In an article for SHRM’s People + Strategy Journal, Deloitte partner Rob Massey described the traditional annual performance review process as “an investment of 1.8 million hours across the firm that didn’t fit our business needs anymore.” “Once a year,” he said, “we looked back at what people did and then created a label for it.” Most organizations have some kind of annual performance review process, yet surveys show that over 80 percent of managers are dissatisfied with the traditional review process. Employees dread them, and managers don’t think they are effective at improving performance, so why does the overwhelming majority of organizations still rely on annual reviews as the backbone of their performance management efforts?
One of the most common complaints from both managers and their direct reports about annual performance reviews is that they are untimely. An individual employee could theoretically be struggling with a certain skill or job duty, performing it below expectation, or both, for a whole calendar year without discussing it with his or her manager. On the flip side of the coin, many managers use the existence of a performance review system as an excuse to delay giving feedback until the formal review period. In those cases, many employees report feeling as if their annual review paints an unfair or inaccurate picture of their true performance. After all, how are your team members supposed to know if their performance is lagging if you’ve never given them feedback? If the only time an employee hears about how he or she is performing is once per year, there are bound to be surprises. In other words, the annual performance review should not be the first time an employee hears about how his or her performance is tracking against goals and expectations.
The problem with performance management as it currently exists, and more specifically the annual review process, goes beyond the fact that both employees and managers dread it. Perhaps more importantly, business needs are now requiring that the process change. Because the majority of organizations don’t utilize performance management to its full extent, many managers have come to view it as just another perfunctory task that has to be done once a year. When implemented correctly and when given the necessary support, an effective performance management system can align employees and help the organization meet its strategic objectives. A comprehensive system for performance management is essential to any organization that wishes to remain competitive, support rapid innovation, and retain top talent.
While transitioning away from the traditional review process can seem intimidating to many HR leaders, it isn’t the insurmountable task its often made out to be. In fact, more and more successful companies are doing away with the annual review period in favor of frequent, informal check-ins between managers and their direct reports. Unsurprisingly, technology companies such as Adobe, Dell, Microsoft, and IBM have led the way in this transition, but they’re not alone. Professional services firms such as Deloitte and PwC, along with many other large companies in other industries, including Gap and General Electric, have joined them. As an example, Gap still does annual reviews, but they serve a different purpose, which is to summarize performance discussions that happen frequently throughout the year and reflect on the process of instant feedback. Now, several years into its new program for performance management, Gap has reported significantly greater satisfaction with its performance review process among both managers and store employees. Additionally, they have achieved the best-ever completion of store-level sales goals, further supporting the idea that flexible performance management and the application of short-term goals directly affects business results. Deloitte too has found that this new system of performance management has led to more meaningful discussions, deeper insights, and greater employee satisfaction.
One of the greatest challenges that managers and HR leaders face when trying to make this transition is that their existing HR software doesn’t easily accommodate it. Most HR systems are built around the idea of the annual (or semi-annual or quarterly) review, so even if managers are having frequent, informal performance conversations with their direct reports, their HR software doesn’t have an intuitive way to document these conversations and update frequently changing, short-term goals. Ensuring that your organization’s performance management software is equipped to manage ongoing feedback is critical to your performance management transformation.
All of this being said, how do you do it? What are the major components of the future of performance management?
The overarching theme of this new system of performance management is how to create alignment between individual, team and company goals. Aligning goals gets everyone on the same page and moving in the same direction towards complementary objectives. According to research conducted by Gallup, employee productivity increases by 56% when managers are involved in helping their direct reports align their goals with the needs of the organization. The simplest way to create organizational goal alignment is to involve employees in goal setting. In other words, managers shouldn’t just be telling their direct reports what their goals should be. Rather, goal setting should be an ongoing and collaborative process. For example, instead of just setting a sales quota, why not ask your sales rep what he or she thinks is a good, achievable goal? And if it is lower than what the organization expects of him or her, ask them why they set their goals so low and how you can help them to feel more confident in making more sales.
Instant feedback and regular check-ins are also characteristics of a more holistic performance management process, which together allow managers to do a better job coaching and allow their direct reports to process and apply feedback more effectively. Ideally, managers should strike while the iron is hot and give feedback at natural opportunities: when projects are finished, milestones are reached, issues arise, etc. Having regular check-ins as opposed to annual meetings has the benefit of changing the focus of building and grooming talent from a distant point in the future to the present day. In this way, managers can provide their direct reports with resources, advice, and development opportunities in real time as problems come up.
The final element is the cultural element. Transitioning to a more informal system of performance management isn’t difficult, but it doesn’t happen on its own. There’s an important cultural element that needs to be present in order to support this kind of system. Organizational values such as continuous improvement and mutual respect must be woven into the company fabric in order to see the best results. Overall, with the right mindset focused on developing talent in a way that best serves both the goals of individuals in the organization as well as the business objectives of the organization as a whole, a transition to a growth-minded system of performance management has the potential to transform the way your organization develops its people and meets its goals.