Why Is Performance Management Important?

Over the last few years, major companies like Adobe, Deloitte, and GE have abandoned traditional methods and created their own performance management processes—bringing performance management to the forefront of many organizations’ minds. 

But performance management can be a big investment. Why should an organization invest time and resources into performance management? What difference does it make?

In this article, we’ll provide a framework for why performance management matters and discuss how implementing a strong performance management process can benefit any organization.

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What is Performance Management and Its Importance?

Definition of Performance Management

Performance management is a strategic and systematic approach used by organizations to align their employees' efforts with the company's goals. It involves setting clear expectations, providing feedback, and fostering growth to enhance both individual and corporate performance. By clearly defining roles, responsibilities, and objectives, organizations are better positioned to utilize their employees' talents effectively to achieve strategic objectives. At its core, performance management is about creating a culture of continuous improvement and innovation by leveraging the potential of the workforce.

Historical Evolution and Current Trends

The concept of performance management has evolved significantly over time. Historically, organizations relied heavily on annual performance reviews, which often failed to capture the dynamic nature of modern workplaces. In recent years, there has been a shift towards more continuous and real-time feedback mechanisms. Modern performance management systems focus on more frequent check-ins, ongoing feedback, and coaching, which are more suited to the fast-paced changes occurring in today's business environment. Innovative software solutions like PerformYard streamline these processes, providing HR managers with robust tools to manage reviews, track goals, and collect feedback conveniently.

Importance in Aligning Employee Performance with Organizational Goals

Aligning employee performance with organizational goals is crucial for driving business success. Performance management plays an essential role in this alignment by ensuring that everyone within the organization understands their role in achieving the larger company objectives. This alignment boosts employee engagement and motivation, as employees can clearly see how their personal contributions impact the organization. Moreover, an effective performance management system helps to mitigate conflicts, reduce wastage of resources, and ensures a unified direction towards achieving strategic goals. By adopting solutions like PerformYard, organizations can seamlessly integrate performance management strategies that foster growth, accountability, and superior business outcomes.

What are the Three Purposes of Performance Management?

Performance management serves as a cornerstone for organizational success by establishing a framework to align individual efforts with strategic goals. Exploring the three primary purposes of performance management can provide valuable insights into its role in enhancing workplace dynamics and fostering growth.

Facilitate Goal Setting and Alignment

One of the primary purposes of performance management is to facilitate the meticulous process of goal setting and alignment. By establishing clear, quantifiable objectives, it ensures that employees are aware of what is expected from them. This alignment not only helps in tracking progress but also serves as a motivational tool, driving employees to achieve their best results diligently.

Moreover, with PerformYard, human resources professionals can seamlessly integrate organizational goals with departmental and individual targets, ensuring consistent performance monitoring and strategy execution.

Enhance Employee Engagement and Motivation

Enhancing employee engagement is another pivotal function of performance management. Through regular feedback loops, it creates an environment where employees feel recognized and valued for their contributions. Such recognition fosters an engaging workplace culture, pivotal for encouraging innovation and enthusiasm among the workforce.

PerformYard empowers managers to engage with employees consistently, utilizing real-time feedback systems that keep motivation levels high and connect employees to the broader company mission.

Support Continuous Performance Improvement

The third key purpose is bolstering a culture of continuous performance improvement. Performance management provides an ongoing accountability structure that promotes self-assessment and learning. It encourages employees to acknowledge areas of improvement and actively seek out resources and training to enhance their skills.

Utilizing solutions like PerformYard allows organizations to establish tailored developmental plans and leverage analytics to identify performance trends, ensuring a commitment to ongoing growth and better outcomes.

What are the Benefits of Effective Performance Management?

Performance Management Reduces Turnover

An effective performance management system can help with many of the reasons turnover occurs—unrealistic workloads, unclear expectations, poor compensation, lack of feedback, and limited opportunities for progression.

Today’s employees are making it loud and clear that development matters to them. If they aren’t given opportunities to learn and grow, they won’t hesitate to look elsewhere for those opportunities. 

Even prior to the pandemic and the “great resignation,” research from organizations like Gartner were pointing to the “lack of future career development” as a key driver of employee attrition. In fact, Gartner’s Talent Monitor report indicated that this was a factor reported by 40% of departing employees.

Performance management offers a formal opportunity for managers and employees to have conversations not just about past performance, but about future opportunities based on employees’ interests and competencies.

Performance Management Reduces Liability Risk

When organizations have a centralized and consistent process for performance management across the organization, they minimize the risk that can come from the following:

A Lack of Objective Criteria

The inconsistency that comes when managers are allowed to create their own criteria or opt out on evaluating employees entirely can lead to trouble across an organization. 

Managers need to use objective criteria to evaluate employee performance. The organization (and its HR department) needs to be able to trust that evaluations are based on consistency criteria to support decisions related to promotions, disciplines, and even termination.

Failure to Use Self-Assessment

Self-assessment is an important part of the performance management process, allowing employees to share insights into their own perceptions of their performance, strengths, and areas of opportunity for improvement. These assessments may be skipped in an effort to reduce administrative costs, which can lead to potential risk. 

If an employee has documented areas of concern related to their own performance that are consistent with areas of concern noted by managers, a disciplinary or termination decision can be readily justified. But when self-assessment is lacking, this justification can be much more difficult to support.

A Lack of Transparency

It’s impossible to understand the risks of a performance management process when the steps, criteria, and documentation are vague and poorly communicated (or not communicated at all).

That lack of transparency will also make it difficult to justify employment decisions in a valid way.

Inconsistent or Nonexistent Documentation

When records of feedback are not stored centrally and consistently, they can become lost and unavailable when they are needed to support and justify decisions related to promotions, job assignments, discipline, and termination. Documentation is a critical part of an effective performance management process.

Having a consistent and documented process for performance management that is applied across the organization can help organizations minimize risk, while improving their ability to provide employees with the feedback and development support they need.

Performance Management Improves Organizational Alignment

If an organization has strategic objectives focused on maintaining key customers and lengthening the customer life cycle but employee performance criteria are primarily focused on gaining new customers, there’s a critical disconnect that could hinder the organization’s ability to achieve its objectives.

This situation is not uncommon. Effective performance management systems can minimize these disconnects by ensuring that everybody’s performance is aligned with organizational direction.

That direction, of course, may change frequently. The increased speed of business means that company and employee targets are changing faster than ever before. 

The ability to ensure that goals can be cascaded through an organization quickly and consistently provides a fundamental competitive advantage.

Leaders expect their vision to be adopted across the entire organization. But if the importance of the cascade of goals isn’t articulated, it will be impossible to know if that alignment is occurring. 

An effective performance management process helps deploy cascading goals from the executive suite to divisions, departments, and individual employees. This ensures transparency, goal progression on a continual basis, and the ability to evaluate how overall strategy is being achieved through individual performance. 

As the Center for Corporate and Professional Development at Kent State University said, “Having a systemic process provides employees and management with the understanding of potential talent gaps and provides an avenue for linking development plans to fill specific skill or performance gaps.”

What is the Main Goal of a Performance Management System?

The main goal of an effective performance management system is to drive the achievements of organizational goals and objectives. 

That’s a tall order, especially in large organizations. 

HR departments must oversee a lot of moving parts across a wide array of people and a variety of departments and roles. That burden can be both costly and time consuming.

The burden on HR is minimized and organizational effectiveness is improved when performance management software is used to manage the process.

A performance management system also ensures that documentation is being stored, encrypted, and easily accessible for the analysis of individual, department, division, and organizational performance.

Even if you’re not Adobe or Deloitte, performance management is worth investing in. An effective performance management system reduces turnover, lowers liability risk, and improves organizational alignment. 

If you’d like to learn more about implementing performance management, here are a few of our favorite articles to get you started:

‍Creating a Modern Performance Management System

3 Elements of Performance Management (And Why You Should Focus On Them)

The Purpose of Performance Management: 5 Options‍