Annmarie Neal and Robert Kovach
In the business world, CEOs have one priority: growth. In the world of talent management, practitioners should have only one priority: their CEO’s vision. And so, as one of these practitioners, you should have only one fundamental question: Does your organization’s performance management strategy drive your CEO’s vision?
The complexity and speed of today’s global economy create tension and challenge for today’s CEO. Productivity-based performance must be judged relative to today’s business models, but at the same time, innovation must be accelerated to create growth for tomorrow. Performance management systems must also seek to optimize performance against these two pivots—managing for today and leading for what’s over the horizon.
Three Imperatives
To drive the growth that CEOs need, performance management systems must link to three imperatives:
business integration
organizational performance
an emphasis on return-on-investment.
Business Integration
Validity, reliability, and utility may be attributes of a sound performance management system, but they are not goals themselves. Only a process that is well integrated into business strategy delivers significant value. And to get the true benefits from a performance system, it must become a business imperative, not just an HR process.
Organizational Performance
Today’s understanding of success moves the traditional focus from individual performance to organizational performance. Most companies focus on measuring performance on individual units of behavior. But in this new world order, performance is in the collective, and only a successfully managed ecosystem can achieve what we call extreme performance.
Extreme performance can best be described as execution and amplification in multiple business models across the globe, over multiple economic models, while being agile in the face of nonlinear macroeconomic change. Concretely, with extreme performance, leaders can create organizations that will be profitable and grow simultaneously in markets as diverse as India, China, North America, and Europe. To do so effectively, one must fully appreciate the role of collaboration across functions, geographies, and business segments. At Cisco, we accomplish this through our council structure, which requires executives to not only manage their functional remit but also drive cross-organizational strategic value.
Return-on-Investment
Human resources departments naturally gravitate toward an annual process execution of performance reviews. The business naturally gravitates toward return-on-investment. Unless we find a solution that melds both, the CEO will not care because the performance management system will not drive what he or she cares about the most.
The Speed of Business
Even before the “economic inconvenience” that hit global markets late in 2008, the world’s business environment was marked by turbulence, complexity, and relentless speed. Never before has the world been so flat, networked, or interdependent. Competition comes from every corner in a real-time, on-demand environment that defies convention and shuns complacency. The capabilities and accessibility of emerging technologies are driving a frenzied pace of change in global economic, political, and market trends. At the same time, knowledge, power, and productive capability are more dispersed than at any other time in history. This complex, decentralized business environment is creating a demand for new operating models, new organizational models, and a new approach to defining and managing performance.
According to the Council on Foreign Relations, the economic models of the 20th century are obsolete and it is time to find new ones. If this is true, then the management models of the 20th century are also obsolete, and those companies that will survive the transition in both cases are those that will be first to win this game.
The Time for Extreme Performance Is Now
Extreme performance is increasingly in demand in today’s unpredictable, constantly changing world. Organizations are naturally evolving so that they can thrive in environments where speed, flexibility, creativity, and nonlinear problem solving—as opposed to replication and scaled efficiency, predictability, and linearity—are more and more important for survival and growth. The management theorists and writers of the 20th century such as Frederick Taylor and Chester Barnard focused on how to build efficient organizations. In the 21st century, those theories are at best incomplete as tools to understand what will be effective in the future.
Successful organizations will be able to capture value from traditional markets and, at the same time, capture value from customers with less than a dollar to spend. This leads to a number of key questions, which we can only begin to answer here:
How will organizations evolve and be transformed differently? Large multinational organizations will need to execute multiple business models in multiple economic environments simultaneously across the globe. At Cisco, we are developing a dynamic, networked organization that is designed to allow speed, scale, and flexibility when capturing multiple market and technology transitions.
What strategies focusing on organization alignment, manage ment models, and culture assumptions will induce levels of extreme performance for the business? These strategies will need to include a systemic approach to strategy development, operating model deployment, organizational structure design, and talent management. At Cisco, we adopt a holistic “One Cisco” approach that emphasizes the role of co-creation within the ecosystem—which includes collaboration with customers, partners, and employees.
How do you encourage an organization to grow by building the talent management systems that drive success, given globalization and its impact on competition, speed to market, and innovation? These talent management systems must solve for creating, capturing, and delivering value across the business ecosystem. At Cisco, the talent management agenda is led by the line executives, with support from the corporate talent management team. We see this as a “team sport,” and the line leader is the captain of the team.
If you’re trying to create world disruption, how do you do it in a way that optimizes the past while it simultaneously creates the future? By disruption, of course, we mean something like Clay Christenson’s disruptive innovation. At Cisco, we are trying to build the future while having respect for the past. This creates a natural tension between protecting profitable legacy systems, managing performance for today’s business environment, and creating the business models of the future. Our leaders have the dual responsibility of both innovating and executing—in essence doing both simultaneously. For example, in our European operations, there is an overlay governance structure that applies focus on running and innovating the business while delivering on quarterly business commitments.
How do you appreciate the tensions between protecting what has been and creating what needs to be? First, we must recognize that this tension is not only healthy but also necessary when an organization is being transformed. The homeostatic gravitational pull will be toward protecting what has thus far made the business successful. The seasoned, experienced executive will honor this pull while challenging the system to fight against habit and move toward what needs to be.
With everything going on in the world, how does measuring organization performance change? Performance can no longer be measured by individual achievements and activities. It must evolve toward measuring impact at collective levels—whether this is at the work group, function, or enterprise level. Additionally, it is critical to consider the performance across the entire value chain of the ecosystem. For example, at Cisco, we pay significant attention to partner efficacy and profitability as part of our business practices. In the talent management area, we’ve adopted this practice to share specific accountability among all the members of the organization and ecosystem who have an impact on the talent agenda.
What will effective performance look like? Effective performance will look holistic. All parts of the organization are aligned, operating in sync, and able to execute multiple models at various levels in many environments. The difference is akin to playing multiple chessboards simultaneously versus playing checkers. At Cisco, we measure the effectiveness of talent against multiple screens—including functional, segmented, geographical, and that of the organization as a whole.
A Shift, but to What?
In this new world order, performance is in the collective, and the whole is greater than the sum of parts. Consider how quickly Wikipedia disrupted our ideas of how you produce an encyclopedia. In this new environment, we must ask ourselves five key questions:
How do you measure performance and hold people accountable when output is collective and changing?
How does this fit with how people have been socialized toward work, the psychology of individual achievement, and the idea that one’s success will rely on the success of others? Because the unit shifts from a widget to a complex solution, how do we now measure things that are unmeasurable? This will require looking at the problem from a multidimensional context.
In this environment, how do we define elite performance and incompetence? How do you assess requirements that will add to the future versus reward historical performance?
How do we measure performance and allocate rewards across the entire value chain? For example, the macroeconomic ecosystem won’t always tolerate technology designed in India, manufactured in China, and sold in Europe just to create profits for shareholders in the United States.
Should we care about how and whether people are “engaged”? Engagement is a concept more suited to the developed world. Many employees in developing economies are at a lower level of Maslow’s hierarchy of basic human needs and seek a job to provide safety and survival. Is engagement a driver of performance management or just an output of a good talent management system?
Even in the absence of definitive answers to these questions, you can focus on several key areas to help you start tackling these questions and aligning your performance management system with your CEO’s needs today:
Review your competency model and make sure that it aligns with your business strategy. If a leader performs highly in all these areas, is there a clear connection to how it will affect the business performance? This is not a place to be fuzzy. Be more focused on business strategy and specific effects, not on industrial or organizational psychology. At Cisco, we threw out the business schools and consulting firms and had 200 of our top leaders build our competency model. By virtue of this process, our leadership model is intimately tied to the changing demands of the business. And given the relevancy of this model, executives readily leverage the model in their day-to-day management of leadership expectations.
Align rewards with the performance management system. We know that this is easier said than done. Most systems of rewards recognize past performance at the expense of future potential and value. The ideal system will differentiate and reward for the complexity of the challenge versus the activities one undertakes. At Cisco, our progressive executives look beyond the core performance management tool to create an overlay system that drives goal alignment, robust dialogue, and rewards. While working within the corporate umbrella, these executive-led organizational development interventions drive customization, engagement, and increased performance effectiveness.
Develop a system that aligns first to strategy and then has “good enough” validity, reliability, and utility. We have to overcome our trained tendencies to seek statistical perfection when business alignment is more valuable. At Cisco, our executives expect the performance management system to drive increased productivity, innovation, and business growth. For example, our worldwide head of sales not only completes the requisite tasks within the tool but also leads a parallel process resulting in robust three-way discussions among himself, his leaders, and his talent officer to amplify strategically aligned performance and development messages. These discussions not only result in clarity about actions and deliverables but also allow for a person-centric approach that respects the uniqueness of each leader and his or her career.
Ask your executives how they use the system. Most executives see performance management systems as administrative burdens. Strive to build systems that executives will not only complete but also embrace as part of their leadership platforms. At Cisco, this is an area where we continue to learn and evolve. Though we used focus groups to design our performance system, the organic emergence of overlay practices showed us needs that these groups did not identify.
Give your executives feedback on how they are using the system. Use scorecards that correlate executive performance assessments with other talent management decisions, such as calibration, promotions, and compensation. The scorecards are presented to each executive so they can receive just-in-time feedback on their executive decision making. At Cisco, we leverage a comprehensive talent scorecard that provides each senior executive with a dashboard that highlights year-over-year trends in ratings of portfolio performance, leadership viability, talent stability, pipeline depth, and the alignment of rewards.
Collaborate. All too often, performance management systems are built by HR professionals and presented to the business as a finished product. Our internal best practice advocates collaborative design processes that engage leaders early on. Cisco, one of the world’s largest technology corporations, deploys a process whereby executive talent management is run by the leaders, for the leaders, through an executive advisory council. This council has governance authority over the execution of the executive talent strategy and architecture delivered to Cisco’s Board of Directors. Functions as diverse as strategic positioning, executive development, executive compensation, staffing, learning and development, and the HR partners’ organization constitute an ecosystem whose parts come together to work holistically in accord with Cisco’s talent agenda.
Challenge the status quo and the HR system. A traditional approach to performance management measures what has been accomplished retrospectively. What we are saying is that measuring what has happened is less important than creating conditions for business growth at the levels of both the individual leader and the organization. To create a system that your CEO will care about, you must demonstrate the courage to break all the rules and challenge HR performance systems as we’ve known them. At Cisco, we are managing this tension by acknowledging it and engaging in active discussions about the future role of traditional performance management in a dynamic, networked organization. Given the complexity of the global environment that we have just entered, it is time to reassess the appropriateness of performance models that were created in more stable economic times.
Performance Systems to Accelerate Evolution, Not Just Record History
A performance management system must do more than record history. It must accelerate the performance of the organization. A performance management system needs to focus on and solve for adaptation to creative alignments, various kinds of power expression, and different forms of innovation. It needs to take into account a rapidly changing world where change is dynamic. It must continue to collect and record content. It must mobilize and maximize aligned action. It must consider that disruptive innovation will not come from an individual but from a collaborative ecosystem and nurtured networks.
We end this chapter as we began. In the business world, every business owner and CEO cares about only one thing: growth. If your performance management system doesn’t amplify growth, then you are on the wrong side of the tracks. And if culture will eat strategy for lunch, then traditional performance management systems will eat innovation for lunch. Therefore, you must redesign your performance management system at an architectural level and customize it for the growth needs of your business. If you don’t, you face the prospect of falling behind or, even worse, getting hit by the train.
About the Authors
Annmarie Neal is the chief talent officer of Cisco Systems. Before joining Cisco, she served as senior vice president of the Global Talent Office at First Data Corporation, where she designed and guided the long-range integrated talent strategy for the company, culminating in a paradigm and culture shift that capitalized on leadership as a competitive advantage. As a senior consultant with RHR International, her work encompassed account management, business development, and direct management consultation with senior executives. She received a doctorate and a master’s degree in clinical psychology from the California School of Professional Psychology–Berkeley. She also holds a master’s degree in counseling from Santa Clara University, a graduate certificate of special studies in management from Harvard University, and a bachelor’s degree in psychology from Boston College.
Robert Kovach is director of the Cisco Center for Collaborative Leadership, where he leads the executive leadership viability efforts for the company. Before joining Cisco, he was managing director of the London office of RHR International; director of human resources for Central and Eastern Europe and Russia with Pepsico, based in Warsaw; and a director of the executive MBA and member of the executive education faculty for both Ashridge Business School in England and the Central European University in Budapest. He has written more than 80 articles and four book chapters on leadership effectiveness and organizational development. He received his PhD in industrial-organizational psychology from Wayne State University.
