Should You Drop the Formal Annual Performance Appraisal?

e2fcde61-4b40-4749-84d7-c91d0f7c38dd“Traditional performance appraisals are depressing, non-supportive, artificial and untimely.”  If you find that statement resonates with you, you might want to take note of an article in the October issue of Harvard Business Review titled The Performance Management Revolution.

The article notes a growing trend of organizations dropping the formal annual review. Besides the fact that no one likes to conduct or participate in the annual review, the bigger criticism is that the very nature of a review is to focus on past performance rather than future performance. Traditional performance reviews are highly vulnerable to many biases including recency, halo, and first impression. Furthermore, it’s human nature for employees to be defensive and find ways to rationalize or discredit any criticism. Reviews, when they are done at all, wind up being superficial or they undermine the manager/employee relationship.

According to the authors, “the focus is shifting from accountability to learning.” Rather than a formal annual performance appraisal system, more organizations are emphasizing “frequent feedback that follows the natural cycle of work.” The authors cite three compelling business reasons for the trend:

  1. Competition for talent. Managers can’t afford to wait for an annual review to discuss performance. Good performance needs to be recognized and poor performance addressed as it happens.
  2. Need for innovation and continuous improvement. Service expectations of today’s consumers and the overall competitive business climate necessitate frequent discussions about performance and continuous improvement.
  3. Rise of collaborative work teams. The increased use of work teams to get things done diminishes the emphasis on individual performance and replaces it with a culture of collaboration.

The article does note the retention of an annual informal discussion but only to recap performance and goal discussions from throughout the year.

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