Management guru Peter Drucker is often credited with the phrase “If you can’t measure it, you can’t improve it.” Whether Drucker uttered those words is questionable, but the idea certainly has merit. Yet, while many organizations are adept at defining and measuring financial and operational success, most find that the “softer” side of performance is often difficult to quantify.
Feedback tools, such as 360-degree feedback assessments (also known as multi-rater feedback) and employee engagement surveys have gained popularity in evaluating both individual behaviors and overall levels of engagement—the side of performance measurement that is not typically included in a company’s profit and loss statement. Still, while these tools have proven invaluable, most organizations struggle to link these nonfinancial metrics with operational results.
360-degree Feedback and Performance
Several years ago, DecisionWise partnered with a major cereal producer to conduct a three-year study that analyzed the results of performance evaluations, production performance (KPIs), and 360-degree feedback. The research involved several hundred managers, each the recipient of 360-degree feedback and traditional annual top-down performance evaluations.
At the completion of the multi-year study, we compared results of the two sources of feedback. We reviewed each manager’s 360 feedback and his or her annual performance appraisal. Surprisingly, this study showed no statistical correlation between 360 feedback scores and performance evaluations. In other words, managers scoring high on their annual performance evaluations and general KPIs were not necessarily those who scored high on their multi-rater feedback. What was going on? We dug deeper.
We learned that some of these production managers with poor peer and subordinate feedback scores were hitting their production and financial KPIs—a lot of cereal was moving profitably through the plants. This resulted in these managers receiving strong performance evaluation ratings, along with accompanying raises and promotions. However, these managers’ departments also experienced high levels of employee turnover and had difficulty attracting and retaining talent. These managers were meeting short-term targets at the expense of long-term profitability—a dangerous scenario. Our researchers found that some of those in revenue-producing functions were hitting short-term revenue targets, but often “at any cost.”
Although these managers were rated as excellent performers on their yearly top-down evaluations (their managers were providing their ratings), they and their departments were often origination points for employee-related issues. Then, an ah-hah moment: these top-down appraisals only considered the ratings of the supervisor. These ratings were weighted significantly on the manager hitting or missing monthly revenue or production KPIs. However, the managers’ overall performance in most other areas (leadership, teamwork, delegation, engagement, etc.) went largely unmeasured. Many of these so-called “stellar performers” were not so stellar after all.
The “Performance Lag Cycle”
Our study answered the question regarding the relationship between 360-degree feedback for development and annual performance appraisal. Both were necessary to receive a complete picture of a manager’s behavior and how it related to performance. However, as mentioned previously, we also wanted to understand whether these factors influenced levels of employee engagement. Armed with our findings from the first organization, DecisionWise embarked on a second study with a 3,000-employee medical staffing firm.
Manager Performance, Employee Engagement, and Organization Success
Numerous studies suggest that engaged employees provide better customer service, record lower rates of attrition and absenteeism, and demonstrate improved quality and increased productivity. These factors, in turn, relate to overall performance. It was no surprise, then, that the findings from our second study revealed a direct relationship between 360-degree feedback results, employee engagement, and operational performance. This makes intuitive sense—good managers lead engaged teams, which produce excellent results.
This follow-up research suggested a direct relationship between a manager’s individual behavior, the overall engagement of that manager’s team, and its general operational success. Managers scoring highest on their individual 360-degree reports typically logged similarly high marks on the employee engagement survey scores for their immediate departments. Solid individual 360-degree scores had a strong correlation with good team engagement scores. Likewise, the level of employee engagement influenced operational performance as measured by turnover, financial profitability, efficiency, quality, customer satisfaction, ROI, and stock price.
The Performance Lag Cycle
This relationship may not be immediate. In analyzing the study results, we found that managers who received low individual 360-degree feedback scores could still hit financial and production targets in the short term, which typically resulted in a strong top-down performance appraisal. Yet managers who fell into this category eventually experienced declining employee engagement. No real surprise there. The kicker: we also found that this eventually affected operational performance, and in a dramatic way.
We refer to this time between an individual’s behavior and when it affects the team’s engagement, which eventually influences financial and operational performance, as the “Performance Lag Cycle.” In the case of both organizations, we found that this performance lag cycle generally took place over a little more than a year. The results of a manager’s 360-degree feedback, linked to employee satisfaction outcomes, served as predictors of financial or operational success over the next year. Those managers who registered low 360 feedback scores, yet demonstrated successful financial performance, were often no longer performing well 12 to 14 months later. They also burned their teams in the process, resulting in high turnover, the inability to attract solid talent, and general disengagement.
Feedback and Bottom-Line Results
The use of 360-degree feedback and employee engagement assessments is an important part of the human metrics process. Many organizations already use these two forms of assessment to evaluate current and past performance and behaviors. However, the value goes far beyond these basic uses. Much of the power of these assessments lies in what they predict about future performance. 360-degree feedback and employee engagement assessments are both report cards for past leadership success and predictors of future operational success.
