Why GE Ditched the Performance Management Approach it Created

Time changes ideas and preconceived assumptions, and along the way processes, theories and approaches can also be altered. Some of these changes are part of the necessary cultural evolution that organizations and people must do in order to grow and manage the challenges of the specific context. Peter Senge said that organizations are living systems. And, in my opinion, for them to fully live they must have an environment that allows people to thrive.

Even though managing by results or objectives had been in place for a long time, Jack Welch at General Electric (GE) created the concept of a performance management process based on a one-time-a-year appraisal rating-based system. That process was designed to measure people’s performance against expected levels, goals and targets. Additionally, the process, whether it was initially designed that way or decanted into that, ended up functioning as a comparison between people doing very different types of jobs as a way to discriminate against their individuals performance. The foundation of this approach was that people are uniquely motivated by external conditions, and not by the self-satisfaction the find in doing their jobs.

And then one day GE found out that its approach to performance management wasn’t working anymore (Actually, I think that GE got to this critical point because their approach never really worked). The process that GE designed, and that was later copied by most large organizations in the world, was based to a certain extent on the Scientific Management proposed more than 70 years before GE’s approach to performance. In that time, people were considered part of an operation and production machine which premise was: don’t ask, don’t think, just do as you are told to do. However, the 80’s, 90’s and most of the last decade have not been particularly characterized by routine-low level tasks, rather by increasingly complex problems within organizations, their environment,  and the pace at which ideas and assumptions are changing.

The pervasive GE performance approach put in place considered that people were only extrinsically motivated: give people more money, and they will do better; and when they are not up to the standards, give them less. It didn’t matter whether people were assigned to the wrong type of jobs, or whether they had different approaches to learning and creating. The standard to measure performance was the same, for everyone, regardless of personal motivators. It was a cookie-cutter approach.

But research has shown a reality different than the one considered by GE under the direction of Jack Welch: the reality of the diminishing marginal returns. There is a point where people don’t get more creative or do a better job because they get more money. Actually, there is a point in people’s careers in where, regardless of money they get for performance, if the challenges and skills are not growing, they tend to be bored, lack the commitment and engagement, distracted and even conforming. In addition, research shows that extrinsic incentives, when not designed appropriately, hinder creativity and motivation from people working in complex problems.

The Performance Management approach created by GE never took into account that people actually enjoy their work when it is connected to a larger purpose and that that is a powerful driver to motivate them. GE’s performance management process is still in place in many organizations and in the mindsets’ of their leaders (which is even more difficult to change than just a process). Another problem with the approach is that it neglects the importance of the leader’s role in energizing people around a purpose, creating an environment that empowers and, even more importantly, providing constant and continuous feedback to support and challenge people, and address issues of low performance.

Accenture, Deloitte, Adobe, Microsoft, 10% of the 500 Fortune Companies, and now GE, are overhauling their performance management processes, because what they had in place wasn’t working well. 

Even though GE is still unsure about whether it will get rid of the rating-based system, it is for sure that it will get rid of the “Annual Performance Review”. The new system, as implemented by many other companies, will be flexible and dynamic, focused on driving higher performance, and addressing issues of low performance. It is more of a project-based process, where people get timely feedback on the quality of their deliverables and the connection to a larger purpose. Even more important, it is not a rigid system in which goals created at the beginning of the year remain immutable all throughout. Rather, it fosters constant change and updates, and challenges the assumptions under which the initial planning of the year had been done.

There is one concern that I know some leaders might have: how do we discriminate high and low performance? Well, the first thing to say is that those leaders cannot dodge their responsibility of providing honest (positive, constructive or negative) feedback to their people. Unfortunately, some managers blame the existing system, and take advantage of it, because of their own incapacity to provide high quality feedback. As I said before, the job of a leader is to provide a clear purpose, support and challenge their people, create the environment for them to thrive and then get out of the way to let them do what they can do. In doing so, they have the responsibility to provide feedback along the way.

The new approach for performance still rewards top performers, but makes special emphasis in addressing issues of low performance, together with providing a wide variety of motivators that encourage people. The new approach also recognizes that in reality the number of people who are low performers just for the sake of it is very low. In most cases, low performance is due to a lack of clarity in the work to be done, a lack of purpose that energizes people, an environment of distrust and micromanagement that doesn’t allow people to excel and be creative, but rather that punishes them when they take risks and ask “inconvenient questions”.

Organizations need to be profitable and sustainable. But as living systems, they have to feed the cells that give them life: people. Performance Management, regardless of the specific system or process in place, should be more about maximizing opportunities for development and growth, than a system to punish and segregate. Now, where do we go from here? 

About the Author: Enrique Rubio is an HR Professional at the Inter-American Development Bank. He is an Electronic Engineer and a Fulbright scholar with an Executive Master’s Degree in Public Administration from Syracuse University. Enrique researches and writes about leadership and HR and seeks to explore the overlaps of productivity and leadership in the business and non-profit world. Enrique is also a competitive ultrarunner.

Twitter: @erubio_p

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