Performance Evaluation


This article discusses a Case Study from the Stanford Graduate School of Business that is subtitled: Success in A Declining Industry.

The founder, George Zimmer, opened his first store back in 1973, at a time when competitors were closing their doors. From opening to the time of the article (1997) the Men’s’ Wearhouse enjoyed 30% growth. Between 1991 and 1996 they grew from 113 stores to 345 and from $133.4 to $483.5 in net sales. This Case is a study of some of the things they did right.

Some of the things that I think they did right:

  • Humanism. George Zimmer said: “I’ll tell you the last thing most MBA’s probably think of as value is the untapped human potential…the culture says, ‘It’s got to be quantifiable’.” They understood that their people were not disconnected from the rest of their lives when they were at work and had holistic views of their people. In terms of sales and their salespeople they understood that customers could unconsciously tell the difference between a “fake” salesperson and a salesperson that is being part of a genuine human interaction. They saw their salespeople as “consultants” who could expand off someone’s initial request but not sell them something they didn’t want or need for their own benefit. They used the term “selling with soul” and “becoming an artist as a salesperson” as well as “make an emotional connection” (a la “Linchpin” per Seth Godin which actually came more recently). They understood that sales involved understanding and serving people.
  • Servant Leadership. In contrast to the ubiquitous ‘shareholders first’ mentality, they said that employees came first and shareholders last (my cynical side says ‘is this real or just lip service?’). Management treated the people they managed and worked with as their customers as well, which is a great policy. Zimmer set an example of his servant mentality by making a comparatively smaller salary than his industry counterparts. They also seemed to have a mentality of managers doing all jobs when needed, similar to Southwest Airlines; if a regional manager was visiting a store and saw a customer that needed help they would jump in and help.
  • Open Door Complaint Policy. They encouraged employees to point out problems. Encouraging complaints and allowing problems to surface goes a long way toward improving the business’s structural systems.
  • Abundant Training. Zimmer characterized training as the same thing as mentoring, just that it reached more people. He also tried to give his employees a sense of being connected to something with a higher purpose. However, all training was ‘in-house’; see “wrong” section below for the other side of the training subject.
  • Tailored Performance Evaluations. While I’m generally not a fan of the Performance Eval, Men’s Wearhouse did do one thing that is worth applauding, if even for the effort: they, at least somewhat, tailored their Evals to the specific job, rather than using a “one size fits all”. This was a step in the right direction. On the down side their Evals did not have any team incentives which probably would have helped preclude inter-company competition and stealing of customers which they seemed to have some problem with.

Some of the things that I think they did wrong:

  • Nepotism. Most of the management team and board of directors were George Zimmer’s relatives and boyhood friends and nepotism was not discouraged. While it can be personally nice to work with friends and family it can substantially increase the risk of such negatives as groupthink and lack of fresh ideas.
  • No Outside Training and Promotion Only From Within. Men’s Wearhouse said that their “managers did not have the time” to do outside training. In-house training and promotion from within are nice in moderation but too much could create a stagnant situation of sparse levels of new energy and ideas.

This post is a commentary on a Harvard Business School Case Study about performance evaluations at Arrow Electronics.

On a quick, personal, third-degree-of-separation type of note: while I have no inside knowledge of Arrow Electronics, I have had the pleasure of designing their facility here in Reno, Nevada. The Case study indicates that, at the time of the study, Arrow had “no world class manufacturing facilities” but they do now have, among office and warehouse/distribution space, 60,000 sq ft of world class manufacturing space here in Reno.

Performance evaluations are a ubiquitous presence in nearly any business environment. We have probably all received and maybe even given them. Undoubtedly and, as the case study shows, oftentimes performance evals can have unintended effects and can be devoid of real, actionable information. They may actually be counter-productive to the all-important climate of continuous improvement and teamwork in an organization.

Arrow discovered that ‘evaluation inflation’ was at play in their evals. Consequently, the CEO sent the evals back to re-done and subsequently received back new and “improved” with an artificial, forced, normal-curve distribution. I the new evals there ended up still being no differentiation of the quality of employees (which was what the CEO was looking for, he just wanted the evals to contain some useful information and be a valid and reliable tool); there was just a lowered cluster of scores. The scores were now clustered around “average” but still mostly grouped in a cluster. This made the evals essentially a useless tool devoid of any real information.

Lessons:

  • Performance evals cannot be mandated to meet an artificial normal distribution, else all useful information contained in them shall evaporate.
  • Managers and employees can and will learn to manipulate the system and will begin to behave in a less then genuine manner which will impede learning, growth and teamwork; this will impede an atmosphere of continuous improvement, which is necessary for businesses to function and survive long term. Performance evals can lead to much energy being spent on “impression management” rather than the real business of the business, whatever it may be.

We have all probably experienced some of the dark side of performance evals: seen them used in negative-energy generating ways such a being a tool to engender and reinforce the power of the manager over the employee as well as a tool to justify little or no annual raise (justify labor cost goals of company). This approach totally misses the point and the opportunity of some positive-energy generation that can come from an effective performance eval.

Performance evaluations should effectively steer employees toward learning and growth, toward continuous improvement.

It might be a good idea to separate compensation and performance evaluations: compensation might better be based on market values. Performance evaluations might be reserved to help to foster honest discussion, teamwork and an atmosphere of continuous improvement. There would be more time for learning from mistakes and less energy spent managing perceptions and worrying about how one mistake might look on a review that affects one’s compensation.

A question for further thought: Is it really possible to institute a performance evaluation that is entirely objective, valid and reliable or is what the performance evaluation trying to accomplish necessarily subjective and subject to human relationships?

From the October 20, 2008 Issue an article by Samuel A. Culbert, PhD, Professor of management at the UCLA Anderson School of Management.

In this article, Dr. Culbert lays out a compelling and thought-provoking case for abolishment of the traditional performance review and replacement with a performance preview. He makes 6 good points in his argument against the traditional performance review.

  1. The mind sets held by the two participants (boss and employee) in a performance review work at cross-purposes. The boss wants to discuss performance and improvements while the employee is focused in issues such as compensation.
  2. Claiming an evaluation can be objective is preposterous. Where you stand determines what you see.
  3. Pleasing the boss so often becomes more important than doing a good job.
  4. Personal development should be an important part of a person’s job. However, people don’t want to pay a high price for acknowledging their need for improvement—which is exactly what they would do if they arm the boss with the kind of personal information he or she would need to help them develop.
  5. The boss in the performance review thinks of himself or herself as the evaluator, and doesn’t engage in teamwork with the subordinate. It isn’t “How are we going to work together as a team?” It’s, “How are you performing for me?”
  6. It’s immoral to maintain the façade that annual pay and performance reviews lead to corporate improvement, when it’s clear they lead to more bogus activities than valid ones. The more positive an atmosphere we can create at work, the more positive an impact it has at home. In short, what goes around comes around.

In my experience, as both an employee and a boss, his points struck a chord with me and I recognized, from personal experience, the arguments he was making. The old style of regularly scheduled performance reviews does tend to steer the employee to aim his/her efforts at pleasing the boss rather than actually aiming to do a good job and perform well. The work environment becomes a game of perception management and drains precious energy away from the worthwhile and dividend-paying tasks and, ultimately, morale and quality suffer. There has to be a better way, a genuinely new and improved way of promoting straight talk relationships between bosses and employees and keeping precious energy focused in the high payoff places. Dr. Culbert may be on to something when he says: “It’s the boss’s responsibility to find a way to work well with an imperfect individual, not to convince the individual there are critical flaws that need immediate correcting, which is all but guaranteed to lead to unproductive game playing and politically inspired back stabbing. Keep in mind, of course, that improvement is each individual’s own responsibility. You can only make yourself better.” Doing away with the traditional performance review may start a positive trend of fostering better team relationships and keeping self-improvement in the realm of the individual.