As 2019 drew to a close, the same event was being played out across thousands of offices across the country: the annual performance review, which has a robust status and fixed nature in the annual cycle of corporate life.

Here’s the catch: A growing number of people are suggesting that the system of Annual Performance Reviews is broken — that its intentions are good but the end results are nothing short of disappointing.

The Annual Performance Review Could Be Counterproductive

On the surface, it seems like a great idea to conduct an annual review. The process, however, is plagued by inefficiencies at best and fatal flaws at worst. CEB research has found that 95% of managers are dissatisfied with their company’s appraisal process, and almost 90% of human resources (HR) leaders don’t believe the process provides accurate information. After all, it’s a retrospective review that often lacks nuance and insight.

Traditionally, managers conducted the annual performance review only — or at least primarily — with the company’s interests in mind: How had employees contributed to business results? This type of thinking, left over from the Industrial Revolution, is out of place in modern organizational discourse. Organizations today are realizing that the annual performance review — and, more importantly, reviews in general — need to be about the employee, too. In the ongoing war for talent, data shows that it’s not money that potential hires and current superstars value most; rather, it’s factors like culture and values, the quality of senior leadership, and growth opportunities.

Enter Real-time Coaching Conversations

Clearly, waiting for an annual performance review is ineffective for all stakeholders. On the other hand, giving and receiving feedback without waiting for the review — in a way that builds on employee confidence and speaks to their needs — is an effective way to achieve desired outcomes for managers and leaders, employees, and the organization. Real-time coaching conversations can enable this type of feedback.

A recent article in the Harvard Business Review cited Microsoft as an example. When Satya Nadella joined the company as chief executive officer in 2014, he inherited a stagnant business full of risk aversion that was slow to adapt to the fast-paced digital world. Microsoft’s internal corporate rhythm was dictated by quarterly and annual business reviews, which had far-reaching negative effects. Nadella and his team nixed these reviews in favor of a coaching-oriented approach and a growth mindset. Starting with himself, Nadella began soliciting real-time feedback and fostered “leadership as conversation.” These changes have been instrumental in Microsoft’s revival.

Moving to Real-time Coaching

When it comes to improvement, having a coach or mentor can make a huge difference. In his TED Talk, for instance, surgeon and writer Atul Gawande shared how people like violinist Itzhak Perlman use coaches to drive their improvement. He noted that real-time coaching conversations can improve performance across almost any field.

If your organization wants to compete for the best talent, retain that talent and build a qualitative edge over your competitors, real-time coaching is a compelling place to start. Consider revising your outdated annual performance review protocol into a process that’s more employee-focused. Incorporate real-time coaching to keep employees engaged and growing.