What Most Organisations Get Wrong in the Performance Management Process

This article first appeared on Acorn Labs in March 2024.

For a more in-depth look at the performance management process, have a read of the full article.

Too often, performance management doesn’t bridge the gap between annual performance reviews and actionable employee development. Instead, employees get thrown into the deep end to work out how to improve their performance themselves — and that doesn’t help them or your business.

A strong performance management process should focus on driving employee performance above all else. The performance management process is a continuous and consistent set of activities used to measure the performance of employees and teams within an organization. It focuses on setting clear performance goals, supporting employee development, and aligning individual performance with the business’s strategic goals.

The impact of effective performance management

An effective performance management process doesn’t just link performance management with employee development but also plays a crucial role in driving organizational success and achieving business objectives.

• Employee performance increases when there are clear goals to aspire to, regular feedback on how to improve, and development opportunities to enable better performance.
• Engagement in employees leads them to be more committed to their work, fostering better morale, and lower employee turnover.
• Individual goals align with organizational goals, so employees see how they contribute to business value. With goals set, all performance milestones reached are progressing towards organizational objectives.
• Leaders are better equipped to make strategic decisions. They can use performance data to identify training needs and opportunities for employees’ career development.
• Good performance management encourages continuous learning and development, so learners can adapt, innovate, and take risks in the face of business challenges — improving the business’s competitive advantage.

The performance management process steps

There are five steps to the performance management cycle.

1. The planning stage

Planning is made up of two components: Goal-setting and success metrics. Goal-setting on its own isn’t enough — you need to define the success metrics to ensure that your goals are actually actionable (and therefore achievable).

Start by defining both organizational and employee goals. This gives involved parties an understanding of the business context and the direction their performance should be taking. All goals should be derived from your business capabilities to ensure organizational improvement.

Then define success metrics. These outline how goals are going to be measured and achieved with key performance indicators (KPIs). These prevent goals from being vague and transform them into an actionable plan that you can use to track performance progress.

2. The monitoring stage

This is where you monitor and give feedback on performance progress. This should be a continuous process, with feedback delivered in regular check-ins rather than one-off annual performance reviews. You need to embed learning with performance management and provide employees with the means to improve every time a performance issue is identified, rather than after the issue has become an ingrained behavior.

If you set your goals and success metrics correctly, tracking progress should be easy to do.

3. The development stage

A lot of the time, businesses don’t get valuable insights from their performance reviews, meaning employees aren’t given impactful performance feedback. You can’t expect employees to take their feedback and improve their performance on their own. Your business needs to actually invest in employee development, otherwise, it’s only investing in underperformance.

Use the data collected from the monitoring stage to create development plans targeting employees’ weaknesses. You can use a performance learning management system (PLMS) to help in assigning, managing, and facilitating employee development and the impactful performance conversations around it.

4. The recognising and rewarding stage

When it comes to rating performance, you’ll be rating capabilities. Capabilities are the outcomes you want (think “increased customer satisfaction”) which you can measure with capability assessments.

Capability assessments use competencies, the leveled scale that capability performance is measured against. The number of competencies you have is up to you (i.e., you could have three or even five) as long as they cover a range from low competence (indicating performance needs development) to expected competence, to advanced competence (indicating performance exceeds expectations).

Don’t forget to recognize and reward employees where they meet and exceed performance goals, either. Appropriate rewards include promotions, bonuses, pay rises, celebratory events, and increased responsibilities (within reason).

5. The evaluation and re-evaluation stage

Performance management needs to be a regular and continuous activity, but it’s no use repeating the cycle if your performance management process isn’t actually effective.

Calculate your training ROI or conduct a training needs analysis to identify where development is still needed. If there has been little return on investment or development areas have not been adequately addressed with training, then something has fallen short in the performance management process.