The Business Case for Online Performance Management

The Business Case for Online Performance Management

The Problem With Paper Based Performance Management Systems They are administratively difficult Cumbersome & administratively intensive Difficulty limits reviews usually to once a year The Manager carries most of the workload of gathering performance data, organising the review and conducting it They look backwards instead of forwards Because of administration difficulties it is usually only possible to do them once, often at the end of the year It is then only possible to look back at what has already happened Objectives are forgotten for most of the year The review process is one of administration. Any coaching, feedback or mentoring input from the manager is done after the result has been delivered, not before

The Problem With Paper Based Performance Management Systems They do not deliver real benefit to anyone Managers are often not good at conducting reviews. As a result, they can be uncomfortable or threatening. Because reviews are done infrequently managers do not get better at doing them They are seen by employees as an administrative input into salary reviews and bonuses, not as a coaching and development activity Employees do not usually keep track of performance outcomes, problems or reasons throughout the year. Preparation for the review discussion is ad hoc and lacks completeness Feedback and discussion on performance often happens a long time after it was completed. Feedback is most effective if given soon after the action. Feedback and details of performance often relies on memory It has little impact on performance or development of capability

Putting Your Performance Management System Online Delivers Tangible Benefits Operating margins can be improved by contributing to an increase in the number of people fully engaged in contributing to their company s success Returns to shareholders can be improved by increasing your ability to attract and keep the most talented people The productivity of people can be increased by challenging, developing, inspiring and involving them to deliver more People are doing more with less and have been doing so over the last decade

Putting Your Performance Management System Online Delivers Tangible Benefits The costs of people churn These are reduced by retaining a higher percentage of skilled employees Replacing each employee who leaves costs 30-60% of their annual salary cost due to the costs of recruitment, onboarding, training and getting up to speed A Corporate Leadership Council study of 50,000 people world wide showed that employees who are most engaged perform 20% better and are 87% less likely to leave The return on total remuneration investment Improves as operating performance increases The incremental value of the most talented people has continued to grow since the 1990s. Investing in them differently from other employees provides huge returns Directly linking rewards to measured performance provides transparency and incentives that are consistent with a high performance culture It s impossible to overstate the importance of an engaged workforce on a company s bottom line - Towers Watson

Benefits Are Delivered When Employee Engagement is Increased What is Employee Engagement? The degree to which an employee feels connected to their organisation as shown by their willingness and ability to go the extra mile to help it succeed Why is it Important? The Towers Watson Global Workforce Study 2011 of 88,000 people in 18 countries showed that increasing it improves operating margin: Increasing it by 10% improves operating margin by 1.3% Increasing it by 15% improves operating margin by 1.9% In a related TW study of 40 global companies over 3 years: Those with the highest levels of employee engagement increased operating margin by 3.7% Those with the lowest levels showed a drop of 2% Making employee engagement sustainable over time increases margins further

30% 25% Making Employee Engagement Sustainable Over Time Increases Margins Further Same-year operating margin: Study of 50 global companies 27.4 20% 15% 10% 5% 9.9 14.3 0% Low Traditional Engagement Companies High Traditional Engagement Companies High Sustainable Engagement Companies Source: Towers Watson Normative Database

What Makes Employee Engagement Sustainable Over Time? In the 2012 edition of the Towers Watson study, 32,000 full time workers were grouped under the following definitions: An Engaged Employee has: Belief in company goals and objectives An emotional connection (pride, would recommend the employer) Willingness to give extra effort to support success An Enabled Employee has: Freedom from obstacles to success at work Availability of resources to perform well Ability to meet work challenges effectively An Energised Employee has: Ability to maintain energy at work Supportive social environment Feelings of enthusiasm/ accomplishment at work For engagement to be sustainable over time employees must be enabled and energised

How Engaged are Employees Today? The Towers Watson 2012 study findings 35% of employees are highly engaged. They believe in the organisation s goals, are proud of it and are willing to go the extra mile for it 26% are disengaged 22% are unsupported. They are engaged but are not enabled and/or energised 17% are detached. They are enabled and/or energised to achieve work challenges but not engaged to do so With two-fifths of workers unsupported or detached, and a quarter completely disengaged, the risk to an organization s productivity and performance goals is real. Towers Watson

So What is Required to Support the Unsupported and Reconnect the Disengaged? The Top Five Drivers of Sustainable Engagement Leadership Is effective at growing the business Shows sincere interest in employees well-being Behaves consistently with the organization s core values Earns employees trust and confidence Stress, Balance and Workload Goals and Objectives Manageable stress levels at work A healthy balance between work and personal life Enough employees in the group to do the job right Flexible work arrangements Employees understand: The organization s business goals Steps they need to take to reach those goals How their job contributes to achieving goals Supervisors Assign tasks suited to employees skills Act in ways consistent with their words Coach employees to improve performance Treat employees with respect Organisation s Image Highly regarded by the general public Displays honesty and integrity in business activities Source: Towers Watson 2012 Global Workforce Study

An Online System Contributes Directly to Many of These The Top Five Drivers of Sustainable Engagement Leadership Is effective at growing the business Shows sincere interest in employees well-being Behaves consistently with the organization s core values Earns employees trust and confidence Stress, Balance and Workload Goals and Objectives Manageable stress levels at work A healthy balance between work and personal life Enough employees in the group to do the job right Flexible work arrangements Employees understand: The organization s business goals Steps they need to take to reach those goals How their job contributes to achieving goals Supervisors Assign tasks suited to employees skills Act in ways consistent with their words Coach employees to improve performance Treat employees with respect Organisation s Image Highly regarded by the general public Displays honesty and integrity in business activities

How Does an Online System Contribute to Engagement? It is a resource tool that enables the delivery of goals An online performance management system is an enabling tool that provides a platform where information is on tap 24/7 and progress and issues can be recorded as they happen. Reviews are based on recorded data rather than memory It frees managers to coach, mentor, inspire, challenge and agree actions with people without the administrative burden of running the process. They can therefore do it more often The preparation and administration workload is taken from managers: the system handles the administration and the employees do most of the preparation. This has the triple advantage of. engaging employees in the ownership of their performance, freeing managers to focus on providing quality feedback and support enabling performance conversations to be held throughout the year as employees work on their goals, rather than at the end of the year when performance has been completed.

How Does and Online System Contribute to Engagement? It is a resource tool that enables the delivery of goals Feedback is given on results to date and the employee and manager can jointly plan and agree what has to be done next to deliver the targets that were agreed at the beginning of the year, even though the business and competitive environment has changed Roadblocks and obstacles can be identified, discussed and plans made and agreed to overcome them Employees are enabled to do what they agreed to do Goals and targets become contracts between manager and employee rather than best intentions. There is a shared responsibility for their delivery Successful performance grows confidence and capability and reduces stress Employees see how their efforts contribute to the organisation s goals and objectives and become emotionally connected to it. They become willing to provide extra effort to achieve success The combination of manager and employee engagement at all levels of the organisation creates a virtuous cycle of growth

Engaged Talent Determines the Strategic Capability of the Organisation The top 3-5% who deliver breakthroughs in performance Delivered Performance Deliver predictable results with occasional peaks & incremental improvements Average Good Best The greater the engaged talent the greater the ability to lead breakthroughs on more fronts and levels

In 1900 Talent is in Increasingly Short Supply Only 17% of all jobs required knowledge workers. Now over 60% do (McKinsey & Co) In 2006 40% of companies worldwide reported difficulty filling jobs (ILO Bureau of Statistics, LABORSTA, Economically Active Population Estimates and Projections: 1980-2020 In 2012 There was a 6 million person gap between the supply and demand of knowledge workers in the USA (Deloitte & Touche research) By 2020 Mckinsey predict there will be a 16 to 18 million knowledge worker shortfall in the world s advanced economies (McKinsey November, 2012) By 2025 The working age population is expected to drop by 14 percent in Japan and by 7% in Germany 76 million Baby Boomers in the U.S. will begin to reach retirement age The domestic US labour force will only grow at a rate of 1% The New Zealand labour force in 2026 will only grow by 0.8% Growing Capability and Engaging People is no Longer an Option

Top Talent Switches Companies More often, Compounding the Shortage Problem As the shortage gap widens the incremental value of highly talented people continues to increase They know their value and understand the supply and demand imbalance Internet job board and other recruitment technology encourages and enables top talent to change easily They become passive job seekers, always on the lookout for the next opportunity 16 Companies must engage their top talent and give them a compelling reason to stay

The Development of Capability and Engagement Comes From Performing on the Job McKinsey research shows that talent growth comes from on the job experiences and achievements, not training. It is the ability to apply knowledge, experience, training and advice and deliver outcomes that is important Managers see performance on job assignments, feedback, coaching and mentoring to be critical to their own development. The same is true for their people This requires smart online tools that remove barriers, engage people and give them ownership of their performance and development Performance is the Measure of Capability and the Reason For Growing it

What Are the Key Requirements of an Online Tool? To really engage people an online tool must: Be intuitive, easy to learn and simple to find your way around. It should have support information on-screen such as guides, mouse over explanations and process steps. It must step the users through the process, especially when they are new to it Have a customised view for different types of user (first time user, experienced user, manager, administrator) so that they see the information that is relevant to them. This view should change automatically as the user s status or experience changes It must be appealing and engage people. It must reinforce the performance culture, be fun to use and look good, all at the same time. It must make people act differently Its value to employees and managers must quickly become obvious: they must both be able to see how it benefits them and like using it It must be able to be customised so that it fits your needs and processes exactly

What Would a 5-15% Increase in Operating Margin Contribute to Your Organisation? Same-year operating margin: Study of 50 global companies 30% 25% 27.4 20% 15% 10% 5% 9.9 14.3 0% Low Traditional Engagement Companies High Traditional Engagement Companies High Sustainable Engagement Companies Source: Towers Watson Normative Database