Founded in 1972, the German software business SAP (Systems, Applications, and Products in Data Processing) is known as one of the world leaders in enterprise resource planning software, employing over 98,000 staff.

Usually SAP managers meet employees on an annual basis to share feedback, discuss objectives, and provide performance ratings. However, in 2016, SAP decided to remove its annual employee performance review process as they felt giving feedback to employees once a year is an ineffective way to get the best results from a team.

Wolfgang Fassnacht, head of human resources for SAP, realized that the annual review did not support constructive conversations. He proposed a system where feedback and communication will operate as an open, two-way dialogue that is unaffected by an employee’s ranking or rating.

Doing away with annual reviews is becoming a popular choice for companies.

Most managers acknowledge that the focus needs to be on the quality of conversations between managers and employees and in amplifying employee engagement in the feedback process. In 2016, the research company Corporate Executive Board (CEB), which was recently acquired by Gartner, invited 10,000 employees to participate in a study undertaken to gain insights about performance ratings and reviews. The study suggested that employees value informal conversations that provide feedback that is more meaningful. Employees also felt that such conversations gives them an opportunity to provide honest feedback themselves, without fearing negative repercussions on their pay and reward.

Since 2017, SAP managers and employees can check in with each other on a regular basis, give frequent feedback on performance, and keep communications more fluid and informal. Leaders are encouraged to promote a listening culture, actively taking note of what employees are saying, and vice versa. Employees are also encouraged to seek feedback from colleagues other than their immediate line managers.

However, SAP continues to sell software to companies for recording and rating employee performance. Could this be because some companies feel ditching performance ratings actually has a negative effect? A 2018 study by CEB backtracks on their initial findings, suggesting that following the 2016 study, performance actually dropped by 10 percent rather than increasing it. The study also suggested that the quality of conversations between manager and employee actually declined. Despite the conflict identified in the study, SAP continues to stand by the benefits of removing performance rating and the results payoff. In 2019, it won 190 employer awards, making it one of the best companies to work for worldwide.42 

DISCUSSION QUESTIONS 

14-1. What are your thoughts on how SAP’s approach to their performance reviews improves communication?
14-2. The CEB study in 2018 suggests that quality of conversations between manager and employee declined when annual reviews were ditched. What challenges might SAP be facing, and how can they ensure quality remains in employee feedback?
14-3. What listening techniques would you recommend to SAP’s managers when meeting with their team members?
14-4. What communication techniques would you recommend to SAP employees when giving feedback to their managers?