Performance management is important to get right and easy to get wrong. We explore the fundamentals of effective performance management, and how to keep your strategy on track
Getting performance management right is crucial for an organisation’s success in today’s cut-throat business climate. But making the shift from annual appraisals to a continuous and more informal approach to performance management isn’t straightforward. Here, we explore why performance management is important if your organisation wants to get ahead, the hallmarks of an effective strategy, and the role of technology in getting performance management right.
What is performance management?
Before diving into the characteristics of a good strategy, let’s start with a definition of performance management. The CIPD, the professional body for HR in the UK, describes it as the “activity and set of processes that aim to maintain and improve employee performance in line with an organisation’s objectives.”
This definition is deliberately broad; there is – unfortunately for an organisation hoping to overhaul its performance strategy with as little effort and as much speed as possible – no single template for effective performance management. The ‘how’ and ‘what’ you do in terms of performance management depends on your organisation’s culture and objectives: one size certainly does not fit all.
Why bother with performance management?
In today’s knowledge economy, many companies’ performance depends solely on the output of their workers. If their people perform to a satisfactory or suboptimal level, then the overall business performance will follow suit. But if people are supported to perform brilliantly, then the company will enjoy success as well.
Introducing strategic talent management will help employees understand what is expected of them and how their goals contribute to the organisation’s overall success. It should also help to motivate employees; ensure that they have the right skills, developmental support and resources to achieve the tasks and standards that are expected of them; and make sure that employees are held accountable for achieving their goals.
What are the characteristics of effective performance management?
Many organisations have fundamentally rethought their performance management strategies in the recent past. Before the 2000s, many companies – including a significant proportion of the world’s biggest and most successful businesses – relied on annual appraisals and forced rankings of their workers’ performance, with the lowest-ranked staff routinely dismissed.
This approach not only served to foster a sense of internal competition that made collaboration and team-working difficult, but many companies realised that it was a waste of valuable time (Deloitte calculated it was spending 2 million hours a year on performance management), and that Managers and employees hated it (a 2015 Willis Towers Watson survey found that 45% of managers didn’t value their company’s performance management system). Nor was this approach still relevant to the way businesses operated: the rapidity of change in the 21st century meant that holding employees to account, once a year, for goals that were set 12 months ago just wasn’t useful: their aims and priorities were shifting much more quickly than ever before. And, because appraisal conversations tended to focus on past performance, companies that were struggling to build their capabilities for the future were missing out on forward-looking conversations with staff about their career development.
According to Acas, the four fundamental components of effective performance management are:
- Employees being set standards and goals, against which their performance will be measured
- Managers and individuals meet to discuss their performance
- Employees are assessed against their performance standards and goals
- Employees’ performance is recorded
The CIPD notes that effective performance management comprises both operational and procedural elements and should be managed through a holistic range of HR activities and processes. Your strategy should also have clear aims: is its goal to recognise and reward staff? To ensure organisation objectives are met? Improve staff performance? To help staff develop? To identify and solve problems? Or a mix of some or all of these elements?
A classic performance management cycle will involve four stages: plan (set and agree objectives); act (achieve objectives); track (measure progress, offer coaching and feedback); and review (of achievements, learnings, and next actions). The regular check-in conversations should strive to cover goals (which are agile and responsive to business need), career development, and real-time feedback.
Your performance management strategy – and the system of policies, procedures, and digital tools that support it – should align with how your people work. Check-ins and the sharing of feedback should not only be honest, but regular: “the content of these conversations will be a direct outcome of their frequency,” writes Marcus Buckingham and Ashley Goodall in the Harvard Business Review. “If you want people to talk about how to do their best work in the near future, they need to talk often.”
What are the obstacles to effective performance management?
Unfortunately, introducing an effective performance management strategy isn’t as simple as designing a process and instructing people to follow it: a culture of continuous, honest and constructive feedback is required to support the strategy.
Managers will also need support, and possibly training, from HR, in order to have effective developmental conversations with their people. For, as Terry Gillen, author of Great Appraisal, writes: “If someone’s not skilled at doing appraisals annually, aren’t we compounding the problem with more regular conversations?”
There are other pitfalls to navigate, too. Writing in the Harvard Business Review in 2016, Peter Cappelli and Anna Tavis highlighted five key challenges that HR professionals will have to navigate in implementing – and maintaining the effectiveness of – a performance management programme:
- How to align organisation-wide and individual goals
- How to reward good performance (without ratings and rankings)
- How to identify poor performers
- How to mitigate the risk of discrimination and bias
- How to manage the volume of feedback being given and received (which might be overwhelming for some staff, and insufficient for others)
Acas recommends carefully monitoring key metrics associated with your performance management strategy so you can understand how it is working and if it needs to be reviewed. Such metrics might include the number of completed performance management records, the quality of performance management records, and staff retention and absence levels. It also recommends that performance management programmes be reviewed if your organisation undergoes major change, such as a shift in its vision or goals, or alterations to its structure or working practices, and if new technology that would simplify the performance management process becomes available.
How can technology facilitate performance management?
Digital tools – such as Ciphr’s talent management functionality – can help support your performance management efforts through customisable online review forms, objective setting (including linking individuals’ goals to organisation-wide objectives) and performance dashboards for line managers and HR users. Automatic notifications can also be used to remind managers to carry out regular reviews, particularly at key points such as role anniversaries, and after a period of absence.
Overhauling performance management is a task for the whole organisation, not just HR alone, says Head Light’s Ian Lee-Emer.
This article was first published in October 2012. It was updated in November 2019 for freshness, clarity and accuracy.