Human Resources

Dell Ditches the Dreaded Annual Performance Review

In today’s competitive world, a brilliant business model alone does not create a sustainable competitive advantage. Razvan Maxim, an HR expert and journalist, says that most companies fail to realise the impact the human resource function has when attempting to become a market leader. Microsoft, IBM, Accenture and Deloitte have all announced that they will be overhauling their previously despised stack ranking system for a performance management process that favours ongoing feedback. In 2011, Dell realised the potential their employees could bring to the ongoing success of the company.

Dell’s unique business model

Dell’s direct sales model is one of the most successful strategic innovations in the past 15 years. The company created a business model that would undercut its competitors, forge closer links to its customers and provide shareholders with returns several times higher than the market average. According to Michael S. Dell, founder and CEO of Dell:

"The basic idea was to eliminate the middleman. While that was a great way to start the business, it turned out there was a lot more we could do with it, in terms of building relationships with suppliers, reducing inventories and receiving direct input from customers.''

For Dell to implement such an agile and continuous process, it required the company to have a hierarchy that was able to adapt, develop and evolve to constant market demands. In the early 90s, the company made the strategic decision to focus on a “cash conversion cycle”. This meant focusing on quick inventory turnover and cash flow from operations had to be the cornerstones to Dell's corporate objective. The company had to adjust compensation packages and employee performances to reflect the new strategy, and all entry level employees were shown training videos, which stipulated the importance of these metrics.

What’s more, the company was segmented according to a regional structure. While product development would remain centralised,  other business functions were separated into ‘business units’. This decentralised structure meant each business unit would be responsible for their own forecasting, creating their own marketing plans and choosing their own product mix. This presented cultural challenges because the hierarchical structure deemed how employees should be performing in each business unit. These semi-autonomous units had to conform meeting targets implemented by the head office. The then Vice Chairman, Morton L. Topfer, said that:

“Some people still measure themselves by how many people work for them or how many dollars they generate. We enabled our people to measure themselves, provided they reached our targets''

In order to sustain a high growth strategy, the company had to implement a review system that would reward pace and efficiency. The system Dell used was called Management by Objectives (MBOs) to rate and evaluate its employees. This performance management system would collect data to assess and  maintain a record of employee performances. Objectives were set according to the highest performers in each department and employees were then rated on a scale of one (frequent errors) to four (errors are rare). The problem with this system was that it would force people into specific outputs. Lack of mutual goals and objective setting between employees and management led to employee dissatisfaction. According to Stephen R. Satterwhite’s article “Dell’s poisonous culture is sinking its ship -- and Raises questions for potential buys”:

“In the annual employee survey, over half of the employees would leave for greener pastures if given the chance. That meant that over half of the workforce is not engaged. Perhaps they’ve already quit the company, but they’re still there drawing a paycheck. This culture proved to be pervasive in every group we worked with at Dell. And it didn’t look like it was going to get better, no matter how well we performed.”

Job Dell done

In 2011, Dell realised that this system of forcing people to comply with their peers’  objectives was failing. Employees were left feeling devoid of any job satisfaction. Some of the most frequently occurring negative comments on Glassdoor were “lack of communication” and “an atmosphere of less job security”. Employees simply did not feel that their concerns were being heard. What’s more, the annual review process focused on forced rankings instead of on overall development and growth. Getting rid of forced rankings would be a step in the right direction, especially in an era where collaboration and engagement determined the success of the business.

In order to ensure continuous growth and innovation of its employees, Dell needed to adopt a performance management system that emphasized individual performance, talent management and succession planning. The company focused on the “four pillars of managing performance”, which were:

  • Defining and agreeing on the organization’s strategy.

  • Guiding the development of individuals so they have the skills and knowledge needed to perform effectively.

  • Motivating individuals to perform effectively.

  • Providing data about the condition of the organization’s human capital.

The success of Dell relied on the company culture it would nurture. As a result, the company changed its value proposition to reflect meritocracy, ingenuity, innovative thought and continuous growth. Employees now have the opportunity to create their own career development plans, give and receive feedback when  they needed it, and improve their professional skills continuously.

As a result, Dell was able to understand its employees’ development needs and designed a continuous learning plan that focused on three elements:

  • Culture that fosters exceptional and agile organizational performance,

  • The best workforce teams in the industry and

  • Superior individual-learning experiences.

In order to understand how their employees were progressing, Dell would conduct annual ‘talent reviews’, which would help identify the next generation of leaders and innovative thinkers. During these reviews, managers would give their employees constructive feedback and ensure that the employee understood how they could improve. Dell would also provide various learning programs, such as coaching, mentoring and networking to ensure their employees were engaged and motivated to learn constantly.

How to solve the Dell dilemma.

The company's philosophy of continuous employee development could be a sign of how human resources may become in the future. Having a company that has a highly capable and engaged workforce is becoming a main performance driver for many companies and should not be overlooked. One of the cornerstones to any company should transparency with its employees. As Dell invests a considerable amount of time and money into the professional development of its people, so too should they allow employees to be part of the decision making process.

Impraise focuses on making the workplace as transparent as possible. Through ongoing feedback, managers can keep their employees informed of company decisions at all times. It gives employees the chance to air their concerns and raise any questions they may have. Additionally, Impraise allows companies to collect data about the health of their workforce, which helps the company understand where their key strengths lie and potential learning areas are.

Photo by Dell