Over the past few years, more and more reputable organizations have ditched the annual review in favor of a more “agile” process that can respond faster to the needs of a business. We’ve been paying attention to this trend for a while, so we decided to create a comprehensive guide to help you understand why this happens (as well as what you can do about it).
We hope you enjoy this guide and use it as a reference when you consider what you can do about your organization’s performance review process.
The history of performance reviews
The performance appraisal has a long history that stems from the Industrial Revolution (the early 1900s). WD Scott was credited with coming up with performance appraisal. This process grew in popularity and became commonplace in the 1950s. Since then, the process has evolved to incorporate other aspects of management (SMART goals, management by objectives, 360 feedback, etc).
Isn’t it nice to know that the process you are still using today was devised when the majority of people worked in an assembly line? We hope to inspire you to change by the end of the article.
What is wrong with annual performance reviews?
It’s important that we first start off by stating that performance reviews are universally despised by nearly everyone involved.
According to research, almost every single employee hates performance reviews. Also, CEB research points out that 95 percent of managers are dissatisfied with the way their companies conduct performance reviews, and nearly 90 percent of HR leaders say the process doesn’t even yield accurate information.
Traditional performance rankings also lead to higher levels of frustration. Employees are less willing to take risks, and they may even end up working against each other – which is literally the opposite of the intended goal.
Finally, performance ratings say more about the person doing the rating than the ratee. This is known as the idiosyncratic rater effect, and it’s a big deal. Think about all the decisions made inside a company based on someone’s performance rating. It could be the difference between a promotion or being fired – and this is largely outside of your control.
Finally, annual performance reviews are expensive from a time-cost perspective. Deloitte found that annual reviews cost over 2 million hours per year for their 330,000 employees.
For a smaller organization of 100 people, if the average person spends 3 hours preparing and holding an annual review (and you pay them $50/hour), the cost is about $15,000. This doesn’t include the cost of technology and lost productivity because of the reasons mentioned above.
Now it’s time to learn about what you can do to replace this dreaded practice with a process that’s more agile and employee-friendly.
What is agile performance management?
To understand what agile performance management is, you need to understand what “agile” means.
The word ‘agile’ is typically used in engineering circles to describe building software in a way that’s flexible and can adapt easily to change – like how a workplace should be structured. This is the opposite of the waterfall model, which is a linear process that builds on assumption after assumption – the best way to think about this is building construction. It’s a piece-by-piece process that adds upon itself. First, the foundation is laid, then the walls, etc.
Frequent, regular conversations
The primary differentiator with agile performance management is that it preaches a mindset of continuous improvement (on a weekly/monthly basis) compared to trying to make changes on an infrequent (annual) basis.
It’s our belief at Friday, that the goal of performance management is to encourage more good behavior while helping employees develop and avoid not-so-great behaviors.
If you tried to change your behavior, but only made an effort once per year, how successful do you think you’d be? In short, that’s the annual review. The infrequent nature of an annual review is a recipe for failure.
The frequency piece of agile performance management is crucial – we strongly recommend one-on-one meetings (complemented with regular check-ins from a tool like Friday) as a foundational element of your performance management strategy. In agile circles, the check-in is very similar to a retrospective meeting in agile.
These tactical conversations should be focused on near-term work and generally include questions from a team leader like:
- What are your priorities for the upcoming week?
- Did you hit any roadblocks recently? Anything I can do to help?
- Any recent learnings you’d like to share?
The next step of agile performance management is to take an employee-centric approach. People have different personalities, different career aspirations, and a different style of working. This means an organization needs to craft a plan that’s tailored to the individual employee. A cookie-cutter approach won’t work.
There should be a full view of the employee’s experience. What are their goals? What recognition they have received from coworkers recently? Where are they working to improve? This should be visible to team leaders and executives in an accessible format.
We believe employees hate performance reviews because they know this process is based on the evaluation, and there’s very little interest in helping employees improve through coaching. They can see right through this process as interests are not aligned. Instead of asking, “how can I help my team?”, people have been asking, “what process can I implement to fire low-performers?”
Agile performance management takes another approach by aligning interests, where team leaders are genuinely interested in helping team members improve at their work. The difference is noticeable.
Most performance management systems collect valuable employee data and feedback on an ad-hoc basis. For example, HR systems collect 360-degree feedback once or twice per year, an engagement survey is sent once per year, etc.
An agile performance management system is always-on, meaning employee data/sentiment is being constantly streamed into the system to help aid decision-making and help you uncover issues before they become a big deal.
Think about it – if you’re trying to be “agile” but data is only collected on occasion, how are you agile in any way?
Hint: you’re not.
Focused on the way people work
As we’ve discussed agile performance management, it’s easy to think of the need for employees to be agile in their daily work, however, this applies to team formation too. Traditional org structures have trouble accounting for the true nature of how businesses work, especially in today’s age. For example, it’s common for a cross-functional team to “spin-up” inside an organization around a particular project. When the project is complete, the team “winds-down” until the next project begins.
These teams are hidden by tradition HR/performance management systems that build around an org-chart. Today’s tools/technologies need to be able to allow teams to be created easily.
Finally, in our view, agile performance management (APM) needs to have a “fun-factor” to encourage engagement. What is the fun factor? Recognition.
Employees should be able to say “thanks” and leave kudos at any point. This can be something manual like a recognition board cork-board, or it could be a web-based platform like Friday. We recommend using technology to make sending peer-to-peer recognition easy (and measurable).
How to get started with agile performance management.
Are you sold on the idea of agile performance management, but unsure how to start the process? We’ve managed this process for numerous organizations (both large and small), and we have a few thoughts:
Run a pilot program
Many organizations jump right into trying to implement APM inside their organization. While we encourage and appreciate the willingness, we strongly recommend running an internal pilot first with a team or department to iron out the kinks first. This is a big step forward for your organization, so it’s important to get it right.
By running a pilot, you can de-risk the process over the long haul by discovering and fixing issues that may pop up. In addition, if the pilot goes well, you now have meaningful (and real) data points to evaluate. Most importantly, you have internal advocates for the value of this new process.
We’ve worked with numerous organizations on these pilots and would be happy to help you too.
Prove business value
Any perceived “disruption” to a business needs to have a valid reason. We recommend that you focus on the business value of making the switch. For example, does agile performance management save time by replacing the annual performance review? If so, make sure to calculate potential savings. To convince other leaders, you need to bring hard-data and dollars, (not your opinion).
Focus on the team leader
If you decide to evaluate agile performance management software, we strongly encourage you to find vendors focused on empowering team leaders and employees. Many software providers focus on building tools for HR leaders. While this approach makes sense in theory, if a vendor doesn’t build a tool that managers actually want to use, HR/Executives won’t get the data they need to make effective business decisions.
If you aren’t collecting data on a consistent basis, your tool is useless.
To wrap up, agile performance management is the best way to complement the annual review, but it will take some thought and effort to get started on the right foot. Remember to de-risk this process by rolling out pilots in small batches before jumping in head-first.
If you have thoughts/questions, please reach out to us. We can point you in the right direction.