Performance management is central to organizational success, yet many companies struggle to design systems that place people at the center of driving business results. Despite frequent updates and revisions to these systems, managers bristle at the administrative burden of completing them, and despite the managers’ efforts, employees still often feel undervalued, leading to reduced productivity and decreased morale.
The Limitations of Individual-Centric Systems
Traditional performance management systems typically emphasize individual goal setting and feedback. While this works effectively in roles with clearly defined, easily measurable outcomes, such as sales, it quickly falters in more complex and interdependent roles like software development or strategic planning. These roles depend heavily on collaboration and nuanced contributions that are challenging to quantify individually.
Let’s take a very simple example: a marketing team devises a new experimental approach for generating leads that leads to a breakthrough for a product. One of the team members sparked the idea in their group offsite. Another member saw the potential in the idea and went away to do research on the feasibility. The manager then read the brief and put it on the prioritization list. The project manager of the team then facilitated a 4-week sprint to build out the approach, including contributors across the entire team. Who gets credit for this?
In an individual incentive system, the manager is forced to parse out the rewards, placing a value on each discrete, individual contribution. But does this really capture and reward the alchemy of the entire team’s work, including that of the manager who created the team dynamic in the first place? The problems with individual-centric performance management include:
- Misalignment of incentives, encouraging competition rather than collaboration (for example, through forced performance curves).
- Overlooking essential supportive roles crucial to team success.
- Delayed and often outdated feedback due to cumbersome annual review cycles.
- Underappreciation of the dynamics of successful teams.
The Possibilities of Team-Based Performance Management
“Would you rather have a team with high performers or a high performing team?”
Recent research and real-world organizational insights suggest that focusing on team effectiveness rather than solely individual achievement yields better overall performance. Teams that excel often do so through strong coordination, effective communication, and leveraging diverse skill sets—attributes that individual-centric systems may fail to recognize or reward adequately.
Despite the work that goes into organizational design, building teams with diverse strengths, and encouraging psychological safety, we are one step shy of setting up teams for success by rewarding the collective contributions.
Principles for Effective Team-Based Management
Organizations adopting successful team-based performance management systems share several characteristics:
- Clear alignment on behavioral expectations and team-oriented goals.
- Leadership conversations around what constitutes strong team performance, along with discussions on great teams in the organization (and why)
- Direct and actionable feedback for teams that are struggling around where they are missing the mark (e.g., speed of execution, misaligned priorities, responsiveness to other teams).
- Recognition and reward systems that directly acknowledge collective achievements and collaboration.
Moving Forward
Organizations seeking sustained success in today's complex business landscape have an opportunity to reorient their performance management systems to value both individual and team contributions explicitly. By recognizing the importance of collaborative dynamics, timely feedback, and collective accountability, companies can better foster environments where teams thrive, innovation accelerates, and organizational velocity increases.
Julie Clow is a Senior Consultant and writer of the Substack Counter-Intuition with Julie Clow.
Photo by Jordan Whitfield on Unsplash
