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What is an Effective Performance Management System? (Explained)

Performance management
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Editor’s note: this arti­cle has been updat­ed for com­pre­hen­sive­ness.

What com­pris­es an effec­tive per­for­mance man­age­ment sys­tem? What is a per­for­mance man­age­ment cycle and how can it moti­vate great performance?

Per­for­mance man­age­ment isn’t an easy field to nav­i­gate. It’s con­stant­ly evolv­ing. New per­for­mance man­age­ment trends emerge every year and all too often, human resource depart­ments get it wrong. Employ­ees are left feel­ing deflat­ed, unmo­ti­vat­ed and unen­gaged and man­agers are frus­trat­ed at the poor lev­els of team and indi­vid­ual employ­ee performance.Thankfully, more and more com­pa­nies are wak­ing up to the impor­tance (and result­ing ben­e­fits) of effec­tive per­for­mance man­age­ment sys­tems. The first step towards revi­tal­is­ing and improv­ing your exist­ing per­for­mance process­es is to under­stand what an effec­tive per­for­mance man­age­ment sys­tem is​.To do this, we will address the fol­low­ing questions:

What Is Per­for­mance Man­age­ment? (Per­for­mance Man­age­ment Defined) 


When dis­cussing per­for­mance man­age­ment, many peo­ple imme­di­ate­ly think of the annu­al per­for­mance review process. But the per­for­mance appraisal 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 per­for­mance man­age­ment 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

The first stage of Arm­strong’s per­for­mance man­age­ment cycle is the​“Plan­ning” phase for the forth­com­ing peri­od. Plan­ning should involve:

  • Agree­ing on SMART objec­tives
  • A per­son­al devel­op­ment plan
  • Actions to be tak­en in the com­ing months
  • A Review of the employee’s 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 agile and fast-mov­ing, 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 aligns 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 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 reward­ 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 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, effec­tive 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 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 and plan­ning may take place sev­er­al times dur­ing the year and be re-vis­it­ed as the needs of the busi­ness change.

What Does the New Con­tin­u­ous Per­for­mance Man­age­ment Cycle Look Like?

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 (or real-time) feedback. 

These reg­u­lar per­for­mance dis­cus­sions are typ­i­cal­ly devel­op­men­tal and future-focused. They pro­vide team mem­bers with an oppor­tu­ni­ty to explore what has gone well and how suc­cess can be repli­cat­ed again, any chal­lenges faced and how they may be over­come — and agree on actions both the indi­vid­ual and man­ag­er need to take to devel­op the indi­vid­ual and fur­ther improve their per­for­mance. Such check-ins are also a great oppor­tu­ni­ty to address employ­ee devel­op­ment while offer­ing train­ing oppor­tu­ni­ties and reg­u­lar­ly rein­forc­ing per­for­mance expectations.

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

Performance Management Check-in Elements

What Are the Basic Ele­ments Nec­es­sary for Effec­tive Per­for­mance Management?

There are a few basic ele­ments involved in effec­tive per­for­mance man­age­ment, including:

Goal set­ting — You need to set goals the right way. They need to be mean­ing­ful and under­stood. Employ­ees should have con­text as to why these indi­vid­ual goals mat­ter and how they are fur­ther­ing organ­i­sa­tion­al objec­tives. Employ­ees will care much more about their roles and be much more engaged when they know — and tru­ly under­stand — how their job matters. 

Goal set­ting should be a col­lab­o­ra­tive process. Where once goals trick­led down­wards from the high­er-ups in an organ­i­sa­tion, mod­ern com­pa­nies are align­ing goals upwards. So goal set­ting should involve meet­ing with employ­ees and being trans­par­ent about com­pa­ny goals, direc­tion and obsta­cles. Armed with this infor­ma­tion, employ­ees can cre­ate goals which com­ple­ment organ­i­sa­tion­al objec­tives and make dai­ly deci­sions to fur­ther these objec­tives. Fur­ther­more, when employ­ees are put in the dri­vers’ seat and allowed to devel­op their own goals (before hav­ing them approved by their line man­ag­er), employ­ees expe­ri­ence a height­ened sense of auton­o­my and own­er­ship over their work. Inevitably, this results in improved employ­ee performance.

Trans­par­ent com­mu­ni­ca­tion and col­lab­o­ra­tion — Employ­ees want — and deserve — their man­agers and lead­ers to be open and authen­tic at all times. They don’t want to be kept in the dark when their com­pa­nies are going through hard times. They want to be kept abreast of per­ti­nent infor­ma­tion. On top of this, they want real-time com­mu­ni­ca­tion while build­ing healthy rela­tion­ships with their col­leagues and man­agers. This will involve reg­u­lar feed­back and hon­est dis­cus­sion — even when such com­mu­ni­ca­tion is dif­fi­cult or uncomfortable. 

Employ­ee recog­ni­tion — An effec­tive per­for­mance man­age­ment sys­tem should pri­ori­tise employ­ee recog­ni­tion and reward. Employ­ees should feel val­ued and appre­ci­at­ed for the work they do and the effort they put in. If employ­ee recog­ni­tion is not a pri­or­i­ty, this will most like­ly have a neg­a­tive bear­ing on your vol­un­tary turnover.

Hon­est and reg­u­lar feed­back and reviews — The more fre­quent and pre­cise the feed­back, the bet­ter indi­vid­ual per­for­mance. It’s that sim­ple. Employ­ees want reg­u­lar insights into their work and the bet­ter-informed employ­ees are regard­ing their per­for­mance, the bet­ter able they are to improve and excel.

Employ­ee devel­op­ment — No ambi­tious top per­former wants to remain at a com­pa­ny long-term with­out hon­ing and devel­op­ing skills. Advance­ment and devel­op­ment are impor­tant to employ­ees — not to men­tion, com­pa­nies stand to ben­e­fit when employ­ees are more skilled and capable.

So What Is Effec­tive Per­for­mance Management?

Hav­ing all of the ele­ments of the per­for­mance man­age­ment cycle in place is very impor­tant, but this 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 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 which 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

What Makes Per­for­mance Man­age­ment Sys­tems Inef­fec­tive and Uninspiring?

Trag­i­cal­ly, only around 14% of organ­i­sa­tions report being hap­py with their cur­rent per­for­mance man­age­ment sys­tems. If you’re not vig­i­lant, per­for­mance man­age­ment process­es can often become inef­fi­cient and coun­ter­pro­duc­tive. Below are a few ways this can happen:

Your sys­tem isn’t fair or accu­rate — This often occurs when annu­al reviews are favoured over more con­tin­u­ous per­for­mance man­age­ment. After all, how can an employ­ee be fair­ly and accu­rate­ly assessed and treat­ed when their entire year’s per­for­mance is sum­marised in one sit­ting? Can man­agers remem­ber all per­ti­nent events from as far as a year ago — and how will the employ­ee receive the appro­pri­ate lev­els of feed­back, moti­va­tion, sup­port and recog­ni­tion? In fact — how can the annu­al review be fair if there is no exist­ing and trust­ing rela­tion­ship between employ­ee and manager? 

Man­agers are treat­ing per­for­mance man­age­ment as a box-tick­ing” exer­cise — This hap­pens when man­agers go through the motions, per­form reviews and give feed­back, but they are sim­ply pay­ing lip ser­vice to the process. These man­agers might take a use­ful tool, such as per­son­al devel­op­ment objec­tives, and do the bare min­i­mum with employ­ees, with­out revis­it­ing and revis­ing them. This is a huge warn­ing sign of an inef­fi­cient per­for­mance man­age­ment sys­tem. If your man­agers are checked-out, your employ­ees will soon fol­low suit.

You rely too much on paper — Busi­ness­es these days can grow so quick­ly that paper-and-pen sys­tems become redun­dant. These days, tech­nol­o­gy is more afford­able, sim­pler and more acces­si­ble than ever before. To be tru­ly effec­tive, com­pa­nies need to invest more in easy-to-use, stream­lined technology.

Your sys­tem is focused more on appraisal than on coach­ing — One way to get employ­ees to dread per­for­mance dis­cus­sions is to make them feel they are going to be judged by their man­ag­er every time they have a con­ver­sa­tion. Rather than tear­ing employ­ees down, man­agers should be a coach. They should be sup­port­ive and encour­ag­ing, rather than dic­ta­to­r­i­al and impatient. 

What Can Clear Review Per­for­mance Man­age­ment Soft­ware Do for My Company?

Clear Review is a sim­ple, pow­er­ful cloud-based soft­ware that enables mean­ing­ful, reg­u­lar con­ver­sa­tions. Our plat­form helps achieve the ulti­mate goal of high-per­for­mance com­pa­ny cul­ture by cre­at­ing a light touch frame­work of devel­op­men­tal dis­cus­sions, which are sup­port­ed by agile goals and real-time feedback. 

Clear Review facil­i­tates devel­op­men­tal check-ins, helps man­agers and employ­ees col­lab­o­rate to set (and track) agile goals and pro­vides the capac­i­ty for real-time feed­back. Fur­ther­more, our soft­ware has a tal­ent snap­shot” fea­ture, which enables man­agers to pro­vide per­for­mance insights in min­utes, with­out the ardu­ous, admin­is­tra­tive burden.

If you’d like to learn more about how to make your per­for­mance man­age­ment sys­tem more effec­tive and pro­duc­tive while embed­ding val­ue-adding, effec­tive per­for­mance man­age­ment process­es into your organ­i­sa­tion, check out our free guide to suc­ceed­ing with Per­for­mance Man­age­ment.

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