What is Modern Performance Management? 5 Steps to Create a Process

Modern performance management is about designing a process that is unique to your organization and its culture. Even with outside role models and inspiration, the most successful organizations are being driven more by what they see inside their company than what they learn elsewhere.

For example, Adobe, Deloitte, and GE each designed a unique performance management strategy, and despite three very different approaches, each was a perfect fit for their organization.

Does modern performance management mean the death of traditional performance reviews? Not exactly.

Sensational headlines would suggest traditional performance reviews are a thing of the past. And yet the leaders of the performance management revolution have all continued to use aspects of traditional reviews in some form.

Adobe still uses end-of-year reviews that summarize performance and allow for discussions about compensation. They chose to reduce the length of these reviews and add quarterly check-ins to create a more ongoing dialog around performance.

Deloitte transitioned to a short four-question review system administered at the end of every project or quarter—whichever comes first. They use these more frequent reviews to create employee rankings, which drive promotion and compensation at the end of the year.

GE introduced a real time feedback app, but they also continue to do annual reviews, which they now call Summary Conversations. Instead of bringing up new ideas, the end of year discussions summarize feedback.

Modern performance management can be intimidating, but it’s actually quite simple. There isn’t some new “right” way to do things. It’s all about taking the old tools and bringing them together in a way that best serves your organization.

5 Steps to Creating a Modern Performance Management Strategy

We’ve taken what we've learned from working with hundreds of customers and put together a plan for any organization to create their own modern performance management process.

We've expanded on this post with a full guide here:

Creating a Modern Performance Management System

1. Understand Your Organization

Be sure you begin the process with a clear understanding of your own organization in the context of performance management. PwC provides a good place to start—they identify four building blocks for diagnosing the needs of your organization and determining your Organizational DNA. 

• Decision Rights: Understand how decisions are made, who is influencing them, and who is making them.
• Information Flows: How does knowledge and information move around your organization? Are their formal channels? 
• Motivators: Identify teams’ and individuals’ objectives, opportunities, and incentives—how does your company’s history and existing practices impact them?
• Structure: Create a formal organization model with clearly distinguished roles and responsibilities.

The performance management strategy that works for you will be different from what works for other organizations because other organizations will differ on these factors. For example, the right strategy for a flat video game development company will be very different from a 50 year old insurance organization with lots of hierarchy.

2. Set a North Star

Performance management can serve several purposes, and it is important to identify which is right for your organization. Here are a few of the most common-

• Accountability
• Development
• Recognition
• Engagement
• Organizational Alignment
• Reinforcing values

The military has historically focused their performance management strategies on accountability and recognition. In organizations with strict hierarchies and well-defined roles this makes a lot of sense.

In many creative organizations, like Betterment, the focus in on alignment. Flat organizations with many ill defined roles can struggle to together in one direction.

3. Use the Three Building Blocks

With a clear purpose, you’re now ready to develop a clear process. At PerformYard, we’ve found nearly every performance management strategy can be built with just three parts:

• Reviews: While we’ve seen a lot of pushback against performance reviews, some type of structured review process continues to serve an important purpose. Regularly scheduling reviews allows for longer-term reflection on performance, and a formal process keeps things fair and transparent.
• Goals: High quality goals will not only motivate your team and move everyone in the same direction, they also form the bedrock of constructive performance conversations. When everyone can agree in advance on what success looks like, then it is much easier to discuss what’s working and what isn’t.
• Feedback: Feedback is what connects reviews and goals to an employee’s day-to-day. You can think of review meetings and goal meetings as the planning for how we’d like to perform. Feedback takes those intentions and reinforces them, putting them to action throughout the entire year.

4. Get Out of the Way

As HR leaders we care deeply about these topics. It is our job. However, it is important to remember that it is not the job of most people at our organizations. Some employees might even see our performance management processes as a distraction.

That is why it is so important to put on our product designer hats and think of our employees as customers of our product. Customers don’t want confusing and time-consuming products that don’t provide them clear value.

If you’re current system is bulky and disliked internally, the first thing to do is fix that.

You won’t have any buy-in to build on your existing performance management process until you make it easy and useful.

At PerformYard we streamline any performance management process you want to run. By design we do not force anything on our customers. Whether you want to do annual manager reviews or are going to try weekly 360s it can all be managed simply in PerformYard.

Once you’ve streamlined your existing process, then it’s time to start iterating.

5. Iterate, Iterate, Iterate

If your company has more than 1 employee there is already some type of performance management in place whether its formal or informal. And one of the great benefits of accepting that there is no magical right way to do performance management is that you can embrace your existing process and start improving it year after year.

Rather than make wholesale changes to your process every year, keep what’s working and drop what isn’t. For example, maybe this year you add 4 quarterly conversation, and remove a third of the questions from your annual review. See how that works, then next year adjust again.

There has been a shift in how organizations think about performance management. You can see it in headlines like these…

Death to the Performance Review

Reinventing Performance Management at Deloitte

Amazon to Drop Dreaded Stack-Ranking Performance Reviews

That said, progress has not been linear and you may also have seen headlines like these…

Lets Not Kill Performance Evaluations Yet

Why Facebook Still Uses Traditional Performance Reviews

Companies That Got Rid Of Performance Ratings Aren’t Doing So Well

So where does that leave us? What is Modern Performance Management?

It’s An Approach Not A Process

In the early stages it looked as if modern performance management would coalesce around a set of best practices, like quarterly conversations, weekly 1-on-1s, or continuous feedback frameworks. But this didn’t happen.

Organizations went in many different directions and most of the bold claims about the end of rankings, ratings, annual reviews and other elements of “traditional” performance management haven’t come to fruition.

Today, years into the performance management revolution we find ourselves in a middle ground. Organizations continue to improve their processes, but they are doing so with a mix of new and old practices.

It turns out there is no performance management panacea. What defines performance management as “modern” is not your process, but your approach.

1. Modern performance management is about starting with your organization’s needs and the needs of your workforce, then building a custom strategy that serves those needs.

That means no more over-stuffed annual reviews that are a big waste of time, but it also means you shouldn’t necessarily take Adobe’s strategy off the shelf and apply it to your organization.

2. Modern performance management is about creating a strategic business operation rather than fulfilling a year-end compliance requirement.

If you are analyzing the needs of your organization and then building up a strategy that drives results for your organization, that’s modern performance management.

Ok, that is a little abstract, so we’ve also compiled a list of themes that help define modern performance management.

‍

Characteristics Of Modern Performance Management

At PerformYard, we believe that your performance management process should be as unique as your organization. We also know that building and implementing a custom, flexible performance management strategy can be challenging, especially one that works with your company.

That’s why we’ve collected all the pieces of modern performance management and laid them out below.

Creating the right strategy is about bringing together these elements in a way that will best serve your employees and your organization. Here are some of the changes we often see when organizations transition to modern performance management. These aren’t all requirements, even pursuing one or two of these changes is sufficient.

Digital First

Digital tools are enabling the transformation. More feedback, more data, more transparency are only possible because they can be achieved with a light tough through technology. Before adding complexity to their processes, organizations are streamlining them through technology. Ultimately performance management needs to be layered on top of the real work of the organization, so it can’t be cumbersome or time consuming.

Development Focused

Traditional strategies focused primarily on rewarding top performers and eliminating under-performers. While that is still a part of modern systems, the focus has shifted to include development. We wrote about this idea here - Accountability vs Growth: Choose a side (or don't).

More Frequent

You can’t talk about modern performance management without talking about increased frequency of feedback. Whether it’s quarterly check-ins, weekly one-on-ones, or continuous feedback, more feedback is what it’s all about.

Rewards Collaboration:

Traditional performance management tended to give everyone individual ratings which did not always incentivize teamwork. Today organizations want to know not only how well you work alone, but how you build up a team.

More Agile

We live in a more dynamic world and organizations want to reward employees who have the flexibility to adapt and perform as an organization evolves. Modern strategies reward both tactical performance and adaptive performance. Read more about that here - Tactical Performance vs. Adaptive Performance: Why You Need Both.

More Fair

Unfortunately traditional performance management is filled with bias. Modern performance management seeks to even the playing field and get to a better understanding of actual performance. It’s no longer just about your manager’s opinion of you for one week a year. Read - The Biases You Must Remove from Your Performance Reviews.

Smarter Data

Finally, modern performance management still embraces data. Even after an initial rejection of ratings and rankings, many organizations are looking for smarter ways to bring data back into their process in order to inform career planning, hiring, and other business decisions. Data gets smarter with better questions, like how Deloitte reframed their review questions to focus on things a manager is a better judge off.

Reviews

The core of performance management lies in employee appraisals. These could be called check-ins or calibrations or something else entirely, but despite the backlash most all organizations still use structured meetings and review forms as part of their process.

There are many different ways to customize your appraisals, from frequency to the questions asked. Although the objectives of performance appraisals vary from company to company, there are a few key elements to be aware of as you construct your reviews to be as effective as possible for your company.

Who Reviews Who?

Traditionally, performance appraisals have been conducted in a top-down approach where the manager is the sole evaluator of the employee.

In a contemporary setting, however, reviews can take on a 360-degree approach that allows employee evaluation from all directions, including management, colleagues, customers, and partners, as well as self-reviews.

Questions

Another important element to consider in your performance evaluation is the kind of questions you ask. Between two fundamental types of questions, open-ended and closed-ended questions, your appraisal form should consist of a variety of pointed questions that give managers a comprehensive understanding of an employee’s performance and give employees the sense that they were heard and evaluated fairly.

Open-ended questions have no predetermined answers, which can be great for performance reviews. In the meantime, closed-ended questions (yes/no, strongly agree/strongly disagree) can collect actionable data.

Timing

One of the most important components of a performance management process is determining when and how often reviews should occur. The classic model of performance reviews holds appraisals annually, at the end of the year. This allows management to draw data from at least 12 months of an employee’s performance, which can help to inform raises and promotions.

However, reviews can be done at any increment of time—quarterly, semiannually, and even project-based. Whether you choose to conduct them every three, six, or twelve months, a variety of surveys have shown that the majority of employees prefer more frequent conversations with managers.

Format

In the past, traditional performance appraisals took on a format that had a more rating-oriented approach in evaluating work results, with methods including appraisal templates, grading scales, ranking, checklists, critical incidents, essay evaluations, and more. Modern performance reviews tend to focus more on an employee’s development in order to not just review the year, but plan for the future.

Format can include giving employees a score based on numerous areas of job performance, as well as qualitative input and comments directed to employees that communicate how they can best succeed.

Goals

The best way to initiate an effective performance management process is to set forth clear goals and expectations. Involving your employees in the planning process allows them to envision how their personal goals will fit into the overall goals of the company and gives them a clear understanding of what is expected of them and what to work towards.

Setting goals also helps managers to develop an understanding of the ongoing training needed for employees and ensures that both are on the same page as progress is made. Goals that are given meaning and are challenging (but attainable) can drive performance more than any other element in your performance management strategy.

Types of Goals

Personal goals are the goals set forth by each individual employee. These goals are 100% about the employee, and are usually great for engaging employees with their work and determining where an employee shines in an organization.

Corporate goals have more to do with the success of the organization, and therefore the success of individual employees. These goals seek to align each team member’s individual goals with the overall goals of the company, bringing about a sense of unity between company and team priorities.

Goal Direction

In traditional performance management methods, companies communicated top-down goals that were paired with annual performance reviews. Originating from senior management, these goals are identified and communicated to team members, cascading from the top of the company to lower-level employees.

Collaborative goals (or bottom-up goals) are created by team members that understand the company’s strategy for achieving goals, as well as the individual role they play in the company. A manager will compile a set of company goals based on each team member’s individual goals, ensuring that each employee is a key player in executing the company’s strategy and objectives.

Feedback

While effective performance management has a great deal to do with documentation and meetings, it has even more to do with continuous dialogue. Ongoing feedback between managers and employees helps to more quickly recognize achievement, document individual performance, and ultimately help employees succeed.

Sources of Feedback

Customers can be considered the most important source of feedback, as they can provide input for individuals, teams, groups, and management performance. Using surveys, customer visits, complaint systems, and focus groups, customers can provide a unique perspective in the feedback process.

Supervisors, managers, and team leaders are generally the most experienced in giving feedback and tend to have specialized knowledge of their employees and team members. When given adequate training, these sources can be an integral part of acquiring data for feedback purposes.

Feedback can also be provided by an employee’s peers. This feedback tends to be the most actionable, as an employee’s coworkers deal most directly in examining their performance in the workplace. Subordinates can also provide upward feedback that can improve a manager’s style and performance, and can also motivate low- to moderate-performing employees.

Types of Feedback

Constructive feedback, praise, and criticism all fall under the category of feedback in the workplace. While praise and criticism are fairly self-explanatory, constructive feedback is generally the most potent in providing specific information that is based on observation, and is issue-focused.

Constructive feedback is helpful because it contains both positive and negative feedback. Positive feedback affirms past behavior and focuses on actions that were successful and should be continued. Adversely, negative feedback critiques past behavior and emphasizes the actions that should not be repeated.

Both of these types of feedback can also inform future performance, as employees can get an understanding of what behavior to avoid or improve in the future.

‍

Creating Your Own Process

If you’re ready to embrace a modern performance management strategy, don’t be intimidated by all your options. The right strategy is simply what’s right for your organization right now.

For many organizations the best first step is to streamline their existing process. A well run process that doesn’t waste employee’s time will go a long way as you continue to build out the rest of your strategy. If you’re interested in learning more about how PerformYard software streamlines modern performance management get a demo here.

If you want to learn more about creating your own modern performance management strategy, read our guide

Conclusion

Modern performance management is about doing what’s right for your organization. While a big clunky annual review may no longer be right for you, that doesn’t mean you need to make a jump to continuous feedback and OKRs. You already have the building blocks, so simplify your process and start iterating. Before you know it you’ll have your own modern performance management process.