5 simple steps in setting up performance management system for SMEs

We all know that often, the dynamic multitasking nature of working for small and medium-sized enterprises (SMEs) makes it difficult for managers to find time to proactively manage and measure the performance of their employees. This is because, whatever extra time that they have is used to focus on growing the business. This differs greatly from managers working in larger organisations, where they are more specialised in their roles and can spare the time to concentrate on their team’s performance.

Having said that, it does not mean that measuring the performance of employees is not important for SMEs. Here is a step-by-step guide in setting up a performance management system for your small businesses:

The success of a performance management system largely depends on its employees. When you first introduce your plan on setting up a performance management system, you may encounter some resistance from your employees. This is expected as the perception towards performance management is generally negative and may be deemed as an additional control on work behaviour. It is even less favourable for SMEs, as they lack the time and resources to do so.

To overcome this challenge, you need to present a concrete case which outlines the value of having a performance management system to the business. Identify the key performance challenges faced by your organisation and present them with figures in terms of return on investment (ROI). Conduct your research and present exactly how much the business can expect to gain and what’s in it for the employees if the productivity of employees is measured.

Once you have everyone on board, it is time to identify your business goals. Your employees’ goals need to be set in line with the company’s goals. Therefore, begin by setting your company goals first. Each goal needs to be “specific, measurable, achievable, realistic, and time-frame-based (SMART)”.

An example of a company goal is, “to achieve a 15% increase in revenue over the next 12 months”. For employees, a good example is, “Melissa’s goal is to achieve two times the sales figure compared to her last year’s figure by 31st October, 6 months from now” and not, “Melissa’s goal is to increase her sales figure.”

You can measure the performance against the business goals that you have identified by focusing on specific indicators. Each business would have a different set of KPIs but the objective remains the same; to measure the important features of your business. From here you can start to identify your strengths, including weaknesses, and work towards improvement, if need be.

Depending on areas that you would like to improve in your business, there are several types of KPIs; financial, operational or growth. For example, you can track your debt level if debt is one of your financial problems. Or if you want to improve your operational level, you can track how long you have to store your products in your inventory before they are sold. Alternatively, if growth is what you are after, you can always track the number of new customers you gain by weekly, monthly or quarterly basis.

SMEs are less hierarchical in nature, hence it is easier to use the coaching technique to communicate with your employees and provide continuous informal feedback directly to them throughout the year. For example, you can verbally praise your employee on a job well done when he or she secures a good sales call. This form of informal feedback works as a reminder for them to continuously be better at their work and assures them that their hard work would always be recognised.

SMEs generally also have the flexibility when it comes to formal feedback. This can be done during annual performance appraisals or even any time of the year if you have an open-door policy with your employees, where they should be able to easily set a face-to-face meeting with you.

This next step would affect your employees the most. The way you deliver your evaluation and recognition would impact your overall staff engagement and productivity level so be sure you conduct this carefully.

You can evaluate the performance of your staff and set them according to the ratings such as:

Exceeds Expectations: When your staff outperforms in his or her tasks throughout the year, consistently exceeding the expectations and the requirements of his or her role.

Meets Expectations: When your staff meets the expectations and has demonstrated an acceptable work performance for his or her role.

Requires Improvement: When your staff unfortunately is unable to meet the minimum expectations and requirements for the position.

Under Expectations: When your staff’s performance is way below standard with regard to the expectations and the requirements of the position.

You must always be able to explain the overall performance rating to the employees. Employees must have a clear understanding of why they were given such rating and how or what they should do when there is a need for them to improve themselves in their performance.

Once you have identified employees who are underperforming, you would have to start crafting a performance improvement plan (PIP) to manage underperforming employees. The first step is to identify the root problem. From there you can start to jointly devise a solution with the employee. For example, if you have identified that an employee is having difficulty in completing tasks according to the required standards due to a lack of skills and capabilities, consider providing extra training to the employee as part of his or her PIP.

At the end of a financial year, you need to review the effectiveness of your performance management system. This includes how the system has helped your business in terms of your initial ROI, identifying the top performers among your employees, how you can help underperforming employees, KPIs that require improvement or other new areas in the business that need your immediate attention.

The bottom-line is, having an effective performance management system is important for any form of business, no matter how large or small. As businesses grow and the need to improve staff engagement increases, having a robust performance management system and knowing when to provide constructive feedback to your employees will not only bring benefits to your business but allows you to make the most of the talent in your company.

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