Human resource departments invest a lot of time and effort into perfecting their performance management processes. But what is the purpose of performance management and what relationship does it have to business objectives? Below we’ll explore twelve uses of performance management to the modern business.
According to John Lockett in his 1992 book Effective Performance Management: A Strategic Guide to Getting the Best From People, performance management is a system that aims to develop individuals with the required commitment, skills and competencies for working towards shared meaningful objectives within an organisational framework.
It would be simple if we could define the purpose of performance management in one sentence (as Lockett aims to above) but, in reality, performance management is much more involved and complex. The field of performance management is fluid. It’s constantly evolving and as the years go by, its purposes change and adapt to employee and business needs.
You’ll notice that Lockett’s definition of performance management is very much about what the employee can do for the organisation. These days, the focus has shifted due to factors such as talent shortages and advancements in the fields of psychology and motivation. Today, the purpose of performance management is equally about what the company can do for the employee: to keep them engaged, content and productive.
Given that performance management is such an important and intricate field, we have gone in-depth and looked at it from many different angles. Below, we’ll explore what we believe to be the twelve main purposes of performance management and how they improve employee engagement, organisational and individual performance.
1. To provide meaningful, ongoing feedback
Real-time feedback is one clear example of how performance management systems have become more forward thinking. Traditionally, feedback was fairly limited. Employees would receive it during an annual performance review while being formally judged and appraised on their past performance. This usually happened at the same time that bonuses and pay were being decided — making the exchange of feedback strained, uncomfortable and unproductive.
Feedback is far more effective when delivered promptly. One of the most important purposes of performance management today is to give and request feedback regularly, regardless of whether it is positive or constructive in nature. All feedback is progressive and should be delivered as soon as possible — this is increasingly important to employees.
2. To encourage teamwork, collaboration and communication
HR leaders often look for ways to create a sense of community and teamwork within their organisations. This leads to improved communication and collaboration, which is good for business performance. Companies can go about this in different ways, but many utilise a mixture of social activities and access to the right technology. Collaboration tools such as Slack provide the capacity for real-time communication, while team-building exercises and after-work social activities help to develop a sense of togetherness and team spirit.
3. To ensure everyone is achieving their SMART goals
Goal-setting has always been an important focus for performance management. It’s essential that employees understand what is required of them. Unfortunately, it’s been shown that only about half of employees actually understand their goals. If employees aren’t entirely clear on their aims, they’ll struggle to achieve goals and surpass expectations.
Goal completion is the responsibility of the employee, the manager and the human resources department. Goals should be set regularly and should be short-term — it’s been shown that short-term goals are incredibly effective, even more so than long-term goals. HR should ensure these goals are set and that manager and employee meet frequently to discuss their progress.
4. …While making sure goals are relevant and furthering organisational objectives
Employees shouldn’t simply understand their own goals — they need context on how those goals feed into overall company strategy. Not only will this help with their daily decision-making, but an understanding of company objectives and how their roles feed into the direction of the company will give employees a sense of meaning and purpose — something they are desperately seeking in their careers.
5. To provide continuous support
As mentioned in our performance management trends of 2019 blog post, the modern company needs to be concerned with so much more than cold, hard business results. Organisations need to be social enterprises, rather than purely business enterprises. They need to care about employee well-being and employee mental health. This can involve putting wellness programmes in place, but it also means demonstrating to your employees that they can come to you to discuss any issues that are affecting their performance.
Mental health conditions, including stress, anxiety and depression, are increasingly common and they have a direct impact on performance. Companies who are proactive and put measures in place through their performance management systems — ensuring check-ins are regular and incorporate conversations about health and wellness, for example — are more productive and they benefit from satisfied employees who know they matter to their company.
6. To identify development areas
One key purpose of performance management is talent management. It is vital to create development plans with employees. Focusing on development needs means managers and employees can put effective plans in place, leading to individual performance improvement and, ultimately, improved organisational performance. Furthermore, once you make it clear that your company is invested in their personal development and career aspirations, employees will feel like valued and respected members of the team rather than a replaceable cog in the machine.
7. To offer recognition and reward
As pointed out by Harvard Business Review, “recognising employees is the simplest way to improve morale and employee engagement”. Recognition is also positively linked to productivity and high performance. Recognition doesn’t have to come at a high price. There are many cost-effective means of acknowledging great effort and accomplishments, and it’s been shown that the greatest way of incentivising employees is with intrinsic motivators.
8. To make sure employees are engaged and happy
Performance management systems are as much about the employee as they are the employer. The term “employee engagement” has become an recurrent phrase in HR over recent years, with good reason. Companies are now well aware of the many business advantages of engaged employees. They also know how detrimental it can be to have an actively disengaged employee on staff. One purpose of performance management is to keep up-to-date with engagement trends, to conduct employee engagement surveys and to ensure all is being done to keep employees engaged, motivated and happy.
9. To provide employees with a clear career path
Career progression is important to most employees, and this isn’t set to change with Generation Z, the newest generation to enter the workforce. For this generation, career success is of top importance. While Baby Boomers are more likely to cite family and religion as central to their identity, Gen Z prioritise professional, academic and personal success.
A good performance management system encourages managers to discuss a career plan with their employees while covering what the employee needs to do to get there. Remember, if your company is unable to provide top performers with clear routes of progression, they are more likely to jump ship.
10. To take corrective actions
Performance management allows managers and HR to step in at an early stage to address performance issues. Poor performing employees can have a serious impact on the entire organisation and if performance issues are left unaddressed, they can get out of control.
Fortunately, at Advanced Clear Review, we have advice on how to address unmotivated and underperforming employees. With any luck, managers will be able to get to the root cause of the problem and work with the employee to turn performance around.
11. To determine how leadership can motivate and coach
When a performance management system revolves around a one-or-two-year annual performance appraisal, this doesn’t allow a lot of time for trust and communication to develop between manager and employee. This is a problem, given that a manager has such a significant bearing on employee engagement levels. These days, managers need to be so much more than just anonymous authoritarians — they need to be motivators and coaches to improve employee performance.
Realistically, not everyone who has been promoted to the position of manager will know how to motivate and encourage employees. This is why your performance management system should offer advice on how to give useful feedback, listen actively and motivate different personality types.
12. To improve your bottom line
Modern businesses need to care about employees, but unless your company produces great results it’s not going to thrive and compete long-term. This is why, when done effectively, performance management helps to improve business performance and business results. It should also help to reduce turnover, which ultimately improves your bottom line so your company will stick around for years to come.
How can Advanced Clear Review support you with performance management?
Our continuous performance management software is designed to enable meaningful conversations and improve individual, team and company performance. Book a demo today to find out how we can help you.