The Annual Performance Review: Overhauled

We’ve written before about the death of the dreaded annual performance review at companies like Accenture, Google, Microsoft, Yahoo, Adobe and others. Now the idea is gaining even more acceptance with yet another well-known convert - General Electric.

What sold GE management on the need for a massive overhaul of the system and to roll it out to its 305,000 employees? In a sentence it was the five-fold increase in employee productivity created in a mere 12 months in an internal test pilot program. The new process will eventually be rolled out to everyone in the company in 2016.

Dubbed “Real-Time Performance Development” and documented in this Harvard Business Review article by one of the managers who oversaw the program, the new management model “depends on continuous dialogue and shared accountability” throughout the year rather than an annual formal meeting between managers and individual employees to discuss strengths and weaknesses.

This new style is revolutionary in that managers function more as coaches for their reports rather than critics. The new process makes operations more collaborative and less adversarial.

More Communication, Better Results

The test pilot program worked to create more communication channels between all elements in GE - breaking down the silos that existed between employees, managers, and disparate teams. Management leveraged new technologies, specifically a smartphone app, to encourage this communication.

This new approach brought about more flexibility and responsiveness to business challenges. By meeting with reports daily, solutions could be found more readily for issues as they arose on a day-to-day, hour-by-hour basis. Encouraging this daily communication also allowed teams to collaborate and develop new ways of working and thinking.

Great things are accomplished when sales can offer input to engineering and vice versa. Among them, the engineering team at GE was able to redesign a cooling system for better performance at 50% lower cost. Also, forecasting and predicting demand were made more accurate because all of the groups involved - engineering, procurement, operations, and sales - participated and worked together.

This new model, in contrast to the traditional annual review, is a more trust-based system with management becoming more receptive to employee feedback. While this may at first seem threatening to management, it works to establish a positive feedback loop - workers trust management to listen to their suggestions and management trusts workers to do their jobs.

It should be noted that annual reviews still happen in this new model. They just happen in addition to communication that happens throughout the year. By keeping it as part of an on-going dialogue, the annual review can more accurately assess an employee’s performance on a longer term basis and not be dependent on their most recent activities.

The Power of Employee Suggestions

By scrapping annual reviews, General Electric joins a small but growing group of forward thinking organizations. Without a doubt, the annual review process is a costly one - estimated at $35 million for 10,000 employees - and, in the words of Accenture’s CEO, “the outcome is not great.”

In our modern era, the annual performance review is becoming something of an anachronism. New technology have made it possible for more communication to happen between management and employees. When it comes to business, fortune favors the swift and companies that don’t embrace these new communication opportunities to encourage collaboration are destined to be left behind.

Our country has long looked to General Electric as a harbinger of the work world to come. Hopefully, this new management model that breaks down walls between departments, encourages more communication between management and employees, and openly encourages and implements employee suggestions will inspire other companies to follow their lead.