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5 benefits of implementing performance management

performance management2

5 benefits of implementing performance management

Improve Retention Rates

One of the most significant advantages of effective performance management is better employee retention. A tech company from Silicon Valley saw an increase in retention rates by 20% after revamping their performance management system to include more regular feedback and transparent achievable goals. When the employees feel that their value is recognized by the employer, and they know what is expected from them , they are naturally more motivated to work. Such a system also keeps employees engaged by showing them more transparent career development opportunities within the company.

Encourage Engaged Employees

Involvement in the workforce increases greatly if people see that their efforts directly contribute to the company’s goals. A proper performance management system ensures that the employees receive a high amount of feedback, not just at the traditional annual performance review day, but continually throughout the year. For example, the management of a retail chain implemented monthly check-ins for their employees that resulted in an increase in employee satisfaction by 30%. The system allows the managers to provide real-time recognition for any supported employee actions and adjust the objectives as needed. The employees are kept aligned with the company’s current direction and motivated to achieve their goals.

Better Goal Alignment

It is essential to keep the goals of individual employees aligned with the overall long-term goals and direction of the organization. A manufacturing company has seen an increase in efficiency when it introduced a new goal-setting system that aligned the efforts of their employees along KPIs with the global strategy of the firm. As a result, the production efficiency of the company increased by 15%. When employees are clear about what needs to be done and are also shown how it is important for accomplishing the company’s wider goals, people are driven to meet their targets the most efficient way.

Simplify Decision Making

Performance management systems also make the decision-making more straightforward. Managers always have the most recent data on how well employees are performing, which allows making informed decisions about promotions, bonuses, or other HR actions. Google, for example, implements Objectives and Key Results that make goal setting more dynamic and effective and also provide an easy way to measure employee’s contribution to the mission of the organization. It had proven to be immensely beneficial for their managers.

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Increased Outputs

Unsurprisingly, productivity is greatly boosted by increased performance management. With more regular feedback and transparent expectations, there are fewer reasons for changing tasks, as informal miscommunication is rare. One logistics company has seen an impressive 22% increase in output after they have reduced their downtime by 40% due to a more structured performance management system implementation.

Real World Examples

There are many real-world examples of successful performance management utilization. For example, Walmart have utilized their performance data to improve daily operation quality and better use their employees to improve customer service and sales. The Mayo Clinic ties individual performance to the quality of the patient care by constantly providing their employees with opportunities to learn and improve. Consequently, their performance management system has increased patient satisfaction and reduced employee turnover. On the other hand, Ford Motor Company has mainly used targeted initiatives for assembly lines to improve their efficiency and has seen a significant reduction in production errors and improved output.

Reduce Micromanagement

Performance management offers the critical benefit of reducing micromanagement that characterizes numerous workplaces . Through the establishment of clear expectations and the provision of tools and autonomy necessary to achieve the goals, managers no longer feel the need to supervise every detail of the workflow . Cisco’s implementation of results-oriented work environment reduced the need to closely oversee daily activities. Instead, managers focus on outcomes, which has increased project delivery times by 25% . Foster employee autonomy Performance management systems enable employees due to the clear outlines of their responsibilities and the metrics by which they are measured. After Adobe replaced its annual performance reviews with ongoing feedback, the employees’ job satisfaction and autonomy increased, leading to a 30% reduction in voluntary turnover rates .

Enhanced communication

With respect to the interaction between supervisors and their teams, performance management allows easier communication because regular feedback sessions and progress reviews allow to address issues and ensure that expectations are aligned. Deloitte redesigned the performance management process and implemented frequent informal check-ins instead of annual reviews. As a result, the company’s communication effectiveness has increased by over 40% as consistent feedback has become the norm, leading to the improvement of overall team performance .

Encourage proactive improvement

In addition to the opportunity to learn and genuinely improve performance, employees who are guided by performance management programs to address problems usually are the first to identify that they exist. At IBM, the scheme has been implemented using a digital performance management platform providing real-time analytics, which gives the employees the first opportunity immediately to address the issues themselves through self-improvement and learning .

Streamline the evaluation processes

Finally, performance management systems enable to streamline the evaluation process by integrating technology and real-time data, which are further helps to make the process of evaluating more objective and less time-consuming. I General Electric’s case, the introduction of a performance-tracking app instead of annual reviews has reduced the time each manager spends on performance evaluation by up to 10 hours for every employee a year.

Build autonomy and accountability

Build Autonomy

Performance management systems help in building autonomy within the workforce. If the role, responsibility, expectation, and result are well communicated, employees can manage their task and put in their best without the need for any micro-management. Zappos, a well-known employer brand for its new working style and culture uses performance management to empower their employees. Managers make sure that they provide the necessary support and resources, and the employee is left free to decide what is best for the customers. This practice has helped the employee to take up more innovative challenges and increase job satisfaction. Several surveys have also shown Zappos to be ranked as a top happiest wok place.

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Enhance accountability

Responsibility is the next pillar of performance management. When the goal is communicated well, it becomes easier for the employee to take up ownership of their projects. Netflix is known for its ‘Freedom and responsibility’ culture, in which goals are set at a high level, and it is made sure that employees act in the best interest of the organization. Netflix also supports it by ensuring that their goal is ambitious and concise; they are also regularly reviewed in a one-on-one meeting with supervisors. This culture is very successful as netflex has seen great improvement in its productivity and has also gone ahead without any formal performance measurement as the discussion has helped in keeping everyone on track.

Facilitate Transparent Feedback

Transparency and continuous feedback are the next important things. The system should allow the employee to be able to know their current position in their goal and in relation to other employees. Google for a long time has used a peer review system. Every employee at google is expected to review their colleagues, and the feedback is expected to be constructive. The employee feels comfortable in giving feedback as there will be no backlash of issuing it.ATCHIKVA, Consumer Health and Nutrition . Feedback, therefore, becomes a tool for personal growth for the employees.

Promote self-management

A good performance management system provides enough insight for the employees to manage their own development. LinkeIn employees have been given access to enable them to measure their own performance.

Align Personal Goals with Organizational Objectives

V2MOM is one of the most important system sales force uses. They are Vision, Values, Method, Obstacle, Measures. At salesforce, every employee makes sure that their personal goes are in line with the company vision. The company also makes sure that they track every employee performance using the same system. The result of this is seen in the growth record of the company as both employees and the organization has grown at a very impressive rate.

Improve organizational performance

Performance management is fundamental for the implementation of high effectiveness of every company . Thus, by establishing precise performance metrics and incorporating them in the strategic goals of an organization, the company can establish the path for growth and sustainable advancement. The below sections discuss exactly how performance management can contribute to organizational effectiveness showing specific examples.

Streamlining Operations

First, by establishing an effective performance management system, the organization would be able to streamline operation through elimination of inefficiencies and focusing on performance indicators. For instance, Toyota has its renowned Toyota Production System as the performance management system that adopts the lean manufacturing principles. It is based on continuous improvement and efficiency, Kaizen, and as a result, the company reduced production time and costs, and its quality has also improved .

Driving Employee Performance

Another point is that performance management can influence organizational effectiveness by driving employee performance. At Intel, Objectives and Key Results is the system used, which allows the company to ensure that all employees know what to do . Probably, that is why the company constantly introduces breakthrough innovations and has been the leader on the market of semi-conductors for years.

Enhancing Decision Making

Performance management measures can have a positive effect on companies through enhancing decision making. Thus, General Motors uses performance data for deciding on production and market expansion . The company monitors the changes and trends, and by analyzing them, it is able to take risk averse decisions, which in their turn lead to higher profitability and better fitting the market.

Boosting Financial Performance

An ultimate result of effective performance management systems is the advantage created to the companies’ financial health. SAP, company that produces enterprise software, which can be attributed to the group of industry leaders has proved it easily thanks to the performance management measures introduced . The company employees directly understand how they can achieve better results in business, and therefore sales productivity and revenue growth of SAP have been significantly improved.

Facilitating a Culture of Accountability

Thanks to performance management, nowadays, many companies are able to facilitate a culture of accountability that makes sure that every employee is responsible for his actions and their outcomes. For instance, Delta Airlines, being one of the major players in the airline industry, managed to use this approach in their performance management scheme and now their culture of accountability results in the highest operational rating among all competing airlines and in the highest customer satisfaction, too .

Facilitating Organizational Agility

An additional benefit of having performance management is included in the information given for the case of Amazon. Thus, from 2010 to 2017, the company based in Washington, D.C. had to increase its number of employees from 33 to 341 thousand . Furthermore, these transitions might have been successfully accommodate because at about the same period the company managed to reduce its net-leverage 0.51 to 0.40 .

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Improve profitability

Improve Sales Performance

Performance management that complements and integrates sales strategies with company goals significantly helps in enhancing sales outcomes . The example of Salesforce, indicates that a systematic, detailed performance management approach, which includes target setting, real-time feedback, and relevant sales data to adjust strategies, can directly increase the company’s profitability by 30% more deal closures within one year.

Reduce Operational Costs

Performance management that scrutinizes operations processes and identifies inefficiencies help in cutting costs. JetBlue Airways, for example, implemented a performance management system to optimize worst performing operations such as flight operations and schedules of maintenance visits . As a result of the improvement in these core operations, the company saved at least $65 million in operational costs annually.

Increases Employee Productivity

Performance management helps in increasing overall productivity by clearly the company and managers expectations from the employees. At Google, employees who participate in their performance management process experienced approximately a 20% increase in their productivity . The increase is a result of having clear goals and strategies communicated regularly to focus on productivity drivers.

Improves Customer Satisfaction

Enhancing customer satisfaction through timely service directly translates to profitability increase. Hilton Hotels management implements a performance management system, which tracks guest satisfaction and employee performance on how they deliver on the customer service aspect . The attention to customer satisfaction has increased repeat business and contributed to increased profitability by about 25% within three years.

Increases Innovation and Development

Product development and market expansion goals can drive through the implementation of performance management systems. 3M has a ’15% rule’ where employees are allowed to spend 15% of their time working on independent projects. The projects, which are assessed through a performance management system, must generate 40% of the annual revenue from products less than five years . Through the implementation of such a performance management initiative, 3M has successfully rolled out new products annually that are achieve the high percentage contribution to the annual revenue.

Improves Resource Allocation

Lastly, performance management aids in identifying which company projects are performing poorly and thus are consuming capital and managerial manpower unwisely or wastefully. The management at Cisco uses performance data to decide how to allocate projects in a way to maximize the company’s Return on Investment. As a result of the decades-long project allocation changes, project success rates in 2012 increased by 11%, while wasteful spending increased by 10% in 2009.

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