It is not without good reason that companies like Microsoft, Adobe, Motorola and Accenture are choosing to abandon traditional performance management methods.
Managers have traditionally relied on the crutch of the traditional performance management system with its accompanying calibration ranking as a means of driving performance, but as a senior HR executive at Microsoft observed: the system simply results in “capricious rankings, power struggles among managers, and unhealthy competition amongst colleagues”.
According to a recent (Bersin) survey 58% of organisations believe the annual appraisal is a waste of time yet, up until recently, 100% of companies insisted on doing it. In the same survey of 2,500 companies across 90 countries a meagre 8% of companies believed their performance management process drove high levels of value.
Adobe calculated that annual reviews required 80,000 hours of time from their 2000 managers each year – the equivalent of 40 full-time employees. After all that effort, internal surveys revealed that employees felt less inspired and motivated afterwards—and the departure of good people actually increased.
UCLA’s Sam Culbert went so far as to say recently that if the performance review was a drug, it would not be approved today by the FDA (Food and Drug Administration).
The reason for its dramatic fall from grace is that the context for work has evolved far beyond what the existing system of performance management was initially designed for. The current creaky system has its roots deep in the Industrial Age where Henry Ford once declared “How come when I ask for a pair of hands around here it comes with a brain attached?” Back then employees were simply workers whose performance could easily be calculated in measurable outputs: widgets, hours etc.
Today, by contrast, 70% of the labour-force works in service or knowledge related roles where performance is centred around skills and attitudes involving customer empathy (either external or internal), and by the ability to innovate and influence change through teams often spread across multiple locations.
In today’s environment of accelerating change and perennial uncertainty, goals shift, strategies evolve and employees often switch between multiple projects under different team leaders.
Because the context of work has changed, so the measurement and evaluation of contribution needs to change with it. The “forced curve” championed by Jack Welch at GE is fast becoming a dinosaur of the modern working world.
In understanding the need, fully 70% of corporate employers are either “currently evaluating” or have recently “reviewed and updated” a performance management system that no longer adequately serves the manager, the direct report or the company. The world of work is changing and managing performance needs to change too.