Performance management strategy

Having an effective performance management strategy in place can increase your business turnover and productivity. Yet, with 95% of managers feeling like their current performance management system doesn’t help, what are we getting so wrong about performance management, and how can we make it better?

Performance management makes a significant difference to a company. McKinsey research finds that 60% of businesses with an effective performance management programme outperform their competitors. By keeping their best talent within the company fold and making sure they’re engaged in the role, you’re stopping someone shopping about for new roles with your competitors. The secret here is “effective”.

So, what does a good performance management strategy look like?

Performance Management Strategy

There are certain elements that every performance management strategy needs. Your strategy should be embedded within the business mission, values, culture and goals.

Starting from this point tells you how you need your people to act and conduct themselves while at work. It’s like having an unwritten rule book or operating system for everyone in the business. In the same way that a computer has an operating system that defines how all the apps and programmes work, your mission, values and culture are the operating systems for how your people work within the business.

When your performance management is embedded in the mission, values and culture of the business, the outcomes of the strategy are also aligned with the direction of the business. The expectations of your people will come through in the strategy. This could include where they work, how they work, their levels of engagement and help you highlight anyone who may be right for career development.

Set out the objectives

Once you’ve embedded performance management with culture, you then need to set the overall business objectives for the strategy. Do you want to reduce costs? Have a more engaged and productive team? Help the business increase turnover?

Consider what you want overall for the business from the performance of your employees as a whole. Try not filter down into the individuals when setting the strategy because this can distract from the overall business goal.

Having a clear business goal will help you be more focused on what outcomes you want from your performance management strategy. This, in turn, will help you set clear KPIs, OKRs and the right metrics to track the success of the strategy.

KPIs, OKRs and metrics

Setting key performance indications (KPIs) at a business level will help ensure that your performance management strategy is contributing to the overall business goal. Make sure your KPIs are clear and achievable. It might reduce absenteeism or increase employee happiness, leading to reduced overheads.

OKRs are objectives and key results. These are different from KPIs and should be at a person level. These are the aims for individuals that you track. For example, you may have a brilliant person who is fully engaged in their work; their objective may be to build the skills gap between their current role and the next level up. An OKR will include clear, achievable goals for the individual.

Finally, you need to measure the right metrics. Metrics are different to the KPIs and OKRs as they measure the progress of the smaller actions which take the company towards its end goal, rather than measuring the goal itself.

Effective performance management

For many organisations, performance management comes with a quarterly or annual review where managers share feedback with individuals. From these meetings, a plan is formed for either improvement or development. It is meant to give your employees a sense of where they are in the business and meet any ambitions or expectations on either side.

Yet, the reality of these performance reviews is often very different for those sitting on the employee side of the table. Performance reviews can increase stress and be a thing of dread. Research finds that 22% of people would call in sick to try to avoid their review; 35% will complain about them, and it’s driven 15% of employees to tears.

Employees shouldn’t get any unexpected surprises in their performance reviews and should be aware of how they are doing in their roles. Yet, the idea of a formal meeting can be incredibly off-putting for some people.

When someone is under stress, they will experience the meeting as a threat. This means your employee is more likely to only focus on the negatives and not remember anything positive. If you’re giving feedback, then there is every chance they are not taking it on board and that can mean they don’t make the changes you want.

There is evidence that annual performance reviews don’t make the necessary changes that businesses need from their people. However, there is a way to create effective performance management.

Continuous Feedback

Companies that use continuous feedback as part of their performance management strategy outperform their competition by 24%. It’s not only the bottom line that’s influenced by continuous feedback. Research finds that businesses that adopt continuous feedback are 39% better at attracting top talent and 44% better at keeping them.

If we reflect back on the fact that some people dread those performance reviews, having continuous feedback in place can avoid that stress. This is good for your employees and your business.

Continuous feedback works in businesses of all shapes and sizes but is especially powerful in SMEs. Often, SMEs need to operate under agile conditions, to react to market changes. In fact, it’s one of the advantages they have over larger organisations. Waiting three or even six months for performance reviews may mean missing out on opportunities in this fast-paced environment.

Instead, continually feeding back to your people how they are performing will keep them engaged in their role, make them feel more valued and help them adapt quicker to industry changes. This includes giving constructive feedback in the right way, to get the best results for the business.

Continuous feedback is also good for increasing the psychological safety of your teams. When you give people more opportunities to speak up, they are more likely to say when things are wrong or highlight areas where they can deliver problem-solving and innovation.

Continuous feedback also reduces the rates of confrontation in the workplace. When you reduce the levels of confrontation at work, you’re more likely to have a collaborative organisational culture and focus on creating empowered teams. Working in this way reduces pressures for the management and leadership team. https://www.sciencedirect.com/science/article/abs/pii/S0890838911000692

Developing performance management

Overall, businesses that develop the right performance management strategy for their people will reap the benefits. Your approach will influence the culture, employer brand and collaboration between your employees.