Performance Management System Why Do Businesses Need Them 2

Performance Management System – Why Do Businesses Need Them?

Not too long ago, corporate organizations did most of their operations traditionally. One was employee management, which involves time-to-time assessment of their performance concerning the organization’s goals. However, the traditional method of conducting this procedure was highly time-consuming and stressful. This was when organizations came to realize the need to change their performance management system. 

Thanks to the evolution of online systems, companies could revolutionize how they conduct performance appraisals of their employees. It made the entire process more accessible, engaging, and hassle-free. This structured approach toward employee management is none other than leveraging the benefits of PMS. So what exactly are these systems? Let us find out in this blog.

What Is A Performance Management System?

A performance management system is a tool that allows organizations to track the performance of their employees continuously. Not only does it ensure the effective working of employees in relation to organizational goals, but it also enables leaders to push the talents of personnel under them towards optimal performance. This allows efficient working of the organization through maximum productivity.

Additionally, a PMS facilitates critical human resource functions like communication, employee training, performance acknowledgment, presentation of benefits, goal-setting, real-time feedback, and more. This allows managers to motivate and engage employees, thus reducing turnover and maximizing business outcomes.

Why Does Every Organization Need A Performance Management System?

In this modern world, competition between organizations is much higher than before. Although output and production are essential for a business’s success, innovation, communication, and adaptability cannot be looked down upon. They need to continuously adapt to the changes in technology and innovation to stay ahead in the competitive market. This is why following the traditional method of any business operation is ineffective.

Furthermore, since human resources are highly crucial assets to an organization, taking proper measures to ensure maximum productivity is vital. If the organization fails to keep track of its employees’ performances and ensure they reach the desired goals, it will go down in no time. Therefore, it is only fitting that organizations take up the most effective approach toward employee management, i.e., leverage the benefits of a Performance Management System below are a few of how an organization can make use of such performance management software.

  • Accurately measure employee performance
  • Improve employee skills through effective coaching
  • Determine personal and professional goals for employees
  • Increase employee morale and reduce turnover 
  • Appreciate work of employees 
  • Build trust between employees and managers
  • Increase success rates for all employees
  • Drive outcomes that matter to the business

Key Elements Of Performance Management Systems

An effective Performance management system would consider all the aspects of the performance management lifecycle. It would help you make every stage of the process easy and seamless. Here are some of the critical elements to consider.

  1. Planning

A PMS should be able to help you facilitate important planning activities like setting and aligning employee goals. This will allow organizations to clearly state their goals and enable their employees, teams, and leaders to outline an action plan.

  1. Monitoring

A PMS should enable you to track key performance metrics and monitor employee progress to ensure their goals are reached.

  1. Reviewing

Not only should a PMS let you track the progress, but it also allows you to review the timely result of employee performance efficiently. An adequate system will provide information that facilitates conversations like giving feedback, understanding employee perspectives, and creating performance plans for the future.

  1. Rewarding

 A PMS should also include tools that reward employees for their achievements. Through this acknowledgment, organizations can motivate employees to work harder and reach optimal performance in the future.

Benefits Of Implementing A Performance Management System In Your Business

In the current global environment, where markets are evolving tremendously, it is essential that organizations understand the benefit of PMS and how big of a change they can make for the business. Here are a few ways in which a performance management system benefits an organization.

  • A PMS provides data that allows businesses to find their employees’ skill and knowledge gaps and improve them through training, coaching, etc.
  • It motivates employees to take on new challenges and innovations.
  • It provides employees with new opportunities to grow and develop in their professional careers.
  • A non-biased and proper performance evaluation system eliminates conflicts among team members.
  • A PMS assesses employee performances fairly and accurately against the performance targets and standards.
  • It provides clarity on performance targets, thus allowing employees to focus better and provide required results.
  • a PMS is a platform that facilitates discussing, developing, and designing individual and department goals.

Types Of Performance Management Systems

Now that you know what performance management systems are and how they can benefit businesses, here are the different types of PMS that you can integrate into your business.

  • General Purpose

This PMS facilitates constant interactions between managers and employees all year round.

  • 360-Degree Appraisal

This collects feedback from employees about other employees.

  • Key Performance Indicator (KPI) Assessment 

Key performance indicators (KPIs) are the critical elements that determine the health of an organization in relation to its business goals. In this type of PMS, a list of KPIs are used to constantly measure the state and progress of the business.

  • Technological Performance Appraisal

This PMS evaluates the technical proficiency of employees.

  • Employee Self Assessment

This type of PMS records employees’ self-appraisal compared to those given by their managers.

  • Manager Performance Appraisal

This PMS evaluates managers’ performance through the feedback received from their team and clients.

  • Project Evaluation Review

This evaluates the level of expertise of an employee in his assigned job.

  • Economic Value Added (EVA)

This measures the financial state of the business by calculating residual wealth, which is the cost of capital deducted from its operating profit.

  • Sales Performance Appraisal

This PMS judges a salesperson’s goals by evaluating the results he obtained through targets met.

Performance Management Best Practices

A performance management system may seem relatively simple. However, the process itself is quite complicated. Therefore, it is important to list out best practices that you can use to ensure your PMS works the way it should. 

Identify the goals of your performance management system initiative

When you develop a PMS for your organization, you must clearly understand what you want to achieve through this initiative. You must ask yourself what your priorities are and list your goals to develop a PMS that can accomplish these goals.

Define and describe each role

It is hard for employees to be successful if they do not clearly understand what is expected from them. Therefore, you must clearly define each role, how they must do it, and what the result should be.

Connect goals with a performance plan

When you set goals, develop a performance plan that can accomplish those goals. Since year-long goals can seem too overwhelming for employees, providing them with a plan to achieve them will help them visualize them and work more focused.

Monitor progress towards targets

Constantly review the critical areas of performance. Make use of metrics and analytics to ensure that there is desired progress towards the target performance. This allows you to make early interventions if needed. 

Provide coaching for both employees and managers

Coachings ultimately aim to identify and solve problems before they get out of hand. Therefore, employees and managers must receive frequent coaching to develop their required skill sets. 

Organize cross-functional workshops

Organizing cross-functional workshops will help employees and managers understand what other departments do, how they work, and their strengths and weaknesses. This will allow them to discover new connections to help them in their future work.

Provide actionable feedbacks

During coaching, managers must provide constructive, actionable feedback to employees. Instead of looking back and pointing fingers, managers should be able to guide the employees towards future success.

Recognize and reward performance frequently

Expected employees to stay motivated when they do not get acknowledged for their work is pointless. You must ensure that the employees are correctly and frequently recognized for their hard work to be motivated to deliver success for your organization. Furthermore, doing this publicly will encourage other employees to do a better job.

Significant Trends In Performance Management Systems

With the constant change in how employee performances are assessed and managed, specific trends are followed during each period. Here are some of the significant trends in the current performance management systems.

Market shift and growth

Ongoing feedbacks are likely to replace annual reviews completely, leading to a drastic change in performance management practices.

Human experience

One of the long-standing HR trends, the employee experience, has evolved into the ‘human experience.’ This concept emphasizes providing meaning and personalization to employee work.

Data-driven performance management

These PMS rely on data to make decisions on handling employee performances. It aims to create an objective process that prevents unconscious bias from seeping in and impacting the process.

Increase in cloud usage

According to the HR systems survey, performance management is experiencing an uptick in cloud usage. Cloud technology allows organizations to provide a self-service experience for employees.

Mental health and wellness

The World Health Organization reported that depression and anxiety have led to an annual loss of $1 trillion in productivity. This has caused employers to incorporate mental health into performance management practices.

Performance Management Systems In Various Industries

Performance management systems should be able to fulfill their desired goals. Therefore, the performance management technique solely depends on an organization’s strategies and plans, irrespective of the industry. Below are the types of PMS and when you should use them.

The balanced scorecard (BSC)

A balanced scorecard can be used by an organization that is strategy-driven with an active plan. This is one of the best types of PMS available. It uses four business perspectives- financial, customer, internal process, and people- to help organizations understand and achieve their objectives. Since a balanced scorecard provides a comprehensive view of the strategy, it is easier to manage it organization-wide.

Management by objectives (MBO)

Management by objectives PMS can be used when your organization has a strategy that consists of personal department goals. This was created by an influential management consultant named Peter Drucker. An MBO essentially focuses on creating a set of organizational objectives, which are then used as guidelines to develop individual goals.

Budget-driven business plans

A budget-driven business plan will work for you if the finance department drives your organization’s strategy. This is a less commonly used PMS where the budget leads the performance management rather than the strategy. This method links work plans to the overall budget, and more spending is given to projects that provide results. 

Cost Of Performance Management Systems

Now that you have a clear picture of performance management systems, it is time to learn about the cost of integrating one into your business. Almost all PMS developers sell their softwares as a license to use for a given period. This allows organizations to use PMS at a relatively low cost while still receiving continuous updates and support from vendors. 

Also, note that the pricing of the performance management system depends on the number of employees using the software. This is often referred to as the ‘per-employee-per-month’ price or PMP. An average PMP price can be between $4 to $12. So, to calculate the annual cost of your PMS , you simply have to multiply (number of employees) x PMP price x 12.

Things To Look Out For In A Performance Management System

Now that you know how big of an impact a performance management system can have on your business, you may consider buying one. Well, look for a few features to decide which suits your organization.

Standalone or suite

PMS may be available as a standalone or a suite. Determine which one is better suited for you according to your business requirements.


It is only fair that your organization receives a PMS that can address the issues your business faces. To do so, you must ensure that your PMS has customization capabilities.


To ease the work of managers, it is important to prioritize those PMS that are user-friendly and have a short learning curve.


Every organization has a budget. Therefore, you must find a balance by being confined to budgetary constraints while at the same time procuring a PMS that addresses core issues in the best way possible.

Wrapping Up

One of the most significant assets of any organization is its employees. However, if they fail to properly nurture and mold these assets to work the way they should, the organization is likely to go down. They must do Constant analysis and Appraisal of employees to ensure that their performance is goal-driven and productive. 

Using a PMS can help streamline this process and ensure that timely management and assessment of employee performance are done to get reports that can help determine their performance position and what changes should be made to improve them. Nowadays, various tools like Microsoft SharePoint have enabled the seamless creation of performance management systems in addition to various other features that can benefit businesses. Using these tools and technologies to up their game is the right thing for any organization. 


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