Have you ever helped somebody as they went about the task of preparing a job application? When they approach you to review their documents, you guide them on how they can make their application stronger. You may not sit next to them and correct every word of their application, but you provide some big picture suggestions about what can be done to improve the application.

Similarly, smart employers show their employees how they can improve. Many modern-day workplaces have moved away from the conventional annual performance appraisals. Instead, a more consistent system called the ‘performance management system’ is increasingly gaining currency. Let’s take a deeper look into what this system entails.

What Is Performance Management?

There’s no single definition of performance management because the concept is constantly evolving. To understand the meaning of performance management, let’s begin by understanding what it is not. It isn’t an annual appraisal meeting or a self-evaluation. By simply tracking employee goals, improvements or achievements, you’re not necessarily creating an efficient performance management system.

A performance management system is a systematic process where a manager engages with an employee to ensure that both personal and organizational goals are being met. It’s a system of continuous feedback and communication as opposed to a once-a-year activity. Performance management makes every interaction with an employee a learning opportunity. The primary agenda behind the performance management system is to align an employee’s work strategy and approach with the company’s overall business goals.

Stages Of Performance Management

Typically, performance management is a cycle that consists of several key stages. Here are the different stages of a standard performance management system.

1. Plan

  • The first step is goal setting, which should be realistic and achievable

  • Define individual expectations and purpose

  • Create a concrete development plan

2. Act

  • Put the development plan into effect

  • Monitor individual achieved targets

  • Help everyone define their roles and responsibilities

3. Track

  • Regularly track individual and team progress

  • Provide necessary feedback and guidance

  • Counter obstacles with the necessary tools

4. Review

  • Re-evaluate the targets achieved

  • Recognize and reward good performance

  • Use the data to establish the next action steps

Objectives Of Performance Management System

Here are some key objectives that will tell you more about why companies try out different types of performance management systems:

1. Strategic 

The performance management system is a program that aligns the overall organizational goals and targets with individual or departmental goals. In this way, the activity of each department or employee comes to be linked to strategic or big picture goals.

2. Administrative 

Performance management systems help define the administrative role in an organization. It helps employers determine their employee’s promotions, transfers and salary increments. It feeds into resource allocation and distribution decisions. Employees can be rewarded and evaluated based on their skill level and overall value addition.

3. Communication 

Performance management provides an effective channel of communication to inform everyone about their responsibilities, goals and performance expectations. It creates a structured process to indicate the key areas for improvement. It also suggests to employees that they should upskill to meet changing industry demands.

4. Developmental

Since the performance management system is a process of feedback loops and development plans, it helps managers understand the requirement for further training and upskilling. It helps identify star performers and groom them for roles where they can have a higher impact.  Managers can rely on training programs, mentoring and coaching techniques.

5. Organizational Maintenance

Performance management creates a system of constant evaluation and feedback. When organizations measure individual and team achievements, they’re constantly tracking progress. Therefore, the system helps businesses identify innovative ways of maintaining and boosting performance levels.

6. Documentation 

There should be a system in place to track performance management in an organization. Reviews, feedback, workshops, continuing education sessions should all be documented systematically. This archive then becomes a resource for the company to design new development plans.  It provides insight and helps organizations decide whether they need to revise business targets moving forward. Past mistakes are avoided and more frictionless processes are put in place.

Importance Of Performance Management

Organizations should work towards building an effective performance management system where ongoing support and improvement are the end goals. Here are some advantages of having such a system in place:

1. Improves Consistency

A performance management system is aligned to larger business objectives. These targets are prone to change, depending on evolving business needs. The system keeps employees on their toes, reminding them that nothing is certain. It prepares them to be agile and not get complacent. In other words, performance management systems help everybody revisit their goals.

2. Highlights Training Needs

Fast-paced business environments are a result of changing industry demands. This may affect employee performance because everyone may not be up to speed with new trends. Communicating through formal or informal reviews can help provide an open forum to discuss individual roles regularly. It can also help identify shortcomings and training needs.

3. Boosts Morale

Performance reviews and feedback loops provide a formal setting to inform employees about their progress. If an employee’s efforts are recognized, they’re motivated to work harder and better. Even if an employee can’t meet their objectives, managers should try to provide constructive feedback that helps them learn from their mistakes.

4. Supports Workforce Planning 

Performance management strategies can help with workforce planning. For example, if your team members find it difficult to meet their deadlines or struggle with their workloads, performance management can identify those critical challenges. You can discuss future workloads with your team and zero in on requirements for future hiring.

5. Increases Employee Retention 

A good performance management program will help retain talent and lower attrition rates. If employees and their managers get frequent opportunities to interact, there are more chances to reflect on performance and one’s position in the organization. If there are gaps that need to be addressed, the system prompts managers to help team members identify those gaps. Furthermore, employees are encouraged to learn and push their boundaries instead of calling it quits.

6. Promotes Employee Autonomy 

When everybody is aware of their individual and collective objectives, they’re relatively free to make choices and be accountable for them. A reliable employee is both committed and productive. Quality performance management comes from promoting a culture of trust and initiative. Managers should think carefully about their approach to feedback sessions. They should especially avoid taking complete control of their team’s work plans.

Effective Performance Management

To set up an effective performance management system, there are a few things that you should consider first. Here is a list of questions you could ask to improve your performance management process:

  • What do your employees feel about a performance management system?

Performance management systems have the potential to bring vital changes to the underlying systems of your organization. Before you make these changes, it’s a good idea to understand what your employees feel about existing tools and systems. Take time to evaluate what your teams want from a performance management system. Show your teams that you’re open to their opinions. Discuss your ideas with executive heads and other decision-makers in the company.

  • Is your performance management system consistent?

An ideal performance management experience should improve motivation levels. While reviews and feedback sessions matter significantly, the success of the process also depends on how frequently you interact with team members.  Frequent formal and informal conversations provide people with a sense of direction. This kind of systematic monitoring can also help employers validate the training or upskilling opportunities that are needed to meet business priorities.

  • Are managers properly equipped with the right tools and techniques?

Managers are central to communicating the importance of performance management processes in an organization. They’re the link between their teams and the wider organization. Your managers must be properly trained because they can guide and motivate their teams. They should be aware of the ways of putting the performance management system to best use. Take time out to meet your managers and discuss their expectations and strategies. Sometimes, having the right performance management technology can help managers drive the system effectively.


The performance management process involves and impacts every employee in an organization. Harappa Education’s Leading Self course is designed to help you identify effective ways to improve your workplace performance. You’ll learn how to develop a growth mindset and come to appreciate the benefits of stepping out of your comfort zone. The Performance Equation framework will help you understand the common obstacles that prevent you from reaching your full potential. Start working towards leading yourself better by embracing the Harappa Habits today!

Explore our Harappa Diaries section to know more about topics related to the Lead habit such as What is Leadership, Professionalism at Work, Career Development, Time Management, Work Ethic & Self-Motivation.