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Creating a Modern Performance Management System

Creating a Modern Performance Management System

Introduction

Modern performance management is overwhelming. There are more options than ever before and the hardest part can be knowing where to start.

Should you do OKRs like Google? Or maybe quarterly check-ins like Adobe? Or does Deloitte have it right with project-based reviews?

At PerformYard we’ve helped hundreds of organizations create custom performance strategies that are just right for their needs. In this guide we combine our approach to designing a new process with all our favorite resources from around the internet.


Here’s what you’ll learn:

What is Modern Performance Management

Performance management has changed, and you’ve probably seen the headlines...

But maybe you’ve also seen headlines like these…

So what’s going on? Is there a new “right” way to do performance management? And what is it?

Modern performance management is more about your perspective, your focus and how you execute your process than it is about specific tactics. There are high profile tactics out there like continuous feedback, weekly 1-on-1s, OKRs, and quarterly check-ins that have become synonymous with modern performance management, but you shouldn’t just take these things off the shelf and apply them to your organization. You’re not Adobe or Google.

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

It’s about creating a strategic business operation rather than fulfilling a year-end compliance requirement.

That’s a little abstract, so here are some more concrete ways that performance management has changed. (We also included a long list of examples from real organizations at the bottom of the page.)

Digital First: Digital tools are enabling this 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.

Development Focused: Traditional strategies focused primarily on rewarding top performers and eliminating underperformers. While that is still a part of modern systems, the focus has shifted to include development with accountability. We wrote about that very topic 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 and more frequent 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 with 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.

Here are some of our favorite articles on Modern Performance Management:

The History and Science of Performance Management

How Much is Bad Performance Management Costing You?

What is Modern Performance Management?

4 Common Reasons Performance Management is "Broken"

Choose a Purpose for Performance Management

Modern performance management has a business purpose. So if you are designing a new strategy you need to start with its purpose.

The challenge is that not every organization will have the same purpose and you really should choose just one or two to start. So how do you choose?

Diagnosing your organization’s needs:

Choose a purpose for your modern performance management strategy by understanding the needs of your organization and your workforce.

For helping to decode the type of organization you have and it’s performance needs we love the “Organizational DNA” framework from PWC-

Learn about the 7 types of organizations and where you usually find them by industry and company size.

Then…

Take the short survey to get a sense of what type of organization you are.

Choosing a purpose:

Once you understand what your organization needs, choose the primary purpose of your new system. Every organization may be a little different, but here are the 5 most common types of strategies we see.

Accountability

This is the most traditional approach, but it still makes sense in the context of modern performance management. Systems that focus on accountability evaluate employees against standards. The most common examples would be a sales quota or a competency based system.

These systems can work very well when employees know what is expected of them and are highly motivated to achieve the standard. This tends to be organizations with well-defined roles, many people in those roles and measurable results. It also helps to have a large pool of qualified candidates to fill vacancies.

Development

Development focused performance management is having it’s day! Popular tactics like weekly 1-on-1s, continuous feedback and engagement surveys fall squarely in a development focused performance management strategy.

A development focus works well for knowledge workers, team based work, or employees with a lot of self-direction. If your employees see their job as “just a paycheck” you’ll either need to change their mindset before using a development focus.

Recognition

One of the most common complaints about informal continuous feedback strategies is that employees don’t know where they stand. That’s why many companies embrace recognition. Your most driven employees likely embrace some level of competition and have aggressive personal goals.

Recognition is best for organizations with highly motivated employees with opportunities to promote from within and room for some variable compensation.

Alignment

Alignment embraces the idea that you don’t need to manage people’s performance, you need to get out of their way. If you can clearly articulate what needs to get done, your employees will get after it and make it happen.

This approach is best for flat organizations with highly distributed decision making and information flows. Hierarchical organizations are just naturally better at alignment and don’t need as much help. Flat organizations need a way to get everyone moving in the same direction.

Values

This focus brings the organization’s values off the wall, and into conversations between employees. The goal is to increase self-awareness within the context of the values, with the hope that when employees embrace the values the results will trickle down to every element of performance.

Best for organizations that see toxic cultures as the cause of many of their performance issues. Sometimes public sector organizations can find themselves in this category.

For further reading on the purpose of performance management check these articles:

The Purpose of Performance Management: 5 Options

Does Your Performance Management Process have Purpose? These 9 Companies Do.

Elements of a Performance Management Strategy

Once you have a vision for your modern performance management strategy it is time to turn it into a process.

This can be daunting but we find it’s easier if you break things down to the building blocks. There are many specific tactics you can consider (like these 5 Modern Alternatives to Annual Performance Reviews) but in the end all of them are just variations or combinations of three things… Reviews, Goals, and Feedback.

Reviews (or check-ins or a structured, longer-term and scheduled thing)

It doesn’t matter what you call it, what we find is that even the most forward thinking processes still include some structured meeting or form that takes the long view and happens at regular intervals. This could be a quarterly check-in, semi-annual performance discussions or even annual reviews (yes there is still room for annual reviews in modern performance management).

Why do many companies still do this?

  • Fairness - It creates a set of standards for employee performance discussions and decisions that are going to happen with or without these reviews.
  • Transparency - It takes the discussions and decisions about employee performance and brings them into the sanitizing light of day.

We’ve written much more about this idea here - In Defense of Performance Reviews.

Goals

Goals can be found across the different types of performance management strategies. The difference will be what the goals are for, their terms, how often they are checked in on and the form they take.

Accountability Goals - Goals will often be role based, like standards of performance for that role. A sales quota is an example.

Development Goals - Here goals often take the form of professional development and tend to be a little looser. They are more about agreeing on a direction than reaching a specific degree.

Alignment Goals - Goals are at the heart of an alignment strategy. They may even make up the bulk of your process. Goals should have some way of cascading across the organization and should be dynamic enough to shift with the needs of the organization.

Feedback

Feedback is all about putting into action the ideas and intentions from reviews and goals.

Feedback can take many forms. You could instill a culture of continuous feedback that exists without strict systems, or you can formalize a process of feedback with required weekly one-on-ones.

You can also encourage regular recognition or require a few moments of recognition from each employee every month.

How you bring all this together will depend on your goals and your organization. We asked four HR leaders how they think about balancing an effective strategy with both structured and unstructured options:

Balancing Structured Reviews and Unstructured Feedback

Whatever you decide, remember to keep it simple, lightweight and focused on a clear purpose.

Read more about the fundamental elements of performance management here:

The Building Blocks of Modern Performance Management

Why it Needs to Be Easy for Employees

Once you have a purpose and layed out a process it can feel like you’re almost done. BUT, the most important step still remains, you MUST make everything easy for your employees.

Read more about 5 relevant product design principles to keep in mind when designing your process:

Approach Performance Management Like a Product Designer

Every step should be scrutinized, every task you assign an employee should be questioned. Modern performance management is more complex and more frequent, the only reason it works is because it is digital first.

Performance management software streamlines and automates the large administrative burden of pulling off a modern strategy. If you ask your employees to do that work they will rightfully decline.

Software allows employees to focus only on the value creating activities, like self-reflection, conversations with managers, and planning.

To learn more about the importance of keeping things easy, read:

First, Take Back Your Time: Before adding complexity, streamline.

What is Performance Management Software

How To Choose Performance Management Software

The Most Important (and Overlooked!) Features to Consider When Selecting Performance Management Software?

How to Evolve Your Performance Management Process

Lastly, plan to continue to work on your process. Improve it, expand on it, evolve.

Just please don’t throw it all away and start again whenever a new trend comes along.

We have a lot to say about this topic, but honestly no one explains it better than Jon Stein in his article for First Round’s blog - Betterment Tested Three Performance Management Systems So You Don't Have To.

And read this case study on our customer Colorado Health Foundation.

For additional insight check out:

Why You Should Iterate On Your Existing Strategy

Should You Test Your Performance Management Process?

Examples of Modern Performance Management

So what are the world’s leading companies doing? Here is a long list of examples from big name brands and several smaller organizations that you may have more in common with.

Case Studies

Spoor Bunch Franz | Accounting Firm | 50 Employees

Semi-annual reviews, monthly feedback, and additionally custom cycles for departments, roles and new employees.

Five Star Technology | IT Services | 140 Employees

Quarterly check-ins with broad 360 reviews that are qualitatively coded around the company’s six core values.

J2 Interactive | IT Integrator & Developer | 150 Employees

Quarterly conversations with annual goal-setting and a year end review to summarize performance.

InvestiNet | Receivables Management | 100 Employees

Four types of goals with weekly check-ins make sure everyone’s work is aligned and that they’re living the company mantra of “never settle for the status-quo.”

The Colorado Health Foundation | Foundation | 60 Employees

A quarterly conversations process with annual goal-setting, a simple year end review, and lots of flexibility.

More Examples

How Does Amazon Do Performance Management?

3 Approaches to Performance Management: Google, Betterment and IBM

How Does GE Do Performance Management Today?

How does Facebook do Performance Management

Performance Management at Tesla: What we know.

How Regeneron Built Their Performance Management System

How Does Uber Do Performance Management?

How Does Asana Do Performance Management?

How Netflix does Performance Management

Deloitte's Radically Simple Review

 

 

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