Resilient performance management in volatile times

These three strategies can help an organization build more resilient performance management—a key enabler in uncertain times.

Michael Birshan

Global co-leader of our Strategy & Corporate Finance Practice, partnering with bold and determined leaders to set strategy, transform organizations, and deliver sustainable value

Roel Hoyer

Supports organizations on strategic topics, including integrated performance management that links strategy to appraisal

Alex Katen-Narvell

Drives holistic transformational change, strengthening performance and health through enhanced culture, decision making, talent systems, and DEI

Dana Maor

Coheads the People & Organizational Performance Practice globally and leads it across Europe. Passionate about shaping organizations to compete, driving lasting transformational change, transforming talent, and unlocking leadership within client organizations, McKinsey, and society

November 14, 2022We are undeniably living in an age of volatility. Our research finds that resilient organizations not only survive but thrive despite uncertainty. In a turbulent environment, it becomes even more essential that an organization’s goals and metrics are clearly connected while remaining adaptable to external changes—which provides a competitive edge.

Performance management is a key enabler to translate strategy to clear priorities, point resources to the initiatives that matter most, and help individuals understand where to focus their time and energy. By performance management, we mean the year-round effort to set and accomplish a company’s goals at both the organizational and individual level.

We recommend organizations employ three strategies to build more resilient performance management.

1.Balanced agenda across growth and efficiency

In the case of resilience, the best defense is a great offense. It may be tempting to adjust goals to focus on reducing costs and preserving cash. However, with a focus on growth, an organization will not be caught on its heels once a downturn is over.

Performance management is an important tool to ensure that everyone is aligned on a well-balanced agenda across cost cutting and growth. Organizations should set targets based on long-term full potential (rather than short-term, year-over-year improvement), prioritize effective and efficient use of resources to achieve these targets, and conduct regular performance reviews based on a small number of metrics (8-10) focused on hard-edged growth.

2. Integrated processes grounded in business priorities

Resilient performance management requires a meaningful connection between evolving organizational priorities and individual goals. Organizations need best-practice performance management at the business level with processes to flexibly reassess and direct targets, effective performance management at the individual level to dynamically communicate and track those targets, and seamless connectivity between the two.

We typically see organizational and individual performance management done by different groups (e.g., the finance function vs. the human resources function). This creates a disconnected system that lacks role clarity and keeps information siloed. Holistic performance management requires a streamlined process that links business strategy to individual goals, necessitating clear ownership by business leaders.

For instance, one global bank set organizational and employee goals on distinctly different timelines, leaving almost six months of misalignment on the table. To address this, the organization radically redesigned its process to link organizational and employee goal setting. As a result, the organization moved from third to first quartile in organizational health and met their performance goals years ahead of schedule.

3. Transparent, two-way dialogues with employees

Process alone is not enough. People bring an organization’s strategy to fruition. Organizations can mobilize their employees by ensuring transparency to company-wide priorities and connecting to purpose, brought to life through two-way dialogue between managers and employees.

These conversations enable people to translate strategic priorities into individual goals, action plans, and better-informed judgment calls, and to adjust them over time. This may require shifting performance evaluations from an annual or twice-yearly cadence to a series of ongoing, more informal dialogues to proactively communicate changes. Importantly, these dialogues must include how work gets done to promote resilient behaviors such as adaptability and inclusivity.

Visibility into the company’s evolving direction helps employees see opportunities for their own development and advancement. Our research finds that lack of opportunity for growth is one of the leading reasons for the elevated rates of voluntary turnover. Furthermore, transparency is a key component of meritocracy, which supports employee retention as human capital remains a valuable, scarce resource.

Performance management is a perennial challenge for organizations, and the margin for error shrinks in volatile times. Implementing these recommendations will require dedication, and leaders may choose to pilot new processes before rolling out to the broader enterprise. An investment in resilient performance management will benefit any organization, whether amid turbulence or business as usual.

The authors would like to thank Anais Fifer, Wieneke Jansen, Tim Nysetvold, Stephanie Smallets, and Wieger Vos for their contributions to this post.

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