Do annual reviews have a point? Are they relevant anymore, or even helpful? A story in Harvard Business Review - “The Performance Management Revolution” - recently took a deep dive into where the performance review came from and where it is going. The article examines where the performance review concept originated (the military), when it was used to manage money (in the 1970s to offer more objective merit-based increases) and how it was used to shed people at the bottom (see: Jack Welch, GE).

This all got much more complicated in the early 2000s and beyond, as organizations flattened and supervisors had, on average, 15–25 direct reports - six more on average than a supervisor in the 1960s. Ultimately, all of this amounts to lots of time and money spent on annual performance reviews - money that some companies have decided is better spent elsewhere.

Major tech companies, like Dell, Microsoft and IBM, have led the way in shifting from a traditional annual review process to a more agile-minded process that involves more frequent check-ins, report Peter Cappelli and Anna Tavis, authors of the HBR piece.

The point of performance reviews has basically been to make people accountable and portion out rewards to those who deserve it. But those who have dispensed with the traditional approach know there’s far more to gain from doing this long, drawn-out, paperwork-driven process that both managers and employees loathe.

Here’s a short synopsis of the three reasons that Cappelli and Tavis cite for dropping the annual appraisal:

The return of people development

Not only are appraisals a huge time suck, they can be a deterrent for staying at a company, something that employers with an eye on retention know. Plus, when training knowledge workers who are motivated by learning, companies are doubling down on development, and that means creating a feedback-rich environment (instead of waiting for once a year to tell them what they really think).

The need for agility

Things are changing - fast. And the annual appraisal system is slow, heavy, and outdated. The authors say, “As Susan Peters, GE’s head of human resources, has pointed out, businesses no longer have clear annual cycles. Projects are short-term and tend to change along the way, so employees’ goals and tasks can’t be plotted out a year in advance with much accuracy.”

The centrality of teamwork

The more informal, ongoing feedback loop also contributes to the sense of collaboration at a company, that you’re all trying to help each other get better, not wait for some annual report card.

The article authors cite Gap’s shift in the way they handle performance reviews now:

“Gap supervisors still give workers end-of-year assessments, but only to summarize performance discussions that happen throughout the year and to set pay increases accordingly. Employees still have goals, but as at other companies, the goals are short-term (in this case, quarterly). Now two years into its new system, Gap reports far more satisfaction with its performance process and the best-ever completion of store-level goals.”

Read the full story here.