Why Employee Performance Management Technology Matters to CEOs

Transcription

1 Why Employee Performance Management Technology Matters to CEOs

2 Boards should keep their noses in the business and their fingers out. -Jim Brown, author of The Imperfect Board Member The board has no business telling management what employee performance management system to use, but it is their duty to ask if management has an effective system in place. Sometimes from the board s vantage point the employee performance management system may seem just an off-shoot of the budgeting process, but it ought to be much more than that. It ought to be one of the central tools for directing and monitoring activities right across the organization. If it is not doing that, then the board (and CEO) need to be concerned. An article in HR Magazine (Jan., 2007) speculates, Performance management metrics and efforts are so critical to corporate well-being that several industry analysts predict they ll become part of Wall Street critiques and corporate annual reports within the next five years. Employee performance management, often relegated somewhere down in the HR department, is correctly being seen as a governance issue. CEOs wonder: Are we all pulling in the same direction? Are we able to change course? Are we falling behind the competition? Are we improving productivity? Will we hit our numbers? Can we keep our best employees? The employee performance management system is meant to ensure the CEO gets the right answers to those questions. But in most organizations employee performance management doesn t do the job. Da Vinci s Helicopter Leonardo da Vinci is sometimes credited with the invention of the helicopter based on his notebook sketches. But his designs didn t amount to anything because without the internal combustion engine to generate sufficient power the da Vinci helicopter could never get off the ground. Employee performance management systems are like that. Most organizations have the design, sketches of good process in policy notebooks, but not an effective system in place. They need a simple piece of technology, they need an engine. Paper-based performance management systems simply generate too much friction to fly.

3 This is why employee performance management technology is not just a matter of easing an administrative burden; it s the well-oiled engine that allows the system to work at all. What Employee Performance Management Does The new performance management technology systems are usually referred to as Employee Performance Management (EPM). The most important thing that EPM does is put all the performance management information on-line and automates the work flow. This means the process is faster, much more reliable, and the information the process produces is accessible. One of the big cultural changes that sometimes occur with EPM implementations is that managers say, Oh, you mean we really need to do this now? In a paper-based system the process could be put off, forms could be handed in late, and managers knew no one was really watching the output closely. With EPM this all changes. There are other advantages to EPM such as linking up to the training management systems and providing on-line help for managers struggling with the process but that s the sizzle. The real meat of EPM is that is takes a process that was painfully creaking along and makes it work. With EPM, goal setting, employee appraisals and employee development planning are done on time. If a manager is late, his or her superiors know immediately and will want to know why. If a manager is not setting clear goals then that is visible to anyone up the EPM Outcomes Every person had an on-time appraisal for the first time in the history of the firm. Every person has goals that mean something. Everyone has a personal development plan. Our firm has goals for growth, marketing development and team recruitment/retention. These now cascade down so that each individual knows how they contribute. Before EPM many people simply didn t have a clue how what they did was important to the overall mission of the firm. People get it now. With EPM, managers actively document the performance of employees on an on-going basis because it is easy to do. That never happened before. We now do mid-year reviews to make sure we are on track, to make sure every individual succeeds. As a partner, I use EPM to look out across the organization to see if there is consistency across our four offices. I look for the same expectations; I look for the same level of stretch in their goals. We are accountants and we are the best time keepers on earth so we always tracked the time we spent on performance appraisals. In the first year of the Halogen implementation we saved 386 hours of people s time. Take that 386 hours and multiply it by our average billing rate and the saving is phenomenal. Mort O Sullivan CEO O Sullivan Creel 2

4 chain of command who cares to check. It s a simple thing really, but putting the performance management system on-line makes the difference in whether it works or not. Are We Pulling In The Same Direction? Experienced managers know it is far harder to get alignment than one might expect. Each unit, each person, has their own interests and their own way of hearing things. What seems like a straightforward communication may not be heard, not acted upon, or misunderstood. There are two core methods for alignment: culture and goal setting. A strong culture creates a common mindset while goal setting ensures that the specifics are spelled out. An employee performance management system, enabled by technology, allows the cascading of goals, so that each department s goals are aligned with the organization s vision and each individual s objectives support the department s goals. Secondly, performance management technology allows a CEO to see at a glance how many employees are working towards each of the organization s goals, check the status and further drill down to see the goals and status of any individual. It creates visibility through the fog of organizational life. In theory you can do this with a paper system; the CEO could ask HR to go to the files and dig out the appraisal form with the goals of a group of employees but in practice that doesn t happen; it is too much work. However, if that information is available on-line then the visibility is real. It is also immediate. Are We Able To Change Course? One of the main reasons CEOs have found paper-based employee performance management systems disappointing is that they run on an annual cycle. A CEO could never rely on the performance management system because it would too often be out of date, and they certainly couldn t rely on it as a tool to change course mid-year. EPM changes that. A CEO can readily make changes to priorities or direction and cascade those down to the relevant units. They can also check that the new goals have been set at an individual level again it is a matter of building transparency into the organization so the CEO can look down and see what people are actually working on. Are We Falling Behind The Competition? There are two main reasons why companies fall behind the competition: 1. The wrong strategy 2. Poor execution EPM won t help you create a winning strategy but it does play a key role in execution. EPM s role

5 in execution is straightforward. EPM is the control infrastructure for goal setting, tracking and alignment, determining who your high performers are (and who the laggards are), and what an organization is good at doing (and isn t) the basis of execution. EPM is a tool which can magnify values by ensuring that the big vision gets translated into smaller actionable goals. This allows a company to out execute the competition, across the entire enterprise. Employee appraisals are not just about goal setting or giving an employee a report card. EPM also helps managers and executives in organizations understand quickly who s performing well in key areas and who isn t. It can tell a company what competencies their workforce excels at and what they need to focus on to improve in certain areas. It can quickly paint a picture that lets them see if they have the right people with the right skills doing the right things for meeting today s and tomorrow s business strategy. Are We Improving Productivity? One of the reasons employee performance management is so important to organizations is that it is the system that ensures employees are setting goals. It actually provides a simple way for employees to track how well they are doing toward completion of their goals and lets them see for the first time in many cases how their performance ties into the success of the organization as a whole. Dr. Gary Latham, a Fellow of the Academy of Management and professor at the Rotman School of Management says, Thousands of studies have shown that goal setting is an incredibly reliable way to improve performance. Urging people to do their best just does not deliver the same results as setting specific high goals. This isn t a point of view; it s a scientifically validated fact about human psychology. EPM drives productivity improvements by ensuring goal setting is taking place, it also gives leaders a chance to review the goals on an on-going basis to reassure themselves that the goals really are high and specific. It ensures the right people are working on the right things. Will We Hit Our Numbers? The accounting system is essential for assessing whether the organization will hit its numbers, but it is inevitably a look in the rear view mirror. EPM provides a more forward looking system by showing who is working on what and how they are progressing on their goals. If you are counting on a market study to direct sales efforts, an EPM lets the CEO see if the research is on schedule, completed, or in trouble. The system reminds employees to keep journal notes and progress toward goals up to date. A quick look at indicators (green/yellow/red) lets a CEO tell whether the activities that drive the numbers are on track.

6 As well, while the accounting system gives reliable numbers it usually doesn t identify what you need to do. The information in an EPM is directly related to the actions people are taking, and that is where management can intervene when things go off track. Can We Keep Our Best Employees? Normally, we think of management control systems as something employees don t like, but that is not really the case. Employees like having clear goals. They are flattered if managers a level or two above them care about their goals. They are impressed if the company has an effective on-line system that helps their manager set goals, give feedback and assign appropriate training. And most of all, if they genuinely are high performers, they are pleased when that high performance is recognized. Consistent Goal Setting & Appraisal In the past our performance management systems were so time consuming and complicated that you had to fight people to get it done. We almost had to make completing the performance management process a goal in itself, which is a waste of a goal. The technology we now use makes the process simple, easily understood, and not time consuming. Our overall mission statement is to connect people to conservation and wildlife worldwide; we want to be a world leader in that. We take that overall vision statement and break it down in into very practical goals around facilities, education, conservation and supporting processes. The system allows me to communicate these goals in a simple and consistent way whether I m talking to the HR Director, Director of Collections or Development Director. It makes sure I do it in a timely manner because the darn thing keeps reminding me. Employees like the system because it allows us to rate them fairly on a consistent basis. Also, because it s much faster it gives managers time to sit down with employees and gives them a process for talking through goals and accomplishments. Performance management technology has been such a success for us and we re going to push it down to the front line employee. Douglas Myers, Executive Director, The Zoological Society of San Diego It s common to hear people say, I ve been at my company for two years and I ve never had a performance review. This is a major cause of dissatisfaction. EPM ensures this doesn t happen anymore. EPM also ensures the assessment process is fair and meaningful as all transactions can easily be reviewed on-line and any exceptions flagged and dealt with quickly. Most pay-for-performance systems do not, in practice, make large differentiations in pay between average and high performers. One reason for this is that no one has much confidence in the appraisals. EPM makes the process faster, more consistent and more reliable. It provides better and timelier data to management and HR. This creates the foundation for pay for performance that has been missing.

7 From a CEO s perspective a smoothly run employee performance management system is a way of keeping talented employees happy. It supports the retention of employees, and in particular, the retention of the best employees. It is a way to ensure the intent of the reward system is realized in practice. How Hard Is It To Do This? Employee performance management technology, which is still new enough to sound a bit exotic, has matured to the point that it is neither expensive nor difficult to implement. Different vendors will give different prices and implementation timeframes, but a mid-sized organization might spend $20,000 to $40,000 on employee performance management technology and take one to six weeks to implement it. The best vendors are able to point to very high customer satisfaction rates. There simply are not the complexities that plagued ERP and CRM projects and made CEOs leery of software solutions. Does EPM technology work? Will I Really See A ROI? The numbers tell the tale of the effectiveness of EPM. Amcor Sunclipse, a nationwide distribution company headquartered in Southern California, reports that with their paper based system only 10% of performance evaluations were completed on time. After their EPM implementation they had a 90% on-time record. The earlier metaphor of EPM as a well oiled engine is not just a tidy image. A system that is on time only 10% of the time is an engine that is just not turning over; a 90% or better on time record is what you should expect. That sort of performance rarely happens without EPM. While the CEO s main concern must be whether or not the performance management system is an effective tool for directing and monitoring the organization, there is an added bonus in that an EPM directly reduces administrative costs. Amcor also estimates they will save $300,000 a year in reduced administrative overhead alone. Van Meter Industrial, an electrical wholesaler used to spend $100 per review, now they spend $15. Phoenix Children s Hospital is currently saving an estimated $75,000 a year with their EPM and they expect that number to rise. ASCG, a mid sized consulting firm saves $100,000 year. But cost savings are just the tip of the real return with EPM systems. Visibility and accountability, alignment, and better execution are the more exciting returns that help CEOs like the ones mentioned in the side bars sleep better at night. These individual examples are supported by a 2006 study by CedarCrestone. This study looked at 324 firms and found that companies that use performance management software have higher operating income growth.

8 In Summary The case for EPM is strong in terms of strategic importance, ease of implementation, and cost. What has happened is that, rather quickly, technology has evolved to make a process that never worked very well, effective. If a company doesn t have 90% of its goals set and appraisals done on time then the board ought to be asking why. CEOs who can t see the goals of every individual in the organization ought to be concerned. EPM is not a system to help the HR department, it s a management control system, and top management should be taking the lead in getting it implemented as quickly as possible. Creelman Research specializes in research and writing on human-capital management. Based in Toronto, Canada, Creelman Research serves clients in North America, Asia, Europe and Africa. The most significant work of Creelman Research is on improving practice in reporting to the financial markets about human-capital intangibles. NOTE: The leaders quoted in this White Paper are clients of Halogen Software, a leading EPM vendor Creelman Research and Halogen Software. All rights reserved. 7