Performance Management in a Tighter Economy

As we move to tighter economic conditions, Performance Management is becoming critically important to organisations and managers. In the last few years, there has been a tremendous move from traditional reactive Appraisal systems to proactive Performance Management processes.

Performance Management concerns every employee and manager and progressive organisations embrace Performance Management as a tool to include and link every employee and manager to the strategic and operational imperatives of the organisation.

And yet, we still find that many organisations persist with once-per-year Appraisals. Performance Management differs from Appraisal in many ways, however the predominant disadvantage of Appraisals is that employees and managers are NOT linked with the Organizational Strategy and this issue alone makes Appraisal a waste of time in tighter economic conditions.

Fewer Resources means more Focus

Common with the tightening of economies around the world is access to resources. As organisations tighten their belts, resources including financial capital, human capital and other resources become difficult to attain. This means managers have less access to financial capital for employee incentives/bonuses and less access to human capital to get the job done. Therefore, managers will have to ensure that their employees are focused on achieving critical objectives and staying focused on these objectives rather than being distracted by working on less critical activities.

Performance Management plays a critical role in achieving this focus. If employees have clear and focused objectives that are tied back to the organisations strategy and operational plan then it is more likely that the strategy will be achieved.

Quality of objectives critical to clear Alignment

To achieve this focus, managers need to have very clear objectives for their employees. In times of plenty, interpretation of objectives was not as critical. For example, the objective may have been “Increase market share form 15% to 20% by 30 June 2009”. The employee interpreted this to mean that discounting the product set across the product range was the best solution and advised the sales force to do this. The manager was actually seeking profitable market share gains from failing competitors.

In good times, this misalignment may not have been critical. In tougher times, this misalignment will cost the organisation dearly.

What this means is that managers will need better skills in setting objectives to align their employees and prevent employees wasting their time on objectives that were incorrect or resulted in the employee’s focus being misaligned.

Higher Frequency Feedback drives achievement of the Strategy

With more focus on short term critical objectives, regular high frequency Feedback will become of paramount importance. Employees will want to know - how are we doing, are we on track, where are we having issues, what else needs to be done? Most Performance Management Software systems provide a mechanism for frequent feedback, for example on a monthly basis. This high level of feedback ensures that the organisation stays focused, deals with issues before they become major problems and work towards achievement of its strategy.

Appraisals more of a waste of time than ever before

If your organisation is still only conducting an appraisal process (the review component without setting objectives) then you will get very little benefit from the process. When time is short and precious, employees will see the appraisal process as a waste of time and make it harder to implement a proper Employee Performance Management process.

Clear Linkages of Reward for Performance

In times of increased demands on employees and managers, both will want a clear link between performance and reward. “If I go the extra mile for the organisation, what’s in it for me?” If the organisation has a clear reward structure (whether pay or promotion or opportunity), then driving behaviors towards increased performance will be straight forward. Where the link between reward and performance is fuzzy, managers will find it difficult to drive increased performance.

Clear Strategy

In a market where both investors and employees have an increased appetite for concise information, management needs to have a clear strategy. The Strategy needs to be communicated not just to the shareholders via investor briefings but also to the employees who have to execute the plan.

The message needs to be different. Investors want to know about Earnings per Share, Earnings Before Interest and Tax. Employees also want to know about the Strategy but in a different way. They want to know their own part of how they contribute to the strategy through their objectives in the Performance Management system. In tougher times, employees want to know more rather than less, they want to know if they have a job and what they can do to ensure the success of the organisation. Annual appraisals do nothing to help deliver on the employee’s expectations for clear guidance, and certainly does not provide a platform for the delivery of an employees role in the strategy.

Summary

Old practices die hard. Organisations that continue old practices also die. Many organisations still operate outdated Appraisal systems to their detriment and to the detriment of employees, managers and shareholders.

Progressive organisations have used tight Performance Management processes for several years and have fine tuned these processes to ensure their employees and managers are Aligned to the plan, know what their part of the Strategy is, understand how they will be rewarded for achievement of the plan and know they will have jobs if they achieve the strategy.

In tighter economic conditions, organisations will need every advantage they have got to survive and prosper. Performance Management provides a clear concise framework to drive business results in a tighter economy.

Hiring and Keeping Staff - The Silver Bullet

Difficulty is mounting for most businesses to hire and retain key staff.

The reasons are many and often hard to manage. For example, when skilled workers retire due to age, there is no simple solution to replace them, nor to retain their skills and experiences, let alone the level of care with which they performed their work.

It is odd that hiring has traditionally been the domain of the HR department when the bulk of the pain is felt by line managers. It's not the HR department which ends up missing deadlines or budgets through a lack of good people.

Leading organisations understand or are realising that the line managers need to be doing different kinds of things in order to be able to retain or replace key team members. It's not about doing more work. Line management are already flat out putting out fires, compiling budgets and meeting production targets or service levels. It's about starting to think and work differently with who and what they have today.

What's strange is that employees want most of the same things as managers want. Most team members want to be able to do a good job. So do their managers. They want to work with a manager they can respect and follow. Managers need them to as well. They want to be "in the know" and be aware of where the CEO is leading the whole business. As does the manager. They want to be paid too, of course. So does the manager and everyone up to the CEO. Who wouldn't ?

But pay is not what usually helps keep good performers. It can help and sometimes delay a resignation but it is very rarely the main reason good employees leave. So why do so many managers always revert to pay as being the problem ? Really, the problems are more akin to employees wanting to know :

1. What is the business doing to develop me as a worker ?
2. How does the business recognize my work effort ? (After all I've been here for years and know more than my managers do)
3. What is really going on in the business ?
4. When was my last review ? Was it transparent and performance based or still based in cronyism and seniority ?

The truth is that line managers need help to understand what their team members really need. Line managers need help to create a transparent process for managing employee career aspirations and ongoing performance development. Line managers need help to retain the knowledge of their teams when someone retires and they need help to visualize who is going to retire and when. This is about consulting, training and tools. Not for the HR department but for line managers.

When managers take this on board, they can start to work with the HR department on what the business really needs, not what the HR department thinks the business needs. It may surprise you how many line managers have stepped up into a HR management role. Why not ? There is rarely anybody else who understands both the business and the internal network so well or is as well positioned to determine future workforce needs.

Succesful Employee Engagement Strategies

Ask any worker around the world what makes them happy in their job and they always say the same things. While the relative importance and order varies, the key issues are always :

• Is my job important ?
• Do I know what really matters in the work I do every day ?
• Can I build a career with this organisation ?
• Do I get regular feedback ?
• How well do I get along/fit in with everyone at work ?
• Do I trust my organisation brand and what it stands for ?
• Do I know what's going on in my organisation ?

At first glance these seem to be the age old questions of Life, The Universe and Everything (Douglas Adams, RIP). Today, it is possible to improve all of the answers to these questions through a combination of Human Resources initiatives.

Traditional Approaches

Traditional approaches have included leadership development, learning and development, a weekend away with the CEO, incentives such as gym membership, employee surveys and so on. Unfortunately these are all short term approaches. The problem being that after the activity is finished, there is usually very little monitoring and continued improvement in these initiatives. Some initiatives work well for sales teams but not for office workers and vice versa. Everyone feels good for a while or learns something new and worthwhile but the effect wears off in the rush of day to day activity, firefighting and deadlines.

Especially for line managers, who are the single greatest influence on whether workers are engaged or disengaged.

New Employee Engagement Approaches

The latest thinking holds that engagement starts from the top of the organisation. We have heard that engagement in at least one organisation has jumped 20% in a short time frame by adopting only some of these approaches :

1. The organisation leaders need to be clear on what they are trying to achieve before they communicate this to the organisation. If the Level 1 Strategy (Organisation Level) is not well defined a Strategy Workshop is required where the Executive Management define and refine a clear strategy.
2. The Strategy needs to be converted into a Strategy Map. This Map is a pictorial representation of the Strategy showing dependencies and relationships of the major parts of the Strategy. The majority of people understand a picture far better and have much more information than from a word-heavy strategic plan written in finance-speak. So buy-in improves.
3. Define the values and behaviors of the organisation and convert them into measures and weighting for employee evaluations.
4. Conduct Strategy Mapping in every major business unit. It’s the line managers who make things happen.
5. Ensure performance and talent management systems are automated. Fix what's reported as broken and tap into critically important and talented workers.
6. Link remuneration and rewards directly to objective high performance outcomes.
7. Ensure every manager sets objectives from the department strategy map to properly align every single worker.
8. Make every Manager Accountable for reviewing progress once a month. If your Performance Management system is capable of delivering a quick touch-base progress review each month, this becomes easy. Managers sit down with employees for 10-15 minutes each month and do a quick update. In delivering these quick touch-base or One on One Meetings and ensuring they are happening.
9. Career and succession planning must be merit based. Identify career aspirations match, qualifications, historical performance rating, potential rating, competencies match/rating, mobility, age based retirement

Maintaining a Good Relationship With the Manager

This is a factor that is not as easily achieved by any single initiative except that improvements will have been made through:

• Clarifying purpose – managers will have to interact with staff in the Strategy Mapping phase
  
• Setting Objectives – managers will have to spend time with their staff while setting objectives. They can no longer avoid staff contact.
  
• One on One Meetings – Managers will be required to conduct 10-15 minute touch-base meetings. Progress and Status of Objectives will need to be updated. Again, we are improving relationships between employees and managers by ensuring there is adequate ongoing communication.

Almost all the above strategies force the line manager to talk to her staff and this almost always makes staff happier and engaged. If the process is automated, bad managers are very easy to identify through simplified graphical reporting.

High engagement really means helping your managers engage their staff. The HR department can't engage every single worker but they have the greatest influence over facilitating processes and systems which will.

How to Finance Human Capital Projects

People Are Warm

People are constantly investing. Much more so of their own feelings and emotions that their own money. When people invest of themselves, they prefer their human investment to be returned at some stage. If you are supportive of a friend or peer, you would like to think your investment in them will at least be acknowledged, appreciated or possibly returned some day. Altruism exists but is rare.

Money Is Cold

Money is also constantly invested. But money demands that it not only be acknowledged or appreciated but that its investment be significantly multiplied. If financial capital could be your friend then it would be a highly demanding friend. Investment money knows no altruism (people are charitable, money isn't) and absolutely insists on not just being repaid with interest but on being repaid several times over in a very short timeframe.

The Human Capital Business Case

Any Human Capital investment decision must therefore act in two ways. It has to satisfy the people who are the subjects of the initiative, the workforce, something that can be discovered by asking them retrospectively. And it must satisfy the finance manager, by measuring the financial impact of the initiative, also retrospectively. Assuming it's all good in hindsight, how is it possible to make it all work with foresight ?

In a nutshell, the Business Case must determine the financial benefit along the lines of :

"If you spend one dollar on this Human Capital initiative, and it improves the effectiveness of the workforce, each dollar will be returned NNN times within 12 months. (and MMM more over the next two years)"

Constructing this is not as daunting as it might look. How many dollars would be saved if recruitment was cut by 10% next year while still holding onto your most valuable workers and managers ? If you could improve leadership effectiveness by 5%, how many times over would the cost be repaid in the next 12 months and how ?

The HR department are the unrealised heroes of todays knowledge workforce. Who else can increase organisation output and at the same time help reduce organisation costs overall ? Someone needs to tell finance."


BUSINESS CASE WORKSHEET

Organisation Data:
- Number of full time and part time staff
- How much we spend each year on salaries, wages, overtime

How much we spend each year on bonuses and Incentives:
- If we cut misdirected bonuses by 10% next year, this will add up to $BBB

How much we spend each year on contractors:
- If we identify 10% of roles which can be converted to full time, this will save us $CCC

How many people we expect to resign this year:
- If we stop key employees from leaving, we will save $EEE on recruiting cost and at least $20,000 each to bring each new hire up to 100% effectiveness in their new role.

How much production or service delivery in $’s we lose each year because of injury or illness:
- If we cut injury rates by 5% and illness rates by 2% each year, we will gain production for those days we have saved at about $1,000 per day

If we can increase employee engagement by 10%, how much can we increase production $’s

If we increase employee performance by 2%, how much can we increase sales margin by ? Reduce defects by ? Improve client satisfaction ratings by ?

Strategy Mapping For the Executive Team

People make or break organisations, regardless of what the strategy or the leaders say. The greatest tension between the HR department and organisation leaders is working out how to align every single individual as an important contributor to the strategy. Failing to get every worker to understand their own part in the strategy can easily lead to a failure of the strategy itself. If nobody gets it, how can they achieve it ?

Strategy aligned measures must all be communicated in plain English and then be measured on a regular basis. Measures are much more than purely financial and might include :

• customer service
• compliance frameworks
• employee behaviours
• job competencies
• learning and development plans

But if the leaders don’t participate, who else will bother ? The process used to set these targets at C level is called Strategy Mapping.

What is Strategy Mapping ?

Strategy mapping is a cornerstone of business-aligned strategies. Done right, it produces clearly defined objectives with measurable results. It is a principle method of

a) aligning; and
b) planning; and
c) communicating

overall business direction and strategy.

A strategy map is built from the top down, so it is important to understand the ultimate objective of the organisation before identifying the supporting objectives needed to achieve it. There are several benefits to be gained from strategy mapping. Perhaps the most critical is the focus on cross-functionality. The strategy map forces the organisation to think about how the various functions interact with and support each other. Another benefit to be gained is the improvement in organisational communication.

Strategy mapping specifically assists in graphically drawing and communicating the strategy among executives. Then it helps by cascading smaller chunks to line managers and even smaller but more specific objectives to their employees, by connecting such things as :
i) shareholder value
ii) customer satisfaction
iii) risk management
iv) quality management
v) innovation
vi) organisational design; and so on
Therefore, alignment can be created around the strategy, which makes for much easier implementation and execution.

A common disconnect is that employees see no connection between their job and the strategy of the organisation; the Strategy Map can help close this gap. A clear picture of what the ultimate objective of the organisation is and how the various functions fit into achieving it goes a long way towards illustrating the ‘fit’ of different employee groups.

The strategy map provides a good start to the strategic process. It assists in taking multiple departments with multiple objectives and to develop a common purpose and direction. It can also provide the framework to determine what initiatives are critical to facilitate strategic plan execution and what measures would be best to assess strategic performance.

Strategic Services in Employee Performance Management

A lot of organisations have tried to implement Employee Performance Managment by buying new software and have failed. One of the most frequent causes is a lack of alignment between organisation strategy and individual performance goals. This applies from the top to the bottom of the organisation. We have found that four seperate initiatives are required to get alignment right and all of them revolve around the communication of strategy objectives.

In order to properly align with, the solutions are :
1. Strategy Mapping
2. Manager Objectives Training
3. VQTQ and SMART Objectives Quality
4. Executive Objective Writing

We think this combination of services is a world first.

Strategy Mapping
Strategy mapping takes the strategic plan, critical organisation objectives and boardroom feedback as input into a detailed organisation performance plan. Executive dependencies and exceptions are all mapped and documented. Measures of success and failure are then assigned for each executive for each part of the strategy. This removes goal ambiguity at the top level and aligns the executive team to the organisation strategy.

VQTQ and SMART Objectives Quality
The well trod path of using SMART as an objective creation framework no longer works because this is seen as a HR inititiative and because people simply don't speak that way to each other. When was the last time you or anyone you know used SMART language around the water cooller ? It's just not the way people communicate.

PeopleStreme Human Capital developed the VQTQ methodology for creating objectives. This methodology is now embedded in our Performance Management software as a quality analytics tool. It measures how many and what sort of broken objectives exist throughout the entire organisation. This gives the HR department some much needed business input into organisation goal setting and achievement.

Manager Objectives Training
Line managers usually struggle to find the right language to express their businesss needs to their team members. During the three years we have been providing this training service, we have created a dictionary of acceptable performance related terms for managers to use. This makes it much easier for managers to set meaningful, measurable, high quality objectives. When coupled with the VQTQ methodology, outstanding training outcomes are achieved. Line managers don't seem to be able to receive this training anywhere else because management schools and HR instructors often lack the business context to deal with day to day line management issues.

Executive Objective Writing Workshops
Executives generally hate being told what to do by people who they feel don't understand their business. One to one executive workshops help executives develop their own performance objectives for their own part of the business. These workshops are tailored for each executive. The end result is well designed objectives which executives can express and delegate to their management teams.

Employee Performance Management 2.0

The world of Employee Performance Management (EPM) has had a seismic shift in the last twelve months. Many organisations are now being caught napping as their industry or government sector embrace new employee performance methodology as well as technology. For example, at least one multinational petrochemicals corporation has flown forty delegates to Australia to receive training on Management Objective Setting.

Even organisations who have previously automated their process are now reviewing their position. Notably Victoria Police, who recently invited public tenders for just this purpose.

It is worth reviewing what the perceived problems with Performance Management systems were twelve months ago.

Where Most Employee Performance Projects Fail - The Old Reasons *
1. Our Appraisal System does the job
2. Running the system on paper
3. Force fit the organisation to the software
4. Build it ourselves
5. Assume line managers can cope with a manual system
6. Assume it's easy for line managers
7. Thinking automation will lower objective and review quality
8. People will do it on computer and never meet face to face
9. We can't afford it

* Extracted with permission from www.peoplestreme.com Whitepapers

Increased Choice
Awareness of these issues and how to deal with them has improved considerably with the proliferation of competing Employee Performance Management solutions. This increase in supplier competition also validates the demand for EPM which is now drawing more suppliers into the industry in order to meet increased demand. This is all good news for users of Performance Management systems who now have a much better choice of solutions than they did twelve months ago. Many suppliers can now deal with the majority of The Old Reasons.

But demand and competition have a significant impact on innovation through new product releases and consulting services. In the last year or two, the focus has shifted from HR process to organisation strategy and the boardroom.


What is Employee Performance Management 2.0 ?
The most striking change has been the visibility and adoption of Employee Performance Management by the CEO and executive teams. It is no longer being seen as a HR process. The board and CEO now recognize EPM as an important initiative which can actually help them achieve their goals much more quickly. This change in perception has come about because :

a) EPM suppliers are starting to provide Strategy Mapping services to the board and executive teams. These services, otherwise known as Alignment Consulting or Objective Alignment, take the organisation strategy and break it up into smaller pieces, then assign the pieces to individual executives. Obviously, each executive relies on others so the interdependencies between executives are also mapped and quantified. This creates a sense of openness in the senior ranks as all personal goals start to be aligned with the organisation strategy.

b) The EPM process has become the enabler for strategic management frameworks such as Balanced Scorecard, Six Sigma etc. These frameworks deal with big picture issues and very few (and usually quite vocal) organisations have succeeded in aligning these frameworks with what most employees actually do every day. Performance Management is an excellent method for cascading down organisation objectives and breaking them into smaller and smaller chunks for individual employees to digest.

c) Compliance frameworks such as Sarbanes Oxley and Basel, risk frameworks such as ANZ 4360 are all being mapped into PM systems. This is more an activity management exercise but PM systems are well suited to dealing with compliance issues as compliance is simply one more thing than needs to be measured.

Finally, it is very rare to find executives who know how to set high quality abjectives. (Test your objective quality at Objective Testing). Some EPM suppliers also provide a consulting service to help managers use the right language when setting objectives.

The HR executive and management team have also seen significant improvements in Employee Performance Management 2.0 solutions, including :

i) Quick face to face style reviews
ii) Internal blogs and web pages for staff
iii) Employee Recognition and Reward Systems tied into PM
iv) Organisational Charting
v) Talent Management including succession planning for whole of organisation

The following breakout box lists the key issues facing organisations wanting to explore the benefits or Performance Management today.


The New Reasons Why EPM Systems Fail
1. Not Strategy Focussed
The performance initiative was not directly tied to organisation strategy by the EPM supplier
2. Not linked to Outcomes
Executives and managers were not trained in how to set objectives - SMART is not a valid method
3. Price and Value Are Confused
The EPM supplier did not provide a valid business case or express EPM benefits in a way which executives can understand
4. Software Supplier Only Provides Software Training
having more than one supplier involved in the EPM project often leads to finger pointing
5. Weak Reporting
Too few or meaningless reports turn the executive and management team off the initiative
6. Weak Employee and Manager Features
Simple goal setting and review systems have been outmoded by feature and content rich EPM systems e.g,. objectives library, position description library