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

This article first appeared on Acorn Labs in Feb 2024.

For a more in-depth look at performance management, have a read of the full article.

At its core, performance management encompasses the processes and activities designed to evaluate and improve employees’ work in order to meet organizational outcomes.

But performance management is failing. Performance reviews, appraisals, and evaluations are just conducted as compliance, rather than translating into actionable plans for development.

How traditional performance management has failed

Organizations do performance management because they have to, but 82% of HR leaders said that performance management wasn’t successful or effective in achieving its primary goals. In fact, only 38% said performance management kept pace with their business needs. It’s not hard to see why.

• Annual performance reviews happen too infrequently to fix performance issues in a timely manner, instead of letting problems fester (often for the whole year).
• Traditional performance management focuses on ratings, not development. Without development, performance never improves.
• Reviews tend to be subject to bias, be that recency bias or managers favoring some employees over others.

Building a strong performance management strategy

A weak performance management strategy equals a weak workforce. A strong performance management strategy fosters a culture of accountability, continuous improvement, and employee engagement.

1. Define clear strategic objectives and goals

First, work out what your organization’s mission, vision, and strategic goals are. Performance goals and capabilities should be aligned with your company’s mission so that the organization moves forward every time performance goals are met. Just remember that your organizational priorities may change over time to accommodate changes in the industry, and your performance expectations will need to change accordingly.

Communication is essential here. Employees need to know exactly what their objectives are in order to meet them. They also need to know how their efforts contribute value to the business to perform as efficiently and effectively as possible.

2. Set standards and success metrics

Goals and capabilities are useless without any feasible way to achieve them. Breaking your goals into steps or key performance indicators is a two-step process of:

1. Establishing criteria which you will evaluate employee performance against, such as productivity, work quality, or teamwork.
2. Develop performance indicators, the quantifiable metrics measuring how employees are performing. Capabilities are measured in terms of competence, with the lowest level indicating performance needs development, and the highest indicating that performance exceeds expectations.

You can use a performance learning management system (PLMS) to help assign capabilities to employees and assign tailored, meaningful learning for performance improvement.

3. Regular feedback

Annual reviews don’t make for an impactful performance management process, instead focusing more on rating the past performance of employees than their future development. To make your performance management strategy future-driven, you need to provide ongoing feedback to employees throughout the year, with coaching, one-on-one meetings, or tracking performance milestones.

This probably seems like a no-brainer, but when your performance conversations are frequent and filled with feedback, employees can take corrective action to address performance issues in the moment. This just isn’t possible with annual reviews, because by the time the review comes around, any performance issues have already festered and become a business problem.

4. Ongoing evaluation

Make performance management an ongoing process to drive continuous organizational transformation.

• Regularly revisit organizational goals and adjust to match the current market
• Tweak performance goals, metrics, and KPIs to align with business needs
• Assess whether your performance management efforts were effective and resulted in improved performance (calculating ROI can help you here).

The impact of poor performance management

If you fail at performance management, you’re essentially failing at business—and that affects your bottom line as well as your workforce. When your performance management is poorly implemented:

• Employee productivity decreases. $960 billion to $1.2 trillion is lost in the US per year due to low productivity
• Employee turnover increases and so do its associated costs for recruitment and onboarding
• Employees will become frustrated with the lack of career development and mobility, decreasing engagement, raising employee turnover, decreasing productivity
• HR and L&D teams take a hit to their reputations and credibility.