What is the purpose of performance management systems within an organization?

system supports the tracking and measurement of employees’ performance in a consistent manner. A blend of technologies and HR methodologies back up the system, leading to an effective alignment of employee goals with the organization – to achieve the strategic company goals.

is a systematic process used by the HR department to track and monitor the performance of employees. It helps in evaluating employees’ performance regularly and intends to create a positive learning environment. It also ensures that employees are able to work effectively and efficiently.

Additionally, it helps in aligning individual goals with organizational goals, and offers a platform to communicate with employees to help understand their expectations.

Importance of Performance Management System

The changing technical landscape, irregularities in global supply chain, the great resignation, and the sudden shift to hybrid workplace set up, are putting forth innumerable challenges to businesses. To remain competitive in the current global market, it is necessary to have a continuous performance management system. Such a system will help in realigning resources towards the organisational objectives and also provides warning signs to highlight problems in the workforce performance and practices.

Businesses need a flexible, smart, and technically advanced performance management system that forms the foundation of conversations, changes, and progress. That’s why companies such as Google, Microsoft, Netflix, Adobe, Uber, and many others have transformed their performance management systems. They no longer work on an annual performance grading system, but on a continuous system that can help employees stay productive and make them accountable for their transformational growth.

Furthermore, more than productivity and efficiency, consumers are now valuing innovation, creativity, and problem solving. And to live up to these expectations, organisations need to continuously improvise their performance management strategies.

Organizations must rethink and redefine their performance management practises as new-age workplaces replace traditional work setups.

Performance Management Cycle Stages

There are 4 stages in a performance management cycle.

  1. The planning phase where leaders and managers create SMART goals for their teams
  2. Monitoring through check-ins and feedback to track the progress made on goals
  3. Reviewing the overall performance of teams to contemplate what worked favourably and what didn’
  4. Rating and rewarding, involves rating employees based on their performance and rewarding them suitably to motivate them.


What is the purpose of performance management systems within an organization?

What Is  a Performance Management System?

Performance management as discussed comprises various vital HR functions like continuous progress review, real-time feedback, frequent communication, training employees to improve performance, recognizing good work, rewarding improved performance, goal-setting, etc.

A performance management system, a.k.a. HR performance management system, helps HR managers establish clear performance expectations through which employees can easily understand what is expected of their job. It enables managers to instil in their employees the importance of individual accountability for meeting goals and evaluating their own performance.

Also read: Importance of employee performance management system

Performance Management System Components

An employee performance management system includes multiple components that are essential to creating an engaging and productive work environment. They build on the foundation of performance management by providing a platform to manage, track, and assess employees’ performance. Let us understand the different components of the performance management platform and how they help in employee growth and development.

Objectives And Goal Setting

Planning is a crucial component of performance management. Setting challenging goals motivates employees to improve their performance rather than having no goals at all. Goals aren’t just meant to be set for individual employees, they work better if you have department goals and align them with your organizational goals. A performance management system that doesn’t allow you to set goals or plan doesn’t contribute to improving organizational productivity.

Performance goals should be set in collaboration both by the manager and their direct reports. Discussing and setting goals together helps managers and their employees gain a better understanding of their current performance and their future performance abilities.

Also Read: Guide To Setting Employee Goals Through Engagedly

Ongoing Communication

The next component of the performance management system is communication. Having an effective performance management system in your organization helps you create a culture of ongoing communication about your team’s goals, training, etc.

It is always good to follow up on what your direct reports are working on and how they are managing to meet their goals. This keeps them motivated. And as a manager, you can help them improve by giving them suggestions about their work without having to wait for the next performance review.

Also Read: Download the ultimate guide to employee engagement survey and templates

Performance Review

This is the part where managers give their reviews about the performance of their direct reports. These reviews are generally annual or quarterly. The general review procedure is self evaluation done by employees, followed by a thorough review by a manager.

An important aspect of performance reviews that has changed recently is peer-evaluation: 360-degree feedback. 360 feedback and peer evaluations allow employees to evaluate their managers and help them understand where they can improve themselves and how. The process of rating one’s manager can be complicated, but once it becomes a practice, the overall team productivity increases.

Recognizing Good Performance

Recognizing good performance is as important as identifying bad performance. When employees do not meet business expectations, it is important for them to understand where they are lacking. This helps them do it better the next time.

In the same way, when employees accomplish something or go out of their way to accomplish a goal, as a manager, you should recognize their effort. Most performance management systems come with employee reward programs that allow managers to reward their employees or publicly praise them for their contributions. This may seem small, but it is one of the most crucial components of a performance management system.

Feedback & Suggestions

A performance review does not end the with either “Good work” or “Needs improvement.” Giving proper feedback and suggestions to improve performance is the next important component of a performance management system.

This component allows you to tell your employees exactly where they need to improve and how to make it possible. Studies state that employees who receive frequent feedback on their performance are more likely to contribute to the organizational success. Therefore, it is a good practice to have feedback process in place to help improve organizational performance.

Also Read: How Important Is Feedback In Today’s World?

Learning & Development

Learning and development are critically important for the success of any organization. Inculcating a learning culture can motivate employees to reskill and upskill themselves and be a part of a dynamic, skilled, and knowledgeable workforce. Additionally, it helps in retaining employees and creating a brand image.

Integrating a performance management system with multiple individual platforms enhances active learning within the organization. Through interactive features like course design and assignment, managers can assign courses and modules to employees. Furthermore, it can also be used to conduct check-ins to understand the progress made by employees. Either way, l&d should be a continuous process, and managers should encourage employees to learn more and develop their performance potential.

We hope this article helped you to understand the intricacies of performance management, its importance, and its various components. Let us know in comments the features you are looking for in a performance management system.

What is the purpose of performance management systems within an organization?

Frequently Asked Questions

Q1. What is a performance management system and how is it important?

Ans. Performance management is a system of processes and tools that helps leaders track and analyze the performance of their employees and mentor or coach them to help them work at their highest potential.

Q2. What are the stages of a performance management cycle?

Ans. The different stages of a performance management cycle are as follows:

  • Planning
  • Monitoring
  • Reviewing
  • Rating

Q3. How does a performance management system help?

Ans. A performance management system helps by providing real-time analysis of employees’ performance and helps leaders understand the learning needs of employees. It helps in the achievement of organizational goals by aligning employee activities to the company’s objectives.

Q4. What is the role of performance management system?

Ans. The role of performance management system is to align employees’ activities to achieve optimal performance and fulfill the organization’s goals. This is done through constant tracking, analyzing performance, and providing coaching to employees based on the requirements and observations.

What is the main purpose of a performance management system?

The purpose of a performance management system is to create a set of processes that focus on employees' job roles, with the aim to maintain and improve performance through review and feedback on performance as a whole, not only of what is achieved but also how it is achieved.

Which is the main purpose of a performance management system between employees and organization?

The purpose of performance management—which is ultimately communication—is to improve your performance. Performance improves when individuals do good work that aligns to the business objectives. Individuals do good work when they know what is expected, and receive helpful feedback and critical resources.

What are the four purposes of performance management?

Performance Management Purpose & its Objectives in HRM It enables the employee to achieve the work performance of set standards. It helps to identify the skills and knowledge required to perform a job efficiently. It is a very important factor to motivate employees and boost employee empowerment.

What are the six purposes of performance management systems?

Overall, performance management can serve the following six purposes: strategic, administrative, informational, developmental, organizational maintenance, and documentation. Performance management systems help top management achieve strategic business objectives.