Without question, performance management is experiencing a revolution. Companies are re-evaluating how they conduct performance discussions, their attitude toward Objectives and Key Results (OKRs) and how the annual appraisal process has impacted employee engagement and company culture.
Agile businesses around the world have come to recognise that the traditional annual appraisal has a lot of inherent flaws. They are turning instead to continuous performance management (known to some as agile performance management), a growing trend in human capital management. Below we’ll explore what continuous performance management is, why companies are overhauling their performance reviews and how continuous feedback can add real value to your bottom line. We’ll also look at which continuous performance management tools can be used to make the transition smooth and effortless.
What Is Continuous Performance Management?
Continuous performance management, in a human resource (HR) management context, is defined as performance management processes that take place throughout the year on an ongoing basis. It is a continual holistic process, as opposed to those based on traditional annual appraisals. As feedback occurs more often, it feels more natural for both manager and employee, who can develop more of a healthy, authentic workplace relationship.
Why Are Companies Ditching Annual Appraisals?
Management thought leaders such as the CEB have long been advocating that performance management should be part of managers’ everyday role and that once or twice a year appraisals are not an effective use of time. But it’s no longer just academics who think this. 95% of managers are not satisfied with their organisation’s annual performance management process and 75% of employees see yearly reviews as unfair. Another study has found that only 8% of companies believe that their traditional performance management process drives business value. When looking for an alternative to annual appraisals, continuous performance management is a solution that complements and supports the pace of modern business.
Why Is Now the Time for Continuous Performance Management?
Aside from the fact that more and more companies are turned off by the inefficiencies and limitations of their traditional performance management processes, there are many reasons why now is the best time to transition to a more continuous process.
Modern business is fast-paced. Companies face unexpected pressures and obstacles daily and they need a performance management system that accommodates this reality. Businesses need to be agile, to thrive and compete. They need employees who are empowered, connected and able to take ownership over their work. Continuous performance management encourages this by providing instant communication, strengthening relationships through transparent dialogue and giving employees autonomy and independence — something that greatly appeals to the modern Millennial workforce.
Who Has Adopted Continuous Performance Management?
There are a number of notable companies who have decided to adjust their performance review process to get the most out of their workforce. Below is a small selection of continuous performance management case studies that have successfully made the transition.
Adobe was the first well-known organisation to adopt continuous performance management when they ditched their annual appraisal process in 2012 in favour of “check-ins” and frequent feedback. Adobe worked hard to embed this new approach into their culture and that work has paid off with voluntary turnover decreasing by 30% since they introduced check-ins.
US food producer and distributor Cargill also transformed their outdated performance management process in 2012, launching”everyday performance management” instead. They got rid of their annual review forms and performance ratings and instead encouraged managers to have regular, on-the-job conversations and give frequent, constructive feedback. They too have seen remarkable results with 70% of their employees now indicating they feel valued due to their ongoing performance discussions with their manager — a massive improvement.
More recently a number of leading, global organisations have implemented continuous performance management, including Deloitte, Microsoft, IBM, Accenture and most famously, General Electric, who had previously pioneered annual appraisals and rankings.
What Are the Tangible Business Benefits and Business Outcomes of Regular Check-Ins?
There are many statistics and case studies to back up the efficiency of continuous feedback and its impact on employee performance, employee development and retention.
Research has found that over 50% of companies where goals are reviewed each month are in the top quartile in terms of financial performance, whereas only 24% of companies where goals are re-evaluated once a year made it into the same bracket. It has also been shown that companies who manage objectives quarterly generate 30% higher returns than organisations who address them annually.
Frequent feedback is now being labelled the “killer app” and has been shown to boost performance by up to 39%. A study by Gallup has also found that employees whose managers hold regular one-to-ones with them are almost three times as likely to be engaged. Furthermore, as mentioned previously, after transitioning to agile performance management, Adobe saw a remarkable 30% drop in voluntary turnover.
Importantly, more continuous performance reviews can actually save your company time and money. Annual reviews take a substantial investment when it comes to management hours and form-filling. Because they try to accomplish too much in one sitting and because they are so dreaded by everyone involved, they end up being unproductive and, ultimately, a waste of time.
What Is Holding Companies Back from Incorporating Continuous Performance Management?
Given all the clear benefits of continuous performance management, why haven’t all companies made the transition? Why are some companies holding onto their annual appraisals? At Clear Review, we ran a poll to find out.
We discovered 60% of our participants were holding back from continuous reviews because they were worried about encouraging managers to have more meaningful conversations. This is an understandable concern — the last thing you want is to have more meaningless meetings wasting time in your organisation. This is why we recommend giving managers appropriate training and guidance, so they know how to conduct one-on-ones effectively. Managers can also be given a one-on-one meeting template to ensure a productive coaching and feedback session.
Is There Still a Place for Annual Performance Reviews?
Most organisations that we speak to embrace the concept of continuous performance management, but many question whether they should still be doing annual performance reviews. Our view is that annual reviews are, in most cases, an unnecessary bureaucracy. Performance management is ultimately about supporting employees to perform to their highest potential and this cannot be achieved through an annual performance review. Having regular, future-focused check-ins and giving frequent feedback are proven to be the best way of improving an employee’s performance.
For some organisations, this may leave the question of how they can collate the performance and talent data they need to make decisions about pay and promotions. Organisations like Deloitte have addressed this by periodically asking managers a small number of performance and talent related questions about each of their team members. If managers are having regular check-ins with their staff and seeing feedback about them throughout the year, then they can answer these questions without the need for a lengthy appraisal discussion. We have adopted this same process for our own Clear Review Performance Management Software.
Other organisations have decided that they no longer wish to directly link pay to performance, in which case it makes no sense for their staff to engage in a formal performance review at the end of the year when they are already having periodic performance check-ins during the year. This article provides a useful summary of the options for managing reward without performance ratings.
How to Implement Continuous Performance Management
If you’re looking for practical tips on how to transition to continuous performance management, we can help you with this organisational change. It all starts with getting your leadership and management team on the same page — they will need to understand and buy into the benefits offered by agile performance management. The appropriate training is also a necessity — managers need to know how to give effective, motivational feedback during employee on-to-ones.
For a more in-depth, step-by-step process, we have a guide on how to implement continuous performance management.
What Is the Role of Continuous Performance Management Software?
To be effective, continuous performance management needs to be collaborative, frequent and take place in real-time rather than retrospectively. It also needs to be monitored to ensure it is being carried out effectively. Continuous performance management software aids this by enabling:
- feedback to be given “in-the-moment” rather than waiting until the next one-to-one
- action points from check-ins to be captured and followed up, rather than being noted down in a book and forgotten about
- objectives to be set collaboratively. They also need to align with organisational goals and be regularly updated
- progress and obstacles to be captured as they happen
- reminders to be sent automatically to those who have not had a check-in or given feedback recently
- HR to have visibility of how often check-ins are taking place across the organisation and how frequently feedback is being given
- HR to collate performance and talent data without having to carry out formal performance appraisals
Business is always changing and technology is always evolving … but when was the last time you made a significant change to your performance management system? Organisational change might not be quick and simple, but it is certainly necessary to keep your business thriving long into the future. Take your first step today.