The Importance of Creating a Performance Management System in Companies
Updated: Mar 31, 2023
I’m sure you have all used sentences such as the ones below from time to time or at least thought of them.
“While I’m working like crazy my colleague fools around all day and yet we get paid the same amount of money at the end of the month.”
“I don’t understand why they chose her/him as the manager of the department, what is it that she/he has that I don’t.”
“I received a warning for making a mistake whereas she/he makes no mistakes because she/he doesn’t do any work. This is unfair.”
You might think that the work you have put in isn’t being appreciated and that you’re not being rewarded enough for all your efforts. What if we were to take a look at the situation from a business point of view? The answers to the questions such as which employee is productive and which is not; which employee has higher performance; which one should I promote; which one should I reward are all subjective. On the other hand, we do not have any satisfactory answers to the following questions either: are our customers satisfied with our service; are we providing a quality service for the right price; which customer is profitable.
In today's competitive environment, companies try to provide the best service in the most profitable way they can. The first condition for selling the highest quality service in the most profitable way is to utilize the production factors effectively and efficiently. Human resources comes first among these factors in service oriented sectors. Businesses have to conduct evaluations in order to determine whether or not production factors are being utilized effectively and efficiently; an activity that cannot be evaluated cannot be developed. For this reason, performance management has become an important tool in management for businesses nowadays.
Performance refers to the efforts of employees within the framework of certain job definitions to reach certain goals with regards to businesses. These efforts are measured through certain techniques by businesses; and can sometimes be associated with wage or rewards. While employees with low performance are preferred when someone needs to be laid off, those promoted are usually chosen from among those with high performance.
Performance Management can be addressed in three main dimensions:
1. Performance Assessment
2. Performance Development
3. Performance Management
Performance Assessment is a retroactive activity which measures whether or not the determined targets have been reached. The concern is not why the targets have not been reached.
Performance Development will measure whether or not the past performance materialized as expected, as well as the efforts made to increase performance for the current period. While Performance Assessment focuses on the past, Performance Development focuses on the present and Performance Management adds the future to these perspectives.
Performance Management has the potential to increase the productivity of businesses or to support decision-making processes of managers, as well as providing significant benefits for managers and employees.
A well-established Performance Management will provide the following benefits in terms of employees:
A performance management system of which the criteria and standards have been determined with the participation of its employees will harmonize the goals of the employees with that of the business so that the employees will have a clear understanding of exactly what is expected of them. As a result, misunderstandings will vanish and an important source of problems that may harm the relationship between the employees and managers will have been eliminated.
Employees can interpret how and according to what their performance is valued by managers and can understand the differences in possible wages and reward factors arising from the performance gap with their colleagues.
An important component of performance management is that employees can acquire a lot of beneficial information about themselves through feedback. Thus, by having the opportunity to develop their shortcomings and utilize their superior strengths more effectively, they can make career plans more easily.
A performance management system, whose inputs, course and outputs are clearly shared, will also clarify the role definitions of employees and reduce role conflicts.
To have certain performance targets provides an advantage for high performing employees, especially in businesses where performance-based rewarding and remuneration systems are applied.
A working environment which has certain rules will decrease work stress by supporting the employees work satisfaction and feelings of trust.
Since they will be communicating more effectively with managers within the framework of the performance management system, the employees will have the opportunity to contribute to not only performance management but also to other human resource management practices.
Performance Management can be utilized by companies for different purposes. These objectives can be addressed in two main sections:
1. Performance Assessment Related Goals
a. To increase the businesses productivity
b. To improve and develop employee performance
c. To increase the quality of product and service
d. To support administrative decisions
e. To provide feedback to employees
f. To increase the effectiveness of education and career planning
g. To ensure organization, work and work rapport
h. To reward according to performance
2. Performance Management Related Goals
a. To develop employee competence
b. To identify employee potential
c. To ensure inter-organizational communication and cultural change
d. To measure the success of other human resource practices
e. To build a legal foundation
Of course, setting up and running a Performance Management System is a very difficult process. However, the downsides and difficulties should not overshadow the necessity of Performance Management. First and foremost, performance management is necessary for a fair management and then for happy employees.
Do not forget; The most important requirement for setting up a Performance Management System is 100% employee participation. The only ones opposed to the setting up of a Performance Management system will be the ones that are afraid their actual performance will be exposed.
