Does the demise of the annual performance review encourage agility or cause confusion?

Does the demise of the annual performance review encourage agility or cause confusion?

I’ve been following with interest the news that some leading organisations are doing away with the annual performance review. Nine blocker grids, bell curves, ratings and rankings could all be becoming a thing of the past.

General Electric, Microsoft, Adobe, Accenture and, recently, KPMG India have announced that they are evolving towards a new model favouring more immediate feedback. GE is using an app to do this. Employees request qualitative feedback immediately after completing a project or piece of work, and then discuss it with their line manager.

“To become more effective and fulfilled, people need a keen understanding of their impact…
Direct feedback is the most efficient way for them to gather this information and learn from it.”

Ed Batista, Executive Coach, Stanford Graduate School of Business

This new feedback method relies on the individual fostering a ‘growth mindset’ – an ability and willingness to learn new ways of doing things. Traditionally, performance review systems have been built on the outdated assumption that individuals tend to operate within a ‘fixed mindset’, which resists change. This premise has allowed past performance to be used to predict future performance, but it has long been discredited by occupational psychologists. Despite this, the performance review frameworks and annual review cycles used today by many organisations have remained aligned to the ‘fixed mindset’ model, which means individuals may be penalised for what went wrong six or nine months ago, even though this may no longer be a development issue.

“In a growth mindset, challenges are exciting rather than threatening.
So rather than thinking, oh, I’m going to reveal my weaknesses, you say, wow, here’s a chance to grow.”
Carol Dweck, Professor of Psychology, Stanford University

There are some obvious pros and cons to encouraging more frequent and dynamic feedback:

Pros:

  • The individual takes responsibility for soliciting feedback, so they are more likely to accept it.
  • They get the feedback first-hand, non-censured.
  • Any current underperformance or improvement areas are identified, and can therefore by addressed, immediately.
  • Individuals become more accountable for the actions they decide to take as a result of the feedback.
  • Contentious ratings based on performance measured up to a year ago are replaced by constructive conversations about how to move forward.
  • By doing away with annual ratings, workforce performance is no longer artificially shoe-horned into a rigid bell curve, which rarely reflects the true performance of an organisation with any accuracy.

Cons:

  • This approach relies on both the individual and their manager taking responsibility for initiating the feedback process and for dealing with it in an honest and adult way.
  • The quality of feedback is likely to be inconsistent across the organisation.
  • Without an annual rating, employees may find it hard to gauge their performance compared to their peers.
  • Without standardised numerical measures it will be harder to establish and communicate a fair system for talent management, promotions, pay rises and bonuses.

Are more frequent performance reviews right for your organisation?

Change for change’s sake is never a good idea. By listening to your employees, managers and HR professionals about their experiences of your current processes, and the results they deliver, you will gauge whether there’s room for improvement. Consider too the nature of the business and the profile of your workforce – current and future. What are your employees’ motivators and preferences? GE was influenced by listening to its millennials; consultancy firms such as KPMG and Accenture have a workforce largely driven by projects whose timings don’t fit neatly into the traditional annual review cycle. These factors may not be so relevant for your organisation.

Other questions you’ll want to ask are:

  • Does my organisation foster a strong culture of openness, honesty and trust?
  • Are managers encouraged to give feedback on both what has been achieved and how it was undertaken?
  • For benchmarking purposes, is there clarity throughout the organisation on company values, the behavioural competencies required and the culture we want to create?
  • Is management respected by employees? Do we have confidence that managers both role model the right behaviours and operate in a fair and consistent manner?
  • Are managers equipped as coaches, knowing how and when to give praise and recognition, and when and how to have a tough conversation? If there are inconsistencies, are we providing for development in this area?

Any organisation that decides to adopt this new approach to performance management will need to convince employees of the benefits and, crucially, that their reward, recognition and career progression processes remain rigorous and fair. They will also need to ensure managers across the business proactively and visibly adopt it themselves first, and then become advocates for a wider roll-out. Introducing it as an HR-led initiative is unlikely to lead to sustainable success.

“Feedback is the breakfast of champions.”
Ken Blanchard, author and management expert

As yet, it’s still early days and none of the pilot organisations have published any conclusions. Businesses across all industries will be watching with interest for the initial findings coming out of these first pilots. Will the evidence point towards more frequent feedback fulfilling the promise of better engaging individuals, and improving overall organisational performance? It remains to be seen. The organisations leading this new approach will certainly hope so.