Don’t just review employee performance, improve it

It’s hard to believe we are already in 2016! By now most business leaders have probably analyzed all of the key metrics detailing the triumphs and failures of the last year, and they have used that data to finalize business goals for Q1 and beyond.

Countless companies across the country have also just undergone their grueling annual performance review process. But some business leaders are embracing the changing world of work instead of relying on outdated management practices like these that are no longer effective.

To succeed today, companies cannot rely on the most important conversations between managers and employees happening only once or twice a year. Organizations cannot operate in a paradigm where information flows upstream to leaders, who then make decisions in isolation before passing down directives for employees.

I’m writing this article to provide more color into annual reviews, including their origins, benefits, and downsides. At the end of 2016, your review process will hopefully be far less painful for everyone involved.

The big shift

Not long ago it was perfectly effective to employ a command and control management model where decisions were centralized at the top and people carried out orders below, primarily because the marketplace was less complex, more predictable and so slow to change. As the marketplace has become more rapid and complex, tech giants like Microsoft and Dell have adopted new management models to surpass their competitors.

In nearly every industry companies must become more flexible and agile. By decentralizing decision making, they provide the people who are closest to the problems the autonomy to decide and act on behalf of their organization. This rapidly speeds up their turn on actions, quickly resolving issues and innovating faster than ever before.

One of the trends that we are seeing in the last couple of years is that companies are shifting away from traditional performance reviews, getting rid of them altogether or only using them as part of an overall performance management strategy. In 2015, Deloitte announced that they would reinvent performance reviews based on findings that “the best team leaders revealed that they conduct regular check-ins with each team member about near-term work.”

Sustainable motivation

At best, highly competitive environments and traditional performance reviews and ranking systems produce a form of extrinsic motivation. This is accompanied by a sense of pressure, fear and competition between colleagues. These negative side effects have been proven to shut down people’s abilities to be highly creative and collaborative.

In today’s knowledge-worker economy, the type of work that’s becoming most highly valued is creative, innovative and collaborative. Other innovative companies like GE and Adobe have abandoned annual reviews, realizing that the age old competitive advantages of hard work and efficiency are now simply table stakes. This is a trend according to The Society for Human Resource Management:

The number of employers that are either ditching the numerical ranking of employees or tossing out the entire performance review process has grown from four percent in 2012 to 12 percent in 2014, according to a Corporate Executive Board (CEB) survey of Fortune 1,000 companies.

Breakthroughs that set a company apart in the marketplace now require new ways of thinking, acting, and working together. That only comes from people who are open, connected, and inspired to produce their very best work.

Creativity needs space

What truly motivates people to do their best, most creative and most innovative work is perfectly aligned with the skills and behaviors required to create organizations that are agile, flexible and decentralized. Here’s how to create an environment where employees are authentically and intrinsically motivated, and where creativity can flourish:

• Connect people to a common purpose and the company-wide and individual objectives that they need to achieve success.
• Provide them the autonomy to decide and act in service of achieving their objectives.
• Get to know them by asking questions. Find out where they are struggling.
• Support them in becoming their best by addressing the specific issues you surface.
• Facilitate a great culture by having managers develop strong relationships with all team members.

Feedback and transparency are now critical elements of the most innovative, successful and fastest-moving organizations. Leaders can’t afford to be the bottleneck for every decision and action that needs to be taken. Instead you should set the direction, create the culture, empower your people with the tools they need, and then support and coach them in doing their best work.

More and more companies are embracing an approach where leaders grant autonomy instead of boxing people in with standards like stacked rankings. Sure there are milestones to achieve and metrics have to be analyzed so that performance is optimized. But conventional employee rating systems inhibit collaboration and high-performance.

In today’s workplace, innovation is triggered by team collaboration and growth; whereas competition and fear lowers productivity. According to a survey of 13,000 employees conducted by the Corporate Executive Board , 66 percent of employees say that performance reviews interfere with their productivity, and 65 percent say it isn’t even relevant to their jobs.

The bottom line

Leaders who bottleneck projects need a role makeover that allows them to focus on creating the strategy and goals, while empowering managers and teams to make day-to-day decisions. Start by finding ways to create more transparency in the workplace and invest in your culture. A strong, aligned culture will guide business decisions in decentralized, agile environments.

High performance is derived from employees who are engaged and feel connected to the vision of the company. Leaders and managers can intrinsically motivate their employees by checking-in weekly and asking the right questions. Managers who initiate conversations and build strong authentic relationships with employees will coax the best from their people, whereas overly-competitive environments stifle creativity and sustainable productivity.

Read next: 7 ways to make an employee happy without giving them a raise