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What is an Effective Performance Management System?

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, hence the need for an effective performance management system. New performance management trends  emerge every year and, unfor­tu­nate­ly, all too often, human resource depart­ments get it com­plete­ly wrong.

This leads to employ­ees left feel­ing deflat­ed, unmo­ti­vat­ed and unen­gaged. Man­agers are frus­trat­ed at the poor lev­els of team and indi­vid­ual employ­ee per­for­mance. Thank­ful­ly, more and more com­pa­nies are now 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.

A key point here is that per­for­mance man­age­ment is a con­tin­u­ous process — not a once-a-year one-off” 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 indi­vid­ualvper­for­mance 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.


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

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

Per­for­mance Man­age­ment Process: The Basic Ele­ments Nec­es­sary for Effec­tive Per­for­mance Management

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

Set­ting Goals

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 is and should be a col­lab­o­ra­tive process, which involves 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 dri­ver’s seat and allowed to devel­op their own goals (before hav­ing them approved by their line man­ag­er), they expe­ri­ence a height­ened sense of auton­o­my and own­er­ship over their work. Inevitably, this results in improved employ­ee performance.

So What Exact­ly Is Effec­tive Employ­ee 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

    • Imple­ment­ing 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.



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.

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 Deloitte, Adobe and General Electric. All these major names have ditched the 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 through­out the year to explore what has gone well and how suc­cess can be repli­cat­ed, any chal­lenges faced and how they may be over­come — and to 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.

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, espe­cial­ly in the midst of a COVID-19 pan­dem­ic. 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 are need­ed — 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.


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