Management Question

PART 5 HUMAN RESOURCE INTERVENTIONS

C

ambia Health Solutions (www.cambiahealth.
com) is a nonprofit health care and insurance company dedicated to transforming
the way people experience the health care
system. Located in the Pacific Northwest of the
United States, Cambia’s portfolio of companies
spans health care information technology and
software development; retail health care; health
insurance plans; pharmacy benefit management; life, disability, dental, vision and other
lines of protection; alternative solutions to
health care access; and free-standing health
and wellness solutions. The largest business
in the portfolio is Regence Health, a health insurance plan associated with the Blue Cross and
Blue Shield brands. Regence Health is over 90
years old and operates in Washington, Oregon,
Idaho, and Utah.
In 2010, Cambia convened a crossfunctional design team to increase the organization’s overall agility. As part of that effort, the
design team initiated a change to its performance management system for leadership
staff (approximately 750 people). The performance management system changes were
based on diagnostic data that the organization
was not focused on the critical areas required
for success as well as feedback from organization members. The feedback suggested that
(1) there were inconsistencies with respect to
disciplined human capital management practices, (2) leaders were unclear about their individual objectives and how their objectives related to
the organization’s strategies, and (3) objectives
were not clearly connected to professional
development and career advancement.
The design team chartered a crossfunctional task force to develop a new performance management process aimed at all
leadership roles (supervisors and above), and
supported the team with an external organization development and performance management consultant. At the highest level, the
task force recommended a process that
began with a requirement that all leaders
establish annual objectives, conduct quarterly

performance conversations, and enable a
focused talent review twice a year. On an
annual basis, the performance conversations
would be linked to a revised compensation
and reward process. At the center of the new
process was a series of quarterly “performance conversations.” Performance conversations established a dialogue where the leader
and his/her direct reports could review past
quarter performance on agreed upon objectives and prepare for the next quarter. The conversation was oriented around four questions:
• Did the employee accomplish what was
committed to in the prior performance
period?
• How could the employee have performed
more effectively?
• What objectives should be continued into
the next quarter, what should be stopped,
and what new objectives should be established for the next quarter?
• How should the employee go about doing
what needs to be done?
The cycle of quarterly performance conversations and semiannual talent reviews was initiated by an objective-setting process. The task
force and design team were influenced by the
timely processes established by some internal
departments who had success with similar
processes around quarterly conversations and
regular talent reviews (this process was also
validated to be a “best practice” by the external consultant). This entire process significantly
simplified the existing performance appraisal
process in which leaders were evaluated
across seven categories. This new process
focused on only two things: (1) the “what”
(the established objectives) and (2) the “how”
(the extent to which the company’s values
were carried out in achieving the objectives).
The “what” conversation was intended to
develop and establish a total of three to six
objectives with at least one in each of three
categories: (1) human capital management or
how the leader was going to develop his/her

application 15 1

CHANGING THE HUMAN CAPITAL MANAGEMENT
PRACTICES AT CAMBIA HEALTH SOLUTIONS

CHAPTER 15 PERFORMANCE MANAGEMENT

people, (2) operational goals linked to the organization’s strategic objectives, operational improvements, and/or regulatory/legislative mandates, and
(3) the leader’s own professional development. In
addition, the “how” conversation was to focus on
the way the leader achieved the “what” objectives
(by demonstrating the company’s values). Leaders
were encouraged to—and their ultimate annual
performance review was dependent on—getting
work done through others, holding people accountable, and encouraging cross-functional, innovative,
and problem-solving behaviors. These latter two
issues—accountability and cross-functional problem solving—had been identified as important
areas in the diagnosis.
To support the program, an on-line, ondemand training module was developed. In the
module, leaders were helped to understand the
importance of employing sound human capital
management practices (with a particular focus on
the quarterly conversations) as well as the importance of developing “SMART” objectives that
were specific, measurable, achievable, relevant,
and timely. This online training module was provided as a prerequisite to a series of more detailed
webinars which were facilitated by senior leaders
(not HR staff).
The new objective setting and performance
conversation process was approved by the design
team and supported by Cambia’s leadership team.
As part of that support, the leadership team
accepted the recommendation of the task force
and design team to have “coaches” oversee the
early implementation of the new process—which
included the CEO taking on the role of coach for
his direct reports. He committed to monitoring
and reviewing the development and establishment
of objectives and to holding quarterly performance
conversations. The members of the task force
served as coaches to the other levels of management in the organization. The coaches were a visible means of championing the new system,
holding leaders accountable for implementation,
and raising the bar and expectations for human
capital management at Cambia.
To reinforce the expected changes in behavior,
the task force also included two rewardsystem-related recommendations. The first was
to increase differentiation in the appraisal process

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by changing the performance categories from four
to two. In the old system, leaders rated their direct
reports according to a “top-key-core-low” scheme
and then engaged in a calibration process that
helped ensure the validity of those ratings. The
task force recommended moving to a two-tier
system of “performing and exceeding.” They
acknowledged that there may be situations where
leaders were in a “performance improvement”
scenario that was associated with correcting poor
performance. In most cases, however, leaders
were expected to be “performing” but the highest
performers would be recognized for “exceeding”
expectations. The existing calibration process was
retained as many leaders indicated that it was a
beneficial process for maintaining consistency in
the system. The performing and exceeding performance categories were tied to recommendations
for base-pay increases. The system was set up to
reward “exceeders” at a rate 2.5 times that of
“performers” to provide the differentiation.
The second reward system recommendation
was to establish a unique “spot” awards program
for all leadership staff. The spot awards program,
entitled the “Excellence in Leadership Award,”
was designed to recognize leaders for exemplary
performance in either human capital management
or agile behaviors. The cash portion of the award
was set at $1,000 and the awards were to be delivered personally by a member of Cambia’s leadership team. Recipients of the award are highlighted
in the company’s newsletter—the goal being to
reinforce among all leaders the kind of leadership
behavior that is required for moving forward.
Although the new process had been developed with a broad range of inputs, it was kicked
off with a presentation to senior leaders at
Cambia’s annual senior leadership summit. There,
these senior leaders were able to ask questions,
hear about the way the process worked, and
understand the assumptions underlying its design.
Following the presentation, these leaders were
given a schedule to develop the initial quarterly
“what” objectives for themselves and all other
leadership staff across the company.
As the objectives were submitted, the task
force members and performance coaches
reviewed the objectives and provided feedback as
appropriate. By the deadline, over 90% of all

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PART 5 HUMAN RESOURCE INTERVENTIONS

leadership staff (of the 750 supervisors and above)
had submitted quarterly objectives and participated
in the online training program and webinar. The
organization has been through two cycles of quarterly conversations, had their initial talent reviews,
and is anticipating the first cycle of the new reward
system. To date, leadership staff have supported

the objective setting process, the quarterly performance conversations, and the semiannual talent
reviews. The importance of setting aligned objectives and using the performance management process to manage human capital in the organization
has received increased emphasis and visibility in
the organization.

participation in goal setting generally are substantiated across studies and with both
groups and individuals.19 Longitudinal analyses support the conclusion that the gains in
performance are not short-lived.20 A field study of the goal-setting process, however,
failed to replicate the typical positive linear relationship between goal difficulty and performance, raising some concern about the generalizability of the method from the laboratory to practice.21 Additional research has attempted to identify potential factors
moderating the results of goal setting, including task uncertainty, amount and quality
of planning, personal need for achievement, education, past goal successes, and supervisory style.22 Some support for the moderators has been found. For example, when the
technical context is uncertain, goals tend to be less specific and people need to engage in
more search behavior to establish meaningful goals.
The existing research on MBO effectiveness is large but mixed.23 However, it suggests
that a properly designed MBO program can have positive organizational results. Carroll
and Tosi conducted a long-term study of an MBO program at Black & Decker,24 first
evaluating the program and then using those data to help the company revise and
improve it. This resulted in greater use of and satisfaction with the program. The
researchers concluded that top-management support of MBO is the most important
factor in implementing such programs. Many programs are short-lived, however, and
wither on the vine because they have been installed without adequate diagnosis of the
context factors. In particular, MBO can focus too much on vertical alignment of individual and organizational goals and not enough on the horizontal issues that exist when tasks
or groups are interdependent.

15-3 Performance Appraisal
Performance appraisal is a feedback system that involves the direct evaluation of individual or work group performance by a supervisor, manager, or peers. Most organizations
have some kind of evaluation system that is used for performance feedback, pay administration, and, in some cases, counseling and developing employees.25 Thus, performance
appraisal represents an important link between goal-setting processes and reward systems. A 2001 survey of over 300 North American companies, for example, found that
65% reported a link between performance ratings and rewards, 46% used the system
equally for performance development and decision making, and 53% of the organizations
believed the system was aligned with organizational values and priorities.26 Abundant
evidence, however, indicates that organizations do a poor job appraising employees.27
As one study put it, “The appraisal of performance appraisals is not good…. In fact,

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