Connecting Performance Management to Business Goals

In the intricate world of business, two departments often find themselves in silos – Human Resources (HR) and Finance. Despite their shared interest in business success, a disconnect frequently exists, creating missed opportunities for collaboration and growth.

Setting the stage

HR (employee’s heart) and Finance (financial brain) don’t always see eye to eye. This separation can lead to a lack of understanding and appreciation for each other’s contributions. But when HR and Finance team up, their combined power can take the company to the next level.

Financial performance = People’s performance

Enter the concept of performance management – a strategic approach that aligns employee performance with the company’s financial goals. The idea is simple yet powerful: when people perform well, the company performs well. Connect your people to your business success. Unleash the power of HR and Finance working together.

Aligning performance and strategy

From vision to action

Cascading strategic objectives into individual goals is a powerful approach that aligns the entire organisation towards common financial targets. Here’s how it works:

Setting strategic objectives:

The process begins at the top with the business leadership setting strategic objectives. These objectives are typically broad and pertain to the company’s overall financial targets.

Translating objectives into departmental goals:

Leadership breaks down these strategic objectives into more specific departmental goals. HR, Finance, Sales, and Operations – each team plays their part in achieving the goals.

Creating individual goals

Employees take ownership of departmental goals by setting their own team members’ targets. Everyone knows their job and how it helps the team (and then the whole company) win.

From the boss to the new guy, everyone aims for the same money goals, thanks to this clear plan. It creates a unified path that aligns the entire organisation and fosters a sense of shared responsibility and purpose.

Moreover, it allows for better performance tracking at all levels. If someone, a team, or a department falls behind on goals, we can intervene to get them back on track. This alignment and transparency ultimately drive the organisation towards its financial targets.

Metrics that matter

Great metrics show how each person’s work affects the company’s money (sales, savings, profits). Here’s how it works:

Revenue generation

Sales teams might have individual targets related to the number of deals closed or the value of contracts signed. These individual actions directly contribute to the company’s overall revenue. If an employee hits their $1 million sales goal, the company makes more money – that’s a direct impact!

Cost reduction

Employees in operations or procurement might have goals related to reducing waste or negotiating better deals with suppliers. Achieving these goals leads to cost savings for the company. If a manager reduces waste by 10%, it helps the company save money.

Profitability

Both revenue generation and cost reduction influence profitability. Employees across all departments can contribute to profitability through efficient work practices. A project manager who finishes projects on time and within budget helps make more money by preventing extra costs.

When everyone works towards the same goals, their actions contribute to the company’s success. Like connecting the dots – everyone sees how their daily work helps the company win.

Case study

Colorcon, a company for the pharmaceutical industry, used a performance system with quick feedback and recognition. Colorcon bosses give quick feedback, link it to goals, and pay weekly bonuses for good work.

This method improved employee morale and motivation. It also strengthened desired behaviours that help the company meet its financial goals. As a result, Colorcon saw significant improvements in its financial performance.

This example shows how a good performance management system can help a company make more money. When employees focus on the company’s main goals and get quick feedback and praise for their work, companies like Colorcon make more money.

Building a successful performance management system

Setting business goals for impact

Here are the principles for setting SMART goals (Specific, Measurable, Achievable, Relevant and Time-bound) that align with strategic objectives and drive financial results:

Specific: Make your goals clear and to the point! Ask yourself:

• What do we want to accomplish? Be specific!
• Why is this important? What are the benefits?
• Who needs to be involved? Who will help?
• Where will this happen? Is there a specific location?

Measurable: Goals should be quantifiable to track progress and determine when the goal has been met. They should answer the question: How much/many?

Achievable: Goals should be realistic and attainable, not too easy or too challenging. They should answer the question: How can they accomplish it?

Relevant: Goals should align with broader business objectives and be relevant to key business outcomes. They should answer the question: Does this seem worthwhile?

Time-bound: Goals should have a clear timeframe or deadline for completion. They should answer the question: When?

To align these goals with strategic objectives and drive financial results, consider the following:

• Alignment with business Strategy: Ensure that the goals are in line with the company’s strategic objectives. This alignment helps to focus efforts and resources on what’s most important.
• Financial impact: Consider the financial implications of each goal. How will achieving this goal drive financial results? This could be through cost savings, increasing revenue generation, or other financial metrics.
• Regular review: Regularly review and adjust the set goals as necessary. This helps to keep the goals relevant and ensures they are contributing to the desired financial outcomes.

Want powerful goals? Make them crystal clear, exact, and focused on what your company wants to succeed at.

Continuous feedback and growth

Regular feedback, coaching, and development opportunities play a crucial role in maximising performance. Here’s why:

• Regular feedback: Regular feedback helps employees know how well they are doing compared to their goals and expectations. It helps them identify their strengths and areas for improvement. Regular feedback helps you stay on track and make course corrections quickly.
• Coaching: Coaching goes beyond just feedback. It involves guiding employees towards better performance by helping them develop their skills, knowledge, and abilities. A good coach doesn’t just tell employees what to do but helps them find their solutions. This can lead to increased self-confidence, improved work skills, and greater job satisfaction.
• Development opportunities: Providing opportunities for professional development is a powerful way to boost high performance. This could be in the form of training programs, workshops, or further education. Development opportunities help employees learn new skills, stay current with industry trends, and feel valued in the organisation.

Not only do these things help you be your best, but they also make the team and company stronger. They create a positive work environment where employees feel supported and motivated to do their best. Invest in your people, and get better results.

Performance incentives that motivate

Aligning rewards with desired outcomes is a powerful strategy to motivate employees and drive financial success. Here’s how:

Motivation and engagement

Clear goals, clear rewards: happy employees! This clarity can boost motivation, as employees see a direct correlation between their efforts and rewards.

Performance improvement

Rewarding desired outcomes encourages employees to perform at their best. It promotes a performance-oriented culture where employees strive to achieve their goals to receive rewards.

Top talent retention

Competitive and outcome-aligned rewards can help retain top talent. When employees feel valued and fairly compensated for their contributions, they are more likely to stay with the organisation.

Financial success

When employees feel motivated and have clear goals, they can be more productive and efficient, which benefits both them and the company.

Give rewards employees value aligned with company goals, and designed to get the results you want. A well-designed reward system can be a powerful tool for motivating employees and driving organisational success.

Tools to connect performance to business goals

Connecting performance to business goals goes beyond just software, it’s an entire system involving tools, frameworks, and practices. Here’s a breakdown of both software and non-software tools you can use:

Software tools:

• Performance management software: Help align individual and team goals with company objectives, measure progress, and facilitate feedback loops.
• Business intelligence (BI) tools: Platforms like Tableau or Power BI connect to various data sources (e.g., sales, marketing, finance) and provide dashboards and reports for visualising performance metrics and their impact on business goals.
• Survey tools: SurveyMonkey, Qualtrics, or Google Forms gather employee feedback on goals, processes, and overall satisfaction. This feedback helps identify areas for improvement and align efforts with employee

Quantifying the impact

The ROI of performance management

Performance management can empower your team and improve results. Annual performance reviews and feedback forms are not the only things that matter.

This tool can help your organisation gain financial benefits. Let’s dig into the data and unearth the tangible ROI of effective performance management:

Increased productivity

• A Gallup study found that highly engaged employees are 21% more productive than their disengaged counterparts. Effective performance management, with its focus on goal setting, feedback, and development, fosters engagement, leading to a measurable boost in productivity and output.
• SHRM research reveals that organisations with well-designed performance management systems experience a 5% to 12% increase in productivity, translating directly to revenue growth and cost savings.

Reduced turnover

• High turnover is a costly beast. Replacing an employee can cost up to 200% of their annual salary. Effective performance management helps identify and address employee concerns, providing opportunities for growth and satisfaction, leading to a 25% reduction in turnover, according to Bersin by Deloitte.
• A meta-analysis by Meyer et al. found that comprehensive performance management practices are associated with a 19% decrease in voluntary turnover. Lower turnover reduces recruitment and training costs, boosting your bottom line.

Improved employee performance:

• IBM’s Smarter Workforce study showed that a 10% increase in employee engagement leads to a 3% increase in shareholder returns. Effective performance management fuels engagement, translating to improved customer satisfaction, increased sales, and ultimately, increased profitability
• A study by Bain & Company revealed that companies with strong performance management cultures have a 20% higher return on equity (ROE) than those without.

Strong performance management practices directly impact financial ratios, indicating long-term financial health.

Beyond the numbers:

• Improved talent acquisition and retention: Effective performance management attracts and retains top talent, giving you a competitive edge.
• Enhanced innovation and creativity: Engaged employees are more likely to come up with new ideas and solve problems, leading to innovation and growth.
• Stronger employer brand: A positive performance management culture attracts and retains talent, boosting your employer brand and reputation.

Investing in success:

Implementing an effective performance management system requires an initial investment. However, the ROI is certain. Consider this: for every $1 invested in performance management, organisations see an average return of $3 to $12. That’s a profit you can’t ignore.

HR & Finance: A winning partnership

The collaboration between Human Resources (HR) and Finance in designing and implementing a performance management system is crucial for achieving optimal financial outcomes. Here’s how:

• Alignment of goals: HR and Finance can work together to ensure that the performance goals set for employees align with the financial goals of the organisation. This ensures that employee performance directly contributes to the financial success of the company.
• Budgeting for rewards: Finance can provide valuable input on budgeting for performance-based rewards. This ensures that the reward system is financially sustainable and aligns with the company’s financial strategy.
• Data-driven decisions: HR and Finance can collaborate on data research to make informed decisions about performance management. For example, Finance can help analyse data related to employee performance and its impact on financial outcomes.
• Performance metrics: Finance can help HR in defining and calculating performance metrics that have financial implications. You can use these metrics to measure and manage employee performance effectively.
• Training and development: Finance can support HR in allocating the budget for employee training and development initiatives. These initiatives can improve employee performance, leading to better financial results.

HR and Finance can improve performance management by aligning employee performance with financial goals. This alignment can lead to better financial outcomes for the organisation. A win-win situation for both the employees and the organisation.

Key takeaways

Effective performance management is an adapting tool for achieving financial goals.

• It connects personal and group goals with company objectives.
• It boosts employee involvement.
• It finds areas to improve.
• It inspires workers with rewards.
• It helps with decision-making.

All these aspects contribute to the achievement of financial goals, thereby unlocking hidden value within the organisation.

Performance management is crucial for HR and CFOs to work together to build a performance-driven culture. By integrating financial and performance management, organisations can drive sustainable financial success. Take the first step towards this transformation today.