By David Lassiter
This article appeard in the HR Executive Magazine

There is a rising demand in organizations for improved performance and results. American business, in serious trouble during the 1970's and 80's, led the way in finding new approaches and processes to boost performance. Today, organizations in all sectors, including government, are similarly challenged to operate more efficiently and effectively. Raising individual and team performance levels is central to this process and 360 feedback is increasingly used as part of the solution. Unfortunately, there is an advancing drift toward using 360 feedback for performance appraisal. Organizations need to be careful here. Using 360 for appraisal may be an intriguing idea, but it's not the best use of this exciting new technology, and it is counter-productive in this role. It can put the organization at unnecessary risk and have a negative impact on motivation, performance, and the entire work environment. This article explains how to avoid this costly mistake.

Tools With Different Purposes
At its best, performance appraisal is an evaluative process used to determine results. Its purpose is to measure and evaluate contribution to the organization in order to provide feedback and fairly distribute rewards. Performance appraisal allows employees to more clearly see the results of their efforts, the relationship between their job and the organization's performance, and be rewarded for their particular contribution. Results, or contribution, can best be determined by first creating clear and agreed upon goals, and then measuring progress against them. This establishes the benchmark and gives employees a known target at which to aim. In the absence of clear goals, managers are forced to measure something else. What often gets measured, then, are factors such as effort, attitude, personality, teamwork, behavior, etc.; feedback on how an employee is supposedly "doing". This is not an accurate or fair measure of job performance or contribution.

360 feedback is a developmental tool. It is designed to encourage employees to grow and develop by providing feedback on their proficiency in the skills, competencies, behaviors, and practices related to the conduct of their jobs. As employees learn, grow, and develop, the organization increases its capacity to perform at higher levels. In business this means these organizations are more likely to out-perform their competitors.

By design, 360 feedback is good at identifying, measuring, and improving the skills and competencies needed to perform a job. It is especially good for the hard-to-quantify interpersonal areas (often labeled the 'soft skills') of behaviors and practices. Examples of this include listening, informing, resolving conflict, coaching, teamwork, and leadership. Well designed 360's can even identify the underlying attitudes and thinking patterns that drive the behaviors and get to root causes of counter-productive actions. 360 feedback can also be adapted and used appropriately to identify and measure areas such as customer satisfaction, team effectiveness, training needs, and work environments. 360 feedback adds value to the employee and organization development process for three reasons: It has clear and precise measurement capability; it provides perspectives from multiple sources - co-workers who see and know the individuals' proficiency levels on a daily basis; and it accelerates learning.

Performance appraisal, on the other hand, is good for measuring outcomes and results, what people are actually hired for and paid to produce. It is designed to clarify and document the goals, outcomes, milestones, time frames, and measurements to be used. Performance appraisal and employee development are separate and distinct processes with different purposes and different measurement tools. They can and do complement each other. They are related, but they are unique.

Problems with the Linkage
It is too often assumed that since multi-source is better than single source, automated is faster than manual, and evaluating performance (results) is the same as measuring proficiencies (skills, competencies, etc.), then 360 feedback is simply a more efficient and effective tool for conducting appraisals. Assumptions like these can get you in trouble. For developmental purposes, multi-source feedback does have more validity and leveraging ability than single source. It is broader and brings in multiple and more balanced perspectives. But typical multi-source raters are less adept at providing balanced and objective feedback than the supervisors they may be replacing. They can have enormous problems separating honest observation from personal differences and biases. For appraisal purposes, co-workers are poorly qualified to give evaluative feedback that affects pay and promotion.

Because 360 feedback is usually automated, it is an attractive technology. But is it appropriate to performance appraisal because of its speed and ease? What is it that makes appraisal or development particularly effective? Thousands of managers have told me that it is the quality of the conversation between the rater and ratee that is important. Being able to explore and discuss aspects of one's work with clarity and without the usual time pressures is highly valued by most employees. When the boss takes time to sit down, close the door, and discuss performance, people frequently have the experience of being heard and valued. This often results in a boost in morale, motivation, and performance. Managers frequently say that they wish they took time more often to have these conversations because so much gets clarified and accomplished in them. It is the quality of the interaction, not a computer program, that has the greatest potential for improving appraisals.

Performance appraisal in most organizations is used to determine merit increases and bonus amounts. However, if 360 feedback is linked to compensation decisions, it loses its power and benefit as a developmental tool. When employees recognize that their financial rewards are based on multi-source feedback ratings, they quickly see how the new game is played. Realizing what is required to achieve a good appraisal, employees can manipulate the process to ensure the desired outcome. The 'ratee' can be helped or hurt. Putting two and two together, employees realize that "if you scratch my back, I'll scratch yours." Suspicions that were formerly directed at performance appraisal are now focused on 360 feedback. The "new" system becomes tainted. Trust and honesty begin to break down in favor of getting a good review. As a result, actual skill proficiencies can decline which, in turn, leads to a weakened ability to compete or deliver, and a performance environment of mediocrity. This can result in defensiveness, denial, conflict, accusations, and loss of trust. It puts the relationships within the work group in jeopardy and can lead to an expanded reduction in productivity and performance.

Finally, organizations using 360 feedback as a performance appraisal tool are exposing themselves to increased liability. 360 feedback is not a tested or validated mechanism for performance appraisal. An organization needs to be prudent and consistent with the standard and proven performance appraisal approaches. According to EEOC guidelines, an "organization must demonstrate that its appraisal process is valid, that it is job related, and that it accurately measures significant aspects of job performance. The organization must demonstrate that the appraisal system is the best available method, that no other system is less discriminatory." If an organization uses 360 feedback for appraisal and promotion purposes, it must be particularly careful to ensure that those contributing to the appraisal were not violating the EEOC guidelines or the Civil Rights Act. Consider the normal, unconscious bias of only one manager. Now multiply that by four to eight co-workers and you begin to see the risk expand geometrically.

Leveraging the Linkage
Appraising performance is not the same as measuring proficiencies. Appraisals are designed to measure results against goals and drive compensation decisions. 360 feedback measures proficiencies in the skills, competencies, behaviors, and practices needed to perform the job and drives employee development. The two are linked but are not the same thing. Skill level is only one of several factors that influence performance and is the focus for 360 feedback and development. Performance levels strongly influence results, and results are the logical focus of performance appraisal.
One way to link and leverage the two is to use 360 feedback to create a clear and specific development plan. Implementation of the development plan can then become a valid part of the performance appraisal (as long as it is required of all employees) on which people can be evaluated and held accountable. The development plan can also be used as an entree into the succession planning process. It is not uncommon for organizations serious about developing their capabilities to require such plans of all managers, and non-management professionals, as well.

Potential Dangers
Given the distinctions between the two, and given the drift toward co-mingling, what occurs when the 360 feedback is actually used for performance appraisal? Here is a list of potential dangers, risks, and unintended consequences that can result when the two are merged.
Skewed and unreliable data from raters who, consciously or otherwise, shade their responses to protect or punish the ratee.
Increased cynicism from employees who know the system is being gamed.
Skill levels stay relatively flat or even decline because the "360 appraisal" is not taken seriously. The numbers needed for a "good" appraisal can be informally fixed by silent agreement among raters. Maximizing the size of the increase or bonus overshadows the desire to elevate performance.
Individual development plans become window dressing. People may go through the motions to create them but expend little effort in implementation. When not held accountable for this, performance levels off.
If employees don't get a "good" appraisal, blame is placed on co-workers causing a rise in the level of mistrust and apprehension. The work environment becomes politicized, candor and honesty are compromised, trust and integrity are damaged, risks are avoided, motivation diminishes, morale drops, performance declines, and turnover rises.

The Bottom Line
Executives and managers considering the use of a 360-feedback tool for performance appraisal need to be aware of the inherent differences between them. Be clear about your purpose. What is it that you are trying to achieve? What results and outcomes do you want to have? Remember, performance appraisal is an evaluative process for defining goals, and measuring results and contribution. 360 feedback is a developmental tool for identifying, measuring, and improving the skills, competencies, behaviors, and practices needed to perform the job. They can, and do, complement each other, but they have distinctly different purposes. Using 360 feedback for the wrong reason can result in decreased performance and increased risk. The bottom line: Keep developmental feedback separate from appraisal and compensation decisions. Using 360 feedback for the wrong reason can result in decreased performance and increased risk. And it will ensure that 360 feedback will be declared the management fad of the '90's. Large investments of time, money, and credibility will be lost.

Guidelines for Using 360 Feedback and Performance Appraisal
Here is a set of guidelines for when to use 360 feedback and performance appraisal that can help your organization stay squarely on the road of increased performance and success:
Use performance appraisal:
- To set clear, specific goals
- To establish measurements to determine outcomes and results
- To evaluate the degree to which outcomes and results were achieved
- To determine, based on performance, what increase or bonus is due

Use 360 feedback:
- To identify, the skills, competencies, behaviors, and practices needed to achieve goals,
outcomes, and results
- To measure proficiencies in skills, competencies, behaviors and practices
- To assess where improvement is needed to achieve desired results
- To create targeted development plans that increase capabilities and performance
- To assess what environment will bring out the best results from individuals and teams

© David Lassiter 2004