What is a performance management cycle and how has it evolved over time?

When you’re designing a performance management system, you’ll likely begin with a concept such as the performance management cycle, and build your processes around it. To do this, you’ll need to understand what a performance management cycle is, what the stages of the performance management cycle are and how the performance management cycle has adapted and evolved from a traditional 12-month cycle to a more continuous, fluid process.

The traditional performance management cycle

While there are many versions of the performance management cycle, the most popular is probably the one cited by Michael Armstrong in his Handbook of Performance Management. Below is our representation of this cycle:

Image showing performance management cycle

The first stage of this performance management cycle is ‘planning’, a phase which was traditionally carried out only once each year. During this planning phase, employees are set SMART objectives, which contribute to achieving one or more of the company’s goals.

The planning phase also includes the formation of a personal development plan (what strengths and skills the employee should develop to achieve their goals) and a review of the employee’s job requirements. The idea is to ensure that the organisation’s goals and values feed into this planning phase, thereby ensuring that individual performance is aligned with the overall strategy of the organisation.

The next stages are ‘Act’ and ‘Track’, which occur throughout the year. Employees aim to achieve their objectives and carry out their role effectively, while line managers coach their employees, track progress, and provide feedback.

Historically, companies have placed a large emphasis on the final stage, ‘Review’, often combining it with employee performance ratings. The ‘Review’ phase traditionally encompasses an annual performance review, a meeting where employee and manager discuss and evaluate goal progression and completion, performance issues, training and development, and opportunities for advancement.

This once-a-year meeting can be extremely stressful for both employee and manager, and ultimately unproductive. Attempting to discuss and achieve so much in one meeting is simply unfeasible and the review frequently becomes a tick-the-box exercise with little meaningful conversation. Because of the inadequacies of this annual process, a more agile performance management cycle has been adopted by companies around the world, which we’ll look at below.

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The performance management cycle is shifting and evolving

In recent years, it has become widely recognised that it is more productive and motivating to discuss performance and give feedback regularly, rather than once or twice a year. This mindset has allowed for the creation of a continuous approach to performance management. This means that instead of one annual performance management cycle, many companies (including Adobe and Microsoft) have introduced a series of consecutive, smaller and more intuitive cycles, as shown below:

Diagram showing Continuous Performance Improvement cycle

This performance management cycle is an ongoing process of developmental performance  discussions and feedback, which allows employers and managers to treat performance management as a process that “connects an organisation’s culture, business goals and strategy to individual performance and contribution“.

Rather than setting an unrealistically large number of 12-month objectives at the start of each year, under this new approach, employees and managers regularly meet and collaborate on a smaller number of ‘near-term’ SMART goals. These goals are then periodically reviewed at ‘check-in’ meetings, when new near-term goals are also agreed. Meetings are an opportunity for manager and employee to engage in future-focused, action-oriented discussions.

There are a number of advantages to this continuous approach:

  1. Near-term objectives tend to be achieved more quickly. This helps when it comes to building momentum and improves employee motivation.
  2. Near-term objectives aren’t as likely to become irrelevant over time. Over the course of a year, business needs can shift and shorter-term goals are better suited to supporting changes in priorities.
  3. Creating a large number of long-term objectives at one point in the year is time-consuming, laborious and actually difficult to do. Most of us don’t really know what we’ll be needing to achieve in 12 months time. Having a few shorter-term objectives on the go at any time and reviewing them regularly is significantly easier and less time consuming.
  4. Check-ins allow managers and employees to discuss progress against objectives, priorities and personal development and take action to overcome obstacles to success  as they arise. They also provide an opportunity for managers to acknowledge and recognise outstanding effort or performance, which makes a huge difference to employee engagement.

If it is done right, this continuous performance management cycle is more time efficient, and far more productive.

How can performance management software facilitate the performance management cycle?

To make continuous performance management work in practice, performance management software is essential – paper or Word forms are not suitable for capturing and sharing regular updates and feedback between employees and their managers. The latest performance review software can provide the capacity for real-time feedback to be given, it allows check-ins to be scheduled and action points to be shared, and it allows employees, managers and HR to regularly set and monitor performance goals and personal development needs.

What will the performance management cycle look like in the future?

If current HR trends are anything to go by, it is likely that the future of performance management will be increasingly agile and collaborative. Autonomy will be prioritised, meaning micro-management will be a thing of the past and flexible working is something companies will need to incorporate. This will necessitate a shift to a performance management system that is based on contribution and impact, rather than an archaic focus on hours spent in the office and rigid job descriptions.

In fact, companies such as Netflix have been experimenting with concepts such as unlimited holidays for a while, and employee performance has remained as high as ever. To keep employees motivated and productive, organisations will need to develop trusting and flexible working environments where frequent feedback and regular, meaningful performance discussions are the norm.

Do you want to see Clear Review performance management software in action? Book a free performance management software demo today, and we’ll be happy to give you a tour.