Five Performance Management Models HR Should Know

The annual performance review is fast becoming a thing of the past, with companies like Amazon, Deloitte, and Microsoft leading the way when it comes to ditching outmoded performance management models in favour of bespoke, streamlined processes that are achieving impressive results.

Deloitte, for example, has scrapped its annual review system, which relied heavily on ‘accountability,’ instead taking a more holistic approach centred on goals and strengths. Similarly, Adobe’s informal check-ins, which rely on real-time feedback, have seen a reduction in deadlines and oppressive form-filling. Its more independent and agile approach has enabled it to respond to market shifts, resulting in the company experiencing a 30% decrease in voluntary turnover and a 50% increase in involuntary departures.

Why use performance management in HR strategies?

According to a report by the Office for National Statistics, only three out of 18 UK industries showed productivity gains over the past year, suggesting that businesses should be considering switching to a more robust performance management model. A further study sponsored by Bridge in 2023 revealed that organisations with effective performance management systems experienced higher employee satisfaction and productivity.

Here are five performance management models and their features, benefits, and suitability based on organisational size, goals, and industry.

1. Management by Objectives (MBO)

This goal-oriented performance management model allows managers and employees to collaboratively set specific, measurable objectives. Progress is regularly reviewed, and performance is assessed based on the achievement of these objectives. Everyone is clear on what they need to achieve, ensuring that goals align with organisational objectives. As employees set the goals themselves, it boosts commitment, motivation and engagement.

This type of model is best suited to organisations with clear, measurable goals. The challenge would be using this model in a more dynamic workplace where objectives frequently change. Examples of businesses using this model successfully include Google, HP, and Intel.

2. Balanced Scorecard (BSC)

This strategic planning and management system evaluates performance from multiple perspectives: financial, customer, internal processes, and learning and growth.

It allows for a comprehensive view and a holistic assessment of organisational performance beyond financial metrics and provides strategic alignment as it can be linked to performance metrics and strategic objectives, providing more cohesion.

Ideal for medium to large organisations, this model is perfect for creating a balanced performance evaluation, although implementation can be complex and resource intensive. Volkswagen, Ford Motor Company, Citibank and Phillips Electronics are just some of the brands that favour the BSC method.

3. 360-Degree Feedback

As the name suggests, this model gathers performance feedback from multiple sources, including peers, subordinates, supervisors, and self-assessments, providing a well-rounded view of an employee’s performance. Tech giants Google, Netflix, and Facebook (Meta), as well as General Electric (GE), and Goldman Sachs are fans of this methodology.

The primary benefit is the ability to provide diverse perspectives and comprehensive insights into an employee’s strengths and areas for improvement. It is development-focused and thus encourages personal and professional growth through varied feedback.

While organisations that promote open communication and continuous development would be best suited to the 360-Degree Feedback model, it requires a culture of trust, and feedback may be biased if not managed properly.

4. Continuous Performance Management

If a model that provides regular, real-time feedback and ongoing discussions between employees and managers is more in line with your organisation, this modern methodology might be most suitable. In a shift away from traditional annual reviews, it is agile and allows for timely adjustments to goals and performance strategies. Typically, there is enhanced engagement with this model as employees appreciate the opportunity for open communication, and it fosters a culture of continuous improvement.

Fast-paced industries where responsiveness and agility are critical would find this model flexible, responsive and fluid. The challenge would be the ongoing commitment to regular interactions and may demand more time from already time-poor managers.

Companies like Dell, Microsoft, and IBM have integrated this model, opting for regular feedback loops to assess performance.

5. Objectives and Key Results (OKRs)

What do Dropbox, Eventbrite, LinkedIn, Spotify, Trello, Uber and Yahoo have in common? They are proponents of the OKR system.

Simple and succinct, OKRs involve setting ambitious objectives paired with measurable key results, promoting alignment and tracking of goals across the organisation. This allows for transparency as goals and progress are clearly communicated across the organisation, so managers can prioritise the most pressing objectives and measurable outcomes.

Companies experiencing rapid growth or particularly innovative organisations will find this model reactive and support changing objectives. The challenge would be to ensure that management does not become overly ambitious in its objective setting, as this could lead to employee stress or burnout.

What to consider before you select your performance management model

The size of the business is one of the biggest considerations, although all models can be somewhat adapted as required. Smaller organisations may prefer models like MBO for simplicity, while larger ones might benefit from the Balanced Scorecard’s comprehensive approach.

Similarly, fast-paced industries may require continuous performance management to remain responsive and agile. More stable sectors might find traditional models a better fit, while an organisation more focused on innovation might adopt OKRs to set and track ambitious goals.

This isn’t a one-size-fits-all approach but rather understanding the right model, aligned with employee performance and organisational objectives and assessing its suitability based on size, industry, and goals.

HR Performance Management Software

With so many performance management methods out there, having flexible technology that can be tailored to how your organisation chooses to conduct performance management processes, and can also be updated if your methods evolve, is crucial.

The xcd people platform’s performance management module is one of our most configurable features. Download our performance management overview to learn more.