What Is Business Performance Management? (With Benefits)

By Indeed Editorial Team

Published 28 September 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Companies use business performance management (BPM) to assess their employees and their business's overall success. It also provides business owners and management teams with valuable information about their customers and employees. By understanding BPM, you can learn to make changes and adjustments to improve business functions. In this article, we define business performance management, discuss its benefits and components, share steps to establish an efficient performance management system and share criteria for deciding on performance metrics.

What Is Business Performance Management?

Business performance management is a metric that measures an organisation's overall progression towards its objectives. When a company uses performance management, it collects and analyses data to evaluate its business operations. This is a valuable technique that helps the organisation collect quantitative data, such as the number of sales made in a month or the company's current cash flow. Management teams evaluate the performance of individual employees and entire departments to make beneficial decisions. Along with analysing the financial aspects of a business, it also considers employee and customer satisfaction.

Benefits Of Performance Management

Performance management is a beneficial way to evaluate employees and company progress. An organisation that uses BPM considers crucial data and progress records to analyse its performance. The following are important aspects of BPM:

Aligns with business goals

Performance management considers how well a company aligns with predetermined objectives. Business goals serve as motivation and provide a clear objective for all employees to achieve. With performance management, you can evaluate the rate at which the organisation achieves its milestones and make any additional changes to help you advance. Performance management allows the management team to create company-wide business objectives and monitor their progress throughout the year.

Evaluates alternatives

Considering alternatives is important when the business's initial approach produces unexpected results. BPM's key benefit is that it invites new ideas and encourages innovative thinking among employees. Diverse viewpoints can lead to a better approach because they consider additional data and help the management team learn from previous experience.

Improves accountability

When a management team implements performance management, the company holds its employees accountable. Since managers and supervisors evaluate employees' performance, they consider company goals more frequently. Employees understand their responsibilities better when held to account by their employers. When a company uses performance management, its assessment of the company is more transparent.

Related: Accountable Leadership: Definition, Importance And Tips

Sets expectations for staff

A proper structure for managing business performance allows an organisation to set clear expectations for employees and supervisors. It allows management to create a list of employee expectations based on current performance. Clear and achievable expectations are likely to produce consistent results.

Improves communication

Communication quality can influence your performance management system's success. BPM promotes a culture of clear communication, greater team engagement and coherence between personal and company goals. It encourages companies to engage in one-on-one conversations to provide consistent feedback, foster skill development, integrate team building and promote collaboration.

Related: How To Overcome Communication Barriers: Benefits And Tips

Leads to training programmes

An effective performance management system is important for identifying employees' skill gaps and providing a training system to close them. A training plan boosts employee morale because it demonstrates the organisation values them. Besides acting as a potent talent magnet, professional development opportunities also increase employee retention rates. To achieve these objectives, an organisation may create a training budget and determine how specific skills help to maximise their return on investment.

Related: 9 Different Methods Of Training For Employees With Benefits

Components Of A Performance Management

Performance management involves the following key activities:

Goal selection

Goal selection is when the business decides on short- and long-term goals. Typically, several members of the management team think of these goals, which are often realistic and reflect the business's trajectory. The company can focus on specific goals while postponing others. This prioritisation allows employees to dedicate time, energy and resources to select objectives.

Information consolidation

Information consolidation involves gathering data about the company. The management team does this to evaluate and direct decision-making. When a business uses information consolidation, they aim to provide accurate and reliable information for the team's reference.

Management intervention

Management interventions are steps managers take to enhance the business's operations. They determine these interventions using the data they collect during information consolidation. Their actions consider the company's mission and established goals. For example, a supervisor might check in with an employee weekly rather than bi-weekly. This approach provides an additional opportunity to ask questions.

Related: How To Develop Effective People Management Skills

How To Develop A Performance Management System For A Business

BPM has the potential to improve a business in almost every aspect. An effective performance management system functions throughout the year as a cycle of feedback and improvement. Here are the steps to follow when developing a performance management system:

1. Define roles with clear expectations

The first step is to define each role within the organisation. Make a system to communicate with employees about their role responsibilities and performance metrics. Typically, each position has a set of duties for the person in that role, and the manager communicates these responsibilities to the employee directly.

2. Conduct performance management training

If managers are to implement a performance management system, they may benefit from receiving relevant training. Training in performance management can improve their capabilities. This experience helps them provide positive and constructive feedback to employees and manage difficult interpersonal situations.

Related: What Is Performance Management? A Comprehensive Guide

3. Make resources accessible

An important aspect of performance management is employee development. When an employee joins the organisation, ensure they have relevant learning resources. Onboarding and orientation can prepare employees for their jobs effectively. Opportunities for on-the-job training, mentoring and skill enhancement are also effective ways to help employees benefit from their feedback.

4. Reward valuable behaviours

Rewards can encourage individuals to work diligently and produce exceptional results. Positive incentives include money, such as a bonus or additional paid leave. Receiving verbal or written appreciation for their work can also be an effective incentive for many employees. Understanding employee motivations and setting rewards to match is a crucial aspect of performance management.

Related: A Complete Guide To Reinforcement Learning (With Types)

5. Discourage harmful behaviours

Ensure employees understand the potential repercussions of consistently missing their goals or responsibilities. You can design a warning system for employees who neglect their duties where they receive a verbal warning or written notice based on persistent issues. Further action, such as termination, may be appropriate if the employee continues to dismiss these warnings. Based on the operation of a business, plan clear rules for discouraging potentially harmful behaviours.

Criteria Of Key Performance Metrics

Performance metrics are different strategies for identifying how well a business meets its objectives. Consider the following examples of performance metrics:

Cash flow

Cash flow accounts for incoming and outgoing money to determine the current amount of money the business has. Companies monitor cash flow to pay for expenses such as supplies and rent. It is a valuable metric as it signifies whether the business receives consistent payments.

Related: Format Of A Cash Flow Statement (With Methods And Examples)

Consumer satisfaction

Customer satisfaction offers a valuable window into how well a business performs. How customers feel about products or services determines their level of satisfaction. You can use polls, surveys and customer reviews to gauge customer appreciation. Consider asking customers directly why they feel a certain way when using this metric.

Related: Consumer Decision-Making Process: Definition And 5 Stages

Strategy execution

When setting goals, a business also creates a strategy that employees follow. For example, a marketing strategy may include posting on social media daily. Strategy execution considers how well the business implements a plan to achieve its goals. Well-performing companies act on strategies by consistently integrating them into business operations.

Sales revenues

Revenue is the money an organisation or a business earns from selling products or services to their customers. Sales revenue is important because it determines the company's income and how successfully it sells its goods and services. Consider revising the marketing plan to reach more customers to increase sales revenue.

Related: What Is Revenue? Definition, Types, Examples And More

Customer loyalty

Customer loyalty is when a customer buys a product repeatedly. Their dedication shows they enjoy the product, which demonstrates excellent business performance. Consider how many customers return to the business and how many people repurchase the same products. A loyal customer is also a great way to gain more shoppers because they are likely to share positive reviews about the business.

Website traffic

Website traffic reveals several pieces of information, including how many people visit your website and how long they stay on a page. Website traffic also gives a business a strong understanding of who the customers are. It can also help to consider how long customers look at products to determine whether to increase production.

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