Research

Performance Management

What Most Organisations Get Wrong in the Performance Management Process

Most of the time, organisations don’t bridge the gap between their annual performance reviews and actionable employee development.

Instead, they tell leaders to run irregular, once-in-a-blue-moon reviews throughout the year, and then leave employees in the deep end to figure out how to improve all on their own.

This isn’t helping anyone, from your employees to your business’s overall performance.

The problem is that performance management as-is is unable to drive performance success. The solution is a strong performance management process built to drive employee excellence above all else. So, let’s dive into how you can make the performance management cycle meaningful for your workforce.

What is the performance management process?

The performance management process is a continuous and consistent set of activities used to measure the performance of employees and teams within an organization. The entire process of performance management 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

You want a strong workforce? You need a strong performance management process. Effective performance management doesn’t just bridge the gap between performance appraisals and employee development. It also plays a crucial role in driving organisational success and achieving business objectives.

Employee performance and productivity increase when employees have clear goals to aspire to, regular feedback on how they can improve, and development opportunities to enable them to perform at their best.
Engaged employees are more committed to their work and foster better workplace morale, lowering employee turnover (both voluntary and involuntary).
Individual goals are aligned with organisational goals, meaning employees understand how their work contributes to meeting the company’s objectives. When this happens, every performance milestone reached is actively progressing organisational objectives.
Leaders are better equipped to make strategic decisions, allocate resources, and set goals. They can use data from the performance management process to identify training needs and opportunities for employees’ career development.
Good performance management encourages and delivers continuous learning and development, so learners are better able to adapt, innovate, and take risks in the face of business challenges and changes. This makes the organization’s competitive advantage stronger.

The performance management process steps

The performance management process isn’t necessarily difficult, but most organisations are doing it wrong. Performance management only works if you’re proactive about it, and if you aren’t being proactive, then you aren’t fighting to make a positive change.

Let’s break down the five steps to creating a proactive performance management cycle.

The planning stage
The monitoring stage
The development stage
The rating and rewarding stage
The evaluation and re-evaluation stage.

1. The planning stage

The first step to any good development plan? Direction. The planning stage is all about defining two key elements that will act as your north star for the entire performance management process.

Goal setting: Set organisational goals for greater business context, as well as employee goals for individuals’ performance. This way, all parties involved in the process are on the same page. This comes in handy for activities like succession planning because you can ensure employees meet the performance requirements necessary to advance.
Success metrics: This will be how your goals are going to be measured and achieved, with key performance indicators (KPIs). Say your goal is to increase customer satisfaction scores—your success metrics for this goal will include an increased Net Promotor Score (NPS), as well as steps to actually achieve the goal (e.g. maybe you want to decrease the time it takes to answer and solve customer queries).

The most important thing to remember when you set goals is that they need to be actionable. Don’t be vague. Don’t decide on your main outcome and then think “I’ll work out how to achieve that later”. You need to have clear expectations from the start of where you want to go and how you’ll get there.

In other words, all your goals have to be SMART goals. That is, they all have to be specific, measurable, achievable, relevant, and time-bound. It’s the best way to ensure that your goals can be feasibly met from the get-go.

And don’t forget what we said about organisational goals providing greater business context. The whole point of performance management is to ensure your workforce is equipped to deliver on business strategy. In other words, your goals should be about meeting your business capabilities (capabilities being the mix of skills, knowledge, behaviours, processes, and tools that deliver on organisational outcomes).

You need your employee goals to align with business priorities. That way, each goal completion brings your organisation another step closer to achieving its mission.

2. The monitoring stage

This is also known as the feedback stage because this is the part where you’ll be tracking goals and giving feedback on your employees’ progress. Feedback should be delivered with regular check-ins. If you set your SMART goals properly in the planning stage, you’ll have no problem tracking your goals based on your set KPIs.

Let’s go back to increasing customer satisfaction scores as a goal. Maybe the roadmap to achieving that goal involves reducing the response time to customer support tickets by 50% and improving your communication with customers to resolve tickets as quickly as possible.

Perhaps a member of the customer support team is quick to respond to tickets, but you’ve noticed they have a lot of back-and-forth with customers leading to tickets taking a long time to be solved. You could wait until a yearly performance review to bring this up, or you could provide feedback in the moment as a form of on-the-job teaching. Think of it as coaching or mentoring.

You’ll notice we’re talking about ongoing feedback throughout the year rather than one annual review at the end of the performance management cycle. A one-off review isn’t meaningful to employees or managers, because it’s just an opportunity to look at problems that have festered, rather than an opportunity for development. So, you need to have frequent check-ins for feedback with employees and embed performance management with learning to ensure employees are getting the opportunities and resources to improve.

3. The development stage

This is the part where most companies fail in their performance management process. Too often, they don’t get valuable insights from performance reviews—especially when reviews are done annually. Add to that, only 1 in 3 North American employers say their employees feel fairly evaluated in performance reviews.

It’s also not enough for employees to receive feedback and then go off to improve performance on their own. If your business isn’t investing in employees’ development, then you’re investing in underperformance.

Now that you’ve monitored employee performance, you can use that data to create development plans tailored to individual employees’ capability needs. If your customer support team member is still struggling with efficient communication with customers, their employee development plan should reflect that. (Remember that communication isn’t the capability here, it’s just one necessary element of increasing customer satisfaction.)

Performance management tools such as a performance learning management system (PLMS) can help you keep track of both learning and performance in one centralised location. PLMSs facilitate meaningful performance conversations that connect to relevant learning. The system identifies where employees have room for improvement and delivers tailored learning to drive them towards desired performance outcomes.

4. The rating and rewarding stage

At this point you’ve been tracking goal progression, but now it’s time to actually rate performance. When we talk about rating performance, we mean rating capabilities.

Capabilities are the outcomes you want—in our example, increased customer satisfaction is the desired outcome. Capability assessments use competence, the levelled scale that capability performance is measured against. The number of levels of competence you have are up to you, as long as they measure from a beginner level (where capability performance still requires development) to an advanced level (where capability performance is tracking towards continuous improvement).

And don’t forget to recognising and rewarding employees for good performance, either. We know it seems small in the wider picture of business performance, but employee engagement is crucial for productivity and employee retention. At the very least, recognition should be verbal so that your employees know their contributions have been noticed and appreciated, but ideally, you want to go further than that. Think:

Bonuses, pay rises, promotions, and other financial rewards
Non-financial rewards such as team outings or celebratory events
More responsibilities or professional development opportunities (be careful not to reward work with an unreasonable amount of, well, more work)
Personalised rewards such as gift baskets, vouchers, or experiences.

5. The evaluation and re-evaluation stage

No, you can’t just pat yourself on the back for implementing a performance management process and leave it at that. Yes, performance management has to be a regular and continuous activity. But the final stage of effective performance management is making sure the process itself is actually working.

And we don’t just mean consistently re-evaluating whether performance management is happening in terms of feedback provided, development plans, assigned, and the like. We mean actually working out if the performance management process was actually successful in improving your workforce’s performance.

The easiest way to find this is by analysing your training ROI or performing a training needs analysis to identify where development still needs to be done. If the performance management process hasn’t seen an improvement in performance, then you need to re-evaluate the process as a whole to make it more effective going into the future.

The pitfalls of poor processes

If you fail to plan impactful performance management programs, then you’ve planned to fail.

The biggest issue is that performance conversations are really little more than hot air—they don’t result in any tangible, actionable outcomes to improve an employee’s job performance or meet company goals.

But poor performance management processes can lead to other business risks. Failure to plan any employee goals? Or employee goals don’t align with organisational outcomes? Your employees will lack direction, and might even prioritise tasks that aren’t relevant to the business’s strategic objectives. It also means resources might be inefficiently allocated, preventing the organisation from achieving its goals.

And, if your processes fail to adequately address performance issues? Other team members will have to pick up the slack. Not only does that take away from their own work, but it creates hostility and resentment within teams. Bad team dynamics are the morale-killer. It will break down employee engagement and productivity, and drive talent turnover. Simple as that.

If you skimp on employee recognition for their performance achievements? That’s right: Higher turnover. Undervalued and unsupported employees don’t want to stick around—they’ll seek new opportunities elsewhere, and that can cost organizations an average of $4,700 to hire replacement talent.

And it’s not just employees who suffer under badly handled performance management. If your workforce isn’t getting the development and training they need, they aren’t going to be able to deliver on projects—and that means your clients, customers, and stakeholders won’t be pleased. At best, customers will just be dissatisfied, but at worst, they’ll take their business elsewhere. You don’t want a half-baked performance management process to be the reason your company has a bad reputation and customer satisfaction score.

Key takeaways

Continuous performance management is the key to business success, but it’s where a lot of organisations fall flat. The antidote to placing importance on performance reviews over performance development is a strong performance management process. Done right, your workforce gets the resources it needs to improve and meet business objectives. Luckily, an effective performance management process only requires five simple steps.

Plan out your goals and KPIs for performance management ahead of time
Monitor and provide feedback on employee performance
Deliver tailored development plans based on employee needs
Rate, reward, and recognise good employee performance
Make performance management an ongoing and ever-improving process.

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