The “New” Performance Management Paradigm: Capitalizing on the Unrealized Potential of 360 Degree Feedback By David W. Bracken and Allan H. Church

The “New” Performance Management Paradigm: Capitalizing on the Unrealized Potential of 360 Degree Feedback By David W. Bracken and Allan H. Church

Many business executives and human resources professionals today would argue that

performance management (PM) processes have failed to meet, let alone exceed, the

expectations of most organizations. A number of popular management books have highlighted

these concerns with cails to abandon PM systems altogether (e.g., Cohens & Jenkins, 2002;

Culbert & Rout, 2010), and some organizations such as Adobe are experimenting with that very

concept having banished their PMP in 2012 (Robinson, 2013). The “why’s” for these barriers

to effective PM have been well-documented, and we will not repeat them here. While there is

considerable theory and research regarding various aspects of the PM process (see Smither &

London, 2009) and there have been many proposals, case studies and guidelines suggesting

possible improvements (e.g.. Corporate Leadership Council 2002, Lloyd, 2009), one area that

has received insufficient consideration and even outright rejection by some practitioners is the

use of 360 feedback as an integral part of performance management systems.

I t is our contention that 360 feedback hasevolved over the past 20 years from atargeted organizational development and industrial and organizational (I-O) psy- chology intervention or tool focused on individual development, to a more main- stream, established and accepted human resource people process in most organiza- tions. As a result, the expansion of 360 feedback as a tool for PM is a natural evolu- tion that we feel organizations should be leveraging more extensively. The purpose of this paper is to describe the ways in which, when appropriately implemented, 360 feed- back has the ability to provide new data-based insights that will enhance the overall quality and effectiveness of the PM process in an organization. In addition, having a fully aligned and integrated 360 system also has potential benefits for enhanc- ing other aspects of talent management systems as well as reinforcing and driving broader culture change efforts.

The Great Debate in 360 Eeedback: An Abbreviated History The value of using feedback from multiple sources as both a leadership development and a performance measurement tool is a concept that has been around since the 1980s (see Burke, Richley & DeAngelis, 1985; Hedge, Borman & Birkeland,2001). Once 360 feed-

back emerged as a specific intervention in the early 1990s, however, it wasn’t long before some practitioners began advocating for its use in decision-making applications. The first and perhaps most visible of these was evident in the publication of Edwards and Ewen’s 360 Degree Feedback: The Powerful New Model for Employee Assessment and Perfor- mance Improvement in 1996. Their research documented the superiority of well-designed 360 processes over the traditional (i.e., single source) performance appraisal in terms of both reliability and fairness. Despite their arguments along with guidelines from other supporters (e.g., Antonioni, 1996; Dalessio, 1998), 360 interventions during the 1990s remained largely aimed at either developing individual leaders (e.g.. Church & Bracken, 1997; Tornow &c London, 1998) or more systemic OD and culture change initiatives (e.g.. Burke & Jackson, 1991; Church, Waclawski & Burke, 2001). Clearly practi-

tioners have been quite active and passionate over the years in their discussions over the appropriate use of 360 (Bracken et. al, 1997; Church, Walker &c Brocker, 2002; London, 2001) and whether it can really “change your life” (O’Reilly, 1995).

We certainly appreciate the arguments on both sides of the discussion (and both authors have developed systems that support devel- opment only and decision-making applications). But, after 20 years of practice, we would argue that the ongoing debate over whether 360s should be used for performance management and other personnel decisions should come to an end. For starters, the dis- tinction is not an either/or one. Except for the pure information-only 360 process where the ratees are discouraged from sharing their results, most other development-only 360s are one point along a continuum of uses that require that decisions are made with increas-

EXHIBIT 1 : USES OF 360 FEEDBACK IMPACTING HR DECISIONS

Deveiopment Only

Information Development Succession Only Planning Planning

1 I I

Performance Management/

Appraisal Downsizing

I Decision Making

Self Development

Training Decisions

High Potential ID and

Development

Performance Assessnrient/ Measurement

VOLUME 36/ISSUE 2 — 2013 35

ing impact on the individual and organization resources moving left to right (Exhibit 1). Performance management is one of those major uses.

The fact is that many organizations are already successfully using 360 feedback as part of their performance management sys- tems, as well as for other personnel decisions such as staffing, succession planning and high potential selection and development. A recent benchmark study (3D Group ,2013) of more than 200 organizations with active 360 pro- grams reports that 47 percent of those organizations are using 360 feedback for per- formance management, which represents a 15 percent increase from the survey they con- ducted in 2009. While there will always remain some 360 feedback processes that are targeted for purely development purposes or broader culture change initiatives (and, there- fore, not designed to support decision making), we believe that 360 feedback is the key to improving the quality and effective- ness of performance management in organizations today.

The Argument for Using 360 Feedback in Performance Management In order to understand the unique contribution that 360 feedback can play in enhancing PM, it is important to distinguish between two types of performance in organizational settings that have been recognized as important to driving the bottom-line: the what and the how.

The “What” and “How” of Performance Historically, performance ratings originated from the need to quantify results and pay people accordingly, e.g., with an emphasis on goal setting and differentiation (e.g., Smither & London, 2009). In contrast, 360 feedback was initially a form of survey feedback focused on driving individual development and behav- ior change in organization development efforts by unfreezing the present state (Ghurch et. al, 2001). In recent years, however, these streams of organizational science have begun to come together for three reasons: (a) the increasing comfort levels and familiarity among leaders and managers with 360 feedback as a tool in general, (b) the prevalence of large scale HR applications and solutions that make linking

360 feedback and performance management processes easier and more efficient, and per- haps most importantly, (c) the recognition of the unique role and value that 360 feedback can add behaviorally to the performance eval- uation process. As a result and when integrated appropriately (vs. simply being misused), the 360 link to performance management can result in (a) a more robust and valid PMP pro- cess due to the enhanced measurement aspects of 360, and (b) a 360 feedback tool and mea- surement framework that is linked more fully to the overall business strategy of the corpora- tion in which it is imbedded.

sions, we would argue that 360 feedback is designed ideally for the purpose of measur- ing the “how” of performance management.

In the next section, we describe a short case example of how multisource feedback has evolved in one multinational consumer products company from a primarily devel- opmental tool to one that is much more consistently applied and aligned to the decision-making processes in the organiza- tion while still retaining a large development component.

In the end, performance management is not an exact science, nor is 360 feedback. Both rely on the perceptions of others in the workplace regarding various behaviors demonstrated and outcomes achieved.

Although organizations remain manically focused on performance management in the context of achieving bottom-line busi- ness results or the “what” that is delivered on a regular basis (e.g., share, volume, sales, profit, etc.), in recent years there has been an increasing recognition that the “how” those results are achieved is impor- tant to measure as well (Kaiser, McGinnis & Overfield, 2012). Ghanging workforce demographics, recognition of generational and work style differences among various cohorts, and the increasing importance of such factors as employee engagement, integrity and manager quality have all con- tributed significantly to this trend (e.g., Hankin, 2005; Meister & Willyerd, 2010). In response to this need to quantify the “how” dimension of performance, how- ever, many organizations have been somewhat challenged when it comes to measurement. While some have looked at quantifying their corporate values, others have pursued competencies (usually lead- ership) or other types of more objective-based measures such as the dual business and people results model intro- duced by PepsiGo (Gorporate Leadership Gouncil, 2005). Given the multi-rater data- based nature of 360 feedback, and its inherent flexibility to measure behaviors refiective of all of these types of dimen-

Case Example of the Evolution of 360 Feedback PepsiGo has a long history as a pay for perfor- mance culture. As a result, the performance management process has been designed to recognize and reward individuals at three dif- ferent levels of impact: individual, team and organization. While the team and organiza- tion levels are based on relatively straightforward business performance met- rics, the individual level performance component is somewhat unique and its evolu- tion and impact over time have been profiled several times by the Gorporate Leadership Gouncil (2002; 2005) and at a number of pro- fessionalmeetingssponsoredbytheGonference Board and the Society for Industrial and Orga- nizational Psychology from 2007 to 2012 as an example of a best practice performance management system. In general, it features a dual five-point performance rating scheme that evaluates individuals along two separate dimensions: business results and people results. In many ways, this system reflects the concept of the “what” and the “how” of per- formance described above. However, the people results in the PepsiGo model are just as outcome-based (and therefore require con- crete measurement) as the business results.

36 PEOPLE & STRATEGY

Designed and launched in 2001, the dual rat- ing process was intended to address the need to improve manager quality (CLC 2002, 2005) and drive a culture of diversity and inclusion throughout the organization (Thomas & Creary, 2009) as a result of turn- over and other lingering cultural elements dating back to the 1980s (e.g., Pearson, 1987). When the initial program was launched, the weighting between business and people results was set at 67 percent and 33 percent respectively given the sensitivity and complexities of introducing such a new performance model to the organization. As a result of the new people results component impacting performance outcomes, there was an immediate need to help leaders and man- agers quantify these results. While performance metrics such as sales, revenue, share and volume were easy to calculate, there were questions regarding the best meth- od for assessing people outcomes.

At the time, the organization had a robust 360 feedback process in place. However, a review of that process revealed that (a) the leadership model on which it was based was not aligned to the future business or people strategy, and (b) the execution was fragmented and used primarily for individual development across the business. The first major overhaul of the process resulted in a new leadership model for the 360 tool that reflected the behaviors for driving the desired culture change. It also pro- duced a harmonized, consistent and unified administration and delivery process and time- line to meet the performance management cycle so that the feedback could be used for people results discussion. Despite the wide- spread familiarity of the organization with 360 feedback as a process, the shift in orienta- tion of the results from development only to performance management required that the initial messaging focus on “input” versus being hard-wired. This was done to allow the 360 results to have teeth and influence the people results but not make the link so direct that manager and HR discretion could not be applied to have a balanced rating outcome. In general, the approach was well-received and this application of 360 lasted for approxi- mately five years.

With the change in CEO, however, came a further refinement of the business and talent strategy of the organization (Morris, 2008), and as a result, the performance management process evolved accordingly as well. While the business and people results remained intact, the weighting shifted to 50 percent each making the “how” aspect of manager

EXHIBIT 2: CHANGING EVOLUTION OF FEEDBACK TOOLS AT PEPSICO

t Influence

Leadership

Development & “inpuT for Tatem Mgt

Management

Upward reedbäck •feed” for PMP

Development & ‘input” foi PMP

Unaligned Process & Development Only

quality that much more significant in the PM process. As a result, there was increased pres- sure to tighten the link between the 360 process and the people ratings. This was accomplished successfully by separating the existing 360 process into two different multi- rater feedback tools: one administered annually to direct reports only that was dedicated to performance management ( i.e., the Manager Quality Performance Index or MQPI — see Church, TuUer, Desrosiers, 2013 for details on that specific tool), and a full 360 process focused on leadership capability administered on a rolling basis that was pri- marily developmental but was linked to talent management and succession planning at more senior levels in the organization (Church & Waclawski 2010). By separating the two feedback tools, the organization had effectively achieved three goals:

1. made the distinction clear between what are considered to be effective manager behaviors at any level versus leadership behaviors needed to be suc- cessful at higher levels

2. formally articulated the linkages between the different feedback tools and their respective uses (i.e., perfor- mance managemen t , t a l en t management/planning, and individual development)

3. adjusted the timing and execution win- dows to align each feedback process to best match the cadence of the HR system it feeds (e.g., performance calibration, people planning / talent reviews, etc.)

Although the MQPI as implemented in this case was a direct report only feedback mea- sure (i.e., technically an upward or 180 feedback application), this decision was based on the goal of focusing on “people results” as a manager quality initiative vs. a methodological concern over using a full- blown 360. Had collaboration with peers in a matrix environment or client-centered behaviors in a professional services firm been the primary cultural concerns with respect to people results, the organization would have focused on peer or client ratings as in other cases (e.g.. Church et al., 2001; 2002). Today, both feedback systems (the 360 and MQPI) are currently in place with considerable demand from the field for each. Results from internal employee surveys over time point to both increased perceptions of managers being held accountable for both business and peo- ple results since the MQPI was put in place, and very positive outcomes with respect to the impact and utility of the 360 feedback for individual development and career planning applications. Exhibit 2 provides a summary of the evolution of the feedback process.

How 360 Eeedback Can Improve Performance Management In general, our experience has shown that a properly implemented 360 feedback process, installed across a whole organization such as PepsiCo (or subgroup specific business unit, region or function), can provide a number of >•

VOLUME 36/ISSUE 2 — 2013 37

benefits, including enhancing the quality of the performance management process. Each of these benefits is described below:

Alignment: One of the most important needs for employees from a performance manage- ment process is a clear understanding of what the organization expects of them (Smither & London, 2009). In a properly designed 360 process, the means for achieving business strategies and goals are translated into lead- ership competencies and behavioral statements that uniquely capture the needs of the organization for current and future suc- cess. These behavioral statements bring to life in very tangible terms the “rules of game” for being successful in this specific organization.

of 360 feedback (Bracken et al., 2001). But it usually at least starts with requiring that we are measuring the right things in a reli- able way. The “reliable way” part has literally dozens of design elements in 360s, but, when done correctly, do produce infor- mation that is appropriate to use for decision making (including performance manage- ment) (Church, 2000; Edwards & Ewen, 1996; Murphy, Cleveland and Mohler, 2001 ), and typically has less negative impact on groups such as women and older workers (Edwards & Ewen, 1996; Eichinger 6c Lom- bardo, 2004).

The most compelling support for validity when measuring the “how” of performance

A properly implemented 360 process, installed across a whole organization can provide a number of benefits including enhancing the quality of the performance management process.

and are communicated through the content of the 360 instrument and the underlying measurement framework on which it is based (Bracken & Rose, 2011; Church et. al, 2002).

Agility: Today, 360 feedback is almost exclu- sively technology driven (vs. in the 1990s when it was first introduced). Therefore, the process can quickly reach a wide range or leaders and managers in an organization and the behavioral requirements can be easily modified to reflect the changing external and internal environment and quickly dissemi- nated through the measurement process. As long as the timing of the behavior change is managed in consort with the performance management cycle (to maintain the alignment dimension as noted above), it is relatively easy to shift these behavioral indicators and link them to the desired results. If the entire organization is using a 360 process on a repeated, regular basis (e.g., yearly or even more frequently), changes in definitions of leader requirements can be communicated to the entire employee population very quickly, followed by the accountability inherent in integration into performance management and other HR systems.

Validity: The definition of what “validity” means can be elusive, particularly in the area

may be clear alignment with organizational values that defines successful performance (i.e., requiring a leader to comply with orga- nizational values to be considered “successful”). While we justifiably turn to possible legal challenges to reinforce the need for valid measurement, the fact is that a much better argument for validity is that it pro- duces information that helps us make better decisions that affect individuals and the orga- nization as a whole.

Accountability: This has been called the Achilles heel of 360 feedback (London, Smither &c Adsit, 1997) and is arguably one of the most important factors in ensuring the success of any 360 process in general (Brack- en, Timmreck & Church, 2001; Bracken & Rose, 2011). The importance of account- ability only intensifies, however, in the context of using 360 results for performance management. More specifically, if the orga- nization believes that the “how” side of performance is at least as important as the “what,” then there needs to be comparable accountability for each. Accountability comes in two forms in this context. One type of accountability is defined by the content of the 360 items that define successful leaders. In other words, high scores on the 360 feed- back do not necessarily have to predict

successful leadership (though in some orga- nizations the leadership model on which they are based may well have been validated to do just that for talent management pur- poses — see the discussion earlier about the importance of validity), but state that you are a successful leader because you behave consistently with organizational values or cultural norms, with appropriate conse- quences. The second type of accountability is defined by the leader’s performance of activities that create a trusting feedback cli- mate, including coaching and feedback. These two types of accountability are inter- woven when the 360 also asks whether the leader is performing those actions.

Consistency: One of the pitfalls of many HR systems (beyond just 360 feedback programs) is inconsistent administration and use, lead- ing to real and perceived unfairness in the process. Examples of potential inconsistency in 360 processes that translate into real and perceived unfairness includes steps such as the selection of who participates in getting feedback, giving feedback (e.g., all direct reports, only select direct reports, only some dotted-line individuals, etc.), the method and number of raters selected, and rater training. Inconsistent use can occur on both the front- and back-end of the process when decision makers (managers, human resources) misin- terpret, misapply and/or ignore the feedback results, often due to lack of training and monitoring. Inconsistent use of performance management practices is undoubtedly one of the reasons that they have been unsuccessful, perhaps in part due to no way to clearly define and measure the “how” side of perfor- mance without the use of 360 feedback. Having a robust feedback measure based on a set of well-defined behaviors aligned to a single leadership model, a set of core values or strategic business priorities will add rigor to any PM process and increase the consis- tency of its application.

Response to the Naysayers While it should be clear from the example above that 360 feedback processes can, and in our opinion should, be effectively used for performance management purposes in orga- nizations today, we would be remiss if we did not acknowledge the vehement resistance our position creates on the part of some. The objections most commonly come from two cohorts (that are not independent). The first includes the leader development purists who

3 8 PEOPLE & STRATEGY

¡EXHiBiT 3: THE SYMBIOTIC RELATIONSHIP BETWEEN 360 FEEDBACK AND PMP

Better, Fairer Information forDecisions

360° Feedback

ACCOUNTABILITY

believe that feedback should be a safe, private event, sometimes to the extent that results should not be shared with others in the orga- nization (with external coaches being perhaps the only exception). The concern here is that, despite the best of intentions, sharing feed- back results with others may somehow inadvertently influence internal perceptions, and therefore influence talent- or perfor- mance-related decisions.

We are in full agreement that some feedback scenarios are focused solely on developing a single leader and the results of those process- es are rarely appropriate for use in decision making. Our intention is not to argue against individual development, but rather to improve another very flawed HR process (i.e., perfor- mance management) with a powerful tool that should, by the way, always include a development component. We are in no way suggesting that all 360 processes should be used for decision making, though we are sug- gesting that all 360 processes could benefit from being designed and implemented as if they might be used to make decisions about employees at some point in the future.

The second group of objectors or naysayers regarding linking 360 to performance man- agement comes at us from the data integrity side of the argument, stating that using the data for anything other than development only will cause raters to be less willing to provide honest feedback for fear of either harming the leader’s career or causing retri- bution from the leader. This position is somewhat amusing because the development-

only proponents generally implement systems that are the least likely to have any impact at all because they bypass the majority of best practices described above in their approach to 360 by recommending a far less systemic and robust process in general (e.g., one that has not been validated, consistently applied, or customized to the meet the strategic busi- ness needs or cultural change agenda of the organization, etc.). In addition, our experi- ence has suggested that overt rater manipulation of 360 results occurs no more frequently than standard manager perfor- mance rating biases in performance management systems. Moreover, there are methods to correct many of these issues, such as implementing high caliber rating nomina- tion (selection) review processes with manager and/or HR review and approval such as those used at PepsiCo (e.g.. Church etal., 2013).

Some detractors point to the mixed research results -regarding the reliability and validity of 360 systems, another “half full, half empty” situation. Different rater groups do appear to bring different types of baggage to the feed- back process (Eichinger & Lombardo, 2004; Nowack 6c Mashihi, 2012). At the same time, each perspective group seems to have a valid perspective on performance, even though they may not agree with each other (Bynum et al, 2013; Church 2002). Potential “unreli- ability” as seen from this context (i.e., lack of intragroup agreement) can be addressed through ensuring sufficient numbers of raters in each group, another design element often neglected in “development-only” processes.

The main point here is that the problems associated with unreliable 360 feedback rat- ings are the same ones that plague performance management processes in gen- eral. Thus, the arguments against making the linkage between 360 and performance man- agement do not have much merit from our perspective. In addition, many practitioners have implemented various interventions to improve rater accuracy, including rater training and well-researched and designed rating scales that reduce leniency effects (Nowack & Mashihi, 2012).

Summary In the end, performance management is not an exact science, nor is 360 feedback. Both rely on the perceptions of others in the workplace regarding various behaviors demonstrated and outcomes achieved. Similarly, rater performance is a complex phenomenon, involving opportunity to observe, ability to observe, and then both the capability and motivation to perform the rating task competently. We are still learning how to improve rater performance. While we don’t have all the answers yet, there are some solutions and the field has progressed immensely from where we were 20 years ago. We ask you to consider as to whether 360 feedback should ultimately replace PMP (or become the “new” PMP, which is an even more radical concept). This would mean using a methodology for creating a feedback culture with ongoing coaching and evaluation that leverages its potential to generate better data to support both performance and talent management processes. At a minimum, a well-designed and implemented 360 process can be inte- grated with a performance management system so that they create a symbiotic rela- tionship, each benefitting from the other (see Exhibit 3).

In closing, we propose that 360 feedback has come of age and it is time for organizations to fully utilize its potential for driving indi- vidual performance and broader culture change. As Smither, London and Reilly (2005) stated some time ago, we are long past the point of arguing whether 360 “works” and if it can and should be used to improve HR processes such as performance manage- ment. We need to turn our attention to improving practices that increase the likeli- hood that we are using the best methods to improve our performance and talent man- agement systems.

VOLUME 36/ISSUE 2 — 2013 39

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David W. Bracken, Ph.D., is vice presi- dent of Leadership Development and Assessment with OrgVitality LLC. He received a BA from Dartmouth College and MS and Ph.D. degrees in Indus- trial/Organization Psychology from Georgia Tech. Bracken is a Certified Professional Coach and resides in the Atlanta area.

Allan H. Church, Ph.D., is vice presi- dent of Organization Development for the Global Groups, Functions and Corporate, and Executive Assessment and Development for PepsiCo, Inc. He received his Ph.D. in Organizational Psychology from Columbia Universi- ty. He is a Eellow of the Society for Industrial-Organizational Psycholo- gy, the American Psychological Association, and the Association for Psychological Science.

40 PEOPLE & STRATEGY

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