I'm happy to see this become a topic of conversation. The formal performance review is emblematic of the key difference between small and large organizations. A small organization will usually rely on ad hoc information gathered from the process of daily interaction and observed results. Opinions form, are solidified, and ultimately business decisions are made as informed by these ad hoc impressions and the resulting attitudes. For the best small organizations these approaches work very well. Managers have enough personal oversight of the company's operations to feel like they have a good handle on what's happening.

Once an organization grows to a certain size management begins to lose that level of personal oversight. No one person or even a small group of persons can comprehend the scope of the company's operations. More levels of hierarchy have been introduced; there are more managers responsible for more people. Now it is probably possible that those same ad hoc approaches that worked in the small organization could continue to work at some unit level of the larger organization. Managers could maintain personal oversight of their unit, the observed results could percolate up the hierarchy, decisions could be made based on those results.

Unfortunately, the insecurities of higher level managers will not usually allow this to happen. Lacking that personal oversight at the operational level they attempt to compensate for the risk of a bad outcome by developing rules which ensure a good outcome. This happens so reliably as organizations grow that the emergence of rules is nearly synonymous with the concept of growth. However, and I think this is the key point, it seems to me that developing rules to ensure that an organization is managed to a good outcome is a little like trying to develop rules that ensure a baseball team will win a majority of its games in a given season.

Rules of this sort actually cast in concrete a specific view of and response to a set of conditions that exist or existed up to the time when the rules were created. They stifle the ability of the organization to react to changes in conditions that may not have been anticipated. And for whatever reason, probably due to essential human nature, they seem nearly inevitable once an organization reaches a certain size. It would seem to make sense to act more like the baseball team: acquire the absolute best people, give them the absolute best training and resources, make the mission absolutely clear, and then reward or punish based on results. But to take such an approach requires waiting for those results to come in before you can know whether you were successful.

Which is, interestingly, how military organizations have to handle field commands. When battle looms the hierarchy (and not inconsequentially the troops) has to put its faith in the people in command on the ground, whom they have put in place, trained, and supported. The tides of battle change too swiftly, and the outcome of poor or slow decision making is so brutal, that a top-heavy approach to governance simply doesn't work. In some ways that is the essential story of the way the war in Vietnam was fought, for example, as contrasted with previous conflicts.