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What is an Effective Performance Management System? (Explained)

by | Jun 23, 2017 | Practical Guidance

What comprises an effective performance management system and what is a performance management cycle?

What is effective performance management?

Companies are increasingly facing up to the challenge of how to make performance management a success within their organisation. A first step in this journey is to understand what an effective performance management system is.

In order to do this, we will address the following questions:

  • What is effective performance?
  • What does an effective performance management system look like?
  • What are the stages of the performance management cycle?

Performance Management defined

When discussing performance management, many people immediately think of performance reviews or annual appraisals. But this is only one component of what is considered to be performance management. One of the best definitions of performance management is provided by Michael Armstrong in his Handbook of Performance Management, which carefully and plainly lays out the Armstrong performance management cycle:

“Performance management is the continuous process of improving performance by setting individual and team goals which are aligned to the strategic goals of the organisation, planning performance to achieve the goals, reviewing and assessing progress, and developing the knowledge, skills and abilities of people.”

A key point here is that it is a continuous process, not a once-a-year activity. Quality performance management should, therefore, bring together a number of different, integrated activities to form an ongoing ‘performance management cycle’, as shown below.

What are the stages of the performance management cycle?

Performance Management Cycle

In this section, we are going to explain the performance management cycle and how implementing this cycle could benefit your organisation.

The first stage of the Armstrong performance management cycle is the “Planning” phase for the forthcoming period. Planning should involve agreeing on SMART objectives, a personal development plan or actions and reviewing the job requirements, updating the role profile where necessary. Historically, organisations tended to carry out this planning stage once a year. However, with the business environment becoming increasingly fast-moving, so many organisations are adapting their processes to set “near-term” objectives every three months.

The organisation’s goals and values should feed into performance planning to ensure that individual performance is aligned with the overall strategy of the organisation. Specifically, each SMART objective should contribute to achieving one or more of the organisation’s goals. Personal development planning, meanwhile, should consider what behaviours, skills or knowledge the individual needs to develop in order to successfully achieve their objectives and uphold the organisation’s values.

Traditionally, organisations have placed a lot of their emphasis on the “Review” part of the cycle, often because a performance assessment is required for rewarding purposes. However, we have always advised that it is the “Act” and “Track” stages that are the most important. These stages are where performance is actually delivered and results are achieved. Individuals need to be encouraged to schedule in regular time to work on achieving their objectives and personal development plans. Similarly, managers need to be checking in with their staff regularly. They must give frequent feedback and use coaching skills to help their team members overcome challenges and identify opportunities for learning and performance improvement. If this is left until an end-of-year review, it is too late; objectives and development plans may end up only being partially achieved.

Notice that in the above performance management cycle, there are no arrows between the four stages. This is because, in reality, the stages do not flow one after the other. Act and Track should be continuous throughout the year. Reviews may take place at any point in the year and planning may take place a number of times during the year and be re-visited, as the needs of the business change.

The new Continuous Performance Management cycle

Since 2015, this philosophy of continuous performance management has been adopted by leading organisations such as Microsoft, Deloitte, Adobe and General Electric. All these major names have abandoned traditional once-a-year performance appraisals in favour of regular ‘check-ins’ and frequent feedback. These regular performance discussions are typically developmental and future-focused. They provide an opportunity to explore what has gone well and how success can be replicated again, any challenges being faced and how they may be overcome and agree actions that both the individual and manager need to take to develop the individual and further improve their performance. 

Here is how this Continuous Performance Management cycle typically looks in leading organisations:

effective performance management

Continuous Performance Management Cycle


So what exactly is effective performance management?

Having all of the elements of the performance management cycle in place is very important, but that will not necessarily lead to effective performance management for your organisation. There are many other factors in play such as:

  • Having buy-in from leadership and senior management to performance management
  • Ensuring that the performance management cycle is continuous and not an annual process
  • Ensuring performance conversations and reviews are meaningful and not ‘tick-box’ exercises
  • Having easy to use performance management software that supports effective performance management and gives you visibility of performance management activity.
  • The skills and willingness of your managers to deliver effective performance management on a day-to-day basis

If you’d like to learn more about how to achieve these things and how to embed value-adding, effective performance management processes in your organisation, read our free guide to succeeding with Performance Management. Just enter your details below and we will send you the guide straight away: