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According to various sources, including the Society for Human Resource Management
(SHRM), Forbes, Corporate Executive Board (CEB) – here is what’s cited as not working or
frustrating with the traditional performance appraisal:
It’s incredibly time consuming
No correlation of individual ratings and actual business results
Recent neuroscience research shows PAs put the employee on the defensive and
monetary performance incentives reduce creativity
Objective appraisals are really subjective – ratings are highly susceptible to
unconscious bias.
Manager and employee relationship is no longer one to one
Managers cannot effectively judge an entire year of work for an individual at one time
Companies with a lot of high performers, the forced rankings eliminate great talent (in
a period of talent shortages) and damage the company culture (creating disengagement)
People are motivated by positive, constructive feedback and are threatened and
defensive by negative feedback
While managers are sometimes trained on how to deliver feedback, employees are
almost never trained on how to receive feedback – especially poor feedback
The findings show that numerous companies have abandoned the annual performance review
system which include: • Accenture • Adobe • Deloitte • Gap • Medtronic • Microsoft • Netflix
• P&G
These companies account for 6% of Fortune 500 companies (source management research firm
CEB), out of these the author has taken below listed organizations as case studies:
Deloitte
The Company
The company with the largest professional services network in the world, and also known as
the employer of choice for innovative human resource programs- Deloitte, has recently decided
to revamp its performance review cycle. The company has initiated a process with a special
focus on fuelling performance in the future rather than evaluating the past. The company was
founded in UK and headquartered in New York, it currently boasts of 200,000 professionals in
over 150 countries, providing audit, tax, consulting, enterprise risk and financial advisory
services.
Revisiting the old
In the old system, the performance objectives would be set for each employee across the whole
organization at the beginning of a year, then employees would be rated on how well they have
met their objectives after the end of a project. Moreover, managers would also identify areas
of improvement. These evaluations would form the basis for annual ratings, where counsellors
would represent employees to discuss where each one stood compared to their co-workers.
Earlier at Deloitte, objectives were set for each of 65,000-plus people at the beginning of the
year; after a project is finished, each person’s manager rates him or her on how well those
objectives were met. Feedback is sought on the areas where the person did or didn’t excel.
These evaluations are combined into a single year-end rating, arrived at in lengthy “consensus
meetings” where group of “counsellors” discuss hundreds of people in light of their peers.
Though the employee like the predictability of this process, and the fact that he or she has a
representative at the consensus meetings, Deloitte realized that it is not the best design for
company’s emerging needs. The setting up of once-a-year goals are too “fake” for a real-time
world, and conversations about year-end ratings are generally less valuable than conversations
conducted about actual performance. The need for change crystallized, only when the company
tallied the number of hours the organization was spending on performance management—and
found that completing the forms, holding the meetings, and creating the ratings consumed close
to 2 million hours a year. The company studied as how those hours were spent and realized
that much of the time was eaten up by leaders’ discussing behind closed doors about the
outcomes of the process. Then, the company wondered if it could somehow shift the investment
of time from talking about ratings to talking to our people about their performance and
careers—to shift the focus from the past to focus on the future.
The survey revealed the following facts:
58% of managers thought the traditional performance review process did not serve a
purpose
approximately two million hours a year were spent on the whole review cycle - filling
in forms, holding meetings and doing the actual rating
Most of the time was spent discussing ratings, instead of actual conversations with the
employee
Brought into light, the theory of implied subjectivity of rating. The theory suggests that,
if a manager is rating an employee on their ability to engage with another employee,
that manager is giving a rating based on how important they think engagement is, which
implies, when an individual is giving feedback to someone else, he or she, reveals more
about himself/herself rather than about colleagues. This is called the ‘idiosyncratic rater
effect’.
The Way Forward
Deloitte realized that the company is in need of real-time, and more individualized process that
focused on fuelling performance in the future rather than assessing it in the past. For Deloitte,
seeing performance means getting an accurate picture of someone’s performance, thus
eliminating “the idiosyncratic rater effect”, and streamlining the review process beginning from
evaluation to the final rating. The company was inclined to find the solution to the first
problem- that is to redesign how the rater constructs feedback questions and to whom these
questions were directed. Through numerous deliberations and practice sessions, it was decided
that the best way to revamp the process is to provide feedback to the immediate team member
by the team leader, in order to increase the efficiency of the system. Another important measure
that the company has taken is to prompt immediate team leaders to evaluate their future
intentions with team members not the employees’ skills. The distinction lies in the fact that,
with the new structure, team leaders rate themselves on their intentions and not just their skills.
The company decided to have no cascading objectives, no once-a-year reviews, and no 360-
degree-feedback tools, instead, it designed a very different and much simpler design for
managing people’s performance with speed, agility, one-size- fits- one and constant learning
as its hallmark. And these characteristics are reinforced by a new way of collecting reliable
performance data which makes more sense of Deloitte’s talent dependent system. Replacing
the Annual Performance Appraisal at Deloitte, meant developing three main objectives for
Performance Reviews:
1. To recognize performance through variable compensation (annual comp decision)
2. To see performance clearly (the quarterly or per-project performance snapshot)
3. To fuel performance (weekly check-in with team leader).
Deloitte has constructed a unique way to keep a tab on employee performance by introducing
Check-in conversations. These conversations are a key part of team leaders’ work, conducted
once every week to review latest projects, team leaders are instructed to set expectations for
their employees and provide coaching for the upcoming week(s). These Check-in
conversations are started by team members, to help team leaders, save more time and effort.
Thus, with this on- going system of feedback, Deloitte has done away with the traditional
system of performance review.
Accenture
The Company
Accenture, an organization which is known to clients for its high performance, focusing on
reinventing performance review was essential. It was important for the company as this will
truly enable business to get better. The largest consultancies in the world announced it was
shedding annual performance reviews in favour of a system in which employees receive timely
feedback from their managers immediately after the completion of assignments. It was
determined to join a small but prominent list of major corporations that have had enough with
the forced rankings, the time-consuming paperwork and the frustration engendered among
managers and employees alike
Revisiting the Old
The CEO, Pierre Nanterme, realized that spending time and resources on a system that did not
yield desired outcomes, and was detrimental to his workforce. Bureaucracy and the complex
nature of the performance review blocked employees from developing their own professional
skills and talents. The company sees annual appraisals as an excessive use of time, money and
effort, and made sincere efforts to move away from it.
The way Forward
In September 2015, Accenture announced that it would be removing the annual
performance review and replacing it with an ongoing review process and cited that they
wish to evaluate employees based on their individual roles and performance. Thus, they
designed an innovative method called the ‘Surround System Approach’, which
propagates:
Business leaders to be immersed along with HR leaders in order to reinvent
performance management.
Focus to be shifted to the people at the grassroots as they who were making this push
forward.
Team leaders to be equipped with technology in a very human-centred design, tools
and apps
Team leaders to understand the complete journey and how the future would look like.
To make communication more transparent and unique.
Outcome of the Change
Fig 2 about here
1
EFFECTIVENESS
0.5
0
Between 1000- Between 1000- Between 10,000- More than 50,000
10,000 10,000 50,000 employees employees
Figure 1
Source:
Revamp
Performance
Review
Recognize,
Relate Reward &
Retain