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Should You Ditch Annual Performance Reviews? It Depends. But the answer is definitely 'yes' if you're at a startup and your employees wear many hats.

By Iman Jalali Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.


Old business conventions are dying out. The 9-to-5 workday is slowly being chipped away at, and some workers don't even need to commute to an office anymore. The workplace is changing to accommodate the needs of a constantly moving world, and businesses need to evolve or risk being left behind.

Related: Fix, Don't Nix, Your Performance Reviews

Next on the chopping block: the dreaded annual performance review. More and more companies -- including giants like IBM, Deloitte, Adobe and many others -- are saying goodbye to annual performance reviews. What these companies are realizing is that the traditional performance review doesn't mesh with the workforce of today, nor is it as real-time or near-time as the ever-changing needs of a business.

As David Rock and Beth Jones argued in a Harvard Business Review article, "Numerical performance management systems don't take into account how work gets done today. Who sets 12-month goals anymore?" The nature of work has changed, but the performance review hasn't.

One major problem is that the performance review operates on the assumption that a worker's role is static. But today's workforce is full of dynamic workers who fluidly move among roles, sometimes taking on more than one at a time, and constantly experimenting. Just as the idea of the lean startup has become mainstream, so has the lean worker.

The performance review has also always been somewhat flawed; it's meant to improve the future, but it looks to the past. The large-scale theory of improvement that it embodies rarely works when employees are rapidly changing. As IBM's chief human resource officer Diane Gherson told a reporter, employees are always "iterating and experimenting." Distilling an always-changing employee down to a rating isn't fair for the employee or the company.

Performance reviews can further be time-killers. Deloitte, for instance, found that performance management ate up about two million hours a year. The very system that Deloitte depended upon to improve itself as a company turned out to be itself almost completely counterproductive.

Deloitte's managers weren't seeing results because they were too busy working on performance management itself.

Related: 4 Ways to Avoid the Worthless Annual Performance Review and Give Valuable Feedback

So, here's the million-dollar question: Should you ditch performance reviews? Probably, but it depends.

Certainly, if you're at a startup, you should consider dropping the performance review. In fact, if your employees are constantly in motion and wear many hats, you should consider dropping the review, startup or not.

For fast-paced businesses, the key is to create a culture of constant improvement. You should be concentrating on how to improve your business, not over the next year, but over the next few weeks.

Yearly goals can make for a stagnant environment, where performance ultimately suffers. Instead, set short-term goals so you and your company are always moving forward. Utilize tools like 15Five to create an open dialogue among your team members, and keep the feedback-loop going. The more conversation you can create, the better.

What if you're part of a more traditional business, where employees have fairly static roles? The decision gets trickier. It might not hurt to keep conducting performance reviews, but you should still instill that culture of constant improvement. Use performance reviews in tandem with a focus on the future.

Almost every worker needs and deserves ongoing direction instead of waiting a year to hear how he or she can improve and rise within the organization. Real performance-enhancement comes from one-on-one, personalized feedback that creates a direct line of connection with the worker.

After all, it's the manager's job to continuously improve the team and help its members develop; managers shouldn't just be managing performance.

So, think about turning this continuous feedback for performance management into something much more tangible. Performance enhancement happens in real time, and better results occur much more quickly.

Related: Millennials Are Not the Only Ones Who Want Feedback

And that makes sense: Companies are dynamic, perpetually changing entities, so it's about time we viewed performance management the same way.

Iman Jalali

Consultant, Entrepreneur & Former President of TrainSignal(acquired) & Former Chief of Staff, ContextMedia

Iman Jalali is Chief of Staff at ContextMedia in Chicago, a healthcare technology company. Previously he served as president of TrainSignal, which was sold in 2013 to Pluralsight. He is actively investing in small businesses, tech startups and real estate across the country.

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