The recent news that Accenture is joining a long list of organisations to drop the annual appraisal round has cheered me up. Since the 1980s, I have been deeply sceptical of the value of the annual performance appraisal. Former colleagues and managers can confirm that I never took it seriously.
In the 1990s I got to know the HR director of a large UK organisation during the introduction of activity-based costing. Once the time of line management was added in to HR department costs the total cost of the annual appraisal became evident in both cost and time. Yet there was little evidence that it contributed to organisational performance or indeed staff morale. Yet what could you replace it with?
Now the news that some organisations are planning to use real-time data analytics on performance to replace annual appraisal suggests things could get worse.
Let me explain why.
What can you tell me about the following?
Darren 31
Carole 29
Asif 29
Mike 28
Jane 26
I'll let you choose whatever you want the numerical scale to represent. Total sales, product repairs, you name the scale. The answer is that you have no knowledge from the data to be able to rank the five individuals whatever you choose the scale to represent.
Around four years ago I sat in on a review of a lean project in a department of a medium-sized UK-based organisation. The challenge that they faced was peaks and troughs. In particular, the end quarter and end year volumes put enormous pressure on the team and business was growing. If a single staff member was off ill, it might be possible that they would miss the end quarter with potentially serious consequences for the business figures.
So what they sought to do was increase the capacity of the existing team to reduce the stress they were under at key dates.
They had a number of scales that looked like the above. One person who came first on one was last on another. The raw data suggested lots of possibilities, but was inconclusive.
Two key insights in fact increased the capacity of the small team by around 15 per cent in just a few weeks work.
The first was that one key form appeared to have completion times that were bimodal. It appeared that the time to complete was say around 50 or 60 seconds. It turned out that some staff used function keys and some used keyboard shortcuts. The difference in completion times was explained away by the different approaches. Once everyone used function keys the time to complete for all staff fell to the lower number. So in my table above, if the scale was forms per hour, most of the apparent difference was due to the different ways the team had been taught to use the package, not their own performance.
A second insight was that all the printers were at one end of the room and staff closer to the printers were more productive on some scales. Rearranging the desks and printers improved the capacity of the whole team. Differences in individual performance were not down to individuals alone. A good 80 per cent or even more was down to the environment and training.
There were a few other insights that came about by marrying data and insight into working practice, but these were the major findings.
I have before on this blog used the phrase 'the map is not the territory'. The data is incredibly useful, I absolutely agree, but it should be used to support insight, not replace it. Even if you have 100 or more scales, the data alone cannot remove the real-world context.
I'm cheered by the recognition that the old system needs to be dismantled (I wish it had been years ago), but what makes me concerned that things could get worse is a phrase I hear more regularly now: 'the data speaks for itself'. NO IT DOESN'T.
On the other hand, let's look at the possibilities if this trend takes hold.
The evidence is that increasing executive pay does not increase organisational performance. So will CEOs accept that the data 'speaks for itself'?
In the City, active brokers do not outperform trackers over the medium term but pay themselves extra for their performance (which is non-existent). Similarly rewards for hedge fund managers reflect their exceptional talent and performance (the data can't find it).
So, for any readers in financial services may I say 'cheer up, things could be worse'.
