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

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.

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.