It’s been a well-known fact for some time that the yearly ritual of evaluating the performance of employees is a significant drain on resources and time.
In 2016 a Deloitte manager referred to the review process as, “an investment of 1.8 million hours across the firm that didn’t fit our business needs any more.”
Wow! To the point wouldn’t you say?
The appraisal itself is often viewed as subjective and a de-motivating experience that neither supports employees or the organisation.
It’s not surprising then that an increasing number of companies have jettisoned the traditional year-end appraisal. While technology companies such as Dell, Adobe and Microsoft have led the way, organisations such as Deloitte, PWC and Accenture have now become early adopters too.
Anita Bowness, the Global Practice Leader in Saba’s Strategic Services group, summarises the situation perfectly in her quote below.
“Performance Management isn’t dead. The old way of thinking about it is.” – Anita Bowness
So, let’s explore a couple of questions about this critical topic further
1. Why stop the annual appraisal?
2. What are organisations doing instead?
Why Stop The Annual Appraisal?
The origin of performance management can be traced back to World War 1 (WW1) when the US military created a merit-rating system to flag and dismiss poor performers. In WW2 the UK Army
devised a forced ranking to identify soldiers with officer potential.
Over the years, performance management has evolved, as have organisations. By the early 2000’s organisations became flatter in structure, with managers having more direct reports which meant they had less time to invest in developing an increasing number of team members.
We are also living in the ‘knowledge age’ where, through structured learning and development, bright and inexperienced employees are becoming skilled and specialist advisers.
Peter Cappelli, the Professor of Management at Wharton School of Management and Anna Tavis, Clinical Associate Professor of Leadership and Human Capital Management, New York University, proposed the following three reasons as to why companies are stopping their cycle of annual appraisals.
1. The return of people development
There are increasing demands for talented individuals and competition in the market for specialist skills. As a result, companies are coming under pressure to improve their talent management efforts. Holding onto top talent is a critical success factor for many organisations.
2.The need for agility
Technology is moving at a rapid pace and innovation can be a significant competitive advantage. Being able to respond to innovation and implement it quickly means that business needs are changing continuously. Hence organisations need to become more agile.
3.The centrality of teamwork
The need for collaboration and teamwork has never been higher, and the old methods of performance management rely too heavily on the “individual” operating independently.
The need for team members to be working inter-dependently is more relevant today than ever before.
What are Organisations Doing Instead?
- Real-time check-ins: The annual appraisal is being replaced by real-time, frequent check-ins, where feedback is in the moment.
- Goal Setting: Business priorities are determined, and goals are set that relate specifically to them. For example, Google has adopted OKR’s (Objective Key Results)
- Millennials will make up 50% of the workforce by 2020 and career development is a critical aspect of what they look for in a job and company.
- Investing in software that connects to the way employees live. Hubspot have introduced ‘social performance management software’ that facilitates year-round feedback in real time.
- Introducing culture-fit, values-based interviewing and values behaviours into new systems. Zappos has ten values, and 50% of their performance reviews and interviews are based on this.
- Including peer feedback and reviews. To get ahead at Google, you need to have positive reviews from your colleagues.
- Providing employees and managers with frameworks to have high-quality discussions.
- Reducing the bureaucracy and keeping documentation simple.
- Transitioning from performance measurement to performance improvement.
Companies are starting to move away from performance related pay and replacing it with other incentives such as increased holiday and wellbeing packages. It will be interesting to see how the re-invention of performance management continues to evolve and how the solutions being adopted deliver for businesses.
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