The way we work is changing. Millennials now occupy the majority of the workforce, innovations in technology have changed the way we do business, and after all, it’s the year 2020 — the future has arrived. Perhaps this conjures up images of flying cars and robots, but we’re just referring to performance management trends. The new decade has brought a host of changes for performance management, and we asked industry leaders for their insight into the future of the market and associated performance management software.
- The market is growing at a 13% CAGR and ongoing feedback will replace the annual review. There will be a dramatic market shift and definite growth.
- The human experience is the new employee experience
- Data-driven performance management is becoming more holistic and objective
- Cloud-based deployment is increasing in the performance management software space
- Mental health and wellness are working their way into performance management software and practices
Dramatic Market Shift and Growth
Gartner reported that 81% of HR leaders are changing their organization’s performance management system, and less than one-fifth of HR leaders believe that performance management is successful right now. All-encompassing change is on the horizon for performance management.
Jason Lauritsen, keynote speaker and author, believes the top performance management trend for 2020 will be experimentation. “An increasing number of organizations have arrived at the (correct) conclusion that their performance management approach and processes are both outdated and ineffective. But there’s a lack of confidence about what to do next,” he said.
Goodbye, Annual Performance Review
The annual performance review has been getting pushed out of the HR space for quite some time now. It has been a gradual but dramatic shift — in 2016, Harvard Business Review reported that there is a performance management revolution rising and it’s delivered. Performance management practices are going through a big change. Ongoing feedback, coaching and 360-feedback, some performance management methods we’ve been talking about for a while, have become mainstream. These conclusions have been asserted in a PWC study, “The way we work — in 2025 and beyond.”
Ongoing feedback requires managers to check in with employees regularly. They can check on their progress with goals and current projects and tell them what they are doing well and what needs more attention in order to provide constant feedback and performance assessments — that is what we refer to as “coaching.” 360-feedback is another performance management strategy. It requires everyone on staff to provide feedback for each other, instead of solely managers giving feedback to employees.
The changes amongst performance management practices, naturally, have a ripple effect on the performance management software market. We’re starting to see changes there, too.
Art Mazor, Deloitte’s HR Transformation Global Practice Leader, and two of his colleagues weigh in on the shift. Joining Mazor are Joan Goodwin, lead consultant in Deloitte’s performance management space, and Kath Enderes, lead researcher at Bersin by Deloitte.
“Performance management approaches are being enabled by next-generation technologies that are embedded into the day to day work systems, like Outlook, and integrate with the more traditional HR platforms. That way, workers don’t necessarily need to exit their flow of work to tap into the technology.”
Other ways software developers are following new performance management practices is by incorporating features that automate ongoing feedback. For example, employees and managers can be automatically notified and asked to provide feedback for a colleague. Plan on seeing more of these products crop up in the performance management software market. In fact, plan on seeing performance management software market growth in general.
The performance management software market is projected to increase to a value of $5635 million and at a 13% compound annual growth rate between 2019-2025. Perhaps this surge in growth is due to the performance management revolution; the tidal shift has left software engineers with a lot of work to do. Additionally, many organizations are getting onboard with ongoing feedback, which requires them to implement new technologies or update their current systems.
New Performance Management Practices are Here to Stay
It’s become clear that this performance management practice is here to stay. Mazor asserts, “The trend toward ongoing, continuous performance in the flow of work will continue. The flow of performance management needs to be done in a way that aligns with how work gets done and matches the speed and pace of the business”.
According to TINYpulse’s 2019 Employee Engagement Report, the number one thing that anticipates performance is the level of support that managers provide. They found that the high performers rate the level of support they receive at 8/10, while the low performers rate it at 6.8/10. Studies show that ongoing feedback and coaching are effective, easily achievable through technology and here for the long run.
The Human Experience
The employee experience is another performance management trend that has been gaining momentum for a couple of years, but it has grown into something slightly different: the human experience. The human experience emphasizes giving meaning to employees’ work or personalizing their work. The result is an increase in employees’ productivity because they’re contributing in a personal and positive manner. Deloitte Insights introduced the human experience this year in its 2019 Global Human Capital Trends report.
Aside from the want to increase productivity, employers want to improve their employee retention rate. Low unemployment rates mean that employers must maintain employee engagement, or they’ll find a new job that can do that for them. According to the United States Bureau of Labor Statistics, 3.5 million people, or 2.3% of the workforce, have quit their jobs this year.
In addition to the high turnover rates, employees have said point-blank that they are not happy with their employee experience. According to the Alight Solutions 2018 Workforce Mindset Study, only 38% of employees consider their experience “awesome” or “great.”
The Software Market Response
So how does the performance management software market fit into the human experience? Technology can significantly assist in the personalization of employees’ work. The feedback tools mentioned earlier bring a humanistic element to performance management.
Regularly touching base with employees integrates the “meaning makers” approach into your management strategy. Talking with each other about performance leads to a greater connection between performance and the organization’s goals and purpose. It also establishes a line of communication between manager and employee, which can develop into a healthy professional relationship.
Data-Driven Performance Management
Analytics are breaking into the HR space in general, but they’re gaining a presence within performance management specifically. Efforts to improve the employee experience, reduce turnover and increase productivity and engagements can be bolstered by analytics.
“The manager is an unreliable source of employee evaluation, and research has proven this. Improved analytics should take more of performance evaluation out of the hands of managers to help them focus on things where they can have a much greater impact,” said Lauritsen. According to him, managers should employ data when it is instrumental in doing so, and then use their management skills for everything else in between.
Compensation management software is an excellent example of this. An algorithm can make decisions about an employee’s raise, taking only employee data into account, such as revenue an employee has brought into the company that year. An algorithm doesn’t care about gender, race, age or anything that isn’t data-related. This is another instance that demonstrates how data-driven performance management can prevent biases.
More Holistic Approach
There is a significant emphasis on taking a holistic approach to data-driven performance management. A holistic approach requires taking every aspect into account instead of taking the data at face value. Managers can, and should, analyze data and translate it into actionable insights.
One way to take this approach is through qualitative and quantitative analysis. “The Future of HR” Mercer Study suggests a great way to do this is by considering traditional data as well as crowdsourcing data. For example, if an employee rates high for customer service on a customer survey, you could ask their colleagues for their opinion on the matter. Their responses could provide the “why” or explain how the employee achieved this.
Dave Ulrich, a professor, speaker, author and HR thought leader also emphasizes the need to do more than just read the numbers.
“We see a pivot towards guidance where analytics offer insights to guide or shape desired behavior and outcomes. Career counselors, financial advisors, and mentors do more than offer [to] describe data or report patterns of behavior, but they guide actions that will help people achieve what they desire. When analytics offer guidance, the right outcomes are more likely to be achieved.”
Artificial intelligence, a trending tech buzzword, is playing a part in data-driven performance management. Its’ recommendation and prediction capabilities are capabilities that managers have been using to free up themselves to do more pertinent tasks.
AI can recommend an educational course or design a learning and development plan for an employee that isn’t performing or not meeting their goals. It can also reduce attrition rates by predicting when an employee may be at high risk of leaving the company.
Increase in Cloud Usage
Performance management software is increasingly on the cloud. The “cloud” is otherwise known as SaaS or software-as-a-service.
According to the Sierra-Cedar 2019–2020 HR Systems Survey White Paper, 22nd Annual Edition, performance management is experiencing an increase in cloud deployment. Twenty-eight percent of the surveyed organizations were using a mobile-enabled application at the time of the study, and that will likely increase to 38% in the next year.
Self-Service Technology for Employees
Cloud technology allows organizations to create a self-service experience for employees. For example, user-friendly mobile apps for employees have become very popular. This innovation enables employees to do things like check how many sick days they have left for the year, anywhere they have access to their app. Another thing an app could do is allow employees to check in on their goal progress, feedback notes and other key performance indicators.
Emphasis on Wellness and Mental Health
Wellness and mental health have come to the global forefront in this past decade, and now it’s making its way into the workplace. Employers are incorporating wellness and mental health support into their performance management practices.
According to the World Health Organization, depression and anxiety have led to $1 trillion per year in lost productivity. Bringing mental health issues to light helps maintain an optimal level of employee productivity. Additionally, these discussions line up with the human experience and foster strong relationships in the workplace.
Mental Health, Wellness and Technology
Employers may leverage technology to continue the conversation about mental health and make it a part of their performance management process. Just as a software system could “poke” employees with a notification to check in on the progress of their goals, it could do the same but for a mental health check-in. Other ways to promote well-being in the workplace is by offering employees access to a psychologist that they can reach online, or simply providing access to a wellness app.
Look out for technologies like these to be cropping up in the performance management software market in 2020 and beyond.
Our three macro-trends for performance management are the shift to ongoing feedback, the human experience and data-driven performance management. Our two micro-trends, which have developed in response to our three broader trends, are an increase in cloud software usage and an increase in mental health support.
At the moment, there is some ambiguity amongst the performance management market because performance management practices are in a transition period. The market is growing and it’s projected to keep doing so, but performance management practices are currently evolving — where will this land us?
Write a comment below with any predictions or insights you have for 2020 performance management trends.
Contributing Thought Leaders
Dave Ulrich is the Rensis Likert Professor of Business at the Ross School, University of Michigan and a partner at the RBL Group, a consulting firm focused on helping organizations and leaders deliver value. He has published over 200 articles and book chapters and over 30 books. He edited Human Resource Management 1990-1999 and served on the editorial board of four journals as well as the Board of Directors for Herman Miller (16 years). He’s spoken in 90 countries, performed workshops for over half of the Fortune 200, coached successful business leaders and is a Fellow in the National Academy of Human Resources.
Jason Lauritsen is a keynote speaker, author and consultant. He is an employee engagement and workplace culture expert who will challenge you to think differently. A former corporate Human Resources executive, Jason has dedicated his career to helping leaders build organizations that are good for both people and profits. Jason is the author of the books Unlocking High Performance: How to use performance management to engage and empower employees to reach their full potential and Social Gravity: Harnessing the Natural Laws of Relationships.
Art Mazor is Deloitte’s HR Transformation Global Practice Leader, part of the Global Human Capital Executive, and member of Deloitte Consulting’s Global Leadership Team. His professional journey of nearly 25 years has been exclusively focused on human capital management. He has held senior HR leadership, outsourcing executive and human capital transformation consulting roles.