Turn annual reviews into continuous feedback

Joanna L. Krotz writes about small-business marketing and management issues. She is the co-author of the "Microsoft Small Business Kit" and runs Muse2Muse Productions, a New York City-based custom publisher.

By Joanna L. Krotz

Most companies set aside a special week or month each year for that dreaded ritual: employee performance reviews.

All work stops while everyone madly collects data and documents. Then the annual agony begins. At a typical review, the manager doesn't even remember how Sam saved the day six months ago when the big-fish client was about to walk. What is at the top of mind is how Sam waltzed in late three days in the past few weeks.

So, most of the annual hour is devoted to stressing the virtues of punctuality. More than likely, the manager is harassed and oblique, saying things like: "We really need you here for the entire day." Then with 15 minutes left, it's time to catalog and critique Sam's skills, training, 12 months of contributions, job satisfaction, teamwork, communications ability, what all he could improve on and — thank goodness! — it's over, punctuated by that meaningless closer: "Keep up the good work."

Reviewing the review

The purpose of an appraisal, of course, is to measure an employee's job performance against a previously defined benchmark that the company or manager has communicated clearly.

The main goal is to provide productive feedback to each staffer so he can do his job better, and understand and support the company's future direction better. Appraisals are also intended to help employees grow and develop skills.

Does the average appraisal accomplish that? Well, maybe you should try asking Sam.

Most bosses and employees hate these tense and defensive encounters. But everyone does them. Performance evaluations are used to justify compensation decisions and promotions or terminations. They help document personnel actions that might otherwise provoke legal claims. So they're just something business owners have to do, right?

Yes and no.

To be effective, feedback for employee performance needs to be provided often, objectively and without disrupting everyone's peace of mind or budget — in other words, not as a stressful yearly ritual. Yet few have the time or fortitude to schedule them more than once a year. What's the solution?

Electronic evaluations

First, replace the annual, subjective model with continuous, 360-degree, more accurate reviews. This kind of appraisal gives the employee a full-circle view of how he's perceived, by gathering performance reviews from supervisors, subordinates, peers and sometimes even customers or clients. All comments are strictly anonymous and reviews can be done on a regular basis or following special projects.

"It's designed to present the targeted individual with the knowledge and information to improve performance," says Rich Nadler, co-founder of Perseus Development, a software and research services provider in Braintree, Mass.

As a company grows, 360-degree surveys help staffers see interdependencies. Employees can then resolve any friction or misunderstandings. "For example, business people may get a comment from the tech staff that says, 'The business people are afraid to approach IT'," Nadler says.

Face-to-face meetings are still required

If you buy the 360-degree concept, the next step is to automate the process. Every part of the review can be done electronically. But you should also schedule one-to-one meetings to discuss results.

Dozens of solution providers and application service providers (ASPs) have recently entered the market to offer increasingly affordable electronic employee-management tools for midsized businesses. Managers work with convenient interactive applications that offer survey forms, multi-rating systems and flexible fields that allow for both numerical scoring and individual comments. Results can be archived and companies can personalize the process and can limit access.

"Small companies are under a lot of pressure, with everyone wearing a lot of hats," notes Susan Willett, an employment-management specialist in New Jersey. "Owners don't have time to collect data and rate performance levels. When the process is driven electronically, it saves time. It can be done at home or on the weekends and it guarantees that the evaluation is anonymous."

With job performance more clearly and objectively tracked, you'll be able to make informed and cost-saving decisions about staff training, compensation and promotions or growth. Loyal and more productive employees, as we all know, fuel company performance and service.

Over time, you can integrate component tools with other company IT to develop the latest management buzzword: a full-service employee management system, called ERM or Employee Relationship Management.

What is ERM?

At its best, ERM is a process and a mindset — not software. It represents a company's decision to formulate clear policies, practices and values and to mirror those in technology that can connect and inform all employees and supervisors. By nature, good ERM systems are always evolving.

Across the country, companies are buying into a range of ERM out-of-the-box or customized software or Web-enabled applications. Rich ERM applications can:

ERM costs

ERM systems are becoming more cost-effective for smaller companies, although larger corporations have obviously been the early adapters.

Costs for ERM applications can start as low as $500 for an online employee satisfaction survey. At Amplitude Research, a survey research firm in Birmingham, Mich., CEO Stephen Birnkrant says company-wide surveys can be customized for about $3,500. He says they are more effective than paper-and-pencil surveys. "There's a comfort level with anonymous technology," Birnkrant says. "Then you can go back in to the survey for a second time and mine right down."

Pre-planned deployments run about $5,000, Nadler says. But costs can vary considerably, depending on volume and complexity. Larger, sophisticated systems can go as high as $30,000.

ERM benefits

At the Los Angeles accounting firm of Green Hasson AND Janks, partner Warren Shulman has been testing an employee evaluation application for the 70-employee company. Designed by consultant Allen Weiner at Communication Development Associates, the application is impressive, Shulman says. "The program prompts you to provide the necessary information, and will let us provide feedback after every 40-hour job," he says. "There's more of a chance of people doing evaluations when they can do it this way — anonymously and online."

Overall business benefits for electronic management tools are:

Getting started

Ready to check it out? You'll need to research the Web and talk to consultants to identify solutions that fit your needs and technology.

The applications you select should be straightforward, intuitive for employees, flexible and scalable, advises Mike Williams at Extreme Logic, an Atlanta e-business solutions provider. If you choose to work with a consultant, make sure that it's a firm experienced in the worlds of both performance management and information technology.

"There's a huge opportunity to apply this kind of technology for small business," says Williams. "It can tell you who the company's real producers are and what kinds of skills and experience offer meaningful benefits to customers."