The way organizations operate has changed substantially over the past 30 years. For example, today’s employees play a much more active role in determining their organizations’ strategic direction and how they can contribute to it. As a result, new employee performance review methods have emerged. Although no one method is better than another, it’s still essential to understand which one works best for your organization.

Emergence of New Review Methods

Historically, senior management would define an organization’s strategic direction and key objectives. Then those executives would task middle management and their teams with carrying out these business initiatives. It was a stable (albeit one-sided) way to establish and meet goals. Employee performance was then appraised by managers with feedback based on how well they met these expectations.

However, with advancements in technology, employees gained access to real-time customer data. This has pushed decision making toward the front line as companies strive to be more responsive to customer needs. Companies in dynamic, fast-paced industries rely more on employee-led ideas and initiatives to generate value for customers and set their strategic direction.

Accordingly, new performance review methods were developed to give employees more say in setting their goals and evaluating their performance. With these new methods, evaluations happen more regularly (e.g., quarterly), are co-created by the direct supervisor and employee, are tied to business results that the employee can directly impact and have the potential to fast track career development.

Understanding the Traditional Performance Review Method

Do some companies still find value in the traditional performance review process? Absolutely. Generally speaking, companies in relatively stable sectors that still rely on hierarchical decision making can benefit from traditional methods. As a whole, their workforces tend to be focused more on incremental development rather than disruptive change. So a top-down, manager-driven review would make sense.

With a traditional performance review, a supervisor outlines the expected processes, goals and outcomes according to the employee’s past performance. The employee listens and asks questions. When the meeting ends, the employee knows what’s expected of them.

Since traditional performance reviews aren’t really two-way exchanges, they take less time to conduct. However, they also aren’t inspirational. Plus, the performance that the review is based on could be months old.

For example, if a salesperson has a poor second quarter and their performance review doesn’t happen until the fourth quarter, a lot of ground could be lost before they receive feedback. In fact, the second quarter’s performance problems may no longer even be relevant.

An Overview of Modern Performance Review Methodologies

Fast-moving companies in competitive industries find the traditional performance review process frustrating and inefficient. That’s why so many businesses have moved to modern performance evaluation methodologies, such as managing by objectives and 360-degree feedback.

Managing by objectives.

Managing by objectives involves all team members setting specific, measurable, achievable, relevant and time-constrained (SMART) goals and developing plans to achieve them. Throughout the goal timeline, managers can offer help or suggest adjustments. By the time a manager and employee sit down for performance review meetings, both sides already know how the employee did.

Managing by objectives is a dynamic, fluid process that moves managers and employees toward a mutual definition of success. It’s objective because it relies on data points, which makes it feel less biased. Ultimately, the employee can feel empowered and heard.

360-degree feedback.

During a 360-degree performance review, the manager and employee gather data from a variety of constituents, including peers, direct reports, other colleagues and even clients. The resulting data points are used to develop a comprehensive look at the employee’s performance.

Typically, 360-degree performance reviews take place annually since they require more preparation and resources. This method increases an employee’s awareness of how they affect other stakeholders, and it encourages the employee to invest in their own development.

The Benefits and Challenges of Performance Reviews

Modern performance review methods have quite a few advantages. They harness the wisdom of front-line team members, allow employees to determine where and how they can add value and create opportunities for stronger worker-manager relationships. They also allow teams to adjust goals immediately if necessary. This is a huge boost when disruption can happen at any time.

So, should all companies embrace modern performance review methods? Not necessarily. Modern performance reviews can be difficult to uniformly apply, at least at first. And because key performance indicators (KPIs) can become obsolete practically overnight in some industries, review outcomes may still become irrelevant even with more frequent evaluations.

Additionally, modern performance review methods require more time, energy and effort from managers. Supervisors who are accustomed to traditional performance reviews may need an adjustment period to figure out how to efficiently make the move to more modern methods.

Despite the obstacles, modern performance reviews might be worth trying if a business has a relatively flat chain of command or a notably dedicated workforce that’s very invested in the organization’s success. If company leaders are unsure about adopting modern methods of performance review, they can beta test new methods within a few key teams. That way, they can determine if it’s time to explore a fresh method to ensure reviews meet everyone’s needs.