Building workforce agility: How performance management powers internal mobility and reduces recruitment cost

When was the last time you thought about how your organization approaches performance management? If you're like most organizations, you're discovering that annual tick-box exercises no longer serve your needs.

Our work environment is becoming increasingly complex; employee expectations are evolving quicker than ever, and technological advancements are becoming harder to keep up with. In fact, by 2026, 40% of all employees will need to learn new skills because of advancements in AI and automation, while research shows that by 2025, more than two-thirds of today's critical skills will be different. This creates a growing workforce readiness gap – where organizations and their people struggle to sync growth and productivity with the pace of change.

Because of this, organizations often rely on external talent to plug any skills gaps that exist within their workforce. However, this is hugely expensive and time-consuming – and sometimes fails to solve the problem. Instead, organizations should shift their focus to performance management and internal mobility strategies – upskilling and reskilling their existing employees to be agile and to adapt to the needs of the business.

At its core, performance management is centered around building a systematic approach to help employees and the overall organization achieve their goals and drive business success. This includes goal setting, ongoing performance conversations and development, 360 reviews, and recognition for good work. But in the real world, performance management has faced considerable criticism for being too complex, bureaucratic, and disconnected from the day-to-day reality of employees.

Our whitepaper, 2024 Trends in Performance Management – From Compliance to Agility found that several HR executives report knowing more about their new hires being onboarded than they do about their tenured staff – a striking admission that highlights a critical blind spot in workforce intelligence. Instead of a solely compliance-focused process, organizations need to see performance management as a practical application to assess their workforce performance and gather valuable capabilities data.

In an ideal world, every organization has clear and well-defined business goals. Every layer of the organization, from top executives to individual contributors, understands exactly what's expected of them. Employees have continuous performance and development conversations with their managers to see how they're tracking against these expectations, what skills they may need to develop and what their career progression could look like. They fully understand how they fit within the organization and the value they bring, how their work is connected to business success, and what their growth trajectory looks like within the company.

When performance management and internal mobility work in harmony, organizations create a powerful talent ecosystem that drives both individual and organizational success. The data tells a compelling story – 62% of organizations now utilize performance reviews as a key lever for identifying high-potential employees, and nearly two-thirds report positive impacts on continuous development, capability development, and high-potential employee identification.

Instead of using the typical one-to-five scale and capturing a singular performance rating, forward-thinking organizations are gathering rich data on performance, goal achievement, capabilities, and career ambitions. This comprehensive approach to talent data helps fuel informed decisions and decisions about internal mobility, enabling organizations to grow their talent from within rather than relying on costly external recruitment. Research from the Wharton School of Business found that organizations on average pay external hires 18-20% more than internal promotions. By promoting from within, organizations not only save on recruitment costs but also retain valuable institutional knowledge that accelerates organizational progress.

If managers notice any performance gap, a supportive and structured development plan is put in place. This plan focuses on areas for improvement and provides the necessary resources, training, and mentorship to help employees grow. Ongoing performance conversations between employees and managers reinforce the trust and commitment toward development, making space for adjustments along the way. The goal is to help every employee reach their full potential, ensuring no one is left behind due to a lack of support or guidance -- and ultimately reducing the need to look externally for talent. This approach enables strategic organizational planning by aligning workforce capabilities with business objectives, creating a more agile and future-ready organization

When performance management effectively enables internal mobility, it transforms the recruitment function from a reactive service to a strategic driver of organizational success. This transformation provides visibility into high-potential employees and future leaders. At the organizational level, executives know which roles are critical to the company's success and have a clear understanding of the talent pipeline for these positions.

Think about it: without transparency on career opportunities and the skills needed for new roles, how can employees take action to close their knowledge gaps? An organization that lacks performance and capability data on their workforce cannot be agile – they'll always be reactive to market changes and behind on innovation. These insights support a proactive succession planning process, ensuring the organization is always prepared for transitions and has a strong leadership bench ready to step in.

By understanding where they are, organizations can proactively plan where they should go next. Looking at it another way, if workforce agility is the outcome we're all after, then workforce readiness is your scale to assess your agility. However, the missing piece is employee data — which skills and competencies do we have internally, and which will we need? That's where performance management comes in.

The demands of tomorrow need solutions today. When organizations connect employee performance, mobility and recruitment effectively, they create a cycle where:

For organizations ready to move beyond compliance to true workforce agility, the time to act is now. Those who embrace this integrated approach will build more resilient, adaptable workforces whilst optimizing their recruitment investments.

Ready to elevate your performance strategy and build your future from within?

Download the 2024 Trends in Performance Management whitepaper here. If you're interested in learning more about how you can close the workforce readiness gap, download the 2024 Workforce Agility Report here.