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Are annual performance appraisals outdated?

The online article, “Ahead of the curve: The future of performance management” in the McKinsey Quarterly really had me thinking about performance appraisals.

As a young manager, when our staff had grown to about 25 associates, I thought it was a good idea to implement annual performance appraisals. At the time, all of the great managers were doing it and many members of my team were clamoring for some kind of system. So, I developed a performance review instrument and went about the business of having annual reviews.

After a few cycles, I noticed “individual” productivity went way up; people were proactive, present, and very engaged for the month leading up to the appraisals. I had one young man who always came to work in wrinkled khakis and a wrinkled polo, but started wearing business suits in the weeks preceding performance appraisals. So, I got smart. I instituted performance appraisals twice a year!

However, instead of doubling the time when people were highly productive, the system became oppressive – for the associates and the managers. I came to realize that the only reviews effective at improving our processes are the constant and consistent appraisals. The idea is a lot like what we do in Grantham’s Academics Department, where we meet regularly to share we know what, and how, each of us is doing individually. Nothing is hidden; we know one another’s strengths, weaknesses, and opportunities and – I believe – we support each other in all of these.

After working in my family’s enterprise, I went to business school and learned about all the things I was doing poorly in my own business. Among the issues that piqued my interest was total quality management. I had read about those folks, but had not studied them. As most of my colleagues know, I adhere to many of the tenets of W. Edwards Deming. He addresses the issue of performance appraisals in several of his 14 points – but specifically in point 12:

Deming’s 14 Points

-Create constancy of purpose for improving products and services.
-Adopt the new philosophy.
-Cease dependence on inspection to achieve quality.
-End the practice of awarding business on price alone; instead, minimize total cost by working with a single supplier.
-Improve constantly and forever every process for planning, production and service.
-Institute training on the job.
-Adopt and institute leadership.
-Drive out fear.
-Break down barriers between staff areas.
-Eliminate slogans, exhortations and targets for the workforce.
-Eliminate numerical quotas for the workforce and numerical goals for management.
-Remove barriers that rob people of pride of workmanship, and eliminate the annual rating or merit system.
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Institute a vigorous program of education and self-improvement for everyone.
-Put everybody in the company to work accomplishing the transformation.

I understand that we need a way to determine who “merits” various distinctions (promotions, pay, etc.), but when we attempt to make subjective data objective by assigning a number to a variable, the appraisal system creates an environment where associates play to the test. The result is not a measure of an individual’s value in the organization; it is a measure of their ability to play the game.

I believe that only a good manager can determine the value of various team members (and I emphasize the term “good manager”). Properly designed, performance appraisals can help us determine the type and level of development each associate might need, and help prepare the associate and the organization for inevitable organizational transitions. Otherwise, we typically place way too much emphasis on a flawed instrument.

About Dr. David Marker:
Dr. David Marker, dean of the Mark Skousen School of Business, has been with Grantham University since 2013. He spent the previous 12 years at the École Supérieure de Commerce (ESC) – Clermont Ferrand, France, where he served as a full professor, the director of several master’s programs and the dean of faculty for 50 full-time professors and more than 100 adjunct professors. While there, ESC earned AACSB accreditation and was consistently ranked by The Financial Times among the top business schools in Europe.

Dr. Marker began his professional career with nearly two decades of experience in building small business before returning to school to pursue an academic career. He earned his Ph.D. in Business – Organizational Theory as well as his Master’s degree in Business – Organizational Behavior, both from the University of Kansas. He is a life-time member of Beta Gamma Sigma and has taught at large public universities and at small private schools. He has lectured and presented research papers in many different countries.

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