What next for the broken appraisal system?

Both Harvard Business Review contributors, Alessandro Di Fiore (right) is the founder and CEO of the European Centre for Strategic Innovation (ECSI) and ECSI Consulting, while Marcio Souza (left) is the President and CEO of Praxis Precision Medicines, a biotech company focused on innovative therapies for brain diseases.

The idea of abandoning the traditional appraisal process may seem daunting, but Di Fiore and Souza argue that this will be the best thing for your company. As they see it, the traditional appraisal system is broken – for three fundamental reasons.
 
Firstly, they believe the system is biased. Within the traditional appraisal system, “managers are sacred”. According to Di Fiore, this means any performance evaluation is susceptible to the bias of one person. From personality biases to experiential biases, relating to recent events in the workplace, assessments are ultimately skewed. Souza underlines that in this new way of working, “co-creation with team members has become more important than a view from a manager only.”
 
Secondly, the slow pace of feedback means a build-up of performance data. Annual performance reviews mean data performance is therefore used mostly as compensation, a leverage for career progression rather than effective employee development. As Di Fiore puts it, performance reviews “become more about playing poker than having a healthy personal development discussion.” Indeed, the system therefore rewards political versus practical behavior.
 
Thirdly, annual reviews are too infrequent. “How can a team develop if feedback is only received once a year?” Di Fiore asks. “All feedback should be frequent and context-based. This can be monthly or quarterly – but the more frequent, the greater the value.” Souza concurs – “if the objective is to improve the person and the teams, it’s paramount it happens in real-time not once a year”.
 
For Souza and Di Fiore, frequent appraisals mean greater employee proactiveness: individuals can work on their feedback without delay. Real-time feedback, in hand with mutual feedback, can lead to greater openness between the employer and employee and encourage faster employee development.
 
Moving away from traditional appraisals, Di Fiore and Souza have proposed a different method: a “socially-based” feedback system (SFS). The “social” nature of this feedback is demonstrated by the peer-to-peer structure, in which employees are assessed by a multitude of people, ranging from peers to senior managers. As Di Fiore states, it is widely accepted in society that the “wisdom of the crowd” is statistically more accurate than the individual – so why is it not the same for appraisals?
 
SFS also tries to increase the frequency in receiving feedback. The duo emphasize how employee development can benefit from receiving more feedback at more data points in the year. This allows room from an employee “to improve, reinforce or correct their course of action” when you receive endorsement and feedback more frequently.
 
While the tide is slowly turning against the traditional system of appraisals, with the likes of Microsoft and Deloitte leading the way, the shift in process is “very hard to change”. According to Di Fiore and Souza, many employers don’t have the courage to leave behind their legacy systems, comfortable with their traditional habits. 
 
There are also challenges in the implementation of an SFS. Di Fiore points to the social issues peer-to-peer feedback can cause. Indeed, asking employees to provide the feedback on their colleagues is difficult: the employee knows that this feedback is reviewed by HR and could impact the development of their colleague, both positively and negatively. The employee will therefore eventually become less candid because they don’t want to be “that person”. Di Fiore and Souza believe the lack of openness and frankness in company culture means it’s harder to achieve honest and candid peer-to-peer feedback.
 
According to Di Fiore and Souza, the solution is greater education and cultural change at a companywide level for feedback givers. Feedback givers, particularly peer-to-peer, need to be “brutally candid” while at the same time “not becoming a jerk” – starting with leadership.
 
New problems have arisen for companies who adopt a team-based organization, or “agile development teams” in the workplace. In this structure, it becomes difficult to assess the contribution of an individual within a team. The objective is to deliver on the need of customers, not to satisfy an internal system or line function. For example, if a company has an effective team of eight and reaches all their targets, but of those eight, seven are mavericks and one is lazy, all achievements are shared across the whole team. To capture the individual contributions within a team, the SFS fits the needs well.
 
In parallel, with multiple autonomous teams, companies need to think about interdependencies, and how to manage shifts in “priorities between a team-to-team in terms of resources and budget”.
 
This requires a new governing system to coordinate the process, otherwise you risk “having multiple teams going in different directions. Ultimately, Di Fiore argues that these teams must be coordinated “to ensure that they are aligned to the company’s strategic priorities” and “that teams are adapted by resources at a higher level”.
 
As Di Fiore and Souza argue, the current system must change. Failing to do so ultimately damages both the company and its employees, fundamentally undermining the objectives for implementing appraisals in the first place.