Friday, March 30, 2012

Management by Projects: A Paradigm Shift in Performance Appraisals

The other day Adobe Systems, the global software company known for its digital documentation technologies announced that it would be scrapping the annual performance appraisal process and would instead opt for regular feedback to its employees. The plan is to have managers regular feedback to their teams to ensure a quicker and continuous self-actualization, rather than wait for the year-end. The company now says it would provide feed-forward instead of feedback. Not a borrowed practice, the roots can be traced to management guru Marshall Goldsmith's theory on how instant and real-time feedback can boost performance. “Course correction is also faster and more immediate this way," says the Company. Considering that annual performance appraisals have been a direct result of management by results or managing for results, the quest for alternative is both natural and surprising.

Companies have always been challenged by the complexities and sensitivities of conducting performance appraisal in manners that are not only comprehensive and performance supportive but also equitable and developmental. Towards this objective, firms tend to constantly innovate and tweak their appraisal systems. Some companies emphasize a 360-degree appraisal where employees are assessed by peers, bosses and subordinates. Some others now place greater emphasis on employee behavior rather than on targets. Most others emphasize adding additional dimensions such as managerial aptitude and leadership skill inventories as appraisal platforms in addition to goal oriented rating systems. All these have only added to paperwork or portal work (where appraisals are digitized) without making any fundamental difference to the timeliness and effectiveness of appraisals. Management by, and for, results continues to be somewhat elusive for firms.

Baby and the bath water

The mainstay of the traditional annual performance cycles has been the specific linkage with goals, though assessment of developmental needs and an understanding of the managerial and leadership potential became integral part of the process. Standardization of appraisal templates, harmonization of rating scales and simultaneous assessment of employees across the company serve to ensure relative equity at least as a conceptual goal. The failure of the annual appraisal systems can be related more to the inability of the managers to provide objective and honest feedback and provide tangible mentoring and support for overcoming gaps and developing the employees. This is further compounded by the linkages of ratings with salary increases and promotions. A play-safe bias gets introduced in the appraisal processes at one end with managers becoming paternalistic as an extreme. At the other end, the role played by the appraisals in determining the career development makes employees to be excessively submissive towards the supervisors.

While companies have been cognizant of the deficiencies of the annual performance appraisal systems, hardly any company has gone as far as Adobe in terms of scrapping totally the annual appraisal systems. Companies have been trying to address issues of “halo” and “bias” as well as seeking to avoid the temptations of excessive generosity and criticality through appropriate counseling for objectivity on one hand, and prescription of normal distribution in ratings on the other. In practice, these guidelines do little more than sober down excessive variations, reaching rarely to the core of objectively yet empathetically appraising performance and potential in all the complex facets. As a result, annual performance appraisals continue to have their critiques. It is, however, doubtful if continuous feedback, as a substitute for an annual review, would lend itself to personalized flexibility and standardized efficiency of annual appraisals and provide the anticipated motivation for self-actualization. Firms with larger staff are likely to struggle to get superior options relative to the established and well-oiled annual appraisal systems. And, without a simultaneous and relative assessment of employee performance, company-wide, working out salary increments and career promotions could be quite difficult.

Annual results and specific projects

The root cause for the unhappiness with the annual performance appraisals lies in the assumption that all the results achieved by an individual can be assessed after each period of twelve months. Reducing the review period to six months or even a quarter does not take away the basic deficiency. Neither does focusing on inter-personal relationships and delivery through 360 degree feedback and assessment centers compensate for the deficiency. Taking focus away from metrics and bringing it onto behaviors also does not resolve the problem. This is because neither day-to-day processes and behaviors nor annual performance snapshots truly reflect what individuals, teams and organizations need to deliver against performance goals. Moreover, abolition of annual reviews and substitution by ongoing feedback requires maturity on the part of the team members. The organization also needs to overcome the diffidence and weariness caused by frequent feedback, and stay alert with the needed checks and balances.

The challenge with either sporadic or frequent feedback system is that with targets being hard to quantify on a high frequency, appraisals tend to focus only on behaviors and other qualitative aspects. Supervisors and team members could lack the maturity to handle work without targets. The problem is bound to be more acute with remote working virtual teams. Considering that feedback processes involve considerable allocation of time, daily or even weekly feedback is likely to divert significant amount of productive time to appraisals which could be emotionally consuming for their lack of novelty. While substituting the annual reviews with frequent, say weekly, reviews will help prevent 'the top of the mind recall' and “recency” biases the benefit is too small relative to other difficulties. It also appears that there are very few ways to retool the managers and employees to achieve frequent feedback capabilities.

Management by results vs projects

The performance appraisal systems typically assess performance in terms of results (vis-a-vis goals), work (vis-a-vis time) and competencies (vis-a-vis requisites) in three different buckets, each as a snapshot at the end of a year. If, in addition, peer and other stake holder inputs are required though they demand additional tools such as 360 degree feedback. A paradigm to integrate all the three appraisal components and other stake holder feedbacks can be made possible by a conceptual shift from Management by Results to Management by Projects. Management by Projects or MBP is a logical evolution of a performance management process which started with the once famous Management by Objectives (MBO) and got stuck in Management by Results (MBR).

All work, professional or even personal, is nothing but a series of projects, each with specific start point, end point, work flow, resource commitment, result delivery and stake holder acceptance. These projects could be short term in nature, beginning and ending within an appraisal cycle or long term ones starting prior to and/or ending later than a current appraisal cycle. Regardless of the overall timeframes, projects will have milestones which invariably fall within an annual appraisal period. Compared to the individual components of an appraisal process, projects are more amenable to a holistic appraisal at the end of each milestone as well as at the conclusion of the project.

The case of car design

It would be best to illustrate how MBP can positively influence a performance appraisal system by a case example. For simplicity let us assume that a car body is to be redesigned by a team of engineers in a period that falls within an appraisal cycle. Typically, the redesign will involve body design, head lamp design, tail lamp design, dimensional redesign, compatibility check of the new body profile with the other new or existing components, manufacturing feasibility, marketing acceptance and so on. While each work stream would have functional specialty and several engineers for each team, the entire design group has to work together with several other non-design functions, teams and team members to deliver successfully.

The project of redesigning a car typically tends to be in terms of a series of steps, some sequential and some parallel. For example, these could be understanding of on-road performance of the current model, understanding of new material, component and process technologies, creation of new design specifications, development of manufacturing process parameters, sourcing specifications, development of new designs, development of samples, integration of components and body, laboratory testing of new materials, components and body, on-road testing of new body, limited market acceptance testing, finalization of design and manufacturing , and sign-off by the project and management teams. Several of the above will also be iterative.

Stage gates as assessment centers

The essence of project management lies in the judicious identification of milestones, and stage gates which need to be successfully crossed to proceed to the next stage. Typically, these involve the presence of all members of the larger team and sign-off on each successful milestone. In the case of the car example, for example, the design teams in charge of current product analysis and new material and component trends would make presentations on their findings and seek the group's approval to proceed to the next stage of developing design specifications. How well the two teams perform in their studies and how the peer teams perceive their performance would be well reflected in the presentation.

The senior leadership team and the human resource team that participate in such stage gate presentations would have a wonderful 360 degree view of the performance of the presenting teams, and the members, that no further performance appraisals or assessment centre or peer review methodologies are required. Even more significantly, the leadership teams can participate in the stage gate processes through questions and suggestions, making the whole system inclusive and virtuous. The challenge, if at all, lies in capturing the essence of performance through appropriate templates by leaders who are well tuned for the selection process.

While stage gates are important, the ability of the team to successfully complete the project to the stipulated specifications and time lines within the approved budgets would be the ultimate reflection of the success of the project, and with it of the team members. These conclusive events serve as events that foster team bonding and development based on demonstrated success. Even when the success falls below the expected level such stage gates as well as concluding events would help members to learn appropriate lessons and prepare themselves for handling future projects better. Ideally the stage gates should receive fifty percent of weight and the project conclusion receiving the remaining fifty percent in the performance appraisal of the MBP process.

Organizational requirements

The MBP approach to performance appraisal is unique in that it is universally applicable to all types of industries and all sizes of firms. Projects, defined in a manner broader than setting up physical brick and mortar, projects are the core of work flows in any setting. Each goal of any organization needs to be accomplished through a project or a set of synchronized projects. By focusing on projects as living or real time platforms of goal delivery and performance appraisals absolute harmony can be achieved between organizational goals, team results and individual performance. For the business leaders, functional leaders and human resource partners to effectively participate in MBP, an open organizational architecture which discourages silos is required. To leverage it as a performance appraisal tool, the leaders and more particularly the human resource experts would require an ability to appreciate and analyze work flows in terms of projects, and only projects. The appraisers would need to be learners in the MBP system, and not mere judges as in the traditional appraisal systems.

MBP also requires an organizational culture which is collaboration and communication oriented and which has the true professionalism to discuss project performance transparently despite the knowledge that it would constitute a part of performance appraisal system. The advantages of MBP based performance appraisal system are many. Fundamentally, it institutionalizes a goal driven project management culture in the organization with emphasis on cross-functional team work. Secondly, it makes performance appraisal meaningfully calibrated with logical milestones and process parameters. Thirdly, it transforms performance appraisal into a real time virtuous process which knits together the basic performers, supporting and associated team members as well as peers and leaders. Fourthly, MBP helps leadership development across all levels and makes performance appraisal, leadership development and achievement of individual, team and corporate goals truly harmonized. Given the multifarious benefits, it is time for companies to adopt Management by Projects as a required paradigm shift in performance appraisals.

Posted by Dr CB Rao on March 30, 2012


Swetha said...

Sir,This is so important for any organisation to know about the meager productivity or the biased kind-of Regular Performance Appraisal Systems.The other type of PMS mentioned i.e MBP is would be really productive in nature.But sir i would also like to ask that if such a system is adopted in any organisation how far the Senior Managers or the Leadership team could spend time for the stages evaluation as well as Project completion evaluation.

cb@strategy said...

It depends on the ability of the leadership to manage its time well, focusing on the projects as collaborative platforms rather than physical goals.

Jeny said...

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Jeny said...

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