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How much is poor performance costing your business?

June 18, 2013

Managing a business is challenging enough, but what happens when a particular employee’s performance is clearly unacceptable and everyone knows it? Providing feedback is critical, ensuring that the person has every opportunity to improve. But some situations are not so straightforward and can test the leadership capability of even the most seasoned leader.

The cost of under-performance in Australian businesses can average around $6 billion per year, almost 1.13% of Australia’s GDP. That amount may seem insignificant from a “bigger picture” standpoint, but for a better perspective, consider this: the average annual salary in Australia is $55,000. If you lived in a perfect world where you didn’t have any expenses whatsoever, it would take you 109,090 years to save $6 billion.

In other words, the $6 billion wasted on poor employee performance is the equivalent of 109,090 average Australians’ yearly salaries going down the drain.

“Under-performance” and “underproduction” are often used interchangeably, but in fact they are two different problems. Underproduction is actually a direct result of under-performance, which generally involves a wide range of motives that can contribute to underproduction:

  • Clarity (or lack thereof): your employee does not understand the job role or job expectations, because the company goals and standards have not been explained… or have not been established at all
  • Insufficient training or skills: your employee has not been properly trained to do the job, or he/she lacks the skillset required to produce the expected results
  • Difference of opinion: your employee disagrees with your approach, or you both have conflicting priorities where deadlines and tasks are concerned
  • Miscommunication: your employee genuinely believes he/she is performing according to your standards
  • Lack of motivation or reward
  • Interpersonal differences (between you or other employees)

How do I fix the problem?

A strategy that I have found effective is to develop a Performance Improvement Plan. Setting clear, measurable, and realistic standards is a critical step in overcoming poor performance. If an employee has a thorough understanding of what he or she is expected to do, how to do it, and why it needs to be done, he/she will be more likely to engage in undertaking the task.  Write down what you've agreed, along with dates by which goals should be achieved. Then monitor progress with the team member, and provide positive feedback for increasing motivation.

Employees need to see the value in their work, and believe that what has been set for them is achievable, and within their skill set. Remember, it is important to maintain dialogue and establish a strong feedback loop; that way problems that arise can be immediately addressed, and any damage will be avoided or minimised.

If performance is unsatisfactory and fails to improve despite numerous reviews, you may have to reconsider person-task/person-organization fit. Communication is the key, along with goal-setting, feedback, and a supportive work environment. With a little H.E.A.R.T. (Honesty, Empathy, Acceptance, Respect, Trust), even the most challenging of situations can improve.

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