How Adobe Transformed Performance Management: Managing without Annual Performance Reviews

By: Saeed Karimabadi, Stephanie Quesnel, Amanda Bennet and Zack van Allan 

Executive Summary

In 2012, Adobe abolished annual performance reviews in favor of a lightweight approach named Check-in. Consisting of informal, ongoing conversations between managers and employees, Check-in focuses on the future, not the past, with a goal of inspiring everyone to bring their best to the company. In this research we will go through different aspect of this innovative performance management system and its pros and cons.

Company Background: ADOBE SYSTEMS INC

           Founded in December 1982 by co-founders John Warnock and Charles Geschke, Adobe Systems Incorporated is a multinational computer software company based in San Jose, California. Adobe’s mission statement is as follows: “Adobe is changing the world through digital experiences. We give everyone – from emerging artists to global brands – everything they need to design and deliver exceptional digital experiences.” (Adobe, 2018a). Adobe does not has a formal vision statement publicly available. However, in a 2006 presentation to investors entitled ‘Adobe’s Vision’, President and COO Shantanu Narayen suggested that the company’s vision included the following components: ‘The environment and our combines strengths guide our vision for the future’; We help our customers transform their communications into engaging experiences’; and ‘Adobe revolutionizes how the world engages with ideas and information’ (Adobe, 2018b).

           Adobe competes primarily in the digital marketing, print and publishing market segments, digital media (Reuters, 2018). Adobe’s products address: solutions for creating, managing, and optimizing digital advertising and marketing (digital marketing); web-based development, technical document publishing, and e-learning solutions (print and publishing); and tools for creating, monetizing, and promoting digital content (digital media; Bloomberg, 2018).

           Historically, Adobe’s core business has been focused on creating digital media tools, such as Adobe Photoshop, that appeal to a broad ranges of users including graphic designers and other creative professionals (Investopedia, 2018). Until May 2013, revenue was primarily drawn from software license sales wherein customers would purchase a product or service outright. However, Adobe has recently revised it’s strategy and pivoted toward a subscription based model that charges subscribers monthly fees in order to access bundles of Adobe’s products and/or services (Investopedia, 2018). For example, ‘Creative Cloud, now Adobe’s flagship product in the digital media market, allows subscribers to use Adobe’s Photoshop, Illustrator, and Premiere Pro software on a subscription basis (Bloomberg, 2018; Investopedia, 2018). 

           In addition to the Creative Cloud product line, Adobe has introduced the Experience Cloud. Adobe Experience Cloud provides “an integrated set of marketing, advertising, and analytics software to build campaigns, manage all your advertising, and gain deep intelligence about your customers” (Adobe, 2018a). Experience Cloud products leverage the ‘experience systems of record’ (i.e., a company’s consumer behaviour data) and applies machine learning algorithms to match content with generated consumer profiles (Adobe, 2018b). The Experience Cloud program is further allied with over 500 data, marketing, and commerce partner companies that provide additional support to the Experience Cloud platform (Adobe, 2018b).

OVERALL PERFORMANCE MANAGEMENT SYSTEM

           In the context of Adobe’s substantial shift in its business model (i.e., the transition from selling product licenses outright to a subscription based model), Adobe’s ‘People Resources’ team decided to reinvent the company’s performance management system (World at Work, 2016). Specifically, Adobe scrapped its traditional performance review process for a new system called ‘check-in’. Previously, performance reviews at Adobe would involve managers soliciting feedback from stakeholders who worked with a given employee, organizational leaders would rate employees and write a performance review which would then be discussed with the employee, and salary raises were contingent on performance metrics. However, Adobe found this process to be ‘overly negative’ and time consumer (requiring around 80,000 working hours for annual reviews; World at Work, 2016).

           The new ‘check-in’ system moves away from annual reviews and towards a fluid and ongoing dialogue between manager and employee. This new system involves setting witten expectations and goals at the start of each year which are revisited on a quarterly basis, providing ongoing feedback throughout the year, eliminating mandates around the methods and timings of written reviews, and a new budget for salary raises and equity grants (World at Work, 2016).

ASSESSMENT AND RECOMMENDATIONS

There are a number of factors that need to be considered when implementing a performance management system and all decisions that are made with regards to the chosen system should support and be in alignment with the strategic goals, mission, and vision of the company. Likewise, all job descriptions, including the Business Development Manager noted above, should be clearly measurable as part of the chosen performance measurement system to ensure future growth and development of each employee.

With this in mind, we have made a number of recommendations for Adobe’s performance management system that will support Adobe’s strategic goal to be a leader in providing transformative products and services to customers.

Work Flows: Efficiency or Innovation

           As a multinational computer software company, Adobe must react and adapt to the rapid pace of innovation inherent in the market. This is exemplified in the pivot to cloud based subscription services from Adobe’s traditionally successful licensing sales approach.Thus, innovation is core requirement for Adobe if the company intends to maintain its leadership position among it’s central consumer base of creative professionals. However, as the strategic shift in its approach to performance management and performance reviews indicates, efficiency is also a concern for Adobe. Specifically, the time consumption of the previous performance review system became extremely burdensome for the company; any inefficiency in such a large organization quickly accumulates.

           Taking into account the rapidly changing nature of technology as well as the logistical burdens inherent in a large multinational corporation, Adobe’s performance management system must balance efficiency with innovation. This tension between efficiency and innovation was a driving force behind Adobe’s recent implementation of the ‘check-in’ system which both reduces administrative burdens (i.e., increases efficiency) and facilitates rapid improvement through an increased frequency of performance feedback (i.e., encourages innovation).

Criteria: Behavior vs. Results

           Due to the nature of Adobe’s business model, i.e., the creation and distribution of software, selling software subscriptions is the company’s core source of revenue. Sales, therefore, are an important aspect across most departments and positions. Because the behaviours inherent in making sales are closely aligned with results (i.e., obtaining sales), a results oriented approach to performance management is appropriate. However, the behaviours involved in successful sales are modifiable and can be cultivated and enhanced through education and training. Therefore, a results oriented approach wherein employees’ performance and bonuses are judged on results is suitable for the situation, however, deficiencies in performance related behaviour must be identified and targeted for improvement through internal training programs. The ‘check-in’ process is conducive to this process (i.e., results are discussed but the regular intervals in manager/employee communication promote opportunities for coaching and mentorship regarding performance related behaviours).

Participation: Low vs. High

Cawley, Keeping, and Levy (1998) asserted that a high participation in the performance appraisal process resulted in greater acceptance of the performance appraisal system, as well as higher overall job satisfaction of the employee. These expected results of high employee participation in the performance management process will mean less resistance for managers to deal with when conducting performance appraisals, and a better job performance from employees. To support high participation, employees can be involved in determining the appropriate criteria and rating mechanism contained in the performance appraisal, as well as allowing them to appraise their own performance in a self-assessment, or that of their supervisor via a 360-feedback mechanism.

Temporal Dimension: Short Term vs. Long Term

           Adobe, and other software companies, operate according to ‘agile’ project management methods. That is, due to the inherently iterative product development process of computer software, projects are consistently reassessing progress and adjusting schedules and project goals. Because of this iterative processes of feedback and adjustment (often one month planning cycles), Adobe’s performance management system must reflect the short term nature of the product development process. The ‘check-in’ system, as opposed to Adobe’s previous performance review system, emphasizes a fluid back and forth between manager and employee, ideally on a real-time basis. This system is therefore more aligned with the short term temporal dimension of Adobe’s product development cycle.

Staffing Strategy

When innovation is a strategic driver for a firm, as is the case with Adobe, an external recruiting strategy is beneficial to the firm in the sense that it can be a source of new ideas and approaches. Tseng & Tseng (2016) stated that “Hiring new employees may also reduce the risk of a firm growing dull with its old methods and ideas. Therefore, hiring new employees can be very beneficial to a firm’s innovation performance.” While there are benefits to internal promotion strategies, such as fostering loyalty and retaining in-house expertise, these are not as strong a priority to Adobe as innovation, and it is therefore our recommendation that Adobe adopt an external recruitment strategy.

Employee Separations

           When there is a surplus of employees that current economic circumstances cannot sustain, employers will need to consider their options for shedding their excess employees. To facilitate this process, employers can consider voluntary termination, or layoffs. With voluntary termination, this is when a buyout or other exit incentive is used to entice the employee to leave the organization voluntarily. Whichever option is chosen, there are legal requirements that must be in place. For example, with layoffs, Roe and Cardon (2009) note that most states require that the final pay cheque be provided immediately upon notice of termination to the employee.

The employer needs to be particularly careful with exit incentive programs. As Roe and Cardon (2009) state, there are a number of provisions within the Employee Retirement Income Security Act (ERISA), the Age Discrimination in Employment Act (ADEA), and the Older Worker Benefit Protection Act (OWBPA) that employers need to be aware of. Failing to account for these provisions can result in legal implications for the employer.

Given that the there appear to be clearer legal requirements surrounding layoffs that are easier to comply with, we recommend Adobe follow this course of action, should it be required.

Performance Appraisal

Given the size of Adobe and the breadth of functions across the company, it is unlikely that a uniform performance appraisal would work well in this type of environment. Within functional units, managers could consider using a uniform performance appraisal for similar types of roles, but across functional units customization is needed to reflect the diverse nature of roles at Adobe. In the case of the Business Development Manager, we recommend the use of a Management By Objectives (MBO) type of performance appraisal, allowing goals to be set for things like sales numbers and certifications.

Training and Development: Individual or Team

Adobe is going through lots of changes to transform to a service based software company. First of all, to implement the check-In program, Adobe needs to concentrate on training managers to adopt the new continues feedback program which is the key factor to the program success. Since check-In is new to all employees, company also needs to run global training programs to introduce the new system and train managers and non-managers to build stronger skills in providing constructive (not critical) feedback and utilizing feedback as development tool and how to give and receive feedbacks continuously. Adobe is one of the most diversified software companies in the world with multiple teams operating in more than 40 countries. Considering the diversity of the company it looks like a single global recipe for employees development will not be sufficient. Employee development program should be tailored for each team and individual to satisfy the project skill set requirements or each individual career goals. Growth and development is intended to be a core part of the Check-in conversation, where managers and employees can discuss the employee’s long-term goals, developments, rotations and other development opportunities should arise as part of these dialogues. It emphasized to employees that they are their own career managers, and they should come to Check-in conversations with their own ideas for growth rather than expecting the manager to chart a course for them. (Morris, D. 2016)

Compensation Structure

Employee compensation is an important consideration in performance management system design. From an employee perspective, compensation itself is meaningful in both its derived measure of status and as a universal motivator of good performance. Correspondingly, a firm’s utilization of compensation is therefore an appropriate lever to influence desired level of employee performance.

           For Adobe, both a fixed and variable compensation structure would be suitable throughout the company, each structure employed based on the nature of the job evaluated. For instance, administration, finance, and support departments are suitable for fixed compensation, while marketing and sales positions are suitable for short-term incentive variable pay in addition to base salary. The purpose of adding variable pay to sales-based roles is to convey the organizational link between performance and compensation, and to establish target performance standards. And while not directly dependent on performance, seniority is a factor that should also determine the level of compensation at Adobe; the most senior roles should have commensurate increase in compensation.

Employee Relations: Top-down or Bottom-up

           Before rolling out the new Check-in program, employee relations were on Top-down basis, were top management team was communicating the direction and directives of management throughout an organization. There was annual review process were employees had a chance to give feedback to their managers, but moving toward a more agile team, the annual feedback was not satisfying the necessary agility of the whole company. Also adobe had this goal to promote the creativity among the organization. Open discussion is one way to promote creativity. In case of Adobe’s reform toward the agility, bottom-up communication system is more preferable where it allows employees on the frontline of an organization to have voice in decisions that affect their work lives.

Employee Rights: Discipline or Prevention

           Under the previous annual review model, managers typically addressed poor performance at the end of the year, when the process forced them to do so. With Check-in, managers are more actively managing performance on an ongoing basis, leading to active performance management and termination when needed and many underperforming employees choosing to leave after open discussions with their managers. (Morris, D. 2016) We should consider that Adobe is operating in a competitive market where agility is a must. Software teams should perform well and if none of above methods can’t improve the poor performance or Employees with poor performance didn’t leave voluntarily , Adobe should consider termination in those cases as poor performers have negative influence on the whole team performance and it reduces the team agility. 

System Orientation: Developmental vs. Administrative

The design of an effective performance management system should consider the ultimate goal of performance appraisal and performance reviews. Whether employee performance appraisals are oriented to develop employees and are tailored to the employee’s individual needs, or whether the employee performance appraisal serve a broader purpose of evaluating each individual against a standard prescribed by the company.

           Adobe’s performance management system should utilize a developmental orientation to its employee performance appraisal design. Understanding employee needs and creating an environment for which an employee is equipped to succeed is much more effective than applying a standard across all employees. A developmental orientation will attune employees and their managers to the employee’s own specific motivations and performance potential.

International Management: Company or Local Culture

           Designing a performance management system in the context of an international or multinational company requires a broader view of management style and implementation of a more complex performance management system. Different cultures approach management in varying ways, making one uniform performance management system difficult to implement across cultures. For example, in 1980, Hofstede outlined dimensions of culture that describe considerations when developing a performance management structure – power distance, individualism vs. collectivism, masculinity vs. femininity, and weak vs. strong uncertainty avoidance.

           Adobe operates in several countries around the world and hence, a “local culture” approach to management is key in ensuring cultural nuances are understood and employees are appropriately evaluated and motivated. While there should still be a degree of company-prescribed management practices in order to maintain Adobe’s company culture and performance management consistency – for example, task performance is suitable for a uniform performance management evaluation – contextual performance should be largely decentralized and local management encouraged to inform employee evaluation criteria in that regard.

PERFORMANCE MANAGEMENT STRATEGY

           From the publicly available information, the linkages between Adobe’s overall mission, unit level mission (e.g., the Experience Cloud), and position description (e.g., Business Development Manager), are generally well aligned. As illustrated in Figure 1, the unit level mission of leveraging experiences of record to make ‘memorable experiences part of clients’ entire businesses’ is well-aligned with Adobe’s overall mission of ‘changing the world through digital experiences’ and the strategy of ‘empowering people and businesses to design and deliver amazing digital experiences’. Furthermore, the position description for the Business Development Manager for the Experience Cloud program describes how the position holder is accountable for achieving the unit level mission (e.g., by creating deep technology and go-to-market relationships with industry leading software vendors, etc). The individual performance expectations are broadly aligned with the position description, however, the public posting is somewhat vague; it is likely that a more nuanced and descriptive job profile would be made available to the successful candidate.

Figure 1. Alignment between Adobe’s corporate mission, unit mission, and job description.

REWARD SYSTEM

The reward system design for the role of the Business Development Manager at Adobe is the structure and mechanism by which rewards will be allocated, given the objectives of the role and how the role links to overall unit and organizational goals.

The objectives of the Business Development Manager, as outlined in the job description, comprise primarily of tasks related to expanding the partnership base and tailoring software to clients in collaboration with members of other Adobe departmental units. Given the degree of clarity and measurability inherent in these objectives, a hybrid reward model is suitable for this particular role. As such, the Business Development Manager should receive both the traditional base salary as well as the possibility of contingent, or variable, pay upon performance appraisal.

Base salary is most suitably determined using a standard salary range system, grouping similar positions together and building pay tiers based on seniority. Base salary is an important aspect of the reward system within the performance management system design for this particular role as it addresses compensation for the entire spectrum of duties and tasks executed day-to-day, while ensuring the employee has a living wage and is assured security in years of slower organizational growth. 

Adding a contingent pay system to the reward system design ensures performance measurement as well as continued improvement is an important consideration for employees. The contingent pay component of the reward system is to highlight the importance of the link between performance and compensation both at the individual level as well as at the unit and organizational level. For the Business Development Manager, individual sales should be evaluated along with the overall sales of the entire business unit to promote teamwork and collaboration. As an example, the Business Development Manager may be evaluated for contingent pay based on a role-specific charter (see “Sales Charter” in the Appendix), which outlines individual-level performance measurements as well as unit-level and corporate-level performance measurements.

PERFORMANCE MEASUREMENT FRAMEWORK

The performance measurement structure is intended to support the objective of allocating rewards based on performance and overall value contributed to the organization as a whole. As such, the Business Development Manager will be evaluated based on a ‘Sales Charter’ that measures individual-level, unit-level, and corporate-level performance to target (see Sales Charter in Appendix B). Each of the performance measurements are accompanied by a realistic, though challenging target arrived at jointly by the employee and the manager. Upon performance appraisal, each measure will be evaluated to target, and variable pay determined.

Individual-level Performance Measurement

           Per the Sales Charter, 60% of potential contingent pay is attributable to performance at the individual-level. For the role of the Business Development Manager, this includes performance measures that are directly driven to target by the individual employee. Based on the aspects of the role, suitable performance measurements include: net amount of dollars attributed to new partnerships, number of new partnerships established, and partnership retention. These measures evaluate the Business Development Manager’s responsibility of cultivating new relationships, furthering partner buy-in from an investment standpoint, and deepening current partner relationships.

Unit-level Performance Measurement

           To strengthen collaboration and internal team dynamics, 30% of potential contingent pay is attributable to performance at the unit-level. The unit with which the Business Development Manager works may be evaluated on the share of market achieved regionally, to encourage a ‘team’ mindset and to avoid cannibalization of sales within the company. Additionally, the Business Development Manager role specifies innovation and leveraging new technology avenues as a method of getting to market. A relevant performance measure in this regard may be the number of new products accessed via strategic partnerships, and the share of total product offerings that feature emerging technology.

Corporate-level Performance Measurement

           To highlight the importance of individual reward to organizational performance, 10% of potential contingent pay is attributable to performance at the corporate, or organizational-level to broaden the scope of performance measurement. Overall health of the company is an important measurement to include when rewarding employees to further emphasize the collectivist ‘team’ mentality. Measured perhaps by Net Cash Flow, the success of the company overall should tangibly impact employee incentive pay. Additionally, the degree of cost savings through an Operating Margin target is a suitable corporate-level performance measure.

PERFORMANCE APPRAISAL MEASURE AND PROCESS

In December 2012, Adobe implemented a new performance management process that eliminated annual reviews, and instead, introduced something called “check-ins”, which was designed to be a continuous and consistent two-way dialogue between the manager and the employee. The reason for this change was because it was felt by many that the previous annual review process was far too onerous to be practical or useful as it was intended. They wanted something not only quicker and easier, but also allowed for more timely feedback given to the employee. According to Morris (2016), the introduction on this new performance management process redeployed 80,000 manager hours per year from the administrative tasks required in the old system to higher priority business activities.

While the new check-in process certainly appears to be a major improvement over the old system, there are some areas the should be re-examined. The new system completely omits all ratings and rankings from the appraisal process, leaving the outcome of the appraisal to the judgement of the manager. This leaves the door open for managers to inject their own prejudices or biases towards the employee in the performance review, resulting in a form of intentional rating error, though technically there is no rating. Adobe claims to provide an excessive amount of training to avoid rating errors, but no amount of training can avoid intentional errors, which is why ratings were introduced to appraisal forms in the first place, since they reduce the possibility of bias.

Leaving performance appraisals to the judgement of the managers introduces too much room for bias and/or prejudice towards the employee, and for this reason we recommend that a rating system be re-introduced, with appropriate weighting applied to each criteria to emphasize the strategic behaviours that are most important to Adobe. If properly designed, this rating system should be quick and easy to complete, taking no more than a few minutes for the manager to complete.

In terms of the frequency of appraisals, currently check-in reviews occur quarterly, with the flexibility for individual teams to adjust this time frame to best suit their own business cycles. Quarterly reviews are an ideal timeframe, and while the flexibility to adjust this timeframe within teams seems practical on the surface, it is likely that this leniency will be taken advantage of at some point. Likewise, if it is the manager who has the authority to set the schedule for the check-ins, the potential is there for a manager to adjust this according to their own preferences, rather than those of the team. Therefore, it is suggested that tighter rules around adjusting the check-in review cycle, such as no more than three delays per year.

COMMUNICATION PLAN

           Having more and better knowledge of the performance management system leads to greater employee acceptance and satisfaction. A good communication plan should answers questions like: What is performance management? How does performance management fit into our strategy? Or What’s in it for me? (Aguinis, 2013)  

           In March 2012, Adobe’s senior vice president of customer and employee experience decided that the annual reviews had to be eliminated. Shortly she wrote an internal blog for employees titled : “It’s Time to Radically Rethink the Annual Performance Review.” In the blog she raised the idea of eliminating the process and moving to a more ongoing approach rather than once-a-year event and invited feedback. (Morris, D. 2016)

           Within the next 8 month they rolled out the new system. Over the course of several month, a global team of more than 10 individuals ranging from the VP to senior manager level across business partnering, compensation, organizational development, talent development designed a new performance management process. When it became ready, adobe rolled out the new system to all employees globally. The role of people resource team in the process has shifted heavily toward managers and employee enablement to ensure that people are building theri ability to give and rceive feedback. The largest and most critical investment was in the first year of program included a dedicated section of Abode’s intranet highlighting templates for goal setting and planning a feedback conversation; videos showing effective model Check-in conversations; and tips for both people managers and employees for how to make Check-in more effective. (Morris, D. 2016)

           In overall, they communicated early and often. Adobe engaged its employees in a dialogue before they made the move and regularly communicated progress.

AIDE-MEMOIRE

           In order to improve poor employee performance, managers and supervisors need to focus on their coaching skills. A good coaching relationship is essential. For coaching to work, it is imperative that the relationship between the coach and the employee be trusting and collaborative. The employee is the source and director of change. The coach must understand that the employee is the source of change and self-growth. The Coach also should consider that the employee is whole and unique. The coach must understand that each employee is a unique individual with several job-related and job-unrelated identities (e.g., computer network specialist, father, skier) and a unique personal history. The coach is the facilitator of the employee’s growth. The coach’s main role is one of facilitation. A coach must direct the process and help with the content (e.g., of a developmental plan) but not take control of these issues. Supervisors should give advice to help employees improve their performance and provide employees with guidance so that employees can develop their skills and knowledge appropriately. Coaching involves providing information both about the skills and knowledge that are required to do the work correctly and information about how the employee can acquire these skills and knowledge.

References:

Adobe. (2018a). Experience cloud. Retrieved from: https://www.adobe.com/ca/enterprise/experience-makers.html

Adobe. (2018b). Cloud platforms. Retrieved from: https://www.adobe.com/ca/enterprise/cloud-platform.html

Adobe. (2018c). Business development manager. Retrieved from: https://adobe.wd5.myworkdayjobs.com/en-US/external_experienced/job/San-Francisco/Business-Development-Manager_64323

Adobe. (2018d). 2016 Financial Analysis. Retrieved from: https://www.adobe.com/aboutadobe/invrelations/2006_analyst_mtg/pdfs/narayen.pdf

Aguinis, H. (2013). Performance management. Boston: Pearson.

Bloomberg. (2018). Adobe: Company snapshot. Retrieved from: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=24321

Cawley, B., Keeping, L., & Levy, P. (1998) Participation in the performance appraisal process and employee reactions: A meta-analytic review of field Investigations. Journal of Applied Psychology, 83, 615-633.

Investopedia. (2018). Adobe systems company transition. Retrieved from: https://www.investopedia.com/articles/investing/021016/adobe-systems-company-transition-adbe.asp

Morris, D. (2016). Death to the performance review: How Adobe reinvented performance management and transformed its business. World of Work Journal. Retrieved from https://wwwimages2.adobe.com/content/dam/acom/en/aboutadobe/pdfs/death-to-the-performance-review.pdf 

Reuters. (2018). Adobe: Company profile. Retrieved from: https://www.reuters.com/finance/stocks/company-profile/ADBE.O

Roe, J., & Cardon, S. (2009). Legal requirements upon termination. Compensations & Benefits Review, 41, 61-67.

Tseng, C., & Tseng, C.-C. (2016) Strategy for increasing innovation at post-IPO firms. International Journal of Entrepreneurship, 20, 84-91.

World at Work. (2018). Death to the performance review. Retrieved from: https://wwwimages2.adobe.com/content/dam/acom/en/aboutadobe/pdfs/death-to-the-performance-review.pdf

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