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Study Reveals Performance Management Grows Net Income 756%

As recently as 1982, sixty-two percent of the value of an organization was measured by its tangible assets. Today nearly eighty percent of its value shifted to intangible assets. Yes – that’s right. The human capital of any organization now accounts for eighty percent of its values.

Maybe that is why saavy executives seem to be interested in optimizing the way human capital assets are managed. Establishing an effective performance management system is an organization’s way of doing just that.

In an 11-year study that included more than 200 companies from 22 industries, the financial and operational performance measure of companies who “lived” performance management and those organizations who did not were compared. The economic impact was enough to give any executive chills up and down their spine – or just want to throw up his/her hands and cry.

The revenue growth for organizations with performance enhancing culture was 682 percent; for those without, these organizations grew by 166 percent.

While many organizations might be happy with 166 percent growth. You’ll probably want to read more.

Performance Management Grows IncomeWhen you take a look at the bottom line of these two groups, the net income growth (the bottom line) of the performance enhancing organizations grew by 756 percent while their counterparts grew by a measly 1 percent!

Not too long ago, I hosted front-line supervisors from four local businesses. These front-line supervisors were “sent” to “learn some people skills”. This particular session focused on Appraising People and Performance.

Not surprisingly, no one in the group raised their hands when I asked,” how many people look forward to performance reviews?” When asked why, i heard that performance reviews could end up being confrontational or they had too many people to review and not enough time. Few will be surprised at this response: Not a single participant had ever been trained how to evaluate an employee and they “didn’t know what to say or do”.

With only two exceptions, these same supervisors who were being “trained” on how to evaluate performance, are not being evaluated themselves. We asked them how that made them feel. Here is what we heard:

  • “It gives us a false sense of security that we are doing okay.”
  • “I feel like my manager is just collecting everything I do wrong in a personal diary and is just waiting to unload on me one day.”
  • “I have no motivation to improve.”

One of the supervisors who was fortunate enough to be reviewed was told by his boss, “Last year we focused on what was right. This year we are going to focus on what you need to change.” Another supervisor who asked his manager about scheduling a review was told, “Don’t worry about the review. You’re doing a good job and I’ll put your raise through.”

To be effective on the job, all employees need to know what they are expected to do. Performance management includes the process of identifying individual employee goals, aligning them with the organization’s goals, setting performance standards, giving feedback, and then mentoring and coaching the employee.

Performance management is no longer just a human resource activity.  It is management strategy that makes good economic sense.

Effective performance management starts with a performance review and feedback system. SimpleEvals is a performance review system build for small business. Click here to learn more about SimpleEvals.

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