What is Performance Management?

Performance Management is an approach and process that measures activities aimed at achieving goals and improving performance. It applies to both employees and the organisation, ultimately focusing on increasing the effectiveness of the company. Here, you will learn more about Performance Management systems, processes, and how to create a strong performance culture.

Illustration av Performance Management

Definition of Performance Management

Performance Management (and Corporate Performance Management) involves planning, measuring, and monitoring the performance of employees or departments in relation to the company's goals. The goals and objectives are set based on the company's strategy and business plan, and Performance Management continuously measures how well the company is performing, ensuring adherence to the company's strategy.

The idea is that measurement and monitoring will create an understanding of what needs to be done, thereby increasing engagement and performance. High levels of transparency and dialogue are cornerstones of Performance Management and contribute to a strong performance culture.

Performance Management can be used to measure specific operational tasks and the performance of different teams in processes or projects. It is, therefore, an important framework for managers who need to plan and monitor employees' activities.

Performance Management Software

A Performance Management software should be able to measure performance over time and be aligned with the company's Goal Management (such as OKR) through reporting, performance measurement, analysis, and KPI tracking.

The system can be both software and processes that support performance management, such as the discussions between managers and employees.

Ideally, you have both systems and processes in place, along with an agile work tool and approach that can support operational activities and team dialogue.

Performance Management software, such as Hypergene, integrates Strategic Planning with Operational Planning and monitoring processes, serving as an important tool for managers, decision-makers, and controllers.

Operational planning and monitoring include budgeting, Resource Planning, goals and key performance indicators (KPIs), and data visualisation within the tool.

Performance Management Process Steps for Manager and Employee

The Performance Management process can refer to both the overall planning and monitoring process at the company level and the continuous communication and feedback process between a manager and an employee to achieve organisational goals.

When the process focuses on the employee, the individual's performance takes center stage. In such cases, the following steps are usually included:

Planning: The responsible manager sets the goals to be achieved in the short and long term, as well as overarching priorities on how to accomplish them (which may vary depending on organisational level, industry, etc.). Subsequently, employees, with insights from their own work areas, should provide feedback with the aim of reaching alignment on goals and expected performance.

Measurement: Consistent monitoring of progress based on goals, key performance indicators (KPIs), and the established plan, both to identify and anticipate issues and to assist in problem management.

Coaching: Regular scheduled meetings with a prepared agenda between the manager and the employee.

Performance review meetings: Usually conducted once a year, these meetings provide an opportunity for in-depth dialogue and a review of previous conversations throughout the year. It also allows for questions regarding the fulfilment of personal and organisational goals (why/why not), challenges, support mechanisms, efficiency, the impact of feedback, and areas for improvement. This includes discussions on competence and career development.

Taking action: The follow-up process should lead to updating goals and plans, drawing lessons for the next steps. It is also important to provide positive feedback to employees when goals are achieved and give them opportunities for further development. Equally important is to consider and incorporate all insights from the employees into the plan for the upcoming period.

Create a Strong Performance Culture Through Coaching

The part of Performance Management that focuses on individuals and their performance sets a solid foundation for how an employee works and what they work on.

When done throughout the organisation, this creates conditions for a strong performance culture. Continuity is important, meaning there should be regular conversations between managers and employees.

In coaching, the manager should consider areas such as:

  • Individual goals.
  • Department goals and how the individual contributes.
  • Company goals and values.
  • Priorities (backward and forward-looking).
  • Work and performance linked to a clear job description.
  • Competence development, career opportunities, and the ability to influence.
  • Jointly defining and planning future performance and objectives.

In these conversations, it is important to provide feedback from both sides and confirmation from the manager to the employee, fostering an open dialogue around continuous improvement.

Active and regular performance management is preferred, as research suggests that relying solely on "annual evaluations" can lead to decreased engagement and motivation, according to research.

Quantitatively and continuously collecting employees' thoughts, often through HR, can provide a better understanding of individuals, departments, and the company. This can complement and contextualise the conversations between managers and employees.

When does Performance Management Fail?

If employees perceive Performance Management as unfair, your company will fail in its implementation. This also applies to interdepartmental situations.

According to McKinsey, things can go wrong if there are issues with measurement and goals, a lack of transparency and dialogue, insufficient consequences for underperformance, or a lack of leadership engagement.

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