Performance review systems are broken. Deloitte Services conducted a survey and found that 58% of executives felt their system wasn't driving performance or engagement the way it was meant to. To address the problem in their own firm, Deloitte started by looking at the time it spent on performance reviews. Like many companies,it was setting objectives for employees at the beginning of the year, rating people after every project, and convening at year’s end to compare ratings and boil every employee’s contributions down into a single performance number.
That whole process took a lot of time. The grand total was 2 million hours a year. That included time spent completing forms for 65,000 employees and holding countless meetings. And most of that was focused on the outcome of the process instead of performance. There was another problem: Deloitte's needs were evolving so quickly that annual goals couldn't keep up with them.
Managers found that real-time discussions were much more valuable. Yet another challenge was inconsistency in skill ratings from reviewer to reviewer. In 2000, a comprehensive study showed that ratings reveal more about the people who give them than about the people being rated. This made the executives at Deloitte question the value of ratings altogether. They wanted a new system that would make ratings more consistent and accurate; generate timely, tailored discussions; and get everyone focused on fueling future performance instead of assessing the past.
So how did Deloitte tackle that challenge? The next step was to study what separated high- and low- performing teams. Three things mattered most: Coworkers’ commitment to quality, an inspiring mission, and the chance to use your strengths every day. The third one was the most powerful across the organization. Deloitte executives realized they needed to spend more time helping people use their strengths. To do so effectively, they have to collect better data on performance.
With that in mind, they sat down to define three main goals for their new system. The first goal was clear: Allow the organization to reward high performance with raises and bonuses. Most performance management systems do this. But to do a better job of rewarding performance, the company had to see it more clearly. This was Deloitte’s second critical goal. Executives realize that the person with the best view was an employee's immediate team leader.
So they stopped asking multiple people for feedback on each employee - input from the team leader was enough. Deloitte was still concerned about the idiosyncratic ways that people judged the skills of others. So it stopped asking them to assess skills altogether. Instead, it focused on something that people tend to judge much more accurately: their own feelings and intentions toward an employee. Now after every project, the firm essentially surveys leaders about what action they would take with each team member.
Deloitte does this by having leaders respond to for future-focused statements. First, they're asked how much they agree with the statement “I would award this person the highest possible increase and bonus.” This captures views of the employee’s overall performance and value. Next, leaders say how much they agree with the statement “I would always want this person on my team.” This gets out an employee's ability to work with others. Then leaders answer yes or no to two statements: “This person is at risk for low performance” and “This person is ready for promotion today.”
The responses to these statements provide a snapshot of the employee's performance at a certain point in time. Each snapshot is weighted according to the project's duration. The snapshot data becomes the starting point for decisions about salary increases and bonuses. Deloitte also factors in how challenging assignments are and the employee’s other contributions to the organization. Deloitte uses the snapshot data to help leaders figure out development and succession plans and study performance patterns.
This graph shows a small team. Three people are flagged as ready for promotion today, and one is thought to be at risk for low performance. One Deloitte unit put 1,000 employees on a grid like this, color-coding the data by job level. And they set up the grid so that when you clicked on a dot, you called up the details of that person's performance snapshots. You can see how this would give managers a lot of useful information. In contrast, here's an example of the 30,000-foot view you get with forced-ranking systems: that old, familiar bell curve.
It's not nearly as helpful. Here everyone has been reduced to a one number – a 1, 2, 3, 4, or 5. And often workers are force-fit into categories to meet arbitrary quotas for each ranking. Deloitte wanted to do more than just measure and reward performance; it wanted to improve performance. For ideas on how to reach that final objective, the firm looked at the practices of its best team leaders.
The best leaders have regular check-ins with team members about current projects. So Deloitte decided to establish these weekly conversations across the organization. Leaders use them to clarify what's expected, what great work looks like, and how each person can excel. The check-ins are not considered additional work. They are the team leader’s work. Why make the check-ins weekly? So that priorities don't become vague and merely aspirational. And so that coaching stays focused on the near term, not on past performance.
Deloitte's research shows a direct correlation between the frequency of conversations and the engagement of team members. Because leaders have many demands on their time, team members are responsible for initiating the check-ins. To help get conversations rolling. Deloitte has created a self-assessment tool that allows employees to explore their strengths and present them to the leaders. To recap: Deloitte believes that the purpose of a performance management system is to see performance accurately, to reward it accordingly, and to inspire even better performance in the future.
To support these goals, the firm has created new evaluation and coaching rituals. By using frequent immediate conversations about performance, Deloitte has shifted from a focus on the past to a focus on the future. The new system is radical because it does away with some long-cherished elements of performance management: Cascading objectives, annual reviews, and 360-degree feedback tools.
Instead, the focus is on speed, agility, and constant learning. Deloitte’s new approach overcomes one of the biggest problems of traditional rating systems: They're one-dimensional. To understand performance, we need to look at many factors. We want our organizations to know us, and we want to know ourselves at work, and that information can't be compressed into a single number. The question is not “What is the simplest view of you?” It’s “What is the richest view?”