How Performance Management Works [4,000-Word Guide]

In this extensive guide, we’ll break down exactly what your company needs to do in order to achieve your strategy through performance management.

Co-Founder & Alabama Native



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

This is an important question, and we put this in-depth guide together to cover it. Below, we’ll walk through a thorough performance management definition, the importance of performance management, each step of the performance management process, and a great deal more. Use the table of contents below to navigate to the section you need or start from the top! Either way, we hope this guide will help give your organization a strong approach to strategic planning and execution.

Table Of Contents

Chapter 1: The Definition Of Performance Management

Chapter 1: The Definition Of Performance Management

A couple of different things may come to mind when you hear the term “performance management.” In this article, we’ll primarily be referring to corporate performance management (also called enterprise performance management)—but that has a separate definition from project performance management and personnel performance management. Take a look below to better understand how these terms relate, and how they’re different from one another.

Corporate (Enterprise) Performance Management

Corporate performance management is the art of defining, measuring, and ultimately achieving your strategy. This entails thinking about the performance of your entire organization as a whole, and considering how to link together your goals at the enterprise, division, and department levels. When done correctly, corporate performance management should examine the way in which your entire organization is performing—not just a slice of it.

When going through the steps of corporate performance management, 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 times when you should begin thinking about and integrating the practices of corporate performance management:

  • Directly after you've built your strategic plan. It’s the art of corporate performance management that allows you to execute on your strategic plan. So, it follows that 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 to discuss company-wide strategy or performance on a regular basis, this conversation may, at some point, lead into a more detailed discussion of how each department links their own goals or projects to those at the organizational level. Depending on these responses, your leadership team may decide that it’s time to take these department-specific discussions about performance and pull them together into a comprehensive story of the organization.

Corporate Performance Management: Two Case Studies

Here are a couple examples of organizations that have used corporate performance management to their benefit.

  • The United Nations Federal Credit Union—UNFCU—decided to use the Balanced Scorecard to focus on its strategy and corporate performance management. Its leaders went so far as to link 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 it wasn’t until the leadership started holding monthly cross-functional meetings to ensure strategies were aligned across the organization that they found a common way to review their results—and better execute on their strategy. PG&E’s full case study can be read here.

Project Performance Management

Project performance management allows you to track how you’re performing on particular projects (or on a portfolio of projects) that are helping to support or drive performance in part of your organization. While corporate performance management deals with all aspects of an organization, project performance management is more about the complex art of managing resources, people, schedules, budgets, and other interactions related to a single project.

Some projects are so large that it may feel more like you’re doing corporate performance management than project performance management. For example, if you’re managing a billion-dollar project that is 10 years in the making, that kind of undertaking will require a tremendous amount 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 ultimately, you're still working on a project—one that has a start and end date, and that can be broken into tasks and executed on. Therefore, project performance management shouldn’t be considered identical to corporate performance management, as they 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 leverage their need for increased citizen transparency. Take a look at Arvada’s full case study here. Keep in mind that this case is operating within its subset of corporate performance management, as is often the case with project performance management.

Personnel Performance Management

Personnel performance management—which could also be called human resource (HR) performance management—entails looking 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.

Conducting regular reviews of your staff and dealing with competencies, salary reviews, culture reviews, setting employee goals, managerial reviews, and employee feedback all fall under personnel performance management. Individual goals should be linked to your organization’s overall strategy, but the process of managing individuals is typically handled by HR and is driven by business-level needs, rather than dictated by strategy and driven by corporate needs.

While project performance management is fairly close in many ways to corporate performance management, personnel performance management is not. This identifies how people are doing—not how the organization is doing.

Next Steps

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Chapter 2: Why Is Performance Management So Important?

Chapter 2: Why Is Performance Management So Important?

Now that you’ve been primed on the definitions, you may want to know, “Why should I care about corporate performance management in the first place?” Corporate performance management 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 they’re from marketing or 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 more than 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 potentially prevent 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. In fact, you may see a certain 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. Giving departments the ability to partner up will help ensure company-wide success.

Next Steps

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Chapter 3: The Three-Step Performance Management Process

Chapter 3: The Three-Step Performance Management Process

Corporate performance management should be the guiding structure and process for executing strategy. It can be boiled down into three specific steps:

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

Below are the details of what you need to do from start to finish in order to move through the performance management process.

Step 1: Set and define your goals.

1. Decide on goals.

As simple as this sounds, it’s quite critical. 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. For example, if the restaurant is losing money at a rapid rate, does the data support these steps? Or would it be better for the restaurant to open five new locations immediately, all at once? At any rate, you cannot say whether or not you are making strategic progress without set goals. For an in-depth guide into selecting the right strategic goals for your organization, take a look at this article.

Keep emotion (and error) out of your goal evaluations with these step-by-step instructions.

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 will 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 in those four perspectives together. 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 decide to turn down orders from the plastic industry in order to focus their attention on an area they’ve decided is most important.

Note: While the examples above feature for-profit organizations, goals are also extremely important 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 so much more. But to ensure your organization is on track with your goals, you need to set measures that actually reflect your strategy—not just 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. It’s far too difficult to manage your performance, though, if this measure data is floating around in disparate systems across the organization, so it’s important to get it all into the same 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. In order for your measures to be meaningful, you’ll need to 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.

There are many challenges with this approach, however. Namely, 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 those problems are just the tip of the iceberg! (This article goes deeper into Excel reporting issues.)

Some organizations use ERP software systems—like those provided by SAP, Oracle, IBM, Siemens, etc.—to organize their performance management data. However, there are areas of concern with these systems as well:

  • Cost: Many large organizations utilize 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) can be a real challenge. 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. In fact, each modification could take days and thousands of dollars, as ERP systems are not nimble enough to keep up with your strategy changes.

Luckily, you don’t have to decide 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 without any hassle. 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. Additionally, ClearPoint lives with your leadership team—not the IT department (where ERP software lives). This makes updates and changes a breeze.

Next Steps

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Chapter 4: Getting Your Performance Management Program Started

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 into play.

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 the full approach ensures that you move through the performance management process successfully. 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 out your strategy in order to better manage performance sounds like a no-brainer, but many organizations skip this important 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) Sufficient funding for all the relevant projects is critical to their success.
  • 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. In other words, if you’re off-track on some of your measures, you need to act accordingly by implementing the proper initiatives that will steer you back on course.

Plan, Do, Check, Act is an important concept, but many organizations don’t implement it 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. Leadership will play a large role, so they should be prepared to allocate sufficient time to the process. In essence, performance management should change the way they manage; they need to understand that concept in order for it to succeed.

Similarly, 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. This can’t be viewed as 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.

Having the right performance management software will help with PDCA. The reality is, you need software to help you prepare for and conduct meetings, track decisions and action items, and make necessary revisions to your strategic plan. Without software, PDCA can feel overwhelming to those responsible for performance management implementation. With software, the process is likely to run much more smoothly. For example, software makes it easy to create reports, which supports the “check” and “act” parts of PDCA and saves a great deal of time and energy in the long run.

Looking to create a strategic reporting policy? Use our proven guide as your road map!

In summary, don’t let your good intentions fail because you haven’t allocated the time, software, or leadership necessary to support your performance management process. The many aspects of corporate performance management can’t be treated like a simple agenda item or project; it’s a complete shift in the way you manage. If you don’t invest in this kind of company-wide change, your performance management process is far more likely to fail.

Next Steps

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Chapter 5: How Data Management Fits Into Performance Management

Chapter 5: How Data Management Fits Into Performance Management

By now you realize that performance management is extremely reliant on having solid data in your organization. In fact, it’s not possible to be successful with performance management 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. As you get into the performance management process, you’ll need to solve for this dilemma:

  • Business process owners, like sales or HR, likely feel a great deal 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. As a result, 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 pretty powerful and have a number of 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.

In order to have a successful performance management system, business owners must be comfortable working with IT to ensure all data systems have accurate data. Additionally, business owners 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.

To better break down the different levels of data (and the ownership of those levels), we created the chart below. 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. This means your performance management team and your IT team need to come to an agreement about how data is actually shared.

Levels of data

Let’s start by describing the levels of data:

  • Source data: This includes data collection, data storage, and data security—all of which, for the most part, is handled by IT. Although with more specialized cloud-based applications, 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 involves the concept of analyzing 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 analyze which is the most profitable for your organization—the large volume and low contribution, or the 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: Now that you have a clean set of data, you now 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).

In summary, 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. It’s important for these groups to work together as a team. Keep in mind that any 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

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Download Now: The All-Inclusive Management Reporting Guide

We have worked with hundreds of organizations on corporate performance management. Based on those experiences, we put together this All-Inclusive Management Reporting Guide. If your organization wants to define what’s important to you and determine what rules and processes should go into how you manage performance in your organization, this guide is ideal for you.

Once you’ve completed the steps listed in this guide, you’ll be able to better identify gaps in your processes and make better decisions about how you should operate as a company, so you can improve the way you do corporate performance management in your organization. The guide is free—so download it today and get started!

How Performance Management Works [4,000-Word Guide]