Reference no: EM133276094

Continuous Performance Management at Patagonia

Patagonia makes outdoor clothing for climbing, skiing, snowboarding, surfing, fly fishing, mountain biking, and trail running. Patagonia is known for using innovative fabrics and vivid colors in its clothing as well as using environmentally conscious materials such as recycled polyester and organic rather than man-made cotton. The company culture encourages employees to treat work as play and consider themselves the ultimate customers for the products they produce. Patagonia places a high emphasis on transparency and working collaboratively to come up with innovative problems and solutions to problems. To help facilitate collaboration, Patagonia tends to recruit and hire employees based on current employees' informal network of friends, colleagues, and business associates.

When Dean Carter joined Patagonia as vice president of human resources, he was surprised that the company still used only the traditional annual performance review and didn't supplement it with a continuous feedback system. Carter made the case for adding a continuous feedback system to Patagonia's CEO, arguing that this type of system represented the future of performance management and aligned with Patagonia's emphasis on transparency and collaboration. He was so convinced that Patagonia's traditional performance management system needed to be revised that he told the CEO she could replace him if his recommended approach didn't work out.

The additions to Patagonia's performance management system that Carter helped implement included an emphasis on both annual and quarterly goals, continuous feedback, and quarterly manager-employee check-in meetings. Annual goals focused on targets such as sales, expenses, and cost reduction are used for traditional end-of-year formal performance reviews linked to compensation and bonus decisions. Quarterly stretch goals are developmentally focused yet designed to help employees make progress toward their annual goals. Patagonia encourages employees to set truly challenging stretch goals to encourage them to seek out feedback at any time from managers and peers on their progress toward these goals, which in turn, can help them improve their progress toward their annual goal in the subsequent quarter. Feedback can be requested and provided through an app that employees and managers can access on their notebook computers, tablets, or smartphone. This gives employees the opportunity to receive highly motivating and rewarding social recognition from the people they work with. At quarterly employee-manager check-in meetings, discussions focus on quarterly goal progress, potential changes in goals for the next quarter, and what the employee learned from the feedback they received and how it will change their behavior during the next quarterly performance period.

The changes to the performance management system were implemented in steps starting with encouraging quarterly employee-led conversations with managers and then adding a focus on the importance of continuous feedback and understanding how to give and receive it. At first, the feedback employees provided to each other tended to be positive but gradually it included areas that could be improved. The emphasis on providing feedback helped start a reinforcing cycle in which the employee who was asked to provide feedback felt comfortable asking others for feedback on their performance.

Setting stretch goals and participating in the continuous feedback process using the app is optional. But many employees are motivated to use the continuous feedback approach after considering data showing that those who are more likely to achieve their annual goals and receive 6% higher bonuses than those who do not participate. Further, since the new system was implemented Patagonia's employees report that they have a greater understanding of what is expected of them and have greater trust in their manager. The more frequent conversations have also increased managers' beliefs that employees have the abilities to take on additional job responsibilities. Also, when Carter asks employees at Town Hall meetings how many of them have changed their behavior as a result of the feedback they received, over 70% raise their hands.

QUESTIONS

1. How well do you think Patagonia's approach to performance management seems to meet the (a) strategic, (b) administrative, (c) developmental, (d) communication, (e) organizational maintenance, and (f) documentation purposes of performance management? Use evidence from the case to support your opinions.

2. What characteristics does feedback need to have so that it is useful for changing behavior, and in turn, performance?

3. Which part of Patagonia' s performance management process contributes most to its effectiveness? Explain.