Should 360 feedback be used for development purposes or for performance appraisals?

As I see it, there are three fundamental ways to measure effective work in organizations: lead indicators, lag indicators and current-state indicators. 360 degree feedback is a current-state indicator. I suggest that we don't reward according to current-state indicators.

Lag indicators are expressions of output, and are measured retrospectively. These are the typical KPI type measures such as profitability and productivity. Organizations should primarily measure and reward this lag performance.

Lead indicators are expressions of input, and are mostly measured as progress of an initiative or project. Projects are typically measured on time, budget, quality and scope. To reward people, teams and organizations on indicators such as these can be useful if they are measuring activity that will have a direct impact on the current state or output performance. However, the main point of performance improvement initiatives is improvement in the current state and final output performance. That is not to say that measurement of projects is irrelevant - indeed to measure the activity and effectiveness of a change action is to learn about the nature of the system. Reward according to any lead indicators must be carefully chosen. The main determining factor is whether or not the organization wishes to amplify or dampen certain activities.

The third type of indicator, current-state, seeks to express the fitness (or capability and competence) of a person, team or organization to deliver on its required performance. Therefore, this is a fundamental determinant of the likelihood of high performance. The critical usefulness in understanding current-state capability is to predict performance - it itself is not performance. The purpose of 360 degree feedback is to gain a aggregated set of subjective views of the behavioural phenomena of people, which will (if the criteria have been appropriately defined) point to the possibility of performance. Here is my proposition: the use of 360 degree feedback as a method of determining reward is misguided, for two reasons.

  1. Firstly, to reward people according these measures is to be rewarding the wrong thing - they do not measure actual performance, but future performance.
  2. Secondly, the possibility of micro socio-economic factors affecting the scoring is so high as to render the results meaningless.

Rather, 360 feedback is a really good development tool that can assist, primarily, the feedback-receiver in self-awareness and self-regulation. The single caveat is that the feedback-receiver must actually want to receive the feedback; otherwise it is waste of time and energy.

The final twist to this tale is that once personal development goals have been selected, progress towards the stated goals should indeed be measured and even rewarded.

To make all of the above more practical, let me give an example.

Simon is a salesperson, with impressive delivery statistics and contribution to revenue. But according to the long-term cultural goal of the organization, his current ways of working with other people in the company are completely inappropriate and unsustainable. What should we do?

We could call for a 360 degree review of his behaviour according to a competency framework and then attach part of his bonus to the scores he receives. But the problem is that the results of the assessment will be very much in doubt if the respondents know that their feedback will have a direct impact on Simon's pay and bonus. Fear of reprisal, hope of reciprocation and other various other factors can affect the reliability of the data.

So rather, we should still conduct the 360 degree review as a development and coaching tool, and then set a few development initiatives for him. Then we can attach reward to the committed completion of these activities. Of course, there is no guarantee that these initiatives will have the desired result, but that is the risk we must take.