Unlike large organizations, smaller companies have limited budgets that they tend to spend on functions that are perceived to be more important like product development, marketing and sales. By the end of it, they are hardly left with anything to invest in their most important resource, the employees. However, it is important to know that if good employees do not feel appreciated and motivated, it would be very difficult to retain them. This is why it is extremely important to have performance management systems for small companies.
The scope of performance management includes an ongoing, round the year process of communication between a manager and an employee that assists in achieving the strategic objectives of the organization. Unlike large companies, smaller companies have limited number of employees and might not have buffer resources. Therefore, they need to get the best out of their employees by engaging them and keeping them motivated.
While most employers are aware of the importance of performance management in HRM and how it enhances employee morale, many small businesses still merely think of it as a cost. They fail to understand that automation and defined processes can actually drive better business results by enhancing the performance of the employees and saving a lot of time.
Improves communication
A performance management system helps clarify the expectations between the employees and the managers followed by frequent and constructive feedback. This approach will keep the communication very clear between the employees and the manager and keep them motivated. It can also help in reducing vagueness and getting more clarity and objectivity in the process.
Attract and retain talent
Good employees are hard to find and it is even harder to retain them. It is very crucial for small businesses to curb attrition and ensure retention since recruitment would mean additional costs and a slow-down in the business process. With the help of appropriate performance management system methods, small businesses can ensure that they have a motivated and competent workforce and their standards are equivalent to those of leading companies. It will also help them attract good talent. Saving the feedback for a formal review can lead organizations to lose talent to competitors who are more proactive in providing coaching and mentorships.
Identifying the strengths and skill gaps
A good performance management plan helps in recognizing good employees and also in identifying skill gaps if any. Small businesses typically lack promotion opportunities so offering training can keep the employees motivated and improve the overall competency of the organization. Including performance management in HRM can ensure that only relevant learning and development programs are conducted without wasting resources on irrelevant ones.
More effective
Organizations that follow traditional performance management processes involve annual reviews that can be equally stressful for both the employees and the managers. It is difficult to boil down a year’s work to a few pages of review. A good performance management system must involve managing employee performance all year long and addressing issues as they occur. When the feedback happens in real time, organizations benefit from increased employee productivity. It is extremely crucial to have performance management systems for small companies where the resources are already limited and time is very crucial.
Ongoing feedback
With continuous feedback the issues can be addressed as they arise and the employees do not have to wait for the annual review to correct themselves or feel demotivated by their appraisal. The method of annual performance review can be highly unreliable and demotivating for the employees. While it is necessary to receive feedback on one’s work, express desire for development and talk about compensation, it should not be restricted to once a year. A good performance management plan ensures that these three topics are adequately addressed and not necessarily in the same conversation. When feedback is provided all through the year, the annual review merely becomes a tool to document what the employees know throughout and to plan what needs to be done in the future.
Saves time
Including performance management in HRM helps in automating a lot of manual tasks and frees up time for more productive work. With adequate data at their disposal, the HR and management can easily view and analyze goals, progress and training needs. This information can then be used to make decisions regarding promotions and bonuses as well. It is a more practical way that is backed by data and not subjective biases.
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More objective
In most traditional organizations, the annual review is based on opinions rather than facts. Also, the performance management plan is not transparent enough. When the employees feel that the reward system is not transparent and fair, it demotivates them, often leading to lowered productivity. Providing clear and objective feedback is a skill that needs to be inculcated in managers. A clear feedback must involve specific examples of the problem, explanation of the organizational policy or process involved and a clear outline of the expectations for improvement. The workforce today is highly aware of their rights and any sign of discrimination expressed towards an employee can tar the organization’s reputation. Thus, it is extremely important to have fair and unbiased performance management system methods.
Cost effective
Most small organizations feel that investing in a performance management system will increase their expenses. On the contrary, it helps organizations reduce their costs by increasing employee productivity and reducing paperwork. It can make a big difference to a growing business. Also, there are different types of performance management systems to suit the needs and budgets of different kinds of organizations.
Helps in business goal setting
One of the main benefits of using performance management system for small companies is that it allows managers and employees to set goals and track objectives. When managing a small business, it is extremely important that everyone is working towards the same goals and it is also important to track the progress and ensure everyone is on the same page. Any deviation can cost time and money, which is not always in abundance.
The main challenge for a manager in a small business is time. What separates the work culture of small businesses from big organizations is the fast paced, dynamic and multitasking work environment. Amidst all these, the managers might not make time to give ongoing and productive feedback, which might often derail the team from their goals. When there is a performance management system in place, providing feedback is less time consuming and more systematic. Having performance management systems for small companies ensures more transparency, enhanced employee productivity and a motivated workforce, which is one of the biggest strengths of any organization.
References:
- Performance management systems – why small businesses need it badly- HR Connect, 05 October, 2017
- Why Performance Management is Important in a Small Business? – Tushar Bhatia, 30 May, 2013
- Performance Management Tips for Small Businesses
- Performance Management for Small Businesses- Stephanie Hammerworld, 10 November, 2014
- 5 Ways Small Businesses Succeed with Performance Management Software- Stuart Hearn, 24 October, 2017
- Performance Management in a Small Business- What’s the Point? – Geoffroy De Lestrange, 02 February, 2016
