How to Boost Profitability Through Performance Management
How do you make a business more profitable? You could start by improving the quality of its products or services, thus selling more. Then you could try to reduce expenditure by making it more streamlined and efficient.
These suggestions might sound easy enough on paper, but in practice, how do you go about improving the way your business functions at all levels? Here’s one idea: performance management.
Performance management has been a regular feature in the world of work since the middle of last century. But as the way we work changes, so does the way we manage performance.
In recent years, we have seen the start of a performance management revolution, with an increasing number of organisations replacing the outdated annual appraisal with real-time feedback and support. This shift is being driven by various factors: changing attitudes, technological disruption, and sheer necessity, to name a few.
Why is a change necessary? Simply because the old way of managing performance is not only ineffective given the complexity and ever-changing nature of modern work, it is positively destructive in its ability to disengage employees.
Worse still, it is a huge drain on resources. Gartner estimated that on average, annual appraisals cost a business £1,400 to £2,400 per person, per year. So, for a medium-sized company of 1,000 employees, that’s potentially a staggering £2.4 million wasted on a process that doesn’t work.
In other words, the annual appraisal makes businesses less profitable. But by replacing it with real-time feedback and support in the form of check-ins, you can transform not only the way you manage performance, but your bottom line as well.
What does performance management have to do with the bottom line?
Making a business successful is both complicated and simple at the same time. It is complicated because organisations are inherently complex things. There are countless processes, operations, and interactions that constitute the running of a business, all of which interlink and feed off each other. And there are any number of ways that they can go wrong or right.
It is simple, however, because virtually all these processes, operations, and interactions involve people. If you look after your people, they will look after pretty much everything else. That’s how successful businesses work.
When done right, performance management is an excellent way to look after your people – and as a result, your business. It provides a space for employees and managers to sit down and discuss everything work-related, from performance and goals through to personal growth and happiness.
This process helps employees to make sense of their work, and to understand their strengths and weaknesses, allowing them to build on the former and rectify the latter.
It helps both employee and manager to identify obstacles and barriers to productive and enjoyable work, allowing both to work together to remove them.
Furthermore, it gives employees goals to aim towards, and ensures that their work is always aligned with the wider objectives of the organisation. The process of setting and realising goals is inherently motivating and satisfying.
These aspects of performance management combine to drive employee engagement. And we all know that when employees are engaged in their work, they are happier, more productive, and more likely to stick around.
Ultimately, this means a more profitable business.
But there’s a caveat …
You may have noticed that I introduced the positive aspects of performance management with a condition: ‘when done right ...’ This is a key point. Performance management, as with any human process, can either make people’s experience of work better or worse. It all depends on how you do it.
To put it bluntly, if you are still treating performance management as an administrative process to be wheeled out once or twice a year, your people – and are a result your business – won’t be benefiting from it.
Performance management must be considered an ongoing, human process – a series of conversations held as and when they are needed, designed to improve not only the employee’s performance but their experience of work as well.
According to Deloitte, 90% of businesses that have adopted this new approach to performance management say it has increased engagement, while 96% say the process is now simpler.
For this to work, however, you need to have the right conditions in place, starting with a culture of honesty and openness, where people can speak their mind without fear of the consequences.
You’ll also need managers with the right skills to handle a more hands-on approach to feedback and support.
Get performance management right, and you’ll give your people the guidance, support, and motivation they need to be at their best.
The result? A better, happier, more profitable business.