Portfolio Thinking: Performance Management in the New World of Work*

By Patricia A. McLagan who can be contacted

at www.mclaganint.com

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1. introduction

Every business is churning today. It makes it difficult to both articulate strategy and to bring strategy to life. Think about it!! We have entered the new millennium, and the workforce is now a blend of more traditionally trained baby boomers, in-your-face Gen X-ers, multicultural, semi-literate people from disadvantaged backgrounds and areas, and techies raised on computers.

Workplace talent requirements are increasingly emphasizing technical skills, flexibility, continuous learning, teamwork capacity, and communication skills. Jobs go begging due to the mismatch of skills and needs.

And, all this is happening while the old models of "employment for life" lie in shards on the floor of virtual offices, downsized organizations, and globally shifting distributions of work.

Key questions – questions this article addresses – include "how can we manage people FOR the New World of Work?" "How do we align a diverse workforce – which may not even work directly for the company – behind a constantly shifting set of business goals and strategies?" And, more than this, "Is it possible to turn the churn into competitive advantage?"

2. Traditional Performance Management: A Dead End

We can’t just go back to the "good old days," or introduce a new version of Performance Management, job descriptions, or command and control methods.

Traditionalists would tell us to toughen up on the back end. Make performance appraisals work – be ruthless, or at least tough on poor performance. Reward the high flyers. Make performance ratings and feedback forms better – more differentiating. Hold managers accountable for the performance of the people they lead.

While some of these methods are part of the solution, the exclusive use of back-end methods to drive performance doesn’t work. The best courses in the world, the best HR systems in the world have not been able to create the breakthroughs that the backend, or push approach to performance has promised (over and over again) to deliver. Self-esteem issues, reluctance to judge others or to "parent" adults in the workplace, aversion to manipulation are only a few of the emotional dampers on the most rational of back-end methods

A 1990 study by the Brookings Institutions, which asked, "What pay systems have the most impact on performance," concluded something remarkable: "changing the way workers are treated may boost productivity more than changing the way they are paid." (Paying for Productivity: A Look at the Evidence, Alan Blinder, Washington, DC: Brookings Institutions, 1990)

Decades ago, J. Edwards Deming concluded that performance appraisal systems created more quality problems than they solved. He and other quality experts made a strong case that systems and process problems were the main causes of performance problems. Individual people, they said, accounted for a small amount of both performance successes and failures. Focus on creating a system and processes that work, and people perform.

There is also a lot of evidence that back end methods create special problems. They often discourage teamwork. They can discourage complex thinking (If I am rewarded for making sales, I may sell for today and create an unhappy customer for tomorrow. Or, if I am a credit clerk, whose pay is based solely on the amount of "bad debt" in my portfolio, I may do things that turn away potentially good long-term customers).

Most importantly, the emphasis on the backend has turned many people’s focus away from the "front end:" the strategy communication, the negotiation about goals and roles, the team-based creative thinking and visioning that we know affects understanding and motivation over the long haul. Managers in the past often felt that because they "took people through a deck of slides on the strategy" that the strategy had sunk in, that commitment occurred, that aligned action would follow."

Because back end management is reactionary, it is easier to focus on. It seems more tangible. Back end management relates to highly charged decisions like pay distributions, or downsizing, so it falls into that "urgent" category that Stephen Covey talks about (Seven Habits of Highly Effective People). Front-end management – like every disciplined thing we do BEFORE we act, often falls into the "important, but not urgent" category. It requires self-energized commitment to do. Therefore, front-end management often falls off the table. It is easier to respond to the current crisis than to take actions today to avoid problems tomorrow.

And, usually these backend methods are part of a more "command and control" management style and a more "dependent" worker style. The manager sets goals for people, does the performance appraisals, decides the pay treatments, determines what is exceptional (good and bad) and expected performance.

Command and control and dependency may work in a relatively closed system where there is little competition, lots of stability, and a corner on talent. But, today?…….

3. Moving to the Future

Management processes that rely on the back end are not the way to create and energize organization capacity in the knowledge era – or any era, for that matter. A recent Gallop survey of 55,000 workers matched corporate performance with worker responses. The findings? Four attitudes related directly to higher profits:

# Employees feel they have opportunity to do what they do best every day

# Employees believe their opinions count

# Employees sense their fellow workers are committed to quality

# Employees directly connect their work and the company’s mission ("Happy Workers, Higher Returns, and You Ind.: The 100 Best Companies to Work for in America, Fortune, January 12, 1998

On another track, industry and cross industry studies also show that companies that use high involvement people practices outperform those that don’t. These companies achieve:

# 160% more growth in sales (Kravetz)

# 400% more growth in profits (Kravetz)

# $15,000-60,000 greater market value per employee (Huselid)

# 200% more patents (Stern)

# 500% more revenue growth, 800% more employment growth,

# 1200% more stock price growth, 700% more net income growth (Heskett and Kotter)

And, as for why people are attracted to companies and resist poaching, people in the 100 best companies to work for in America (Fortune, January 11, 1999) say they don’t "jump ship" because:

# the workplace is fun

# there is job flexibility and career change

# they are using cutting edge technology

# they are doing exciting work

# they can advance

# they are getting top-notch benefits

# there are employee services, like cafeterias, college-planning and home purchase assistance

All of this is NOT to say that there should not be control, standards, rigor, or even hierarchy in a business. It is NOT to say that performance feedback, differentiated pay, or management of performance problems are passé.

It IS to say that management systems that are based PRIMARILY on backend methods endanger competitiveness. They endanger the firm. Talented people with in-demand skills, leave. Opportunities are sub-optimized or missed.

It’s time to make dramatic shifts in how we – all of us, worker, manager/leader, HR professional – align the people in the firm’s economic web.

4. Design and Manage Organizations as Goal-Focused Communities

The big message of all this is that "what is between people’s ears" is an increasingly important business asset. And, this asset comes with a variety of rational and non-rational qualities. And, a related message is that an organization is actually a community of people working together. Communities are not easily managed by back end, or push tactics.

Peter Drucker has been talking about this for some time. He challenges us to manage organizations as though they are communities of volunteers.

But, what does this mean for our initial questions? ("How can we manage people FOR the New World of Work?" "How do we align a diverse workforce – which may not even work directly for the company – behind a constantly shifting set of business goals and strategies?" And, more than this, "Is it possible to turn the churn into competitive advantage?")

The overall answer is that there needs to be just enough discipline to get the best organization synergies, and lots of attention to unleashing the creative energies in and around the firm. For some people, this means a radical self-reengineering. For everyone it means balancing personal freedom with the discipline that any community needs to have to optimize itself. For organizations, it means creating the best synergy of front and back end methods – with major energy going now to the front end.

Here are some key success factors for aligning people and work in a churning New World of Work:

A. Implement personal portfolio management

B. Provide individualized coaching toward a partnership style of work and managing

C. Use the web and technology to create knowledge management synergies

D. Create and maintain a context-creating communication infrastructure

E. Reengineer the HR staff job

These all require a new mindset about the relationship between people and the organization. They require a pull (more front-end) rather than a push (more back-end) approach to performance and productivity.

Let’s see what each of these means.

A. Personal Portfolio Management

Everybody today is a business within the business. Furthermore, they must manage themselves as committed and responsible adults within their larger economic web. The old view saw individuals as the property of a "boss." But now, most of us are on lots of teams – the formal work team, task forces, quality groups, project teams….. The "boss" as a concept doesn’t work here, for only the individual has access to the full range of his or her responsibilities.

Also, in a customer-focused world, it is useful for everyone to think of work in terms of deliverables. "What do I provide to others that adds value for customers and this business?" And, "what do I need in resources, including skills, to be able to deliver the outputs I am being paid for?"

This is portfolio thinking. I provide things. I use resources. I develop. I set and negotiate priorities. I take accountability, keep commitments, and work to high standards. I get feedback from customers/receivers to help me continually ensure the highest value of what I am offering. I am part of a "value equation" where I provide and I receive. I am a business within the business – engaged in an economic, information, and emotional exchange. This applies whether I sweep floors, flip hamburgers, fly airplanes, coordinate production workers, do product planning, sell, do aerospace research, or run a $50 billion company.

Portfolio thinking applies whether I have little education, or have a PhD.

As a portfolio thinker, I keep aware of what I have delivered and what I can deliver. I work to continually improve my outputs – and to innovate new ones. I watch for shifting trends that may make my deliverables obsolete (technology??). And, I keep my ears open for trends and opportunities that may redirect my portfolio.

I also have a heightened awareness of my knowledge and skills, of my own attitudes and values. I see them as my assets, and know that their value is changing constantly. I do a kind of "discounted competency flow" analysis, knowing that the life cycle of knowledge and skills is getting ever shorter.

Like a good portfolio manager, I use simple, but effective tools to guide my decisions and actions. These are tools that enable me to set and negotiate goals, identify learning agendas, get and interpret feedback, make tradeoffs as I join new teams, negotiate and stand for the value of what I provide. I use tools that help me look into and prepare for the future, where the mix of my outputs and competencies will shift so I can thrive (not just survive) under the inevitable new conditions.

I do not let others control my portfolio or keep its contents and direction secret from me. I get help; I get coaching. I develop the skills I need to be able to manage this important package.

And, I expect the companies I work in and with to provide the information I need to keep my portfolio viable.

B. Individualized Coaching Toward a Partnership Style

Few companies are set up for personal portfolio management. The spirit is there in many entrepreneurial firms. It is there naturally for many Gen X workers. But, most companies, no matter how old, reflect the legacy of pre-internet business: a legacy that is often bureaucratic, slow, and encourages dependency ("boss" and "subordinate" say it all!!).

We have a special challenge as we transition to the New World of Work and set the stage for aligned management of personal portfolios. The challenge is to help everyone develop a mindset of partnership to replace the boss-subordinate, dependency-creating view of the world.

The New World of Work still requires a "management" function. It still requires executive work to be done. Businesses continue to need strategies, processes, budgets and financial stewardship, coordination of various kinds, mentorship and coaching. Companies continue to need various kinds of hierarchies and role differentiation. But, the definition of all of these is changing. Practices within each of these areas are changing – becoming more open, more participative and two-way, more sensitive to time, stakeholder alignment, and impact on customers and competitiveness.

A big job of this management function today is to help formal leaders develop and use management processes that are appropriate for the people they lead, but that also help people learn how to manage themselves and stay in alignment with the business and co-workers.

There is no time to waste. Businesses that allow formal leaders – supervisors, managers, executives – to work autocratically, to punish initiative, to pretend to "own" talent, to discourage diversity, to even abuse their rank and power, must make the mandate for change clear.

Formal leaders "add value" to people when they help them work more independently and as responsible partners. Supervision and high levels of personal control are expensive (If

I supervise you, making you check with me for everything, fixing your problems, requiring you to go through me to others, then it is taking both of us to do your job. This increases our costs of doing business. It is not a good competitive tactic!

Individuals and relationships differ. Some start out dependent or even adversarial. Great leaders start where things are and work with people in ways that can most quickly build trust and independence. For the really great coach, everyone whose life they touch, rises to their best, most adult, most contributing self.

We need to help all formal leaders develop the mindset and capacity to play this value adding role.

C. The Web and Technology for Knowledge Management

Knowledge management – accessing relevant information, turning it into ideas and actions, and rapidly making it available to the organization community – is at the heart of aligning people and strategies.

It is fundamentally an interpersonal process. Why? Because knowledge has a huge "meaning" component. And meaning is a social phenomenon. Through conversation, we share and create meaning. We test it. Therefore, this and the next point ("create a shared context through a communication infrastructure")

But, technology has an enormous role to play. And, that role is very new!! We must be careful not to use it to simply create electronic versions of what we did in the past – electronic versions of performance appraisals, of pay decisions, of information dissemination.

There are new possibilities. They include the ability for us to make work far more flexible. We don’t need "jobs" to structure work. We can create menus of deliverables for the entire organization or value stream of a business. These can reflect the most current assumptions about strategies, markets, industries, and environments. As these assumptions change, rather than creating new job descriptions, we change the items on the menu.

At any point in time we can use the menu to: help allocate and balance work, communicate about shifts in work and knowledge requirements, develop instant work profiles for use in hiring and in flexible work design. We can also use them as the common language for linking people and projects.

Intranets and server-based systems provide the breakthrough infrastructure for these and other menu-driven applications. This is not such a new idea. But, the trick is to design menu-driven knowledge management systems in the spirit of personal portfolio management and partnership-oriented management. Most systems out there today reflect the secretive, more boss-subordinate models of the past. Rather than add value for the New World of Work, they thus prevent the very knowledge transformation they "seem" to serve.

D. Context-Creating Communication Infrastructure

Here we have the heart of pull management and leadership. Pull methods are methods that appeal to the most energy-creating aspects of people. "Pull" methods attempt to create a "context" within which people want to perform and excel in ways that will optimize the business and themselves.

Here we have the heart of pull management and leadership. Pull methods are methods that appeal to the most energy-creating aspects of people. "Pull" methods attempt to create a "context" within which people want to perform and excel in ways that will optimize the business and themselves.

Pull methods are the methods that High Performance Companies use and amplify energy and action (see www.StrategyInAction.com for up to date details). Pull methods are often in the "important but not urgent" category. This means that we have to have a commitment to using them, or else they are crowded out by crises – those urgent things that may or may not be important.

Author Robert Fritz, (The Path of Least Resistance) tells us that having a vision of what we want to create is the biggest way to motivate and focus action. This is the path of least resistance!!

The words "vision" and "want" are key here. The biggest leadership challenge as we enter the 21st century is to create these conditions.

Doing this involves at least these things:

# Continuous, dialogue-based communication about the big picture

# A required, but dialogue-based method of turning context information into personal and team goals

# Fear-free feedback, learning, trouble shooting, and innovation

Continuous, dialogue-based communication about the big picture. The big picture is the current and projected reality of the industry, markets, technologies, competitive and stakeholder challenges. It is the business strategy and rationale for the strategy. But the key to bringing the big picture to life – bringing strategy into action, is dialogue. It is only through dialogue that people develop understanding. It is only through dialogue that people personalize information. It is only through dialogue that their own experiences can be brought to the table, perhaps to even change the strategies or perceptions of market conditions. Through dialogue we create community – shared meaning. This is the heart of success in a knowledge world, and the only real incentive to aligned action.

Traditional methods assume that "if management says it, presents it, puts it in the newsletter, takes it on a ‘road show,’ that action will occur. Anyone experienced in business knows better.

Required, dialogue-based goal setting. Goals are one of those not-so-popular issues in organizations. For one thing, people have different personal stances about goals. Some have seldom accomplished what they set out to do. Goals feel like a painful exposure. For others, goals are a protection against flexible action. "That’s not what I agreed to," they may say. For others, it is just hard to see their value in rapidly changing times.

Ironically, goals have higher value when things are changing rapidly. This is true because they give us a direction in stormy times, not because they must be preserved at all costs. For a sailor on stormy seas, it is vital to have a point to aim for. He or she may have to tack to adjust to the winds and seas, but having the destination is important for navigation. But, with different information – about a better place to go, or a safer port – the keen sailor will change the goal.

Goals are also very important in complex times because as we join additional teams, and as conditions change, we have to make decisions about how to spend our time. These decisions usually involve others. We need points of negotiation ("If I do this, then this will be affected. This will affect you in this way…. Let’s make some new agreements.")

It’s all an interactive process – again, conversation; dialogue!!

Goals are more important now than ever before. But their role is changing. They are not "gotcha’s." They are not fixed points of commitment. They are points of community agreement. They are points for customer and co-worker agreements. They are swing points for changing direction – but with cause.

Goals are also counterpoints to "important/not urgent" and "not important/urgent" work that often monopolizes an individual’s day – after day… Taken seriously they help ensure that important/not urgent work gets done – that people are accountable for them in stormy times.

Companies need a rigorous discipline of goal setting and goal management. But the mindset about goals has to change. The view of goals as a bureaucratic, "gotcha" exercise, fraught with paper, has to change. The view of goals as individual must shift to their role in connecting people and commitments, linking everybody to the strategy – accelerating it into action.

Fear-free feedback, learning, trouble-shooting, and innovation. Think about the notion of "personal portfolio management." Think about everybody as a business–in-a-business. Businesses and portfolios need feedback. The best of them are learning machines.

Now think about what feedback means to most people at work today. It means "exposure," "evaluation," "better/worse than others," "career opportunities lost or gained," "pay and rewards."

We have a dilemma. It is a dilemma created by the emphasis on back end management. It is a dilemma created by boss-subordinate relationship structures. And, of course, there is always an element of the personal in any feedback about what people do, deliver, are.

Part of the solution to this dilemma is to redefine "performance problem." When you are in a stable, "follow the rules" environment, performance problem may mean project failure, cost overruns, project problems, etc. When you are in a rapidly changing environment with many uncertainties, failures, overruns, etc., are inevitable – the consequences of innovative action, even of so-called "prudent" risk.

In the New World of Work, we must stimulate and encourage learning. Failure rates of ideas are actually very high. A failure, per se, is not a performance problem.

A performance problem (due to YOU) is something that occurs when you don’t honor commitments, don’t renegotiate, don’t get help when you need to, cover up problems, work as a lone ranger when you should collaborate.

Admittedly, the line may seem fuzzy. But the New World of Work requires finer distinctions, more consciousness, more discernment – even as it expects very rapid action.

One solution to the dilemma is to stop the practice of "boss as primary evaluator." The team leader or manager is really like a coach or homeroom coordinator. He or she can and must help interpret what happens, but the evaluations of performance? These must come mainly from the people who receive the work. This is the only way to bring customer focus into the any business. As long as the "boss" is the evaluator, the customer will never be the focal point.

So, part of the secret of fear-free feedback is to stop viewing failure and project problems as personal performance problems. Another part is to put the evaluation power into the hands of receivers, not the hierarchy. The hierarchy is there to bring quality to the entire process of integrating people and strategy. The hierarchy is there to help develop the personal portfolio management concept. It is there to nurture people to a place where they can and will contribute at maximum. It’s there to ensure that the business has a great strategy, competitive processes. It’s there, too, to take action if performance problems do occur or if people renege on their commitments.

But, for bringing strategy into action, the entire notion of feedback must change. This will only happen when people act like little businesses instead of pawns in a personally competitive game within the business.

All of these are concerns of a pull, or a front end loaded approach to managing a business.

Front-end management and leadership take discipline. But the rewards are tremendous.

Think about it. One of the greatest businesses in the world, General Electric Company, has valued disciplined and "personal portfolio management" (they wouldn’t call it that, but it is a version of it) for many years. Companies that score consistently high in key financial and market performance areas also are companies where "people have clear goals, that they have helped create" (Kravetz). GE is a good example of what a blend of front and back end management can create.

E. Reengineer the HR Role

The Human Resource function is at a crossroads. It is clear that the challenge is to become a business partner. But, what is not so clear is, "How?!"

The HR function can be the architect of the changes described so far. Specifically, HR professionals, with their knowledge of people, organization dynamics, learning, and (hopefully) business and finance, can and must:

# Work with leaders to establish a participative, high performance philosophy for the people part of the business

# Put as much routine HR work as possible into electronic systems and service bureaus: pay systems, people records

# Create a menu-based knowledge management structure that is based on a personal portfolio and partnership philosophy (this means rejecting just automating people processes in a system that exudes boss-subordinate relationship patterns)

# Eliminate many old mental models: the model of the job as a permanent structure; management work as the only thing to consider in succession conversations (tomorrow’s organization will value many career clusters!! – a consequence of being in a knowledge world rather than an industrial production world); performance management as something that managers control; feedback as a corrective device with zero sum implications (a few win, most lose).

# Help people transition from old to new assumptions and skills. The "boss-subordinate" way of interacting has been around for a long time. The Soviet Union is a good example of what can happen to people when this is bred into their psyche. Personal portfolio management and partnership relationships are actually the natural state of a healthy adult. Sadly, we have bred a different psychology into our institutions.

HR people must spend the next few years (with business leaders) undoing the damage. We have to help people develop the confidence and courage to bring their best to the workplace. This is an exciting challenge. Hopefully, though, HR people and business leaders will do what is necessary to take organizations beyond this plateau once and for all. This is probably the biggest legacy opportunity for HR people today!!

# Provide very simple tools to help people manage themselves and support others. The day of the 100+ page ring binder of policies, procedures, and training is gone. Keep forms to a page or two. Be sure they encourage enquiry, deep thought, and conversation. See the forms of the past as one way people protected themselves. Change the rules of the game!!

# Be sure that people who lead others are capable of doing so. Too many people are promoted to influential positions and roles without having the competencies of New World of Work leadership. Leadership is not something that the best salespeople, technicians, idea people are qualified for. In fact, the things that make us great as an individual contributor (e.g., our desire to achieve) can actually damage our ability to lead (we have to do things ourselves).

A partnership style of leading is not "soft." It is very disciplined and skilled. It takes commitment, tenacity, evolving knowledge of the business, and a willingness to work with people, processes, and horizontal relationships. It takes skill in dialogue, coaching rather than doing, adapting to diversity, and courage in standing for quality and high performance.

Management/formal leadership is a career choice. It is a practice, just as being an engineer, a consultant, a product planner, a salesperson, a procurement specialist is a practice. HR people will not be able to move into the business partner role they aspire to if they do not help formal leaders learn how to lead, and workers learn how to manage themselves.

5. Conclusion

It doesn’t matter whether a business is in a highly developed country or struggling in Eastern Europe or Africa. Every business is a global business. Every business is an Internet business. Every business is a de facto player in the New World of Work.

Yes, there are adjustments to make based on industry, workforce capacities, markets.

But, the decisions are NOT whether or not to enter the New World of Work. Every company in every nation faces the challenge of creating a personal portfolio philosophy and a partnership style of operating. In some ways, this is more difficult in more developed and intellectually complex and nations and businesses. Their very success makes fundamental change difficult.

But, no matter where the business, the challenge of accelerating strategy into action looms large. The ideas in this article reflect both personal and survey research. They reflect the author’s experience globally in some of the world’s greatest businesses, and in struggling, transitioning firms. They are the lessons from work with the world’s business thought leaders, and from work with illiterate workers in isolated areas.

My conclusion is that the world is both homogenizing and opening to diversity. Management structures have to have both of these features for the future.

*Reprinted by permission of the author