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The How To: Rethinking Employee Performance Management For Better ROI Entrepreneurs should move away from a traditional EPM model to employee performance development (EPD).

By Tanvir Haque

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.

Employees have the power to make or break a business- successful ventures are underpinned by the blood, sweat, and tears of talent. What's more, when a work environment doesn't inspire people to act and it doesn't promote the personal and professional development of individuals and teams, it can seriously undermine their growth and profitability. A performance management system that fails to tap into the potential each individual brings to the table can be a costly setback for your entire business. Sparking engagement, creativity, and productivity in your staff can be tricky though– it takes real strategic direction and great managers.

This is challenging since employee performance management (EPM) is often viewed as an administrative chore by most managers: it's a dull job that has to get done, regardless of the results it yields. However, it would be a mistake to take this tick-box approach. Why? It exposes your business to a gaping oversight, and one which can have a substantive negative impact on your company's growth and bottom line. From an ROI perspective, many current EPM methods aren't getting optimal results. The good news is that they are by no means the only approach. So, let's take a look at a striking new approach to employee management systems and see how it can elevate your business.

Traditional EPM techniques– do they work?

Companies have much to gain in moving away from a traditional EPM model to employee performance development (EPD), which optimizes talent through regular feedback and coaching that results in high levels of engagement. EPD ensures performance is focused, purpose-driven and consistent, which in turn promotes your business' goals. However, traditional PM techniques are systems most managers and CEOs understand. They involve setting goals, monitoring employee performance, and giving feedback accordingly, usually via peer reviews, annual appraisals, and the like. In theory, traditional systems seem solid, but in practice they're rarely as effective as they set out to be. Here's why:

1. They fail to motivate: The stats basically speak for themselves. Just one in five employees agree that their company/leaders motivate them. Presumably, the remaining 80% are neither motivated, nor engaged in a meaningful way. That's an astounding proportion for any given team, and to say it represents a missed opportunity is an understatement.

2. Lack of communication: The overriding problem here may indeed lie in poor communication. According to a 2016 Gallup report, a significant number of employers fail to effectively discuss the most basic information required for performance development, such as how a job description relates to day-today tasks, how their objectives relate to the company's strategy, and how the brand values are linked to behaviors. Employees need clarity on what is expected of them. This is the most basic of employee needs and yet this is often the biggest problem in most companies.

Related: The Modern Challenges Of Managing Remote Performance

3. Inaccurate performance reviews: It's often taken for granted that accurate assessments are provided, which employees can use as a benchmark for improvement. According to a recent paper from Rice University however, managers frequently give individuals higher appraisals than warranted because they fear a low review might demotivate staff. This compromises the entire EPM system. Distorted information means your talent may not only fail to adjust what they can improve, but may also lead them to overestimate their performance. The solution lies in how constructive feedback is given. But, taking it a step further, many companies, including Deloitte and Accenture, are now dropping the "traditional' EPM system completely.

In fact, in a paper titled Death to the Performance Review in the WorldatWork journal last year, it was outlined how software company Adobe made a fresh start when the company leaders decided that 'annual performance reviews were too time-consuming, negative and slow'. They replaced it with a check-in system, essentially an "ongoing dialogue between managers and employees'. It resulted in greater efficiency, engagement and retention.

4. Ineffective systems are costly and time-consuming: Gallup estimates that the cost of lost time spent on traditional EPM approaches to evaluations in the US ranges from US$2.4 million to $35 million annually for a company with 10,000 employees. If entrepreneurs are adopting comparable models in the UAE, we can safely assume that there's a similar drain of lost productivity and overhead costs, including the cost of employee benefits, technology or human resources staff time spent on performance reviews. In redesigning EPM systems, we need to understand which specific components are broken in our systems and why.

While the UAE is ahead of the game in many aspects of business, we're by no means immune to the issue of poor EPM strategies. In fact, the recent study titled Adopting a contemporary performance management system highlighted the need for UAE managers to adopt "non-traditional' performance management approaches. In my view, the way forward is a new system that provides valuable opportunities to more effectively define performance expectations, review progress and adjust goals, all the while recognising accomplishments and developing talent on an individalized basis.

Related: Infographic: How To Give Constructive Feedback To Your Employees

How to rethink and revitalize your EPM approach

As we've seen, traditional EPM approaches often fail to develop employee performance in ways that can seriously undermine the growth of your business. Before we examine viable solutions, it's worth considering what we hope to achieve by reworking the current system. Engagement may be the answer. We need engagement to know how to draw out talent and an individual's best performance. According to a 2011 study published in the Human Resource Management Review, the recipe for a strong EPM approach involves ensuring that personally meaningful goals are set with individual team members; that they are mentally and physically present to do the work; and that they feel a sense of job security. EDP is a contemporary management style that fits the bill. In contrast to EPM, it re-engineers how leaders –managers and professionals– coach their staff in setting and reaching goals, while continually striving for better. The focus is on fuelling performance in the future rather than evaluating the past.

While it may not sound so different from other EPM systems, EPD rethinks how a business approaches its talent. Rather than a focus on top-down, intermittent monitoring of employees, it's about creating a culture of deep thinking, questioning, and learning and development within the workplace. This type of environment in turn promotes the continuous improvement of business processes and of individuals' skills, behaviour and contributions. While annual reviews often involve a much-dreaded exchange that dance around employee's shortcomings or weaknesses, EPD provides ongoing feedback around strengths and ensuring people are playing to their strengths: it seeks to engage and inspire your people and teams. Since it's not combined with the annual pay and promotion discussion, it better focuses employees' attention on how they can improve to get to where they want to be in their career. Implementing the performance development approach It's surprisingly straightforward. Gallup suggests three core principles:

1. Establish clear expectations: As few as 50% of employees know what it looks like to be doing their job well. The solution? Introduce clarity and communication around evolving expectations, and make sure your employees know that questions of clarification are always welcome. Also, I recommend enabling your talent to take a role in setting their goalsthis could involve deciding targets in a collaborative manner or discussing SMART goals, which helps set comprehensible objectives and alignment with corporate objectives. With a direct line of communication between both parties, everyone knows what's expected and everyone is pushing in the same direction.

2. Ongoing coaching and feedback: Annual reviews don't tend to optimize personal and professional development. Performance management shouldn't be an annual blip on the radar, but rather an ongoing culture of feedback, coaching and support for your team. The feedback ethos here is: little and often, rather than a lot of information given infrequently. Surprisingly, only 19% of employees report receiving feedback a few times per week. Most professional talent receive infrequent reviews throughout the year, or even on an annual basis.

Yet, employees who receive daily feedback are three times more likely to be engaged in their work, compared with those who get an annual review. Changing tacks and opting for ongoing feedback and dialogue builds trust and encourages constructive honesty between managers and employees, which contributes to engagement and hence greater levels of performance.

3. Creating accountability: It's one thing to set goals and targets, quite another to ensure that they're met. Managers should foster a sense of accountability in staff. Realistically, this means checking in with employees on a regular basis, ensuring that any issues, minor or otherwise, are addressed as they arise. With regular progress reviews and open dialogue, both managers and talent can keep on top of targets more effectively. Employees are 2.5 times more likely to be engaged in their work when their managers hold them accountable. Re-thinking your current EPM system in terms of these three principles can help ensure your employees are supported and fully engaged. It's not surprising that engagement has been shown to contribute to higher productivity levels and an overall healthier work culture that promotes, rather than bites into your ROI.

Is performance development right for your business?

Gallup ran a series of meta-analytic studies that identified some very tangible metrics which suggest an EPD system can elevate your business. Here are a few highlights from the results:

  • On average, profits increased by roughly 20%
  • Productivity levels were boosted by 17%
  • Sales were increased by 20%
  • Absenteeism fell by around 40%

For UAE entrepreneurs keen to optimize employee management methods that deliver results, these figures point in a convincing strategic direction. Adapting your current system needn't be a colossal task- it's merely about tweaking the way in which performance is reviewed and refocusing it around the development of the team that's the backbone of your company. It's a win-win for your talent and your business.

Related: Ditch Annual Appraisals: Continuous Performance Management Is The Way Forward

Tanvir Haque

Partner at Freshstone Consulting

Tanvir Haque is a Partner at Freshstone Consulting. He thrives on developing customer-centric business relationships, and  focuses on revolutionising customer experience and driving companies' digital transformation plans. With a career spanning back more than 20 years, Haque’s experience has been gathered in professional services, banking, and telecommunications, having worked with PwC in Sydney, Andersen in Sydney and London, and Standard Chartered Bank in London. He relocated to Dubai in 2008 and spent a number of years advising and consulting international businesses on how to drive growth before joining Lifecare in 2015. He graduated with a Bachelor of Commerce degree from the Australian National University in his home town of Canberra and is a qualified Chartered Accountant and a member of Chartered Accountants Australia and New Zealand.

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