Strategic performance management is a business function in which business owners and executives develop activities or tasks to evaluate their company’s overall effectiveness and efficiency. This process often involves a detailed look at the company and setting specific goals for divisions, departments, executives and employees. Owners and managers will set goals or objectives for business processes, gathering information to measure performance and make changes to correct problems or improve business performance.
While there are many different performance management tools in the business environment, owners and managers can decide to develop their own measurement process. Owners and managers typically rely on their personal education, experience and knowledge of business functions and duties. Strategic performance management uses both quantitative and qualitative measurement tools. Quantitative tools include the use of mathematical or statistical formulas to determine how the company achieves its goals. Qalitative analysis relies more on personal judgment or the inference of information from the experience of owners and managers.
Strategic performance management includes several methodologies. Six Sigma, balanced scorecard, activity-based evaluation, and total quality management are some of the best known performance management methods. Six Sigma is a renowned management strategy in which companies attempt to improve their performance by reducing the number of errors in individual business processes. This process uses statistical measurements to find out where errors occur and how the company can remove the problem in order to achieve 99.9999 percent accuracy in business processes.
The balance sheet scorecard is a strategic performance management system in which owners and managers outline their financial, business process, customer, and learning or growth perspectives. This typically involves a more qualitative process in which owners and managers evaluate information in order to develop strategies for improving output and performance. The balanced scorecard also outlines goals, milestones, and initiatives that a company should accomplish for business operations.
Activity-based costing is a strategic management performance tool that focuses primarily on the business costs that a company incurs from its operations. While most performance management tools include cost review as part of the process, activity-based costs are a management accounting function that focuses on allocating business costs to goods and services produced by the company. This helps companies find ways to reduce costs for raw materials, labor and overheads.
Total quality management is a strategy used by companies to improve the quality of consumer products and develop a positive interaction with customer service. This strategic method of performance management focuses more on product quality and customer service because these items represent the company in the economic market. Improving these elements can lead to better start-up in the business environment and greater market share.
What is the connection between performance evaluation and performance management?
The connection between performance appraisal and performance management is that performance appraisals are the most common tool used for performance management. Performance management requires precise tools to measure and monitor employee performance. Performance reviews allow managers to thoroughly evaluate performance, while providing the employee with goals and objectives to increase future performance. This assessment is then passed on to human resources (HR) professionals for performance management.
The purpose of performance management includes ensuring that employees work towards a common goal, have a clear understanding of job expectations, and receive regular performance feedback. It also provides recommendations for improvement and usually provides rewards for good performance. The most common tool for performance management is performance appraisals as they allow human resources to achieve most of their performance management goals. Having a performance appraisal and performance management program go hand in hand for most organizations as it is one of the most effective methods of achieving performance goals.
Designed by HR professionals, performance assessments maximize the company’s performance management efforts. They are typically passed to frontline managers to evaluate their teams. Evaluations are an effective performance management tool because they force management to have an open dialogue with their employees about performance, development and expectations. Some companies use more progressive types of performance reviews, such as those conducted by colleagues or by employees themselves. The type of evaluation used by the organization depends on the goals it wants to achieve, but the most common method is the performance evaluation carried out by management.
Good performance evaluations are conducted on a regular basis, such as quarterly, semi-annually or annually. The questions in the assessment should be objective by requiring a quantitative backup of the answers in order to eliminate management bias. They allow management to specify the goals and objectives that employees need to work on before the next scheduled evaluation. The evaluation should also evaluate the employee’s ability to achieve the previous goals and objectives set in the last evaluation meeting. Employees need to know in advance what rewards are expected at different performance levels so that there are no surprises.
By having honest, objective, and goal-oriented assessments, a company is better able to support its performance management goals. Other tools, such as having a balanced scorecard, may also be required to monitor and improve performance ratings. Regardless of the tools used to implement an assessment, it is important that a performance appraisal is constantly evaluated and adapted to ensure that it is an accurate tool for measuring and evaluating employee performance. There is only a strong connection between a performance appraisal and performance management if the performance appraisal is designed and done appropriately.u