performance management – no longer "flying under the radar"

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Performance Management – No Longer “Flying Under the Radar” Mark A. Albrecht Vice President of Consulting Salary.com Bob Anderson thought of himself as a key contributor to a strategic product launch at his company, that is until he received “Meets Expectations” on his performance appraisal at the end of a year of solid overtime. Sure he understood that the economy only recently began its recovery from an over-extended recession, and that management were being “prudent” in linking merit increases and bonus payouts to the company’s modest performance over the past year. But Bob knew his “better than average” effort would pay off big for the company in the coming year, and he didn’t feel “average” at all. So Bob accepted a similar job with a competitor for a 15% increase in base and an expectation of significantly more bonus. His former employer didn’t ask why Bob was leaving during an exit interview, and didn’t connect the dots that Bob was actually named on the company’s “High Potential” list. During Bob’s first week on the new job, his manager sat down with Bob to define his goals for the year, several developmental objectives, and together they mapped out how Bob’s projects would be tied to his performance review and his pay. Bob was excited with this refreshing “win-win” culture. This came as no surprise to Bob’s new manager, Catherine, who had participated on the team to roll out the company’s new performance management initiative. The program, called WIN TOGETHER, aligned all employee goals with company strategy, identified key talent needed to meet the strategic programs, and communicated to talent pool members (Bob being one) how to further their career. In addition, the program made the pay-for-performance link explicit and clear so top contributors would be rewarded whether their contribution was measured in quarterly sales or in future revenue from new products, as in Bob’s case. As Catherine explained to Bob, during the first two years in operation executives decided to keep the performance management program on a low profile. The program was considered to be primarily a management tool, focused mainly on the goal setting and performance appraisal processes. Employees responded positively, and productivity improved. Management realized that employees enjoyed direct involvement in setting goals. Looking across the company, executives observed that greater benefits were being achieved in those organizations that tied the performance program to business unit goals, recruiting needs, organizational development programs, and particularly when tied to

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Performance Management Mark Albrecht

compensation. So the word had gone out from the CEO that managers were no longer to treat the program as a performance assessment initiative, but were asked to directly involve all employees in planning and managing performance as a team, to WIN TOGETHER. The performance management program was “no longer flying under the radar” Employees were defining more aggressive goals and targets than their managers. HR leaders were presenting at executive meetings how workforce improvement programs were driving the recent profit growth. Managers were consulting with HR for advise on motivating and rewarding employees. The CEO of Bob’s former company read a news announcement about how a key competitor had won a multi-million dollar systems integration deal based on a key component of the proposal – the WIN TOGETHER program for working collaboratively with the customer and other contractors to ensure the highest team productivity on the project. “That’s why we lost the bid,” he thought. What was this WIN TOGETHER program and how could he get one? If this scenario sounds far fetched to some, it doesn’t to Steve Ostiguy Steve Ostiguy is the Manager of Organizational Performance at Textron Financial, a division of Textron Inc. Textron is a Fortune 200 corporation with businesses in helicopter, aircraft, fastening systems, tools and components, and financing with $10 billion in revenue and 43,000 employees. With its businesses focused on high performance products, Textron has been working to improve its performance management process over the past ten years. According to Ostiguy, “Based on the reaction of newly hired employees, Textron’s performance management program is a refreshing change of culture. Within 30 days of hire, new employees know specifically what their objectives are and what they’ll be measured on at year end. Managers start with company goals and work with new employees to define employee objectives that support the company’s direction and programs. This discussion results in a set of employee deliverables that will be used to determine their performance as well as their pay. This makes it crystal clear what their deliverables are.” If this sounds like a pay-for-performance approach, you’re right. Ostiguy admits, “we’ve been talking about pay-for-performance for a long time, but this is the first time we’ve actually done it. The 2003 annual review cycle is the first time we’ve been able to pull all the pieces together.” At Textron, these “pieces” include having a common global




performance management process, 100% compliance from all managers and employees, global alignment of objectives from the top of the corporation down to every employee, and actual measurement of performance results. “Now we know what our performance is,” Ostiguy summarizes. “You can’t pay for performance if you don’t know what your performance is.” Steve Ostiguy confirms that this would not be possible without an automated performance management system to facilitate a timely process, ensure compliance, and promote a common approach for measuring performance across Textron’s numerous business units. Textron uses a Web-based performance management system to manage goal deployment and alignment, semi-annual performance reviews, and employee development planning. With the system Textron is able to ensure 100% compliance and complete the global performance and merit review processes in 30 days. Everyone says that you need senior management commitment, but what does this mean? According to Ostiguy, “The software solution, while necessary, is not the end all. People loved getting an automated solution. But getting them to use it required supporting processes and management commitment. The only way to get 100% compliance is to have the CEO’s commitment, to report on employee compliance, and to measure the process.” At Textron, the performance management program is not simply about appraising employee performance, it is an operational performance program. Steve Ostiguy makes this point clear by explaining that, “At Textron, the number one business goal is ensuring 100% compliance with the performance management process.” That right – it’s the number one goal at the top of every business executive’s list. And 100% compliance means completing all three touch points of the Textron performance management program for everybody: 1) goal setting and alignment within 30 days of the new year or date of hire, 2) timely completion of the mid-year performance review, and 3) on-time completion of the annual performance and merit reviews for every employee. Textron executives have made performance management a central component of their competitive strategy, in keeping with their core value: “focused on disciplined execution.” First attempts to automate the performance management process are not always successful As Jason, HRIS Manager for a leading food processing company recounts, “We implemented a Web-based performance management solution from one of the leading software vendors in 2002, but after a year or so the solution was dropped.” Again, the




CEO communicated that driving goal alignment throughout the organization was a critical business priority. But the company found that implementing performance management is not just about aligning goals. As Jason describes, “The issue was really at the line manager level. Some followed the process, others didn’t. Since adherence wasn’t strictly enforced, we didn’t get as high a level of compliance as we wanted.” Other factors contributed to the decision to start over. “For one,” says Jason, “when we began the project, HR’s process for performance management was in a state of flux. Every year the procedures were changed, new rating scales were adopted, and new assessment templates were designed.” The company found the vendor’s performance management software to be a challenge as well. “We weren’t satisfied with the software’s process which didn’t map well to the way the company conducted performance management. HR proposed a common approach, but business units didn’t fully buy in. A lot of people were uncomfortable with having to conform to the system-driven process.” Jason summarizes his company's experience, “We now know that our performance management requirements may be more custom than a standard vendor solution. We also recognize that more activity is needed prior to implementation to ensure buy-in from all business units. Since performance management touches so many employees, buy-in is a larger factor than one might first think.” Many companies look at the internal development option Joe, Corporate Manager of HR Planning Systems at a leading retailer, shares the company’s experience with an internally developed performance management solution. “We felt our performance management requirements were unique. Our company has 4,400 store locations with only 8 to 10 people in each store that are part of the performance management process, and an additional 16 part-time employees who may participate on a voluntary basis. In addition, our business processes are simpler, but more distributed than other industries. So typically when we look at vendor solutions that are priced per employee [more than 150,000 in our case], they simply cost too much.” So the company developed their own Web-based performance management solution a few years ago. They designed the system to enable employees to start with a self review in March, but because the stores are so distributed and autonomous, employees would not get their reviews back from managers until May or June. “That’s just too long to have the desired impact,” says Joe. “We also elected to conduct performance reviews by district on a focal review basis, but to conduct compensation reviews on the employee’s anniversary date. This was by design. Our pay philosophy for managers is a pay-for-performance model, but we found




that the disconnect in the timing of the two cycles can detract from the pay-for-performance connection.” The company also found that administering the internal solution is more of a challenge than they first thought. Joe admits, “In hindsight we can see that we are not experts in building and maintaining performance management systems, and that we should be able to rely on the experience of a vendor to do things in the best way.” Some companies focus on the business problem Michelle, SVP of HR for a national health care provider, faced a challenging business problem. The company, which has grown by acquisition, provides specialty pharmaceuticals and critical wound care services. Their challenge was managing a largely remote employee population that work at non-company facilities such as hospitals, pharmacy branch offices, and home health services. Michelle recounts, “Our challenge in HR was to find a way to get remote employees connected to the goals and objectives of the organization.” “In healthcare we’re required by JCAHO [the healthcare accreditation organization] to ensure timely performance appraisals, and to evaluate the competencies of our employees,” continues Michelle. “But we needed more than compliance with regulations to be successful as a business.” The company acquired a software solution to manage performance appraisals, as well as to define employee goals and quarterly action plans that align with business goals. “By tracking employee progress on their action plans, we know we’re making progress as a company.” For our organization, performance management is a vital operational management tool. In many organizations the challenge of a remote employee base might increase resistance to change. Why was this company's performance management program successful? Michelle summarizes, “You’ve got to have a solid implementation plan and tailor the training to the needs of each audience. Because we are a relatively young and growing organization, the workforce was hungry for just such a program to help employees understand how they contribute to results.” Performance management is very much “on the radar!” Remember the opening scenario with the former CEO’s comment?

“That’s why we lost the bid,” he thought. What was this WIN TOGETHER program and how could he get one?

In fact, last year as this author interviewed an HR executive about the reasons for purchasing a performance management product, the executive said bluntly, “because we know our key competitor has implemented one, and we don’t want to fall behind.” This




Figure 1

Changes in Business Priorities for Leaders2003 vs. 2001

-10% -5% 0% 5% 10% 15% 20% 25%

Improve or leverage talentControl costs

Improve customer relationships/serviceImprove production/operating efficiency

Identify ways to improve qualityImprove maarketing image or reputation

Expand or strengthen international presenceManage new acquisitions or mergers

Improve company cultureIncrease revenue/sales (growth)

Develop new technology and/or processes (innovation)Enter new markets

Build new company capabilitiesDefine a clear or new company strategy

Change in Percentage of Leaders Selecting the Priority

HR executive was completely sincere about the concern that they could lose the competitive edge. Several recent surveys have confirmed a consistent finding – HR executives view performance management as one of their top three initiatives. One such study entitled "HR on the Edge: Future Trends You Need To Know Today” was prepared by Development Dimensions International (DDI) in partnership with Human Resources Executive and HR Forum. This study included over 300 HR executives from organizations around the world. According to Audrey B. Smith, Ph.D., Sr. Vice President of Executive Solutions at DDI, “When Respondents were asked to rate the importance of a set of human capital management focus areas over the next 2-3 years, performance management was at the top of the list (after rising benefits costs), followed closely by talent acquisition, identification and development.” DDI tracks “Changes In Business Priorities For Leaders.” Smith continues, “When we compare the percent change in leaders’ priorities from 2001 to 2003, we see that leaders are focusing much more attention on improving or leveraging talent, even over increasing revenue or sales growth (see Figure 1). Audrey Smith adds, “CEOs and senior leaders who are serious about creating focus and driving strategy execution recognize that performance management harnesses the energy of organizational associates so they march in the same direction. In fact, many have repositioned performance management away from an ‘appraisal’ strategy – instead, refocusing it as the primary business process for managing and measuring successful execution.” Dianne, Director of the Performance and Career Management Center for Excellence at a leading aerospace corporation, describes their experience, “Our company has been using a performance management product for over 10 years. Our focus has been on career management, succession management, development, and coaching for our management group. We recognized that our business was driven by our talent or bench strength, and




we were concerned about the effect that a potential talent crunch could have on the business. So we have developed a very integrated approach to career life-cycle management for our current executive and management candidates.” For most organizations that might sound like a limited employee population, but this company manages the careers and rewards for some 2,000 executive positions and several thousand candidates for those positions. This is where they saw the most important benefits from career management. Dianne continues, “We conduct performance reviews for our management group, and we focus most on achievement of results and the relationship of performance to salary planning decisions. It’s paid off in a strong talent bench of future leaders who are contributing to the business today.” What should be the HR executive’s role in performance management? Most HR executives refer to performance management as a responsibility of their organization. However in companies with more mature performance management programs the responsibility for performance management is shared between HR, senior executives, and line managers. Each group owns different aspects of the program. HR executives typically own the performance management process and standards. Increasingly, the HR executive’s role in performance management may depend on their ability to take a lead role in the business. Karen Hanlon, SVP of Human Resources for Seagate Technology explains how she got involved in the company’s performance management program. “I had spent seven years working oversees with Seagate business units in the traditional business partner role. I saw our operations from the perspective of business unit executives and line managers, how people struggled with sub-optimization and inefficient processes. I saw first hand how organizations competed against one another or worked on conflicting priorities.” “As an HR professional, I wondered ‘How can HR impact our business the most?’ When I looked at the myriad activities that occupied everyone’s day, I realized that performance management was the one thing that HR could improve that would deliver the most benefit to the business,” Hanlon explains. So she embarked on a mission to make performance management the vehicle for improving how Seagate business units worked together. During March through June of 2002, Seagate piloted a vendor solution that focused on goal management. “During this pilot, executive-level employees across the globe entered their goals into the system, and for the first time could clearly see where they were aligned and where they were not. This gave Seagate a common process for aligning goals and priorities across the company, resulting in better teamwork and focus almost immediately,” recalls Hanlon. The new process was a success.




Today, the goal management process is the approach used by business units for short-term strategic planning – a process that Karen Hanlon the VP of HR owns and facilitates. The success of this process is her number one personal goal. Understand your current “pains” in performance management There are lots of reasons why HR executives believe that performance management is a priority. Some popular “pains” expressed by HR executives include: Time consuming and error-prone manual processes Poor compliance by managers in completing performance appraisals Lack of ability to identify top performers, especially across organizational groups Inability to link performance to pay Lack of company-wide standards in measuring performance Inability to track development plans and activities Difficulty of performing a competency management program manually Lack of an integrated approach for talent acquisition and talent management Difficulty in administering a multi-rater (360 degree) review program for

leadership development with anonymity Low quality of performance discussions between managers and employees,

reluctance of managers to give more candid feedback Difficulty in confirming the alignment of goals throughout the company Lack of employee accountability for goals and performance

Based on research performed by the author, the “pains” that HR executives describe are generally consistent from company to company, however, the emphasis will vary.

A financial services firm speaks about their “pain” in call center operations as, “we need to be able to identify the top performers quickly, since they are frequently 10 times more productive than others. And we need to know how to make others more productive.” A healthcare organization talks about the JCAHO accreditation requirements that mandate timely performance reviews and the ability to differentiate job competency levels. A consulting firm emphasizes career development and talent management since their business is based on the capabilities of their people. A manufacturing company highlights the need to align employees with company goals and using performance management to improve operational performance.

Companies should consider what makes their organizations unique when selecting a performance management solution. As Director of Human Resources at a major




entertainment company, Bob had the challenge of selecting a performance management solution that would leverage the unique capabilities of its people while getting them to pull together in support of company goals. Bob explains, “Our business is direct marketing in the entertainment industry. We recognized that the key to our success was in recruiting and managing very talented people. Our performance management program needed to help us manage the unique skills and capabilities of our workforce, and yet get them to work together. We turned to a performance management vendor that included competencies as the basis for all areas of performance management including staffing, performance assessment, and development. This enabled us to quickly implement an end-to-end workforce management system that enabled managers to recruit candidates with the right skills, manage the development of the job competencies, and get everyone working together by aligning with company goals.” Top myths people believe about selecting and implementing a performance management solution Myth 1: The most important benefit from a performance management

solution is time saved in the performance assessment process. It’s interesting that this is the primary benefit or justification people typically use for embarking on a project to select performance management software. Admittedly this is a large and compelling immediate pain that companies are experiencing when they decide they need an automated solution (or a better one). The most obvious way to calculate expected benefits would seem to be to total the number of person hours spent by managers and HR personnel, and then to multiply this times an hourly rate to identify the size of the current pain. But is a 50% reduction in this number the largest benefit or even the goal of such a program? The answer you get is different depending on whom you ask. In fact if you ask organizations that have not yet implemented a performance management solution, they typically state the myth. However, as Figure 2 illustrates, when you compare answers to those organizations that have already implemented a performance management solution and have had time to experience the benefits, their answers are quite different.




Companies that are “not experienced” with performance management software typically describe the “most important benefits” as related to “time savings” and “better compliance with the assessment process.” While it’s true these are factual and important benefits, companies that are “experienced” with performance management software cite the most important benefits are “improved ability to link performance to pay,” “better talent management and development programs,” “improved employee relationship and motivation,” and “improved contribution to business results.” The reality behind this popular myth is that the direct benefits from automating the assessment process, while necessary, should not be considered the primary goal of the performance management program. It’s what you do with the information that’s most important. Myth 2: The maturity of your performance management process doesn’t

matter, the software will enable you to implement “best practices.” Of course companies vary as to the current level of maturity of their performance management programs. The word “program” is being used here to refer to the performance management processes, practices, and culture, not to the level of automation or what solution is used. Experience shows that the maturity of a company’s current

Figure 2

What are the most important benefits you’d expect from performance management software?

0% 20% 40% 60% 80%

Percent of Respondents

Streamlined assessment process or system

Better compliance with the assessment process

Improved contribution to business results

Improved employee relationship and motivation

Improved manager performance discussions

Better talent management and development

Improved link of performance to pay

Companies not experienced with performance management softwareCompanies experienced with performance management software




performance management program directly impacts the success they will have with a particular improvement or automation initiative. A simple maturity model is offered in Figure 3 below that companies can use to evaluate their current performance management maturity level. Most companies today would be classified as within Levels 1 to 3, with fewer companies at the higher maturity levels. For example, a company at Level 3 maturity would typically have a formally defined, company-wide program for performance management, a common set of appraisal forms, agreed standards for rating employees, and perhaps a well-connected process for development planning. Such a company should also be recording and using performance management information as part of managing the business. For larger organizations it is typically difficult to reach this maturity (Level 3) without some form of automated system, simply due to the volume of information and steps in the process. However, the closer a company is to maturity Level 3, the easier it is to implement a performance management solution with success. Companies often encounter problems when they are currently operating at a Level 1 maturity and expect a vendor’s product to quickly get them to Level 3 or 4. The cultural support, practices, and standards are simply not in place at Level 1. Starting with an assessment of your company’s maturity level is a good way to identify reasonable project goals, the gaps in current processes or practices, and the general readiness of the organization to adopt changes. With this assessment in hand, you are better prepared to develop a realistic plan for success. Myth 3: Selecting the Best Vendor From a “Magic Quadrant” is the Key to

Success.

Figure 3

© 2003 - 2005 Mark Albrecht

Performance Management Program Maturity

Level 1:Informal – No Formal Performance Management Program

Level 2:Basic Employee Performance Assessment Program

Level 3:Formal Company-wide Performance Planning and Management Program

Level 4:Integrated

Pay-For-Performance Program

Level 5:Best Practice Pay-

For-Performance ProgramM

atur

ity L

evel




Last year it was difficult to find an industry analyst’s report that provided any detailed review of the software vendors offering a performance management solution. That’s because this software category is only now maturing to the degree that industry analysts can provide some reasonable advice. A key challenge has been understanding vendor offerings, since vendors from about ten different application categories decided to offer a “performance management” product (see Figure 4), and each had a different perspective or interpretation of the scope and functionality appropriate for the category. This was understandable given each vendor’s background and interest. But this only served to complicate the selection process for customers, and the evaluation process for analysts. During the past year the performance management software category has been moving toward a more common definition of components. However, there are still wide differences in scope and functionality that customers need to understand. In reality, each vendor’s emphasis in performance management is different, offering unique strengths for customers with different requirements. So if you think that all you need to do is select the “winner” in an analyst report, the reality is no one vendor’s solution is best for all companies. With more than 30 vendors in the category, selecting the right software is the HR executive’s latest challenge. Selecting the right performance management software for you Embarking on a software selection project the “old way” through an RFP (Request For Proposals) approach or a lot of vendor demos won’t ensure the right decision. In fact it’s almost sure to take more time than necessary and make the decision more confusing. The RFP approach just delays the achievement of some very real benefits. What HR executives need is a “Performance Management Selection Framework” like that shown in Figure 5.

Figure 4

Navigating The Performance Management Vendor

Landscape

LMS

PMBI

ERP

CRM CPM

HRMSEIM

WFM CMS?




The selection framework should offer a more straightforward approach to the selection team by: • Identifying your critical requirements so the choice of vendor can be made based on

what will make a difference for your company (rows in framework). • Classifying vendors into logical groups based on their product heritage and

strengths. This enables a quicker identification of a short list of relevant vendors for initial review (represented by the vendor columns in the framework in Figure 5).

• Applying a structured approach for comparing your company’s unique requirements

to the performance management vendor framework. This selection approach helps “boil down” vendor rhetoric and positioning statements to arrive at a clear understanding of their offering.

Figure 5

© 2003 - 2005 Mark Albrecht

Performance Management Vendor FrameworkO

ptio

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Com

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Bas

ic

Com

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nts

Adv

ance

dC

ompo

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PM SuiteVendors

Pay For Performance

Vendors

EnterpriseVendors

NicheVendors

Core PMVendors

Key Functionality

Compare Your Company’sUnique Requirements Against

The Vendor Framework

LearningManagement

Vendors

©20

03 -

2005

Mar

k A

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Pay

–Pe

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Com

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General usability




Understand your business first Selecting performance management software is more than an HR decision, it must involve the senior management team as well. The first step is to develop consensus among executives on the goals for the performance management program and what makes the company unique. Next, a software selection team should be established with people who represent the interests of executives, line managers, the Human Resource organization, and employees. This team should be given a project charter from company executives that summarizes the outcome desired and the importance to the company. The selection team should start with an assessment of the level of maturity of the current performance management program to understand the business readiness and what improvements will be realistic. Only then should the selection team begin defining specific functional requirements, exploring vendor alternatives, and estimating return on investment. Many selection teams spend too much time looking at all possible features. If the selected product fails to meet your company’s critical business needs, it doesn’t matter how high the vendor’s overall score is on a detailed ranking spreadsheet. It’s important to know your priorities. Lastly, decision makers need to realistically assess the “relationship” that will be established with the selected vendor. Vendors in this category come in all sizes, talents, and philosophies. If performance management software products were truly a commodity, you’d just buy them on eBay. Want to know more? Mark Albrecht is the Vice President of Consulting at Salary.com (www.salary.com), the technology leader providing pay-for-performance solutions and compensation data to more than 1,000 enterprises. Prior to Salary.com, Mr. Albrecht founded BusinessPerformancePartners.com a consulting firm that helps companies improve their performance management programs. Mark has spoken at the HR Technology Conference and Exposition for the past three years on how to select performance management software and improve your success with implementation. For answers to your questions or to provide feedback, Mark can be reached at [email protected].
