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What is Performance Management? A Simple (But Comprehensive) Guide
Successful performance management is crucial for every business. It helps companies align their systems, resources, and employees with strategic goals. Moreover, it helps managers to identify potential problems and allows them to know when they should make necessary changes to keep a business on track. Organizations that implement performance management successfully can cultivate a high degree of employee engagement. That, in turn, shows that companies with a highly engaged workforce are 21% more profitable. So, if you are an aspiring leader or already in a leadership role and want to know how performance management can benefit your organization, you’ve come to the right place!
We have come up with a comprehensive guide that helps aspiring leaders, as well as those in leadership roles, to learn everything about performance management: its various types, significance, best practices, and how it helps organizations to implement a successful business system.
What is Performance Management?
Performance management is a method of continuously communicating and clarifying job responsibilities, priorities, performance expectations, and development planning to employees. The objective is to help enhance their performance and synchronize it with organizational goals.
It’s a strategic approach where managers in an organization offer feedback to their employees to achieve strategic goals. The objective of performance management is to make sure that the staff performs well and resolves problems that may affect employees’ performance.
Why is Performance Management Important
It is crucial for an organization to track the performance of its employees and evaluate them based on Key Performance Indicators (KPIs). It’s essential for each business to have a system in place for managing employee skills and helping them reach their potential. Here is a list of advantages that will help you understand the importance of this function in an organization.
Performance management helps in increasing employee engagement within the organization by evaluating their performance and rewarding them. It further helps set clear goals and expectations for the workforce. It’s also a method of providing regular feedback to help employees understand their strengths and areas of improvement. It further enables them to enhance their skills through proper training and development.
An organization can understand its employees’ skills and talents through its system. Employees are more likely to stay with a company if management conducts frequent meetings to discuss their performance, find solutions to issues, and provide training.
Cultivating Leadership Skills
For leaders, this helps set clear and measurable goals for themselves and their team members. The process can help leaders identify areas for improvement and focus on further developing their leadership skills.
Types of Performance Management
Performance management is of two types—organizational and personnel. Both are essential in evaluating employee performance. And both help the management to understand the commitment of employees towards their organization.
1. Organizational Performance Management
It is also called corporate performance management and comprises approaches or procedures that assist an organization in developing, evaluating, and implementing its performance strategies.
2. Personnel Performance Management
This is also known as HR performance management and offers a framework for assessing employees’ performance. In this case, individual performances are evaluated and aligned with the overall organizational goals and objectives.
Performance Management Tools
The success of businesses depends on the performance of their employees.The best brands in the world establish their business strategy using tools. Here are a few tools that leading companies utilize globally:
Kudos was launched by a U.S.-based software company, Valve Corporation. The application allows employees to identify and thank one another for their work in an open forum.
2. Airbnb Employee Performance Management Software
The software helps receive feedback and reviews that managers use to rate employees. Moreover, this tool consists of a filter option that helps them see and analyze employee performance data individually.
3. Facebook Employee Performance Management Software
It aids managers in setting goals for employees and providing them with feedback and reviews.
4. IBM Employee Performance Management Software
It is a 360-degree feedback tool for employees that enables managers to receive employee feedback and make the necessary modifications within the organization.
The Performance Management System
The performance management system is a framework used by the management of an organization. It is used to track and analyze individual and organizational performance, reinforce individual accountability for achieving organizational goals and objectives, and communicate those goals and objectives to managers and employees. It illustrates a collaborative effort to help employees grow in a way that allows them to contribute to the organization.
Multiple performance management systems can assist business managers in supervising their staff and assembling the best team possible for the company’s success.
1. Forced Distribution
Forced distribution is a way to rate an employee’s performance through a bell-shaped curve. It is an appraisal method used by a performance management team to rate employees into three categories: poor, good, and excellent. It is also called stacked ranking or the bell-curve rating method.
2. 360-Degree Feedback
The performance management procedure gathers information from employees’ supervisors, colleagues, and subordinates about their work-related behavior and its effects on the organization.
The system helps measure performances based on competencies instead of specific tasks or behaviors set for each position within an organization.
4. Management by Objectives
Management by Objectives, or MBO is a method that involves the establishment of organizational, departmental, and individual targets through discussion.
5. Graphic Rating Scales
Graphic Rating Scale (GRS) appraisals enable a supervisor to rate an employee based on a number of parameters, such as general behavior, communication skills, and problem-solving abilities.
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The Performance Management Process
A performance management process enables managers to assist their team members in developing and achieving the company’s objectives. Moreover, this method is effective in ensuring employees are successful at their job. A performance management process consists of the following steps:
It involves setting and aligning the goals of the individual employee, the different teams, and the business as a whole.
Step 2: Monitoring
This is essential to help employees stay on course and have any queries answered as they work to achieve the objectives specified during the planning phase.
Step 3: Reviewing
An organization implements a performance review to evaluate employees’ progress or success in completing the objective.
Step 4: Rewarding
Managers show appreciation for the hard work and accomplishments of their team members at this stage. This could be a bonus, recognizing their contribution in front of their colleagues, additional perks, etc.
Performance Management Examples
Examples may vary depending on the type, size, and goal of businesses. Here are the two examples that can help you understand the process and its organizational implications.
- Managers evaluate each employee’s performance depending on the group they are a part of (executive assistants, customer service representatives, and customer support team).
- Here, managers ask the employees about the various factors that can boost individual performances and enhance the management process.
Performance Management Models
An organization’s management uses various models while creating a Performance Improvement Plan (PIP) or assessment for a company. The top five models typically used are as follows:
It is also called the annual model and works well for teams with annual goals and set strategies. This style is appropriate for businesses with high staff retention rates.
The employees are assessed twice a year in this model. It is ideal for teams that focus on long-term objectives in the organization.
As the name suggests, the project-based model involves evaluating an employee’s performance on a project-to-project basis. This includes looking at the steps that teams take to complete the project, how they overcome obstacles, and how they attain the goal.
4. Stack Ranking
Stack ranking is an employee evaluation model where managers rate staff members as top, average, and low performers based on how they stack up against their colleagues. It is an older model in which the management rates employees, encouraging a competitive work environment.
5. High Growth
It’s based on planning, monitoring, reviewing, and rewarding. This model allows the managers to conduct annual and biannual performance review meetings, and smaller periodic ones (such as once a month or once in two months) as well, with the employees. This is to ensure that the review is extensive and frequent.
What Can Make Performance Management Systems Ineffective?
Organization strategies can be ineffective due to the following reasons:
- If employees are not receiving feedback frequently from the managers, they lose interest in putting in the required effort
- If managers fail to identify the areas for improvement in their employees
- If the management fails to detect any biased performance rating given by managers
Using this function can transform a company into a more effective and efficient entity when adequately executed. What’s important is that companies should find a system that fits their specific needs and maximizes employee productivity. If you are interested in learning about other leadership skills, along with management, in greater detail, enroll in Emeritus’ online leadership courses and enhance your knowledge and skills.
By Riku Ghosh
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