What is Performance Management? A 2024 Guide

Introduction

“How do we manage our performance as it relates to our organization as a whole?”

This guide answers that question. We cover what performance management means, why it matters, each step of the process, and more. Use the table of contents to jump to the section you need, or start from the top. We hope it gives your organization a strong approach to strategic planning and execution.

Table Of Contents

• Introduction
• Chapter 1: The Definition Of Performance Management
• Chapter 2: Why Is Performance Management So Important?
• Chapter 3: The Three-Step Performance Management Process
• Chapter 4: Getting Your Performance Management Program Started
• Chapter 5: How Data Management Fits Into Performance Management
• Chapter 6: Using Software To Execute On Performance Management
• Chapter 7: Invest In Your People For Performance Management Success

Chapter 1: The Definition Of Performance Management

The term “performance management” can mean a few different things. In this article, we mostly mean corporate performance management (also called enterprise performance management), which is different from project performance management and personnel performance management. Below, we explain how these terms relate and how they differ.

Corporate (Enterprise) Performance Management

Corporate performance management is the art of defining, measuring, and ultimately achieving your strategy. It means looking at the performance of your organization as a whole and linking your goals at the enterprise, division, and department levels. Done well, it examines how your entire organization is performing, not a slice of it.

Along the way, you might use frameworks like the Balanced Scorecard, objective and key results (OKRs), or another method to manage and report on strategic progress and execution across departments.

There are two good times to start practicing corporate performance management:

• Directly after you've built your strategic plan. Corporate performance management is how you execute that plan. At this point, you'd ask, "How do we manage our performance so that we can achieve our strategic goals?”
• Following a leadership conversation about performance. If your leadership team meets regularly to discuss company-wide strategy or performance, the conversation may turn to how each department links its goals or projects to those at the organizational level. Your leadership team may then decide it’s time to pull these department-level discussions into one story of the organization.

Corporate Performance Management: Two Case Studies

Here are two organizations that have used corporate performance management well.

• The United Nations Federal Credit Union (UNFCU) decided to use the Balanced Scorecard to focus on its strategy and corporate performance management. Its leaders linked projects and people to that strategy through incentive compensation, and they now manage performance on a monthly basis with their executive team. You can read more about UNFCU’s success with performance management here.
• Pacific Gas & Electric (PG&E) always held meetings about key measures across their organization. But only when leadership started monthly cross-functional meetings to align strategies across the organization did they find a common way to review results and execute better on their strategy. PG&E’s full case study can be read here.

Project Performance Management

Project performance management tracks how you’re performing on particular projects (or a portfolio of projects) that support or drive performance in part of your organization. Corporate performance management deals with every part of an organization. Project performance management is about managing the resources, people, schedules, budgets, and other interactions of a single project.

Some projects are so large that it may feel more like you’re doing corporate performance management than project performance management. A billion-dollar project that is 10 years in the making, for example, brings a great deal of complexity. And billion-dollar construction projects likely have aspects that are intertwined with corporate goals, such as finances, customers, and employees or staff. But you're still working on a project, one with a start and end date that can be broken into tasks and executed. So project performance management isn’t the same as corporate performance management. The two have slightly different goals.

Project Performance Management Case Study

The City of Arvada, Colorado, relies on project performance management software to track and report on their projects, which helps them meet their need for greater citizen transparency. Take a look at Arvada’s full case study here. Here, project performance management works as a subset of corporate performance management, as it often does.

Personnel Performance Management

Personnel performance management, also called human resource (HR) performance management, looks at the performance of all your employees, and how those individual performance levels are linked and aligned to the strategy of your divisions, departments, and enterprise as a whole. It includes regular reviews of staff performance, employee competency evaluations, employee goal setting, salary reviews, culture reviews, managerial reviews, and employee feedback cycles.

The process of managing individuals is typically handled by HR, but it should be carried out with organizational objectives in mind. Ideally, your organization has a defined strategy, a plan to execute it, and a list of projects built to achieve your objectives. Your people work toward accomplishing those objectives on a daily basis, using their skills and time to carry out the necessary tasks that will advance your plan. So every individual’s goals should feed into the organization’s overall goals.

Clarifying the link between employee goals and organizational goals is important for two reasons:

• It establishes accountability. Set expectations for tasks and assign a person or group to complete each one. Not doing so (or failing to communicate those expectations to employees) creates confusion around roles and responsibilities. Key tasks then get overlooked, which makes your overall goals harder to reach.
• It boosts employee engagement. Employees are more motivated to contribute and make thoughtful decisions when they understand how their individual responsibilities impact organizational objectives. When the whole group sees the bigger picture and how their efforts link together, everyone is encouraged to do their best work.

Here’s an example of how an individual’s performance might be measured in relationship to organizational goals:

• Organizational goal: Improve employee retention.
• Organizational KPI: Reduce the employee turnover rate by 10%.
• Department initiative: Improve employee engagement by designing and implementing an employee survey program.
• Individual goal: Achieve a 75% participation rate in the new survey (assuming the individual is responsible for the survey or works in HR)

If you’re looking for a way to manage individuals strictly from an HR perspective, many other software solutions can help. UKG’s workforce management platform handles everything from surveying to performance and compensation management to payroll; SAP SuccessFactors can help improve your employee experience; and Workday HCM is a comprehensive HR solution that tracks individual performance goals and helps manage payroll, recruiting, time tracking, and more.

Linking Partners To Your Strategy
Beyond employees, some organizations evaluate the performance of their external partners, such as suppliers. While this type of performance management may or may not be directly linked to strategic objectives, it recognizes that third-party partnerships play a large role in the organization’s overall success. Metrics that might apply to these relationships are: “Timeliness and accuracy of proposals” or “Cost and budget of projects.” The score each vendor receives, and the weight of the associated KPI in relation to organizational performance, determines whether or not they receive a bonus payout, and the amount.

Performance management software like ClearPoint is useful for creating, linking, and tracking individual performance KPIs that roll up into a strategic plan. It supports accountability by letting you assign individuals ownership of specific tasks, and it lets everyone view their progress in the context of the larger organization. Whether you want a high-level view of corporate performance, a mid-level view of project performance, or a narrow view of individual performance, you can see each one, and how they connect, in ClearPoint dashboards, reports, and other features.

Chapter 2: Why Is Performance Management So Important?

With the definitions covered, here is why corporate performance management matters. It helps you:

Set realistic expectations.

You may say you want to grow your business. But doubling your profits in five years and growing by 2% annually are two very different types and levels of growth. Corporate performance management helps you set parameters for how to achieve the growth you’re aiming for instead of falling back on the useless adage, “Let’s work harder and smarter, and we’ll see results!”

Drive the right behavior.

People in management roles across all levels of your organization have to make decisions that will, in some way or another, affect the entire organization. All of these decisions, whether from marketing, operations, or HR, eventually contribute to stronger performance (if all those decisions work together) or company-wide difficulties (if they aren't working together). Performance management helps to encourage the former and avoid the latter.

Get your team on the same page.

If each department head has the same understanding of where the company is headed, department-specific decisions will likely send the organization in the right direction. But if department heads aren’t aware, their choices could become problematic. For example, let’s say the leaders of your organization want broader job descriptions to attract individuals who could work in multiple roles, but HR continues tightly-defining newly posted jobs. This small decision could keep the organization from growing in the right direction.

Promote departmental cooperation.

Performance management helps ensure that all divisions, departments, and groups in the company make choices that keep the organization and other departments in mind. You may even see a department willing to compromise on a decision or the direction of a project because they recognize that resources could be better allocated in a different area. Letting departments partner up helps the whole company succeed.

Next Steps

Chapter 3: The Three-Step Performance Management Process

Corporate performance management should be the guiding structure and process for executing strategy. It comes down to three steps:

• Setting and defining your goals.
• Aligning your measures across your organization.
• Organizing your performance management data.

Here is what to do at each step.

Step 1: Set and define your goals.

1. Decide on goals.

It sounds simple, but it matters. If a restaurant decides to hire more staff, expand the restaurant, and eventually open another location, you may be quick to say these are all positive steps. But without setting performance goals, these may not be the right steps. If the restaurant is losing money fast, the data may not support these steps. Or it may be better for the restaurant to open five new locations at once. Either way, you cannot say whether or not you are making strategic progress without set goals. For a guide to selecting the right strategic goals for your organization, take a look at this article.

2. Understand your organization’s capabilities, and how far you want to expand those capabilities.

If you manufacture plastic products for the healthcare industry, setting a goal to expand into manufacturing food products might be too much of a stretch. To set achievable goals, you need to consider your competitive advantage (what sets your organization apart) and your scope (what is realistic for your organization based on where you’re at in your current strategic journey). Defining your OAS statement will help you set goals that guide your organization to success.

‍3. Link your performance goals together.

Your goals should all link together to tell a bigger-picture story of your organization’s strategy. We recommend dividing them into four perspectives (financial goals, customer goals, process goals, and people goals) and linking your performance goals across those four perspectives. This helps communicate what is important to your organization, and how those goals relate to one another.

‍4. Recognize the implicit assumptions about what you should stop doing based on goals.

For example, if a manufacturer of custom machines sets a goal to focus on the agricultural industry, it may turn down orders from the plastic industry to focus on the area it has decided matters most.

Note: While the examples above feature for-profit organizations, goals matter just as much to mission-driven organizations. For example, a soup kitchen may have a mission of giving the homeless dignity. But without clear goals, the soup kitchen could find itself in the mental health business, the housing business, or the job training business. It may want to be in these businesses, but that should be decided through the goal-setting process. The same organization could also decide to focus entirely on meals, and a goal of serving more people.

Step 2: Align Your Measures Across Your Organization

All organizations measure “things”: their financials, receivables, customer satisfaction, the number of widgets they make, waste, employee turnover, and more. But to ensure your organization is on track with your goals, you need measures that reflect your strategy, not only those that are simple or expedient to track. This article describes precisely how to set such measures. As you move through this process, keep the following in mind:

• Data for your measures will come from all over your organization and should be stored in a central location. You’ll have measures from finance, operations, sales, marketing, customer management, and more. The data associated with these measures will likely be tracked in a variety of ways, from Excel to departmental software solutions to emails to pen and paper. Managing performance is far too difficult when this data is scattered across disparate systems, so get it all into one system. (We’ll discuss that further in the next step.)
• Your measures must link directly to your goals. For example, if you intend to drive growth through new products, one of your measures should consider what percentage of your revenue is derived from those products (as opposed to just a measure of your overall revenue growth).
• Every goal should be matched with a target. For your measures to mean something, set targets for each of your goals. For example, if you want to see an increase in revenue, you won’t know whether you’re on track to meet that goal if you haven’t set a specific target. Follow the nine steps listed in this article to set these targets.

Step 3: Organize Your Performance Management Data

In the past, the organization of performance data was handled in one of two ways: Through Excel or PowerPoint, or through comprehensive ERP software.

‍Excel and PowerPoint are still the most commonly used tools for performance management data. Data owners send their data to a central office (or single individual) on a regular basis, and that office or individual is tasked with consolidating this data and creating management reports that are distributed monthly or quarterly.

This approach has many problems. It takes a great deal of manual effort to compile the data, there’s a constant risk of human error, and the lack of version control can cause major data issues. And there are more. (This article goes deeper into Excel reporting issues.)

Some organizations use ERP software systems, like those from SAP, Oracle, IBM, and Siemens, to organize their performance management data. These systems have problems too:

• Cost: Many large organizations use ERP software, but these implementations tend to run upwards of tens of millions of dollars. And while they're good for tracking transactional data (like how many widgets you’ve produced), setting up the system to track performance data (like the number of customers served) is hard. It can take weeks to months to configure your ERP to handle your performance management data, and could cost an additional tens of thousands of dollars to do so.
• Complexity: The challenge with corporate performance management is that it is a nimble process. You’ll be continuously modifying your measures as your strategy changes over time; continuously modifying an ERP system will be complex and time consuming. Each modification could take days and thousands of dollars, because ERP systems are not nimble enough to keep up with your strategy.

You don’t have to choose between Excel, Powerpoint, or ERP software. Instead, you can use performance management software customized for the performance management process.

ClearPoint is one example of this type of software. It pulls information from multiple databases and software systems and stores it in a central place, sends email reminders when it’s time to add new data, and generates reports with little effort. ClearPoint also solves the cost and complexity issues associated with ERP software:

• Cost: A tool like ClearPoint allows multiple leaders in an organization to set goals, add measures and targets (with automatic calculations and evaluations), link projects, and create an unlimited number of reports at a small fraction of the cost of an ERP solution.
• Complexity: Updates within the system can be made in a few hours instead of a few weeks. ClearPoint also lives with your leadership team, not the IT department (where ERP software lives). That makes updates and changes easy.

Next Steps

Chapter 4: Getting Your Performance Management Program Started

Once you’ve set and defined your goals, aligned your measures, and organized your data, you’ll want to get your performance management program up and running. This is where the “Plan, Do, Check, Act” (PDCA) approach comes in.

It sounds like common sense, but many organizations do only one or two of these steps. They may plan but not act, or they try to act without a plan. Using all four steps keeps the process on track. Here’s a breakdown of the acronym in the context of performance management:

• Plan: This involves thinking through how you are going to manage performance across your organization. Many companies choose to do this by building out a Balanced Scorecard. That’s an excellent planning tool, but simply choosing to use it isn’t enough. For performance management to be successful, you need to consider how you’ll construct a Balanced Scorecard (or whatever management system you use) and how you’ll use it in the long-term. Planning your strategy to manage performance better sounds obvious, but many organizations skip this step entirely.
• Do: This involves actually managing your performance. You have defined goals and measures at this point, so you need to actually collect the data and begin “doing” performance management. Three things to remember here: 1) Communicate to individuals what you are trying to accomplish. 2) Link projects to your goals. 3) Fund the relevant projects well enough for them to succeed.
• Check: This functions on two levels: First, you need to regularly check the performance of your measures, which involves regular (monthly or quarterly) measure reviews. Second, you need to check in on whether you’re actually tracking the right measures or the right targets, and whether you still have full commitment from the leadership team.
• Act: This involves adapting your actions as your strategy unfolds. If you’re off-track on some of your measures, act with initiatives that steer you back on course.

Many organizations don’t implement Plan, Do, Check, Act because it requires a great deal of leadership commitment. Your leadership team needs to understand that implementing corporate performance management practices will require tracking new measures, reviewing results regularly, and making changes to certain processes as new insights come to light. Leaders play a large role, so they should set aside enough time for it. Performance management should change the way they manage, and they need to understand that for it to succeed.

Performance management will also fail if you don’t plan how it will be implemented, implement all aspects of it appropriately, and take action where needed. It isn’t a simple business change. It’s a strategic overhaul. This is also the difference between building a Balanced Scorecard as a standalone project and using a Balanced Scorecard as your organization’s primary management tool going forward.

‍Don’t let your good intentions fail because you haven’t allocated the time, software, or leadership necessary to support your performance management process. Corporate performance management isn’t an agenda item or a project. It’s a complete shift in the way you manage.

Next Steps

Chapter 5: How Data Management Fits Into Performance Management

Performance management is extremely reliant on solid data. You can’t succeed at it without data.

You may notice that, in your organization, there’s a struggle over who owns the data: business process owners, IT, and performance management. You’ll need to resolve this as you get into the process:

• Business process owners, like sales or HR, likely feel a strong sense of ownership over their data. They may use a proprietary collection system for the data they need and then manipulate that data in their own spreadsheets. They may stake claim to data management as it relates to their department and require requests for access from anyone else who needs the data.
• IT usually claims ownership of all the systems that hold the data. These systems are typically powerful and have many unused features, so IT may feel that if you want to “do more” with the data, you should contact them, and they will configure the system based on your needs. The issue here is that operations and IT speak fairly different languages, have different timetables and resource constraints, and may be at odds more than they work well together.
• Performance management personnel are responsible for creating executive reports that include all the relevant data. They need to ensure that data is current at all times, either for reporting purposes or for “live” viewing.

For performance management to succeed, business owners must be comfortable working with IT to ensure all data systems have accurate data. Business owners also need to work with the performance management team to give them ownership of the data, which can then be shared with the leadership team on a regular basis.

The chart below breaks down the levels of data and who owns each. You’ll see that each group has some level of responsibility, with performance management having greater responsibility for presentation and execution and IT focusing more on source data and data quality. So your performance management and IT teams need to agree on how data is shared.

Here are the levels of data:

• Source data: This includes data collection, data storage, and data security, mostly handled by IT. With more specialized cloud-based applications, though, some process owners may be responsible for tracking their own data.
• Data Quality/Integration: This involves the technical integration of data. For example, client data may live in one system and sales data in another, but the data needs to be integrated and must match system to system. Again, this is a responsibility typically held by a technical data management group (like IT).
• Analytics/Visualization: This is the analysis of the data. If you have unit volume information coming out of one system and sales or margin information coming out of another system, you need to work out which is more profitable for your organization: large volume and low contribution, or low volume and high contribution. This information may use artificial intelligence, machine learning, and predictive analytics. The role of analytics or visualization may be split between performance management, process management, and IT.
• Presentation: With a clean set of data, you need to present it in a compelling way via reports. The process of determining report content and design is typically the responsibility of the performance management office, but it is also completed by process management teams for their local presentations.
• Execution: Finally, you have to determine how your organization will make decisions and adjustments based on this data. This is primarily a function of the performance management office (for strategy execution).

The performance management department and business process owners need to work with IT to talk about data and its forms (source, quality, analytics, presentation, execution) before assigning out responsibility. These groups need to work as a team. Disagreements that arise may simply be misunderstandings about roles and responsibilities when it comes to data; using the structure above will help you better define these working relationships.

Next Steps

Chapter 6: Using Software To Execute On Performance Management

Some organizations never reach their goals simply because they don’t use the right tools to manage the process. Performance management is complex, and software can help at every stage. It keeps your strategy top-of-mind and simplifies the most time-consuming parts of the process.

‍ClearPoint supports performance management in four main ways:

• It provides one central place for all your strategy information, making data easily accessible.
• It runs progress calculations and evaluations automatically so you can demonstrate progress over time.
• It’s capable of building a variety of informative, visually appealing report types and distributing them to the right audiences on schedule, which saves you time.
• It gives you a way to provide the exact data and insights leaders want and need, encouraging more productive meetings.

ClearPoint specifically supports the success of your performance management process by allowing you to:

Link goals, measures, and projects across departments. One of ClearPoint’s strengths is that it gives your organization a way to see (and share) how your strategy and all its components fit together. You can align your goals across departments to see exactly how each goal relates to the overall strategy, and link measures and initiatives to goals to see how these elements inform one another. You can even visualize how individual performance contributes to department performance, and then to overall organizational goals.

Assign ownership to all elements of your plan. Use ClearPoint to promote accountability by designating team members as “owners” or “collaborators” (or any terminology you prefer) on action items. You can easily view and update an individual’s personal tasks, and link them either visually or mathematically to the organizational strategy. You can also create personal, one-page scorecards showing an individual’s key tasks and activities and the strategic objectives they are linked to.

‍Easily view performance data on any scale, in a variety of ways. ClearPoint keeps all your strategic information in one place, giving you many options for understanding and communicating progress. A variety of chart, graph, and report types are available for tracking and evaluating measure data, and dashboards quickly summarize essential project data, including percent complete, budget, and quality indicators. Rather than a wall of data (similar to what you might see in a typical data visualization tool), ClearPoint helps you tell the story of how those numbers came to be, with additional fields for qualitative analysis. Explanations and hypotheses around the numbers add context, and give decision-makers a more complete summary of what’s happening and why.

Track targets in near real-time. ClearPoint tracks progress toward your measures and goals and automatically evaluates them against target data. These evaluations are reflected in a red, amber, or green (RAG) status indicator, which changes as new data is inputted. Users can log into ClearPoint anytime and view current progress on any measure. When leaders and employees alike have easy access to this information, they’re more likely to reference it for decision-making.

Create reports for every audience. Different audiences need different data, or need to see the same data positioned in different ways. A one-size-fits-all approach to reports will make them less valuable for users. ClearPoint lets you custom-build an unlimited number of report types from a single set of underlying data, so all audiences get exactly the format and level of detail they want. You can produce summary reports for managers and directors just as easily as detailed reports that spotlight specific data points and analyses.

‍Automate the data collection process. ClearPoint automates 70% of your reporting process, saving you a lot of time and energy. It’s capable of automatically:

• Pulling data from other sources
• Reminding users to update manual data, projects, and qualitative information
• Generating and distributing customized briefing books

Organizations that don’t use automation tools are more likely to get bogged down by the reporting process and abandon performance management efforts altogether.

Whether you choose ClearPoint or another performance management solution, software is a necessity for organizations that are serious about strategy execution.

Chapter 7: Invest In Your People For Performance Management Success

If you’ve invested time and resources into developing a strong strategic plan, implementing it, and tracking your progress, you’re well on your way to achieving your organizational goals. But all that effort is only as good as the people executing it.

Mentoring and grooming talented workers prepares the next generation of leaders at your organization. It also lifts employee motivation, job performance, and retention, all of which help strategy execution. Here are eight performance management "best practices" that will help future-proof your workforce.

1. Hire right for the long-term.

Say you need to hire some more entry or mid-level employees. Before you begin the hiring process, define what a successful leader looks like at your organization. Name the personality traits and skills they possess. During the hiring process, look to hire candidates who fit your criteria and could become leaders. Many successful consulting and law firms hire associates based on whether the firm believes they would make a good partner twelve to fifteen years down the road. Take that long view in your hiring.

2. Invest in good people from the beginning.

A simple step is to invest in top talent. Be sure to pay fair and competitive wages to attract top talent, and even more importantly, keep that talent. Offer to pay for professional development courses, certificates, and even degrees. Set the example that employees are to be valued just like customers. After all, you hope to keep these leaders in your organization.

3. Recognize good employees.

Cultivate and develop pride in a job well-done within your organization and future leaders. It builds morale and creates a culture that teaches future managers the organization values hard work. Offer unexpected bonuses, gift cards, and lunches for employees. At these lunches, recognize some of the great employees you see as future leaders, which leads us to...

4. Raise the visibility of future leaders.

Once you have identified key talent to develop into leaders, take action to ensure they are known, accepted, and trusted within the organization. Give them projects that cut across departments so they can make key contacts throughout the organization, gain greater institutional knowledge, and get experience managing large projects. Do all of this well before their promotion so you can monitor and help ensure their success.

5. Put future leaders in situations where they need to make decisions.

Good decision-making skills need to be developed and are an important element of leadership. Many of the future leaders you identify will already have the basics of these skills mastered, but give them the opportunity to greatly improve. Guide them through the decision-making process. Help them understand the right questions to ask and the proper factors to consider. As they develop, give them more and more authority and take off the training wheels.

6. Establish two-way, cross-generational mentoring.

Mentoring matters, but don’t get stuck on the traditional view of mentoring as a wise, senior director mentoring a young professional. That approach works, but it is not the only model. Different generations in the workplace can learn a lot from each other. Younger workers are technologically savvy, highly adaptable, and comfortable with a rapid pace of change.

Younger employees can mentor their long-tenured bosses in these areas while established leaders can help younger professionals in their career. Your emerging leaders also learn how to be a mentor in the process.

7. Use external mentors.

Beyond internal mentoring, expand the program to give people the option to be mentored by leaders in other organizations and professional groups or associations. The learnings that can come from mentoring with equivalents at other organizations, even if they are not in the same space, can be very valuable as young leaders try to figure out their leadership style.

8. Lead by example.

The simplest tactic, and sometimes the most overlooked, is to act in such a way that inspires others to follow suit. It isn’t always easy to verbally explain the desired behaviors of a leader; attitudes and work ethic may be hard to describe. Sometimes actions send a clearer message. Be aware that people are watching, and exemplify the behaviors you believe are necessary for a leader to succeed in your organization.

For more on managing to produce the results you want, try these performance management books: Performance Management: Changing Behavior that Drives Organizational Effectiveness by Aubrey C. Daniels, and The Coaching Habit by Michael Stanier.

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