When properly designed and implemented, performance management techniques and processes enable an organisation to monitor, manage and improve strategy execution and the delivery of results. Performance management is therefore one of the most critical factors in an organisation’s success, and the ability to successfully manage performance is the single most important skill for leaders and managers. But what exactly do we mean by “performance management” and how does it work? In this article, I give a brief overview of the topic and what it typically means in practice.

What exactly is performance management?

Performance management involves measuring, reporting and managing progress – from the individuals who work for a company, right up to the organisation as a whole – with the aim of improving performance. Examples of performance management processes or tools include performance appraisals, key performance indicators (KPIs) and management dashboards. Essentially, performance management is what organisations do to become more successful and stay ahead of their competitors.

Because it covers such a wide area, performance management is usually divided into two sub-disciplines: corporate performance management and people performance management. Let’s take a look at each one in turn:

Corporate performance management (CPM)

Also known as enterprise performance management (EPM) or strategic performance management (SPM), CPM focuses on the performance of the entire organisation. It can be defined as a set of management processes that help the organisation define and execute its strategy, and to measure and monitor performance in order to inform strategic decision making and learning.

The focus of CPM is on strategic performance improvement and, as such, CPM encompasses all sorts of processes for defining strategic objectives, measuring performance, analysing performance, reporting and reviewing performance, and aligning the organisation’s people and its culture.

CPM tools and techniques include management dashboards, Balanced Scorecards, KPIs, analytics, strategic planning, budgeting and forecasting, benchmarking, business excellence models, Six Sigma, enterprise risk management, project or programme management, and performance reporting.

People performance management (PPM)

As you may have guessed, PPM focuses on the management of the people within an organisation, with the aim of ensuring that their performance contributes to the strategic goals of the organisation as a whole. It’s therefore about aligning the performance of employees with the improvement of corporate performance.

PPM is an umbrella term that encompasses processes for communicating corporate goals and priorities, aligning individual goals with corporate goals, agreeing performance measures and targets, helping individuals understand how well they are performing, as well as developing the skills and competencies required to improve results.

Tools and processes that are commonly used to manage people performance include appraisals, reward and recognition systems, personal development plans, performance targets, and performance review meetings.

Performance management systems and processes

It’s important to note that both CPM and PPM processes are often supported by information technology – indeed, most performance management processes involve information technology in some form or another. Performance management software solutions help organisations manage, monitor and automate various processes, including reporting. Examples include payroll systems that support performance-related pay mechanisms, and systems for incentives, recognition and reward. Analytics processes are essential for ensuring performance data is turned into relevant insights that aid decision making. And data visualisation tools, like charts and dashboards, ensure that insights from the performance data are communicated effectively to those who need them.

In my experience, the right performance management processes and tools are often the key differentiators between the top-performing organisations and those that would like to become one.

The importance of establishing a culture of high performance

Organisations of all sizes and across all industries need to develop, implement and improve their performance management processes, from small start-ups to large multinationals, and from non-profit or government organisations to blue-chip companies. Whatever sector or industry you’re operating in, as business becomes more and more competitive, performance becomes more critical than ever before.

In short, performance drives results, and no company can afford to ignore performance management. It’s therefore vital to establish a high-performance culture at every level of the company, so that each individual is aware of how their activities relate to the organisation’s wider strategy, every manager is able to monitor and manage performance effectively, and the leadership team can ensure the company’s strategy is being properly executed and delivering the expected results. Without this culture, even the most impressive performance management systems and processes are wasted.