Performance Management Cycles in Four Stages - XCD

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The year 1954. That was the year that the first successful kidney transplant was completed, the first Burger King opened, and management consultant Peter Drucker first wrote about the performance management cycle in his book, The Practice of Management.

Fast food and medical marvels aside, the performance management cycle continues to be used and adapted today in a variety of organisations worldwide. But how exactly does the cycle work, is it still relevant in the 21st century, and how can HR professionals adapt it for success in your workplace? 

Let’s take a closer look at the performance management cycle and how HR can implement it effectively. 

The rationale behind the performance management cycle

The cycle is a form of performance management where managers and employees work together over time to set goals, monitor progress, support development, and review and reward performance. This is an ongoing process, with goals and progress being reviewed each year to help employees achieve better performance and continue working towards organisational goals.

In this performance management system, employees and managers are engaged throughout four distinct stages. Instead of holding one appraisal per year and then leaving employees to work towards goals alone, the stages of this performance management system are more supportive and active with continuous feedback and check-ins. This also means that goals and training can be adapted where needed in order to help team members reach their full potential. 

Benefits of the performance management cycle

Key benefits of the performance management cycle include:

It empowers and engages employees

Because they are actively involved in each stage of the performance management cycle, employees are more likely to feel invested and in control of their own progress towards goals. By helping define those goals in a collaborative process, employees are more likely to take ownership over their progress towards them. This can be a great way of motivating employees and pushing them to reach their performance potential.

It keeps employee performance aligned with organisational goals

The performance management cycle is proactive, not reactive, in moving employee performance towards the goals of the organisation. This ensures that performance management looks beyond the individual employee and ensures that their goals and performance are harmonious with the organisational objectives as a whole. 

Nobody falls through the cracks

In some performance management strategies where feedback and goal setting is limited to an annual performance review with only end of year evaluations of their progress, it’s easy for employees to fall through the cracks. If employees lack the support or training to fulfil their potential as high performing team members, it can take as long as a year to identify and rectify the issue. Similarly, low performing and disengaged employees may go unnoticed, making it harder for HR to step in and re-engage or discipline them. 

The four stages of the performance management cycle ensure a more structured and continuous approach to performance management throughout the year, with more regular check ins and reviews. This helps ensure that no employees fall through the cracks at any stage in the cycle.

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Stage 1: Planning

The first stage of the performance management cycle begins before any performance appraisals occur. Before any individual goals can be set for employees, it’s essential that senior leadership agrees on overall organisational goals. Then, performance goals aligned with the overall strategy can be set by department and with individual employees.

Don’t forget to use the SMART goal framework to set better goals:

  • Specific: The goal is clear and well defined. The employee knows what they need to do to achieve it. 
  • Measurable: The goal can be measured with a clear start and end. It should be possible for HR and managers to track their progress or see when the employee has achieved the goal.
  • Achievable: The goal must be possible for the employee to achieve. This does not mean it has to be easy — the goal should still challenge the employee.
  • Relevant: The goal is aligned with the organisation’s goals and the role and responsibilities of the employee. 
  • Time-bound: There is a set time within which the employee should achieve the goal.

It’s important for employees to be involved in their goal setting — this increases their motivation and engagement with the goals. Employees who participate in the goal setting are also more likely to achieve their objectives because they understand the justification behind those goals and feel empowered to achieve them.

Moreover, simply agreeing on goals is not enough in the planning stage of the performance management process. Many goals will require training; this stage of the cycle is where plans are made for employees to upskill or undertake professional development courses. 

Stage 2: Monitoring

The next stage is about monitoring employees’ progress towards their goals. While the name ‘monitoring’ may suggest that this stage of performance management is passive, in actuality it’s anything but. Some HR professionals prefer the names ‘performing’ or ‘acting’ for this stage of the process. 

Effective monitoring of an employee’s progress towards performance goals necessitates continuous feedback and follow-ups, helping team members overcome any potential problems and receive the support they need for success.

Depending on your organisation and the available time and resources, follow-up meetings with the employee may occur at any frequency from bi-weekly to monthly or quarterly. The more frequent these performance meetings the better, as this helps keep everyone up to date and on track. 

Furthermore, these check-ins provide an opportunity to adapt goals or deadlines based on changes that occur in the business, industry, or the employee’s own life. Maintaining a flexible approach to performance management can be beneficial to employee development, empowering them and keeping them motivated to keep working towards fair and achievable goals.

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Stage 3: Developing & Reviewing

Sometimes called developing, or reviewing, the third stage of the performance management cycle is about evaluating an employee’s progress towards their objectives and exploring what further development they need in the future. 

In this stage, the employee’s efforts to achieve their goals are reviewed as well as the support they received. The employee may also be asked to share their own self-assessment of their efforts. 360 degree is also sometimes used to gain input from an employee’s peers and manager about their progress. 

In contrast to the frequent and less formal check-ins used in stage 2, the developing or reviewing phase tends to happen on an annual or biannual basis. These sessions are more reflective and holistic, looking at the wider story of an employee’s performance over the period. 

You may also be interested in: How to deliver an effective performance improvement plan (PIP)

Stage 4: Rewarding

Also called rating, the fourth stage of the performance management cycle turns feedback into action. If employees meet their goals or go above and beyond, it’s time to reward them for their efforts. This could come in the form of financial rewards such as bonuses or salary increases, professional rewards such as a promotion, or other treats such as public recognition or additional paid time off.

Reward shows appreciation and recognition for their hard work, motivating employees to continue working towards future goals. Moreover, it ensures that productivity and engagement remains high even after the initial goals have been met. 

However, it’s inevitable in the field of performance management that some employees will fall short of their objectives. In stage 3 it should have become clear whether this was a result of a lack of adequate support or training from the organisation, in which case this should be rectified in future performance management efforts.

Unfortunately, sometimes poor performance is a result of employee disengagement or lack of effort. In these cases, it’s necessary to take appropriate action with the employee in question — whether this constitutes an informal discussion, a warning, or even a termination of their contract.

You may also be interested in: How to effectively discipline an employee

Adapting the performance management cycle

While the performance management cycle traditionally lasts a year, reflecting the common usage of the annual appraisal, these days many strategic HR teams are pushing for a shorter and more flexible cycle. Alongside a culture of continuous performance management, feedback, and recognition, a shorter cycle that lasts semi-annual or quarterly allows for greater continuous support and higher employee engagement in achieving goals.

Fortunately, using performance management software can enhance the performance management cycle. XCD HR software’s performance management module has a range of features that help shift performance management from an occasional activity to an integral part of employees’ day-to-day.

For example, 100% customisable performance review forms allow the approach to be tailored for different individuals, departments, and employee development needs. Managers and employees can contribute discretely to performance documentation using the intuitive software, taking collaborative ownership of the process. Plus, all performance review documentation can be integrated with real-time performance metrics for a data-driven approach. Continuous feedback has never been easier and more powerful than with our performance management system.

The best part for HR pros? With performance management software, you no longer have to play a heavy administrative role in the process. Automated alerts and the easy-to-use software mean that you’ll no longer have to chase employees and managers for their contributions, freeing up your time to focus on the strategic aspect of performance management. 

Are you ready to transform your performance management cycle using HR software? Get in touch to find out more or book a demo of our powerful cloud-based tools today.