Major Shift in Performance Management Goals and Outcomes Identified in a New MIT Sloan Management Review and McKinsey & Company Study

Fortune 500 executives report a need to adapt, but some organizations are stuck in the old ways of performance management

The business value of traditional performance management is collapsing. Many organizations find these models — pro forma exercises that often demotivate employees and managers alike — counterproductive. They have become irrelevant to actually improving performance or its management.

Performance management’s purpose is shifting, structurally and dramatically, according to “Performance Management’s Digital Shift,” a global study based on interviews with more than 30 industry leaders and experts. The report, released by MIT Sloan Management Review and McKinsey & Company, finds that technological innovation, the changing nature of work, and digital transformation both enable and create new demand for novel performance management approaches.

“Organizations serious about talent no longer accept performance reviews that rely on managerial impressions and intuitions as best practice,” says Michael Schrage, a research fellow at MIT Sloan School’s Initiative on the Digital Economy and a coauthor of the report. “Our research indicates that data-driven performance management both better supports managers and employees and drives more effective value creation in the organization.”

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In addition, while recognizing the need to move away from traditional compliance models and rankings, leaders report that many organizations struggle to make use of available technology, keep employees engaged, and prioritize group over individual work.

“Traditional annual reviews are often a source of frustration for managers and employees alike,” says Bryan Hancock, a partner in McKinsey’s organization practice and a coauthor of the report. “Increasingly, companies are putting the manager back in performance management by having more frequent manager-led conversations.  These conversations leverage data, insight into team dynamics, and alignment on priorities to boost performance.”

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The study also identifies immediate next steps for organizations serious about performance management:

  • Commit to a data-driven, team-oriented culture. Develop data-driven performance management platforms and tools that identify and assess the human interdependencies that exist within and between teams.
  • Commit to a continuous feedback culture. Facilitate ongoing feedback on individuals’ progress, growth, and development opportunities.
  • Commit to clarity between assessment and development. Managers should make absolutely clear when feedback is about assessing performance and when it’s about cultivating skills.
  • Commit to transparency. The credibility and trustworthiness of next-generation performance management systems depend on transparency. Managers and employees should have easy access to personalized feedback data.
  • Commit to alignment of performance management and KPIs. The surest way of instilling performance management accountability for employees and managers alike is requiring clear and concise key performance indicators.

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