Performance Management Market Survey

By: Insperity Staff
February 4th, 2011

The 411 on Performance Management Software
Performance management software goes beyond creating job descriptions and handbooks. It entails creating job goals and measuring the success of employees against pre-determined and stated metrics.

It also helps communicate your goals so employees can focus their attention in the right direction. “Often, there is a disconnect between the employees’ goals and the company goals,” says Blair Johanson, president of the Johanson Group, an Arkansas-based management consulting firm.

Johanson points out that incorporating a performance management system enables you to draw a clear picture for each employee so that he or she can see how their job ties back to the goals of the department, the division and ultimately the company as a whole.

“Employees can see how they fit into the bigger picture,” says Johanson, and that provides them with a greater sense of job ownership and more motivation to succeed.

Traditionally, employee performance was measured by success on three to four tasks, Johanson says. Today, many performance management programs allow you to make a more in-depth analysis of an employee’s effect on the company. These programs often allow you to create and store a list of goals for each employee. Some even allow you to reference the original job description, increasing the ability to analyze productivity.

Performance management software keeps you more organized, in touch with individual employees and your company as a whole. The automated processes of this software help you recognize which employees are performing up to par and who could use improvement. Employees gain a clearer understanding of expectations and a straightforward plan for achieving objectives and where their performance needs to be.
The Current Landscape
In recent years, the performance management software industry has gained momentum due to its do-it-all features. The market boasts products from big corporations such as IBM to small startups. Of companies that have implemented performance management systems, 53 percent indicated the systems have had a high impact on business and 35 percent say the systems had some business impact, according to a 2008 study from research and advisory firm Bersin & Associates.

Options
Performance management software turns an employee’s work into a numbers game, making analysis more objective. Many systems allow employers to assign each employee’s job duties or goals a numerical grade based on how well he or she did.

“A numerical outcome makes it easy for employers to convert an employee’s performance to a monetary payout,” says Johanson.

Rating job performance. Based on these numbers, employers can then create a standard system for merit increases, promotions, bonuses or any other reward programs. By quantifying promotions, employers and managers avoid unfair promotions and unclear standards. Johanson points out that by converting performance into numbers, business owners get a clearer view of productivity across the company, allowing them to easily identify which areas or departments are weak and which are strong.

Employee reviews. The same goes for employee reviews. Employers that commit to doing it the old-fashioned way often find themselves buried in mounds of paperwork, continually writing, rewriting and filing questionnaires, evaluations and other records for each employee. Johanson says performance management software allows you to streamline the process so that companies spend less time on performance reviews and in turn have a greater return on investment (ROI). Many of these performance evaluation applications allow employers to use a standard set of evaluation tools so that they don’t have to recreate a review for each employee. Some are more employee-driven. Things such as personal goal-setting and self-review put the employee in charge of the majority of the review process.

Managing employee files. Some performance programs also allow managers to store employee records within the system so that everything can be accessed with just a few clicks from anywhere, anytime. Managers can then easily reference these files at the next review period, making it simple for them to identify any changes in an employee’s performance. By creating this automated hub of information, businesses don’t have to rely on individuals to do administration and documentation, reducing time and human error.
Cost Requirements
Purchasing licenses or software for performance management programs may be costly initially, but will save you time and money in the long run.

Pricing for most performance management systems is license-based. Depending on the provider, each license allows a certain number of individuals access to the system. The business may also be charged installation and setup fees if integration requires services from the performance management company’s technology team. Custom software may add more to the cost, but will be better suited for the company and its needs.

Online or Software as a Service (SaaS) performance management applications are typically subscription-based. This is a flat fee paid either monthly or yearly. The more features an application has, the more expensive the subscription will be. Unlike an actual software program, all the maintenance, hosting, networking, data security and other IT issues are managed by the provider at no extra cost to you. However, most SaaS systems can’t be customized since they’re developed for a mass audience.
Avoiding the Pitfalls
Here are six common pitfalls employers face when it comes time to evaluate worker performance.

1.  The ‘overwhelming’ reality.
Between payroll, recruiting and compliance issues, your HR department is already buried in stacks of paperwork. Now add in developing review forms, logging merit increases and recording business-wide performance analytics and you’ve got yourself an overwhelming administrative nightmare. Misplaced paperwork and human error can substantially slow the process down and lead to reporting inconsistencies. With a paper-based system, one review cycle can have your HR staff tangled up for months.

“Some of the forms can take up to three hours to complete,” says Scott Mottern, HR manager with the international firm Convenience Food Services, which uses a performance management software system.

According to Michele Whitehead, HR consultant at Berkshire Associates Inc., many times managers will feel pressured for time and will cut corners or rush through reviews to compensate. She argues that this often results in less accurate and inconsistent employee ratings.

2.  Individual goals don’t connect with overall company goals.
The success of your business is as important to your employees as it is to you. Without your company, they’re jobless. According to management consultant Johanson, performance appraisals have evolved.

“Employee appraisals are now taking into account how the employees’ goals tie back to the overall company goals,” he says.

Many times business owners fail to show employees how their work is contributing to the greater goals of the company. Often, this can cause employees to improperly prioritize their assignments and spend time on irrelevant work. And of course, using employees to complete unnecessary projects that don’t add any value to your company goals is inefficient and a waste of money.

3.  Housing an uninformed workforce.
Convenience Food Services’ Mottern says performance reviews should be a two-way conversation between the employer and employee to discuss the future of the job and the company. Because of time constraints, many managers don’t sit down with employees to inform them of the company’s future goals or vision. Not only will workers feel out of the loop and unimportant, but this can also lead to inefficiencies in their job.

In order to make each minute of their working day count, employees need to have a clear sense of direction. Knowing what they’re working toward can help them align their everyday tasks so that every second is well spent.

4.  Unfair promotions.
“In the last couple years, less dollars were being allocated to merit increases, therefore performance appraisal is becoming critical,” says Johanson. “With tighter budgets, businesses are allocating dollars closely to performance.”

But Johanson points out that one of the most difficult tasks associated with performance management is converting employee ratings and results into compensation adjustments.

“If two of your employees do an equally fair job, but only one gets an increase and the other doesn’t, there’s going to be a problem,” he says.

Without some kind of standard scale to guide the process, pay adjustments and promotions become subjective.

5.  A lack of knowledge about company-wide performance.
Traditionally, a review consisted of comments from the manager about each individual employee. While this may be useful in small groups, it’s useless when trying to analyze how the workforce is doing as a whole. If a company has 500 or more employees, it’s unlikely the business owner or manager is going to sit down and read every review.

“To maintain an efficient workforce, businesses need to ask, where are the skill gaps, and how do we fill those gaps?” says Whitehead.

Without a way to quantify the results of a performance review, business owners have a hard time answering this question. As a result, many continue to employ unproductive employees who drag down the company’s progress.

6.  Making reviews an isolated event.
Business goals can change from quarter to quarter, or even week-to-week. Changes within the company mean changes in tasks assigned to your employees. And if your company changes directions, many of the goals you set for them at the beginning of the year will have become irrelevant. Assessing these original goals provides no value to the employee at the next yearly review period.

“Performance reviews should not be a once a year priority,” says Mottern. “They’re a living document.”

But without an easily accessible system in place, many businesses fail to update employees’ goals when changes occur. Rating employees on inapplicable goals isn’t only unfair, it’s worthless for both employee and the company.
Implementation
Learn what is involved in implementing a performance management system.

What’s Involved: Getting up to speed with a performance management system takes virtually no time at all. Depending on which model you use – either a software product off the shelf or a SaaS system – compatibility is the key issue to focus on.

In general, SaaS systems are more compatible with most computers and systems. So it doesn’t really matter if you have a Mac or PC since the software is hosted online. The only thing you have to worry about is browser compatibility. In general, Firefox and Internet Explorer 7 and 8 are the most compatible with SaaS-based performance management software.

Off-the-shelf software programs that require a download have to be compatible with certain operating systems and possibly even computer systems. So if you have a Mac, you need to double-check the software’s download requirements.

The Disruption Factor: All it takes to get started using a SaaS-based performance management system is a simple registration. Once you’re signed up and paid, you can start using the programs.

With downloadable software, the disruption comes in the installation time, which usually only takes a few minutes.

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