Why is Performance Management Important?

The Mesh Team
Published on 
Apr 27, 2023
Learn the importance of performance management systems and how they can improve employee performance, create better rewards systems, and boost engagement.

Companies spend a lot of time, money and effort hiring the right people for the right role. But how do you know that you have hired the right individual for a particular role? One way companies try to judge this is based on the individual’s previous experience as well as their responses during the interview. Is that enough?

The fact is that companies change very fast, and their targets and focus change fast. It is essential to keep track of the changing internal and external environments of the company. However, you should also keep track of how team members are adapting and improving according to the changing requirements of their roles, departments and even the company as a whole. 

This is where performance management processes come into play. These processes help the company to track their employee performance regularly. They can continuously improve employee performance and keep their skillsets in sync with changing business goals.

What is Effective performance management?

An effective performance management system can do wonders for a company. It can improve employee productivity and motivation, create better rewards systems and benefits, and engage employees more with the organisation’s goals.

The steps involved in an effective performance management system are:

1) Set clear goals and objectives

2) Communicate these goals to employees

3) Measure progress regularly

4) Provide feedback

5) Encourage employees to meet their targets

6) Take corrective action where necessary

7) Reward employees for their achievements

8) Monitor the system constantly and make changes where needed

Why Effective performance management is essential for businesses?

There are many reasons why performance management is essential for businesses. The main reason is that it helps businesses to monitor employee progress and identify areas where improvement is needed. This, in turn, can help businesses to take corrective action and improve employee productivity.

Another reason why performance management is important is that it can help businesses to create better rewards systems. By monitoring employee performance, businesses can identify high-performing employees and reward them accordingly. This can help to boost employee motivation and engagement.

Finally, performance management can help businesses to improve their overall strategic planning. By tracking employee performance, businesses can identify areas where they need to focus their attention in order to achieve their goals.

Con­tin­u­ous Per­for­mance Man­age­ment vs. Annu­al Appraisals

Annual appraisals have been the go-to method of per­for­mance man­age­ment for years. How­ev­er, con­tin­u­ous per­for­mance man­age­ment (CPM) is fast be­com­ing the new norm.

So, what’s the dif­fer­ence be­tween the two? And which is bet­ter for busi­ness?

An an­nu­al per­for­mance re­view fo­cuses on look­ing back at an em­ployee’s per­for­mance over the course of 12 months. This can make it dif­fi­cult to iden­ti­fy trends and ar­eas for im­prove­ment.

CPM, on the oth­er hand, fo­cuses on fre­quent, reg­u­lar feed­back. This al­lows man­agers to iden­ti­fy is­sues ear­ly and help em­ployees to im­prove their per­for­mance on an on­go­ing ba­sis.

CPM can al­so be used to pro-ac­tive­ly iden­ti­fy po­ten­tial is­sues be­fore they be­come prob­lems. For ex­am­ple, if an em­ployee is hav­ing dif­fi­cul­ty meet­ing tar­gets, a CPM sys­tem can iden­ti­fy this and help to put in place mea­sures to im­prove their per­for­mance.

An­nu­al per­for­mance re­views, on the oth­er hand, can of­ten be too late to iden­ti­fy is­sues. By the time an em­ployee’s an­nu­al re­view comes around, the is­sue may al­ready have caus­ed se­ri­ous dam­age to their per­for­mance.

CPM is al­so bet­ter sui­ted to the modern work environment. With em­ployees work­ing more flex­i­bly and often from mul­ti­ple lo­ca­tions, it can be dif­fi­cult to con­duct an ef­fective an­nu­al per­for­mance re­view.

CPM al­lows for more fre­quent, reg­u­lar feed­back ses­sions which can be con­duct­ed on­line or via mo­bile de­vices. This makes it eas­i­er to fit CPM ses­sions into busy work sched­ules.

It’s clear that CPM has sev­er­al ad­van­tages over tra­di­tion­al an­nu­al per­for­mance re­views. If you’re look­ing to im­ple­ment a new per­for­mance man­age­ment sys­tem, CPM is worth con­sid­er­ing.

Common pitfalls of performance management systems

Despite the many benefits of performance management, there are some common pitfalls that businesses need to be aware of.

One of the most common pitfalls is setting unrealistic goals. If goals are set too high, employees will become discouraged and may start to disengage from their work. It is important to set realistic goals that employees can reasonably achieve.

Another common pitfall is failing to give employees regular feedback. If employees do not receive regular feedback, they will not know how they are performing and whether they are meeting expectations. This can lead to frustration and a feeling of being ignored.

Finally, another common mistake is to focus on negative aspects of an employee’s performance without also highlighting their positive achievements. This can create a feeling of being unfairly treated and may lead to disengagement.

To avoid these pitfalls, businesses need to ensure that their performance management system is fair, transparent, and provides regular feedback. By doing this, businesses can keep employees engaged and motivated, and improve their overall performance.

Benefits of a performance management system

To effectively execute a performance management strategy, the company needs to build a strong performance management system. Some of the benefits of building a strong performance management system are:

1. Improves productivity levels

The most significant benefit of building a strong performance management system is to boost productivity. When new employees are hired, they have a clear understanding of what they are expected to achieve in the first year of joining.

But once they achieve the tasks assigned during the goal-setting process, they might fall into the loop of performing repetitive tasks. This is not good for them as well as the company. 

This can be solved by setting up a continuous performance management system in place. Such a system would ensure that these individuals are provided with incremental goals at regular intervals. That way they are not just improving their performance but also contributing to the company's continuous growth.

2. Creates robust reward systems

HR professionals are responsible for working with managers to put robust reward systems together. However, the challenge is to ensure that the rewards being offered are backed by some form of a business case. After all, they need to convince the finance team at the end of the day as well!

One of the best ways to do this is to set up an effective performance management system in place. The system provides precise data on the performance of each person in the company. What’s more, it can help the Human Resources team plan better reward strategies by revamping their performance management strategy

3. Facilitates easier communication between managers & employees

While employees are responsible for their performance most of the time, managers are, to a large extent, responsible for it too. Managers also have their own KPIs and goals that they need to achieve. So, it becomes challenging for them to always communicate with their direct reports easily.

This is why managers use performance management as a tool to open up discussions during performance appraisals. It also becomes straightforward for them to receive honest 1-on-1 feedback from their team members.

4. Increases engagement

A good performance management system allows the company and the managers to track the performance of their team members. It also provides a clear visual indication of the improvement that these employees can achieve by tracking and improving their performance regularly. 

When an individual can also receive continuous feedback from the system and can see the value they bring to the company as part of their increasing performance, they feel more engaged at work and feel more satisfied with their jobs. 

5. Promotes retention

The importance of performance management does not just lie in conducting performance reviews. It is also so that companies can identify opportunities for improvement and increase employee engagement. 

6.Future Planning

By analyzing the performance data, businesses can also get insights into future plans. For example, if a company is looking to expand its operations in a particular geography, it can use the performance management system to identify which employees would be best suited for such a move.Thus, we see that there are several Importance of Performance Management. Businesses need to invest in the right tools and technology to ensure that they can reap all the benefits. The right performance management system will definitely help you take your business to the next level!

The importance of performance management

A drop in performance is usually a good sign that an employee is disengaged. If left unattended, this could eventually lead to the employee leaving the company. Using a performance management system, the company can identify these drops in performance. It can then take corrective actions in time to engage the employee in a better way.

This will result in increased employee engagement and improve employee retention for the company. 

Performance management doesn’t have to be complicated. Set up a simple performance management system with Mesh’s intuitive software built to boost employee performance and engagement.

About the Author

The Mesh Team is a diverse group of passionate professionals at Mesh, dedicated to transforming the world of performance management. Together, we aim to provide you with valuable insights, strategies, and knowledge to empower your journey toward achieving exceptional performance in your organization.
The Mesh Team
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