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Caroline Stockdale is currently chief people officer at Accretive Health and a former chief human resource officer with Medtronic, Warner Music Group, American Express and GE. A recent Washington Post article featured the performance management system she implemented recently at Medtronic that is also being studied by IMD/HBR. Jeri Darling spoke with her about her experience in changing the traditional approach to performance reviews and its impact.
Why Performance Management Systems Fail
I've been experimenting to find more effective ways to drive performance through a few different companies. Most organizations still operate with the traditional annual or biannual performance review system, with most of the emphasis on the yearly conversation. A while ago it struck me that there was something desperately wrong with this situation, for a number of reasons. I think if you went to an all-employee meeting and asked for a show of hands as to who trusts the system or thinks it adds value, it would be rare if one hand went up in the room. The annual review is a timeconsuming, historical process and in many cases results in minimal return to the business.
If you do a root cause analysis about what a performance management system is supposed to deliver, purportedly, among other things, it is there to drive results and enhance performance. It should also ensure frequent and consistent feedback to employees. However, if you take each of the constituent pieces and pressure test them, it doesn't hold up. One reason is that what is happening with an annual review process is all in the rearview mirror. So when we're reviewing what's happened over the past year, it is all after the fact, after the results are in. You're not going to drive better results in retrospect.
Secondly, when we use a rating system, a number of interesting things happen. If you look at the research, human behavior is such that we all think we're better than we really are. Imagine we have a rating system 1 through 5, with 5 being the highest. If you and I were having a conversation and you tell me I'm a "3" - a couple of things are happening now. One is that I've been waiting during the course of our...