Why Performance Management Fails—And What You Can Do About It

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Performance reviews, performance appraisals, performance evaluations—they all fall under the ongoing process known as performance management. There’s just one problem, though: Effective performance management is hard to do.

We don’t just mean making it a continuous process (although that’s definitely part of the problem). We mean it’s hard for managers and employees alike to give and receive feedback on employee performance, not to mention turning that annual review into an actionable plan.

So without further ado, let’s jump into why performance management fails and what you can do to make it a success.

What is performance management?

Performance management is a crucial aspect of any organisation’s success strategy, encompassing the processes and activities designed to evaluate employees’ work and align their efforts with the business’s overall strategic objectives. At its core, performance management aims to create a culture of continuous improvement within the workforce to enable organisational transformation.

How traditional performance management has failed

We know what you’re thinking: “But we need performance reviews!” In return, we’ll say just because you’ve always followed the traditional performance management process doesn’t mean it’s actually working.

In Gartner’s 2019 Performance Management Benchmarking Survey, 82% of HR leaders said that performance management wasn’t successful or effective in achieving its primary goals, with only 38% saying that performance management kept pace with organisational needs.

So what’s actually causing performance management to fail?

For starters: Annual reviews—specifically, the annual part of that equation. These are common practice in traditional performance management, but the problem is that infrequent reviews prevent employees from receiving constructive feedback when it’s needed. The time to start addressing performance issues was when those issues began, not after they’ve festered. Infrequent reviews just make all your performance conversations moot because there are no actions or takeaways for employees or managers.

Instead, all employees hear is “By the way, you didn’t meet performance expectations. Try to meet them next time, somehow.”

Which leads us to the next problem: Traditional performance management systems focus on ratings, not development. Employees feel their efforts are reduced to little more than a number rating—which is only good for evaluating past performance. What employees want are pathways to future success. Without it, they’re only getting more and more disengaged and unmotivated.

It doesn’t help that the general perception is that performance reviews are entirely subjective. Given traditional performance management processes involve a lot of human judgement, there’s plenty of room for unconscious bias to sneak into annual performance reviews (e.g., maybe managers are influenced by recent events, or favour some employees over others). What you need are tangible metrics to measure performance against which can also be translated into actionable outcomes.

How to build a strong performance management strategy

A weak performance management strategy equals a weak workforce. The only solution is building a performance management strategy that fosters a culture of accountability, continuous improvement, and employee engagement within your organisation. And it’s not hard to do it, either.

1. Define clear strategic objectives and goals

The first step to ensuring your workforce meets performance expectations and strategic goals is to outline what your organisation’s strategic goals actually are. Only then can you create performance goals for your employees to meet. That’s because employee performance goals should be aligned with your company’s mission, vision, and strategic objectives, ensuring that the organisation moves forward every time performance goals are met.

Effective communication here is key. Goal-setting decision-makers need to convey objectives and the HR context they exist within to employees and managers alike. Employees don’t like mindlessly doing activities they were told to do—they want to know why they should be doing it and what they have on the business. Only then will they understand the importance of their performance goals to overall business strategy.

Let’s say your business’s goals include improving its customer service scores like its Net Promoter Score (NPS). A relevant performance goal for a member of your customer service team might be to increase the number of customer support tickets they solve by 25%, or reduce the response time on tickets by 50%. If these performance goals are met, the assumption is you’re more likely to satisfy customers and build a reputation for good customer service.

But suppose you don’t have transparent communication at this stage. Your entire performance management program will be thrown off by different teams performing to different standards (which may not even drive organisational success). When you have a transparent workplace, everyone is on the same page, leading to increased employee engagement, better employee performance, and achieving company goals.

And one more thing: Organisational objectives may change over time, so you need to make performance management a continuous process. Adjust your employees’ performance expectations in line with organisational goals, because what constitutes “good” performance today may not be relevant in a year’s time.

2. Set standards, criteria, and indicators

Now take all those goals you set and break them down into the key performance indicators (KPIs) that are specific, achievable, and relevant to each role and department. This is a two-step process of:

1. Establishing criteria for evaluation (such as productivity, work quality, or teamwork), which you’ll use to evaluate employee performance against established standards.
2. Developing performance indicators, or capabilities (the combined skills, behaviours, processes, tools and knowledge that deliver organisational outcomes) which are quantifiable metrics providing objective measures of how your employees are performing. Your capabilities will be measured in terms of competency or proficiency, with the lowest level of competence indicating a need for development, and the highest level of competence indicating performance exceeds expectations.

You can use HR technology such as a performance management system to help keep track of your performance goals as well as employee performance. Not only will it do away with the time-consuming process of manual tracking, but so too will it ensure you’re measuring an employee’s job performance on purely objective metrics, helping to eliminate implicit bias that may be happening.

We recommend using a performance learning management system (PLMS). A PLMS ties effective performance management with meaningful learning in order to improve performance and positively impact organisational outcomes.

3. Regular feedback

We’ve established annual reviews don’t make for an impactful or meaningful performance management process. What you should be doing instead of the once-a-year, irregular reviews are ongoing, honest discussions.

Ongoing feedback means corrective measures can be communicated and implemented in the moment, giving employees the chance to perform better in their roles straight away, rather than waiting for the next annual review. Embedding performance management with learning and development is essential here. When learning and performance happen in tandem (e.g., a feedback loop between managers and employees) you mitigate problems with performance before they become a business issue.

Not sure how to embed learning with performance? Provide your employees with training and resources to help them understand and meet performance standards. For example:

• Formal and informal coaching allows managers to correct performance in the moment while simultaneously providing employees with professional development.
• Frequent one-on-one meetings between employees and managers ensure that employees are on the right track in terms of performance and development objectives.
• Create milestones linked to performance plans to track performance and development progress. If learning is effective, then milestones will be met and on track to meeting performance goals.

This creates a continuous performance management process, ensuring that performance management is embedded in your employees’ development and day-to-day work. Again, learning and performance management tools such as PLMSs are especially useful here in providing employees with the right learning content to develop their skills and capabilities in the right direction.

And don’t just give constructive feedback, either. Recognise and reward your employees for their achievements. Employee recognition acts as positive reinforcement for desired behaviours and makes your employees feel valued for their work—a factor which improves employee retention. Think along the lines of bonuses, promotions, or additional responsibilities as a way to provide tangible incentives for high performance.

4. Ongoing evaluation

The key to a strong performance management strategy is to make it an ongoing process, because a one-and-done performance review isn’t going to drive continuous business success.

Ensure that you regularly revisit your organisational goals, as your business needs and the capabilities your workforce needs to meet those needs will change over time in line with industry and technological change. Capabilities and the competencies they’re measured by are the bedrock of organisational and employee performance, which means your performance goals, metrics and indicators will have to change to reflect those changes.

Continuous performance management isn’t just about repeating the performance management process, either. Making performance management a recurring activity means nothing if your performance management program isn’t effective. So, you need feedback from employees, managers, and stakeholders to identify areas for improvement and innovation in your performance management process which you can use to refine your strategy.

The impact of poor performance management

Getting performance management right is critical for organisational success. If you fail at performance management, then you’re essentially failing at business—and that effects both your bottom line and everyone in your workforce.

• A lack of engaged employees leads to decreased employee productivity (and that leads to burnout, stress, and poor corporate culture). Gallup suggests that $960 billion to $1.2 trillion is lost in the US per year because of this.
• Increased employee turnover costs organisations in terms of onboarding expenses, time, and productivity. Add to that, the average cost of hiring an employee rose to $4,700 (but of course, that number can be a lot higher).
• When performance management focuses more on performance ratings rather than developing employees, your workforce will be dissatisfied with a lack of career development and upward mobility, driving up employee turnover and decreasing productivity and performance.
• Bad performance management means a bad hit to HR and L&D reputations—and when those roles tend to be first on the chopping block when organisations have to cut costs, you don’t want to be seen mismanaging performance and development for your workforce.

Key takeaways

Performance management is a crucial aspect of creating a sustainable and agile workforce, but organisations often find it difficult to conduct performance management activities that are impactful. But if you want a strong workforce, you need a strong performance management strategy—and luckily there are only four critical elements to building a strong process.

1. Define clear business goals and objectives
2. Set standards, metrics, and indicators to measure performance against
3. Provide employees with regular feedback
4. Continuously evaluate your performance management process.

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