Germany’s SAP AG, maker of software used to grade the performance of millions of employees worldwide, is ditching its own annual performance reviews as too expensive, time-consuming and often demotivating.
Once championed by business leaders as the key to better productivity, annual appraisals are falling out of fashion with companies, including IBM Corp, Gap Inc and even General Electric Co, whose long-time chief executive Jack Welch is credited with popularizing the system.
SAP, which for the last two years has had a US chief executive officer and employs about a third of its staff in the US, is one of the first major European companies to join the trend that began across the Atlantic.
SAP’s human resources head Wolfgang Fassnacht said Europe’s biggest software maker had found the annual review process, with its focus on separating over from under-performers, was often counterproductive to the goal of constructive dialogue.
“Grading workers did not work. People are open to feedback, also to harsh criticism, until the moment you start giving scores. Then the shutters go down,” he said.
SAP is testing a new process, which includes more regular check-in talks, on about 8,000 of its workers and aims to implement it for all of its about 80,000 workforce next year.
“The old system is too static,” Fassnacht said. “It no longer reflects the dynamic circumstances we are operating in.”
SAP is a world leader in human-resources (HR) software and made a bet on performance-management tools with the US$3.4 billion acquisition of US cloud-computing company successfactors.com in 2012.
It gets a lot of feedback from its customers, Fassnacht said, a factor that might have influenced its decision to ditch the dreaded annual review.
“I meet many HR managers at other companies. The topic is on everyone’s mind at the moment,” he said. “This is one of the hottest topics discussed in the HR area.”
However, SAP is not putting itself out of business.
It is to continue to sell its performance assessment software and it announced in February it would also introduce software for continuous performance management of employees.
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