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What is an Effective Performance Management System? (Explained)

Performance management

What com­pris­es an effec­tive per­for­mance man­age­ment sys­tem and what is a per­for­mance man­age­ment cycle?

What is effec­tive per­for­mance management?

Com­pa­nies are increas­ing­ly fac­ing up to the chal­lenge of how to make per­for­mance man­age­ment a suc­cess with­in their organ­i­sa­tion. A first step in this jour­ney is to under­stand what an effec­tive per­for­mance man­age­ment sys­tem is.

In order to do this, we will address the fol­low­ing questions:

  • What is effec­tive performance?
  • What does an effec­tive per­for­mance man­age­ment sys­tem look like?
  • What are the stages of the per­for­mance man­age­ment cycle?

Per­for­mance Man­age­ment defined

When dis­cussing per­for­mance man­age­ment, many peo­ple imme­di­ate­ly think of per­for­mance reviews or annu­al appraisals. But this is only one com­po­nent of what is con­sid­ered to be per­for­mance man­age­ment. One of the best def­i­n­i­tions of per­for­mance man­age­ment is pro­vid­ed by Michael Arm­strong in his Hand­book of Per­for­mance Man­age­ment, which care­ful­ly and plain­ly lays out the Arm­strong per­for­mance man­age­ment cycle:

Per­for­mance man­age­ment is the con­tin­u­ous process of improv­ing per­for­mance by set­ting indi­vid­ual and team goals which are aligned to the strate­gic goals of the organ­i­sa­tion, plan­ning per­for­mance to achieve the goals, review­ing and assess­ing progress, and devel­op­ing the knowl­edge, skills and abil­i­ties of people.”

A key point here is that it is a con­tin­u­ous process, not a once-a-year activ­i­ty. Qual­i­ty per­for­mance man­age­ment should, there­fore, bring togeth­er a num­ber of dif­fer­ent, inte­grat­ed activ­i­ties to form an ongo­ing per­for­mance man­age­ment cycle’, as shown below.

What are the stages of the per­for­mance man­age­ment cycle?

Performance Management Cycle

In this sec­tion, we are going to explain the per­for­mance man­age­ment cycle and how imple­ment­ing this cycle could ben­e­fit your organisation.

The first stage of the Arm­strong per­for­mance man­age­ment cycle is the Plan­ning” phase for the forth­com­ing peri­od. Plan­ning should involve agree­ing on SMART objec­tives, a per­son­al devel­op­ment plan or actions and review­ing the job require­ments, updat­ing the role pro­file where nec­es­sary. His­tor­i­cal­ly, organ­i­sa­tions tend­ed to car­ry out this plan­ning stage once a year. How­ev­er, with the busi­ness envi­ron­ment becom­ing increas­ing­ly fast-mov­ing, so many organ­i­sa­tions are adapt­ing their process­es to set near-term” objec­tives every three months.

The organisation’s goals and val­ues should feed into per­for­mance plan­ning to ensure that indi­vid­ual per­for­mance is aligned with the over­all strat­e­gy of the organ­i­sa­tion. Specif­i­cal­ly, each SMART objec­tive should con­tribute to achiev­ing one or more of the organisation’s goals. Per­son­al devel­op­ment plan­ning, mean­while, should con­sid­er what behav­iours, skills or knowl­edge the indi­vid­ual needs to devel­op in order to suc­cess­ful­ly achieve their objec­tives and uphold the organisation’s values.

Tra­di­tion­al­ly, organ­i­sa­tions have placed a lot of their empha­sis on the Review” part of the cycle, often because a per­for­mance assess­ment is required for reward­ing pur­pos­es. How­ev­er, we have always advised that it is the Act” and Track” stages that are the most impor­tant. These stages are where per­for­mance is actu­al­ly deliv­ered and results are achieved. Indi­vid­u­als need to be encour­aged to sched­ule in reg­u­lar time to work on achiev­ing their objec­tives and per­son­al devel­op­ment plans. Sim­i­lar­ly, man­agers need to be check­ing in with their staff reg­u­lar­ly. They must give fre­quent feed­back and use coach­ing skills to help their team mem­bers over­come chal­lenges and iden­ti­fy oppor­tu­ni­ties for learn­ing and per­for­mance improve­ment. If this is left until an end-of-year review, it is too late; objec­tives and devel­op­ment plans may end up only being par­tial­ly achieved.

Notice that in the above per­for­mance man­age­ment cycle, there are no arrows between the four stages. This is because, in real­i­ty, the stages do not flow one after the oth­er. Act and Track should be con­tin­u­ous through­out the year. Reviews may take place at any point in the year and plan­ning may take place a num­ber of times dur­ing the year and be re-vis­it­ed, as the needs of the busi­ness change.

The new Con­tin­u­ous Per­for­mance Man­age­ment cycle

Since 2015, this phi­los­o­phy of con­tin­u­ous per­for­mance man­age­ment has been adopt­ed by lead­ing organ­i­sa­tions such as Microsoft, Deloitte, Adobe and Gen­er­al Elec­tric. All these major names have aban­doned tra­di­tion­al once-a-year per­for­mance appraisals in favour of reg­u­lar check-ins’ and fre­quent feed­back. These reg­u­lar per­for­mance dis­cus­sions are typ­i­cal­ly devel­op­men­tal and future-focused. They pro­vide an oppor­tu­ni­ty to explore what has gone well and how suc­cess can be repli­cat­ed again, any chal­lenges being faced and how they may be over­come and agree actions that both the indi­vid­ual and man­ag­er need to take to devel­op the indi­vid­ual and fur­ther improve their performance.

Here is how this Con­tin­u­ous Per­for­mance Man­age­ment cycle typ­i­cal­ly looks in lead­ing organisations:

So what exact­ly is effec­tive per­for­mance management?

Hav­ing all of the ele­ments of the per­for­mance man­age­ment cycle in place is very impor­tant, but that will not nec­es­sar­i­ly lead to effec­tive per­for­mance man­age­ment for your organ­i­sa­tion. There are many oth­er fac­tors in play such as:

  • Hav­ing buy-in from lead­er­ship and senior man­age­ment to per­for­mance management
  • Ensur­ing that the per­for­mance man­age­ment cycle is con­tin­u­ous and not an annu­al process
  • Ensur­ing per­for­mance con­ver­sa­tions and reviews are mean­ing­ful and not tick-box’ exercises
  • Hav­ing easy to use per­for­mance man­age­ment soft­ware that sup­ports effec­tive per­for­mance man­age­ment and gives you vis­i­bil­i­ty of per­for­mance man­age­ment activity.
  • The skills and will­ing­ness of your man­agers to deliv­er effec­tive per­for­mance man­age­ment on a day-to-day basis

If you’d like to learn more about how to achieve these things and how to embed val­ue-adding, effec­tive per­for­mance man­age­ment process­es in your organ­i­sa­tion, read our free guide to suc­ceed­ing with Per­for­mance Man­age­ment. Just enter your details below and we will send you the guide straight away: