As a business grows and takes on staff, one of the questions I am most frequently asked is, ‘Do we need to implement an appraisal system?’. These are usually successful, small businesses who have put in place a good, small team of people. These people have all been on a journey together to establish the business and so generally the team gets on well, is very enthusiastic and motivated and there are few people issues. As there are relatively few staff, each staff member feels that they really count and everyone can see how what they do impacts the bottom line (factors that can often get lost in a big, corporate environment). Without layers of structure and bureaucracy, decisions can be made quickly and people have the freedom to be innovative.
Quite rightly, however, the business managers recognise that if they now want to grow the business further they need to make sure that they have strong foundations in place. Good people management, and therefore some kind of performance management (the means by which a business gauges progress towards the achievement of business goals), is part of this infrastructure in order to ensure that people continue to feel motivated and focused on the right things as the business evolves, teams grow and good communication becomes more challenging.
My key concern is always how they can do this without changing the positive, innovative culture of the business and an open-minded and agile workforce.
In addition, there is now a growing trend to question and challenge the value of the traditional, annual appraisal – in large businesses as well as small. Many HR professionals have been seeing for years ineffective, hugely time-consuming systems which, in the worst cases, actually manage to disengage and demotivate staff. It is possible to ‘fix’ a failing appraisal system or replace with a much better one, but given current thinking and research on the limited benefits of appraisals, you need to think very carefully about why you might want to implement one in the first place. Small businesses are in the very refreshing position of being able to break the performance management mould and do things their own, innovative way.
So the HR question becomes ‘How can we strike a balance between remaining flexible and innovative and putting some structure in place to support growth?’. Increasingly, my clients and I are finding the answer lies not in an appraisal system, but in some simple and cost effective alternatives – that add value to all aspects of the business. These alternatives include:
- Creating an inclusive culture:
- Stop using ‘performance management’as a means to try to fit square pegs into round holes! Make sure you have plenty of square holes too – shape the organisation so that it is genuinely inclusive.
- Ratings systems (where employees are given a formal, generic rating based on their perceived performance) can make decisions regarding reward and ‘identifying’ talent and poor performers more straightforward. But by having one set of limited ratings we may be missing something special in an employee. Actively encourage and embrace different ways of thinking. Work out how someone’s unique talents or perspective – someone different to you perhaps – can work to the advantage of your business rather than against it. Clearly define this in the individual’s SMART, personal objectives and assess their performance on an ongoing basis in terms of how well they deliver against these meaningful objectives (not just some generic performance definition).
- Makes sure your business’ core values (ie what it is important to your business and what makes it different to all the others in your field) are very clear from the very beginning of the recruitment process and throughout the entire employment experience (this means training line managers to recruit and manage within this values framework). This way, although you may have a diverse set of people working for you, they are more likely to get what you’re about and the way you do business.
- Ensure that all employees have someone that they can talk to on a regular basis about their performance, goals, personal development, problems, concerns and achievements. This might be a line manager and/or a mentor – someone with experience relevant to their mentee’s role who can act as a wise sounding board and help them to deliver.
- Provide guidance so that people understand how this relationship works, the boundaries (eg what is and isn’t appropriate, confidentiality, etc) and the frequency of meetings. Invest in and provide training to the line manager or mentor so that both they and their mentee can get the most from this relationship. In the case of a micro-business this role might necessarily fall to the business owner, but whether you are part of a large business or a very small one, regular conversation – with the aim of providing motivation, guidance and personal development – is hugely important both to the individual and the growth of the business.
- An important part of the ongoing conversation with line managers should be the agreeing and regular review of an individual’s personal work objectives to make sure that everything they do supports the business’ goals.
- No formal appraisal process does not mean that performance and capability issues are not dealt with. Indeed, in my experience, this is one of the major flaws of an annual appraisal, because performance related issues are often not picked up and managed properly on a timely basis (so the situation just gets worse). Good quality feedback, discussion and support should be given as close as possible to an issue becoming apparent – not 6 months down the line when the appraisal takes place. Ongoing or very serious issues can be managed through the disciplinary process if required.
3) Creating a feedback culture where learning from successes and failures is the norm:
- Lead by example by giving people timely feedback on their work – the positive and the negative – as close as possible to the action occurring. This maximises the learning to be taken from the feedback as it is fresh in people’s minds (who can remember exactly the details of an action, event or project a week after it took place, let alone months later!).
- Importantly, make it clear that this is a two way street by asking for feedback on your own performance and putting in place mechanisms for sharing feedback constructively across the business, for example:
– always holding a ‘take the learning’ meeting after an event or completing a project – where everyone involved meets to share feedback and decide how they will do things differently next time;
– using 360 degree feedback (collated feedback from everyone who works with an individual – bosses, colleagues, direct reports, clients, etc – to get an all round view of performance) to support people’s personal development plans and career aspirations.
- If you’re going to encourage a feedback culture to foster continuous improvement then it is essential that you train your employees in how to give and receive feedback constructively.
3) Adopt a coaching approach to people management:
- According to Weintraub and Hunt in their 2015 Harvard Review article ‘4 Reasons Managers Should Spend more Time on Coaching’, managers who coach “…are not coaching their people because they are nice — they see personal involvement in the development of talent as an essential activity for business success”. Based on their extensive research into effective management (and therefore performance management) coaching is a ‘must have’, not a ‘nice to have’ skill, and will help a business to attract, retain and develop the most talented people.
- If you agree with this line of thinking, then investing in coaching training for your line managers is essential.
So, in conclusion, yes – you do need to invest in actively managing the performance of your people in order to put in place the foundations for business growth. However, it can be done with a light touch more suitable to an agile and innovative business. Instead of investing in a traditional appraisal system, my advice would be to invest directly in your people through providing them with quality training in good communication, giving and receiving feedback and coaching and by creating a genuinely inclusive culture.