Performance management in small businesses, why bother?

Sep 1, 2011 | Good Management

This is the first in a series of articles looking at performance management in small businesses. Before examining how performance management in a small business might work, I thought it would first be worthwhile identifying why on earth a busy small business owner might want to bother with it at all.

Performance management sounds to some people a bit like one of those formal management-speak terms that applies in bigger organisations but not really to small businesses. Lots of people think it’s about filling in an annual form prodded by an over-bureaucratic HR department and is a gigantic waste of time.

So do you really need to bother in your small business?

“If performance management isn’t filling in forms once a year, what is it?”

In very plain English, performance management is finding out what your staff are achieving and how they are achieving it, ensuring that their results and behaviour are of the high standard you want, and developing their skills and behaviour to the benefit of themselves and your business. When you put it like that, it’s something every business needs to be doing in some form.

What performance management actually looks like will vary hugely, and you can definitely do it in a small business without lengthy forms, over-formal procedures or too much huffing and puffing from staff.

“But in my small business everyone works really hard and we’re doing pretty well already.”

So if you are feeling as though all or most of your staff are doing pretty much ok and the business is doing fine, why should you bother? Here are 5 key reasons it matters for your business:

1. Everyone is focused on achieving the key goals you’ve set for your business

Everyone working hard is important of course. But you need to channel that and focus it, to make sure your business is benefiting as much as it can from that hard work. That means people need objectives, and a sense of how they are contributing to the business.

These objectives don’t have to be called Key Performance Indicators (KPIs) or any of the other very formal terms you may have come across, but relevant easy-to-understand objectives that you can easily measure against. If each individual’s objectives flow from their team’s objectives which flow from the business’s objectives, there is a greater sense of everyone pulling together and working to achieve common aims, which makes a big difference.

It is far easier for your business to achieve its objectives and its desired culture if everyone’s performance is being effectively managed in line with these.

2. Problems are avoided or identified and resolved early

This one’s a no-brainer. If you don’t really bother about performance management of any kind, it’s very easy for performance to slip unnoticed, or for someone to start behaving inappropriately, or focusing on the wrong activities too much. Some kind of performance management will identify anything wrong very quickly and will give you the tools to address it. The earlier problems are identified the easier it is to improve things quickly and (as far as possible) painlessly.

If things are allowed to drift they don’t get better by themselves (they really really don’t, I promise).

Instead, this is what happens:

  •  You start to feel irritated by someone not performing as you like. This irritation grows and takes up a disproportionate amount of your time and energy. You resent the person and become frustrated that they haven’t sorted themselves out.
  •  Their performance doesn’t improve and usually worsens.
  •  It might start causing resentment among the rest of the team, dragging morale down and reducing productivity.
  •  You may eventually try to deal with it because you get to the end of your tether, but because it’s coming- out of the blue’ the employee is defensive and feels- got at’.
  •  Bingo you have a worse problem as the person will react badly to anything you try to do and you will find yourself pussy-footing around trying to avoid a grievance, resenting the person more and more, and wishing they’d just resign.

Sound familiar? I told you it was a no-brainer…

3. Employee satisfaction is increased

Effective performance management improves morale in the following ways:

  •  It means people are more likely to be achieving to their full potential, which is always a good feeling.
  •  Employees feel more involved in the business and understand how they are contributing.
  •  Employees feel valued and reassured that their achievements are noticed, meaning they strive to repeat and exceeed those achievements.
  •  Employees know they will be given every opportunity and appropriate support to improve in any areas of concern and will being given the opportunity to develop their performance further.
  • Increased employee satisfaction in turn leads to further improved performance, and makes your business high-performing and a great place to work.

4. Developing staff improves performance and saves costs

Effective performance management will identify where it is appropriate for the employee to receive training, coaching on a particular skill, or the opportunity to take on additional responsibility, leading to improved performance. You might not need to pay an agency to recruit a new admin supervisor if you’ve been developing your staff, for example.

Developing individual staff goes on to further improve organisational and team performance, and this combined with the increase in employee job satisfaction will have an impact on turnover rates and recruitment costs.

5. Frequent and specific feedback maintains high standards

The employee is told exactly what is good or poor about aspects of their work and are told this in a timely manner. This means they know exactly what behaviour to repeat or change (and how), and know in plenty of time to enable them to address any areas of concern effectively, to the benefit of themselves and the business. Feedback can sometimes feel a bit- forced’ but if you practice it will come more naturally and if you do it often it will be much less of a big deal.

So the bottom line is you need to use some kind of performance management in your business because it will make your staff and in turn your business perform even better and will save you time and stress because problems will be avoided or resolved quickly.

Coming next in the series- Performance management in small businesses in four easy stages.