I once knew a dedicated, motivated, effective employee who was working hard to achieve a promotion. He worked long hours and gave his all to his job, often at the expense of his personal life. He had been with the company for eleven years and was one of the people directly responsible for its rapid growth.

In his performance review, his boss — a new, hotshot vice president — told him that he wouldn’t, in fact, be getting a promotion at that time because he didn’t have the leadership skills necessary for the job.

He left the VP’s office shell-shocked. Nobody had ever complained about his leadership skills in the past. He confided in some co-workers, who were similarly stunned. Lack of leadership? Not him. Then, he got angry. One VP’s opinion — an opinion which nobody else shared — had cost him the promotion he worked so hard to earn.

You can probably imagine how this story ends. The employee left the company for a job comparable to the promotion he didn’t get, and went on to succeed there with his “non-existent” leadership skills.

That’s a pity on so many levels. The new VP was, apparently, the only guy who thought this employee lacked leadership. That erroneous opinion cost the company a great, hardworking, dedicated employee.

That’s one of the reasons I recommend using 360-degree feedback instead of traditional one-on-one performance reviews. Other people’s opinions, including co workers, subordinates and even clients, would have surely counteracted this VP’s take on the situation. The employee might have even received the promotion he deserved when the VP saw the full report.

Here’s how the 360 process typically works: Let’s say the manager of a sales department decides that, instead of a traditional review system this year, she will conduct 360-degree reviews of everyone in the department.

She could conduct the reviews herself, but I don’t recommend it. Anonymity is essential for people to speak freely about co-workers, underlings and especially their managers and bosses. If you want to hear the truth, using an outside consultant makes the most sense.

Via email, the consultant sends an invitation to all participants. This includes team members, managers, bosses, support staff and in some cases, even customers. They’re asked to rate their boss, co-workers and/or subordinates on a numerical scale in areas like communication style, effectiveness, teamwork and other workplace behaviors.

It is best to include the opportunity for written comments in the reviews. Rating people on a numerical scale sometimes just doesn’t say it all.

It’s also important to create the right atmosphere from the get-go. Instead of calling this a performance review, position it as an opportunity to grow as a department. Acknowledge that everyone will likely hear some negative feedback, and tell your employees its okay to have flaws. That’s the whole point, to grow beyond the behaviors that are limiting them.

When the reviews are completed, the consultant compiles the comments and ratings into a personal booklet for each individual to see how others rated and perceived them.

But that’s only the first part of the process. It’s great to get this kind of feedback, but if you don’t do anything with it, it is of little value. You need to create a development plan based on the report.

What if you learn from the 360-degree review that one or more team members has a problem communicating effectively with co-workers - what do you do about it? You make an action plan: Will training solve the problem? Do you need a mentor who can demonstrate better ways of communicating? A coach?

Then, set up a meeting in which all participants can share their plans, talking about strengths and weaknesses as a department, and holding each other accountable for change.

Using 360-degree reviews, the entire department is poised and ready to change and grow to the next level. And isn’t that what a performance review is all about?