The landscape of human resource management is changing as we speak. We're only a quarter of the way through 2015 and already three high profile examples all come to mind: Microsoft, Yahoo and Adobe. All massive companies, and all making truly dramatic changes to their human resource management strategy. Let's discuss some of the emerging trends.
Stack ranking is a human resource management policy first made popular by Jack Welch of General Electric, around 1980. So it shouldn't be surprising that 34 years later we're due for a change (though it should be surprising that it's taken this long!). The process typically involves putting people in certain 'buckets' and annual or semi-annual intervals. A popular example from some of the Big 4 accounting firms is to use the following five grades:
It should be immediately obvious what the problems are with this system. If 40% of employees are lumped into the middle bucket, you'll be left with 40% of your staff thinking:
Our prediction for 2015 is this: more and more companies will follow the Microsoft strategy and completely abandon stack ranking. In it's place we'll continue to see the adoption of development-focused human resource management strategies. These are where employee development needs are specifically identified and employees are evaluated more on the feedback they've received. Feedback (whether formal or informal) will be used to drive rating decisions and less time will be spend allocating individuals to artificial 'buckets' of performance groups.
Read more about Microsoft abandoning stack ranking.
It has been estimated that performance reviews in a company the size of Adobe take up about 80,000 man hours for 2000 managers across the firm. That's a shocking waste of resources for a process which has been proven to deliver so little value. Many traditional companies think the performance review is a legal requirement (it isn't - at least in the USA and the UK) or that they should just do it because other companies do it.
I admit that it's a significant management challenge to abandon such an ingrained process; a pragmatic approach is to gradually phase out the performance review. Our prediction is that we'll start to see the performance review being phased out department by department, or team by team, gradually over time. The human resource management strategy that will replace it includes frequent 'check-ins' with individuals. I think the format/structure of these check-ins should be relatively light. Quite simply, they should focus on two things:
You might have read about Zappo's controversial new management structure. Essentially, they are getting rid of all of the middle managers. If a traditional company (like Shell - oh the middle management!) were to adopt a policy like this the cost saving and return to shareholders would be tremendous. It's fairly drastic but we suspect that some smaller companies might make similar decisions in the next year or so. I can't really say many big players adopting this human resource management strategy in the short term, but in the 10 year horizon I do think we'll see more and more companies structured like this.
Read more about Zappo's controversial new management structure.