The capabilities of AI have been growing exponentially in recent years. Sometimes this rapid growth can feel unsettling, disrupting the business ecosystem we’ve come to know. But it also offers huge opportunities for organizational growth by enhancing continuous talent management.
In this article, we’ll discuss the role of AI in performance management—and key ways to apply this technology in your HR practices. Growing proficient in the use of AI as a tool will help HR, leaders, and managers guide employees to greater success.
Table of Contents
- The Role of AI in Modern Performance Management
- 5 Key Applications of AI in Performance Management
- Risks and Challenges of AI in Performance Management
The Role of AI in Modern Performance Management
AI can support the development of the next generation of performance management practices—if used wisely. When adopting AI solutions, it’s important to also develop a philosophy about the role they should play in people management. “AI can help us be less messy and more consistent. It can help us elevate the best of our humanness,” write Rasmus Hougaard and Jacqueline Carter in Harvard Business Review. When used well, AI tools can deepen leaders’ understanding of their people and support good decision-making.
Most importantly, AI should be used to enhance, not replace, existing performance management processes. Organizations can leverage AI as a useful tool, while recognizing that processes like feedback-sharing and performance appraisal must center on human interaction, trust, and authentic relationships.
A global survey by Deloitte found that 94% of company leaders believe AI is crucial to their success, and over 60% believe it will ramp up their productivity. Smart use of AI can ultimately enhance engagement and outcomes by giving employees the feedback and developmental support they need. Additionally, it can enhance the employee experience and increase job satisfaction. In the next section, we’ll examine how this works in practice.
5 Key Applications of AI in Performance Management
Quality AI tools can streamline daily performance management processes. AI can also aid in strategic decision-making, including with choices related to talent management. Let’s now explore five key uses of AI in performance management.
Strengthening Feedback Practices
Some managers struggle with delivering feedback. Choosing the right words to express their thoughts can feel challenging and time-consuming, especially when managing several or more people. Generative AI tools like ChatGPT can aid in framing and refining feedback, helping managers share clearer, higher-quality input with each employee.
Other AI tools can synthesize various data points to provide suggested feedback on a daily basis. Managers can reflect on the insights provided and discuss them with employees, drawing from their own observations. Such tools enhance leadership by helping managers become stronger communicators who hone in on the most vital points.
Understanding Employee Engagement
Through sentiment analysis, AI can help assess employee engagement and the factors influencing it. How does this work? Using natural language processing (NLP) in coaching conversations, appraisals, collaboration sessions, and surveys, AI can analyze employee sentiment on various topics. NLP involves deep learning about employee attitudes and perspectives based on statements and emotions shared across an array of data sources. For instance, NLP can interpret feelings such as sarcasm or skepticism within written text or speech, incorporating this analysis into a broader assessment of employee sentiment.
Through such tools, organizations can assess employee engagement and satisfaction in real time. Managers will then spot signs of burnout, overwork, stress, and dissatisfaction, so they can intervene before these issues escalate. In doing so, they’ll foster a healthier workplace culture and stronger employee well-being.
Optimizing Performance Analysis
AI can help managers calibrate employee performance in real time. In this context, AI serves as an important analytical tool that complements managers’ personal observations. By synthesizing input from multiple sources—communications with peers, 360 review data, performance management systems, and managers’ feedback—it can provide a holistic look at performance.
AI can also assist in preparing performance reviews, synthesizing input from sources like peer reviews, self-assessments, manager feedback, and performance management systems. By doing so, AI solutions can produce a well-rounded understanding of an employee’s current performance. This can help managers prepare more efficiently for multiple performance reviews, while also clarifying talking points.
Further, such tools can aid in producing more consistent and objective appraisals.
By helping managers diagnose and predict potential issues, AI tools can free up managers to focus on solving them. Managers can then spend more time helping employees set goals, create developmental plans, and talk through challenges.
Proactive Management
Predictive analytics can help managers and HR take a more proactive approach to performance management. Looking at past performance, AI can help anticipate trends, risks, and opportunities before they fully materialize. For example, it could signal that a given employee might struggle with an upcoming project. Instead of just reacting to emerging issues, managers can help their teams take preemptive action and achieve a greater competitive advantage. In this way, AI tools will empower managers to become stronger coaches.
Likewise, AI can pinpoint ways to enhance team and individual efficiency, gaging how people manage their time. By providing personalized guidance, it can serve as a valuable time-management tool.
Here are a few more ways in which AI could support proactive people management:
- Assisting with succession forecasting.
- Making work-life balance recommendations customized for individual employees.
- Suggesting ways to help individuals strengthen their communication and collaboration.
- Spotting any inequities that exist, so leaders can address them. If high performers aren’t being equally compensated across race and gender, AI analysis could help spot these issues, for instance.
Many other uses for AI in performance management will likely continue to emerge and become fine-tuned in the coming years.
Personalized Training and Development Plans
By analyzing employees’ productivity, strengths, skills, and potential, AI can highlight the most relevant developmental activities and resources for each individual. Quality AI tools can also help employees and managers design learning and career paths tailored to their personal aptitudes and goals. In doing so, AI tools can help target skill gaps for individual employees. AI can also consider the organization’s future skill needs as it makes these recommendations, fostering a more agile and competitive workforce.
“Imagine a learning environment where training and development plans are individualized and dynamically adjusted to each employee’s needs in real time,” writes SHRM. “AI makes it possible to provide tailored programs that address specific skill gaps and career development aspirations.”
These solutions consider each employee’s preferred learning style to enhance the learning process. “Personalized adaptive learning, for example, uses artificial intelligence to provide the best individualized training solutions on the basis of employees’ differing learning styles and paths,” write researchers in Asia Pacific Management Review. IBM is using AI to recommend training options tailored to individuals, they note.
Risks and Challenges of AI in Performance Management
Let’s explore the main limitations of using AI tools in people management. Through awareness of these issues, you can work to mitigate them while benefiting from AI solutions.
Biases
Emerging AI solutions can sometimes be biased, so organizations need to stay alert for such issues. For this reason, leaders shouldn’t rely entirely on AI to make major decisions, like the creation of a succession plan, promotional choices, or determination of salary. Rather, AI can provide evidence that supports a potential course of action, leaving the ultimate decision to organizational leaders.
Lack of Trust
For any tool to work, employees have to trust it. Lack of transparency about how AI algorithms work can seriously erode trust. Often AI uses complex methods of generating recommendations, and research shows that explaining how these processes work is important to both ethical decision-making and cultivation of trust.
Build trust in new technological solutions by transparently explaining how you’ll use them, too. You can also launch AI solutions as pilot programs, as SHRM suggests. That way, you’ll gain feedback on them from a smaller pool of staff and can adjust your approach accordingly.
Further, encourage managers to build strong relationships with employees, delivering feedback one-on-one. Research shows that employees have more positive feelings about AI solutions when they receive regular feedback from their managers, even when some of that input stems from AI data. Conversely, relying on an AI system to deliver feedback would erode trust.
Developmental Limitations
AI is still evolving. It has been known to fabricate answers to questions when evidence is lacking, or to miss vital context, as researchers point out. So, HR, leaders, and managers should strive to think critically about analysis provided by AI, assessing whether it matches what they’ve observed rather than taking all of its guidance at face value.
Effective use of AI encourages human creativity and ingenuity while leveraging insights derived from these tools. Leaders with strong emotional intelligence, wisdom, and compassion will be able to most effectively use AI tools to support employee growth, as Hougaard and Carter say.
Developing Guidance on Using AI in Performance Management
HR teams must develop policies on the responsible and ethical use of AI in performance management. Here are some examples of guidelines that organizations can adopt.
- Be transparent about how your AI tools collect, store, and use employee data, as SHRM says. Develop policies stating how data will be used.
- Define and articulate the role AI will play in your performance management processes.
- Create a system of checks and balances for AI, determining how you’ll assess the insights it provides. For example, managers can compare their logs on employee performance to the data offered by AI.
- Gather and respond to feedback from employees on the use of AI in performance management. Find out what they appreciate and what they feel confused about. You can use anonymous surveys to collect this data.
- Train managers and HR in how to use AI tools responsibly. Then launch a pilot program to try them out, as SHRM advises. As you deploy the tools, regularly assess their effects on your performance management processes.
By using AI to enhance performance management in smart, strategic ways, you’ll further your employees’ growth. In turn, you’ll help your teams become more productive and efficient. By prioritizing strong, emotionally intelligent leadership empowered by the latest AI tools, you can optimize organizational success.
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