Performance Reviews: The Resurgence of Management by Objectives and the Rise of Continuous Performance Management

From the article of Christine Vantola, Founder and Managing Director of LMW HR Group, at Workforce newsletter.

How do we align business goals with the goals of our people?

As an HR professional, I’ve witnessed the rise and fall of various performance evaluation methodologies. One of the most recent examples, 360-degree evaluations, replaced the traditional, annual top-down evaluations with the promise of a more holistic picture of employee performance. However, after years of implementation, I’m here to argue that a return to the core principles of Management by Objectives (MBO) and its more modern iteration, Continuous Performance Management (CPM), is the most effective approach to achieving organisational goals in today’s dynamic work environments.

The appeal of 360-degree evaluations is undeniable. Gathering feedback from colleagues, superiors, and subordinates provides a comprehensive view of individuals’ work personalities, but not necessarily their performance or effectiveness. Moreover, the anonymity characteristic of 360-degree evaluations may protect free expression, but for the same reason, it can also lead to bias. A 2022 Gartner study revealed that 52% of employees felt that 360-degree evaluations lacked actionable advice, while 38% believed they were influenced by internal politics.

Management by Objectives, popularized in the 1950s by Peter Drucker, emphasizes clear, measurable organizational goals and their absolute alignment with the goals of the leadership team and their people. This transparency empowers employees to understand their role in the organisation’s journey, enhancing engagement, commitment, and a sense of responsibility. Considering today’s rapid pace of change in the business (and beyond) environment, the core principles of MBO – clarity, alignment, and accountability – are more relevant than ever, but not necessarily sufficient.

As an evolution of MBO in the early 2000s, we saw the rise of Continuous Performance Management, which brought back the approach of clear and aligned goals while incorporating continuous feedback and communication into the evaluation process. According to a recent Deloitte survey, 72% of millennials prefer CPM over traditional annual evaluations because it responds to the need for continuous improvement and enables the creation of a culture of continuous development.

So, how can we leverage the principles of MBO and CPM to align organisational and individual goals and strengthen the evaluation process?

• The first step is to identify clear organisational goals from the organisation’s leadership.
• HR then takes on the task of incorporating organisational goals into evaluation tools and ensuring that they are communicated and understood by all employees.
• At the same time, managers inform their teams about the direction of the organization and together create clear, measurable individual goals (SMART) aligned with organizational goals.
• Finally, we must ensure that regular meetings are held between managers and their teams to address any problems and provide guidance on achieving their goals.

HR’s role remains crucial throughout the process, ensuring that team leaders have the necessary goal-setting and coaching skills, and helping employees understand how their goals contribute to their organization’s journey and what achieving them means for their own development.

In today’s rapidly changing business landscape, Management by Objectives and Continuous Performance Management methodologies offer a structured yet flexible framework for ensuring the achievement of organisational goals through the employee evaluation process. By focusing on clear goals, continuous feedback, and development, we can empower our human capital and achieve exceptional results.