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Why Performance Management Is Important?

February 3rd, 2011

whocares2 [This post is part of the Performance Management: A Manager's Guide to Managing Talent series. Check out the rest here!]

Until I spent time thinking (and reading) more about Performance Management, it occurred to me, I need to first answer the question – “Why is managing performance so important?”

After doing the research and thinking back to my own experiences of coaching (and being coached), I have a renewed appreciation for managing performance and why it’s a critical habit for successful management.

According to a study by The Aberdeen Group, there are several factors behind the need to manage performance:

  1. The need to improve company performance
  2. The need to improve employee productivity
  3. The concern of attracting and retaining “top talent” by failing to develop employees

Sure, it’s easy to understand the first two from an employer perspective.  However, attracting and retaining “top talent” is of particular concern of managers for a variety of reasons:

1.  Global shortage of talent means there will be less workers than jobs.  Being able to provide year-round coaching and development to employees leads to higher employee satisfaction, morale and productivity.  Failing to do this, employees are more likely to leave.  Having an open job posting during a talent shortage means you will be fighting harder (and spending more time & money) attracting candidates to your open jobs vs. all of the other open jobs in the market.

2.  Cost to replace an employee.  If you have to replace an employee, you will experience both significant hard dollar and soft dollar costs.  Hard dollar costs include: search fees, job posting fees to job boards, signing-bonus, new hire stock, etc.  Soft dollar costs (which are harder to quantify) include: cost of your time to interview and find right candidate, cost of training your new employee, not too mention the cost of work piling during your search.  And again… based on the global talent shortage brewing, the fight to get top talent is only going to increase all costs to replace an employee.

3. Loss of intellectual capital to competitors.  In our current economy, when you lose an employee, chances are they will not do a massive career change.  As a result, they will likely go into a similar field or industry (CAN YOU SAY COMPETITOR).  As much as you try to protect your intellectual capital, by losing an employee to a competitor, you not only lose an employee.  You potentially give your competitor a boost of information that can be used to sell against your company.

So.. when you do performance management correctly – everyone wins.  The company gets a more productive employee - which can help improve company performance.  The employee feels a sense of growth, development and accomplishment – which is a boost for morale and productivity.  And by spending the time year-round to do what’s necessary to manage performance, you don’t have to compete with all of the open jobs fighting for a smaller pool of workers.  You save the company money (which is good for your budget) and you don’t arm the competition with your company’s intellectual capital.

By adding all of this together, it’s easy to see why having a year-round performance management process and culture is critical to being a successful manager.

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