Something monumental has happened in the world of business. Equal to taking a bulldozer to the foundation of a high rise, this will change how business is taught.
I usually don’t write about the big behemoths of business. They are too far removed from the day-to-day lives of entrepreneurs. Yet recent changes at GE need a closer look. The shift they are making challenges so many foundational beliefs. This wipes out a third of the books on my bookshelf.
Jack Welch increased the value of GE by over $300 BILLION during his tenure. In 1999, Fortune Magazine named him “Manager of the Century”. Over time his beliefs washed into every nook and cranny of business. Multinational conglomerates to twenty person shops adopted Jack’s way of thinking. It became absolute best practice.
And now, with little fanfare, GE is in the final stages of jumping ship. Left are thousands of companies. Each operating with a basic philosophy that could be doing more harm than good.
The GE we know
Known for a rigid system of performance management, GE relied on the Topgrading method. For almost 30 years, the company administered an aggressive annual performance review process. Employees were scored and ranked against peers. The bottom 10% of under performers were then fired. As an industrial conglomerate, Jack Welch’s no nonsense style drove results. It was a time when cost, efficiency, and operational excellence were paramount.
At it’s core, GE’s used an approach based on meritocracy. Reward the best talent, get rid of the worst. Some might describe the process as ruthless. Others call it good business. Either way, GE has decided to change. And, as a consistent leader in business effectiveness, GE’s move is noteworthy.
GE, Deloitte, Accenture and other leading companies are tossing out annual performance reviews. They are moving instead to timely feedback based on simple questions. It seems obvious. Focus on regular communication between colleagues. Move away from a painful process of written feedback full of short-term memory bias. So why hasn’t this happened sooner?
There are three big challenges that annual performance reviews solve for companies. The first is the fair distribution of compensation. The second is ensuring feedback is actually communicated. The third is ensuring performance isn’t allowed to languish. Without the annual process, how is a company to decide pay increases? How is bonus money divided up? How will it check-in on manager effectiveness? Annual performance reviews and stack ranking make it easy.
But what happens when easy trumps effective? We’ve shifted from the conveyor belt era when efficiency offered the winning recipe. Technology does that for us today. Now we need innovation, creativity, and complex problem solving skills. The change in our business needs leads to the need for change in how we work together.
The path to the future
GE’s shift away from annual performance reviews marks a tipping point. Out of date management systems are fading. New and radically different ways of working are emerging. “Employee as company resource” is shifting to “colleague as unique and talented individual.” Paperwork reviews are disappearing in favour of powerful conversations.
Intrigued by this idea? Want to figure out how to bring it to life in your business? I coach leaders on building a strong foundation unique to their growing business.