SMBs in South Africa increasingly recognise that traditional approaches to performance management no longer meet their needs in a world of digital transformation and hybrid working models, so traditional performance reviews are thus starting to give way to more agile, objective, data-driven methods that improve alignment between workforce performance and business strategy.

This is according to Sage’s latest Future of Performance Management report, which says that 75% of HR and business leaders believe their current performance management processes are outdated. More than half (52%) of HR leaders say their current strategies aren’t valuable for effectively assessing individual performance.

The survey polled over 1 000 HR and business leaders in six countries including South Africa.

Almost three-quarters say performance management has become more difficult due to hybrid working. Half of South African respondents said they are not fully satisfied with performance management at their company.

Sage’s The Changing Face of HR report, meanwhile, shows HR managers worldwide ranked performance management as second among the issues they are spending more time on than in previous years – second behind attracting talent.

“Performance management holds the key to a productive, motivated, and engaged workforce that can keep pace with the speed of change in the digital era,” says Sonia Tshabalala, the people director at Sage Africa and Middle East. “Yet performance management has become a box-ticking process in many companies rather than a strategic enabler for driving better performance and talent retention.

“The infrequency and inflexibility of traditional annual performance appraisals have become a source of frustration for managers and colleagues alike. Annual or biannual reviews don’t give managers the timely insights they need to track individual goals in line with business goals and to spot low and high performers. This may limit their ability to provide constructive feedback or incentives at the moments that matter.

“The research furthermore shows that old-fashioned approaches to performance management don’t help companies advance their diversity, equity and inclusion (DEI) goals or provide insights to support succession planning,” says Tshabalala. “Employees, meanwhile, flounder in the absence of continual feedback about their performance and often feel anxious about the emphasis on negative aspects of performance in the review process.”

To address the needs of a modern workforce companies need to take a fairer, more objective, transparent and data-driven approach that supports employee feedback and a continual learning process. Yet Sage’s research shows that only one in four respondents agree that their company continuously collects feedback on performance.

Tshabalala says that one of the barriers to a more realtime and unbiased approach to performance management is a lack of automation and analytics. HR functions can’t link performance to business goals without the right software and the ability to track it in realtime.

This picture can be expected to rapidly change as more businesses adopt AI-powered solutions that provide actionable insights and support more personalised employee experiences, says Tshabalala.

“Modern solutions empower HR and business teams to collect data in realtime and share feedback more frequently,” she adds. “Managers will have the data at their fingertips to have continuous conversations with their teams rather than spending hours filling in performance ratings and the dreaded nine-box grid. This will help them focus on business output, support employees with the right training to address competency gaps, and deliver compensation and incentives that help them retain their best talent.”

Sage’s research shows that performance management will receive a lot of attention in SMBs over the next few years – mainly focusing on automation and technology. More than half (55%) of HR and business leaders say it has grown in importance on their agenda. Nearly 90% say performance management will be fully automated in the future, freeing up HR’s time from admin.

“With a more data-driven approach, performance management can look forward rather than backwards – emphasising what the employee can do to grow in their role and how they can better support the business’s goals,” says Tshabalala. “Performance management can thus help employees to hit their goals and feel like they’re adding value. Managers will be able to focus on strategy and inspiration, helping the business flow better and meet its goals.”