How to Build an Effective Performance Management System
Leaders of small to mid-size businesses increasingly have the ability to access data in real-time and check operating performance in an instant.
But what do you do with that information once you have it? The real challenge is using that data to improve performance.
Building an effective performance management system starts with looking at your company’s overall objectives and growth strategy. Once your goals are defined, you’ll start to determine how data can best support these objectives.
The keys to executing a performance management system are establishing key metrics, tracking progress, and continuously improving the business (people, processes and technology) to achieve performance targets.
It’s also important to identify potential road blocks. Think about any obstacles that could possibly prevent the employee or department from reaching a desired goal and how you may be able to avoid or overcome those obstacles.
You may want to involve stakeholders from key departments throughout the entire process to help you to identify the right metrics from the outset, and to facilitate transparency and accountability.
Consider the following questions as you prepare to develop a performance management system at your company.
How does performance management align with your strategic objectives?
Alignment with the company’s strategic objectives is at the center of designing a performance management system that best meets your business’ needs.
A goal may be to optimize productivity, improve quality and service levels, or increase employee motivation — all which may ultimately lead to increased profits. Whatever the case, performance management can help you get there. It’s important to define objectives at several levels: the overall business objectives, each department’s purpose, and the positional roles and responsibilities.
What are your key performance indicators?
Once you’ve defined your objectives, you need to agree on what specific metrics you will track to measure your progress. What are the metrics that drive the business forward? Your key performance indicators (KPIs), such as profitability, revenue growth and customer retention, should be tracked, reported and analyzed on an ongoing basis.
Employee productivity is a prime example of a KPI that should be included in your performance management system. You should observe and measure employee performance against the goals you set, use the results to design training and development opportunities, and recognize and reinforce strong performance.
The goals that you set for each KPI should be realistic and attainable. For example, a good starting place for employee productivity could be looking at the performance of a star employee. You can also look at historical performance of the company or industry benchmarks. Making these comparisons can help your management team agree on tangible goals for the company to achieve.
You can start to create a culture of accountability by communicating these goals to staff and providing feedback to employees based on performance results.
How can data be used to improve performance?
Technology can assist in capturing business data; however, the main issues lie in understanding how to use the data and tools to manage the company and improve performance. This starts with using the right data to manage business results.
It’s important that businesses use source data that can be trusted, develop data quality parameters that are consistent and repetitive, and leverage analytics effectively.
Strong data management can have a positive impact on your business. For example, better client information and insight can help you to identify potential opportunities. Data governance can also help businesses create better collaboration across departments, providing a cohesive view of information.
Why is performance management important?
There are many benefits to implementing a strategic performance management system. Not only can it enhance transparency and accountability throughout the company, but it also provides business leaders and managers with access to valuable data.
Well-designed performance management techniques can not only optimize the company’s overall performance, but could also improve the job satisfaction, retention and professional development of your employees. However, it’s important to remember that the objective of a performance management system should not be to make everyone happy; it should be to motivate, inform and improve your employees’ performance and overall business processes.
With all the benefits that performance management has to offer, you should start taking steps today to design a performance management system that can help your company meet its business goals.
