What is Performance Management? - dummies

By Herman Aguinis

Performance management is a continuous process of identifying, measuring, and developing the performance of individuals and teams to align their performance with the strategic goals of the organization.

The two main components of the definition of performance management are

  • Continuous process. Performance management is ongoing. It involves a never-ending process of setting goals, observing performance, and giving and receiving ongoing coaching.
  • Alignment with strategic goals. Performance management requires that managers link employees’ efforts with the organization’s goals, which helps the organization gain a competitive advantage. Performance management creates a direct link between employee and team performance and organizational goals. It also makes the employees’ contribution to the organization explicit and observable.

A performance management system is a key tool to transform people’s talent and motivation into a strategic business advantage.

Performance management versus performance appraisal

Many organizations believe they have a “performance management” system in place, but they actually have a performance appraisal system.

A system that involves employee performance reviews once a year without an ongoing effort to provide feedback and coaching so that performance can be improved is not a true performance management system. This performance appraisal system is the measurement and description of an employee’s strengths and weaknesses. Performance appraisal is an important component of performance management, but it is just part of a bigger whole.

The table summarizes the main differences between performance management and performance appraisal. Think about the system at your organization. Is it truly performance management, or performance appraisal?

Performance Management vs. Performance Appraisal
Performance Management Performance Appraisal
Driven by the line manager Driven by the HR function
Strategic business purpose Mostly administrative purpose
Ongoing feedback Feedback once a year
Emphasis on past, present, and future Emphasis mostly on past

How to design and implement a performance management system

The components of a performance management system are closely related to each other and the poor implementation of any of them has a negative impact on the system as a whole. The components of a performance management process are shown in the following figure.

performance management process
The performance management process.

Step 1: Establishing prerequisites

Two important prerequisites must exist before the implementation of a successful performance management system. First, you need to know the organization’s mission and strategic goals. This knowledge of performance management goals, combined with knowledge regarding the mission and strategic performance management goals of their unit, allows employees to make contributions that will have a positive impact on the unit and on the organization as a whole.

Second, you need to know the position in question: what tasks need to be done, how they should be done, and what knowledge, skills, and abilities (KSAs) are needed:

  • Knowledge includes having the information needed to perform the work, but not necessarily having done it earlier.
  • Skills refer to required attributes that are usually acquired by having done the work in the past.
  • Abilities refers to having the physical, emotional, intellectual, and psychological aptitude to perform the work, though neither having done the job nor having been trained to do the work is required.

Such knowledge is obtained through a work analysis. If you have good information regarding how a job is done, then it is easier to establish key performance indicators for job success. The tasks and KSAs needed for jobs are typically presented in the form of a job description, which summarizes the job duties, required KSAs, and working conditions for a particular position.

Many work analysis questionnaires are available online. You can use them for a variety of positions. For example, the state of Delaware uses a work analysis questionnaire, which includes 18 multiple choice job content questions. Job content information is assessed through three factors: knowledge and skills, problem solving, and accountability and end results.

You then use the information from a work analysis for writing a job description.

Step 2: Planning performance

Now that you know the organization’s strategic performance management goals and have information about the position, the supervisor and the employee formally meet to discuss, and agree upon, what needs to be done and how it should be done. This employee performance management plan discussion includes a consideration of both results and behaviors, as well as a development plan.

Performance planning includes the consideration of results, behaviors, and the development plan. A discussion of results needs to include key accountabilities (that is, broad areas for which an employee is responsible), and specific objectives for each key accountability (such as goals to be reached). A discussion of behaviors needs to include competencies (clusters of knowledge, skills, and abilities). Finally, the development plan includes a description of areas that need improving and goals to be achieved in each area.

Results and key accountabilities

Results refer to the outcomes of what employees do — what employees produce. A consideration of results includes the key accountabilities, or broad areas of a job for which the employee is responsible for producing results. This information is typically obtained from the job description.

A discussion of results also includes specific objectives that the employee will achieve as part of each accountability. Objectives are specific statements of important and measurable outcomes.

Behaviors

Behaviors, or how a job is done, thus constitute an important component of the planning phase. This is probably why results from a survey indicated that in addition to sales figures, salespeople would like to be appraised on such behavioral KPIs as communications skills and product knowledge.

A consideration of behaviors includes discussing competencies, which are measurable clusters of KSAs that are critical in determining how results will be achieved. Examples of competencies are customer service, written or oral communication, creative thinking, and dependability.

An important step before the review cycle begins is for the supervisor and employee to agree on a development plan. At a minimum, this plan should include identifying areas that need improvement and setting goals to be achieved in each area. Development plans usually include both results and behaviors.

Step 3: Executing performance

After the review cycle begins, the employee strives to produce the results and display the behaviors agreed upon earlier as well as to work on developmental needs.

The employee has primary responsibility and ownership of this process. Employee participation doesn’t begin at the performance execution stage, however. Employees need to have active input in the development of job descriptions and the creation of the rating form.

At the performance execution stage, make sure the following success factors are present:

  • Commitment to goal achievement. The employee must be committed to the goals that were set. One way to enhance commitment is to allow the employee to be an active participant in the process of setting the goals.
  • Check-ins and performance touchpoints. The employee has performance touchpoints with many people inside and outside of the organization on an ongoing basis. So, they should not wait until the review cycle is over to solicit performance feedback in the form of check-ins. Also, the employee should not wait until a serious problem develops to ask for coaching. The employee needs to take a proactive role in soliciting performance feedback and coaching from their supervisor. Supervisors and others with whom the employee has performance touchpoints (for example, team members) can provide performance feedback but are generally busy with multiple obligations.

The burden is on the employee to communicate openly and regularly via ongoing check-ins with their performance touchpoints.

  • Collecting and sharing performance data. The employee should provide the supervisor with regular updates on progress toward goal achievement, in terms of both behaviors and results.
  • Preparing for performance reviews. The employee should not wait until the end of the review cycle approaches to prepare for the review. On the contrary, the employee should engage in an ongoing and realistic self-appraisal, so immediate corrective action can be taken, if necessary. The usefulness of the self-appraisal process can be enhanced by gathering informal performance information from peers and customers.

Although the employee has primary responsibility for performance execution, supervisors also need to do their share of the work. Supervisors have primary responsibility over the following success factors:

  • Observation and documentation. Supervisors observe and document performance on an ongoing basis. It is important to keep track of examples of both good and poor performance.
  • Updates. As the organization’s goals change, update and revise initial accountabilities and objectives (in the case of results) and competencies (in the case of behaviors).
  • Feedback. Supervisors provide feedback on progression toward goals and coaching to improve performance on a regular basis, and certainly before the review cycle is over.
  • Resources. Supervisors provide employees with the resources and opportunities required to participate in development activities. Thus, they should encourage and sponsor participation in training, classes, and special assignments.

Supervisors have a responsibility to ensure that the employee has the necessary technology and other resources to perform the job properly.

  • Supervisors must let employees know that their outstanding performance is noticed by reinforcing effective behaviors and progress toward goals. Also, supervisors should provide feedback regarding negative performance and how to remedy the observed problem. Observation and communication are not sufficient. Performance problems must be diagnosed early, and appropriate steps must be taken as soon as the problem is discovered.

The employee has primary responsibility, but both the employee and the manager are jointly involved in performance execution.

Step 4: Assessing performance

In the assessment phase, both the employee and the manager are responsible for evaluating the extent to which the desired behaviors have been displayed, and whether the desired results have been achieved. Employee involvement in the process increases employee ownership and commitment to the system. Also, it provides important information to be discussed during the performance review.

Although many sources can be used to collect performance information such as supervisors and other team members, in most cases the direct supervisor provides the information. This also includes an evaluation of the extent to which the goals stated in the development plan have been achieved.

It is important that both the employee and the manager take ownership of the assessment process. The employee evaluates their own performance, and so does the manager. The fact that both parties are involved in the assessment provides good information to be used in the review phase. When both the employee and the supervisor are active participants in the evaluation process, there is a greater likelihood that the information will be used productively in the future.

Step 5: Reviewing performance

The performance review stage involves the formal meeting between the employee and the manager to review their assessments. This meeting is usually called the performance review or appraisal meeting.

Although good performance management systems include ongoing check-ins, the formal appraisal meeting is important because it provides a formal setting in which the employee receives feedback on his performance.

In spite of its importance in performance management, the appraisal meeting is often regarded as the Achilles’ heel of the entire process. This is because many managers are uncomfortable providing performance feedback, particularly when performance is deficient. This high level of discomfort, which often translates into anxiety and trying to avoid the appraisal interview, can be mitigated through training those responsible for providing feedback.

Providing effective feedback is extremely important because it leads not only to performance improvement, but also to employee satisfaction with the system.

People are apprehensive about both receiving and giving performance evaluation, and this apprehension reinforces the importance of a formal performance review as part of any performance management system.

In most cases, the appraisal meeting is regarded as a review of the past, that is, what was done (results) and how it was done (behaviors).

The appraisal meeting should also include a discussion of the employee’s developmental progress as well as plans for the future. The conversation should include a discussion of goals and development plans that the employee will be expected to achieve over the period before the next formal review session. In addition, a good appraisal meeting includes information on what new compensation and rewards, if any, the employee could receive as a result of their performance.

The appraisal discussion focuses on the past (what has been done and how), the present (what compensation is received or denied as a result), and the future (goals to be attained before the upcoming review session).

The performance management process includes a cycle, which starts with establishing prerequisites and ends with conducting the formal performance review. But the cycle is not over after the formal review. In fact, the process starts all over again.

Availability of performance management tools

Performance management can be implemented using dynamic online systems accessed via Web and mobile apps. The use of cloud computing for performance management is much more than a mere translation of paper evaluation forms to digital format.

Cloud computing technology allows supervisors and peers to provide performance evaluations on an ongoing basis and in real time while also allowing employees to receive that feedback on an ongoing basis and in real time. Using cloud computing for performance management allows organizations to update goals and communicate them in real-time to all employees, thereby allowing them to update their team and individual goals and priorities.

Another advantage of using cloud computing for performance management is that it leads to a clearer understanding of the role of managers in the performance management process. For example, we can quickly learn how often they are communicating with direct reports about their performance. Also, we can quickly learn how often “check-ins” take place.

The availability of Big Data is also changing performance management in important ways. For example, about 80 percent of organizations use some type of electronic performance monitoring (EPM). In its early days, EPM included surveillance camera systems and computer and phone monitoring systems. But, today EPM includes wearable technologies and smartphones, including Fitbits and mobile GPS tracking applications.

Performance management as a tool

In today’s globalized and hyper competitive world, it is relatively easy to gain access to the same resources as your competitors—particularly when it comes to technology and products.

But a key differentiating resource is people. Organizations with engaged, motivated, and talented employees offering outstanding service to customers and coming up with creative ideas pull ahead of the competition, even if the products offered are similar to those offered by the competitors. Performance management is the ideal tool to have this type of workforce.