How to implement performance management systems in small businesses
Although HR metrics like job satisfaction and employee retention are important, performance management has become a top priority for successful companies. With 36% of employers using performance management to align learning with business goals, this strategic approach can inspire employees to perform well and commit to a process that drives success.
However, when you hear comments from your staff such as 'Performance reviews are just a waste of time' and 'The process is just a paper exercise,' it impacts employee morale and reduces the effectiveness of performance management efforts.
This article will show you the benefits of managing employee performance. Learn the features to look for and follow our step-by-step guide for implementing performance management to enhance productivity, increase employee satisfaction, and sustain business growth.
We’ll cover:
- The role of performance management
- Performance management challenges for small businesses
- Benefits of employee performance management
- Top features of performance management software
- Step-by-step guide to implementing performance management
The role of performance management
Performance management is a structured approach to help employees understand how their role contributes to achieving company goals and align their efforts with business objectives. This systematic process can engage employees and enhance productivity by:
- Providing valuable feedback to help staff members develop and improve their skills
- Understanding organisational priorities, targets, and expectations
- Exploring promotions, career development opportunities, or pay raises by agreeing on the next steps
- Helping employees feel accountable for their work and empowering them to make decisions
- Addressing any issues of concern, such as punctuality or attendance
- Recognising and celebrating achievements and milestones
Performance management challenges for small businesses
Small businesses and startups often face challenges when implementing performance management systems. Limited resources can be a major hurdle, as they may not have the money or staff to use complex systems. Time constraints are another issue, as owners and managers often juggle multiple roles, making it difficult to dedicate time to performance management.
Secondly, ensuring consistency and standardisation in performance evaluations can be difficult in workplaces where personal relationships influence assessments. For instance, in small businesses with limited teams, managers may inadvertently favour employees with those they have a closer personal relationship, potentially skewing performance ratings. This inconsistency can make employees feel like the evaluations are unfair and make the evaluation process seem less trustworthy.
Did you know that employees tend to trust software to deliver a fair performance review more than they trust their managers?
Using HR software for performance management can increase trust and significantly enhance efficiency and employee satisfaction. Considering only 23% of employees strongly agree that they trust their organisation’s leadership, implementing a fair performance management system creates a positive and rewarding workplace.
Thirdly, a lack of expertise is a common challenge since small businesses might not have HR experts to design and implement an effective performance management system. On top of that, handling and analysing performance data can be overwhelming without the right tools, making data management painstakingly mundane.
Finally, some employees and managers may resist change to everyday practices and adopt a new system. This can lead to decreased productivity, lower morale, and potential conflicts within the team. It can also result in inconsistent implementation of the new system – making your return on investment difficult.
Despite these challenges, small businesses can overcome them with the right tools and strategies.
Small business performance management software, like Appogee HR Success, simplifies these tasks with tools for setting goals, giving feedback, and analysing data. Since our software integrates with other tech stacks like Xero for seamless payroll management and Slack for leave and attendance tracking, it ensures all your HR performance management needs are in one place, saving time and reducing administrative burden.
Benefits of employee performance management
Let’s face it: Recent years have been tough for small businesses. Ongoing disruptions from the pandemic and skill gaps in certain industries make performance management more crucial than ever.
Understanding the benefits and how they can improve your employees' work lives and overall business operations helps you handle challenges effectively, ensuring steady growth despite constant changes.
Improved employee engagement
Did you know that just 9% of UK workers report feeling enthusiastic about their work and workplace?
The same Gallup analysis reveals that engagement has a 3.8 times greater impact on employee stress compared to work location. Put simply, how people feel about their daily work — their sense of involvement and enthusiasm — plays a more significant role in reducing stress than their physical workspace.
Addressing workplace stress to increase engagement is not just a nice to have, but an absolute necessity.
Effective performance management needs active participation between managers and employees. This two-way communication allows employees to voice their concerns, ask questions, and provide input on their roles and responsibilities. Feeling heard and understood enhances job satisfaction and engagement because it shows that employees' opinions matter and that they are integral to the decision-making process.
Better goal alignment
For small businesses, when goals are not aligned with employee performance, employees may focus on tasks that don't help the company achieve its objectives. This wastes time and resources. Plus, motivation and engagement can suffer when employees don't see how their work contributes to the bigger picture.
Let me explain.
Imagine a small marketing startup where the CEO introduces performance management practices. By setting clear goals, such as growing the customer base in a specific area and providing regular employee feedback, the CEO ensures everyone knows their role in expanding the company's market. This increases productivity and encourages employees to innovate and contribute to the company's growth, making the most of resources, such as local expertise, for long-term success.
HR software with Objectives and Key Results (OKRs) features can align your employees with your company goals. These tools ensure mutual visibility and clear communication around what’s expected, making it easier for your staff to move towards their goals and understand their own progress.
As these features track alignment between individual, team, and company goals, you can ensure that efforts focus on strategic priorities.
Take it from Carolyn Seet, VP of Operations at Energi Core Ltd, who implemented Appogee HR Success and reported a big increase in employee engagement. She said, “Using the Goals module to set objectives and key results (OKRs) has helped all teams collaborate and know how they’re contributing to the bigger picture when it comes to our company’s success.”
Improved productivity
When employees perform well, they work more efficiently and deliver higher-quality results. Performance management encourages them to improve and acknowledges their achievements.
Picture this.
A skilled employee spots inefficiencies in a manufacturing process. They suggest changes to make operations smoother, saving time and money. With a clear record of their achievements, the manager and employee can document these improvements and consider a pay raise to boost productivity.
Recognise and reward performance with company shoutouts and show employees you appreciate them publicly. When others see them, it can lift spirits and encourage everyone else to do their best.
Identify development and progression opportunities
Over a quarter of the workforce plans to change employers in the next six months. A transient workplace where employees frequently change jobs can disrupt small businesses by increasing turnover costs, reducing team cohesion, and impacting productivity. It also creates challenges in maintaining consistent customer service and operational efficiency.
Performance management can assess and track employees' skills and competencies, identifying gaps and development opportunities.
Quickly identify employees who are performing well and might be suitable for promotion. Whether through periodic reviews or continuous feedback, performance management allows employees to analyse their development, allowing them to express where they want to develop and work towards.
Top features of performance management software
HR performance management technology varies among providers. Understanding the key features of each software and carefully considering them will help you make an informed decision and ensure that your performance management process is effective now and in the future.
Automated review cycles
Inconsistent review processes can create different standards and perceptions of fairness among employees. Manual performance management processes may lead to frustration among employees waiting for feedback. These delays in feedback can heighten anxiety and lower productivity. Plus, late reviews leave employees uncertain about their performance and career progress, reducing job satisfaction and commitment while depriving them of timely feedback for improvement.
Automated review cycles solve these issues by ensuring fairness and consistency. Managers can easily schedule, conduct, and document performance evaluations. This automation saves time, reduces administrative burden, and ensures that reviews are performed consistently and on schedule. Our performance review status reports allow HR managers to quickly see if reviews are scheduled, completed, or still pending.
That said, the best insights come from regular review cycles rather than one-off reviews. As employees engage in self-assessment to reflect on their performance, managers can efficiently support them, ensuring they feel included in the process–increasing engagement.
Our performance management tools let you set up automated, in-app reviews and track them all in one place.
Centralised performance data
Preparing for employee performance reviews takes time. In fact, managers spend an average of 210 hours yearly on performance discussions with their employees.
Gathering information, completing paperwork, and setting time aside to meet with employees take you away from other strategic tasks. It’s hardly surprising that a recent report published in Forbes found a staggering 98% of HR professionals feel burned out.
Reduce time searching for training records, attendance and leave data, and peer feedback. HR performance management software centralises all data in one place, allowing staff, managers, and HR professionals to track progress, spot trends, and make well-informed decisions about employee development at the touch of a button. This is especially beneficial for remote and hybrid workers because it allows everyone to access current information and work well together, regardless of their location or time zone.
Analytics and reporting tools
Robust analytics and reporting tools give meaningful insights from performance data. These tools can generate customisable reports on key performance indicators (KPIs) and areas for improvement. For example:
- Individual performance metrics. These tools provide individual employees' performance data against their goals and objectives, including metrics such as progress over time.
- Team performance insights. Reporting tools aggregate data to provide insights into team performance. This can include team KPIs, teamwork metrics, and overall productivity trends.
- Feedback and reviews. They capture and summarise feedback from performance reviews, 360-degree feedback, and ongoing performance discussions. This helps assess strengths, areas for improvement, and developmental needs. (Our short video here will walk you through how to get everyone’s opinion.)
- Attendance and leave management. Reporting tools provide insights into employee attendance patterns, absence and leave, and their impact on performance metrics.
- Performance trends. Identify trends highlighting improvements, productivity declines, and patterns that may affect overall performance over time.
- Benchmarking. Some tools offer benchmarking capabilities, allowing small businesses to compare individual or team performance against industry standards or internal benchmarks.
- Compliance and regulatory reporting. Streamline compliance using reporting tools that track compliance with performance-related regulations, such as food safety standards, ensuring you meet legal requirements.
Step-by-step guide to implementing performance management
Step 1. Assess your current system
Start by evaluating existing performance management practices. Collect feedback by surveying employees and managers to gather their opinions on the current performance management system. Ask about its effectiveness, strengths, and areas for improvement.
Conduct focus groups or one-on-one interviews to dive deeper into specific issues and suggestions. Evaluate whether employees understand how their individual goals contribute to business success.
Review current documentation by analysing existing performance review forms, appraisal records, and feedback documents. Look for patterns in how performance is assessed and recorded.
Look at the frequency and consistency of performance evaluations across different teams and departments. Are there gaps in review cycles? Are there any specific teams or individuals without a review at all?
Assess the tools and software currently used for performance management. Do they meet the needs of your small business, or are more efficient solutions available? (More on this in Step 3).
By evaluating these aspects, you can thoroughly understand your current performance management practices and identify actionable steps to enhance them.
Step 2. Define clear objectives
Work out what you want the performance management process to do. For example, are you looking to boost productivity, improve employee engagement, or align individual goals with the company's overall strategy?
Once you have identified clear objectives, decide how you will measure success. So, if you’re looking to track improvements in employee performance, you might monitor the number of completed projects or customer satisfaction ratings.
Record your baseline metrics to compare future performance against. This will help you gauge progress over time. Next, introduce a system for regularly reviewing these metrics. This could be through quarterly performance reviews, monthly check-ins, or real-time tracking using performance management software like Appogee HR Success.
Best practice tips:
- Be prepared to tweak your metrics and goals as the business evolves. Flexibility ensures your performance management system remains relevant and practical.
- Ensure your objectives support your overall business strategy
Step 3. Choose the right tools and software
Do your research. Look for performance management software that fits the size and needs of your business.
Every business is unique, and a one-size-fits-all approach to performance management is rarely effective. Therefore, look for features that can be customised to suit your specific requirements to ensure that the system works seamlessly within your existing processes and culture.
Features like goal setting, feedback mechanisms, flexible employee review templates, and reporting capabilities are fundamental for robust performance management. They help set clear expectations, provide regular feedback, and track progress, ensuring everyone stays on track and aligned with company goals.
When choosing your software, consider start-up times. You don’t want a performance management solution that's complicated to use and takes until retirement age to learn!
Appogee HR Success, for example, has all these features and many more. Our software is simple to set up and maintain, making it easy to configure and roll out with minimal administrative overhead.
The best part? No training is required for employees or managers, ensuring no downtime for normal business operations.
Step 4. Develop a framework
Create a clear process for goal setting, ongoing feedback, and formal reviews so everyone knows what is expected of them. This ensures consistency and clarity, helping your people stay focused on their objectives and making it easier for managers to provide support and guidance.
Develop a standard template for performance reviews to ensure consistency. Apogee HR has a range of flexible templates to use or customise your own. Include sections for self-assessment, manager feedback, and future goals.
Next, decide how often formal reviews will take place (e.g., quarterly or annually) and stick to the schedule to maintain regular assessment and feedback.
Post-review, create action plans for employees to work on their areas of improvement and leverage their strengths. This ensures continuous development and alignment with goals.
Best practice tip:
- Involve your people in developing the framework for performance management. When employees participate in creating the performance management framework, they are more likely to support and commit to the process. This ensures it is practical, relevant, and widely accepted, leading to a more engaged and motivated workforce.
Step 5. Monitor and evaluate
Track the progress of your performance management by monitoring how employees and managers use it, how often they complete reviews, and whether goals are being met.
Regularly seek your employees' opinions on the system. Are they finding it useful? Do they feel more engaged and motivated? Use surveys or informal check-ins to gather this feedback.
Track how well employees are meeting their goals. If you see an increase in the number of goals being met, it’s a good sign that the system is working. This helps you understand if the system is helping your team improve, or if any issues need to be addressed.
Look at productivity levels before and after implementing the system. Are projects being completed faster? Is the quality of work improving? These metrics can help gauge the system’s impact.
Be open to making changes based on what you learn. If something isn't working as well as you hoped, don’t be afraid to tweak the system. Maybe some processes need to be simplified, or the feedback frequency needs to be increased. Adjustments ensure your performance management system stays effective and relevant.
Take the next step to transform your small business
A well-implemented performance management system can revolutionise your small business operations. It enhances employee engagement, boosts productivity, and aligns individual goals with company objectives.
Following our five-step guide to implementing performance management, you can build a culture of continuous improvement and accountability. This empowers employees and managers to work well together and achieve shared success.
Implement or refine your performance management system to reap these benefits and drive your business forward with Appogee HR Success. Book a free demo with our experts today, or start a 14-day free trial to find out for yourself.