model instance of performance
that should be replicated going forward). These star ratings are not aggregated into
performance ratings, instead they are displayed in a visual that provides associates
a view into their feedback trends. Associates are coached to focus on the outlier
instances, such as their six-star moments, compared with moments when they
received three or fewer stars and look for patterns in those instances that can
help them improve their performance. Upon submitting the completed feedback,
the requestor receives an email notification containing the feedback and has the
option to send an automated message thanking the sender for the feedback.
All associates who use the SoundBoard tool also have access to a feedback
dashboard that summarizes their feedback. The dashboard allows associates to
view how often they are giving and receiving feedback, the percentages of feed-
back they give and receive from each source (managers, partners, direct reports
or internal customers) and on each topic in the performance framework (culture,
leadership, results). In addition, the dashboard provides a simple set of bar charts
that display the top strengths and areas of opportunities in the topics of culture
and leadership, which provides continuous guidance on areas to focus for learning
41 Second Quarter | 2016
and development. These data are utilized in the quarterly Check-in to identify
areas of focus and growth for the new quarter and beyond. Managers also see
the same data aggregated to their team level.
To support more frequent conversations based on the information gathered in
these dynamic tools, associates now meet quarterly with their managers in lieu of
annual and midyear conversations. The quarterly Check-in provides a means for
associates and managers to meet regularly to examine the progress being made
on OKRs, insights from feedback and learnings from key performance metrics over
the previous quarter, and where to focus growth and development actions in the
new quarter. While these conversations are not required, they are highly encour-
aged. Most managers and associates meet at least weekly in one-on-one meetings
so they are encouraged to repurpose the time spent in their first meeting at the
start of a new quarter to conduct the Check-in conversation. The conversations
are guided by the associate. Managers are trained to primarily ask questions and
allow the associates to do most of the talking in order to facilitate a discussion
that enables a growth mindset and “toward state” in associates, increasing the
chance for associates to arrive at personal insights about their performance and
ways to improve. The conversations also take place without the distraction of a
numeric performance rating.
The three core tools of OKRs, SoundBoard and quarterly Check-ins enable
associates to continuously improve their performance with ongoing support from
their managers and peers. However, there was still a need to gather more macro
views on individual performance trends to support broader talent actions such
as accelerated development programs, formal performance improvement plans
and/or promotion or pay decisions. This is still accomplished at SHC through
the use of a nine-box talent designation during a process called Talent Action
Planning (TAP). The TAP process is a chance for managers of others to step back
at least once a year to utilize the information gathered across multiple sources,
including OKRs, feedback and any other relevant performance metrics or business
results, and evaluate broader performance and potential trends for each salaried
associate at SHC who participates in the new performance enablement approach.
Managers first complete a short nine-item questionnaire on each associate that
helps guide managers on criteria related to evaluating performance and potential.
The results of the questionnaire lead to a recommendation for a preliminary nine-
box designation of high, medium or low on both the performance and potential
dimensions. Managers can then change their recommended designation before
discussing their views with peers and their managers in a TAP session facilitated
by Human Resources. Before the session, managers are also asked to designate
talent actions they are committing to do on behalf of each associate. Talent
actions could include creating a development plan, seeking out a stretch assign-
ment or role expansion, getting the associate leadership exposure or discussing
the need for a formal performance improvement plan. Specific talent actions are
42 WorldatWork Journal
recommended to managers based on which nine-box designation is selected for a
given associate. During TAP sessions, management teams align on the best current
nine-box designation for each associate and on talent actions. The direct manager
then provides feedback from the session to each of his/her associates in the next
quarterly check-in conversation so overall performance trends are transparent
to associates as well as actions managers are taking to support their continued
performance and development at SHC.
IMPLEMENTATION OF THE CHANGES This large-scale change was only possible through the collaboration of key stake-
holders including business leaders, senior leadership and key HR partners. These
influential partners would be vital resources in assisting with the design and
development of a set of tools that would achieve the desired outcomes that
were aligned on. Early socialization provided the contextual understanding of the
changes that associates would anticipate during the next 12 months. An early pilot
of the newly designed tools allowed individual associates to interact with the tools
and provide their feedback on their perceived value of the process and ability to
utilize the tools to perform and grow. Feedback from the pilot was incorporated
before future iterations of the technology became available to broader audiences
in the organization.
The initial launch to all salaried associates corresponded with the timeframe
when midyear reviews would have normally taken place. The messaging informed
associates that in place of midyear reviews, SHC would be moving to a new
approach that emphasized real-time feedback, enabling associates to deliver more
value every day. SHC would now rely on an approach that encourages a growth
mindset, focused on enabling associates to learn and grow within the organization.
Meanwhile, not only were associates asked to learn to navigate a new set of
tools and resources and learn and practice a new process, but they were asked
to utilize a set of tools to adopt new behaviors. This large-scale change would
require significant education of leaders, HR generalists and specialists, the broader
HR community, managers and individual associates. Once the entire HR team
was fully trained and using the new performance approach, the rollout moved to
the senior leadership team and then over the next quarter to all salaried associ-
ates. Several training and communications elements where used including emails,
posters, internal social media posts and videos as well as formal information
trainings both in person and virtually. Even after the initial rollout, the Talent
Management team has continued to offer training support each quarter.
OUTCOMES OF THE CHANGE Early insights on the effectiveness of this new approach are encouraging.
The redesigned approach to performance and tools such as OKRs, SoundBoard
and Check-ins has resulted in a significant increase in the amount of data available
43 Second Quarter | 2016
versus the traditional approach to performance even after eliminating the tradi-
tional performance review rating. This additional data is itself one of the elements
of added value. For example, usage of OKRs (whether or not they are entered in a
given quarter) is a strong predictor of attrition among this population. SoundBoard
feedback also creates one of the best data sets for social network analysis available
within the organization because each instance of feedback represents a working
relationship between two members of the organization. This has led to analysis of
how attrition rates can spread through a network as well as identifying key people
who connect groups across the organization. Table 1 lists many of the new forms
of data now available for additional analytics as a result of a move from traditional
performance management to the new performance enablement approach at SHC.
In addition to simply creating more data, there is encouraging evidence that the
new approach is more effective at engaging associates and improving individual
performance. A majority of associates using the new approach now agree or
strongly agree with the statement: “Instead of year-end evaluations, I prefer to
use the new performance enablement approach.” A corresponding increase in the
usage of all the tools has been observed since the launch even though using OKRs,
SoundBoard and Check-ins has never been explicitly required. On average, 75%
of salaried associates are entering OKRs into the system each quarter and more
than 70% of the target audience has used the feedback tool, resulting in more
than 90,000 exchanges of feedback across the organization. More importantly,
more than 75% of associates who have received feedback report that they have
made a change to their behavior as a direct result of the feedback. There has also
been a steady increase of 5% to 10% in the number of Check-ins conducted each
quarter over the past four quarters with more than 60% of associates now holding
a quarterly Check-in with their manager (and the trend continues to rise). In total,
there are now more performance conversations being held throughout the year in
the new approach then ever were documented in the traditional process.
TABLE 1 Data Collected in Performance Management vs. Performance Enablement
Approach
Traditional Performance Management New Performance Enablement Approach
•Annual performance goals rating
•Annual performance behaviors rating
•Overall annual performance rating
•User acceptance testing of digital tools
•OKR usage/completion counts
•OKR self-report ratings
•SoundBoard feedback usage rates
•SoundBoard feedback star ratings
•SoundBoard feedback strengths
•SoundBoard feedback opportunities
•SoundBoard feedback social networks
•Check-in usage/completion counts
44 WorldatWork Journal
Most importantly, data are showing a significant positive relationship between
usage of OKRs, SoundBoard feedback and Check-ins and improvements in
broader performance trends. Each year during the Talent Action Planning process,
managers meet to align on who is trending at either high, medium or low perfor-
mance overall. (While a curve is never forced, over the past three years at SHC
an average of 22% of associates were designated as high performers, 73% as
medium performers or new to the organization and 5% as low/under-performing).
The key question is: Does using the Performance Enablement tools improve the
chance of delivering high performance overall or preventing a slide to low/under-
performance? The evidence points to yes. From 2014 to 2015, associates who
used SoundBoard significantly increased their chances of moving up one level in
performance (e.g., from medium to high) compared with associates who did not
use SoundBoard and users of all three tools (OKRs, SoundBoard and Check-ins)
significantly reduced their chances of moving down to a low/underperforming
level compared with nonusers.
Table 2 displays the relative chance that an associate who was demonstrating
a medium performance trend in 2014 moved up to high performance in 2015,
comparing those who used one of the Performance Enablement at least once each
quarter during that period with associates who never used the tools (nonusers).
Conversely, Table 3 displays the relative chance that an associate who was
demonstrating a medium performance trend in 2014 moved down to low/under-
performing by 2015 comparing users with nonusers. In the case of all three tools,
nonusers were significantly more likely to move down to a low/under-performing
level than tool users.
In summary, users of SoundBoard were 1.5 times more likely to move from
medium to high performance from 2014 to 2015 and conversely nonusers
of all three tools were from 2 to 2.5 times more likely to move down to a
low/under-performing designation in the same time period. So there is solid
statistical evidence emerging that supports the use of all three tools.
TABLE 2 Relative Chance of Moving from Medium to High Performance Between 2014
and 2015 for Nonusers Compared with Users of Performance Enablement Tools
Tool TypePercent of Nonusers
Who Moved up to High Performance
Percent of Tool Users Who Move up to High Performance
Relative Chance of Improvement for
Users of the Tools
OKRs 11% 12% 1.1xns
SoundBoard 18% 27% 1.5x*
Check-ins 9% 9% 1.0xns
*Statistically significant (p<.05)
45 Second Quarter | 2016
WHAT WILL HAPPEN TO PERFORMANCE MANAGEMENT? Future iterations of Performance Enablement will revisit the framework to ensure
it is aligned with the SHC business strategy and encouraging associate feedback to
improve the tools and processes. Aggregated and trend reporting enhancements,
along with integration of other learning and growth tools in the SHC ecosystem,
are the next immediate focus. For example, we are already linking the feedback
tool with a learning portal so that specific learning content is targeted to associ-
ates who would benefit from it most based on the feedback they are receiving
in SoundBoard.
In addition to learning and improving Performance Enhancement, work has
begun to apply this philosophy to other talent management processes such as
leadership development and succession planning, culture and engagement, and
organizational effectiveness. The goal is to not only create an experience that is
aligned with the general spirit of Performance Enablement but to do so in way
that maximizes technology and innovation so that tools are not only integrated
but also provide an engaging and helpful experience to all associates.
CONCLUSION There is an abundance of research and evidence to suggest that there are more
effective and meaningful approaches to managing performance than the tradi-
tional review and rating processes. Among the research and experiences of
organizations that have designed and deployed a new approach, there are several
common themes:
1 | In a dynamic environment, a more frequent goal-setting process
drives better results. Simply pausing at the start of each quarter and reflecting
on progress during the previous quarter while remaining focused on objec-
tives for the upcoming quarter can significantly increase the odds of improving
performance. A quarterly goal-setting methodology does not require the elimi-
nation of performance ratings, and instead can be layered onto traditional
processes to improve agility, execution and collaboration.
TABLE 3 Relative Chance of Moving from Medium to Low Performance Between 2014
and 2015 for Nonusers Compared with Users of Performance Enablement Tools
Tool TypePercent of Nonusers Who Moved Down to
Low Performance
Percent of Tool Users Who Moved
Down to Low Performance
Relative Chance of Lower Performance
for Nonusers of the Tool
OKRs 9% 4% 2.5x*
SoundBoard 8% 4% 2.0x*
Check-ins 10% 4% 2.5x*
*Statistically significant (p<.05)
46 WorldatWork Journal
2 | The conversation is what really matters and the performance
rating can get in the way. It is becomingly increasingly evident that the
numeric performance rating simply supports a limited fixed mindset in associ-
ates and does not effectively drive ownership and motivation for growth. More
frequent and quality conversations about progress and insights from feedback
can generate improved perceptions of performance management processes and
increased accountability for results.
3 | An online feedback tool can generate more feedback in the orga-
nization. An engaging online platform that enables consistent and dynamic
feedback is a key ingredient in a performance management redesign. Results
suggest that an online feedback tool can improve both performance and poten-
tial without significant reliance on the manager, allowing people managers to
step back and more effectively manage talent instead of processes.
4 | Effective feedback is the centerpiece of a culture of accountability.
Employees want to continuously understand how they are performing and what
they can do to continuously grow and develop, whether it is in their current
role or into the next role. Feedback provides associates the immediate support
they need to adjust and improve.Editor’s Note: SoundBoard is a service mark
of Sears Holdings Corp.
AUTHORS
Holly Engler, ([email protected]) is director of strategic talent solutions for SHC, leading the design, development and change management of associate-facing HR processes and technology within talent manage-ment including performance management, as well as enterprise culture and engagement. Most recently, this has led her team to redesign the approach to performance by eliminating performance ratings and reviews, as well as redesigning the approach to measure engagement at SHC. She is passionate about HR innovation and talent. Engler holds a master’s degree in industrial-organizational psychology from Roosevelt University.
Chris Mason, Ph.D., is senior director of talent for Patagonia, heading the global talent management, work-force analytics and compensation functions for the Ventura, Calif.-based company. He was previously head of strategic talent solutions for SHC, where he was responsible for enterprise talent and succession management, performance, culture and engagement, executive and leadership development, and talent analytics. His career has focused on the applications of these principles to HR practices in small and large organizations, where he has led teams in the areas of organizational effectiveness, learning and development, and compensation. His passion is in the reinvention of talent and HR processes with a focus on moving to more dynamic, democratized and personal interactions through digital products and platforms. He holds a Ph.D. is industrial-organizational psychology from DePaul University.
REFERENCES
Dweck, Carol. 2006. Mindset: The New Psychology of Success. New York: Random House.
Rock, David. 2009. Your Brain at Work: Strategies for Overcoming Distraction, Regaining Focus and Working Smarter All Day Long. New York: Harper.
47 Second Quarter | 2016
Lisa GeorgeCardinal Health
Julie HolbeinCardinal Health
Engaging Employees to Transform Performance Management at Cardinal Health
Improving an organization’s overall culture through
HR processes is not easy. This business case is
not simply about changing a performance review
process but rather using the components of that process
to transform how employees feel recognized and valued
for their everyday work. The challenge to create the
desire for change and pilot four very different perfor-
mance review approaches over two years may seem
almost unsurmountable, especially in an international
organization of more than 35,000 employees in varying
roles from distribution center order pickers to finance
professionals and from clinicians to nuclear pharmacists.
In this case, however, one of the nation’s largest health-
care service companies, with an executive leadership
team that is passionate about developing and retaining
talent, engaged in a two-year journey to evolve the way
it develops people and evaluates performance, because
it was the right thing to do.
“We, like other organizations our size, heard the
frustration from our employees and leaders about our
performance management process for a couple of years,”
the timing was right to explore changes because we had spent several years
building manager performance management and coaching capabilities and we
had the support from our executive leadership team. Also, in talking with several
of my counterparts, they were also facing rising frustrations around performance
management in their organizations. This seemed like an inflection point and as an
executive leadership team we agreed to move forward with trying something new.”
THE COMPANYHeadquartered in Dublin, Ohio, Cardinal Health is a global health-care services
company that helps pharmacies, hospitals, ambulatory surgery centers, clinical
laboratories and physician offices focus on patient care while reducing costs,
enhancing efficiency and improving quality. With operations in the United States,
Canada, Mexico, Dominican Republic, Puerto Rico, Malta, Singapore, Thailand
and China, Cardinal Health provides pharmaceuticals and medical products
and services to health-care providers at more than 100,000 locations each day.
The company is also the industry-leading direct-to-home medical supplies distrib-
utor, a leading manufacturer of medical and surgical products and operates the
largest network of radiopharmacies in the U.S.
Founded as Cardinal Foods by Robert D. Walter, Cardinal Health was initially a
food wholesaler. Through a series of acquisitions, it evolved into a drug distribu-
tion company, and then into the global health-care services company it is today.
With more than 35,000 employees globally, the organization has annual revenues
of $103 billion and is No. 26 on the Fortune 500. The company continues to grow
organically and through acquisition. In fact, from the start of 2014 through the
first half of 2015, Cardinal Health acquired seven companies.
CURRENT STATEThe current performance management process at Cardinal Health follows a
cadence of cascaded goal setting at the beginning of the fiscal year (July to
August), followed closely by development planning, a midyear review in January-
February and a year-end formalized, written performance review. In addition to a
self-appraisal, performance reviews solicit input from others via manager request.
Ratings are calibrated across the groups through discussion in conjunction with the
talent management and HR teams. Performance ratings are based on a five-point
scale, with the following rating designations and target distributions:
5 – Truly Distinctive (5%)
4 – Above Target (25%)
3 – Meeting Expectations/On Target (60%)
2 – Needs Improvement (7%)
1 – Issue (3%)
Until recently, there were target distributions for ratings, as indicated in the
parentheses. While forced distribution was never recommended, it did occur in
49 Second Quarter | 2016
some areas of the business. Analysis was done on the ratings distributions by
group, leader, role level and also by various demographics. HR business partners
would work with leaders to ensure consistency of review content to ratings and
look for unusual situations that needed input or calibration from colleagues.
Most, but not all, performance reviews and goal setting are done within the
Workday system, the organization’s HR information system. Merit increases are
determined by a combination of performance and comp ratio (within a speci-
fied budget with a recommended range). Bonuses are determined based on
performance of the company against Key Performance Indicators (and funded
accordingly) along with the performance of the employee’s business segment, and
an individual factor is applied based on performance of the employee.
It is important to note that teams currently have the option of doing perfor-
mance management online within the Workday platform. Some large groups of
employees do not use Workday simply because there is limited employee access
to computers. These groups include the distribution center and manufacturing
plant hourly population (about 22,000). Managers in these locations continue to
use paper forms. Those forms are sent to the Workday service team for scanning
into the employee’s electronic file.
LEADER AND EMPLOYEE FEEDBACK ON CURRENT PROCESSLike most organizations today, there was a lot of nonsolicited feedback around
the performance management process bubbling up through leadership teams and
the HR community. This, paired with continual declining scores from the annual
Voice of the Employee (VoE) Survey and direct, negative comments in the area of
performance management and recognition, indicated it was time to take action to
enhance the overall performance management process.
While this feedback was given over the prior four years, the organization
was not ready at that time to take on a change of this magnitude for several
reasons. First, the organization was finding its footing in moving from a holding
company to an integrated operating company. This change required aligning
and eliminating a number of duplicative processes and systems that had existed
in different areas of the business. Second, performance management as a whole
was not a hot topic until 2014. There was very little desire earlier to look at
a process that was “working” for the organization. Third, overall manager
capability was still being developed. Leadership training was just starting to
gain traction and basic coaching skills were starting to improve at the front-
line manager level. In fact, the company’s Voice of the Employee Manager
Effectiveness score went up more than 10% (a statistically significant increase) in
a four-year period leading up to the decision to pursue these pilots. Additionally,
leaders improved their overall ability to differentiate talent as these develop-
ment initiatives spread organizationally. Finally, based on a number of other
changes occurring in the company – major IT implementations, acquisition
50 WorldatWork Journal
integrations, etc. – there was limited capacity for, and significant resistance
against, another major change.
In 2014, when executive leadership put more focus on the culture of the company
and there were more overt conversations around talent, the company engaged the
Great Place To Work (GPTW) Institute to assist with improving overall engage-
ment and culture. Internally, a director on the Talent Management team partnered
with a GPTW consultant to outline the high-level journey that would be used to
solicit additional feedback on the performance management process, create pilot
processes and evaluate and ultimately select the enhanced approach the organiza-
tion would use in the future.
To gather best practices and lessons learned from other organizations, several
meetings were held with other chief HR officers and talent management leaders at
workshops, networking forums and seminars. These conversations reinforced the
impression that performance management (and the reality that most companies
were not happy with their current method) was a hot topic. A number of perspec-
tives were collected and companies that were trying more progressive approaches
were identified. After holding discussions around leading-edge ideas, best practices
and lessons learned, that group concluded that there is no magic-bullet answer to
performance management. An organization has to figure out what works best for
its business model, employee base and organizational culture.
A project team consisting of HR business partners and leaders (including the
executive sponsors), Workday team members and recruiters was assembled.
The pilot project team solicited feedback on the existing practices from dozens
of managers and employees. They were asked what they liked and what they
would like to see changed. Project team members also asked for suggestions and/
or best practices from other employers that they’d like to see Cardinal Health try.
The high-level feedback received included:
❚ The overall process is very time consuming, especially if a leader has several
direct reports.
❚ Employees didn’t like the ratings, specifically being labeled with a number and
knowing that the company used a distribution curve to guide ratings within larger
teams. Scores and comments on the employee engagement survey showed that
the distribution curve where most employees received an “on target” rating left
many workers feeling unrecognized with an “average” rating.
❚ The form was cumbersome. Employees didn’t like listing each goal and the corre-
sponding results. They thought a simplified, bulleted format would be easier to
write to summarize their performance throughout the year.
❚ Employees and leaders wanted to move toward a more ongoing approach to
performance management – not a twice-per-year discussion. They felt this would
eliminate surprises at the end of the year and provide timelier, ongoing feedback.
❚ They wanted to continue to use Workday for capturing performance
management data.
51 Second Quarter | 2016
PERFORMANCE MANAGEMENT PILOTSWith this feedback, the pilot project team drafted four performance management
approaches to pilot over a two-year period. They varied from a very conservative
change to the existing process to a radical, no written review/no ratings approach
that focused solely on non-documented quarterly discussions around performance
and development. For all pilot options, the Cardinal Health team incorporated
certain key philosophies:
❚ Pilots would support ongoing and continuous feedback on performance and
development that should result in more meaningful and actionable discussion.
❚ The importance of these discussions would be overtly linked throughout the year
to creating a culture of recognition.
❚ Target distribution curves would be removed for all pilot options. (The organiza-
tion softened the approach for nonpilot groups.)
❚ More tools, education and resources would be made available to help managers
and employees have the right kind of discussions.
❚ Keep it simple: Administrative requirements would be streamlined in all pilots.
❚ Flexibility within a framework: Pilot structures would help achieve the right end
result, but would provide the freedom of choice and flexibility of options. For
example, groups could determine when they want to have calibration discussions
and what talent data they wanted to discuss. If they wanted to “pull forward”
succession planning discussions, they could.
❚ This was a voluntary process. Senior leaders could opt in to the pilot and
choose their option from the structure created. No one was forced into partici-
pating in the pilot.
With these philosophies in mind, the project team whiteboarded ideas to create
the pilots for the organization. Once the frameworks for these pilots were drafted,
they were shared with the Talent Management Business Advisory Team – a group
of senior vice presidents that provides input/feedback/counsel on talent manage-
ment projects. They were also shared with and approved by the Talent Council
– the CEO, his direct reports and the senior HR business partners.
THE FOUR PILOT OPTIONSOption 1: Quarterly Discussions/Three Ratings. This pilot requires employees
and managers to meet at least quarterly to have a focused discussion on perfor-
mance against goals and progress on the employee’s development plan. These
quarterly discussions are acknowledged in Workday. The end-of-year review serves
as the acknowledgement for the quarter in which it takes place. The review form
is a simplified version entered in Workday. Self-assessment comments and manager
feedback can be entered in a bulleted format versus a goal-by-goal review. There
are three ratings, not five, and the ratings are words, not numbers. Developing,
Achieving, and Exceeding are the three options. Developing could be used for a
newer employee or someone who needs to improve his/her performance. All teams
52 WorldatWork Journal
would still conduct performance calibration sessions to ensure ratings are equitable
across the team. (Research suggested that this option required the most change
management and was perhaps a much larger change for people than anticipated.)
Option 2: Quarterly Discussions/No Ratings. This pilot has the same struc-
ture as Pilot 1 but does not require overall ratings for employees. Managers are
encouraged to discuss performance in a conversation format without giving a
rating. Sample conversations were provided to managers so they could describe
all levels of performance more comfortably. Leaders calibrated on high, medium
and low performance.
Option 3: Quarterly Discussions with a Discussion Guide. Pilot 3 was
the most radical diversion from the current process. In this pilot, there were
no reviews or ratings. A discussion guide with recommended performance- and
development-focused questions was made available to all employees and leaders.
When scheduling the quarterly discussion, a leader was encouraged to pick two
or three questions from the guide, send those to the employee to prepare for the
conversation and ask the employee if there were additional questions he/she would
like to discuss. The employee and manager prepared for the discussion and then
met to share their answers to the questions. Each party was encouraged to take
notes for reference throughout the year, but there was no formal tracking required.
There was no review, just an end-of-year discussion to summarize performance
and development. Leaders calibrated on high, medium and low performance.
Pilot 4: Simplified Version of Current Process. The only changes to the
current process included a simplified review form – employees and leaders could
describe performance in bulleted format.
SOCIALIZATION AND ROLLOUTOnce the pilot processes were drafted, the project team created parameters for
teams that were interested in participating. Parameters were created to ensure
there was a controlled environment for the two years that the pilots would be
run. These included:
❚ The lowest level leader that could opt-in would be the senior vice president (SVP)
level. This ensured the teams were large enough to pilot the process and allowed
for easier system setup for launching Workday action items for each pilot.
❚ The leaders agreed to participate for the entire two years. There is no opting in
or out after the pilots launched.
❚ No teams outside the United States could participate due to the work involved
in translating the documents and systems.
❚ All teams had to use Workday for the process. Some teams had not yet migrated to
Workday for their performance management process. This was additional change
management they had to consider if electing to join the pilots.
❚ No hourly employees in operations would be in the pilots since they still
used paper forms.
53 Second Quarter | 2016
❚ Expectations were set with participants that the process was being figured out as
it went along. This required the teams’ patience and support as issues surfaced
and solutions were identified.
❚ Pilot participants were expected to provide input throughout the process as to
“what is working and what is not,” along with suggestions to improve the pilot
experience and outcomes.
❚ Analysis that was provided previously around ratings distributions and additional
insights into data would no longer be available for many groups who had very
different ratings or none at all.
Once the pilot processes and parameters were drafted, they were again shared
with several senior leadership teams for buy-in. Once this buy-in was achieved,
the executive committee reviewed these options and agreed to move forward with
the pilot launch.
All U.S. HR business partners were educated on the four options through webi-
nars and meetings. They were asked to approach their senior leaders and identify
teams that wanted to pilot a new approach and prioritize the options they wanted
to try. Fortunately, enough teams volunteered for each pilot so the project team
did not need to ask a team to take a second or third choice. When launched, there
were 11 teams participating composed of slightly more than 8,400 employees, or
24% of the company’s total employee population and almost 34% of the company’s
U.S.-based employee population. Entire functions such as IT, human resources and
finance took part. There were about 2,100 participants in each of Pilots 1 and 2.
There were just more than 460 employees in pilot 3 and about 3,700 in pilot 4.
Teams agreed to pilot an option for different reasons. Some wanted to participate
in something new but did not have a large appetite for change, so those teams
chose Pilot 4, the simplified version of the existing process. Other teams selected
their pilots based on leadership capabilities, the type of work they did and even
pure curiosity about how something new would work in Cardinal Health’s culture.
The HR team opted into Option 3 – the most radically different approach – because
of the drastic variation to the existing process. The HR leadership team felt confi-
dent in the team’s ability to execute the process with the limited structure it
provided and felt we should participate in the one that was the most controversial.
TABLE 1 Composition of Pilot Groups
Pilot Pilot 1 Pilot 2 Pilot 3 Pilot 4
Participants 2,100 2,100 460 3,700
Teams EIT,
NJ operations
Sourcing
Sales/Logistics
HR
Repackaging
Comm Tech
Pharma Ops
Finance
Scientific Cons
Legal/Compliance
54 WorldatWork Journal
Once the teams were identified, the Talent Management team offered train-the-
trainer sessions for HR business partners so they could train their managers and
employees on their particular pilot. Tools and resources for launch and ongoing
execution were stored on the company’s intranet. All employees, even those not
in pilots, could access these education tools, discussion guides, etc. The goal
was to be very transparent about what was being piloted to satisfy any curiosity
that developed.
EVALUATION OF PILOTSThe pilots were launched in September 2014 right after the fiscal year 2014
performance review cycle concluded. In late January/early February, about six
months into the pilots, random pilot participants (employees and people leaders)
were asked to participate in an anonymous survey or focus group. This round
of feedback focused on the launch process and initial thoughts on their partic-
ular pilot. The feedback overall was positive across all pilot options. Valuable
insights included how well or not so well participants were educated on the
process, initial strengths/likes of the pilots and any initial concerns. This data
allowed follow-up with the HR teams so they could provide additional education
and/or communication. Additionally, the talent management team could create
additional change management materials to help reduce resistance or concerns
surrounding the processes.
In addition to these formal feedback processes, regular calls were held with
HR business partners who had teams participating in the pilots. This enabled
the talent management team to collect more frequent feedback on how the pilot
teams were feeling about the pilot process, issues that may arise, questions about
how to execute parts of the pilots and requests for additional tools and resources.
This also allowed for more frequent reminders of next steps for the pilot groups
to encourage consistent execution.
Feedback received from the focus groups, surveys and HR business partners
by the end of the first full year was mostly positive. The majority of employees
and managers said that they had definitely noticed more focused and robust
conversations around performance and development. Since each of the pilots
recommends preparation for the conversations and the tools provided included
specific, timely topics to cover, both groups reported that the conversation was
more intentional and helped them get information needed for upcoming talent-
related process. For example, for the summer discussion it was recommended
that the manager ask questions around the employee’s career interest so he/she
is prepared to discuss these in the fall talent review process. Additional positive
feedback included:
❚ For Pilots 1 and 2, the system reminder for the quarterly discussion was very
helpful and drove accountability.
55 Second Quarter | 2016
❚ The discussion guides provided on the website helped newer managers have
more productive conversations.
❚ The overall education for both employees and managers – on what the quarterly
discussions should cover and how each should go about preparing for them – not
only resulted in a more robust conversation, managers reported that employees
were taking more ownership for these conversations. They weren’t relying on
managers to ask all of the questions.
❚ Pilots 1 and 2 groups liked the simplified format of the performance reviews.
Initial concerns included:
❚ Pilot 4 participants, most of whom were distribution center leaders, were chal-
lenged with the new form because it provided a blank space to report performance
versus goals. Since their performance is mostly metric driven, they liked the old
format where each goal had a space and they could report directly on that goal.
This year they had to type their goals and results into one large space that didn’t
provide for as much structure as they liked.
❚ Even though it was communicated that there would be limited or no reports on
data from the pilots because of the different or no ratings, some leaders were
frustrated in not being able to see a “roll up” of performance for their teams.
Discussion among leaders with their HR team members also focused around how
to identify top performers without ratings.
❚ Prior to the end-of-year reviews, employees expressed concerns about how merit
would be allocated without a rating.
❚ HR business partners expressed concerns around sustainability of pilot education.
Specifically, there were some misses in educating new employees and managers
as they joined pilot teams throughout the year.
Finally, data from the annual Voice of the Employee (VoE) survey provided early
insights about the perspective of employees around performance management.
In previous years, the performance management index scores declined or stayed
virtually flat year over year (while other indices showed statistically significant
increases) across the company. This provided a strong business case to launch
the pilots. Also, we saw a strong connection between views on performance
management and perceptions about being “recognized” and “valued,” which
came through as a trend in comments made on the survey. After launching the
performance reviews in 2014, the Employee Engagement Survey (administered
in January 2015, just six months after the pilot launch) showed marked improve-
ment in scores. In fact, the performance management index scores jumped 3.8
percentage points – the largest increase among all survey indexes for Cardinal
Health overall.
With the Voice of the Employee survey being taken so early on in the pilot
process, significant increases were not expected in the 2015 survey data. There
was even concern that pilot participants may rate the performance management
56 WorldatWork Journal
indices lower due to issues associ-
ated with managing change as well
as still being unclear about the
overall process and its impact on
their performance at the end of the
year. The actual results for these
groups as a whole were positive,
even though not statistically signifi-
cant. (See Table 2.)
In the January 2016 employee
engagement survey, score differ-
ences were compared (and themes
in comments) between pilot partici-
pant groups versus non-pilot groups
that stayed with the current review
process. While there were very few
comments about the pilots in the open-ended comment section, the scores in the
key category areas for Pilots 2 and 3 saw the greatest positive variation from the
non-pilot groups. The data was compared against the entire organization and U.S.
scores since there were no international employees in the pilots.
At the time of this writing, the annual end-of-year review process had just
concluded and merit/bonuses distributed. The compensation team compared
the merit and bonus distribution of pilot teams versus non-pilot teams. This
was done to have visibility to see if leaders were differentiating merit and
bonus increases in a similar way to the traditional performance review process.
In short, were they following the recommended process even if there were
different or no ratings? Findings included almost no variation from the existing
process for Pilots 2, 3 and 4. This was very encouraging because there was a
lot of concern voiced around the leaders’ ability in Pilot 3 to differentiate merit
with no ratings to use. Not surprisingly, Pilot 1 (three ratings) participants did
TABLE 2 Voice of Employee Survey Data –
January 2015
CategoryPilot Group Avg
vs. Cardinal Health Overall
Employee Engagement
+0.5pp
Manager Effectiveness
+1.0pp
Inclusion +2.0pp
Recognition +0.7pp
TABLE 3 Performance Management Indices for Pilot Programs
PP1 PP2 PP3 PP4 CAH USA
Employee Engagement 85.9 86.2 91 89.2 87.1 85.7
Manager Effectiveness 80.1 84.4 82 83.7 79.2 79
Inclusion 82.6 87.3 85.8 86.5 81 80.1
Recognition 72.1 75.8 78.1 75.8 73.8 71.6
57 Second Quarter | 2016
show some variation from the control group. But even there, the numbers were
not dramatically different. For bonuses, there was very little (2%–4% higher)
differentiation from the control group.
Additional surveys and focus groups were launched to solicit feedback on each
pilot and how employees and manager felt about the overall ease of the process
and perceived fairness of their review compared to the compensation adjustment
received for that performance. One-on-one interviews were also conducted with
the senior leader of each pilot group to gather input on what went well and what
needed to be improved, and to provide feedback from the surveys and focus
groups. These one-on-one meetings accomplished two things: First, they allowed
the senior leaders to share their points of view candidly in private. Second, they
allowed them to hear what the teams (and other pilot teams) thought worked well.
This also provided a platform for the project team to share where the data was
pointing in terms of what the future process could look like and let them respond.
For the project team, this gave a preview to what type of resistance would be
faced if the organization decided to pursue the approach surfacing from all of
the feedback data.
The main themes that came out of the surveys and focus groups could be
categorized in three buckets: Extremely positive, negative and split opinion.
The negative feedback received on the pilots overall included not liking the
three-point rating scale (did not provide enough differentiation), the goal-setting
functionality in goal setting was cumbersome and leaders did not like or under-
stand separating performance and compensation discussions. The project team
received positive feedback around the quarterly discussions focused on perfor-
mance and development, the simplified review form and not having a ratings
distribution curve.
There were two main areas where opinions were split. First was the quarterly
acknowledgement in Workday. Those leaders with a higher number of direct
reports found the acknowledgements cumbersome and a non-value add admin-
istrative task. Employees and managers with a few direct reports thought the
acknowledgement drove accountability. The other area was having no end-of-
year performance rating. The majority of the employees and leaders in the pilots
without ratings thought this was an extremely positive move and were passionate
about not going back to a review with ratings. Employees felt better about their
reviews overall, and managers reported that the conversations were more valu-
able because the employee was not focused on the rating number. Those leaders
not in the no-ratings pilot were uncomfortable with the thought of moving in
that direction because of perceived challenges in talent calibration and the lack
of differentiation in “pay for performance” culture. Others questioned the reality
of moving to this approach because the company culture overall is very metric
driven and this eliminates a talent metric.
58 WorldatWork Journal
SELECTING AN OVERALL APPROACHSince implementing the pilots, Cardinal Health has experienced a great deal of
organizational growth on a global scale. In the summer of 2015, the company
announced its intent to acquire Cordis, a Johnson & Johnson-owned interna-
tional medical device company specializing in interventional cardiology. Previously,
Cardinal Health operated in about 10 countries. When the acquisition is complete,
it will have employees in more than 50 countries. This added complexity empha-
sizes the need for a flexible performance management process for use in varying
locations and cultures. Some considerations include ease of administration, mate-
rials translations, systems capabilities, cultural norms and respecting what worked
well in the past for an acquired organization. There is also the added complexity
of managers with virtual teams who will conduct performance and development
conversations over the phone.
As the stages of data and feedback collection begin, the talent management team
has been engaging leaders to share anecdotal feedback from pilot participants.
With the feedback, the message is being sent that there may be a need for a more
flexible process, or multiple processes, in order to best serve the diverse global
workforce. This message has been well received and seems to be accepted on
the surface. In addition, the same message and initial anecdotal feedback were
presented to the Talent Council in November 2015. The final recommendation for
the overall performance management process was to be presented at the Talent
Council’s February 2016 meeting, at which point a decision was expected.
Whatever performance management process Cardinal Health ultimately selected,
it will need enough structure to provide a guideline for robust conversations
around performance and development. Yet, it must also provide a flexible frame-
work that allows leaders in different countries and cultures to implement it in a
way that works best for their team members. In order to ensure the successful
launch of the new performance management process in July/August 2016, there
will be an exhaustive change management and communication plan. The commu-
nication plan will be composed of data analytics collected and used to create
the new approach, targeted messages for specific audiences and guidance on
locating and using tools and resources that support the new process. The change
management plan will contain training for the varying audiences and the system
reconfiguration required. Finally, the groups that played a role in the pilots – pilot
leaders, Talent Council, HR business partners and the Business Advisory Team –
will be leveraged to help communicate and manage the change. With all of these
efforts in place, there is a high amount of confidence in the company’s ability to
implement and sustain a robust and successful approach that drives a culture of
performance and recognition.
59 Second Quarter | 2016
AUTHORS
Lisa George ([email protected]) is vice president of Global Talent Management for Cardinal Health. She is responsible for employee capability, leadership and career development, high potential development programs, mentoring, training content, systems and delivery, performance management, goal setting, culture, succession planning/talent deployment and organizational development. She is a member of the Compliance Committees for Cardinal Health, has international experience and currently leads a team of 35 people. Her experience spans health care, consumer packaged goods and retail industries. George is a thought leader and frequently speaks and blogs about the impact of leadership, talent and culture in delivering business strategies, developing organizational capabilities, empowering women to grow their careers and change leadership.
Julie Holbein ( [email protected]) is the director of Global Talent Management for Cardinal Health. She is responsible for supporting and driving all talent management processes and strategies for the enterprise. She has been with the organization for more than eight years and has held director of Talent Development, director of HR Operations and director of Learning Delivery roles prior to her current position. In addition to her 20 years of work experience, Holbein holds a master’s degree in organizational development from Capella University and a bachelor’s of science in organizational communication from Ohio University.
60 WorldatWork Journal
61 Second Quarter | 2016
J. Ritchie, CCP Microsoft
Transforming a Company: How Microsoft’s New Employee Performance System Supports Its Business and Cultural Transformation
I t is no surprise that one of the most maligned prac-
tices that exists within companies across the globe
is the annual performance appraisal process. There
is a growing strident discourse around performance
appraisal processes from chief human resource offi-
cers (CHRO), executives, management and employees.
The good news here is that CHROs are aligned with
the thinking of their CEOs. The Conference Board iden-
tified the top challenge of CEOs globally as human
FIGURE 4 Impact Sliders of Employee Business Impact
73 Second Quarter | 2016
FIGURE 5 Total Rewards Portal
Moreover, there is strong belief that the biggest impact is through leveraging
and contributing to others. This belief, in which about 90% of employees agree, is
core to one of the fundamental shifts of our approach to deliver results through
teamwork. There is also strong agreement that the new performance and devel-
opment approach is important to achieving business results and advancing the
culture as shown in Figure 6.
Strong Adoption and Utilization of the Connect Format
After the second full year, we know that managers and employees have embraced
the connect approach. We ask that managers and employees have a minimum of
two connects each year, and in reality more than one-half of our employees are
having more than two:
❚ 40% are having three connects in a 12-month period
❚ 19% are having four or more connects in a 12-month period.
FIGURE 6 Impact of the Performance and Development Approach
I agree with the premise I will have greater impact if I leverage others’ work/idea/experience
I agree with the premise I will have greater impact if I contribute to the success of others
...advancing our culture
...advancing our business
results
IC MGR
91%6%
6%4%
3%
90%
85%9%5%81%
82%12%12%
12%
5%5%
7%
82%
Unfavorable Neutral Favorable
I think the P&D approach is important in...
74 WorldatWork Journal
While the utilization of connects is high, we also know that we must continue
to build both employee and manager capability in the connect conversations to
focus on key deliverables, impact through leveraging and contributing to others
and feedback for growth.
Significant Improvement in How We Work
Not only do employees and managers have a strong belief in the new approach,
but the new system is viewed to have a positive impact on how teams collaborate.
The previous performance management system was deemed to have an unfavorable
effect on collaboration by roughly one in two employees. With the new performance
and development approach, almost two in three believe that the approach supports
collaboration. In addition to the positive effect on collaboration, the new approach
has moved from having an unfavorable to neutral outcome on other key behavioral
dimensions of “risk taking” and “innovation” as shown in Figure 7.
For those considering an overhaul of an employee performance system, there are
several companies that have made such a change and seeking out those colleagues
to better understand their experiences is advisable. As for Microsoft, here are a
few tips we will offer:
❚ Act with Courage! It can be tempting to analyze too much and seek answers
for questions and issues in the future. Have a solution that is designed at 80%
to 85% and work with agility and flexibility through the remaining challenges
as they surface. This doesn’t mean to act capriciously, but rather acknowledge
that accurately predicting the responses of a workforce is impossible, and it is
important to make the change and adapt as needed.
FIGURE 7 Effect of Performance and Development on Collaboration
Based on your observations within your organization, what impact has the Performance & Development approach had on collaboration.
IC
MGR
85%
68%
30%
29%
7%2015
2015
2014
2014
2012
2012
4%
81%
33%
82%
70%
37%
27%
20%
18%
5%
3%
42%
49%
Unfavorable Neutral Favorable
Note: 2012 represents prior Performance Management system
75 Second Quarter | 2016
❚ Have a Well-Honed Message and Messengers. Keep the key points of your
overall change simple. For Microsoft, the optimization factors (reference “And
the Changes Were…” section) became the cornerstone of our message and
what we wanted to achieve. It is equally important to make certain that the
leaders of the change – those closest to the details of design and philosophy
– stay in role and convicted for a few years following the change because the
context and history will be important.
❚ Conviction, with a Constant Improvement Mindset. Be convicted and
passionate about the importance of changing the employee performance system
for your organization. Establish a system to measure your progress and have
courage to make modifications. For example, the next big Microsoft initiative to
further support the performance and development approach is to build capa-
bility in giving and receiving feedback. We plan to reinvent these processes in
the coming months.
CONCLUSIONThere is no doubt that the change to Microsoft’s employee performance system has
not only positively influenced both the engagement and satisfaction of employees,
but also advanced the transformation of the company’s business and culture. It
is critical to understand this last point. Changing performance systems is not as
simple as eliminating ratings. Effective transformation must support, and be in
service to, larger organization goals.
AUTHOR
J. Ritchie, CCP, is corporate vice president of total rewards at Microsoft. Ritchie, who has been at Microsoft for 12 years, is responsible for the company’s employee compensation, benefits and performance programs. He was previously director of executive compensation for Nokia and director of compensation and benefits for the Frito-Lay division of Pepsico. He has a master’s in business administration from Oklahoma State University and an undergraduate degree from the University of Arkansas. Ritchie is member of the Society Board of WorldatWork, and chair of the Executive Compensation Council of the Conference Board.
REFERENCES
Corporate Executive Board Corporate Leadership Council. 2012. “Driving Breakthrough Performance in the New Work Environment.” Viewed: Feb. 9 2016. http://www.scribd.com/doc/160275480/CLC-Driving-Breakthrough-Performance-in-the-New-Work-Environment#scribd
Mitchell, Charles, Ray, Rebecca L., and Van Ark, Bart. 2015. “The Conference Board CEO Challenge 2015.” January. Viewed: Feb. 9, 2016. https://www.conference-board.org/retrievefile.cfm?filename=TCB_1570_15_RR_CEO_Challenge3.pdf&type=subsite.
Pew Research Center tabulations of monthly 1995-2015 Current Populations Surveys; Integrated Public Use Microdata Series. 2015. Viewed: Feb. 9, 2016. http://www.pewresearch.org/search/1995-2015+Population+survey/.
Rock, David. 2008. “SCARF: A Brain-Based Model for Collaborating With and Influencing Others.” NeuroLeadership Journal 1(1): 1-9.
