The Performance Management Cycle: A Step-by-Step Approach

Performance Management

What is performance Management?

Performance management is a management tool that contributes to achieving a high organisational performance. This process creates an environment for employees to perform best and in alignment with the organization's overall goals. It allows organisations to set goals, and evaluate and review the achievement. And also, it measures workers' performance. Most importantly, it can be a very effective motivator, which contributes to achieving organisation goals successfully.

Robert Bacal (1999) defined Performance Management as: "An in-progress statement process, undertaken in partnership, between a worker and his or her immediate manager that involves establishing clear expectations and accepting the jobs to be done". 

Outcome of effective performance management

• Clarifying job responsibility, expectations and results.

• Enhancing individual and group productivity and efficiency.

• Developing capabilities through feedback.

• Align behavior of the organisation mission, values.

• Providing a basis for making HR decisions.

• Improving communication between employee and manager.

Performance management cycle

The process of performance management consists of four main steps.

1. Planning & goal setting is the initial step in a performance management system. These goals should align with the organization's strategic aims and provide a sense of direction and purpose. 

The goal should consist of features of SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound) to ensure employees understand what is expected of them and how employers will measure their performance. 

Individual goal setting should depend on their job responsibilities/

2. Monitoring and reviewing- Continuously monitoring and feedback is vital for performance Management.  Regular feedback enables employees to recognize their strengths and weaknesses and helps them to be on track and aligned with organizational goals.

3. Developing-This process provides guidance, support, and resources for employees to develop their skills and knowledge to overcome challenges.  It provides a structured approach to address performance issues and helps employees understand what is required to meet their job expectations. This allows employees to continuously improve and helps organizations effectively tailor their training programs to address development needs. 

4. Rating and rewarding- Employees receive detailed feedback and recognition for their efforts, and compensation based on their performance. Periodic evaluation identifies key areas required for further development is needed. This process is an opportunity to assess employees’ performance against goals and objectives. 

Key challenges in performance management

Despite its significance, performance management presents several obstacles that organisations must overcome to ensure its effectiveness. Below are some prevalent challenges and solutions:

1.  Unrealistic and undefined goals- Employees may struggle to excel if their pre-set goals are not clearly defined or goals are unrealistic. If Individual goals are not aligned with organizational objectives and strategies, it causes employee demotivation, unproductivity, poor performance, and ultimately, a failure to achieve organizational objectives.

To address this issue, organisations should design goals with the features of SMART goals. (Specific, Measurable, Achievable, Relevant, and Time-bound).

2. Inconsistent or Infrequent Feedback: This can be one of the most frustrating challenges employees face in the workplace.Employees require continuous and reliable feedback to adapt and enhance their performance.

3. Bias in Performance Evaluation: This occurs when the performance assessment is influenced by factors other than the employee's actual performance, such as favoritism or recency bias (preferring recent events). Subjective assessments can lead to unfair treatment and potentially demotivating employees

This issue can be mitigated by standardizing performance evaluation, providing training to appraisers, conducting regular evaluations, and using multiple evaluators.

4. Resistance to Performance Management Systems: Employees and managers may resist new performance management processes due to a lack of trust, perceived unfairness, or a feeling that the system is not aligned with employee goals and organizational values. And, it may be considered as an additional workload. 

It's important to communicate the benefits of the performance management system. Organisations engage employees in the goal-setting process to ensure it's fair and transparent.

Conclusion

Effective performance management produces a culture of accountability and transparency in your organisation. When employees understand how their contributions align with the company's goals and strategies, they feel a greater sense of ownership and responsibility toward their work. This process boosts morale and engagement of employees and leads to increased retention of employees. By making incremental improvements, companies can reduce costs and solve time-consuming issues, improving their bottom line.

References List

Article: CIPD (2023) ‘How to build an effective performance management strategy’, CIPD Insights. Available at: https://www.cipd.co.uk (Accessed: 20 March 2025).

Article: McKinsey & Company (2022) ‘The future of performance management: Trends and best practices’, McKinsey Insights. Available at: https://www.mckinsey.com (Accessed: 19 March 2025).

Performance Management: Introduction | People & Culture. (n.d.-b). https://hr.berkeley.edu/hr-network/central-guide-managing-hr/managing-hr/managing-successfully/performance-management/introduction

Kaplan, R.S. and Norton, D.P. (1996). “The balanced scorecard: Translating strategy into action.” Harvard Business Review, 74(1), pp. 75-85.