Performance management in an open source world
Rajeev Peshawaria, October 31, 2017
An era of freedom and empowerment raises key questions for companies that still employ full-time workers
One of the most profound changes brought about by 24/7 connectivity, is the shift away from traditional full-time employment to free agency. An Uber driver, an Instacart shopper, and an Airbnb host are all examples of free agents.
By some estimates about 40% of the US workforce has already opted for free agency, largely because of the freedom and flexibility it provides. An Uber driver can choose to work whenever they want to. There are no pre-designated working hours. They fully understand the consequences of not driving long enough. They do not have a boss, yet they get a performance appraisal instantly after each ride. When, how much, and how well to work is entirely up to them, and they are willing to live with the risks associated with these decisions. In this sense, they are truly an entrepreneur.
This new era of freedom and empowerment raises several key questions for companies that still employ full-time workers. Let’s discuss a couple of them:
- Can full-time employees be treated the same way as before?
- Are traditional performance management practices still adequate and appropriate?
The answer to both questions is a big 'no.' If they want to retain their people, companies today have no choice but to give employees more freedom and empowerment than ever before. The good news is, doing so will actually improve overall productivity.
The performance management fallacy
The traditional mantra goes something like this. All employees must be given stretch goals at the beginning of each year; managers must closely monitor performance, give regular feedback, and motivate their employees to put their best foot forward every day. Consequently, performance must be measured and rewarded based on pre-set stretch goals.
There are several problems with this long-held 'wisdom':
- While it is standard practice in most organisations to encourage all employees to write stretch (above and beyond) goals each year, the method completely ignores the universal Pareto principle. Pareto posits that 80% of organisational results will come from only 20% of employees. By that rationale, only 20% of the total employee population will achieve stretch goals. In addition to the omnipresent 80:20, management and HR know that wider performance typically falls on a bell-shaped distribution curve, where 20% of workers are top performers, 60% are average, and 20% are low performers. With this in mind, why do we continue to believe that a one-size-fits-all stretch goal strategy is an effective driver or measure of performance?
- The other problem is the implicit assumption that every employee can be motivated, and wants to be stretched. In the empowered open source era, people are increasingly searching for meaning in their personal and professional lives. Traditional carrot and stick measures have little bearing on motivation and performance. Giving someone stretch goals when they don’t want them does not work. In fact, thanks to the Pareto principle, it never has. If today’s well-informed employees don’t believe in the goal or respond to the pressure to reach it, they now have the option of simply moving on.
The solution: Set them free
Why swim against the tide knowing perfectly well you have little or no control? Why not instead allow people to choose where they want to be on the 20:60:20 performance bell curve, and let the Pareto principle unfold naturally?
Free employees to do as little (minimum goals) or as much (stretch goals) as they want. But make clear what the consequences or rewards will be. Those that wish to perform at the minimum level (the bottom 20%) must know that they risk being fired if their performance falls below the stated minimum, and that their rewards will also be minimum. Those that want to perform at the average (the middle 60%) level must similarly be satisfied with average rewards. Those that want to go above and beyond (and 20% will), have the opportunity to shine, and will reap bigger rewards.
With freedom comes responsibility – the performance contract must be clear and honest. Look at Uber. The company understands a key insight of the new reality – that someone in the bottom 20% is not necessarily a bad or incompetent worker. They may be there because they choose to work at the minimum level and are satisfied with minimum rewards because their real passion lies elsewhere. For some people, work is simply a means to an end, whereas for others it may be their main purpose. Uber’s performance management model is based entirely on this insight, and on the principles of freedom and empowerment. Despite being mired in scandal, the company’s valuation is still a whopping $69 billion.
This should put to rest any concerns that setting employees free will set the company back. Universal stretch goals or not, the top 20% will produce 80% of the results anyway. And the remaining 80% will perform their duties happily as per their choice without being looked down on. Their support is critical for the top 20% to do their magic.
I am indeed proposing that leaders take a leap of faith and move away from the century-old traditional mantra. While the prospect of setting minimum rather than stretch goals may seem daunting to most employers, it is critical to move forward into groundbreaking new territory. To remain relevant, we need to challenge the holy grails, debunk myths and invent new practices better suited for the open source 21st century. HR leaders today have a unique opportunity to understand how the world is changing, and to lead the much-needed transformation.
Rajeev Peshawaria is author of Open Source Leadership and Too Many Bosses, Too Few Leaders, and CEO of The Iclif Leadership and Governance Centre