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Fixing Performance Reviews: Accurately Measuring How We Work

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In a perfect world performance reviews would be an unbiased, stressless process that accurately assesses the performance and productivity of the work we do in a way that makes both management and employees satisfied.

Of course, we live in a world where writers pen essays such as “Everyone Hates Performance Reviews which points out that while research shows that 60 to 90 percent of employees (including managers) dislike performance reviews, nearly 90 percent of companies conduct them annually.

“They're fraudulent, bogus, and dishonest," Samuel Culbert, a management professor at UCLA who does research in dysfunctional management practice, told NPR. "And second, they're indicative of and they support bad management."

Katie Heaney, writing that essay for New York magazine’s “The Cut”, summarized the annual performance review as “the thing itself is very bad, but getting rid of them is also bad, or at least very complicated.”

We Work in Networks so Why Evaluate Work in Hierarchies?

The answer, Josh Merrill argues in the SHRM blog, is not to eliminate performance reviews but to fix them for good to reflect the way today’s workplace operates.

“We’re still using these old methods to measure performance. But the way we work has changed. Today, anyone can log into Slack or Teams and message anyone else in the company. We form cross-functional teams to solve a problem. We connect from all over the world using Zoom and Webex,” wrote Merrill. “We work in networks. But we still evaluate work in hierarchies.”

Merrill calls for a move away from the traditional and popular 360-degree Feedback performance review method, which utilizes the bell curve distribution for ratings, to an approach called Organizational Network Analysis (ONA), which follows a power law distribution.

“ONA provides a quantitative view of performance based on every employee’s view of one another. ONA allows companies to measure performance in the way it really happens: through networks,” Merrill concludes.

Critics say the drawbacks of traditional performance reviews will only become more accentuated as our work becomes increasingly networked, cutting across job functions, levels, and geographies.

How 360-Degree Feedback Performance Reviews Took Hold

The 360-degree feedback or 360-degree performance review might feel like an Internet-age invention, but the methodology has been around for more than 100 years with some very surprising military roots.

Multisource feedback (now called 360-degree feedback) can trace its origins back to the U.S. military in World War I when multi-rater feedback was used for soldiers.

“While this feedback took opinions from many different sources, it lacked input from subordinates. True 360-degree feedback did not come about until WWII when the German military introduced it as a way of assessing their soldier’s performance, considering the opinions of supervisors, peers, and subordinates. The information was then used to determine payment and promotions,” writes Organization Development & Research Limited.

360-degree Feedback was then introduced to corporate America by the Esso Research and Engineering Group (now part of ExxonMobil) in the 1950s, and then popularized by GE under CEO Jack Welch in the 1980s and 1990s.

At its core, 360-degree performance reviews involve gathering feedback from an employee's peers, managers, subordinates, and clients to provide a comprehensive evaluation of an individual’s performance and productivity.

However, as business dynamics have evolved, the 360-degree review is showing signs of becoming outdated with the Harvard Business Review stating that “data generated from a 360 survey is bad. It’s always bad.”

Today’s Business is Conducted with Increase Collaboration

In today's networked business environment, where collaboration and cross-functional teams are more prevalent, the traditional 360-degree review may not accurately reflect an employee's contributions and abilities.

It is inherently hierarchical and doesn't account for the complex network of relationships and interactions that drive success in modern organizations.

Business News Daily describes the difference between the hierarchical and network business structures as:

  • Hierarchical Structure: Also known as a line organization, is the most common type of organizational structure. Its chain of command is the one that likely comes to mind when you think of any company: Power flows from the board of directors down to the CEO through the rest of the company from top to bottom. This makes the hierarchical structure a centralized organizational structure.

  • Network Structure: A network structure is especially suitable for a large, multi-city, or even international company operating in the modern era. It organizes the relationships not just among departments in one office location, but also different locations and each location’s team of freelancers, third-party companies to whom certain tasks are outsourced, and more.

The networked structure – which encourages knowledge sharing, innovation, and adaptability – is at odds with the 360-degree performance review, rooted in a hierarchical mindset, focusing on individual performance within a rigid organizational structure.

How the Bell Curve Distribution Drives Away Hyper Performers

Adding to the waning relevance of 360-degree feedback is its reliance on the bell curve distribution to assign company-wide ratings.

The bell curve can be described as:

  • Bell Curve: The Bell Curve distribution, also known as the normal distribution, assumes that performance falls along a symmetrical curve, with the majority of employees clustered around the average, and a small percentage at both extremes (high and low performers). This approach often leads to forced rankings, where managers must categorize employees in predetermined proportions (e.g., top 10 percent, middle 80 percent, bottom 10 percent).

“When companies run traditional performance cycles, they produce normally distributed bell curves of manager ratings,” wrote Merrill. “In early performance reviews, a normal distribution made sense. Employees only interacted with a supervisor and a few coworkers. Work was repetitive and solitary. So, most workers became “average,” with tails of above and below-average performers on either side.”

Merrill’s experience, however, is that performances follow a power law rather than a bell curve.

Power law distribution can be described as:

  • Power Law: Power Law distribution recognizes that performance is not evenly distributed. It follows a long-tail pattern, where a few individuals contribute significantly more than others. The focus on the “average” becomes irrelevant.

“In simple terms, a bell curve distribution for performance means a large chunk of employees perform at or around the mid-point/average level, and a small number of employees are there at both ends of the performance spectrum — performing either outstandingly or poorly,” explained Gulshan Walia in Medium. “Whereas, a Power law distribution for performance means a very small percentage of employees contribute a disproportionate amount of output. In 80/20 parlance, it means 80 percent of output comes from 20 percent of employees.”

Microsoft was one of the first companies to embrace the power law distribution for performance reviews after it felt like hyper performerswere being driven away from the organization by its employee rating system.

Embracing the Power Law acknowledges that exceptional contributions can come from unexpected places and that focusing solely on average performance undermines the value of high-impact individuals.

Performance Review Calibrations: More Harm than Good

Adding to today’s frustrations with performance reviews is their reliance on calibrations throughout the organization.

Calibrations involve managers discussing and aligning their employee ratings to meet predefined distribution percentages.

While this process aims to standardize evaluations, it can introduce biases and politics into the review process. It may lead to underestimating or overestimating an employee's value to fit within the forced ranking system.

The bell curve principles can be particularly problematic for top performers, as they might be unfairly calibrated downward to meet the prescribed distribution. This can demotivate high-potential employees, leading them to seek better opportunities elsewhere.

“The real problem is what companies are calibrating against; a bell curve. And the only data they have to calibrate biased manager ratings to are other biased manager ratings,” wrote Merrill.

Can Organizational Network Analysis (ONA) be the Answer?

Organizational Network Analysis (ONA), along with power law distribution, can help companies gain a deeper understanding of their employees' contributions, promote collaboration, and reward exceptional performance more accurately.

ONA can be summarized as:

  • ONA is a data-driven approach that utilizes social network analysis techniques to map and quantify the relationships and interactions within an organization.
  • ONA focuses on understanding how information flows, collaboration occurs, and key influencers and connectors emerge within the organizational network.
  • By visualizing and analyzing the network, ONA provides valuable insights into employee contributions, beyond traditional hierarchical structures.
  • ONA embraces the power law distribution, recognizing that a small number of individuals significantly impact an organization's success.
  • ONA helps companies identify key talent, promote collaboration, and make data-informed decisions to improve overall performance and organizational effectiveness.

In a sense, ONA shines a light on the reality of business beyond the organization chart.

“In every organization, people build informal “go-to” teams. They rely on that one person who always knows “how we do things here.” They find someone in finance who can answer any budget question. These spontaneous, critically important connections are the lifeblood of organizations worldwide,” explains Deloitte.

In Deloitte’s terms, people in ONA are “nodes” that serve as critical conduits for the exchange of ideas and information. Unlike the tree structure of a hierarchical organization, ONA breaks down along the lines of:

  • Central Node: These are the people who seem to know everyone. Central nodes share lots of information and influence groups quickly. Central nodes can be anywhere in the hierarchy of an organization, are often well-liked, and are highly engaged in company news and developments.
  • Knowledge Broker: These people create bridges between groups. Without knowledge brokers, information and idea-sharing grind to a halt.
  • Peripheral: Easily overlooked and unconnected to the rest of the company, high-potential peripherals can be a risk to organizations. Exceptional Java coders who don’t teach others best practices not only stagnate product development but are also easily convinced to take their talents elsewhere.
  • Ties: Ties are the formal and informal relationships between nodes. Establishing optimal relational ties between central nodes and knowledge brokers helps ensure useful information moves easily between and within groups.

“We used to hear about the death of performance reviews. They were supposed to be replaced by “continuous feedback” and “career pathing.” Those are both great. But they don’t help leaders struggling to decide whom to promote or PIP,” concludes Merrill. “Only good performance measurement can do that. And Organizational Network Analysis is the science behind it.