This is often the first question asked when considering how to ensure people are performing, usually because it’s the thing they remember from corporate environments. You absolutely do need performance management, appraisals are one type of performance management and may not be right for your business.
What is Performance Management?
Fundamentally when we talk about performance management what we really mean is setting expectations, reviewing performance or progress, providing the right support and environment to meet those expectations and providing feedback.
Why do we Need Performance Management?
Your employees are possibly your biggest investment, for many organisations the wage bill outstips any other. There is no other investment you would make in your business without ensuring you have a return on that investment. When you’re paying out salaries you need to ensure you get value for that money, you need those people to be adding value to your business. Some of those people will be obviously adding value, they will be those selling your product or delivering your service, so you can clearly attribute revenue to their wage. Others in support functions may be less obvious in the value they bring, it’s harder to attribute their salary to a particular sale or customer. Either way, you need value or you are simply haemorrhaging money.
The only way you can know if those people are worth the investment and even better bring a return on that investment is through understanding what they should be delivering and whether or not they are delivering it. When you buy a product or service, you know what you expect that product or service to do for you, you expect it to do “what is says on the tin” to quote an old advert. If it doesn’t do that you’ll take it back or not buy it again. The same principle applies to employees - OK maybe it’s not quite so simple but the principle is the same.
You’re investing in a salary, you need to know what you expect to get for that salary. I don’t mean qualifications and experience, I mean output. If you pay someone £40,000 a year - what do you expect to see for that money? What will they produce? How will the business be improved by paying out £40,000? Will they save you money? Will they increase revenue? Will they enable others to increase revenue? What will this look like in reality? The answers to these questions will obviously be very specific to your business and the role the person is doing.
What About Appraisals?
So in coming back to the original question, no you don’t need an appraisal process. There is no law requiring you to have one, in fact I would argue that annual appraisals are simply not effective and hence end up as a tick box exercise. When an appraisal is annual, especially in today’s rapidly changing world we find that the discussions in the appraisal meeting go out of date very quickly and forms simply gather dust in the filing cabinet. Hence, both managers and employees see them as a paper exercise, something they have to do to keep HR happy, and so when there is no buy-in to the process and it doesn’t work for the reality on the ground, the process is weakened further. This is particularly the case for small businesses where reacting and rapid change tend to be a much bigger part of the day job than for large corporates.
How do we Manage Performance?
You do need a process of managing performance that meets the needs of your business. Whatever your process, it must include:
- Setting expectations.
- Providing the support, resources and environment for it to be achieved.
- A way of monitoring and reviewing progress and outcomes.
It’s also worth ensuring the expectations are regularly reviewed and reviewing the performance of the organisation as a whole. Ask yourself, are our aims still right for the business now? Do we need to change direction or review objectives? How are we doing against those objectives? Are we heading in the right direction? Is each employee playing their role in this? If things are going wrong, identify them quickly and put measures in place to resolve the issues.
What About Poor Performance?
I speak to many business owners who have put up with a poor performer for a long time, sometimes many years. It can be difficult to deal with this if it is allowed to continue unchallenged. It can be difficult to deal with the poor performance of one individual if you haven’t got the foundation of a process to manage everyone, and it makes those difficult conversations even more difficult. Whilst I appreciate telling someone they are not achieving what you want can be difficult, the effects on not dealing with it are damaging. You will lose the respect of other employees, they may resent and become demotivated as a result of seeing that person “getting away with” poor performance. At the other end of the scale, no performance management process means no one knows when they are doing well. People need to be reassured they are doing a good job and see their achievement for the company, it has motivating effects.
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Article last updated: 11 September 2023
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