How to Assess Worker Performance in a Digital World

New, more meaningful, metrics are long overdue, says Michael Schrage

HR one of the last bastions of corporate organizational hierarchy, faces disruption. Technological innovation has made legacy approaches to managing employee performance anachronistic. Compensation, promotion, diversity, and other compliance-mandated functions will continue to be corporate priorities, but they’re all destined for digitalization. Much as TV’s Mad Men-era marketing departments have evolved into data-driven, core business functions, HR is overdue for radical transformation.

In fact, “the business value of traditional performance management models is collapsing,” asserts MIT IDE research fellow Michael Schrage, in a report he co-authored for the MIT Sloan Management Review, Performance Management’s Digital Shift. The study, conducted in collaboration with and sponsored by McKinsey & Company, concluded that legacy performance management systems “have become irrelevant to actually improving performance or its management.” More transparent, timely, and objective metrics are needed.

MIT IDE Editorial Content Director, Paula Klein, examined the report’s findings with Schrage, discussing the implications for workers and employers going forward. Specifically, as algorithms dominate and business processes are automated via AI and machine learning, how will human tasks be defined, evaluated, and recognized in meaningful ways? Can today’s HR departments rise to future work challenges?

What follows are some insights and highlights from the discussion.

Q: What prompted the study of performance management at this time? Are businesses stymied by current approaches and systems?

Michael Schrage: This research was prompted by a creeping unhappiness and concern about HR’s value to the firm. It’s in decline. Most organizations now realize that they need to do more to cultivate, develop, and maintain talent and use digital technologies to do so. No one who’s serious about talent management or professional development is satisfied with current approaches to job performance assessment. The traditional or typical performance reviews is too perfunctory and subjective. A lot of people we surveyed characterized them not just as a waste of time, but actually counterproductive.

Human capital needs to be defined in more than just compliance and regulatory terms. How can HR better help identify, assess, and add value to people? Are employees seen more as cost centers or assets? What analytics tools can be used to craft more meaningful performance and development metrics? These fundamental questions are just beginning to be addressed. One key finding is that HR departments are conflicted about whether they should be innovative leaders or count on their partners to bring them into the digital economy.

Q: Can better metrics simply be designed using newer technologies, or does the whole concept need to be overhauled and level-set?

MS: I don’t see how serious organizations can avoid becoming more fluent in data, analytics, and the technologies enabling them. It’s directly analogous to how digital innovation has transformed marketing, finance, supply chain, and IT. In fact, I see HR organizations looking to marketing department transformations for inspiration and advice. Much as marketing now uses analytics, algorithms, AI, and recommendation engines to empower customers and clients, I see comparable technical stacks and templates empowering employees and shaping changes in corporate culture. This is a huge deal and too few firms have discussed “employee lifetime value” the way they have “customer lifetime value.”

Q: How will workers benefit or use digital technologies to self-improve and self-monitor their career progression as the nature of work changes?

MS: Self-management, self-motivation, and self-improvement need to be encouraged and tied to rewards, recognition, personal fulfillment, and corporate profits. Greater self-awareness should also lead to better collaboration and team efforts.

In my view, a “personalization ethos” leads to greater use of behavioral profiles for optimizing individual employee performance motivation, collaboration, and productivity. For example, I may get an alert first thing in the morning that lists the goals I must accomplish by noon because data analytics show that I am most productive at that time of day. That’s a clear example of using technology transparently and dispassionately to promote personal efficiency.

We also see E-lancer and contingent worker management informing new models. Training for contingent workers, for example, is on the rise.

Image: Shutterstock

Q: What are your key recommendations for skill development in the future of work? Can you offer an example?

MS: The research clearly and unambiguously found that people want more frequent and specific feedback, which is not the same as criticism, ultimatums, or vague ‘atta boy!’ behavioral notions. New issues about who owns the provisioning, monitoring, and measuring of feedback — HR or management — will arise. Maybe we’ll see Feedback-as-a-Service offerings. The exciting thing for human resources is that it’s like the early ’90s was for the Internet; new business models and digital platforms are just emerging. That said, I recall a lot of casualties from that era, too.

There’s no off the shelf, one-size-fits-all solution to these issues, and even the tech-savvy firms may not be getting assessment right despite their relentless focus on metrics.

On the other hand, at DBS Bank, we saw the CEO and CIO recognize that culture had to change for the bank to truly take advantage of digital capabilities both internally and for its customers. Walmart, ADP, Patagonia, and others we studied show that it’s not just born-digital companies that recognize the need to align organizational values with performance management.

Change — however defined — must begin with honestly declaring how you want to value your people. Do you see and treat them more as costs or resources; as depreciating assets, or worthy of maintenance and renewal? In the current business environment, we can choose whether and how to transform human performance assessment. In the best cases, the process will be both wise and thoughtful.

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MIT IDE Paula Klein, Editor

MIT IDE Paula Klein, Editor

Addressing one of the most critical issues of our time: the impact of digital technology on businesses, the economy, and society.