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The Prudent Path How to Avoid the Dangers of
Using 360 Feedback in Performance Management by Dennis E. Coates My first experience with multi-source appraisal happened
at West Point in 1963, where cadets formally evaluated each other's performance
three times a year. The ratings had
profound consequences. Academy
officials studied the scores along with several other performance factors. If peer ratings were consistently low, a
person could be expelled from the Academy.
During my four years there, I knew several students who were forced to
leave under this system. By contrast, this early form of multi-source (360)
feedback was practically unknown in business organizations thirty years
ago. 360 did not become popular until
the late 1980s, and then mostly as an executive development tool. Today, it has been introduced into most
Fortune 1000 companies, and its use is spreading. It is now affordable enough to use with all employees, and it's
also flexible enough to use in a variety of applications, such as team
development, customer feedback and organization climate surveys. And performance management! Senior managers are intensely interested in this application,
because performance appraisal has been a perennially frustrating area of human
resource management. Problems with
appraisal have led authorities such as Edwards Deming, Tom Peters and Peter Drucker
to discredit it. On the one hand,
managers need ways to let people know how they are doing and to document
individual achievements and problems.
On the other hand, few organizations have set up appraisal systems that
do this without creating discontent, distrust, loss of productivity and law
suits. The new 360 feedback technology is viewed by many as an
intriguing solution to the problems with traditional performance
appraisal. With ratings coming from
many sources, evaluations can have greater validity. With on-line input systems, people can give ratings and comments
quickly and conveniently. The desire to
use 360 technology for performance management is strong, even though a pattern
of real-world successes and best practices has not been established. While the envisioned benefits are substantial, most
managers don't understand the risks of using 360 feedback as a platform for
performance management. Furthermore,
they aren't aware that this concept is a major controversy among HR
practitioners. 360 evolved over two
decades as a developmental feedback process, not as a performance appraisal
process. Experts agree that
computerizing an appraisal system will not correct its inherent problems. While multi-source judgments are usually
superior to single-source judgments, experience has shown that linking
competence data to pay and personnel decisions introduces unacceptable biases
into ratings, thereby rendering the assessment system invalid. Still, many organizations are boldly going into
uncharted territory, encouraged by authors who suggest that with the right
technology and know-how, they can work around the issues. Computer programs that facilitate 360-based
appraisal have appeared, positioned to capitalize on an expressed need in the
market. At the same time, most experts
and organizations are backing away from this application. Why? Are the
dangers real? Is 360-supported
performance management too good to be true?
Can it be achieved with the right know-how? In the end, will the judgment of bold executives prove to be superior
to the cautiousness of human resource professionals? Using 360 feedback in the context of performance
management involves significant risks that no prudent manager should
underestimate. It's as if a dark,
mysterious territory separates managers from the promised land of high-tech
appraisal. But approaching this
territory is like visiting a great city.
The payoffs are there, but part of the journey is knowing where not to
go and what not to do. Guides promise
to lead the way, but a prudent traveler should make some preliminary
inquiries. What's involved in this
path? What are the options? What are the risks? What are the costs? In this article I will explain how to minimize risks and
obtain the maximum benefit when using individual 360 feedback in the context of
performance management. The prudent
path has three guideposts: (1) Link competence feedback to development
decisions, (2) Link results feedback to pay and other personnel decisions, and
(3) Maintain confidentiality. This
approach evolved from my work with over 300 organizations that launched a
variety of 360 programs during the past five years. The organizations that followed this path achieved their goals
without negative consequences; the same may not be said for the organizations
that departed from it. Guidepost #1: Link competence
feedback to development. Using 360 successfully in performance management
requires a clear understanding of what is meant by
"performance." Few words in
the management lexicon are as important as this term, but in fact the word has
two quite different meanings. In one usage, the word performance refers to results what gets accomplished. Have individuals, teams and organizations
achieved their goals? Are standards
being met? Are projects completed on time? Are products and services delighting
customers? Have business goals been
achieved? The word performance also means something else: competence
how well people do their work. Are
people knowledgeable and skilled? How
effectively do they use their skills?
How well do employees interact with each other? How do people treat their customers? Are procedures effective? How is the work getting done? Managing performance means managing both results and competence. Both aspects
can be measured, but they should be measured differently and separately. The failure of performance appraisal to
separate the two processes has caused many of its problems. This is not to say that there isn't a cause-and-effect
relationship between competence and results.
In fact, how the work gets done does influence what gets done. However, it's important to understand that competence knowledge, skills, practices,
abilities, etc. isn't the only factor that influences results. Actually, it's one
of an impressive array of variables that exert a strong influence on
results: strategy, structure, culture,
values, executive leadership, team leadership, planning, work process design,
incentives, internal motivation, personal character, individual style, the
quantity and quality of feedback, access to information, the quality of
communication and information systems, authority, staffing, facilities,
equipment, transportation and funds. Measuring competence
as the first step to self-improvement is the best use of 360 feedback. In this role, there are no concerns about
using the results to put someone's career or compensation in jeopardy. Competence feedback helps individuals
identify strengths and weaknesses so they can set development goals. Aggregated competence data may be used by the
organization to invest thoughtfully in developmental resources and programs. It's important to keep in mind that 360 feedback is not
the best tool for measuring competence that is already easily
quantified/measured. This includes most
technical areas. For example, why would
you ask for several people's opinions about someone's typing ability, when all
you have to do is conduct a five-minute performance test? However, many key workplace skills and activities are
exceedingly difficult to quantify and measure.
These encompass mostly the interpersonal dimension of work: communication, team interaction, leadership,
customer service, consulting, sales, negotiation, presentation, instruction and
facilitation. Because multi-source
feedback uses scaled ratings from a variety of sources on researched areas of
performance, its able to compile remarkably objective performance data, and
modern 360 administration software programs make doing so a relatively simple,
cost-effective procedure. The key is to link feedback
about competence to development action, not to pay and personnel action. While an effective performance management
system will address both aspects of performance competence and results the
prudent path involves separate measurement, reporting and follow-up. Many organizations have found that its
effective to emphasize the separateness by administering them at different
times. Guidepost #2: Link results
feedback to pay and other personnel decisions. There's nothing wrong with linking feedback to personnel
and pay decisions, provided that the feedback is about results. People should be
held accountable for results and rewarded for achieving them. But in a desire to "pay for
performance," organizations sometimes mistakenly focus on the competence
aspect, rather than the results aspect of performance. They make this error because of a failure to
appreciate the distinction between competence and results, and because 360
feedback makes it easier to gather competence data than results data. The magnitude of the error has to do with the fact that
it's enormously expensive to administer compensation programs. If the rewards don't have the desired impact
on results, this huge investment is largely misdirected. Chances are, rewarding competence won't have
much impact on results; as I've already pointed out, competence is only one of
over a dozen major factors that influence results. It makes more sense to set goals and standards, measure them,
hold people accountable and reward achievement appropriately. However, executives have learned that rewarding only
business results can have unintended negative consequences. Thoughtful managers express the issue this
way: "Yes, results are the most
important consideration, but it's not enough to hold key people accountable for
things like market share, sales, profit, costs and other bottom-line
measures. We want to hold leaders
accountable for how they get these results.
We know they can't achieve them without working through people, so we
don't want them to improve the bottom line and collect bonuses for doing so
while discouraging, misusing or burning out the talented people who produced
those results. We don't want them to
kill the goose that lays the golden eggs." The reference to golden eggs comes from one of Aesop's
fables. In the story, a farmer
discovers that his goose had laid a golden egg. The egg looks real, and when he has it evaluated he learns that
it is, indeed, made of solid gold. The
goose regularly produces other golden eggs, and soon the farmer becomes
wealthy. However, overcome by greed and
impatience, the farmer kills the goose to get the remaining eggs. When he finds no more golden eggs inside the
goose, he realizes that he has destroyed forever the thing that could produce
them. Something like this happens in organizations. Executives want their enterprise to produce
results that are the equivalent of golden eggs: better products, better services, more customers, higher profit
margins, greater market share, and so on.
The geese that lay these golden eggs are the talented people within the
organization. If they are willing, able
and adequately supported, employees will deliver the outcomes that equate to
success. Wise executives care most about results, but they also
care about how the results are achieved.
They want managers to build up not use up the human resources that make
them successful. They don't want to
kill the geese that lay the golden eggs.
They learn to hold managers accountable for developing, inspiring and empowering
the people that produce results, as well as for the bottom-line results
themselves. To accomplish this, executives are often tempted to use
competence feedback as measures of leadership.
Most 360 leadership surveys measure leadership competence, not leadership
results. Once again, the mistake is
that if you define, measure, hold accountable and reward leadership behavior,
at best you'll get improved behavior. Behavior
competenceis only one of dozens of
factors that influence results. The key
is to define, measure, hold accountable and reward the outcomes or results of leadership. But what are the results of leadership? And how do you measure them? If it's a mistake to link rewards to
multi-source (360) leadership feedback, in which bosses, peers and direct
reports give ratings and comments on specific core aspects of leadership
behavior, then what is to be measured and rewarded? Rewarding results is a simple concept, but the challenge
is to set the right goals, which is the responsibility of senior managers. Leaders must be wise enough to define
outcomes that actually help an organization achieve its vision. Some organizations overemphasize financial
objectives, not appreciating that if they don't also focus on employees and
customers, the desired financial results will eventually falter. The key is to know which outcomes will contribute most
to the organization's success, measure them and reward their achievement. It's better to focus on major results rather
than on a comprehensive list. And it's
important to specify end outcomes, not in-process milestones. Furthermore, desired outcomes usually
involve a team effort. Therefore, team
goals and team rewards are often more appropriate than individual ones. Most business goals are easily quantified, and effective
methods for measurement already exist.
In this case, 360 assessment systems will not be needed; it wouldn't
make sense to ask for opinions about on-time deliveries, improved quality,
reduced waste, safety, sales, new accounts, market share, project phases
completed, profit, return on investment, etc., because effective systems
already exist to compile and track this information. However, some key results are hard to quantify. For example, how would you measure whether a leader was taking care of the
geese who lay the golden eggs the human resources that create desired business
outcomes? Remarkably objective data can be gathered about outcomes
that are otherwise hard to measure using satisfaction surveys a traditional
source of information within organizations.
How do your customers feel about the way you treat them? You can find out using customized customer
satisfaction surveys. How do team
members feel about working in their group?
You can find out using team climate surveys. Some 360 software programs are flexible enough to administer
customized climate surveys, although it's important to keep these surveys
separate from individual development assessments. Using the results of a baseline survey of carefully chosen
leadership outcomes (such as levels of trust, loyalty, commitment, cooperation,
professional satisfaction, development, etc.), specific results goals tied to
leadership, communication, relationships and team development can be agreed
upon. To illustrate, the following items may be included in a
team climate survey: - The work of
our group helps fulfill the organization's vision and values. - The
activities of my unit are well planned. - The people
who work around me show concern for our customers. - My colleagues
encourage each other when work is challenging. - I feel
empowered to do my best work. - Adequate
resources are available to achieve my goals. - I work in a
safe environment. - I trust my
boss. - I have the
freedom of action I need to do my job. Wise leaders understand that in a busy workplace, people
focus on specific results only if there is a significant benefit for doing
so. People may have the
"know-how," but they also need the "want-to." As almost everyone knows, motivation comes from
within. Effective leaders have a way of
inspiring people by focusing on the future, building relationships,
communicating well, providing support and using a wide range of non-monetary
incentives. In my opinion, these
dynamics are more influential than money. But certain forms of compensation can also be powerful
incentives. Unlike praise, salary
increases and bonuses have the power to help employees care for elderly parents
or put their children through college.
Successful organizations have learned to define what they need from
people, empower them and hold them responsible for results. When these payoffs are achieved, the people
responsible are rewarded financially.
While it's not possible in this space to treat all the
issues related to establishing and rewarding results, the best guidelines are
the ones most commonly suggested by experts: 1. Ensure that
performance goals conform to EEO guidelines: - Related to
specific corporate goals - Linked to
the person's responsibilities - Achievable - Observable - Measurable 2. Reward team
development as well as business results 3. Empower
people to achieve the goals you set 4. Reward the
people who do the work: - If it was a
team effort, reward the team - If it was an
individual effort, reward the individual 5. Keep the
goal-setting, tracking and reward system simple: - Reward
outstanding effort, not routine performance - Track and
reward outcomes, not process steps - Don't track
and reward every result, only high-impact results One final caution.
Paying for performance results is a good idea, but think twice before
rewarding goal achievement with salary increases: (1) It's amazingly expensive. The salary differential is awarded
not just once, but every year afterward, as long as the person is
employed. In addition, if salary level
is linked to retirement pay, the extra compensation will be expended for an
undetermined number of years during retirement. (2) The incentive doesn't have immediate impact; the full amount
of the reward is distributed through dozens upon dozens of future
paychecks. (3) The incentive is only
temporarily effective. The motivation
of a promised salary disappears immediately after it is awarded. Once a salary is increased, it is perceived as a
revision of the employment contract:
fair compensation for defined levels of employment - not as a reason to
continue exceptional levels of performance.
Salary increases should be based on an established track record of
achievement, when a history of accomplishment indicates that the value of the
employee in the career market place has increased. Guidepost #3: Maintain confidentiality. Confidentiality safeguards and the perception of confidentiality are essential to the validity of the
information gathered. The most important
way to protect confidentiality is to limit the feedback that managers see. Coworkers may want to give a person honest
feedback, because they know that if the individual doesn't face up to the
truth, changes in behavior are unlikely.
On the other hand, coworkers don't want their ratings and comments to be
seen by managers who make personnel and pay decisions. They don't want to be responsible for
drastic career consequences. In short,
they may want an individual to have specific developmental feedback but only
the individual and only for development.
Assurances of confidentiality are based on trust, and
this trust must be earned. People may
believe their managers when they are told that 360 information will be
safeguarded and used for development only.
But if they discover that they were misled, trust will be lost
immediately and in most cases can never be restored. This consequence would render a 360 system useless as a
development tool. One division of a large communications company began using
360 feedback for team development. When
faced with the need to "downsize," managers concluded that the 360
performance data would help them decide who to keep and who to let go. When employees discovered what was
happening, they raised such a furor that the company had to abandon the use of
360 altogether. A regional bank experimented with using 360 feedback for
management development. But the
organizational climate was characterized by low trust and internal politics,
and many people feared that the data would be used for personnel and pay
decisions. As a result, several
participants found ways to avoid or sabotage the process. With the pilot program in disarray and the expected
benefits unachieved, those who opposed the program used their influence to
eliminate it. People who are urging the use of 360 for appraisal
frequently offer this rationale: "If managers use 360 feedback to coach
development, isn't it unrealistic to expect them to ignore this information
while preparing performance appraisals?" This question suggests a mindset that doesn't distinguish between
competence and results. It also implies
that managers who make judgments about personnel and compensation decisions
have access to the detailed feedback that was given to their subordinates for
development purposes. As matter of fact, managers don't need access to a
complete set of individual feedback data in order to carry out their
responsibilities as performance coaches.
Detailed ratings and comments are useful only to the individual doing
development planning. In order to give
quality guidance and encouragement, a manager needs to be able to review and
make suggestions about the development plan not specific ratings from the
individual's 360 feedback report.
Awareness of the plan, along with average category scores and group
norms, is all a supervisor needs to monitor and hold an individual accountable
for development. In addition, managers can hold people accountable for
development progress by tracking several indicators. Have they been implementing their individual development
plan? Are they involved in meaningful
development activities? Do they respond
well to feedback? Has there been a
noticeable improvement in interpersonal behavior? Do they keep a record of development activities? Over time (2 or 3 cycles), have 360 summary
scores improved? Conclusion I've explained why there are unacceptable and
unnecessary risks involved in linking 360 competence data to pay and personnel
action. However, 360 feedback can be
safely linked to appraisal in a performance management system by doing the
following: 1. Use
individual 360 feedback to measure the hard-to-quantify aspects of competence. 2. Link
measurements of competence to appropriate development activities. Hold people accountable for their
development. 3. Use
satisfaction surveys to measure the hard-to-quantify results. 4. Link the
measurement of results to appropriate rewards.
Hold people accountable for results. 5. Separate both
processes; coordinate them in time so that they support each other. In light of this approach, the typical rationalizations
that encourage linking individual 360 feedback to pay and personnel decisions
are remarkably unconvincing. "If 360 feedback
isn't linked to pay, what would motivate anyone to take it seriously?" Most people
want to remain competitive in the workplace, and they know that feedback gives
them an edge. Feedback is important to
people who want to: (1) See themselves
as professionals, (2) Upgrade their skills, (3) Find out what their coworkers
already know about their weaknesses,
(4) Resolve problems they may be causing, and (5) Contribute to the team
mission and its success. "A multi-source
appraisal is more effective than a single-source appraisal." That's
true. But single-source (boss) feedback
is only one of the problems that plague performance appraisal. Using multi-source feedback as a platform
for appraisal is like putting a new horn and side mirrors on a junk car. It's safer to drive, but the car still needs
major repairs. "We've already
invested in 360 technology for development.
Why not get extra value from it by using it for appraisal,
too?" From a cost viewpoint this may sound like a reasonable
idea, but as I have emphasized repeatedly, there are huge risks. The solution is to take the prudent
path. "We can start with
the development-only approach, get them used to 360, then 'ease it in' to using
it for performance appraisal." No matter how gradually you familiarize people with the
process, if you connect a 360 appraisal to compensation and personnel
decisions, employees will know that their evaluations can affect a person's
career and will find it insurmountably difficult to give honest feedback and
accurate ratings. When this happens,
360 feedback will no longer be useful for development. And since supervisors have been challenged
to give fair appraisals for decades and have not met the challenge
satisfactorily, how can anyone expect coworkers to be more objective? Trust is at the core of using 360 to enhance
productivity. Trust determines how much
an individual is willing to contribute for an employer. Using 360 confidentially for developmental
purposes builds trust; using it to trigger pay and other personnel decisions
puts trust at risk. Why would an
organization consciously choose to jeopardize trust for the sake of convenience
or efficiency? In the end, leaders are responsible for
"managing" performance both competence
and results. Performance appraisal and 360 feedback are
tools that help leaders fulfill this
responsibility powerful tools, when used with care and good judgment. |
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