Let’s get straight to the point. Too many companies are missing the fact that there is a direct relationship between the way their people are being managed and the profitability of their company.

The manager/employee relationship is what drives true performance and is one of the most powerful but frequently discounted business tools.

The link isn’t ‘fluffy HR speak’ it is evidence based: good performance management drives engagement and profitability. A Towers Perrin study of 90,000 people across 18 countries (2008) showed that companies with the most engaged employees had a 19 per cent increase in operating income during the previous year, while those with the lowest levels had a 32 per cent decline.

Worryingly, recent evidence shows that the UK has an employee engagement deficit. Survey after survey indicate that only around one third of UK workers say they are engaged – a figure which leaves the UK ranked ninth for engagement levels amongst the world’s twelve largest economies as ranked by GDP (Kenexa 2009).

And the solution? Focus on embedding engaging performance management activities in your business.  The role of the line manager is critical and it is their role to set clear objectives, give feedback and coach throughout the year.  

Unfortunately, in too many companies, the human interactions and appraisal process is seen as an annual activity driven by HR, or worse still, the process used to exit someone from the business. This does require culture change as too many of us are hooked on urgency culture which makes consistent people management activities seem too slow or perhaps ‘unsexy’.

The MD of Impact, Mark Hudson recognised this issue when he joined the 200 strong AV solution business in 2011. From a corporate background, he was shocked to discover the ad-hoc and inconsistent approach to appraisal and objective settings.  An employee engagement study also highlighted serious staff issues.

‘We needed to grow up as a company; implement objective setting, measurement, and appraisals and regular feedback conversations,’ he says.

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The challenge was that the existing paper based appraisal system was ad hoc at best and it was very difficult to measure the actual levels of management/employee interaction. They identified that purpose built performance management software from a specialist UK provider would be key to achieve the culture change that they needed.

‘It was clear we needed to drive a change in management culture and behaviours. We looked for a method of achieving that, which was open and two-way, that gave us visibility across the business and was measurable,’ Hudson adds.

The business focused on changing culture with software as an enabler, starting with communicating the importance of the role of the manager, setting expectations around setting objectives and regular feedback and 121’s. It developed best practice management principles and expectations and explained the importance of the line management relationship.

Just 12 months on, every employee from the managing director down has formalised business objectives. Each has engaged in dialogue with their manager about what they are expected to achieve, how to achieve that, and the support they need to do their roles. Today over 80 per cent of staff at Impact are actively using the system and employee feedback is really positive about the increased clarity and interaction that has been achieved, particularly through the formalisation of monthly 121’s using the tool.

As Mark says, ‘The real test will be when we re-run the next engagement survey, but there is no doubt in my mind that this is a key strategy to drive the business forward.’

So engagement drives profitability and this lies in the hands of your line managers. Does your culture reinforce year round performance management or is it an ad hoc process or perceived burden? Do you have clear cascade of objectives, meaningful appraisals and monthly 121’s to keep people on track? Do managers get recognition for getting results as opposed to individual contribution against tasks? If we want to drive long-term profitability, we could do well to remember that employees are to be engaged all year round, not just for Christmas!