July 2011

Original insight

360-degree feedback for appraisal

This paper explores how and why more companies are using 360-degree feedback as part of the appraisal process. Our client RBS provides a blueprint as to how a large and complex organisation can successfully implement 360 as part of the appraisal process. We also offer guidance and insights on how to approach introducing 360-degree feedback into performance appraisals.

Executive summary
Using 360-degree feedback for appraisal brings together multiple perspectives and enables evaluation of both behavioural as well as task performance metrics.
Early use of 360-degree feedback was almost exclusively for employee development. However, over the last decade weve seen a steady increase in the number of companies using 360-degree feedback for purposes other than development. The most common of these new uses is to incorporate 360-degree feedback into the performance management (appraisal) process. An individuals 360 results are then used to inform management decisions, such as promotion and pay. Using 360-degree feedback for appraisal brings together multiple perspectives and enables evaluation of both behavioural as well as task performance. This is a significant explanation for the growth of 360s for performance management among many of the worlds leading companies. The best use of 360-degree feedback remains a hotly-debated topic among academics and practitioners with some maintaining that it should be used, first and foremost, for development. Its fair to acknowledge that while using 360-degree feedback in performance management can offer numerous benefits to companies, it is not without its challenges. For a start, the content and process design considerations for 360-degree feedback when used for performance management are different from those used for development. A tailored approach is fundamentally important in devising a successful 360 programme, whatever purpose it is being used for. We look in greater detail at how 360s are being used and what benefits they can offer when used for assessment. In the paper we also consider the differences between the two types of 360 assessments and outline some of the key factors for success and pitfalls to be aware of when implementing 360 for appraisal.

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1.

Background and uses of 360-degree feedback

We conducted a survey of senior HR professionals representing 2.3m private-sector employees last year. The survey found that performance management was the second most common use of 360-degree feedback used by nearly a quarter of companies3.

While it was originally introduced as a development tool and is still most commonly used as such, our experience working with blue-chip companies informs us of a number of other uses of 360: Identifying development areas and skills gaps at individual and group level Finding future leaders Helping implement culture change programmes e.g. following mergers Embedding organisational values We conducted a survey of senior HR professionals representing 2.3m private-sector employees last year. The survey found that performance management was the second most common use of 360-degree feedback (after development) used by nearly a quarter of companies1. Another study found that 30% of companies use 360 for performance management2. These findings reinforce the argument that 360-degree feedback shouldnt be limited to being used solely for leadership development. It is a highly versatile and powerful tool for companies.

Case study
As an example of using 360s beyond pure development, ETS has been working with the HR function of a major global financial services company to create a 360-degree feedback programme to assess behavioural competencies, which was one element of a multi-component initiative to assess capability. Among other outcomes, this work has given the company a clear and objective understanding of the functions capability across behavioural, technical and potential requirements as well as enabling individuals to take ownership of their development.

Traditionally performance appraisals have focussed only on what has been achieved by an individual when reviewing a list of quantifiable objectives. This does not capture how employees go about reaching targets. Such an approach could favour employees who are good at achieving short term targets but at the expense of business relationships and an organisations long term profitability. The top-down, line manager-direct report process offers an incomplete view of an individuals performance. This is because a line manager typically has a limited opportunity to observe their direct reports behaviour. For instance, they are not able to observe how their direct report collaborates with colleagues from other teams, handles challenging customers, or leads their own team members. With the increased use of technology and working across geographically-dispersed, time-limited or project-based teams, the line managers opportunity to observe an individuals behaviour is further restricted. To reflect the changing corporate landscape, the concept of the employee appraisal has now evolved into a broader framework of performance management. Companies now want to focus on values and behaviours as well as objectives.

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How can 360-degree feedback help to evaluate performance?

Companies are increasingly making use of 360-degree feedback in assessing employees as it is unique in recognising the complexity of management and bringing together various perspectives. It also allows the review of performance metrics that have traditionally been neglected by organisations. This includes contextual performance non-job specific behaviours an individual may exhibit that can positively contribute to the social and psychological core of an organisation. Previous measures of performance had only focused on targetbased tasks or job-specific performance but contextual performance measures are increasingly important4. While task performance can been captured by traditional performance appraisal that relies on the line manager, 360-degree feedback is seen as one of most the effective ways of measuring behavioural outputs relating to contextual performance.

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2.

Using 360-degree feedback for performance management

There is much variation in how the output from 360-degree feedback programmes is used. At one end of the scale, 360 is used solely for an individuals personal development and the individual does not need to share their 360 report or results with others. At the opposite end of the scale, 360 is used entirely for performance appraisal and results directly influence administrative decisions, such as pay or promotion. While it is not essential for a company to have first used 360-degree feedback for development before using it for appraisal, it can be advantageous. This is because, when moving from a 360 used for pure development to one which is used for appraisal, employees have already become familiar and comfortable with giving and receiving feedback. If taking the approach of using a 360 for development first before moving to appraisal, this migration illustrated in the below diagram should take place after at least 12-18 months5 and in the second or third cycle of feedback.

Figure 1: Diagram adapted from Maylett (2009). 360-degree feedback revisited: The transition from development to appraisal

Development
Only employee determines selection of feedback providers and follow-up actions. Reports are strictly confidential and available only to the employee.

Personal & Organisational Development

Employee and HR/managers select feedback providers and jointly work on employees development. Follow-up action plans and results are formally discussed with line manager or coach.

Development & Appraisal

HR/managers select feedback providers. Results feed into administrative as well as development actions. Reports are formally discussed by employee and line manager.

Appraisal (& Development)

HR/managers select raters. Results are linked directly to administrative actions, such as pay/bonus. Data is owned by the organisation and results are included in a performance review.

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Companies implementing a 360-degree feedback programme for appraisals must be clear on what their current approach to performance management is.

Understanding your approach to performance management

Companies implementing a 360-degree feedback programme for appraisals must be clear on what their current approach to performance management is. The practice of performance management can vary widely across organisations depending on their size, culture, resources, and organisational objectives and strategy. While one organisation may just be starting to implement paper-based performance management on an ad-hoc basis, another organisation may have a fully automated and integrated performance management process that links in to its learning and talent management processes. The diagram below shows the different stages an organisation may be at in terms of their model of performance management. Larger organisations aiming for a high-performance culture would typically move towards the integrated performance management approach. To maximise the effectiveness of 360-degree feedback in appraisals, the minimum requirement is for the company to have an automated performance management process. Having this technology platform facilitates efficient collection of data as well as providing more sophisticated processing and reporting functions to help analyse results and use them to inform strategy and management decisions.

Figure 2: model of performance management the different stages

Commitment to process

Integrated Automated
Process automated Goals set have some link to organsiational objectives Increasing objectivity Manager training High-performance culture Integrated with learning & talent Outputs based on behaviour / targets RoI metrics show value

Foundation
Inconsistent Subjective Paper & Excel No data oversight

Value to organisation

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Research on using 360 for appraisal

It is important to recognise that while the design of 360 for development and performance management may look similar, they produce very different results and hence should not normally be combined into one process. In a series of studies over three years, Maylett (2009) found that a persons traditional top down (line manager rated) performance appraisal did not correlate strongly with the persons developmental 360-degree feedback. The study found that while the top and bottom scoring individuals were generally ranked similarly in their performance appraisal scores, employees in the middle had a wide range of appraisal scores and did not score in the middle ranges. Similarly, Conger (2000) concluded that 360-degree feedback for development and for performance management should be two distinct tools that complement each other but must be deployed at separate times during a year6. Both these studies illustrate how developmental 360-degree feedback may not be useful or relevant for use in a performance management context. If feedback is to be linked into performance management, it must be designed and implemented accordingly.

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3.

Successfully implementing 360-degree feedback for appraisal

While employees are typically receptive to feedback from a development-only 360, they are more likely to manipulate and contest feedback when it has administrative consequences linked, for example, to pay.

Whether companies are thinking of implementing a new 360-degree feedback for performance management or moving their current development 360 to be used for performance management, there are plenty of considerations. While employees are typically receptive to feedback from a development-only 360, they are more likely to manipulate and contest feedback when it has administrative consequences linked, for example, to pay. By taking a bespoke approach to the design and implementation of a 360-degree feedback programme, companies can ensure they end up with a system that meets their exact requirements and, importantly, reflects company culture. This can really help boost buy-in and support from employees. There are plenty of other considerations too and in the following sections we outline some key factors for success and some common pitfalls to be aware of.

Preparing to introduce 360

Theres plenty of important work to do before the roll-out of a new 360 programme. One of the most effective ways of maximising buy-in across the business is to obtain active support from senior management who can act as role models and champions for the process. They should be prepared to take part in giving and receiving feedback to encourage everyone to do likewise. Early steps include: Having a clear understanding of your objectives and your desired outcomes of 360 Seeking support from top management to act as champions for the 360 Selecting feedback providers in conjunction with, or even on behalf of, your employees, choosing those who have regular interaction with the employee being rated

Design and testing

When planning 360-degree feedback, its important to consider cultural and language differences in the design, implementation and training. Studies have shown that cultural factors can impact how 360 feedback is perceived, how accepted it is, how high (or low) feedback receivers rate themselves and the degree of self-other perception gaps. We advise companies to involve country representatives early in the design process to ensure that their needs and perceptions are taken into account. Provide training for feedback providers and receivers on the 360 process. This should include showing them how to use the rating scale, how levels of performance should be rated, and how to interpret and use the feedback. Doing this can make a huge difference in enabling a more consistent approach across countries and minimising unintended cultural differences. Organisations also need to consider whether they are going to use English or to translate into different languages across the regions. The advantage of using English is that this provides a consistent language for feedback and interpretation and is crucial if English is recognised as the standard business language. On the other hand, translating the

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360 into different languages enables participants to provide and receive feedback in their own language which aids understanding and acceptance of the feedback. Using a pilot group before introducing it to the wider organisation is something we recommend. This allows refinement of the process and identification of any teething problems. Members of the pilot group could also act as champions for roll out so we often start with the most senior leadership population.

Rating scales and results

A common problem reported in 360 programmes is the inflation of ratings or positive bias of results. A useful approach to help reduce negative skew as it is also known is to introduce a five-point rating scale with one negative rating and four positive, which helps people spread out their ratings7. This is even more important when 360 is used for appraisal. By doing this, we will get less biased data and a greater spread of scores. Its also important that the 360 score should not be used as the performance management rating it may feed into the decision process but should never be used on its own. Also, ensure you keep feedback anonymous and get a third party facilitator to deliver the feedback if appropriate

Common pitfalls to avoid

Having clear communication with employees is very important when companies first introduce a 360. Ensure you are open in explaining its purpose dont describe it as a development tool if it is then going to be used for appraisal as this will compromise the integrity of the process. Other pitfalls to avoid include: Using the same feedback for development and performance management interchangeably Using the overall 360-degree feedback score as the performance appraisal rating Using forced ranking as this can cause managers to spread scoring ranges out artificially

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An organisational perspective on using 360 for appraisal

A senior HR practitioner at the Royal Bank of Scotland, explains how they have successfully incorporated 360-degree feedback as part of the appraisal process.

Case study
We implemented 360-degree feedback to provide additional data for line managers to assess the performance of direct reports. The 360 feedback also contributed to the compliance with regulatory insight on pay and performance to demonstrate that feedback is taken on a range of behaviours beyond simple profitability. A review of the 360 process has found that the overall experience was very positive and there is support for it to be continued for executive-level staff. In addition, any divisions wishing to extend beyond this population have adopted the group framework and supplier, managing the projects locally in tandem with the group-wide approach. Questions in the 360 questionnaire are aligned to the RBS Leadership Framework. The 360 feedback is therefore used to inform in performance assessment and in development planning at RBS. It has become an integral part of the performance management approach for senior leaders at RBS. Individuals are now better informed about their performance, and the organisation has been able gather a wealth of information on leadership behaviours, which is helping with development planning and our understanding of business culture.

Roger Farley, Performance & Organisational Development Manager, Royal Bank of Scotland

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4.
For any company introducing a 360-degree feedback programme the most important consideration is to identify its best uses for their organisation and ensure that that the programme is designed to fit these needs. This is where taking a bespoke approach can be advantageous.

Conclusion and next steps

As we have demonstrated in this paper, there is enormous scope for companies to use 360-degree feedback for appraisal. It can be a hugely valuable addition to the performance management process both for employees and for the organisation. During the next decade, the scope of 360-degree feedback is likely to expand further. We may, for instance, see more repeated administrations of 360 used for demonstrating return on investment and more organisational level use of 360 results for informing strategy. For any company introducing a 360-degree feedback programme regardless of its purpose the most important consideration is to identify its best uses for their organisation and ensure that that the programme is designed to fit these needs. This is where taking a bespoke approach can be advantageous over a generic, off-the-shelf process and technology solution. We hope this paper has provided you with plenty of insights into using 360-degree feedback for appraisal. Our team of business psychologists would welcome hearing your thoughts and experiences. They would also be extremely happy to provide practical, straight-forward advice if youre considering how best to implement 360-degree feedback in your organisation.

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About ETS
ETS has implemented bespoke 360-degree feedback programmes for organisations including RBS, Lloyds Banking Group, Sainsburys, Tesco, PepsiCo and HMV. We provide business-focused consultancy and custom-designed technology to meet the performance management, employee research and 360-degree feedback needs of world-leading companies. We combine innovative technology solutions with practical experience to design a solution that fits your business needs. ETS delivers our clients ideal world, which means that our solutions exactly match each clients corporate culture and processes: we listen to your needs; we do not expect you to bend to our solutions. Where appropriate, we develop the new processes needed to meet your people objectives. Where it is possible, we can integrate with, and automate, any existing HR processes so that new and old work together. This original HR insight report was written by Janis Chng, Senior Business Psychologist at ETS, with contribution from Hannah Stratford, Head of Business Psychology at ETS. They work with high profile clients to help them leverage strategic value from performance and talent management, employee research and leadership assessment and development programmes. [Dominic Wake and Ben Egan also contributed to the content of this report.] To contact Hannah or Dominic about this report, please send an email to dominic.wake@etsplc.com or call +44(0)1932 219949. Expert Training Systems plc 123 New Zealand Avenue Walton-on-Thames Surrey KT12 1QA www.etsplc.com info@etsplc.com HR means business blog www.etsplc.com/blog Twitter @etsplc

References
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360-degree feedback review (2010). ETS E-reward (2005) Survey of Performance Management Practice, e-reward, Stockport 360-degree feedback review (2010). ETS Fletcher, C. (2001) Performance appraisal and performance management: The developing research agenda. 74, 473-487 Maylett, T.(2009). 360-Degree Feedback Revisited: The transition from development to appraisal. Compensation and Benefits Review, September/October 41(5), 5259. Toegel, G. and Conger, J. A. (2003). 360-degree assessment: time for reinvention. Academy of management learning and education, 2 (3), pp. 297-311. English, A. Rose, D. and McLellan, J. (2009). Rating Scale Label Effects on Leniency Bias in 360-degree Feedback. 3D Group and San Francisco State University.

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