What Is Performance Management? Definition, Process, Cycle, and Best Practices for Planning - Spiceworks (2023)

Performance management is defined as the process of continuous communication and feedback between a manager and employee towards the achievement of organizational objectives.

What Is Performance Management? Definition, Process, Cycle, and Best Practices for Planning - Spiceworks (1)

Traditionally, performance management has been a forward-looking solution based entirely on hindsight. But organizational culture is evolving to one of continuous feedback powered by technology, where managers can foresee problems based on current employee performance and initiate any form of course correction to bring the employee back on track.

In this article, we offer clear insights into what performance management is, the performance management cycle and best practices, the features of an effective performance management software, and the future of performance management.

Table of Contents

  • What Is Performance Management?
  • The Performance Management Cycle
  • How to Improve the Performance Management Process
  • The Era of Automated Performance Management
  • Which Performance Management Processes Cannot Be Automated?
  • Performance Management Best Practices

What Is Performance Management?

Performance management is the process of continuous feedback and communication between managers and their employees to ensure the achievement of the strategic objectives of the organization.

The definition of performance management has evolved since it first appeared as a concept. What was once an annual process is now transitioning to continuous performance management. The goal is to ensure that employees are performing efficiently throughout the year, and in the process, address any issues that may arise along the way that affect employee performance.

“Most workers perceive their organization’s performance management approach as confusing, subjective, and infrequent,” said Kathi EnderesOpens a new window (vice president, Talent, and Workforce Research Leader) and Matthew ShannonOpens a new window (senior research analyst) at Bersin, Deloitte Consulting LLP, in an exclusive with HR Technologist.

This is the current state of performance management. However, it doesn’t have to be that way. Automation now plays a significant role in performance management, and many of the processes involved can be streamlined so that employee performance can be strategically managed. This is the age of continuous performance managementOpens a new window , and heres everything you need to know about it.

Performance management differs from talent managementOpens a new window in that the latter is a set of initiatives taken to engage employees to retain them. Performance management, on the other hand, is an initiative that guides employees towards establishing and achieving their goals in alignment with the organization’s immediate and overarching goals.

Why is performance management important?

1. Performance management supplements the annual performance reviewOpens a new window . This prepares both employees and managers about what to expect during the annual appraisal. It keeps both the manager and the employee in the loop about ongoing changes to the performance management process, what both can do to streamline it, and how performance overall can be improved.

2. To employees, continuous performance management indicates that managers value them. Employees believe that their managers are interested in their work and care about their goals and any issues they may face in the course of their job. They also become more open to receiving constructive feedback.

The Performance Management Cycle

The performance management process or cycle is a series of five key steps. These steps are imperative, regardless of how often you review employee performance.

1. Planning

This stage entails setting employees’ goals and communicating these goals with them. While these goals should be disclosed in the job description to attract quality candidates, they should be communicated once again when the candidate becomes a new hire. Depending on the performance management process in your organization, you may want to assign a percentage to each of these goals to be able to evaluate their achievement.

2. Monitoring

In this phase, managers are required to monitor the employees performance on the goal. This is where continuous performance management comes into the picture. With the right performance management software, you can track your teams performance in real-time and modify and correct course whenever required.

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3. Developing

This phase includes using the data obtained during the monitoring phase to improve the performance of employees. It may require suggesting refresher courses, providing an assignment that helps them improve their knowledge and performance on the job, or altering the course of employee development to enhance performance or sustain excellence.

4. Rating

Each employees performance must be rated periodically and then at the time of the performance appraisal. Ratings are essential to identify the state of employee performance and implement changes accordingly. Both peers and managers can provide these ratings for 360-degree feedback.

5. Rewarding

Recognizing and rewarding good performance is essential to the performance management process, as well as an important part of employee engagementOpens a new window . You can do this with a simple thank you, social recognition, or a full-scale employee rewards program that regularly recognizes and rewards excellent performance in the organization.

How to Improve the Performance Management Process

To improve the performance management process, ask the following questions:

1. What does your workforce want from performance management?

A performance management program can either help or hinder your workforce. However, before you can make any practical changes to your current processes and tools, you need to understand what isnt working and why. You also need to take the time to evaluate what your employees want out of a performance management program.

During this evaluation, there’s nothing more important than talking to your people. Your employees and managers likely have some strong opinions that they’ll be more than happy to share with you. You might be surprised how many of them crave an improved process.

The next step is to convey your findings to decision-makers who can sponsor and drive change in your organization. Share your internal findings as well as evidence-based research from experts that show the impact that an improved performance process can have on business results.

Learn more: 3 Effective Ways to Create a Non-Toxic High-Performance Culture at WorkOpens a new window

2. Do you deliver continuous performance management?

Employers want their employees to be happy. But happiness isnt necessarily what people want from their employers. Instead, employees want to feel motivated and understand that their work matters and why. A performance management experience that delivers value to employees should focus on increasing motivation.

To drive motivation, a performance management process must include frequent, ongoing conversations between employees and managers so that goals, progress, and personal achievement remain relevant and top-of-mind.

The content of these conversations is just as relevant as their frequency. Motivation is tied to a future-focused outlook focused on developmental opportunities. Managers must authentically engage with employees about their career success, goal achievement, and alignment of their work to the organization’s top priorities.

To be successful, these frequent conversations should be lightweight and include future-oriented questions for employees such as: What motivates you? What’s helping you? What do you need? And HR can support this by coaching managers in giving more productive, proactive feedback, as well as asking the right questions.

3. Do managers have the tools to manage the performance management process?

Managers are critical to the success of your organization’s performance management program. They play an outsized role in motivating, engaging, and developing staff. This makes it essential to ensure managers are trained to give and receive useful feedback and are coached in the elements of a continuous process.

Take time to meet with managers and train them on your talent management practices so that everyone feels comfortable having frequent, lightweight conversations.

Finally, having the right technology in place to support continuous performance management is essential. You need HR technology explicitly designed to help managers and the organization in a continuous process.

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The Era of Automated Performance Management

Performance management is not just a matter for HR. It is the concern of all leadership levels in an organization. However, Organizations are often left wondering if investments in technology will actually lead to improvements, says Deloittes Performance management Solutions: Market PrimerOpens a new window .

Should you invest in performance management software?

Investments in technology will lead to improvements only when there is a specific performance management strategy in place. Without one, an automated solution can only overburden a manager.

Enderes and Shannon believe that: “When no strategic vision is in place, an organization might fall back on merely automating existing processes, missing out on the transformational power of technology. This typically results in a lack of adoption by the workforce and leadership, which in turn will result in a lack of business outcomes.

Every employee (including top leadership) is a stakeholder who will benefit from the organization-wide implementation of an automated performance management system. However, they must be aware of the goals they aim to achieve through performance management. Performance management dataOpens a new window can offer unique insights that no amount of manual tracking or surveys can offer.

Lets move on to what features an ideal performance management software (PMS) should contain.

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Key features of effective performance management software

Any software should be chosen with the following considerations in mind:

  • Customization: It should be customizable to suit your organizations industry and performance management strategy.
  • Transparency: It should be able to eliminate the confusion that both managers and their teams experience in the process of performance management.
  • Objectivity: It should be able to offer objective metrics on which managers can base their performance evaluation.
  • Frequency: It should allow for real-time, instant feedback and periodic employee ratings.

Based on these considerations, the ideal performance management toolOpens a new window will have at least the following features:

What Is Performance Management? Definition, Process, Cycle, and Best Practices for Planning - Spiceworks (2)

Fig 1. The 10 key features of performance management software

1. Dynamic goal-setting: The employees goals should be aligned with the organizations goals. The solution should allow the option to change the goal as and when needed.

2. Communication on the fly: A good performance management solution provides interaction between team members and managers effortlessly at any time with an in-built chat feature. A quick chat with team members or managers can keep communication transparent and effortless.

3. Scheduling tools: It should allow scheduling for team members to complete tasks, plan meetings, and collaborate with other team members. This works as an excellent tool for employees who work out on the field or remotely.

4. Continuous performance evaluation: Managers should be able to set up automated self-assessment and general evaluation questionnaires delivered in the flow of work through the PMS. This gives managers a clear view of how employees perceive their performance on the job and whether they are on track to achieve their and the organizations goals.

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5. Recognition tool: The PMS should have a platform where managers can shout out to their team members for doing well. Further integration with an email to give direct, instant feedback is another great feature that can motivate employees and enable positive employee engagement.

6. 360-degree feedback: Feedback from multiple sources or 360-degree feedback is essential for effective performance management. It significantly reduces the bias that can arise from the evaluation of an employee by just one person. The tool should be able to offer the option of feedback collection from team members, reporting managers, reports, and peers from other teams.

7. Project performance tracking tools: It should offer tools such as timesheets that help track how employees use their time, and whether their input matches the expected output and outcome.

Artificial intelligence-powered tools use features such as advanced natural language processing, which track project-related keywords through email and other communication to gauge progress on a project. These tools can enable more objective performance evaluations.

8. Performance comparison: Managers should be able to track the performance of all employees in their team or those assigned to a specific project. The tool should go further and be able to generate a performance report automatically, providing data on the metrics you have customized it to evaluate.

9. Automated reminders and notifications: A gentle nudge to employees/managers to remind them of deadlines, notifications that indicate progress on a particular project, and general updates to changes in the process can improve an employees experience with performance management.

10. Data security: This level of granular data about individual employees should be safeguarded with a robust firewall in place. Always ensure that any tool you shortlist offers a robust data security and protection feature.

Whats critical in the implementation of a performance management system is that both managers and employees are trained to use the system for maximum efficiency. Choose a PMS from a vendor who offers ongoing support and helps both managers and their team members use the software optimally.

Learn More: What is Human Capital Management (HCM)? Definition, Process and StrategyOpens a new window

Which Performance Management Processes Cannot Be Automated?

Performance management is a people-oriented process. A technological performance management solution cannot have the sometimes-necessary difficult conversations for managers. That is the one thing that managers need to take ownership of.

While feedback conversations are often difficult, when supplemented with objective data supplied by performance management systems, they can turn into honest discussions and coaching sessions. This data can also help eliminate implicit bias, so employees know that they are being assessed objectively.

Learn More: 5 Ways to Improve Your Performance Management SystemOpens a new window

Performance Management Best Practices

The only way to ensure the success of performance management is to treat it like a continuously evolving, fluid process by three best practices.

What Is Performance Management? Definition, Process, Cycle, and Best Practices for Planning - Spiceworks (3)

Fig 2. Best Practices for Effective Performance Management

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1. A well-designed performance management strategy

Some of the key questions that a well-designed performance management plan will answer are:

  • How often will employee performance be evaluated weekly, monthly, or quarterly?
  • What systems are in place for this evaluation sentiment analysis trackers, automated pulse surveys, one-on-one meetings?
  • What approach will a feedback conversation follow?
  • What will the post-feedback approach and evaluation system be?

To this, Enderes and Shannon add, Small bite-sized feedback that is provided by the people closest to the work, in the flow of work, and with actionable input helps make steady improvements and enables learning in the flow of work.

This again is made possible by using an automated performance management tool that allows you to set goals, modify them, and communicate changes on the go. No unnecessary meetings are required, and employees can modify their work plan and strategy as per the goals you assign.

2. A culture of open and effective communication

Continuous monitoring can help initiate conversations about employee issues. A negative sentiment or the poor performance of an employee can be addressed only when communication is open and transparent in an organization.

A culture of communication is an organization-wide responsibility, starting from top leadership and trickling down to all departments. Managers will adopt this culture and deliver honest feedback to employees, allow employees to be honest, and use that information to help them.

A culture of communication is also developed by hiring people managers who are skilled in delivering both positive and constructive feedback managers who motivate employees but also hold them accountable for their work.

Transparent communication also includes:

  • Sharing with the employee exactly what is expected of them.
  • Coaching employees to reach their maximum potential through actionable goals.
  • Giving them actionable, not generic, feedback.
  • Revealing the rewards in place for successful goal achievement.

3. Continuous monitoring

This may sound more like a Big Brother form of monitoring an employees every move and action, but that is the exact opposite of efficient performance management.

In the HR context, this involves tracking employees’ progress in real-time and monitoring the output and outcomes an employee delivers. Also, by keeping an eye on employee sentiment, through observation, interactions, as well as with the help of sentiment analysis toolsOpens a new window , managers can assess the general mood of their teams. This allows them to address the specific problem at hand as soon as a problem occurs.

With the tech tools available, as discussed in detail later, continuous monitoring at a granular level is now a much easier task. And with the objective data an automated performance management software can reveal, it is easier to start conversations with employees.

To enable all these elements of a successful performance management strategy, there is a host of automated performance management systems to choose from. These solutions can simplify several operations that traditionally relied on manual processes as well as monitoring and feedback delivery.

Learn More: What is People Management? Complete Process with Best PracticesOpens a new window

What Is the Future of Performance Management?

As a practice, performance management is converging with learning, engagement and career management, reveal Enderes and Shannon.

1. Annual performance management is going out of style

Interestingly, as the concept of performance management evolves, so do the practices associated with it. For instance, several organizations such as Netflix have entirely abandoned annual performance management practices for what they call fluid performance management, a more agile, continuous approach to managing performance.

2. One-on-one feedback is gaining importance

It must be emphasized that the replacement of annual for fluid performance management does not eliminate the need for one-on-one feedback. In fact, it reinforces the importance of regular feedback to ensure that employees work is aligned with the organizations objective. And if necessary, managers can coach their employees and tweak the workflow to facilitate the achievement of goals.

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3. Performance management tech is becoming more mainstream

From a technology perspective, we expect smart machines, cognitive and artificial intelligence to become more prevalent including capabilities that can actively recommend performance actions and engagement suggestions to better meet individual goals. We also foresee a much more advanced use of capabilities that offer a user experience that is seamless rather than disparate systems building performance activities into the systems where work actually happens, say Enderes and Shannon.

With these insights, the key takeaway for HR teams is clear. The alignment of an effective performance management system with managers who have the people skills to deliver feedback regularly can result in a highly motivated workforce, not to mention, translate into improved business outcomes.

Do you use performance management tools to track performance in your organization? Tell us on FacebookOpens a new window , LinkedInOpens a new window , or TwitterOpens a new window . We would love to hear your take on effective performance management.


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