Performance management (PM) is the process of ensuring that a set of activities and outputs meets an organization's goals in an effective and efficient manner. Performance management can focus on the performance of an organization, a department, an employee, or the processes in place to manage particular tasks. Performance management standards are generally organized and disseminated by senior leadership at an organization and by task owners, it can include specifying tasks and outcomes of a job, providing timely feedback and coaching, comparing employee's actual performance and behaviors with desired performance and behaviors, instituting rewards, etc. It is necessary to outline the role of each individual in the organization in terms of functions and responsibilities to ensure that performance management is successful.
Performance management principles are used most often in the workplace and can be applied wherever people interact with their environments to produce desired effects--schools, churches, community meetings, sports teams, health settings, governmental agencies, social events, and even political settings.
The way performance management is applied is important in getting the most out of the group. It can have a positive impact on how employees perform on a day-to-day basis. In order to avoid a negative impact, it must be applied in a way that does not encourage internal competition, but rather teamwork, cooperation, and trust. This is done through an implementation process of clarifying the work that has to be done, setting goals and establishing a performance plan, frequently providing coaching, conducting a formal review, and recognizing and rewarding top performance.
Managers use performance management to align company goals with the goals of teams and employees in an effort to increase efficiency, productivity, and profitability. Performance management guidelines stipulate clearly the activities and outcomes by which employees and teams are evaluated during performance appraisal.
To apply performance management principles, a commitment analysis is completed first to create a mission statement for each job. The mission statement is a job definition in terms of purpose, customers, product, and scope. This analysis is used to determine the continuous key objectives and performance standards for each job position.
Following the commitment analysis is the work analysis of a particular job in terms of the reporting structure and job description. If a job description is not available, then a systems analysis is completed to create a job description. This analysis is used to determine the continuous critical objectives and performance standards for each job.
Werner Erhard, Michael C. Jensen, and their colleagues developed a new approach to improving performance in organizations. Their model is used to stress how the constraints imposed by one's own worldview can impede cognitive abilities that would otherwise be available. Their work delves into the source of performance, which is not accessible by mere linear cause-and-effect analysis. They assert that the level of performance people achieve correlates with how work situations occur to them and that language (including what is said and unsaid in conversations) plays a major role in how situations occur to the performer. They assert that substantial gains in performance are more likely to be achieved by management understanding how employees perceive the world and then encouraging and implementing changes that make sense to employees' worldview.
Managing employee or system performance and aligning their objectives facilitates the effective delivery of strategic and operational goals. Some proponents argue there is a clear and immediate correlation between using performance management programs or software and improved business and organizational results. In the public sector, the effects of performance management systems have differed from positive to negative, suggesting that differences in the characteristics of performance management systems and the contexts into which they are implemented play an important role to the success or failure of performance management.
For employee performance management, using integrated software, rather than a spreadsheet-based recording system, may deliver a return on investment through a range of direct and indirect sales benefits, operational efficiency benefits and by unlocking the latent potential in every employees work day (i.e., the time they spend not actually doing their job). Benefits may include:
Employees who question how fair the performance management system is will discredit its effectiveness. An example of this would be a high level of internal competition within the performance management system. This will cause those who do not get rewarded to be disgruntled with the process. Additionally, without proper implementation in the planning of the performance management system, employees may view the process as something they must have compliance with. This will result in a less proactive and more inaccurate representation of the performance of an employee. Managers are expected to take performance management seriously, and without effective management the overall functionality of the program will be lacking. A well-managed, well-constructed plan can be beneficial for companies and employees, but the system is not perfected.
In organizational development (OD), performance can be thought of as Actual Results vs Desired Results. Any discrepancy, where Actual is less than Desired, could constitute the performance improvement zone. Performance management and improvement can be thought of as a cycle:
Other organizational development definitions are slightly different. The U.S. Office of Personnel Management (OPM) indicates that Performance Management consists of a system or process whereby:
Performance management is the term used to refer to activities, tools, processes, and programs that companies create or apply to manage the performance of individual employees, teams, departments, and other organizational units within their organizational influence. In contrast, performance appraisal refers to the act of appraising or evaluating performance during a given performance period to determine how well an employee, a vendor or an organizational unit has performed relative to agreed objectives or goals, and this is only one of many important activities within the overall concept of performance management. Many people equate performance management with performance appraisal. This is a common misconception.
At the workplace, performance management is implemented by employees with supervisory roles. Normally, the goal of managing performance is to allow individual employees to find out how well they had performed relative to performance targets or key performance indicators (KPIs) during a specific performance period from their supervisors and managers.
An organization wide 360 process that is integrated into its culture can be a powerful tool for communicating and instituting change, rapidly touching all members of the organization when new markets, strategies, values and structures are introduced into the system
Organizations and companies typically manage employee performance over a formal 12-month period (otherwise known as the formal company performance period).
The results of performance management exercises are used in:
Each year companies spend millions on their performance management systems. In order for performance management to be successful, businesses must continue to adapt their system to correct their current deficiencies. Some aspects may resonate more with employees compared to others (e.g., goal setting or performance bonuses). Effective management will set up a performance management system that is distinctive and consistent. The goal is to continue to alter the system to have higher employee engagement and increase their employees' performance at work. In turn, companies hope this results in less turnover and creates a better workplace environment.