Performance
7
min read
In recent years, there has been a steady rise in the focus on gauging and increasing the ROI of performance management tools as organizations come to realize how having an efficient performance management system impacts the bottom line and facilitates a pleasant employee experience.
In this article, we will talk about how reinventing the wheel with the adoption of performance management tools can help organizations achieve unparalleled success by combating the challenges in traditional performance management.
Furthermore, we will highlight how organizations can secure leadership buy-in by creating a business case with return on investment for the right software.
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Performance management matters: Here’s why
Before we start discussing the challenges in traditional performance management and how performance management tools can help you navigate the same, let us quickly understand why performance management matters. Here’s what the numbers say —
94% of individuals would stay at a job longer if it helped them grow; performance management plays an intrinsic role in employee development
79% of employees who quit their jobs cite a lack of appreciation as a key reason for leaving; performance management can facilitate timely recognition
Organizations that were in the top quartile of employee engagement see 21% higher profitability; performance management can greatly augment engagement levels
75% of workers have experienced burnout; performance management can help preempt burnout by constant tracking to eliminate the same
Challenges in traditional performance management system
While the business case for performance management is very strong and makes business sense, many fast growing organizations have been able to reap only limited benefits.
Only 8% of companies believe their performance management process is highly effective in driving business value
58% businesses say it’s not an effective use of time
91% of people believe company’s performance management process could be better
There are several challenges in the traditional performance management systems that limit the success and impact for organizations, rendering them unable to achieve a high return on investment on their performance management tools. Let's have a quick look at some of the major drawbacks of current performance management process:
1. Reliance on manual methods
70% of companies require a PA or HR representative to collect feedback via email, Word or Excel
The first major challenge of traditional performance management is reliance on spreadsheets and manual methods. Invariably, the process is replete with inefficiencies, which can simply be eliminated with the adoption of the right tools.
2. Time intensive
Managers spend 210 hours a year on performance management, and employees spend 40 hours a year
Second, traditional performance management can be highly time consuming. This involves time spent on gathering feedback, collating different data points, creating reviews, having conversations, and much more.
Consequently, managers struggle to complete their reviews on time.
As many as 50% of employee evaluations were overdue by 30 days or more
While phases like 1:1 conversations require manager involvement, many other parts can be automated to make them less time intensive.
Performance management tools like SuperBeings even make it easier to hold 1:1 conversations easily with guided templates, automated scheduling and AI recommended talking points. Click here to see how it is done
3. Lack of accuracy and motivation
51% of employees believe that annual reviews are inaccurate
53% say it does not motivate them
Two-thirds of performance management systems fail to recognize high performers
Third, being a manual approach, most performance management tools follow an annual cadence or frequency. They generally focus on annual reviews and appraisals and rarely have any mid-point check-ins.
SUPER TIP — Check out free SuperBeings Playbooks on how to conduct weekly, monthly, quarterly performance check-ins.
Moreover, the lack of accuracy in employee evaluation leads to low levels of motivation and engagement for the employees resulting in negative trends of high turnover, absenteeism, lower productivity rates, etc.
98% of businesses believe performance management is important. Only 64% say they have an effective approach to it
This clearly indicates that the traditional performance management process that relies on only human interventions and an annual approach is broken and requires fixing.
Now let’s explore how.
Reinventing performance management with performance management tools
Fixing the traditional performance management approach, requires aligning performance management with the dynamic market realities and changing employee expectations.
Organizations today need to focus on consistent performance tracking and management with continuous feedback and communication, backed with integration across teams and a focus on regularly gauging employee pulse.
While it is true that a lean human resource structure of a fast growing organization may not be able to realize all these, adoption of the right performance management software can help take the leap. Even research shows that such transformation is already on the cards.
81% of HR leaders are making changes to performance management
70% organizations are either updating or have currently reviewed their performance management systems
One of the major changes that most high growth organizations are advocating is the adoption of a performance management software.
The right performance management software enables fast growing organizations to go beyond performance tracking to focus on each aspect of the employee lifecycle to create a high performance culture. An efficient performance management tool help organizations to:
- Know their teams better with personalized assessments and gauge individual strengths to manage performance of each team member more effectively.
- Facilitate continuous performance management and engagement by conducting powerful and goal driven 1:1 conversations based on individual performance insights.
- Track performance trends over time and access a detailed history of performance at any time to eliminate any form of biases and compare performance over time
Check how SuperBeings can help you supercharge your team’s performance with its all-in-one performance management tool. Book a free demo today
Impact and ROI of performance management tools
Now that the importance of performance management software has been established and there is a clear understanding how the same can help fast growing organizations, let’s explore the impact it can create with its diverse use cases.
1. Better understanding of employee strengths
41% of team members who are aware of their strengths show lower absenteeism
The right performance management software can help organizations understand each team member and identify their strengths. These strengths can then become the basis for work delegation to ensure that the tasks allocated to employees are aligned with their strengths, interests and workstyles. They are able to create greater value because the work allocated to them motivates them.
2. Effective output measurement
Measuring output or outcomes also becomes more efficient with performance management tools. With high levels of progress and evaluation transparency, performance snapshots, it can help measure the output for each team member as well as the organization as a whole. This makes it easy for managers to gauge whether the targets have been met or not, as well as, to acknowledge and appreciate those who made it possible.
3. Streamlined goal management
Goal setting is extremely important for creating a high performance culture. The right performance management software can facilitate end-to-end goal management for your fast growing organization.
Not only will it enable you to set goals in an actionable manner based on employee personality assessment and organizational needs, but you can also track progress daily, integrate goal progress with 1:1 check-ins to preempt risks to goal achievement and address them in real time. Furthermore, it can facilitate accountability for goal achievement as well.
14% of individuals have goals and are 10 times more successful than those without goals. The 3% with written goals are 3 times more successful than the 14% with unwritten goals.
Performance management tools also help document the goals to facilitate goal visualization and transparency.
4. Effective 1:1 meetings
Performance management software enables organizations to conduct 1:1 meetings more effectively. While most managers believe that 1:1 meetings are critical for performance improvement, they generally struggle with making the conversations meaningful. The right performance management tools can help managers gauge employee pulse and get employee performance related data points along with guided AI driven templates to augment effectiveness.
70% of managers leverage 1:1 meetings to understand and eliminate roadblocks in performance
Effective 1:1 meetings can facilitate a high performance culture. According to a study, employees who do have regular 1:1 meetings with their managers are 3 times more likely to be engaged. Thus, this creates a clear case for return on investment for performance management tools.
5. Greater engagement
As performance management tools also enable organizations to adopt a continuous approach to performance management, employees are able to share their perspectives more often, participation is higher and engagement becomes more pronounced. On the flip side, only 8% of organizations say annual appraisals add value.
Highly engaged business units achieve 59% less turnover
This greater engagement with performance management software leads to effective business impact, with a realization of return on investment.
Employees who feel their voices are heard are 4.6 times more likely to feel empowered to perform their best work.
6. Frequent feedback
Companies that implement regular employee feedback have turnover rates that are 14.9% lower than for employees who receive no feedback
Continuous performance management also empowers organizations to provide frequent feedback, and in real time. Under annual performance management, organizations tend to provide feedback only once a year, which doesn’t create a pronounced impact. Continuous feedback on the other hand enables organizations to preempt risks in real time and address the same before they turn into performance issues or challenges.
Companies that do regular strengths-based feedback have ~15% lower staff turnover and the ROI from increasing feedback is at least 8x
Furthermore, there is significant data to support how continuous feedback leads to a return on investment for performance management software — 63% of Gen Z employees say they want to hear timely, constructive performance feedback throughout the year.
7. Real time recognition
80% of Gen Y say they prefer on-the-spot recognition over formal reviews
Another impact that translates into ROI for performance management tools focuses on the ability to offer real time recognition. Conventionally, organizations wait till the end of year to review employee performance and celebrate a job well done. However, instant recognition and appreciation is seen to have a more pronounced impact.
Performance management tools help organizations to acknowledge good performance in real time, leading to reduced attrition and a better employee experience. For instance, 36% of employees leave organizations due to lack of recognition.
8. Performance tracking over time
Traditionally, performance management is seen to be a one time affair and there is seldom any tracking over time to gauge trends. However, performance management tools help organizations track employee performance over time, generate insights and trends and work towards bridging the gaps.
It can enable organizations to maintain a comprehensive record of employee performance, at one centralized location, without adding burden to people managers. Thus, a clear ROI of performance management tools comes from the ability to get a holistic picture of performance improvement over years, than a simple siloed one. (Keep reading to see how you can save minimum Rs. 60,000 per year, per employee by implementing the right performance management tools)
9. Focus on 360 degree review
More than 85% of all the Fortune 500 companies use the 360 degree feedback process
Finally, the traditional performance management approach due to its reliance on manual methods focused only on performance reviews and management from the direct report or manager.
Leveraging technology and automation, performance management software enables organizations to focus on 360 performance management. This is especially crucial for fast growing organizations. 360 degree performance review can help organizations gauge the performance and impact of the employee beyond the allocated tasks towards overall organizational success.
How to calculate ROI for performance management software
The impact or the ROI in qualitative terms that performance management tools can help organizations achieve is very evident. However, putting a business hat on, it is important for organizations to also understand how to calculate the ROI in more quantitative terms.
Based on interactions with many fast growing organizations, we have identified the top metrics that organizations can employ to calculate the ROI of performance management software.
1. Time saved for employees and managers
Organizations can start by calculating the time saved for both employees and managers. With the power of automation, managers don’t have to repeatedly spend time gauging employee performance as well as getting feedback on performance.
Similarly, for employees, the time spent in self reflection and opinion on the organizations can be significantly reduced with daily pulse surveys which take less time and have a higher rate of completion.
Therefore, ROI can be calculated by taking into account the time saved in administrative tasks for employees and managers towards performance management by leveraging automation. You can also take this calculation in monetary terms.
ROI of PMS = Time saved in hours X Hourly cost to company for the manager/employee
For instance, if you save 5 hours a month, that is a total of 60 hours a year, and if the hourly compensation for your manager is INR 1000 an hour, you end up saving:
60X1000= INR 60,000 per year for each manager
2. Reduced rate and cost of turnover
Secondly, performance management tools also facilitate real time feedback, recognition as well as engagement. All these factors have a direct impact on employee retention. Therefore, the next metric to calculate ROI of performance management software is to gauge how it has contributed to reducing the rate of voluntary turnover. Invariably, the reduced rate of turnover will have a direct impact on the cost.
Thus, ROI of performance management tools can also be calculated on the basis of cost savings that might have been incurred due to high turnover.
You can translate this in monetary terms too. Research shows that the average cost of attrition for each employee can range from 50%-250% of his/her annual salary. The cost of attrition depends on the leadership position, experience and institutional knowledge.
Salary of employee= INR 10,00,000
% cost for attrition= 200%
Total cost of attrition= 10,00,000 X 200% = INR 20,00,000
3. Saved bandwidth for HR and people management teams
When it comes to performance management, the human resources and people management teams are often too stretched because of managing all the spreadsheets, responses and follow ups.
However, with the adoption of a performance management software, automation can help these teams to take care of many repetitive tasks and open their bandwidth to focus on augmenting employee experience.
Therefore, another ROI area to consider is around how much time the performance management software is able to free up for people managers to enable them to focus on adding value to employee lifecycle.
4. Reduced absenteeism and greater engagement
Next, if you want to calculate the ROI for performance management tools, measure the level of absenteeism and engagement since the adoption. You will see reduced absenteeism as employees will be more engaged and motivated towards their work. Invariably, there will be a reduction in days off, leading to a greater business impact.
To calculate the ROI here, compare the level or rate of absenteeism before and after adoption of the performance management software. Further, calculate how this reduced absenteeism leads to better productivity and output across the organization.
Final Thoughts
Overall, if you take a macro view, there are several avenues which can help you gauge the return on investment of using a performance management software. It can help you to not only track performance effectively, but augment levels of engagement, motivation, productivity as well as reduce absenteeism and voluntary turnover. Putting numbers to all of these will help you measure it against the cost of the performance management software to understand the benefits and ROI greatly outweigh the costs.
Like what you read? Book a free demo with SuperBeings today and see these in action!
Suggested Reading
8 point checklist to find the best performance management software
Complete guide to continuous performance management
References
https://learning.linkedin.com/
https://www.octanner.com/insights/white-papers.html
https://www.gallup.com/workplace/236366/right-culture-not-employee-satisfaction.aspx
https://www.flexjobs.com/blog/post/flexjobs-mha-mental-health-workplace-pandemic/
https://www.eliinc.com/wp-content/uploads/eli-millenials-workplace-infographic.pdf
