Importance of performance reviews: 5 ways they can help your small business

Most small businesses tend to concentrate their HR efforts on big tasks like recruiting new employees, managing payroll, maintaining employee records, filing taxes, and more. In all this hustle and bustle, it becomes easier to overlook the importance of regular performance reviews, especially when operations are running smoothly and employees seem satisfied. Over time, however, employees may develop performance anxiety and self-doubt because they aren't being reassured about how their work is making a difference to their organization. If this isn't addressed, morale, satisfaction, and productivity will begin to dip. As an HR professional working for a small business or a small business owner overseeing people operations, here are five compelling reasons why you should adopt performance reviews:

What is a performance review? 

A performance review, as part of the performance appraisal, is a process by which managers, peers, subordinates, and in some cases HR professionals assess an employee's performance, quality of work, technical skills, and soft skills in order to offer constructive feedback. A good performance review helps the employee understand their strengths and weaknesses while providing useful development insights that enable them to step up their performance. This is the time to show employees how their work contributes to the organization, keep them updated about their upcoming goals, and identify the skills required to stay productive.

Why are performance reviews important?  

As an HR professional working for a small business or a small business owner overseeing people operations, here are five compelling reasons why you should adopt performance reviews:

• Keep everybody on the same page

Open communication and transparency are essential for small businesses to gain their employees' trust and scale up their success. Performance reviews are a great way to facilitate open communication. You can use them as an opportunity to update employees about how your business has been faring and how their work has helped in the process. Reviews also help you open up about the challenges that are keeping employees from reaching their full potential and provide feedback on how to overcome them. This is also a good time to get personal and talk about an individual team member's work quality, communication, punctuality, productivity, creativity, and innovation skills. Not only does this remind employees about the strengths they have to offer, but also the areas they could use some improvement in. This is also a great time to set goals and expectations for the next period so everyone stays on the same page.

• Boost employee performance

Employee performance is everything to a small business's success. By conducting performance reviews regularly, you can identify your top performers and underperformers easily. When it comes to your top performers, reviews give you a formal chance to recognize their efforts, understand what helps them perform well, and set more engaging goals for them to keep motivation up. When employees are not able to meet their targets, you can help them identify the real reasons for their struggles during performance reviews. Sometimes, they may not be the right fit for a particular project or they may not have the resources or direction they need to be efficient. Identifying the cause of low performance will help both your organization and your employees.

• Identify learning opportunities

To stay competitive and adapt to the dynamic market needs of today, you need to train your employees regularly. This will help them gain more expertise in areas that will allow them to perform better not just in their current role but also in future roles in your organization. However, it's important to be sure that any learning programs you implement are targeted and useful. Otherwise, employees will grow bored or frustrated with them. This is where performance reviews truly shine. By analyzing the performance of each employee, you'll be able to identify the areas that need additional training. Reviews also provide opportunities for feedback from employees on what skills they'd be interested in picking up. This way, you'll never be spending money, energy, or effort on training programs that don't work.

• Build better workplace relationships

Employees inside a small business should have a good relationship with their managers and be able to work as a team with their peers. Otherwise, unnecessary negativity may creep up in the form of rumors, gossip, or jealousy, all of which damage employee productivity greatly. Regular performance reviews foster a feeling of togetherness in your employees. As you exchange feedback and help employees grow, they'll feel respected and valued. They'll truly appreciate the effort you put into their development and be more motivated to work harder. Similarly, organizing peer feedback as part of performance reviews helps employees support each other and grow as a team.

• Compensate employees appropriately

Performance reviews help you make sure that every employee in your organization is compensated and promoted fairly based on their work quality and value added to the business. This goes a long way towards upholding transparency, building employee trust, improving employee morale, and preventing employee turnover. As a small business, it may be challenging to attract and train new hires constantly, so performance reviews will play a key role in determining salaries and raises.

Final thoughts

As a small business, your performance review process should be on point at all times to help employees understand how their work has contributed to the organization's success and how they can work better to advance their careers. Regular performance reviews help you connect with your employees, provide and receive feedback, and guide your workforce better. In order to take full advantage of the review process, opt for reviews more often than just annually. Continuous reviews will also help you create better people management strategies and optimize your work environment for many years to come.

Regardless of the size of your business or workforce, it's better to use a comprehensive Performance Management System to streamline and automate the performance review process. Zoho People, our HR software, comes with a powerful Performance Management System that helps you conduct reviews in a simpler, more organized way. From self-evaluations to multi-rater feedback, there's nothing that we've left out. Learn more about Zoho People's Performance Management System.