Making Sense of Performance Management

Updated: April 30, 2009

An economic downturn isn't stopping companies from forking over money for performance-management solutions. In fact, research firm IDC has forecasted that the market for performance-management software and services will reach $2.55 billion by 2012, increasing at an annual growth rate of 10.1 percent. That's because companies are constantly searching for new ways to track compliance, employee productivity , business performance and work force competencies.

Leighanne Levensaler, director of talent-management research at Bersin & Associates , said, "Now more than ever, organizations need to do more with less, and they need to harness the talent they have to really cultivate their top talent and to understand where their bottom performers are." In turn, she added, "At the end of the day, what employees want to know is how am I doing, where do I stand and what are my opportunities here. Performance management gives them guidance, engages them and retains them."

What's in a Name

As performance-management technology continues to benefit employers and employees alike, HR professionals have an expansive selection of solutions from nearly 50 vendors. That's making it increasingly difficult for companies to choose an appropriate product.

Further complicating matters is the fact that the very definition of performance-management technology is evolving. In the past, these solutions helped employees manage their goals online and enabled supervisors to track their progress. These days, performance management encompasses performance reviews and appraisals, goal management, competency management, performance planning, career-development planning, compensation management and feedback mechanisms.

Niche or ERP

So what should be a company's first step toward selecting a solution in today's confusing performance-management solution landscape? For starters, companies must decide whether to purchase a solution from a core HR provider specializing in ERP (Enterprise Resource Planning) or a niche vendor. "For years and years, there literally were no niche solutions available on the market and so companies used ERP-provided tools," said Levensaler. She also noted that the key ingredient of an ERP system is the ability to create a unified database.

But that was long ago. Today, core HR providers such as Oracle and SAP AG deliver out-of-the-box, enterprise-wide applications that are easy to integrate. Niche vendors like Success Factors Inc. , Authoria Inc. and Taleo Corp. , on the other hand, typically narrow their focus to a particular end-user functionality.

While many companies have created their own highly customizable solutions using technology provided by ERP providers, Levensaler warned that the version you use with ERP really makes a difference. She explained that while the most recent version of an ERP solution with performance-management capabilities may offer the "latest and greatest functionality and have reached parity with some of the niche providers, companies that are relying on an ERP solution that is two versions back can't take advantage of that new functionality." What's more, unlike niche HR solutions, upgrading an ERP solution is an enterprise-wide project that can take years to complete.

Is SaaS the Best?

Another factor companies need to consider is whether to choose a hosted or on-premise performance-management tool. If a company already has an ERP system in place, then it would be wise to consider enhancing its already existing performance-management capabilities. If a business is starting from scratch, however, studies suggest that the SaaS (software as a service) model is a winning bet. In fact, an IDC study reported that the popularity of SaaS is growing and that, on average, 82 percent of surveyed vendors' performance-management solutions are delivered via SaaS.

Nor should issues of data privacy and protection discourage companies from selecting a SaaS approach. Said Levensaler, "The advancements in SaaS, the security infrastructure and the data management that some of these solution providers offer are superior to what any one company can offer in terms of security even within their own firewall ."

Beyond Decision Making

Making the most of a performance-management solution, however, doesn't simply end with the vendor-selection process. Introducing performance management into the workplace "is a radical cultural shift for people and it's not just about technology," said Levensaler. For this reason, companies need to ensure that the proper training and incentives are provided to drive adoption.

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