Organizations Need to Increase the Utility of Performance Management in Order to Achieve Better Business Outcomes
Less than one-fifth of HR leaders believe that performance management is effective at achieving its primary objective, according to Gartner, Inc. Though companies have been prioritizing performance management improvements for years, 81% of HR leaders are still making changes and experimenting with their organization’s performance management efforts.
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“One of the reasons performance management initiatives are failing is the increasing demands placed on the outputs of the process,” said Jeanine Prime, vice president in the Gartner HR practice. “Today, organizations are relying on performance management efforts to inform compensation, promotion and succession planning decisions, as well as to drive employee performance, development and engagement.”
Most efforts to fix performance management are centered on reducing effort — a Gartner survey found that two-thirds of HR leaders focused on making performance management processes either easier or less time consuming. However, reducing the effort managers and employees must put into performance management has significant negative effects.
Organizations that reduce effort usually do so by instituting fewer documentation requirements, eliminating ratings and reducing the number of formal performance management steps. Taken together, these decisions can cause workforce performance to decline by more than 16% — and diminish employee perceptions that performance management is worth the time and effort.
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Gartner research found that rather than reducing effort, organizations should focus on increasing the usefulness, or utility, of their performance management initiatives.
“Organizations that maximize utility by closely aligning performance management with employee and business needs realized a 24% boost in workforce performance and had a 7% higher proportion of high performers in their workforces,” said Ms. Prime.
In addition, organizations with higher performance management utility report 14% higher engagement among employees and a 50% higher proportion of employees reporting that performance management is fair and accurate.
To create a performance management process with higher utility, HR must enable the business to customize performance management to meet its needs.
To identify customizable opportunities, HR should consider the level of risk involved in customization, including the impact on other talent processes or potential for bias. HR should then consult with the business to determine which practices need to remain standardized and to support tailoring other practices, while ensuring performance management still provides the input for critical talent processes.
The Gartner HR practice brings together the best, relevant content approaches across Gartner to offer individual decision makers strategic business advice on the mission-critical priorities that cut across the HR function.
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