What Are the Top 5 Performance Management Frameworks?

Performance management frameworks are a way to incorporate all your performance management practices within your HR operations in the most structured way possible. In this article, we discuss the five major types of performance management frameworks and how they can help an organization achieve success and growth. 

Performance management is key to the success of an organization. While an increasing number of organizations are upgrading the way they measure performance and growth, more than 58% are still using archaic spreadsheets for documentation and tracking. Performance management frameworks help organizations manage performance efficiently by simultaneously analyzing various performance parameters and highlighting different pathways to improvement.  

Before we learn about the different types of performance management frameworks, let’s understand why these frameworks are necessary in the first place. 

Table of Contents

Why Do We Need Performance Management Frameworks? 

A performance management framework is a structured approach to set organizational goals, chart plans, and assign targets to employees such that it becomes a systematic process to achieve said goals.  

Here are five reasons why every organization should implement a good performance management framework: 

• A comprehensive framework encourages improvement and development at the individual level. 
• A definitive plan ensures that people are recognized for their efforts and encouraged to do more based on their skills and abilities. 

• It enables monitoring and analysis of performance-related data, which in turn helps analyze key result areas (KRAs). 
• An organization can align employee targets with its larger goals by analyzing performance metrics and tracking significant milestones. 
• A defined roadmap to growth and success can be developed; this promotes transparency and clarity in assignments which, in turn, helps employees work productively.  

Why Implement a Performance Management Framework? 

Without a performance management framework, organizations tend to have static performance appraisals once a year with top-down feedback practices. This system leads to limited growth without making a real difference. 

Studies like the one conducted by Inside HR suggest that 50% of employees surveyed are surprised by the feedback they receive. Of these, 87% reacted negatively to the feedback, leading to a 23% drop in employee engagement. 

The absence of a performance management framework not only hampers an organization’s growth, it also lowers motivation in employees and decreases commitment, thereby bringing down the morale of the workforce, and lowering the retention rate in the long run.  

The Society for Human Resource Management (SHRM), in a recent study, found that annual feedback sessions put employees on the defensive, which negatively impacts performance, even for high performers. This should encourage human resource (HR) leaders to adopt a performance management framework that will produce the best outcomes for the organization. 

Top 5 Transformational Performance Management Frameworks 

These are 5 of the most common performance management frameworks, along with the industries and/or companies that have benefitted from implementing them. 

 1. OKR (Objectives and Key Results)

“Objectives and key results” (OKR) is a framework for performance management through which an organization identifies and determines both objectives and KRAs.  

Objectives, as the name suggests, are the targets an organization wants the employee to achieve; the KRAs are tasks that lead to achieving said objectives. 

To help you understand this better, try filling in your objectives and KRAs the blanks in the sentence below: 

We will achieve (Objective) by excelling in (1. ___, 2. ___, 3. ___, 4. ___, etc.) key result areas. 

The objectives are kept timebound so that they can be measured and analyzed in the upcoming feedback cycle. It is important to note that since OKRs can be ambitious, meeting them may not always be possible. OKR is a concept in performance management that originated at Intel and was subsequently adopted by other global companies such as Google, Uber, Spotify, Twitter, Airbnb LinkedIn, and Wells Fargo.  

Google, for example, adopted the OKR performance framework in 1999 and has taken it to the next level by making suitable tweaks to the system to make all its functions more effective, and its workforce more skillful. Let us now look at the pros and cons of this performance management theory. 

Pros 

The OKR performance management framework offers a lot of benefits in addition to enabling growth: 

• OKRs encourage people to look at the complete picture with ambition; realize their individual contributions, and then dream bigger and achieve more.  

• OKRs allow businesses to regularly measure and review performance and narrow down the feedback process to key areas of improvement.  
• OKRs are organizational goals that are reflected in individual employee targets. This helps keep the company’s vision aligned with each employee’s roles and responsibilities. 

Cons 

Just as OKRs offer a lot of advantages, there are some drawbacks that HR teams need to be mindful of: 

• An individual target may or may not always co-relate to a corresponding OKR.  

• The “how to” when it comes to achieving targets is entirely dependent on employees. 
• Some objectives may come across as unattainable and intimidating to employees. 

Learn more: Why OKR Is the Answer To Nailing Org Performance Post Pandemic 

 2. MBO (Management by Objectives)

The MBO performance management framework tries to implement transparency, and uniformity of goals and ideals across an organization. The HR team collaborates with business leaders to define and then convey the goals and desired outcomes to employees. While implementing the framework, it is imperative that each member of the team has an in-depth understanding of their responsibilities and goals.  

MBO is a framework that was developed by Peter Drucker, a management consultant, educator, and author. It has 4 critical components: 

• Goals that are challenging yet achievable 
• Continuous feedback 
• Rewards for achieving targets and following best practices 
• Constant focus on personal growth and development 

Unlike in the OKR performance management framework, where it is important to show improvement in every KRA, even if the target isn’t met; MBO requires every objective to be completed within the given time frame. 

After the goals and objectives are decided upon and mapped out by management, they are conveyed to the respective teams as employee targets. When managers and their teams are in alignment about targets, it acts as a tailwind to achieving organizational goals.  

Even though MBO feels like a foolproof performance management framework that will yield great results for every team, there are pros and cons.  

Pros 

These are some of the pros: 

• With more clarity about their roles and responsibilities, employees will feel they are a part of something bigger than themselves, which becomes a driving force for productivity.  
• MBO promotes accountability, teamwork, cross-functionality, communication, and effective collaboration. 
• Clear objectives help promote transparency across the organization, which instills harmony within the team. 
• When employees have unique roles, they feel indispensable to the organization which, in turn, motivates them to accomplish their goals effectively. 

Cons 

There are a few drawbacks to the MBO performance management framework: 

• Excessive emphasis on goals compared to the process could prevent employees from achieving their targets.  
• Focusing on targets can negatively affect engagement and lower overall morale at the workplace. 
• Since MBO depends as much on goals as it does on receiving feedback, it is important that management stays invested in the process and gives clear feedback along with appropriate rewards and recognition. A lack of cooperation from management could derail the whole MBO process. 
• If the significance of goals is not described and discussed with the team, employees may feel demotivated with a lack of a clear purpose.

 3. HR-review-driven Performance Analytics

HR-driven performance analytics not only helps manage performance, but also empowers employees to improve. With people analytics and employee performance metrics, every goal, and every action can be quantified and measured.  

The goal behind HR-review-driven analytics is to understand historical data, predict new performance trends, and take informed actions to mold talent in a way that yields high performance. Gathering people analytics gives managers and HR teams a window into the strengths and weaknesses of employees, which, in turn, helps them channel their energies towards projects and assignments that will help them excel as a team. 

The best part about the HR-analytics-driven performance framework is that it doesn’t just help record performance-related evaluations, but also helps measure human aspects like engagement and interest. 

Within the framework of HR-review-driven performance management, these are the components that drive efficiency: 

• Continuous feedback loops 
• Skill metrics and cultural parameters 
• Scale of growth and development 
• Review and feedback monitored by HR 

HR-driven performance management leverages descriptive analytics to not only offer insights into what is happening in an organization, but also what can happen. This is possible when organizations integrate performance management with HR tech to generate predictive analytics. Predictive analytics, powered by machine learning, will help ensure unprecedented growth, retention, and engagement in the workforce. 

HR-review-driven performance can be adapted to a data-driven approach that works well with both OKR and MBO frameworks.  

Pros 

HR-review-driven performance analytics offer several advantages in the management of skills and talent at the workplace. For instance: 

• The more data-driven your decisions, the more likely it is that they will be successful.  
• Employee engagement analytics offers unique insights that allow business leaders to improve employee retention and interest.  

• With increased clarity about employee skillsets and talents, recruitment and hiring processes can be streamlined. 

Cons 

HR-review-driven analytics can have certain limiting effects on performance management: 

• Working with heavy datasets can be a huge waste of time for smaller teams.  
• If HR analytics are extracted without the right tools and software solutions, data-driven decisions are unlikely to be accurate and impactful.  

• If the data collection and analysis software solutions do not work in harmony, the predictive analytics generated can be unreliable. 

Also Read: People Analytics: A Step-By-Step Guide to Using Analytics in HR 

4. Balanced Scorecard

A scorecard is a document that offers a comprehensive ranking of something across various categories based on several parameters. A Balanced Scorecard is achieved when an employee delivers a balanced performance through the year, and even exceeds targets.  

According to a recent study, the Balanced Scorecard links four aspects of performance metrics: 

1. If an employee’s performance matches customer expectations 
2. If an employee’s performance is aligned with company goals 
3. If an employee’s performance is consistently improving and adding value to the company  
4. If an employee’s performance has the approval of stakeholders and investors

Therefore, the Balanced Scorecard combines indirect performance metrics in a single management report. This performance management theory not only helps business leaders realize how and where improvement is taking place, but it also helps them realize if the employee’s improvement in one area has made them compromise their efforts in another. 

Customer-focused businesses, in particular, benefit from the Balanced Scorecard framework. Ford Motor Company and Volkswagen are just a few of the brands that have extracted the best out of their teams using this framework. 

Pros  

There are a lot of advantages for teams that rely on the Balanced Scorecard for their performance management needs: 

• It is a reliable framework for ensuring performance improvement.  
• It brings clarity to the roles and responsibilities of the employee and offers a window into what needs to be done, and how. 

• It connects the worker to the organization and the customer, making them feel that they are a part of something bigger than themselves. 

Cons 

There are a few cons to implementing the balanced scorecard framework, such as: 

• Collecting data from different sources can be cumbersome.  
• A buy-in and constant check-in with stakeholders is required, which can be time-consuming. 

• Since data has to be collected from various sources, and the scorecard kept up to date at all times, a lot of time and effort is required to implement this framework. 

 5. 360-degree Feedback

As the name suggests, this framework involves gathering and working on feedback collected from a 360-degree perspective; that is, from everybody an employee works with. 360-degree feedback is a highly effective performance management and performance appraisal framework that acts as a developmental reinforcement tool for employees. It gives peers and supervisors an opportunity to provide anonymous feedback about their coworkers and provide additional advice that might help them grow.  

It offers employees rich insight into how their efforts are perceived by the people they work with and gives them an opportunity to calibrate their skillset as well as behaviors.  

360-degree feedback also gives employees a chance to receive reviews from clients and/or customers, which adds to their professional growth. The key to 360-feedback is ensuring its frequency. Continuous feedback is important because organizations that engage their employees with continuous performance processes are 44% more likely to retain them. 

360-degree feedback engages everyone from customers to coworkers to supervisors and stakeholders, thereby improving: 

• The work culture 
• Employee behavior 
• Employee competencies and skills 
• Performance improvement plans 

• Leadership effectiveness 

360-degree feedback involves a lot of form-filling, which can easily be automated, procured, and documented using Human Resource Management System (HRMS) software platforms like Darwinbox. 

Pros 

Some of the most notable advantages of implementing the 360-degree feedback framework are: 

• It creates a culture of self-realization and introspection, which is a prerequisite for growth in self-governing teams. 
• It helps employees identify their strengths and weaknesses.  
• It opens avenues for major learning and development (L&D) programs for employees, which can help them grow professionally. 
• It also improves overall everyday productivity and inculcates transparency within the team. 

Cons 

The 360-degree performance feedback framework has certain drawbacks. These include: 

• It is tough to create a 360-degree feedback structure that creates and promotes trust amongst employees.  
• The accuracy of this feedback (since it comes from multiple sources) is doubtful.  
• Sometimes, the feedback turns out to be all about employee behavior rather than their skillset. 
• It can be a time-consuming process and can take 1-3 weeks to communicate with all the people involved. 

• Sometimes, the feedback comes with no clear action items.  
• Recent studies show that this framework might even encourage teams to start pitting employees against one another. 

Further Reading: 360 Degree Feedback: A Complete Guide 

Key Learnings

The right performance management framework for an organization will instill values of growth and improvement among teams, aid the development of performance improvement strategies, and establish systems that allow organizations to accurately monitor, document, and improve performance. The key performance management frameworks such OKR, MBO, HR Review, Balanced Scorecard and 360-degree Feedback can be used in organizations across various industries and are best administered through a robust HRMS.  

Find out how Darwinbox can help you effectively implement the framework that best suits your organization. Book a quick demo today.