Overview of the performance management system

A performance management system monitors the performance of employees in a consistent and measurable manner. The system relies on a combination of technologies and methodologies to ensure people across the organisation are aligned with—and contributing to—the strategic objectives of the business.

The system is collaborative, with managers and employees working together to set expectations, identify employee objectives, define performance measurement, share employee performance reviews and appraisals, and provide feedback.

When properly defined and consistently applied, a performance management system increases overall workforce productivity. Employees are more engaged in their work and staff turnover is minimised while revenue per employee is maximised.

What are the key elements of a performance management system?

Performance management software can be implemented in the cloud, on premises, or within a hybrid environment.

A cloud platform or HR cloud offers a range of benefits including greater data storage capacities, enhanced security, and easier integration with complementary applications, such as learning and development, remuneration, and other people-focused systems.

A performance management system relies on three key processes:

1. Plan and act with goal management

   • Align employee performance with the objectives of the organisation.
   • Assign work that is meaningful and fulfilling to increase employee engagement.
   • Quickly adapt goals when business priorities change.

2. Monitor with continuous performance management

   • Monitor the objectives of each employee to ensure ongoing alignment with organisational objectives.
   • Provide feedback and guidance to improve performance.
   • Acknowledge good results as they occur.

3. Evaluate and recognise through performance assessments

   • Assess performance consistently and accurately.
   • Recognise and reward strong performers.
   • Use data-driven insights from the system to quantify the value your workforce delivers to the business.

The evolution of performance management systems

Businesses have been managing the performance of individuals for centuries. However, one of the first formalised models was introduced during the First and Second World Wars when the military needed to understand the strengths and capabilities of each member to inform battle strategies.

By mid-century, performance appraisals were being used by businesses to grade the performance of individual workers and to assign rewards.

In the 1960s, the focus began to shift to employee development, where discussions were held between an employee and their manager to review performance and—where warranted—to institute teaching and training to help the employee improve and/or advance in their career.

In the intervening years, some aspects of traditional performance management software have evolved due to better technology, such as cloud computing, improvements in user interfaces, and artificial intelligence (AI) and machine learning. However, most systems continue to emphasise employee evaluation and reward on a quarterly or annual basis.

While recognition remains an important aspect of performance management, businesses are moving towards a more holistic approach, one that provides ongoing feedback and guidance for employees to help them achieve their goals.

Who uses performance management software?

Any company with a workforce—regardless of industry or size—will benefit from a performance management system.

Although every employee will interact with the system at some stage, the power user is the team leader or manager with direct reports.

• Employees work with their managers to define employee objectives. They create their individual employee performance reviews within the system, and take part in 360-degree review cycles if this model is in use.
• HR professionals define the HR processes and systems that support the performance management cycle. They work with managers and employees to ensure processes are fair and that each stage is carried out in a timely manner.
• Managers are the power users of the system and must ensure every employee actively participates in the process. Managers are also ultimately responsible for the performance of their team(s).

Why is a performance management system important?

Along with increased workforce productivity, higher employee engagement, lower staff turnover, and maximised revenue per employee, a performance management system that is properly integrated with adjacent business systems can provide valuable insights that will inform broader human capital management decisions.

For example, a performance management system stores and quantifies data from employee/manager interactions including individual career aspirations, appropriate skill sets, and overall suitability for succession planning. With these insights, learning and development funding can be invested in a manner that best supports the needs of the business and the employee.

Performance management software provides an accurate and real-time view of the workforce that aids in people planning and strategy.

What are best practices in performance management?

Consistency and transparency are key to optimising the performance management process. The cycle of goal management, continuous performance management, and assessment is ongoing. Once the cycle is complete, existing and new goals are identified and the cycle begins again.

Best practices also include the provision of ongoing, interactive feedback throughout the year rather than only during the performance appraisal stage. Performance conversations should be relaxed and open. Employees and managers must take the time to hone these skills if they wish to improve their interactions.

To ensure a consistent methodology is applied to assessments for workers in similar roles across the company, a calibration process should be implemented.

Advances and trends in performance management

Continuous performance management

Organisations are shifting from traditional performance management to a continuous performance management (CPM) model. The CPM process is less formal, with employees and managers engaging more frequently. Regularly scheduled one-to-one discussions and ongoing feedback help employees stay on track. For managers, a CPM strategy makes it easier to track an employee’s work achievements and weaknesses by addressing issues as they arise. Goals can be adjusted as corporate objectives change for an agile and responsive working model. Employees receive more timely feedback rather than waiting every 6 to 12 months for a formal meeting that may overlook achievements that occurred earlier in the performance period. The CPM model also eliminates surprises and speeds up improvement cycles.

Deskless and field workers

Deskless workers, also known as field workers, are employees who carry out tasks away from a desk or a company’s headquarters and have inconsistent access to internal systems and communication channels, unlike remote workers who retain access to these systems while working from home. Examples include people who work within the hospitality sector, natural resources, manufacturing, and healthcare. Given the nature of their work, deskless workers often do not easily fit into existing systems. Organisations must ensure their performance management systems are able to effectively support this important segment of the workforce.

Dynamic teams

Modern performance management systems must be agile enough to adapt to changes in the business, including team dynamics. A shift is underway from traditional and agile team models to a dynamic model:

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