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Archives of Business Research – Vol. 9, No. 6
Publication Date: June 25, 2021
DOI:10.14738/abr.96.10267. Crews, D. (2021). Reinventing Performance Management. Archives of Business Research, 9(6). 1-12.
Services for Science and Education – United Kingdom
Reinventing Performance Management
Derek Crews
Texas Woman’s University, Denton, Texas, USA
ABSTRACT
Performance appraisals have traditionally been conducted annually or semi- annually. Recently, many companies are transitioning to ongoing feedback and
coaching, either in addition to periodic appraisals, or lieu of them. There have also
been calls for completely reinventing performance management systems, as the
result of an abundance of research that indicates performance processes are over- engineered and time-consuming, and they tend to demotivate employees while
hindering candid and honest conversations. This paper examines the common
problems with attribution error and rater bias in traditional performance appraisal
systems. Five mini-case studies are then presented by exploring how five large
companies (Netflix, Adobe, Deloitte, IBM, GE), have reinvented the way in which
performance management is implemented. The paper examines why these
companies moved away from traditional performance appraisal and what
processes replaced it. The paper also identifies emerging trends that will impact the
future of performance management and offers suggestions for the road ahead.
Keywords: Performance, management, appraisal, feedback, rating.
INTRODUCTION
Performance appraisals have traditionally been conducted annually or semi-annually. Recently,
many companies are transitioning to ongoing feedback and coaching, either in addition to
periodic appraisals, or lieu of them. According to Johnson, et al, this is because employees need
regular feedback on their performance [2]. Employees also benefit from candid assessments of
their performance. Committing management time and effort to monitoring performance also
decreases turnover rates [3]. Employees and their managers often see appraisal as a chore, and
something they have to do because HR requires it. The process will be more effective and seen
as productive and useful if the employees and managers keep their purpose in mind. The
primary purpose of performance appraisal should be to help employees to continuously
improve their performance [4].
In the last few years, there have been calls for reinventing performance management systems,
and some companies such as Netflix, Adobe, Deloitte, IBM, and GE have abandoned them
altogether [5, 6]. This paper examines the problems with traditional performance appraisal
systems, and offers five mini-case studies by exploring these five large companies have
responded. The paper examines why the companies moved away from traditional performance
appraisal and what processes replaced it.
First, let’s distinguish between performance management and appraisal. Performance
management refers to the activities, policies, and interventions designed to improve the
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Archives of Business Research (ABR) Vol. 9, Issue 6, June-2021
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performance of human resources. Barends and Briner report that, in a knowledge economy,
performance management at the individual employee level is essential, thus the business case
for implementing a system to measure and improve employee performance is strong [1].
Performance appraisal refers to a periodic process by which employees are evaluated relative
to the requirements of the job, for the purpose of indicating where improvements are needed.
Many organizational decisions are made based on performance appraisals, including training
or development, promotion, incentive pay, disciplinary action, and termination. Performance
appraisal can be thought of as one part of the performance management process. Just as one
cannot assess the fuel economy of a vehicle without monitoring data (miles per gallon),
employees must be assessed to determine whether they are achieving their full potential.
TRADITIONAL PERFORMANCE APPRAISAL
What many people think of regarding a performance appraisal is when a supervisor evaluates
the performance of a direct report. This is the most common type of performance appraisal but
there are other variations. Appraisals are sometimes conducted by supervisors, subordinates,
peers, customers, and even oneself. There also is a comprehensive approach that includes input
from a variety of assessors, known as a 360-degree evaluation. Each of these variations has pros
and cons, and each can be useful when implemented correctly, and in the right set of
circumstances.
Traditional performance appraisal methods include Management by Objectives (MBO), rating
scales, critical incidents method, and informal appraisal/feedback. MBO is a results-oriented
performance management method that strives to increase organizational achievement through
mutual agreement of goals between employee and manager. MBO was first widely used in the
1950s, in part because of the writings of management theorist Peter Drucker. MBO is results- oriented and seeks to measure individual performance by examining the extent to which
predetermined work objectives were met.
Rating scales are a performance appraisal method whereby each employee is rated according
to specific characteristics. Rating scales can be numeric (e.g., 1,2,3...) or alphabetic (eg., a, b, c...)
with each number or letter corresponding to a level of performance, such as “5 = excellent” or
“2 = needs improvement.” Rating scales typically have from three to five options for rating each
characteristic. A simple three-level rating is easier to administer, but the five-level rating
provides more differentiation between performance levels. Some rating scales also have space
for the rater to write comments such as examples of positive or negative work behaviors to
support the rating.
One variation of the rating method is the Behaviorally Anchored Rating Scale (BARS). The BARS
method is designed to bring the benefits of both qualitative and quantitative data to the
appraisal process by using behavioral statements as anchors for each rating level. BARS are
time-consuming to develop but may provide improved accuracy of the ratings.
The critical incidents method is a performance appraisal technique in which a manager keeps
a log of positive and negative work behaviors of subordinates. A critical incident occurs when
employee behavior results in an unusual success or unusual failure on the job. Managers then
keep a record of these situations in which something went well, or something went wrong.
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Crews, D. (2021). Reinventing Performance Management. Archives of Business Research, 9(6). 1-12.
URL: http://dx.doi.org/10.14738/abr.96.10267
Informal appraisal systems usually involve much more frequent feedback. For example, a
supervisor might provide feedback upon completion of a project, or perhaps even weekly. They
might be unscheduled and impromptu, occurring whenever a manager sees an opportunity to
provide feedback or suggestions, or just to inquire with an employee as to how a project is
going. Another variation is that they might be regularly scheduled such as weekly or monthly.
However, they are still categorized them as informal because they do not involve a formal rating
process. These regular meetings are sometimes referred to as “one-on-ones” or “check-ins.”
Proponents of this approach claim that it engenders more of a coaching or mentoring
management style, as opposed to an authoritative one.
PROBLEMS WITH TRADITIONAL PERFORMANCE APPRAISAL METHODS
There is a basic human tendency to make judgments about those who one is working with [7].
But because humans are involved, there is the potential for unfairness, misunderstandings, and
lack of consistency. Employees sometimes push back against performance appraisals because
they don’t think they are a fair representation of their effort. There are several problems that
lead to this perception, but they all have one word in common and that word is bias. Bias is the
prejudice in favor of or against one thing, person, or group compared with another, usually in a
manner considered to be unfair. There are two major types of bias that are common in
performance appraisal processes:
1. Attribution error
2. Rater error
Attribution error is a theory of social psychology that describes the inclination to
overemphasize the influence of a person’s dispositional factors while ignoring the influence of
situation factors of a person’s behavior. Consider the situation of Zach, a garage door installer
for a large overhead door company. In his most recent performance review, his supervisor Julie
noted that the frequency of call-backs on his installations is 20% higher than average. A call- back occurs whenever a customer has a problem with a new installation. Each call-back is
conducted free of charge to the customer, thus the company incurs only an expense for a call- back. Now consider Julie’s perspective: She needs to determine what is the cause of the call- backs. In other words, what problem should the call-backs be attributed to? The problem might
be a disposition problem (Zach might not be concentrating on his work, could be distracted, not
motivated to perform excellent work, or not paying attention to detail). But the problem could
also be situational (lack of training, being rushed by a dispatcher to move more quickly and get
on to the next job, or even electrical power surges in the area in which he works). Before
completing Zach’s performance appraisal, Julie should determine the true cause of the call- backs.
Most performance appraisal systems involve some type of rating system. Ratings have been
used since at least the third century when members of the Wei Dynasty (221-265 AD) rated the
official family members. It is insightful to note that outcries of unfairness and rater bias have
been around just as long. One rater employed by the Wei Dynasty said: “The Imperial rater
seldom rates men according to their metrics, but always according to his likes and dislikes.”
Table I below gives a summary of the main developments in the use of ratings.
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Archives of Business Research (ABR) Vol. 9, Issue 6, June-2021
Services for Science and Education – United Kingdom
Table I: History of Performance Appraisal Systems
History of Performance Appraisal Systems
Dates Events
221-265 AD Wei Dynasty uses raters to rate the
performance of the Imperial family members.
1540-1560. A procedure to formally rate members of the
Jesuit Society was established by Ignatius
Loyola.
1800-1817 Performance appraisals were initiated by
Robert Owen at his cotton mills in Scotland
using monitors. The monitors were cubes of
wood with different colors painted on each
side and displayed above the workstation of
each employee. The color of the visible side of
the cube was associated with a rating to
indicate performance. At the end of each day,
the supervisor would turn the monitors based
upon his perception of the employee’s work
that day.
1850-1914 Industrial revolution in America; Workers
were evaluated and paid primarily on the basis
of quantity produced.
1870-1915 Frederick Taylor stressed the importance of
scientific management, time and motion
studies, and the individual worker by
advocating for the payment of individually
based financial incentives (piece work).
1918-1955 Widespread use of performance appraisal
techniques with blue-collar employees began
after World War 1. Appraisal systems for
managerial and professional employees
became common after 1955.
1957 Emergence of performance appraisals based on
Management by Objectives.
1964-1990 Passage of EEO laws, beginning with Title VII of
the Civil Rights Act of 1964 created the need
for improvement in appraisal practices to help
eliminate discrimination and bias.
Psychologists began studying rater error in earnest in the 1920s. Research has provided
evidence of so much bias that some researchers believe that performance ratings may reveal
more about the rater than the ratee [8]. This body of research traces its beginning to
Thorndike’s classic article A constant Error in Psychological Ratings [9]. He identified what later
became known as the halo effect. This and other common types of rater bias established by
research studies are summarized below:
• Halo Effect. Occurs when the evaluator forms an overall positive general impression
and then extends that positive impression to all aspects of the rating.