Manager tracking employee performance on tablet

What is a performance management system and how can it help?

A performance management system tracks the performance of employees in a manner that is consistent and measurable. 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 goals, 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 invested in their work and turnover is minimised while revenue per employee is maximised.

A performance management system tracks the performance of employees in a manner that is consistent and measurable.

What are the key elements of a performance management system?

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

A cloud platform or HR cloud provides a range of benefits including larger data storage capacities, stronger security, and easier integration with complementary applications, such as learning and development, compensation, and other people-centric systems.

Three key processes in a performance management system

A performance management system relies on three key processes:

Plan and act with goal management
- Align employee performance to the objectives of the organisation.
- Assign work that is meaningful and fulfilling to increase employee engagement.
- Quickly adapt goals when business priorities shift.
Monitor with continuous performance management
- Monitor the goals of each employee to ensure ongoing alignment with organisational goals.
- Provide feedback and guidance to improve performance.
- Recognise good results as they happen.
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. But 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 to 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 an employee base – 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 goals. They build their individual employee performance reviews within the system, and participate 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 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 fit 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 performance management best practices?

Consistency and transparency are key to optimising the performance management process. The cycle of goal management, continuous performance management, and assessment are 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 versus only during the performance assessment stage. Performance conversations should be relaxed and open. Employees and managers must take the time to sharpen these skills if they wish to improve their interactions.

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

Performance management advances and trends

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-on-one discussions and ongoing feedback help workers stay on track.

For managers, a CPM strategy makes it easier to track an employee’s work achievements and weaknesses by addressing issues when they occur. Goals can be adjusted as corporate objectives change for an agile and responsive work model.

Employees receive more timely feedback versus 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 expedites improvement cycles.

Deskless and field workers

Deskless workers, also known as field workers, are employees who complete 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 don’t 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 adjust to changes in the business, including team dynamics. A shift is underway from traditional and agile team models to a dynamic model:

Traditional	Agile	Dynamic
Formally assigned leader (such as a line manager)	Formally assigned leader (such as a scrum master)	Self-managing, typically no formally assigned leader
Predictable workflow with a right or wrong way to do the work	Unpredictable workflow, focus and goals frequently change	Rapid change workflows as new ideas are introduced, implemented, and altered
Team members share the same job title and area of expertise	Formal agile methodology with daily stand-ups and sprints	Cross-functional membership, frequently in flux
	Encourages fast failure and iterative development for effective course correction	May not follow defined methodology/protocols, retains values of agile methodology where failure drives innovation
		Organic team structure that disbands once a project completes

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Performance management systems FAQs

Any organisation with a base of employees will benefit from performance management software. The system provides the company with an effective, repeatable model it can use to provide feedback and quantify the performance of its workforce relative to the strategic objectives of the business.

A performance management system can help resolve a range of business problems, including:

Loss of top talent due to a failure to recognise and reward top performers
Financial losses due to inefficient work practices that don’t align to the objectives of the business
A lack of a standardised methodology to guide compensation, promotion, and termination decisions
The inability to prove that these decisions were justified if challenged legally

The performance management process consists of a series of stages where managers and employees manage goals, monitor performance, and assess outcomes. Traditional performance management systems follow a typical cadence of quarterly, bi-annually, or annual reviews. A continuous performance management model supports a more frequent cadence.

The process is ongoing. Once complete, existing and new employee goals are identified and the cycle begins again.

There are three stages in the performance management process:

Plan and act with goal management.
Monitor with continuous performance management.
Evaluate and recognise through performance assessments.

Wider-ranging integration with existing systems
Organisations want their performance management platforms to deliver greater value to the business. By integrating with systems across the operation, organisations can streamline and automate many manual and time-consuming processes such as legal, payroll, and others. These integrations provide a broader view of the business, allowing the organisation to develop deeper insights that help inform broader operational and strategic decisions.

Alignment with regulatory requirements
As with most people planning and strategy processes, the activities supported by performance management must extend beyond the bounds of employee/manager interactions. The platform must also interact with and support a range of systems relative to record-keeping, data security, and other regulatory compliance requirements that align with corporate and government laws.

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