Organizational Performance: What Is It and How to Improve It

Even though business leaders recognize the importance of performance management, figuring out how to measure organizational performance is still a challenge. In fact, over the past five years, 74% of businesses have updated their performance management systems.

Whether you’re starting from scratch or simply looking to make a few updates to your system, investing a little time into organizational performance is well worth it. In this article, we take a deep dive into performance management: what it is, how to measure it, factors that might impact it, and ways to improve.

What is Organizational Performance?

Organizational performance refers to an organization’s ability to meet its goals and objectives and helps measure progress, justify capital allocation, optimize resource usage, and more.

Businesses typically evaluate organizational performance based on the following financial metrics:

Financial Performance: This measure of performance bases success on financial results, like revenue, return on investment (ROI) and profit margins.

Operational Performance: Operational performance focuses on process, resource allocation, and business workflow optimization. This measure of performance weighs financial outcomes against the costs of business activity.

Shareholder return performance: This measure of performance focuses on the growth of investors’ shares over a predetermined time period. While shareholder return performance can be useful, it can also be problematic if it distracts upper management from operations.

How to Measure Organizational Performance

While organizational performance can be evaluated based on financial, operational, and shareholder return, external indicators like survival and growth, good environmental fit, and relevancy can be even more useful.

Survival and Growth

“How can we continue to improve and provide value?”

Anticipating and adapting to change have significant consequences for the success of your company. Survival and growth speak to how your employees survive and adapt to steady change and demonstrate how your company will continue to provide value.

Good Environmental Fit

Organizational efficiency — how well your company balances internal resources and capabilities with external demands — indicates how well the organization fits into its current environment. A good fit is typically achieved by high productivity and employee satisfaction coupled with low operational costs and employee turnover.

Relevancy

For an organization to achieve optimal performance, it must effectively address the needs and interests of all its key stakeholders.

Consumers: Demonstrating your relevance to consumers helps ensure current consumers’ loyalty and develops a positive brand image for potential consumers.
Employees: According to Forbes, demonstrating your relevance to employees can boost retention and continuity, which may have a direct impact on organizational performance.
Investors: Having a solid reputation has a direct impact on performance and, by extension, on shareholder returns. Investors won’t support a company with a bad reputation!

How to Measure Organizational Performance at Different Levels

Organizations can measure performance using internal indicators at the individual, team, and organizational levels.

Individual Level Performance

Employee performance is incredibly impactful, especially when it comes to understanding organizational performance. How is individual employee performance measured?

A few factors impact this level of performance:

Task performance refers to an employee’s ability to complete assigned tasks within their job description.
Adaptive performance gives insight into an employee’s responsiveness at work and measures their eagerness to learn.
Contextual performance refers to an employee’s ability to complete tasks outside of their designated responsibilities, and measures the employee’s innovation, commitment to excellence, and flexibility.
Counterproductive work is behavior that negatively impacts employee performance, such as tardiness, absenteeism, and poor engagement.

Team Level Performance

Like individual level performance, team level performance involves evaluating the team’s ability to meet organizational goals. While this kind of feedback can be collected at any time, it may be best to do so at specific milestones. This kind of assessment is often most impactful during team training, debriefing, leadership training, and retreats.

Organizational Level Performance

Businesses can measure performance at the organizational level through employee feedback and internal and external assessments. While individual and team performance are measured from the top down, an effective method of assessing organizational level performance is encouraging employees to share their thoughts. In addition to traditional kinds of employee feedback, you might consider using employee satisfaction surveys and employee net promoter scores (eNPS) to measure employee satisfaction at your company.

Learn more about building and maintaining a culture of performance at your company.

Factors That Impact Organizational Performance

Organizational performance and efficiency can be impacted by internal or external factors. While each company faces problems unique to their organization, we’ve outlined some of the more common challenges:

Manager-Employee Relationships

Manager-employee relationships have a major impact — good or bad — on organizational performance. Unfortunately, recent research finds that only one in five employees feel motivated by their performance management to do great work.

In fact, a survey by Trinity Solutions found that 79% of employees have experienced micromanagement, 85% felt that micromanagement decreased their morale, and 71% found that micromanagement negatively impacts their productivity. This is because as research shows, “Constant criticism makes it nearly impossible for a manager and employee to build a trusting relationship.”

Growth Opportunities

Providing employees with growth opportunities is one of the best ways an organization can boost its overall performance. Here are a few examples of growth opportunities:

Journey mapping improves retention.
Work goals are just as important for new hires.
Employee development strategies boost employee satisfaction and retention.

External Influences

Covid-19 showed us that external influences beyond our control can have a huge impact on organizational performance. Here are a few more external influences:

Politics
The economy
Shifts or disruptions in industry, e.g. artificial intelligence

How To Improve Organizational Performance

You know what organizational performance is and how to measure it, but how should you go about improving the problems you’ve identified in your own company?

Invest in Leadership

Investing in leadership is investing in your workforce overall. Research from Gallup reveals that engaged management positively impacts engaged employees, but only three in ten managers globally report feeling engaged. Developing a good leadership style is one way to improve the manager-employee relationship. When managers help employees set goals, they support their employees’ professional development and help create a motivated and engaged workforce. In fact, research shows that these employees are “3.6 times more likely than other employees to be engaged.”

Set Goals and Measure Them

Setting the right goals and using the right performance metrics are essential to understanding and improving your organizational performance. While an individual employee or team’s day-to-day objectives will differ from the company’s larger goals, being transparent about your key performance metrics can help employees better understand their role in the company’s success (which boosts morale, too!).

Foster Employee Well-Being

Employee well-being and workplace satisfaction are directly related to their efficiency and performance. Here are a few ways to support your employees’ well-being:

Mindfulness training
Meditation apps
Employee Assistance Programs (EAPs)
Regular recognition at key milestones

Understand your employees’ everyday workplace experience with the right software.

Recognize and Reward the Team’s Hard Work

It’s important to reward teams when goals are met. Although there are key differences between recognition and rewards, both boost morale and employee satisfaction. While not all businesses have the resources to offer fancy incentives and rewards, recognition doesn’t require a budget and can be given by any one on the team at any time.

What Is Organizational Performance Management?

Performance management is “the process or system by which an organization measures and improves performance within its workforce.” Performance management is more than just annual performance reviews. In fact, effective performance management should be a multi-step, ongoing process. We recommend breaking performance management into three steps: planning, appraisal, and improvement.

Performance (Strategic) Planning

Performance planning involves the process of identifying either an employee’s individual goals or the organization’s goals — often, it’s both — and creating a plan to help employees meet those goals. In this step, you’ll want to clarify your mission and values. This will help you develop relevant goals and an effective plan.

Performance Appraisal

This step monitors an organization’s progress toward stated goals. In this step, you’ll want to identify your measures of success and how your company will track progress, whether through all-hands meetings, regular surveys, performance appraisal tools, or a combination.

Performance Improvement

Now that you’ve identified pain points, it’s time to fix them! The third and final step in successful organizational performance management sets a plan for making improvements based on problems found in the previous two steps.

This can involve setting individual performance improvement plans for employees or engaging in performance improvement at the team, department, and organization levels. Performance improvement can have positive effects both on employee productivity and employee satisfaction.

Investing time and resources in performance management helps make sure employees, teams, and the organization as a whole are all working toward the right goals.

To learn more about performance management and how to implement it effectively, check out BambooHR’s Definitive Guide to Performance Management.