Performance appraisal is essential for your small business since it provides a structured way to monitor how your workers are doing, share feedback and determine any gaps in performance and skills. It also serves as a way to set goals, adjust compensation as needed and apply your company's reward system.

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Benefits include helping employees improve themselves, become more motivated and think about their career goals so they can make the most positive impact in your company. Some other strategic benefits of performance appraisal include the chance to align employee goals with your company's goals and to plan for future staffing and training needs.

Find and Resolve Performance Issues

One of the strategic objectives of performance appraisal is to spot problems with employees' work, including efficiency and quality, so that you can take action to improve your organization's overall performance. During your appraisal, you might find that the problem is a misunderstanding of company processes or low employee morale. You might also find it's actually some issue with how your company operates or the culture it has fostered.

When the issue is on the employees' side, you can offer mentoring or training or utilize effective rewards systems to motivate workers to perform better. If you discover it's a company process or culture that is hindering performance, you'll have a starting point for the cause and can brainstorm more effective options.

Benefits of Performance Appraisal Feedback

A performance appraisal provides an excellent opportunity to clarify any expectations for employees and give balanced feedback on their strengths and weaknesses. Whether you've discovered problems with work quality or efficiency, the issue could be that your employees don't know the standards you expect, so an appraisal provides a way to communicate these standards and answer any questions employees might have.

You can also come up with a mutual plan for working toward improvement and monitoring for progress. At the same time, discussing employees' strengths can also serve as a good motivator to continue their high performance, especially if you give some type of reward for positive performance reviews.

Align Employee and Company Goals

Without performance appraisal, employees may not see how their work helps the company succeed on a larger scale, and this can decrease motivation when employees don't see the results of their efforts.

One of the benefits of performance appraisal is that it helps ensure that company and employee goals are aligned and communicates the importance of day-to-day work duties to the big picture. Not only will this result in engaged employees who support the company's goals, but performance appraisal provides an opportunity to take action for goal alignment when employees aren't doing their work in the company's best interest.

Identify Future Training Needs

An obvious strategic purpose of performance appraisal is that it allows you to determine which employees need additional training to work effectively, and it also serves to give insight on future training needs due to innovation.

During your discussions with employees, you may gain insight on problems in your organization, whether it's a technology that's too hard to use or a process that slows down the production process, all of which can hurt your company's bottom line and long-term competitiveness. You might even get recommendations on how to adopt new strategies and technologies that allow workers to better meet customers' needs.

For your company to keep up with these developments, you'll need to train employees for the future so that they can adapt when their job duties and company processes change. This might require brainstorming a list of soft and hard skills you'd expect from employees, looking for skill gaps, revising job descriptions and developing a long-term training plan to prepare workers and avoid disruption when your company does make changes.

Prepare for Employee Advancement

During your examination of employees' performance, strengths and weaknesses, you'll likely discover workers who have the qualities and skills required for leadership positions. Even if your business doesn't expect to have such positions open for a while, making note of these employees in your records can save you time and money when a current employee exits the company.

Working directly with employees to learn about their career goals, to provide information about career paths in the company and to offer training and development plans can even improve employee engagement and loyalty, helping you retain your top workers even if they don't seek advancement.