As a small business owner, you are probably glad to hear that the trend amongst large businesses is to do away with the staff annual review.

Let's be honest, you probably weren't doing them!

But I think before you celebrate, we should take a look at why large businesses are cancelling the staff annual review systems.

The cost-benefit analysis from large companies found that the benefits from their annual appraisal systems didn't balance the cost of operating them.

Bear in mind these businesses operate with some 10,000 staff but the time spent on these numbers equated to 80,000 manager hours. It became obvious that they should get rid of the forms, the interviews, the rating and ranking of the staff every year.

The annual appraisal system was also found, in large companies, to hamper, rather than support employee progress.

Once a year employees and management agreed on performance measures.

However, during the year priorities and other things changed.

Following a rigid performance measurement system meant that often staff were being measured during the year for all the wrong things.

But what's now important is to see what is being put in place of these traditional annual staff review processes.

As a small business owner, you are not being let off!

What these companies are trending toward focusing on raising low performance throughout the year, rather than grading failure.

There is no abandonment of the need for performance appraisal, just the questioning of how best to do it in order to achieve business goals.

As an aside, let me emphasise how important performance appraisal is, even in a very small business with one other employee, and even more so with more.

Your business success depends on intangible assets more than tangible assets.

Indeed, your computer will generate products or services that you sell. Your equipment will provide the product or the service.

But these can be replaced with newer and more efficient models.

However, your intellectual property and your "brand" is not so easily replaced if performing badly and one of the key contributors to IP and brand is your staff and how they engage with customers and the outside world. Their behaviour and performance make your brand.

A damaged brand is very hard to repair.

Think of your last visit to a restaurant with poor service.

Despite the quality of the food, did you say to yourself that the service spoiled the meal and you'd never go back?

So performance appraisal allows you to mould your employees in the way they should behave and perform.

Traditionally this was done annually or at least in regular intervals. But traditionally, this followed a model where employees were tasked things to do, then tested during their work and graded.

But times have moved on and many businesses are populated by Millenials who are used to instant feedback from social media and online apps and are much more used to being supported during their journey rather than through a try-and-test model.

The result is that younger employees expect to be supported and not just graded.

So the trend now is to focus on consistently and constantly improving performance for everyone.

This means a continuous feedback system, less formal, less costly and more effective.

What is required to operate this continuous feedback system? You need:-

• Clear objectives for what they are to achieve rather than static performance measures - make sure your staff know what the "end result" should look like and what "quality" in the result means;
• Clear systems they should follow and when they may deviate through the application of quality decision-making gateways - policies and procedures need to be up to date and the objectives of the business must be clear so that they can apply "what's the best way to get to the objective" type choices;
• Capable management (and owners!) with coaching and mentoring, rather than teaching and grading skills;
• Employing performance-oriented staff who seek to achieve objectives rather than just go through the motions and do what they're told;
• Clear "check-in" systems built into the day or the process so that employees can rely on a consistent process to check their progress toward their objectives and responsibilities.

Times are a' changing' and businesses must as well.

Larger businesses have more acute cost-benefit models but the lessons from them can also be applied to small business.

It remains important to help your staff perform better, but it now looks like a better system than formal performance appraisal is a continuous mentoring model to achieve higher performance.

Go with the flow!

Cover photo by Perry Grone on Unsplash