Aligning performance management with business strategy
In challenging economic times, amid market volatility, certainties are thin on the ground. But when the going is tough, one thing we can be sure of is that employers will need to maximise the return they get from their staff.
Recent Hay Group research among 1,660 senior decision-makers in large organisations across more than 30 countries - including 100 in the UK - found on average employers were looking to achieve ambitious growth levels of 5.4%. As this outstrips GDP rises in most markets, it is clear leaders are seeking to boost employee productivity. However, given that many workers are already stretched, this is quite a tall order.
"If people want more growth than the economy as a whole can provide, something has to give," says Hay Group director of public sector consulting, Peter Smith. All too often, Smith elaborates, there is a mismatch between what a CEO expects and what may actually be achieved. The majority of employers are missing a trick by failing to align performance management with strategy and culture. As a result, many employees are unaware of how they can contribute to their company's strategic goals. Rather than pushing people to work longer and harder, the answer may lie in equipping them to work smarter.
The Hay Group report, Strategic Performance Management, was published in June, based on interviews in the period April-May 2011.
If employers are to succeed in aligning performance management strategy with the business, they need the right tools. Today's performance management solutions provide a complete suite of competency measurement tools - ie more than just performance reviews and appraisals. They should help employees understand how they can develop skills and talents - even better, if they are linked to learning resources. Technology is a valuable enabler, but commitment and buy-in from the top down are essential for a high-performance culture.
"All too often, employees in the challenging economic climate, see performance management as little more than a box-ticking activity," says Martin Belton, commercial director of e2train, a provider of performance, talent management and succession planning. "The problem is many employers can't see a personal incentive to achieve stretch goals with pay freezes and training budgets being squeezed to their limit. Line managers need to re-engage with their staff to regain their trust and commitment."
There is a split among organisations - and indeed different groups within organisations. There are those managers who invest time and effort in regular, high-quality performance discussions, and those who just see it going through the motions. Frequently, the quality of the performance process is related to the culture of the organisation or the particular division within the organisation.
"If performance management is taken seriously within the senior team and they lead by example, then this tends to cascade through the organisation," says Stuart Hearn, commercial director at HR software company Vaado Software and previously international HR director at Sony Music Publishing. "In organisations where the process is HR-driven and senior management is not committed to performance management, it tends to be more of a box-ticking exercise."
Affordable housing provider Bromford Group, which has 26,000 homes in central England, introduced a performance management framework (PMF) after a review of its needs. The thinking behind the PMF is to help Bromford align all activity to achieve success for the business, and individually, while helping it identify its great or exceptional performers, as well as those that are not performing in line with expectations.
The five key PMF elements are: setting SMART targets; monitoring and evaluating 'what' colleagues achieve and 'how' they achieve it; ensuring colleagues are supported to achieve; determining an overall rating annually on performance; and agreeing and supporting training and development needs.
"We have called it a framework because it is designed to be flexible," says Bromford's director of organisational development and communi-cations, Helena Moore. "And we needed to do a lot of communications work around why we have brought it in - that was an important plank. We have a culture of trust and strong leadership and we are sharpening up what we expect from people."
Shrewdly, the PMF instructs leaders to always have 'conversations that count' about a team's and/or a colleague's progress against targets, behaviours and how things are going, so discouraging meaningless box-ticking. There is flexibility for meetings to happen at both office and non-office venues. Operation and administration are kept as paper-free as possible - using existing Ciphr software. This, concedes Moore, has been a little "clunky", but the general feedback has been that staff like the system.
The PMF has been structured to support other current and future people processes, including recruitment, identification of training needs, developing talent and succession planning, adds Moore.
"If you can develop a performance management system where people come out of it feeling more energised and positive, that's a good thing because often people walk in feeling ready for battle," says Paul Brewerton, director at the Strengths Partnership, an HR assessment and coaching consultancy. "Layer upon layer of process can be overwhelming. It can become unwieldy and people may not be able to see the purpose of each conversation."
In Brewerton's view, cracking the whip can be counterproductive. It is preferable, he feels, to identify what people have done well and focus on that.
Paul Matthews, founder of management development company People Alchemy, agrees: "If you put people in a vice, they tend to object. A lot of businesses that are having problems are those that are squeezing people. It's all about keeping employees engaged with the process of the company rather than just using them as resources. If a team leader has a vision of what they want to do with a team and the team buys into it, they will get a lot more discretionary effort. Especially if they are able to plug the team purpose into the bigger corporate vision."
Matthews uses the mutually beneficial relationship between sugar ants and aphids as an analogy. The ants protect the aphids and in return are able to feast on the honeydew they secrete. Some ants have even learnt to stroke the aphids to help them release the honeydew. The moral is clear - encouragement can be very effective.
Yet there is obviously a balance to be struck. And there is also the matter of perception. Some employees may be labouring under the misapprehension that they are performing wonderfully well, when in fact they could achieve significantly more.
Kate Russell of Russell HR Consulting, author of How To Get Top Marks in… Managing poor work performance… Good practice and tactical tips from the HR headmistress (Gibbons Williams, 2010), says: "My experience tells me most people think they are giving good, or indeed excellent, performance. The truth is, in most cases it's OK, but not wonderful. I have been saying for some time that 'good enough is no longer good enough'. With employees in possession of more rights - and therefore costing more - than they ever have in history, it is entirely appropriate to coach and guide them - and ultimately discipline them if necessary, to ensure they meet all of your reasonable standards."
There is a degree of confusion in some quarters as to the difference between performance management and talent management. The latter has become so broad that people may use it in reference to anything from recruitment through to succession planning. One view is talent management is about proactively managing the attraction, development, deployment and retention of the organisation's highest quality employees. This differs from performance management, which encompasses all employees within the organisation.
The key is to identify the right high-calibre staff to participate in talent management initiatives, using objective rather than subjective data. "Usually this involves making sure relevant competencies are in place to assess staff against set criteria and then implement a structured career development assessment procedure to objectively measure potential," says Rachel Blackburn, director of management consultancy US2U Consulting. "This process involves psychometric assessment tools. Most clients have surprises when we complete this process and then we work with them to get the best from the talent they have, rather than over-promote employees, which usually results in stressful circumstances for all parties involved."
It should be noted that recent legal developments have contributed to an increased focus on continuous assessment throughout employment. With the end of the default retirement age earlier this year, it is no longer possible to let under-performing employees simply 'drift' to retirement.
Kevin McCavish, partner and national head of employment at law firm Shoosmiths, advises that older employees need to be performance-managed just like any other employee, because their employment can no longer be terminated simply when they reach a certain age. Where they cannot substantiate selection for redundancy with prior performance appraisals, an employer is likely to struggle to show they dismissed an employee fairly for redundancy, McCavish asserts.
The pressure is on to heighten performance - but applying it with all the subtlety of a thumbscrew is not the way to get the best results.
Case study: IG Group
FTSE 250 member IG Group is a provider of financial spread betting and derivatives trading. It employs fewer than 1,000 people. Over the past 18 months, it has customised its SelectHR software, linking it to its financial systems, to provide a more performance-related approach to staff ratings and pay reviews.
"We are funnelling the information down to individual sales and we can see if a new account has made a difference to profitability," says IG group head of HR, Jackie Bornor. "We do a lot of internal league tables of our sales teams. Also, at the monthly European office heads' meetings, the performance statistics are brought out to be reflected on by the whole team.
"There is a lot of healthy competition, but people share ideas which impact on their draw. We have tried to engender in IG a sense that it is a group effort, as 95% of our employees are covered by the same bonus pot," she adds.
While the traders and other front office staff are in the 'firing line' in terms of revenue generation, Bornor says her HR team ensures the vital contribution to corporate success of back office staff is appreciated. Around a third of IG's staff - 350 people - work in IT and the company invests heavily in the area, as it believes it is a competitive differentiator and long-term driver of profitable growth. Approximately 40 IT staff work on mobile platforms, such as the creation of an iPhone spread betting app.
IG's figures speak for themselves. The year to 31 May 2011 saw a 7.3% rise in trading revenue to £320 million and 13.5% leap in active financial clients to 117,252. Staff shared a performance-related bonus and commission pot of £18 million.
Can performance management be fun?
HR software company Sonar6 was founded in New Zealand in 2006. The idea behind the company - that performance management should be simple and rewarding - has fuelled rapid international expansion. The company now has over 400 corporate customers around the world, including several in the UK, and more than 100,000 users of its software. An official UK launch and office opening are planned for January 2012.
"Certainly the biggest challenge staff tend to have with performance reviews - and we see this in our research - is they don't think performance reviews are useful," says Sonar6 CEO, Mike Carden. Building on this insight, Sonar6 set about developing engaging performance management software that, as Carden disarmingly puts it, is "less like filling in forms, and more 'funner' [sic]". The colourful graphics and ease-of-use give the software the feel of a computer game, rather than a stifling exercise in HR compliance.
No training is required before using the software and the program is structured to allow managers to review staff in the same way that they manage them: in teams. The way data is collected by the program means it can provide a helicopter view for senior managers. That, needless to say, is enormously valuable management information - serious stuff that almost paradoxically is delivered by a company with a quirky, unstuffy approach. To quote Sonar6's own quirky positioning, it is in the business of facilitating performance reviews that "don't suck"!
Integrating social media into performance
With so many companies establishing themselves in external social networking sites, it raises the question: can or should the comments and feedback received on these sites be integrated in performance reviews and recognition?
As a company, what do you do when you receive comments or reviews that refer to an employee by name? Or where, with enough data mining, you can trace a situation back to a particular employee or team? Social feedback presents a whole new way of managing performance - and brings its own challenges.
"Part of becoming a social workplace means adapting internal and external policies and processes to account for a growing social media presence," says Elizabeth Lupfer (pictured), senior manager, employee experience and HR technology, global HR at global telco Verizon. "And when it comes to performance management, it is important to weigh the value of using social feedback in your performance management process against the impact this could have on how employees view themselves and their performance within your company."
Lupfer is an internationally recognised authority on applying social technologies to drive engagement, collaboration and productivity. In 2009, she founded The Social Workplace, a blog that has become a leading resource for insights, research and thought leadership on implementing social technologies within enterprises. "I love social media and I love my 5-inch heels," Lupfer says. "And I'm passionate about how they both figuratively and literally allow for a higher-level perspective on engagement and communication."
Companies, Lupfer argues, should treat social feedback no differently to other feedback channels - and apply the same policies. Consistent use of social feedback means highlighting both negative and positive feedback. Moreover, if feedback is collected from one social networking platform, then it should be collected from all social networking platforms in which the organisation has a digital presence - or there should be clear justification why one is preferred to another.
"There aren't too many organisations that have the technology or processes necessary to incorporate social media feedback into their performance management process," Lupfer says. "For organisations that have established themselves in social communities but aren't quite ready to change how performance is managed, the best approach is to collect the social feedback and use it as a recognition tool for positive feedback and as a learning opportunity for negative feedback.
"Have we reached a place within social media adoption where a company can, or should, use solicited or unsolicited comments, remarks or feedback as a part of an employee's performance plan? Only you can decide, but recognise there are benefits and risks and be prepared to modify and enhance as this area continues to develop," adds Lupfer.
Elizabeth Lupfer will be expanding on these ideas at The Social Workplace Conference on 1 November, at the Cavendish Conference Centre in London (www.crexia.com/conferences/social-workplace).