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What is Performance Management and why is it important?

What is performance management? Used effectively, performance management engages employees in ongoing reviews which not only supports their development but improves overall business performance, as well as identifying and weeding out issues.

Performance management is a tool that most managers of people will employ on a daily basis, but often without formalising the process or knowing that they are even doing it. However, when effectively managed, it can support business growth, aid in staff retention, create efficiencies and improve performance.


The Chartered Management Institute defines performance management as “an integrated approach to helping an organisation to achieve its aims and objectives by monitoring and improving the performance of individuals, departments and organisations as a whole”.

Alternatively, the CIPD suggests that they see there being no standard definition for performance management; instead, it describes activities that:

  • Establish objectives
  • Improve performance
  • Hold people to account

While this may seem a contrasting opinion from two leading institutes, scratching the surface a little exposes that both agree it amounts to the same thing.

When should you implement performance management?

Historically, performance management has been confused with annual or quarterly reviews or something that is brought into play to manage and resolve underperformance. It is also often perceived as something that one would utilise when an individual or team’s performance is not at its optimum level and cracks are starting to appear. While this is often the case, effective performance management should begin before an employee even joins an organisation.

It requires the effective communication of the business’s goals and how the role of the individual or team fits into those goals. It’s about setting expectations and being honest and realistic – both in terms of the benefits and consequences associated with the meeting of those expectations. With that in mind, performance management should begin at the start of the employment process and be a constant throughout the employees’ tenure at the business.

Why is it important to formalise performance management?

Performance management should take a holistic approach throughout the duration of an employee’s time at a business. Often managers can implement it without even knowing; for great leaders, it is almost intrinsic to share a goal or vision and provide a roadmap for success. But all too often, the message can be lost, misconstrued, or be perceived as less critical against the backdrop of everyday life.

Where a great leader will apply performance management intrinsically, an effective leader will implement processes that consistently review and remind teams and employees that achieving business goals is mutually beneficial.

Equally as important, performance management properly supports the business to identify where problems are beginning to occur, and where necessary, challenge and prevent the spread of counterproductive behaviours and activities.

Does performance management support employee engagement?

Performance management is integral to achieving employee engagement when approached and implemented correctly. Employee engagement is ultimately where an employee’s personal goals are aligned with the business’s. Performance management seeks from the outset to define the business goals, vision, and values while at the same time identifying the key motivators and values of the team or individual and working on setting out a journey that will fulfill the needs and desires of both the business and its employees.

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