Performance management systems serve as important “feeders” to other human resources and development activities. For example, consider the relationship between performance management and training. Performance management provides information on developmental needs for employees. In the absence of a good performance management system, it is not clear that organizations will use their training resources in the most efficient way.

Performance management also provides key information for workforce planning. As noted earlier, an organization’s talent inventory is based on information collected through the performance management system. Development plans provide information on what skills will be acquired in the near future.

This information is also used in making recruitment and hiring decisions.
Knowledge of an organization’s current and future talent is important when deciding what types of skills need to be acquired externally and what types of skills can be found within the organization. Finally, there is an obvious relationship between performance management and compensation systems. Compensation and reward decisions are likely to be arbitrary in the absence of a good performance management system,

In short, performance management is a key component of talent management in organizations. It allows for assessing the current talent and making predictions about future needs both at the individual and organizational levels.