Erin O'Leary-Rallis knew employees should get regular performance reviews, but it wasn't happening for the 20 employees at Nittany Embroidery. "We've grown quite a bit, and things have gotten increasingly difficult to manage in terms of human resources," says O'Leary-Rallis, 40, who co-founded the State College, Pennsylvania, screen-printing and logo company in 1998. As Nittany Embroidery grew to $2.25 million in annual sales, reviews typically happened only when someone asked for a raise or announced they were leaving. "It's not a good way to do business, and we knew that," says O'Leary-Rallis.
Most small businesses are doing about as well as O'Leary-Rallis at evaluating employees, according to a survey by Success Factors, a San Mateo, California, vendor of performance and talent management tools. The company's 2007 survey of 726 HR professionals found that more than 80 percent of small companies had no talent management score card, which is a set of measurements used to determine how well you're attracting and retaining talent. Sixty percent had no formal plans to develop and keep employees.
That's not to say entrepreneurs aren't trying. O'Leary-Rallis evaluated solutions ranging from preprinted templates from her local office supply store to several software tools. Scores of companies offer software and services to automate reviews for small companies, including highly targeted tools such as Appraisal Smart and more general management aids such as ManagerAssistant that include performance review automation.
O'Leary-Rallis eventually settled on Success Factors' web-based solution. The system automatically routes review forms to managers when it's time for reviews, presents them with customized criteria specified by O'Leary-Rallis and can suggest sentences to help them write consistent reviews. A legal analyst function checks for potential trouble language. O'Leary-Rallis looks over completed reviews and scans reports showing employees' progress online.
Proponents of automated performance reviews say they can do more than make reviews easier for managers. Linda Moran, an executive consultant with training and consulting firm AchieveGlobal, says reviews tend to be higher quality when managers are reminded to do them and also relieved of some of the burden of record keeping. The programs help track employee accomplishments throughout the year, she notes, so reviews aren't quite as dependent on how managers recall the past few weeks. Automation doesn't change the fact that it all comes down to a conversation, however. "We don't reduce the actual discussion time," Moran says. "If we do, we are undercutting the review process."
Success Factors says its customers report substantial increases in net income per employee, although it acknowledges that other factors may be responsible. "When companies implement Success Factors, it almost changes their culture," says Stacey Epstein, vice president of marketing communications for Success Factors. "It puts in a pay-for-performance culture."
Such gains don't come without cost, naturally. The company charges fees that start at $8 per employee per month. Costs go up if you implement additional modules. And it takes time to learn to use the system. O'Leary-Rallis says spending her own time getting Success Factors set up for her needs has been the biggest cost so far.
Nor will automation end performance review issues or automatically turn a company into a performance superstar. Technology is just a tool. "The tool can't talk for the manager and deliver the feedback in the perfect way," notes Shelly Davenport, general manager of Success Factors' small-business unit.
But for entrepreneurs who struggle to match the demands of customers, production and finance with the benchmarks of HR best practices, review automation offers the promise of significant help. "It allows employees to understand that being evaluated is not a once-a-year event," says O'Leary-Rallis. "It's an ongoing thing, and it's a positive thing if you know how you're going to be evaluated."
Mark Henricks writes on business and technology for leading publications and is author of Not Just a Living.
This story appears in the September 2007 issue of Entrepreneur. Subscribe »
