Performance Management vs. Talent Management: What's the Difference?

HR teams have an ever-growing list of responsibilities. Key among them? Helping everyone perform at their best so they can contribute to the organization’s overall vision. Multiple strategies contribute to this goal. Talent management and performance management are two of the most important.

They’re also the most confused.

Is managing talent about helping employees find their talents? Is performance management about individual contributors, teams, or whole departments? Do HR teams only need one? Or both?

In this guide, we’ll clearly define both performance management and talent management, cover why they’re essential, and highlight how they’re best used together.

Key Takeaways:

• The core differences between performance management and talent management in HR.
• How each function contributes uniquely to overall employee engagement and organizational success.
• The elements that make up an effective performance management strategy and talent management strategy.
• Why integrating talent and performance management can improve business outcomes and retention.
• How tools like 15Five’s Perform and HR Outcomes Dashboard can support both strategies.

What is performance management?

Performance management is a continuous process that identifies, measures, and improves employee performance. It identifies performance by giving employees clear goals to aim for and the language to understand how their work contributes to the organization’s overall strategy. It measures performance by giving employees, managers, and leaders metrics to quantify performance across what matters most in your company’s culture. It improves performance by using that data as a foundation for performance reviews, goal-setting, and other initiatives that help employees shoot for the stars.

These are the objectives of performance management. Now here are its key components:

• Goal-setting: Setting the right goals guides employees towards working on what matters most, as well as aligning that work with broader company goals.

• Continuous feedback: Feedback loops and performance reviews are essential for measuring employee performance and guiding employees towards accomplishing their goals.
• Coaching and recognition: Pairing employees with the right coaching, whether that’s a formal development plan or a mentor, gives them real-time feedback on what they’re doing well and where they need to improve. Recognition rewards top performers in a way that encourages others to emulate.

Performance management contributes to your organization’s overall performance, which is why it’s so essential. According to Gallup data, nearly one in three employees who are open to finding a new job say they’re looking for accelerated career development. Performance management gives them a clear path to becoming their best selves, which doesn’t just help retain them; it makes your entire organization more productive.

What is talent management?

Talent management is a process for attracting, developing, and retaining high-performing employees. It attracts employees through better recruitment and better identification of the organization’s talent needs. It develops employees by matching their professional goals with the company’s objectives. It retains employees by improving employee engagement and the employee experience.

Key elements of talent management include:

• Recruiting: Everything from writing better job postings to advertising them in the right channels and optimizing your recruitment process falls within talent management.

• Onboarding: 31% of employees have left a job in the first six months, and improving your onboarding process is essential to both attracting and retaining great talent.

• Learning and development: Developing talent means helping employees along in their career growth, in a way that matches your organization’s talent needs. That can include building skills for lateral moves or preparing for a promotion that will fill an important role.

• Succession planning: Finding internal replacements for executive positions and other important roles can save on recruitment costs and help identify future top-performers at all levels.

• Career pathing: Employees need a clear growth path to stay engaged and motivated, making this essential to your talent management strategy.
• Employee engagement and retention: It’s more expensive to replace an employee than it is to retain them, and that cost goes beyond recruitment efforts. Maintaining a strong talent pool involves retaining your top performers.

Too many organizations have a reactive approach to talent, whether that’s not having a plan to replace key roles or offering training only in response to employee complaints. A proactive talent management strategy allows organizations to build a solid foundation for attracting and retaining top talent, which leads to improvements in employee engagement, productivity, and more.

Performance management vs. talent management: Key differences

How performance and talent management work together

The biggest misconception about performance and talent management is that they’re the same thing. The second biggest misconception is that HR teams have to choose between the two. But, in practice, they solve different—but overlapping—problems. That’s why HR teams need both a performance and a talent management strategy, and these strategies need to be fully integrated.

Performance management starts with individual employees, their goals, and aligning those goals with broader objectives. Ensuring every employee has achievable goals—and helping achieve them—contributes directly to keeping them with your organization, as well as building up their skills. This can help build the foundation for stronger succession planning, plugging skill gaps, and creating champions that can help your organization pivot. All essential elements of talent management.

Similarly, talent management is essential for organizations to chart their talent needs over time and create the objectives that performance management needs to help employees set goals and achieve them.

Not seeing how the two work together? You might not be using the right tools. It’s hard to see how different initiatives contribute to the same goals when they’re tracked in spreadsheets or other legacy tools.

But with a performance management platform like 15Five, you can clearly outline performance goals and track progress towards them, reference these goals in your talent management efforts, and see how it all comes together from the individual employee to the organizational level.

Want to see what 15Five can do? Book a demo today.

How to integrate performance and talent management

Here are a few quick tips for integrating these two methodologies:

• Use performance data to inform talent development plans.
• Build unified HR dashboards that track both performance outcomes and talent pipelines in one place.
• Align both strategies with your company culture and organizational goals.
• Use dedicated tools like 15Five’s Perform.

Building a performance management strategy

Ready to support employees in building better goals and reaching them consistently? Here’s how it’s done.

Step 1: Define what “performance” means for your organization

How you choose to measure performance depends on your company culture. In some organizations—or even just specific teams within an organization—performance begins and ends at hitting specific, quantifiable goals. Think of a sales team in a high-pressure industry, for whom only closing deals matters.

Compare that with an HR team whose performance goals might include everything from successful interventions in employee conflicts to broader employee retention.

Step 2: Choose a goal-setting methodology

Goals are an essential part of performance management, and having the right methodology for the whole organization can standardize how performance is tracked. OKRs and SMART goals are two of the most popular approaches for setting goals.

Step 3: Align individual goals with organizational priorities

A key element of performance management is ensuring employees feel like their day-to-day work matters. This is done by showing the link between it and the organization’s overall goals

Step 4: Streamline performance reviews and insights with technology

Tools like 15Five Perform can centralize all the performance data you need in a single platform, give you templates for optimizing performance reviews, and turn data into actionable insights so you can drive better performance organization-wide.

Step 5: Implement continuous feedback loops

Feedback loops ensure employees receive consistent, near-real-time feedback on their work. This guides their efforts between performance review cycles and gives HR teams more data when refining their performance management strategy.

Step 6: Encourage transparency and accountability

Employees need to know why they’re pursuing specific goals, and that requires transparency from leadership. Similarly, managers need their employees to take accountability for their performance so they can work together on solving problems as they come up.

Building a talent management strategy

Keeping existing talent around for longer and recruiting the best candidates around requires a solid talent management strategy. Here’s how you can build yours.

Step 1: Audit your existing talent

The first step to building your strategy is knowing where you’re sitting. A skills matrix and similar initiatives are essential for identifying strengths and weaknesses throughout your workforce. With this clear picture, you’ll know what talent you need to start recruiting for and which top performers you can promote or train.

Step 2: Forecast talent needs

Knowing your current talent needs and skill gaps isn’t enough. You need an idea of what you’ll need next quarter, next year, or even next decade. Use employee turnover data to determine who you might need to replace. Consult industry trends to figure out how your workforce might need to pivot. Examine the competition to get a roadmap to improving your own workforce.

Step 3: Overhaul your recruitment efforts

Do candidates need to pass five interviews before they’re offered a role? Do you rarely get more than a few leads from a job posting? Identify the problems you experience when recruiting so you can drive down costs while attracting stronger talent.

Step 4: Optimize onboarding processes

Retention efforts in the first few months of an employee’s tenure can pay off massively years down the line. Review your onboarding process and work on continuously improving it.

Step 5: Implement learning and development programs

Developing existing talent is an important part of talent management. If you don’t have an existing learning and development system, look into acquiring or building one. Support a healthy mix of your organization’s needs and employees’ personal goals.

Step 6: Establish clear growth plans

Every employee should have a clear growth path. This doesn’t mean they all need to be on track for a promotion, but they should at least have an objective to work towards.

Step 7: Build succession plans

Identify some of your most important roles and have a clear plan for replacing them. An ill-timed executive departure could leave your organization scrambling to fill a gap if you don’t plan ahead.

Step 8: Foster a culture of recognition

Employee recognition is essential to employee retention and a more positive employee experience overall. Build ways for peers, managers, and executives to recognize top performers and encourage their use.

Better performance and stronger talent

Performance management and talent management have significant overlaps, but they’re distinct strategies. With performance management, managers can guide their teams in setting goals, tying their work to the organization’s objectives, and continuously improving the way they work.

Through talent management, HR teams can know more about the talent they have, find the talent they need more efficiently, and keep top performers around longer.

HR leaders know that both approaches need to be combined. Performance management drives results at the individual level, while talent management keeps the organization’s talent pipeline healthy. But the performance of individuals and teams feeds directly into talent management, while talent management initiatives drive employees to become top performers.

Find out why 15Five is the right choice for getting more out of both strategies. Book a demo today.