University of Bath School of Management University of Bath School of Management

Bad reviews: Why is traditional performance management falling from favour?

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If feedback from senior managers, employees and HRs themselves is anything to go by, performance management is under-performing.

Annual appraisals are viewed as an inefficient chore, and systems which rank employees as potentially divisive. For instance, the opaque metrics and individual managers' preferences which often determine bonuses can cause disputes at this time of year. The difficulty is deciding what should replace existing evaluation methods.

A waste of time?

Evidence of declining faith in performance management is widespread. In 2014, Deloitte's HR consultancy arm Bersin polled 2,500 senior managers and HR leaders for Deloitte's annual Global Human Capital Trends (GHCT) report. Only 8 percent of these respondents thought their organisation's appraisal system drove high levels of value and 58 percent thought it a waste of time. This year's GHCT suggested that organisations had begun to respond to such feedback: 89 percent had either recently overhauled their performance management processes or intended to do so.

Traditional performance management, the annual process of rating employees' performance and ranking them against their colleagues, is widely considered to be broken,

the 2015 GHCT said.

 

More than 70 percent of all employees work in service or knowledge-related jobs. Their performance is driven by their skills, attitude, customer empathy, and by their ability to innovate and drive change by working through teams. Successful performance management must be focused on constantly developing these capabilities rather than ranking them at a moment in time.

Other studies have painted a similar picture. A survey of 1,000 directors in leading companies conducted by Professor Boris Groysberg and Deborah Bell, of Harvard Business School, found only 7 percent of those in financial services thought their organisation was effective at assessing talent.

In a PwC report this summer, a fifth of UK organisations were considering doing away with performance ratings and nearly two-fifths of employees (37 percent), said annual reviews were a waste of time and the process needed to change.

Many of these findings reflect a feeling that annual appraisals, and what Deloitte called "forced curve" evaluations rating and raking employees, have had their day. Complaints that yearly reviews have degenerated to retrospective, negative, tick-box exercises are hardly new; Compliance Complete HR reported them eight years ago.

Pressure for change has mounted, however. With technological advances, many believe it must be possible to have more frequent feedback that accurately measures employees' potential as well as performance and is coordinated with their development.

Deciding how to define and measure talent

The initial problem with producing a new model of performance management is one that often dogged annual appraisals. Before you can create a new process, you must decide what you should be measuring, about whom and the best way to measure it. This is often not straightforward. Rob Briner, professor of organisational psychology at the University of Bath's School of Management, said there were two main reasons why organisations failed to assess talent accurately.

First, because talent is quite poorly defined in most organisations, so assessing and identifying something you can't precisely define is always going to be difficult," Briner said. "Second, one of the main uses of the idea of talent is high potential, or individuals who are likely to perform exceptionally well in the future, possibly in leadership roles. This makes sense but, in general, organisations do not have enough good-quality data to know what will predict future high performance. So again, this makes it difficult to identify talent or high potentials.

This issue flows into preparing line managers to deliver better performance management. Briner said many organisations were so eager to improve their processes that they thought about how to do this (for example, by giving those conducting evaluations fresh training or new tools) before they had accurately identified the problem they needed to overcome.

You need to have a well-diagnosed problem, or opportunity, backed up with good evidence before you start thinking about what tool or intervention might be appropriate," he said. "This is one of the major limitations of performance management in most organisations: there is much activity and implementing of solutions but with quite a limited understanding of the performance problems such solutions are trying to fix.

More frequent review processes

Major technology corporations and some of the big consultancies have been among the first to abandon annual appraisals. Accenture has adopted a regular review process called "performance achievement", while Deloitte has done away ratings and 360 degree assessment. Line managers instead answer four simple questions about their reports after each project, or quarterly.

PwC's report cautioned against dropping employee rating and ranking entirely, however, as it might complicate bonus calculation. The UK Senior Managers and Certification Regime, coming in 2016, will also require some annual assessment of banks' "certification" staff.

Strengths-based approach

One school of performance management advocates downplaying employees' weaknesses and concentrating on their good points instead. Strengths-based thinking grew out of positive psychology and, very basically, involves establishing someone's best attributes and seeking to develop those in ways aligned to an organisation's requirements. Shortcomings are treated as learning opportunities and discussed in a way that does not undermine the employee's confidence, and which ensures they feel energised and confident at the end of the meeting.

Briner said

There is some weak evidence that strengths-based approaches can be beneficial in some ways, but again, it comes down to an understanding of the problem. There are many different performance management techniques which are likely to work more or less well depending on the context and problem, so it's pretty hard to identify general problems and benefits of any technique or tool. It's like asking what are the problems and benefits of a hammer. Well, it all depends on what you're trying to do.

Performance management unlikely to disappear completely

Even remodelled performance management might become less significant in the near future. Constant adaptation at agile organisations may mean standardised appraisals struggle to remain relevant, and knowledge workers under 34 already expect high levels of autonomy. Talent may expect to be left to explore its brilliance undisturbed. To date, however, not even tech start-ups run as holacracies, with managerial authority spread throughout the workforce, have abandoned performance management. That is understandable.

Briner said,

'Clever' people do not necessarily do clever or sensible things that will benefit the organisation so the idea of not monitoring or giving feedback to 'stars' seems pretty unwise,

Tim Hitchcock is a freelance journalist and former practising barrister. He has written for a wide range of publications including the Guardian, Observer, Financial Times, Telegraph and Sunday Business as well as several magazines. In 2009 two of his newspaper pieces found their way onto A Level course papers for business and English.

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