Why You Should Improve Your Performance Management Process in the New Year

Every business owner knows the importance of having the right team to help them achieve their business goals. With the right key players, the likelihood of business success increases and the likelihood of failure decreases. But employee success isn’t just about hiring the right people; it’s about ongoing review and goal-setting to set employees (and your business) up for success.

At Addition Financial, our business members often talk to us about the challenges they face. One topic that has come up frequently is the performance management process. To help you achieve your business goals with the right staff, here are our thoughts on why you should focus on improving your performance management process in the coming year.

What is the Performance Management Process?

When you think of evaluating your employees’ performance, you might think of a traditional annual review that looks back at the employee’s successes and challenges and provides guidance for them going forward. However, that process is inherently flawed because it only addresses performance issues after the fact.

The performance management process is an ongoing process that involves continuous communication between leadership and employees. Its goal is to provide employees with consistent feedback related to their performance and how it impacts organizational objectives.

We should note here the differences between talent management and performance management. The former is a process designed to boost employee engagement and retain valuable staff members; the latter is something that guides employees to set individual performance goals in alignment with organizational goals, with the idea that every team member should be aware of and contributing to the company’s growth.

What Are the Principles of Performance Management?

Any effective performance management process must have key elements in place to provide employees with constructive feedback and guidance:

  1. Planning employee work and setting expectations. Employees must have a clear idea of what work they are assigned and what leadership expects of them regarding that work. It’s helpful to make employees part of the planning process because they’ll get an understanding of your organizational objectives and how their work will contribute to them. It’s at this stage that you should identify regulatory requirements, too.
  2. Continual monitoring of employee performance. The monitoring of employee work is essential and must happen on an ongoing basis. Any issues with an employee’s performance must be identified immediately with constructive feedback to help the employee improve. Any performance that meets or exceeds expectations should be acknowledged, too.
  3. Developing employees’ skills and capacity. Skill development is essential for any job and employers must provide necessary training to give employees the tools necessary to succeed. Employees’ capacity can be increased with upgrades to technology and an ongoing evaluation and improvement of work processes.
  4. Rating employee performance. Employee performance should be evaluated and rated on a regular basis. Many companies do annual performance reviews but there’s a trend toward rating employees’ performance more frequently to identify employees who may be struggling and provide them with feedback and additional training as needed.
  5. Rewarding good performance. When an employee is performing well and making regular contributions to organizational goals, it’s important to recognize their performance. Verbal expressions of gratitude are helpful but employees are most likely to respond to concrete rewards such as cash, organizational awards or extra time off. Some companies hand out monthly awards to acknowledge the employees who have excelled.

Putting these five elements in place will help you to create a meaningful and useful performance management process.

What Are the Benefits of Implementing a Performance Management Process?

There are significant benefits to implementing or improving your performance management process.

Creates an Engaging Work Environment

Implementing a performance management system creates an engaging work environment for leaders and employees. Leaders are more engaged with employees personally and in terms of their performance, and the give-and-take format of performance management gives employees the opportunity to provide feedback related to management, organizational goals and more.

Contributes to Organizational Adaptability

As businesses grow, they may be less able to adapt to changes and challenges. Infrequent employee performance evaluations may contribute to stagnation if managers don’t take the time to address issues as they arise. With continuous feedback, organizations can evaluate progress, identify potential problems and provide necessary training to address them. All of this contributes to a culture of adaptability that can foster success.

Increases Employee Retention

Employee retention is an issue in most industries and having an optimized performance management process can help companies reduce employee turnover and retain key staff members. Employees are less likely to be unhappy when they know their feedback is valued and when they receive ongoing confirmation of their value.

Nurtures a High-Performance Culture

A well-designed performance management process contributes directly to employee performance because it provides employees with ongoing support, feedback and training to help them do their jobs well. Because managers interact with employees regularly and participate in a give-and-take about performance expectations, there’s an overall culture of excellence that nurtures employees and encourages them to shine.

Provides Goal-Setting Opportunities

Goal-setting is built into the performance management process. Managers review organizational goals and objectives and encourage employees to set individual SMART goals to pursue. Since the key to business success is employee success, it stands to reason that businesses who implement continuous performance management are likely to succeed where other businesses fail.

Steps to Improve Your Performance Management Process

Having an effective performance management system is a key component of success. Here are some steps to help you fine-tune your performance management process in the new year:

  • Clarify Your Organizational Goals and Objectives. You can’t optimize performance management unless you have a grasp of your company-wide goals. Before you undertake an overhaul of your performance management process, you’ll need to identify your strategic goals. Make sure these are SMART (Specific, Measurable, Attainable, Relevant and Time-Bound) to make it easier to set individual goals that are relevant.
  • Start Small. Even if you have a performance management process in place, you should make changes within a single department, ideally one with cascading goals. This method will give you time to work out any issues that arise and be sure you have the process you want before you roll it out to the entire company.
  • Implement 360° Feedback. If feedback is all top-down then it’s not going to be effective. You may want to implement employee surveys and create a structured process for upward feedback. It’s also useful to solicit employees’ thoughts on their performance before providing input from management.
  • Invest in Training. Employees will succeed if you give them the tools for success. That may mean investing in new technology or paying for trainers. It may also mean sending employees outside of the company to pursue certifications and licensure. While these things add to your expenses in the short term, they are also highly likely to contribute to your success in the long run.
  • Use OKRs to Measure Success. Objectives and key results (OKRs) let employees know what’s expected of them and give leadership the means to measure employees’ progress. Using OKRs contributes to a culture of transparency and accountability.
  • Let Technology Help You. Performance management software can be useful because it takes the guesswork out of performance management. You can use it to track feedback — something we’ll talk more about in the next section.

The key takeaways here are that taking a mindful and transparent approach to performance management will lead to success.

new year business resolutions worksheet

How Does Technology Support the Performance Management Process?

Performance management software provides an all-in-one solution to the daily management of your performance management process. You’ll still need to put in the work to create a system and implement it, but using software can help you keep track of everything.

Here are some of the things you can do with performance management software:

  • Track and schedule 1:1 meetings
  • Perform 360° performance reviews.
  • Track employee goals (management can track employee goals and employees can monitor their own progress)
  • Solicit feedback
  • Give public praise for excellent performance
  • Track constructive comments
  • Use data to aid with employee evaluations

When you put all these things together, you can see that performance management software puts all information related to employee performance tracking in the same place. Without it, information may be siloed and difficult to access, leaving managers and employees without the tools they need to work together toward organizational objectives.

When choosing performance management software, we suggest making a list of the functions you want and then researching your options. Any software that makes your short list should be evaluated in depth. Ideally, you should be able to get either a free demo of the software or (preferred) a free trial period so you can test it for yourself. You should also evaluate training materials and customer support options and read reviews before you make your choice.

Having a well-designed performance management process can make a huge difference in any company’s performance and ultimate success by providing employees with ongoing, constructive feedback and evaluation of their progress toward individual and organizational goals.

Do you need small business financing to invest in performance management? Addition Financial can help! Click here to read about our small business loans.

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