446 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 447 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 448 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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