Egon Zehnder International

Read the article attached.

What has the author mentioned in terms of indices and measures of performance? Outline how this varies in a global project team and what could be the approach in these circumstances.

An issue that has generated increasing discussion and debate amongst senior management in recent years is that of Management Appraisal Systems. Most organisations today, ranging from the largest and most mature companies to small start-up entrepreneurial ventures, now have management appraisal systems. Even the public sector has moved to increasing use of these processes. At the same time there are increasing trends towards making these systems more sophisticated through mechanisms such as '360o appraisals'.
However, in spite of the fact that these systems are so commonly used, many organizations find that they are dissatisfied with what these systems achieve. This article aims to give a perspective on management appraisal systems and their application in many organizations as seen in the experience of Egon Zehnder International. The article will examine three key aspects of the topic:
The importance of Management Appraisal Systems
Observations of current practice
Egon Zehnder International's perspective
Egon Zehnder International has a somewhat unique international perspective on the appraisal of executives. As a Firm, Egon Zehnder International interviews over 200,000 executives a year and forms a view about applicants' suitability for various business roles. A large proportion of these interviewees also undergo a detailed assessment and appraisal as part of the selection process. This experience is complemented by our rapidly growing practice in management assessments. We now work for an increasing number of national and global companies in helping senior executives assess their management talent. This is generally carried out as part of an approach to ensure the organisation is aligned around a strategy. It is therefore from this perspective that we present the following analysis.
The importance of Management Appraisal Systems
At its heart the management appraisal process aims to be one which provides executives with clear feedback on their performance and their strengths and weaknesses in addressing the responsibilities and challenges associated with their role. Ideally it is designed to be a process which provides an accurate view of current performance, an assessment of executive potential and agrees specific development actions which should be taken by the executive in order to reach their potential. Through this process, organisations should receive a clear and accurate view of the capability of the executives working within them, particularly with regard to senior executives.
Yet it is clear that in many cases Management Appraisal Systems are not working effectively. At a macro level we know that one third of CEOs in Fortune 500 companies have lasted fewer than three years in their role. In part, this reflects the fact that the business world is becoming an increasingly challenging environment and it is becoming more difficult to establish an effective leadership agenda. However, a failure rate of a third of chief executives also implies that organizations are having great difficulty assessing the capability of senior executives to take on new challenges and difficulty giving those executives the guidance to develop the competencies required of their role. Effective Management Appraisal systems should aid this.
Appraisal systems are also important because of their potential to encourage high performance. Recent research indicates that the difference between high and average performers in a senior executive role can be one or two orders of magnitude in terms of their impact on shareholder value. There are significant differences that clearly indicate there are benefits to both understanding who the organisational high performers are and also encouraging development processes that enable average performers to increase their capability and effectiveness.
Other research indicates that, of a wide range of senior executives from large US based corporations, only 3% believe their organisation 'develop people well'. [These figures are taken from large US corporations, ones that many of us regard as being the most effective in terms of their human resource appraisal and development systems.]
In short, Management Appraisal Systems have real potential to improve the capability and performance of people in an organisation but currently, in many cases, do not seem to be successful in doing this. Why might this be so?
Observations of current practice
In many cases, there are real weaknesses in current execution of management appraisal systems. At Egon Zehnder International we find that less than half of the senior executives we deal with in client organisations have actually been appraised or evaluated in the last twelve months. That is; while the organisation has systems in place, they tend to be lax in applying those systems to their senior executives. This problem is compounded by the fact that many of the basic systems themselves are flawed in various ways. Furthermore, we find that even when there are good appraisal systems in place, organisations suffer greatly because of the lack of candour which is used in their application.
The need for quality feedback
Dick Brown, CEO of EDS, was quoted in a recent Harvard Business Review as saying 'By failing to provide honest feedback, leaders cheat their people by depriving them of the information they need to improve.' However, there is a further issue. The issue relates to the word "honest". The problem is that in many appraisal systems the view given is only that of the leader on the performance and capability of the executive.
But is the leader's opinion valid? How accurate is the leader's opinion? How experienced is the leader in making assessments on individuals such as this one? And, even if they are experienced, how effective will they be in communicating their message? The opinion of the leader is relevant but flawed. For various reasons they will not have a rounded or objective view of the individual's performance and capability. Research indicates that a peer can often be the best overall judge.
A 'top down view' is relevant for assessing certain skills, especially those related to thinking and planning rather than leadership ability. This is particularly true where there are great geographical distances between the leader and the unit which the subordinate is responsible for. Direct reports, due to their lack of bias, can be better judges in areas such as coaching, and will have an accurate perspective on a leader's capability. However, they may have a narrow frame of reference in forming this view.
An additional issue to consider relates to the process of giving feedback. Research has shown that the emotional intelligence of the individual providing the feedback is far more important than the accuracy of the content.
Challenges of the 360 degree approach
In acknowledgment of the limitations of traditional top-down assessments many organisations have adopted the 360o approach . Typically these involve individuals having peers and subordinates evaluate them on a range of attributes and characteristics. Originally these systems were paper intensive, though more recently many organisations have put them "on line."
Are these systems better? Some sophisticated and mature organisations have definitely found them to be useful. However, on balance, many organizations have been disappointed with their effectiveness. In part, the issues relate to the scope of the 360 degrees. Too many aspects are covered through a process which provides too little clarity on the aspects which are most important, and aspects which indicate how performance varies. A recent example we saw in a large Australian corporation rated their senior executives on 65 competencies. Each executive was evaluated by around ten to fifteen respondents. Each competency was typically scored on a five point scale where the executive would receive average scores between 3 ½ and 4 ½. It was very difficult for the executives to take this data and make it useful.
A further complicating factor is that many of the people polled through the 360o approach, may be commenting on competencies that they are not skilled or capable of commenting on. Such surveys provide an assessment of people's perceptions about issues, but those perceptions may or may not be valid and useful in terms of assessing the executive's performance.
Egon Zehnder International's perspective.
Given the previous remarks, our approach, in response to the prevailing challenges, is hardly surprising.
The most obvious point is that people are "too complicated" to be run through a standard questionnaire. This is particularly true of senior executives, many of who are in highly specialist roles, facing unique challenges related to the development of their business or team. Executive performance needs to be assessed, very much in the context of the business agenda of the organisation, an issue that will not come out through a standard questionnaire.
Multi-level inputs are important- no one executive can provide a clear picture on the strengths and weaknesses of an individual's performance, so the 360o process has considerable value. However, these 360o reviews should be designed in such a way that 'referees' are focused on commenting on those things which they are qualified to comment on.
Following conduct of 360o reviews, it is important that the feedback to the executive is prioritised to a few most important messages, rather than "65 different pieces of feedback".
Finally, the best person to provide 'honest' feedback is more likely to be an outsider than the individual's leader. Naturally the leader's perspective and decisions are most important to the executive. However their commentary is not likely to be truly objective and is unlikely to have the same candour and lack of bias that an outsider's perspective can bring. Ultimately the appraisal process should be aimed at providing real transparency to the individual and the organisation. That is hard for people within the organisation to do, even when they have had many years' history of carrying out these evaluations.
Egon Zehnder International's approach
Egon Zehnder International have a large and rapidly growing practice in the area of management appraisals. We have carried out appraisals for a wide range of clients sometimes evaluating groups of hundreds of executives around the world, in other cases one or two key executives. However, our basic approach is always the same.
To carry out an effective management appraisal we require a clear understanding of the competencies required by the individual. An in-depth assessment of the individual, is then undertaken, which combines both an extensive behavioural- based interview combined with a range of independent assessments by people who have worked with that individual, both inside and outside the organisation.
Based on the information collected we are able to put together a summary of the individual's strengths and weaknesses. This we share with the individual and their client organisation.
The thoroughness and objectivity associated with this approach, generally provides some real insights about the individual's capability and development needs which can then provide a firm basis for the organisation's future planning about this individual's development. The results are generally a surprise to the individual and a surprise to the organisation. Not because of the information provided but because of the sharp focus, which is brought to the particular development issues which, that individual faces.
We believe processes like these need to be utilized within organisations if management appraisal systems are to be a truly effective tool.