Continuous Performance Management

SAP White Paper
Performance Management
Continuous Performance Management
Focusing on Employees and Managers in the
Ever-Changing World of Work
©2017SAPSEoranSAPaffiliatecompany.Allrightsreserved.
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Table of Contents
4 Executive Summary
6 Introducing the Baylor University Interview Project
13 Conclusion
14 References
Baylor University:
Cami Bryant
Hannah King
Minh Le
Kevin Mitchell
Kola Olayinka
Quinn Pertuit
SAP SuccessFactors:
Dr. Gabriela (Gabby) Burlacu
Dr. Steve Hunt
Carrie Lande
© 2017 SAP SE or an SAP affiliate company. All rights reserved.

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Effective employee performance
management remains one of the biggest
challenges for today’s organizations. On
one hand, performance management is
critical for the engagement, retention,
and productivity of today’s workforce. On
the other hand, it is becoming more and
more clear that today’s performance
management processes are almost never
sufficient to support managers in driving
the best possible performance from their
employees.

4 / 15
Organizational researchers and subject matter
experts have been suggesting for some time that
traditional, annual performance evaluation pro-
cesses need to be replaced. But what are the per-
spectives of the managers and employees who
are on the frontlines of employee performance
management every day? What do they want to
get out of this process? Is there anything about
traditional performance management processes
worth keeping?
SAP and Baylor University researchers collabo-
rated to better understand performance man-
agement from the manager’s and employee’s
perspective. What does effective performance
management look like in today’s world of work,
and what kinds of tools will help support these
behaviors? Findings from this multi-company,
multi-industry research suggest that traditional
performance management tools do add some
value in supporting performance-related conver-
sations in the workplace, but they do not fully
support the interpersonal and process needs
that employees and managers have when it
comes to effective performance management.
These findings suggest that the next generation
of performance management should not be fo-
cused on completely replacing traditional HR
tools, but on enhancing them to better support
the needs and behaviors of effective managers
and employees.
In the past several decades we’ve experienced
massive changes in how we work. Technology has
transformed how we select and apply for jobs,
how we perform work functions, and even who
we work with. But one aspect of work that has
remained behind the curve is employee perfor-
mance management. Effective performance
management is critical to organizational perfor-
mance and success (Aguinis, 2014; Baldwin,
Bommer, & Rubin 2012; Becker & Gerhart, 1996;
Huselid, 1995), but many companies’ perfor-
mance management methods have failed to keep
pace with rapid changes in the nature of work
and shifts in the demographic composition of
their workforces. The message we are hearing
from organizational research and practice is loud
and clear: traditional performance management
methods are no longer sufficient to engage,
motivate, and drive the productivity of today’s
employees (Bersin, 2013; De Waal, 2013; Gruman
& Saks, 2011; Ramirez, 2013; Saks & Gruman,
2011).
Most research studies concerned with “fixing”
the performance management problem focus on
critiquing existing HR processes. Such studies
have suggested doing away with performance
ratings (Ramirez, 2013; Rock, Davis, & Jones,
2013) or creating new processes that encourage
managers to discuss performance with their em-
ployees more frequently (for instance, quarterly
Executive Summary

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rather than annually; Arringdale, 2014). By focus-
ing solely on HR processes, none of these studies
have captured performance management where
it really lives: in the day-to-day interactions and
decisions driven by managers and their employ-
ees. In today’s world of work, managers are called
upon to continually make decisions around em-
ployee job assignments, resource allocation, and
how best to reward stellar employees while also
motivating and engaging other members of their
teams. The gap between formal HR processes
and true, manager-driven performance manage-
ment means that managers have been left to
tackle most of these day-to-day challenges on
their own.
Rather than focusing on studying formal perfor-
mance management processes, the topic we re-
ally need to understand is how effective manag-
ers meet the challenge of ongoing employee
performance management in their day-to-day
jobs. This understanding is critical in the develop-
ment of tools and processes that support man-
agers. In an effort to address this question, SAP
and Baylor researchers collaborated to identify
what performance management looks like from
the manager’s perspective—how managers really
address the behavioral and attitudinal factors
that influence how employees perform on the job.
Our conclusions suggest that the next generation
of performance management tools will focus not
on replacing traditional HR processes, but rather
on building upon and enhancing these tools to
support natural employee and manager behavior
that drives organizational performance and
productivity in a changing world of work.
WHAT IS PERFORMANCE MANAGEMENT?
In the past, employee performance management was restricted to the events and conversations
taking place around the formal annual performance review. But it is increasingly becoming rec-
ognized that performance management is an integral part of the ongoing manager and employee
relationship. The definition of performance management has been expanded to cover all develop-
ment, feedback, coaching, and reward activities intended to drive employee performance that take
place throughout the year (Aguinis, 2014). Some of these activities are more informal (for instance,
coaching) while some are formal and require HR involvement (for instance, formal performance
ratings that have traditionally been used to determine employee raises and promotions). This em-
phasis on performance management as an ongoing, multi-faceted process means that an effective
manager must consider the impact of all communications and discussions on the performance of
his or her employees.

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RESEARCH DESIGN
Baylor researchers conducted structured inter-
views with 81 individuals, including 32 high-per-
forming employees (as identified by their manag-
ers), 35 middle managers, and 14 senior leaders.
These interviews were conducted across 26
different companies representing 16 industries
and a variety of company sizes and cultures. This
broad sampling was intended to capture perfor-
mance management trends across organiza-
tions, rather than focusing on particular indus-
tries or company types. Interview questions
focused on interviewees’ present-day experienc-
es with day-to-day performance management
and formal HR tools.
Interview data was coded using a qualitative
analysis method by which trends were identified
and frequencies of trends were analyzed. In some
instances, the researchers also utilized word
clouds to quickly visualize which words and senti-
ments occurred most frequently in reference to
different aspects of performance management.
This project began with one over-arching ques-
tion: How do managers actually manage employ-
ee performance? There is a seemingly endless
supply of research available from the perspective
of academics and subject matter experts on how
best to manage employee performance (e.g.,
Aguinis, 2014; Armstrong & Baron, 2000; De
Waal, 2013; Gruman & Saks, 2011), but rarely
does this research derive from speaking with
managers in the field. The goal of this project
was to identify broad workforce trends in how
employees, middle managers, and senior leaders
truly view, conduct, and communicate perfor-
mance management in today’s world of work.
Introducing the Baylor University
Interview Project
Industries represented by interview
participants
Accounting Healthcare
Airline High tech
Banking Higher education
Consulting Manufacturing
Energy Marketing
Engineering Staffing
Entertainment Supply Chain
Food & Services Telecommunications

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RESEARCH RESULTS: PERFORMANCE
MANAGEMENT THEMES
Theme I. Effective Interpersonal Management
Across the participating organizations, inter-
viewed employees, managers, and senior leaders
identified effective interpersonal management as
being critical in day-to-day performance man-
agement. Employees and managers discussed
who they felt should be involved in the perfor-
mance management process, the frequency with
which they felt performance-related conversa-
tions should occur, and the method managers
use (versus what they should use) when con-
ducting these potentially sensitive conversations.
Overall, findings around this theme confirmed
previous research findings that an employee’s di-
rect manager is instrumental in the development
of employee job satisfaction and performance
(e.g., Maertz, Griffeth, Campbell, & Allen, 2007;
Podsakoff, MacKenzie, & Bommer, 1996; Stringer,
2006). But what does effective interpersonal
management actually look like?
THE MILLENNIAL MISUNDERSTANDING
Researchers and practitioners have long been trying to crack the code of what Millennials want
from work. By the year 2020, Millennials, or individuals born between the early 1980s and the early
2000s, will make up 50% of the global workforce (A Global Generation Study, Price Waterhouse
Cooper, 2013). The anecdotal consensus has been that this group is going to be difficult for
organizations to attract, retain, and engage.
How frequently do individuals feel that
they/their managers are initiating performance-
related conversations
100%
80%
60%
40%
20%
10%
0%
90%
70%
50%
30%
Rarely/Never RegularlyOccasionally
11%
33%
56%
28%
18%
54%

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More recent research reveals that the “Millennial
problem” is not as severe as it may have been
perceived. Desiring work-life balance, meaningful
work, ongoing performance feedback, and com-
petitive compensation are not characteristics
that are specific to Millennials—all employees
report these job factors as critical determinants
of job satisfaction (Workforce 2020, Oxford Eco-
nomics, 2015). Indeed, when it comes to what
they want from work, Millennials seem to have
much in common with their older counterparts.
This means that effective, ongoing performance
management is going to be important for all
employees regardless of their age.
Constant Communication
Across the interviewed sample, employees re-
ported desiring constant, or ongoing, communi-
cation around their performance. Approximately
87% of those interviewed indicated that regular
performance-based communication is an impor-
tant factor for them; however, only 54% indicated
that they themselves received performance feed-
back on a regular basis.
Managers were asked whether they had perfor-
mance-focused conversations with their employ-
ees regularly, occasionally, or rarely, while em-
ployees were asked whether their managers
initiated performance-focused conversations
regularly, occasionally, or rarely. Analyzing the
gaps revealed that managers tended to report
these conversations as occurring more frequent-
ly than employees felt they were occurring. Put
another way, managers may think they are doing
a better job of initiating performance-related
communication—at least in a way that employ-
ees can recognize—than they actually are.
If an employee is performing poorly, how can
a manager know which of these factors is the cul-
prit? If job knowledge is an issue, the employee
can participate in training, but that course of
action is unlikely to be helpful for an employee
whose confidence or motivation is suffering.
Managers run the risk of wasting time and money
addressing poor performance if they are not
able to correctly identify the true driver of the
employee’s behavior.
MOTIVATION AND PERFORMANCE
Organizational researchers have long understood that performance depends on two things: knowl-
edge and ability needed to do one’s job, and the motivation to get it done (Aguinis, 2014). It is fairly
obvious that if a person does not know how to perform their job they will not perform well. But
motivational research has shown that employee performance also depends on whether individuals
believe they can succeed at their job and whether they see a link between their efforts at work and
the rewards they receive (Bandura, 1986; Lunenburg, 2011; Porter & Lawler, 1968; Vroom, 1964).
In sum, poor job performance can be result of three distinct things: lack of job knowledge, lack of
confidence, and absence of a perceived link between job efforts and valued rewards.

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Managing Poor Performers
Initially, the interviews were largely focused
around methods used to effectively manage
high-performing employees. However, middle
managers and senior leaders quickly redirected
the conversation by indicating that the real chal-
lenge lies in managing the performance of poor
performing employees, more so than that of high
or even mid-level performers. Managers ex-
pressed difficulty with engaging and motivating
these workers, while maintaining high team
performance and ensuring organizational goals
are met. While managing stellar employees was
described as “easy”, managers did not feel they
were properly equipped with the tools they need
to effectively manage employees who are falling
significantly behind.
Interviewed managers identified two main paths
they had taken in the past to address this issue.
The first, and most difficult, was to continually
coach poor performers into better performance
by providing them with the support, knowledge,
tools, and resources to more effectively and effi-
ciently perform their job duties. Not surprisingly,
this was described as a drain on manager re-
sources and time. The second path was to move
the low performing employee into a different
position or team that might be a better fit for
the individual’s interpersonal skills, knowledge,
strengths, interests and goals. Again, this was
often reported as being time-consuming and
difficult to achieve.
Focusing on the Positive
Across the interviewed sample, managers and
employees reported a trend of performance-fo-
cused conversations being prompted exclusively
by negative events (i.e., only when a performance
issue needed to be addressed). This was the case
for both managers initiating the conversation
(i.e., when an employee had made a mistake),
and for employees initiating the conversation
(i.e., only reaching out when he or she needs
help). This tendency to focus on the negative
led to fewer performance-based conversations
overall, as managers and employees reported
preferring to avoid these potentially awkward
interactions.
Managers frequently referred to themselves as
“available as needed”, believing they had institut-
ed an open door policy for their employees to ap-
proach them on matters related to performance.
However, this was usually insufficient to drive a
greater quantity of performance-related interac-
tions, and tended to perpetuate the problem of
only starting these discussions when there was
an issue or problem.
What happens when good performance gets
ignored? Managers that initiate performance-re-
lated conversations focused exclusively on nega-
tive events might be successful in getting em-
ployees to stop doing bad things, but they’re
unlikely to elicit the positive behaviors they need
from their employees. Performance management
is not just about solving specific issues, but guid-
ing employees toward their best possible perfor-
mance throughout the year. This means address-
ing both negative and positive performance
appropriately on an ongoing basis.

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Managing Employees as Individuals
Consistent across the interviews was the notion
that “no one size fits all” when it comes to perfor-
mance management. The most effective manag-
ers knew individual employees’ strengths, weak-
nesses, interests, and goals, and tailored their
management style accordingly. Employees
reported a preference for working for managers
that were understanding, good listeners, and
supportive of their personal work styles. Inter-
viewed managers identified those same traits as
drivers of getting the best performance possible
out of their employees.
Over the years, a lot of research has been done
on employee perceptions of fair practices in the
workplace. These findings suggest that transpar-
ency and consistency are critical as managers
hire, motivate, and manage employees, with
serious negative consequences for the perfor-
mance and attitudes of employees that don’t
perceive these practices as fair (Blader & Tyler,
2003; Colquitt, Conlon, Wesson, Porter, & Ng,
2001; Colquitt, Greenberg, & Zapata-Phelan,
2005). How can managers ensure they are being
fair, while also managing employees in a way that
fits their preferences due to culture, demographic
characteristics, and personality? Striking a bal-
ance between effective, individualized employee
management and fair, consistent treatment of
subordinates is an ongoing challenge for today’s
managers.
THEME II. EXISTING HR TOOLS
Employees, managers and senior leaders were
asked to discuss the existing HR tools in their
organizations, and the extent to which these
tools helped or hindered the ongoing perfor-
mance management process. One of the most
surprising outcomes of this research, given all of
the recent press about the failure of today’s per-
formance management tools (e.g., Culbert, 2015;
Ramirez, 2013; Rock et al., 2014), was that these
tools were most commonly described as “help-
ful”. Formal HR performance management tools
do help drive the performance-related conversa-
tion and bring employee performance to the
forefront of a manager’s ever-increasing list of
things to address in the workplace. As such, even
in today’s rapidly changing world of work these
tools may add far more value than analysts and
researchers have given them credit for (e.g.,
Bersin, 2013; Ramirez, 2013).
POSITIVE REINFORCEMENT AND PERFORMANCE
Recent research has suggested that positive feedback for a job well done is just as important, if not
more, as negative feedback reprimanding a work mistake (Aguinis, 2014). Positive feedback (and
positive supervisor-employee interactions in general) is critical for maintaining employee morale
and job satisfaction. Additionally, employees will have little insight into what they should do more of
if they don’t receive positive reinforcement when positive work behaviors occur.

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However, the word “helpful” was frequently
followed by a caveat—these interviews revealed
that HR tools still have a long way to go in various
aspects before they can support the needs of
employees and managers on an ongoing basis.
The following are some of the major areas where
current HR tools are falling short.
Broken Feedback Loops and Lack of
Transparency
The annual performance evaluation process,
which was the most frequently mentioned formal
performance management tool, left a lot to be
desired for managers and employees. However,
the issue was not just that these tools were used
annually (although clearly that was not frequent
enough to meet the needs of employees). Rather,
a lack of visibility into the overall process was a
primary concern. Managers reported sending
employee performance ratings into the “organi-
zational vacuum” with little understanding of
what impact these ratings would ultimately have.
Employees reported evaluating their own perfor-
mance only to have their managers regurgitate
what the employee had written in their self-evalu-
ation, rather than providing the manager’s own
feedback about the employee’s accomplish-
ments and their suggestions for how the employ-
ee should develop or improve. When developmen-
tal feedback did occur it often happened weeks
or months into the process, leaving employees to
“wait around and hope [they] hear back”. Very
few interviewees in this study reported a fully
functioning performance management cycle in
which ratings, feedback, and performance evalu-
ation impact on things such as pay or staffing
decisions occurred in a closed loop that was
timely and well understood by everyone involved.
Inconsistent Implementation
In nearly all of the interviews, employees and
managers reported vast differences in how per-
formance management was conducted within
their organizations. The personality or style of
managers and senior leaders often impacted how
frequently performance feedback was adminis-
tered, and sometimes whether performance ap-
praisals happened at all. In some cases employ-
ees reported moving to a different department
within the same company and experiencing a
completely different performance management
culture.
Employees, managers and senior leaders
were asked to discuss the existing HR tools
in their organizations, and the extent to
which these tools helped or hindered the
ongoing performance management process.

This inconsistency negatively impacted all stake-
holders in the performance management chain:
HR lost credibility in the eyes of managers when
the tools they were given were deemed as not
being useful; managers were unable to motivate
employees to meet their potential; employees
lost development opportunities; and senior
leaders had limited visibility into the true perfor-
mance of their teams.
They’re Better Than Nothing, But…
As previously mentioned, existing HR tools and
processes were described as being helpful. Al-
though recognized as not ideal, in some cases
these tools were the only driver of performance-
based interactions between managers and their
direct reports. Employees reported appreciating
the opportunity to discuss their performance,
but the processes themselves were described as
frustrating. Existing HR tools were described as
being too rigid, time-consuming, and not specific
enough to truly influence employee performance
and development.
Managers also felt that existing HR tools and pro-
cesses were time-consuming. A critical issue for
this group was an over-reliance on memory and
employee self-reporting to derive a performance
rating. Managers did not feel that existing HR
tools appropriately supported them in remem-
bering employee performance throughout the
year, and when it came time to conduct formal
evaluations they were left sorting through their
own imperfect notes and recollections. Managers
mentioned “quick reference data” as something
a performance management system desperately
needs—a summary or dashboard to assist the
manager in making and communicating year-end
decisions around employee performance.
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MANAGING A DIVERSE WORKFORCE
Today’s workforce is more demographically diverse than it has ever been. Managers are routinely
leading teams comprised of different genders, ages, and nationalities. Further, technology has
enabled the rise of virtual teams, which means that managers can lead individuals that are located
in entirely different countries with entirely different customs. When you add variations in personal-
ity, values, and learning style, it becomes a considerable challenge for managers to account for all
possible individual differences when managing the performance of their employees.

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How do effective managers manage employee
performance? They do it through day-to-day in-
terpersonal processes that include ongoing con-
versations, effective management of poor per-
formers, taking individual characteristics and
needs of employees into consideration, and by
focusing on both the negative and positive as-
pects of performance. How well do formal perfor-
mance management processes support these
manager behaviors? Unfortunately, not very,
although they are usually viewed as better than
nothing at all.
Tools and processes that provide structure to the
annual performance appraisal are not sufficient
to drive the desired feedback-rich conversations
that should ideally happen throughout the year.
Further, they are not designed to give managers
visibility into employees’ performance through-
out the rating period, leaving managers largely on
their own in making and communicating critical
performance-related decisions. But, as employ-
ees noted, they do ensure managers do not avoid
performance conversations entirely. Although
employees and managers welcome the opportu-
nity to discuss performance and they desire
more regular performance-focused communica-
tion, it is little wonder they avoid processes and
tools that are so flawed in supporting these
conversations.
HR researchers and practitioners have a chal-
lenge ahead of them. While work looks complete-
ly different than it did 30 years ago, formal per-
formance management does not, and managers
and employees are noticing. If the next genera-
tion of performance management tools and pro-
cesses are going to be successful, they have to
improve upon the traditional methods we’ve used
in the past and focus on meeting the needs of
employees, managers and senior leaders on an
ongoing basis. The performance management
tools of the future must fill the gap between what
employees and managers need and what they
have available to them, supporting them in
driving performance and productivity in a rapidly
changing world of work.
Conclusion

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Continuous Performance Management

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Continuous Performance Management