Replace annual performance reviews with Business Simulation


Business Simulation Blog Graphic

Increasingly aired doubts over the effectiveness of annual performance appraisals and the evolution of business simulations software leads me to a perspective that enterprises have new avenues to align individual discretionary behaviour and enterprise needs.

Annual Appraisals don’t work

I will start with the theory before considering a couple of Practitioner views. In a Psychology Today article  Ray Williams asserts that performance appraisal processes don’t facilitate improved performance and are incompatible with modern “values-based, vision-driven and collaborative work environments”. He points to research by Culbertson, Henning, and Payne of Kansas State, Eastern Kentucky and Texas $&M Universities that demonstrated that critical feedback in a performance review does not increase performance of highly motivated individuals in the way previously thought. This research showed that employees with the highest commitment to learn and develop were deflated by performance reviews that included criticism. In a similar vain, Professor Bob Sutton and Jeffrey Pfeffer of Stanford University argue that performance rankings can lead to destructive internal competition that is hard to reconcile with the knowledge sharing expected in high performing teams.

Turning now to V views. My experience from COO, Director of HR and military roles is that even the best designed and implemented processes add more opportunity cost than value. I have worked with colleagues who invest considerable time in diligently setting objectives that align with the strategic themes of the business and then provide well reasoned mid year and end of year appraisals. Even when business conditions are stable, a diligent review of objectives ex post can raise many doubts about the value obtained from even this first step in the annual process. I have also contributed, and indeed sponsored, performance review standardisation meetings that have involved very material management commitment. I contrast the costs and benefits of such processes with the impact that line managers who really know their people can have when they negotiate commitments from their staff on a routine basis. (A theme of a previous blog). This is even greater when they provide their teams with very regular coaching in processes that are more reminiscent of sports coaches then traditional performance review processes.

I am delighted that there appears now to be rising tide of overt “push-back” on annual appraisal processes that go beyond the well publicised decisions of Deloitte and Accenture to stop conducting traditional annual appraisals. For example, Lucy Adams the former HR Director of the BBC was quoted in Personnel Today Magazine advising that if “HR departments were putting them under pressure to complete appraisals to tell them: “Why should I? They don’t work.”

Business Simulation

Rather than devoting time to traditional performance management processes, I suggest that you consider using a diagnostic such as Pinsight.This assesses individuals in relation to business imperatives that you identify (such as “Increase Customer Satisfaction by improved Customer Service” or “Align the Team with Organisational Strategy”), using a business simulation. In his New Year 2015 Blog, Martin Lanik the CEO of Pinsight, emphasises the importance of deliberate practice and I believe that this applies to both Leaders and followers.

“Deliberately practicing few very specific exercises is the key to building habits and showing visible improvement. The same way personal trainers target specific exercises to isolated muscle groups, you can build exercises that target specific skills of employees. When a manager needs to better empower her team, she could first practice asking questions instead of giving advice.”

The aim should be to agree both personal commitments to the enterprise and enterprise commitments to the individual, that align as far as possible with the needs of both parties. The shared understanding developed in this process can then provide a launch pad for improved commitment and performance – and move people up the commitment ladder. In an ideal world, these would form the basis of:

  1. A personal development plan.
  2. An entry in a readily accessible system to ensure that the individual’s interests are visible when decisions are being made on appointments, or the staffing of initiatives.

As Carol Walker wrote in her 16 September 2015 Harvard Business Review Blog: Walker, C.A., 2015, New Managers Need a Philosophy About How They’ll Lead, Harvard Business Review Blog.

“… assigning work should be a thoughtful process that balances business goals with an individual’s interest, skills, and development needs. Not every routine task has to be so thoroughly considered. But whenever significant assignments are made, putting them into context maximizes their impact. An employee who understands why she has been asked to do something is far more likely to assume true ownership for the assignment. “

Approaches such as this can help promote proactive management of the talent you have in the organisation so that you achieve the win-win-win, of better achievement of enterprise goals, more satisfied people and better development of the capabilities needed for future success. For example if you have noted that the accuracy of your sales forecasts is being degraded as a result of one individual, this person’s development plan could usefully include coaching / training on how to develop better assumptions for their forecasts.

Next Steps

If any of these ideas resonate with your thinking and/or the needs of your enterprise, I will be delighted to talk to you. Please drop me an email at or complete the contact form below.

Huw Morris





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