"The biggest limitation of annual reviews – and, we have observed, the main reason more and more companies are dropping them – is this: with their heavy emphasis on financial rewards and punishments, and their end-of-year structure, they hold people accountable for past behavior at the expense of improving current performance and grooming talent for the future, each of which are critical for long-term business survival." –Harvard Business Review

Shifting Focus of Performance Management

The way in which we assess our talent has and will continue to dramatically evolve. Organizations are becoming more digital and, in turn, demanding their talent become more digitally fluent. Likewise, workforces are not only becoming more flexible, but we are seeing the rise of contingent hiring; the platforms available for evaluating performance are endless, from gamification to automated surveys to traditional 1:1 in-person discussions; and the number of generations currently part of the workforce is more expansive than at any time in history.

In addition, more organizations are coming to realize that competitive advantage lies in shifting from simply finding to retaining, engaging and upskilling the very best people – especially as the costs of recruitment, onboarding and turnover become more apparent (and skyrocket).

Performance management strategy is critical to the retention of top talent; that is, precise insight into how employees are performing and what can be done to help them improve, feel valued and grow both personally and professionally. As explored above and more in depth below, there are countless market trends demanding unique, flexible and agile performance management. Based on industry trends and market research, organizations are shifting focus to the following:

Performance Management at the Speed of Today’s Business

The concept of the annual review is becoming archaic. In turn, agile tools and methodologies are influencing the way companies evolve their performance management strategies. Agile methodology was pioneered by technology companies, stressing improved quality and speed to market; it has been adopted across various functions (including HR) in a broad spectrum of industries. The implications for HR, and organizations overall, are significant – simply put, frequent and real-time feedback and transparent communication are replacing the annual review. Employers adopting agile HR methods will put themselves in a better position to compete – as employer of top talent, while ultimately improving their bottom lines.

“Agile” Performance Management

Agility is not a trend. It’s a direct response to the way business itself is evolving – a company must be able to respond more quickly and effectively to consumer needs and wants. And employee demands are changing, especially in a world driven by technological advancement. As companies shift more power to their people, and invest in their people to keep them from leaving, organizations are encouraging their talent to explore new processes and ways of thinking that align with their individual goals, company mission and business demands. For example, consider Facebook’s credo (called the Hacker Way): “Move fast and break things.”

Employee reviews need to take a proactive and forward-thinking approach by focusing on what an employee is primarily responsible for today or in the very recent past, while taking into account their long-term personal and professionals goals. For example, if the employee is doing something well he or she can build upon it. Conversely, if there is an area that requires attention, it can be addressed immediately. Profitability waits for no one, and we want to make sure our people are equipped, at all times, to succeed. By assessing your talent in real-time, demanding transparency and accountability on both sides, you show employees you’re invested in their roles and efforts while keeping a more critical eye on the company’s bottom line.

In a recent Fast Company survey, 74 percent of millennials (professionals currently in or nearing their 30s) said they feel “in the dark” about their performance, and 85 percent would feel “more confident” if they were more frequently communicated with by managers. Although agile methodology tends to focus more on the millennial generation, ongoing performance management benefits all generations. This allows you to coach the individual, regardless of age or demographic, thereby gaining insight into their unique needs, build strong relationships between colleagues and leadership, foster more certain retention, and even build targeted candidate profiles for future hiring.

Reasons for Change – No. 1: Retention

As job fluidity continues to shrink tenure, retention is stepping into the spotlight and becoming an increasingly important factor in determining which companies thrive and those challenged to sustain both sufficient talent levels and overall business performance. In fact, according to the US Bureau of Labor Statistics, in 2016 18-35 year-olds had an average tenure of 1.6 years per job. By 2020, millennials and gen-Z (professionals currently in their early to late 20s) will make up a whopping 50 percent of the workforce. What does this mean?

In brief: Globally, we’re less than three years from having professionals who expect to stay at your company for less than two years.

According to a survey conducted by StaffBay, including feedback from 15,000 employed professionals, nearly 53 percent of employees who planned to leave their job in recent years said it was because they do not “trust” those in charge. As organizations seek to rebuild trust and maximize retention by continuing the development of their talent – see WilsonHCG’s learning and development (L&D) resource library for best practices – many are strategizing around components such as employment brand, employee engagement, L&D, competitive compensation and performance management.

Ultimately, the onus is on your leadership

Organizations need to develop and refine their employment brand: authentic, accountable and genuine. Likewise, leadership needs to live and breathe your mission, vision and values. The health of your current and future workforce may depend on it.

Specific to agile methodologies, the following three components are key to strategic, modern performance management:

• Accuracy. In a recent HCI report, which explores agile performance management, only half of all respondents said annual reviews are accurate; 60 percent dislike their current performance review system. With its emphasis on speed and transparency, agile performance management provides feedback to employees that is more closely aligned to their current performance.
  
  
• Efficiency. With agile performance management, much of the burden for reviews shifts from the HR function to direct managers. This frees up HR and talent acquisition/management professionals to focus on more strategic priorities, while also providing better performance reviews as managers have direct insight into their people. For example, one major retail organization estimated having saved 2,000 hours of HR time over the course of a year by adopting agile performance management.
  
  
• Employee engagement. Agile performance management can make employees feel more satisfied with their performance, which relates directly to employee engagement. Research shows that increased engagement leads to higher customer satisfaction (external), productivity (internal) and profitability (bottom line). It can also reduce turnover. In fact, Deloitte recently reported that, after Adobe adopted a three-month review system instead of annual reviews, voluntary turnover dropped by 30 percent.

Applying and Enabling Agile Performance Management

Agile is a methodology that enables teams to move more strategically while improving quality and efficiency in order to meet deliverables and consumer needs. For HR and business leaders, agile performance management requires leadership training, change management and 100 percent buy-in:

• Training is critical because managers need to learn how to provide effective, actionable feedback on a frequent basis. With conventional performance management, managers have a distinct role but the process is prescribed by HR. With agile performance management, managers take a more direct role in the review process. They need a full understanding of the purpose and objectives of agile at both the corporate and business unit level.

• Change management is necessary to ensure that everyone involved, especially managers, understand the new processes for agile performance management and why they are important. According to Harvard Business Review, change leaders are most successful when they recognize tensions, hold everyone accountable, invest in the change and emphasize learning. Without proper change management, efforts to adopt agile performance management likely will fail.

• Employees and managers look to senior executives for buy-in and to set the example; your leadership must embrace agile performance management by showing they are behind and invested in the modernization of your performance management talent strategy. Employees at all levels will then follow suit and recognize the investment.
  

Looking Ahead to 2018 and Beyond

There is near consensus that agile performance management is the strategy of today, 2018 and beyond. In fact, the aforementioned HCI report states that nearly 90 percent of companies are evolving their performance management processes, or plan to do so within the next 12 months.

“Movement is driven by a model that’s more dynamic, sets goals that are more agile, and favors constant learning.”
-HCI, Agile Performance Management: HR's Next Big Move

Since the application of agile methodology is relatively new, there are still areas that need special consideration. One of the most significant areas is compensation; which, under conventional performance management, is determined as part of the “annual review” process. Companies need to determine how to best approach compensation under an agile model, and who will be responsible for compensation decisions. Market research is a vital piece of these decisions, as professionals today have more insight into what they’re worth, and outlets to communicate your offerings to others (Glassdoor, for example), than in recent years.

Agile is here to stay. It is a methodology that touches every organizational function. Get ahead and stay ahead by latching on to the agile performance management movement; ensure you’re people are accurately and strategically evaluated!

In Summary: Your First-Next Steps 

	TECHNOLOGY	Many organizations are turning towards technologies such as Reflektive, GLINT or officevibe, which integrate daily employee engagement data with performance management analytics to assist in driving agile goals at an organizational and manager level. Explore what’s available and learn from industry peers, but first define your strategy and goals.
	PEOPLE	Build a robust communication strategy that demands clear, frequent and transparent communication up, across and down the organization. As noted above, “trust” is at an all-time low. Rebuild trust and the commitment of your workforce by diligently investing in their personal and professional well being.
	BUY-IN	Employees look to leadership to set the example; your leadership must embrace agile performance management by showing they are invested in the modernization of your talent strategy. If your leadership, from executives to managers, is genuinely invested in the growth of their teams, employees at all levels follow suit and return the investment in kind.
	PROCESS	Managers need play a direct role in ongoing feedback. This fosters an “open door” environment built around trust, accountability and filled with relationships that foster a clear understanding of each employee’s strengths and career aspirations, as well as improvement areas. This also helps identify leadership potential within the organization, employees who may be up for “stretch” assignments and promotional roles and, conversely, potential flight risks.
	CADENCE	It’s critical that managers provide feedback beyond strictly areas for improvement. We all appreciate affirmation and appreciation; genuinely recognize your people for high quality work and offer them opportunities to expand their skill-sets. Not only will they stay, but they may very well grow within your company to become the next great leader.