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?
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:
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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