July 26, 2019

The Importance of Performance Management

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Tags: HR

This post has been updated for 2019.

A talented and skilled workforce is the lifeblood of every organization. As the war for talent escalates, companies are quickly learning the importance of having the right people:

“Talent is one of the last frontiers for differentiation. Any company can have a patent or produce a product. The difference is the quality of that product comes with the value of the talent you have.” Elaine Orler, President and Founder of the Talent Function Group

Orler is on to something: the talent management market is red hot and getting hotter. According to MarketWatch, the talent management software market will be worth $16 billion by 2023. And while companies purchase new talent management software, many will also invest in performance management software, as evidenced by the market’s healthy CAGR.

This investment in performance management is unsurprising, considering the top three challenges for organizations are:

  1. Recruitment and engagement
  2. Devising innovative business models
  3. Building a global leadership pipeline

Do you know what these issues are intrinsically linked to?

If you guessed performance management, then you are correct.

The problem with performance appraisals

Many companies are guilty of treating performance management as a yearly event. However, HR Technologist claims organizations that focus on continuous performance management have better business results. Companies where employees revise or review their goals quarterly or more frequently have:

  • Better data quality
  • Higher employee engagement
  • More efficient review processes
  • More input from employees

But are these results really that shocking?

Would Tiger Woods be one of the most successful golfers of all time if he was only given direction, feedback, and development once per year?

It’s time to stop equating performance management with a dreaded annual appraisal. In reality, it’s much more.

The benefits of ongoing performance management

Performance appraisals and assessments are just one piece of the talent management puzzle. In order to build an empowered and skilled workforce, companies need to do more than audit employee achievements. Organizations should work towards a management cycle where judgement isn’t the sole focus—ongoing support and improvement should be just as important, if not more.

So what exactly does “continuous performance management” look like?

It’s a series of ongoing events that include the following processes and benefits:

  • Goal setting and revising. Every employee needs a clear understanding of expectations for their work. They also need context, which includes an understanding of where they fit into the company and how they contribute to the overall success of the organization. This starts with company and executive goal setting, which cascades into manager, team, and individual goal setting. Aligning your entire workforce with higher arching business goals sets clear priorities and direction, which ensures individuals can feel ownership in the business through individual objectives.
  • Management and coaching. Though some goals may need adjusting, other times employees just may not have the skills to reach them— yet. Performance appraisals were intended to identify gaps in employee skillsets. But it’s self-defeating to identify the gaps without offering any type of solution. Improved employee performance and engagement is a result of consistent feedback and coaching. It’s common to hire for potential and not experience, so providing the proper training and development programs that address performance and skill gaps is necessary.
  • Development planning. Employees need regular, quality feedback on their performance and specific details on how they can improve. Once skill gaps are identified, employees have clear insight into the skills they need to develop if they wish to progress in their career. Be sure that your workforce knows the purpose of performance management is to aid in their development and give them control over their career progression. According to SMWire, employees that receive opportunities for learning and development are more engaged at work, which is better for your bottom line.
  • Rewards and recognition. Recognition helps employees receive a balance of positive to negative feedback. A little unexpected appreciation can go a long way. It satisfies our fundamental need for praise, reinforces the right behaviors and culture, and leverages social engagement. Rewards and recognition can improve employee retention and engagement, which creates ambassadors of your organization and its culture.

Also read: Effective Performance Management: Tactics and Tools

Performance management doesn’t end once a performance appraisal is delivered. Managers should take an integrated approach to employee learning. This means creating development plans that support an employee’s goals, career interests, and potential, as well as the organization’s business and talent needs. Evaluation is only effective when used as a tool for growth and success.

To recap, ongoing performance management should produce

  • Increased focus on driving business results. Since all goals are aligned, an employee’s day-to-day work supports the company’s mission. This promotes year-round focus on key business results and driving profitability.
  • An empowered and engaged workforce. Companies can deepen employee engagement by creating a culture of shared accountability for career growth and development.
  • Foundational knowledge of talent. With insight into your workforce’s skills and abilities, you can ensure all employees are getting the direction, feedback, and development they need to succeed. You can identify high and low performers, and track and evaluate the effectiveness of employee development activities.
choose performance management software

Performance management infrastructure

The importance of performance management to measure and improve employee capabilities cannot be understated. Technology that supports modern performance management not only facilitates a transparent process, but provides valuable data you need to measure your success. This data gives HR insight into where deficiencies exist and how that affects other processes, like recruiting and training.

A performance management system should integrate with existing human resources software, like talent and learning management suites. Integration is key to facilitate knowledge sharing and collaboration, as well as to provide metrics and analytics.

Investing in modern performance management processes and technology that supports it can be the competitive edge your company needs. As businesses tackle the intersection of retention, engagement, culture, and learning, modern performance management will just become good management.

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