360 Feedback – Making the Business Case

Measuring the ROI

So, you think you should build a business case for development of core skills for your managers. You know you should include a 360 feedback programme , but how do you measure the return on investment? It’s easy if you’re measuring the production of widgets every day, or sales against budget. Not so easy with the intangible contributors to business success.

Search the web and you’ll find articles that claim research proves a 700% return on the cost. (My own simple computation differs from this, and is shown later in this discussion).

Yet another leading UK 360 provider claims that, “An abundance of academic research support 360’s positive impact on people and performance.” I happen to agree with them, but I also know that there are many executives who will want more assurance of tangible benefits before they’ll commit to this sort of initiative.

So why do it?

There are a number of arguments you could consider in response to the question of why you should use 360 feedback for appraisal and development in your organization:

• A growing number of major companies are using 360 feedback as an effective performance management tool
• The practice of having an appraisal that only provides your manager’s perspective on your performance is seen as outdated and lacking in depth these days
• 360 feedback gives people with an all-round perspective of their performance, and the relationships they have with different groups of colleagues
• Providing people with a way of prioritizing their development actions increases awareness of areas they would most effectively focus on, thereby fast tracking their progress.

The knock-on effect

Getting back to the question of making the business case for 360 feedback, here’s an entirely hypothetical approach to consider: If a well-planned 360 feedback produces a 5% improvement in performance (which I would consider to be a conservative estimate) …

Take a manager’s annual salary of £50k.  A 5% improvement in performance gives the organization an additional £2500 value from that employee.

On an average cost of approximately £400 for a 360 review and one-to-one feedback session, this provides a basis for saying that the return on the investment on a 360 review is over 600%.

But the use of 360 feedback can create even more value than this, which becomes clear when you look at the knock on effect of 360-initiated performance improvement.

For example, one senior manage took great pride in his philosophy of being direct and candid. He saw this as a personal asset and a way of managing effectively.  Colleagues and staff had a different perception – their feedback in his 360 review made him aware that he was seen as arrogant and unapproachable. In fact, some people actively avoided dealing with him. Realisation of this unintentional effect persuaded him to adapt his style, resulting in improved performance from his subordinates who now felt comfortable to initiate contact with him.

Extending the sample calculation above to include an additional 5% performance improvement from his 4 direct reports (each earning £30k) could add an extra £6000 to the return on this manager’s 360 review.

Looking at it in this light, it doesn’t make sense not to use 360 feedback as part of a company’s performance management solutions.  Use this model with the numbers for your organization and see what you think.

Key issues

Arguments likely to be raised against the use of 360 feedback relate to confidentiality, validity, and effectiveness. These can be addressed and any issues overcome if the solution includes solid planning and a robust process.

• Confidentiality – This is a critical issue. Without an iron-clad assurance of confidentiality, many colleagues and direct reports will feel unable to give completely honest feedback. Consider the case of the ‘candid ‘ manager. This is exactly the sort of circumstance in which honest feedback is essential, and can only be given with a guarantee of confidentiality. Using a professional 3^rd party solution provider is the only way to give this sort of guarantee – making sure to check that reviewer anonymity really is protected by the supplier.
• Validity – using a solution that is tailored to you needs ensures that it supports the organisation’s strategy and reinforces behaviours that further the right goals.
• Effectiveness – This is a multi-faceted element.
  • First and foremost its important to get buy-in from the senior team. Their leadership and support on the use of 360 feedback is a critical success factor.
  • The ‘What next’ question is key to gaining the maximum impact from your 360 reviews.  Follow up the 360 review with one-to-one feedback sessions during which practical, informed action plans are created. Consider setting some measurable goals within these action plans as these will help you define the success of the programme at a later stage.
  • Consider conducting workshops for all respondents on how to give good feedback
  • Simplify – having a 360 solution with all the bells and whistles is great if you’re a techie. But most people would prefer a system that is easy, clear, and quick to use.  Using a simple system reduces the cost of gathering 360 feedback, and gets better results because people can focus on what they want to say rather than struggling with a complex system.

About the Author

Vandy Massey is the founder and CEO of Engauge UK. The company has been supplying 360 degree feedback, appraisal and employee survey services to corporate clients and consultants since 2002.

She was a contributing author for the book E-Learning and Technology published by ICFAI University Press.