Managing the next generation of performance: a significant challenge that McKinsey explains clearly in its article.
Companies that operate with a purpose are more likely to create significant long-term value, which can lead to better financial performance, greater employee engagement and increased customer trust.

Focus on the organisation’s purpose

What is your company’s main purpose, and where can you make a unique and positive impact on the market? Now more than ever, you need answers to these questions: purpose is not a choice but a necessity.

Managers and HR managers (HR directors or their equivalents) can articulate and shape the desired individual mindsets and behaviours linked to the purpose by identifying the ‘moments that matter’ in the corporate culture and translating the purpose into a set of leadership and employee norms and behaviours.

For example, commercial vehicle manufacturer Scania organises an annual ‘Climate Day’, during which the company halts operations for an hour to hold training sessions on sustainability, in line with its purpose of ‘driving the transition to a sustainable transport system’.

Managers and human resources managers (HR directors or their equivalents) can also ensure that clear changes are made to recruitment and skills development processes by determining the characteristics of a “purpose-driven” employee and incorporating these attributes into recruitment, development and succession planning.

Managers and human resources managers (HR directors or their equivalents) can also incorporate purpose-driven metrics into pay and performance decisions. Companies across all sectors have been adopting these metrics recently. For example, Seventh Generation, a manufacturer of cleaning and personal care products, has recently incorporated sustainability targets for the entire workforce into its incentive scheme, in line with its goal of becoming a zero-waste company by 2025. Shell plans to set short-term carbon emissions targets and link executive compensation to performance against them.

Think deeply about talent

Organisations able to reallocate talent in line with their strategic plans are more than twice as likely to outperform their competitors. Next-generation performance management helps link talent to value; top talent should be moved into critical roles that drive value. This means moving away from a traditional approach, where critical roles and talent are interchangeable and based on hierarchy.

Placing the best people in the most important roles requires a disciplined focus on where the organisation truly creates value and how top talent contributes. Consider Tesla’s drive to create a culture of rapid innovation or Apple’s obsessive focus on the user experience. These cultural priorities lie at the heart of these companies’ value agendas. The roles needed to turn such priorities into value are often linked to research and development and filled by creative, talented individuals.

To enable this shift, managers and HR managers (HR directors or their equivalents) should manage talent rigorously by building analytical capabilities to extract data for hiring, developing and retaining the best employees.

Create the right motivation for employees

Companies know that a better employee experience means better profitability. Successful organisations work alongside their people to create personalised, authentic and motivating experiences that draw on a sense of purpose to strengthen individual, team and organisational performance.

Managers and HR managers (HR directors or their equivalents) play a crucial role in shaping the employee experience. Organisations where HR facilitates a positive employee experience are 1.3 times more likely to report organisational overperformance, according to McKinsey research. This has become even more important during the pandemic, as organisations work to build team morale and a positive mindset.

Managers and HR managers (HR directors or their equivalents) should facilitate and coordinate the employee experience. Organisations can support this by helping HR evolve, strengthening the function’s capabilities so that it becomes the architect of the employee experience. Airbnb, for example, has rebranded the role of CHRO as Global Head of Employee Experience. PayPal has focused on HR capabilities and processes to create a better employee experience, including coaching HR professionals on how to measure and understand that experience and use technology more effectively.

Introducing next-generation performance management

Next-generation performance management is certainly not easy for companies experimenting with a wide variety of approaches to improve how they manage performance, but it is essential. According to a global McKinsey survey, half of respondents said that performance management had not had a positive effect on employee or organisational performance. Two-thirds reported implementing at least one significant change to their performance management systems.

We have identified three practices – manager coaching, linking employee goals to business priorities, and differentiated pay – that increase the likelihood that a performance management system will positively impact employee performance. Human resources plays an important role in incorporating these practices into performance management by supporting the goal-setting process, decoupling pay from development discussions, investing in manager capability building, and incorporating technology and analytics to streamline the performance management process.

To strengthen an organisation’s agility, human resources should ask the following questions:

• Can we enable more effective decision-making by pushing decisions to the edges of the organisation, creating psychological safety that empowers people, and building capabilities?
• How can we accelerate the transition to a more diverse and deeply motivated talent base, supported by a people-centred culture that enables superior performance and experience?
• Which organisational areas or end-to-end value creation flows would benefit most from a shift to new ways of working and organising?