March 2011
Original insight
Automatic for the people: why automation of performance management is an organisational imperative
The automation of performance and talent management processes brings a multitude of benefits, which make it, arguably, a prerequisite for effective people management. A bespoke approach to online performance management allows HR professionals to meet the specific needs of an organisation, thus creating competitive advantage.
Executive summary 98% of ‘best in class’ companies use an employee performance management process, versus 59% of other firms.
Employee performance management is a fundamental business process that too many organisations fail to get right. It is critical to realising the full potential of individuals and maximising business performance. Leading organisations recognise the value of their workforce and aspire to create a high performance culture. Most achieve this through the implementation of performance management processes that are underpinned by an online system.1 The secret to success is to adopt a bespoke approach, implementing a system and process that is the ‘best fit’ for the company rather than ‘best practice’. Our experience shows that what works for one company may fail for another.
- The Employee Performance Management Benchmark Report: Managing Human Capital for a Competitive Edge. Aberdeen Group, 2006.
Despite the advantages of online performance management systems being well-known, some HR professionals have been slow to respond, preferring to follow rather than lead. There’s also been a reliance on off-the-shelf automated systems that incorporate software vendors’ definitions of best practice. This is not the most effective option for the majority of larger companies. We argue instead that, when automating performance management, HR professionals should shape and deploy a process that is tailored to fit the specific needs of their organisation, thus creating competitive advantage. An historical challenge for HR professionals has been getting buy-in from senior executives – with the need to deliver a strong business case demonstrating the return on investment. We’ll set out exactly how implementing the right online solution for performance management can benefit your business and demonstrate what returns you can expect. We’ll also present case study examples of HR practice that employ bespoke automated systems and conclude with a guide for applying this approach. For clarity, we define performance management as a process that establishes a shared understanding of organisational success and an approach to leading and developing people to ensure this is achieved.
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A huge number of employees are dissatisfied with performance appraisals. Our research shows this is due to the lack of clarity and involvement in setting goals. - Performance Management Review: An analysis of the ETS Employee Survey. ETS plc, 2009.
1. How automating performance management helps people processes Automating performance management processes makes it easier for companies to align employees’ individual goals with corporate objectives. It makes measuring performance and assessment simpler and more consistent, and allows companies to see clearly their best and poorest performers. Such insights are invaluable in a climate where headcount reduction is sadly a necessity for many companies, which equally want to retain their talent. When considering the merits of automating performance management though, it’s really important to convince senior executives to look beyond the bottom line and appreciate the other, in some cases less tangible, benefits too. By embedding an effective performance management process, companies are demonstrating a willingness to invest in employees. This will impact directly on retention of high performers, who are keen to plan and develop their career. Also, we’ve found many instances where, by going through the automation process, companies have taken the opportunity to reassess existing practices. This results in standardisation and consistency of performance management processes, is impossible to achieve with an offline process as too much is open to interpretation by line managers in different business units.
Time to reappraise the appraisal A large proportion of employees – approximately 40% – remains dissatisfied with their appraisal process.2 In addition, it seems that line managers too share concerns regarding performance management processes. Research shows that 61% of managers don’t believe existing appraisal processes are driving greater performance.3 These figures should worry business leaders as ineffective appraisals will lead to a dip in employee satisfaction, which has a direct correlation with business performance. Companies must get the basics right. Crucial to engaging employees is ensuring they have clear goals and objectives. Yet 30% of private sector employees don’t know what their company’s objectives are. Individual and corporate objectives should be aligned – if an employee understands what is expected of them and how this fits in with company objectives, they are more likely to be engaged and motivated to perform. Furthermore, alignment of objectives is also crucial in ensuring your business strategy is ultimately successful.
How do managers and their subordinates benefit? An automated system can make a huge difference in simplifying performance management by making it more transparent, giving all involved greater confidence in the process. Employees are clearer on what’s expected of them and can see how their objectives support organisational goals, resulting in increased engagement. With less time spent on functional processes, line managers are free to focus on career planning, coaching and development for direct reports, making it easier to identify, nurture and develop talent. A cautionary note here though – it’s important that an online system isn’t seen by employees or managers as a barrier to face-to-face discussion. It should aid and inform, rather than replace, performance-related conversations.
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How do HR professionals benefit? Anticipated skills shortages mean that talent management, and specifically, development of a management and leadership pipeline, has been identified as the single biggest business challenge facing companies.
For HR professionals, an automated system means greater accuracy and far less time spent on administration for performance management. This frees them up to develop HR’s role as a strategic business partner. Powerful reporting capabilities of automated systems also make identifying trends, skills gaps and benchmarking far quicker and easier.
Performance management – the foundation of talent management By embedding an effective online performance management system, organisations are also helping lay the foundations for a more strategic approach to talent management. Anticipated skills shortages mean that talent management, and specifically the development of a management and leadership pipeline, has been identified as the single biggest business challenge facing companies.5 To appreciate the importance of retaining skilled employees, consider the cost to companies of replacing staff, which is 30 - 150% of the employee’s annual salary. This means, in a firm of 40,000 employees, the difference between having a 15% and 25% staff turnover is almost £25 million per year.6 A well-integrated automated performance management system will ensure companies base talent decisions on hard facts and data. It’ll also help companies locate potential leaders within their organisation to be developed, and identify successors to critical roles across the business.
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Case study 1 An international media company with world-leading businesses in education, business information and consumer publishing appointed ETS to devise an online talent management system for its top 250-300 performers. The system was to take over from spreadsheet-based data capture with managers’ forms returned by email, manual data entry and no facility to generate reports.
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The bespoke online solution devised allows straightforward administration access and easy collation of data via a standardised form, which is then transferred to one central database Simple file management means instant and consistent communication with managers about the process, with the intuitive interface prompting managers to access activities they need to complete
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A wealth of reporting options are available – reports can be generated centrally or locally by managers with advanced reporting to both Excel and PDF (Adobe Acrobat).
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‘Report Packs’ in high-quality PDF can be generated at the click of a button for talent review meetings (see figure 1 below)
Figure 1: Online talent management system Test user
Talent review 11 Potential
Performance
Performance Drive
Leading the business
Curiousity Character Inclusive
Working with others
Relationships Responsive Brave
Living the company values
Imaginative Decent Insight
Leading people
Coach Influence Creative
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Strategic Smart Mobility
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yes, with a preference for europe so he / she can utilise his / her language skills.
2 years.
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Continue mentoring programme Forum attendance Insights into leadership
Possible future moves Regional Manager
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2. Building a business case for automation Despite difficult economic conditions, investment in performance management has remained a top priority for businesses. Research by the Aberdeen Group shows that rather than slow or stop investment, the struggling economy has served to drive greater investment in performance management.7 This is because companies are very eager to identify their top talent, create a high performance culture, better align compensation with performance and increase visibility and accountability of performance. Each company developing a business case can use the model set out below to identify different types of benefits. Just as the best online performance management solution will be bespoke – as we’ll explain later – so too will the evidence showing the business benefits and improvements, which are unique to each organisation. In our experience, often the biggest barrier for HR practitioners has been convincing senior executives of the business need for automating performance management and the return on investment offered. For organisations yet to automate, consider the latest research which reveals that 59% of companies sampled are already using automated performance management applications, with a further 13% indicating they plan to implement such systems within the next year.8 If your company doesn’t fall into either of these categories, there’s a good chance you’ll be left behind by your competitors.
How does the business benefit?
Efficiency & compliance
In analysing how automating performance management can have an impact and create value for businesses, we can broadly split the benefits into three areas – loosely based on the Bersin model9:
Efficiency and compliance •
Process improvement
Providing legally defensible employee management o Decisions are documented and evidence based o Electronic log of all performance conversations
• Business transformation & performance
Reduced administration o Appraisal, development forms and evidence stored electronically and accessible from any computer – no more lost paperwork o HR managers and business leaders can access aggregate reports themselves
Process improvement •
Increasing employee retention / lower costs associated with losing employees o Employees are more fairly recognised and rewarded for their efforts o Accurate identification and reward for high performing employees
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Improvement in employee engagement and development o Employees are clearer on objectives and more motivated to achieve o Helps managers identify appropriate development areas for individuals
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Improving efficiency and effectiveness of training o Gives insight into specific areas where training is required
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Business transformation and business performance Organisations automating performance management can easily realise a 50% - 200% return on investment from efficiency and compliance alone. - The Business Case for Performance Management Systems – Josh Bersin, 2008.
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Workforce goal alignment o Individual goals clearly aligned to support business goals
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Increasing employee productivity and performance o Clear, measurable objectives mean employees are more productive
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Improving the leadership pipeline o Detailed records of employee skills, attributes and experience, helping identify future leaders
What’s the return on investment? A good starting point for illustrating the likely return on investment is efficiency and compliance gains. Implementing an effective online process offers indisputable time and cost-saving benefits, which can help build a watertight business case. Processing paperbased appraisal forms is a laborious and lengthy process involving multiple people coding results and inputting data entry. Manually generating reports is similarly time-consuming for HR teams. Longer term, companies can bank on a return through business performance. Successfully embedded online systems will result in greater performance gains across all Key Performance Indicators.10 It will also help to boost employee engagement and customer satisfaction, which is a key factor in the financial success of an organisation.11 In addition, an automated system allows greater visibility of the contribution made by individual employees. As well as helping with talent management and informing performance-related pay decisions, this also has value at a strategic level, giving CEOs greater insight into how they can operate the business more efficiently and increase profits.
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Case study 2 ETS was appointed by a leading global manufacturing group to streamline its performance management process. The company, which has manufacturing plants in over 25 countries, had previously run ad-hoc performance reviews at each site, using location specific – primarily paper-based – forms. However, this approach offered no consistency of process or data, and a huge administrative burden on local HR to collate, analyse and report. With no direct involvement by a central HR function, talent management and succession planning was enormously difficult and time consuming.
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ETS implemented a single online performance review form for all locations, covering 5,000 people
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Central and local HR has real time sight of the process and can monitor participation levels and manage communications effectively with participants and managers
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The online system allows real time reporting of data, which helps with both the qualitative assessment of objectives set, as well as allowing access to information for talent and succession planning
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The usability of the online tool and ability to access the process remotely has resulted in a sharp increase in the level of participation as well as the overall completion rate
Figure 2: Global performance management solution Home page This page summarises your Performance Development System activities. The page is split into three section which together provide access to your: 1. Personal Profile (My Profile) 2. Objectives and 3. Personal Development Plan (PDP) and if you are a manager, to complete your team members’ activities. You will need to complete ‘My Profile’ and ‘My Objectives’ sections or yourself. If you are a manager you will also need to complete the activities under ‘My Team’ at the base of the page. Holding you mouse cursor over the information symbol in each section will bring up a box with brief information on each.
Key to Traffic Light Symbol: You have no activities to perform
You have activities outstanding
Your details have been submitted and are awaiting approval
All activities are completed
My personal development plan PDP 2010 : Not submitted PDP 2010 : Submitted and awaiting manager approval
Add a new team member My team
Status report
My personal development plan Team PDF history Individual profile Set meeting date Objectives
Sarah Smith
Previous objectives
PDP
Show team
John Robinson Kathy Simpson
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3. Benefits of bespoke when automating A bespoke or best fit approach allows a company to keep processes that work and integrate aspects of the business culture, which will encourage greater user adoption.
‘Best fit’ rather than ‘best practice’ HR professionals often seek to replicate ‘best practice’ processes, based on accepted industry standards. Such an approach is also often favoured by senior management as they are reassured by implementing a solution that has been used successfully by other organisations and therefore seems to guarantee them success. However, a reliance on best practice is not the best solution for businesses as it fails to take into account organisational context and specific business needs. While best practice solutions are tried and tested and proven to address a problem or achieve a desired goal, they are rigid and confound business goals, existing processes and cultural norms, which can ultimately lead to low adoption from users. As we discuss more in another paper, ‘Beyond best practice: enhancing results with bespoke HR’ ‘Best fit’ solutions take a bespoke approach and are typically based on a combination of business goals, a company’s unique culture and also take into account best practice.
Bespoke solutions offer unrivalled flexibility In an increasingly dynamic business environment, what works for a company today, may not work tomorrow – it may need adapting or adding to. Leading organisations are constantly looking to improve and refine their processes in order to ensure they’re at the top of their game. A bespoke or best fit approach allows a company to keep processes that work and integrate aspects of the business culture, which will encourage greater user adoption. Having a bespoke performance management solution is particularly useful for multi-national companies and those with operations in different markets. This allows a system to have a global process put in place but also include the capability to tailor processes at a local level, accounting for cultural and organisational variations.
Keep the end user in mind A fundamental consideration when switching to an online performance management system is to ensure you keep the end user front of mind, as getting user adoption is critical to the success of the implementaion. You must engage users in the process, explain why the new system is being implemented, and crucially, what’s in it for them. A bespoke approach allows companies to retain company culture, processes and the unique ‘look and feel’ of the organisation. Incorporating such elements is invaluable in encouraging adoption as it will immediately be more familiar and intuitive for users. A bespoke solution also allows companies to gain a competitive advantage as the system is tailored to meet specific business needs and really fit an organisational structure.
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Case study 3 ETS worked with a leading high-street entertainment retailer to overhaul its performance development review. The organisation had an existing online solution but employee buy-in was low due to its complexity and look and feel. The HR team was finding it hard to sell the process to stakeholders due to a lack of interest in the process. The organisation also ran a 360-degree feedback process using a separate system. Furthermore the performance development review offered practically no reporting functions and, as a consequence, the HR team were not getting value from the process.
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ETS devised a combined 360-degree feedback and performance development review (PDR) solution
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The look and feel incorporated the organisation’s very specific brand identity, enhancing usability and increasing its appeal to users
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The process was more streamlined and intuitive making objective-setting, monitoring and interim reviews more straightforward
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The solution featured powerful administration tool to monitor, track and promote use of the process among employees
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360-degree feedback reports reflecting the brand’s unique image could be generated, which included a one page summary enabling quick identification of the key findings of the report
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ETS introduced HR level reporting enabling sharing of reports with the business and easy extraction of data from the system
Figure 3: Performance management for high-street entertainment retailer
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you rock
details for: currently based in: began working with brand: completed:
log out jane simpson london 6 june 2009 not yet approved
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page 2: objectives please use the star ratings to rate the values. Energetic
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keep the intranet current, ensuring that all publishers are fully trained and that pages are always up to date.
get an updated list of publishers and check ther training needs, send details of key publishers to head office support for contact. update hr pages and ensure that the front page is updated, espcially the brand b in the news section and in the what’s on section.
the intranet is always up to date, providing accurate information and that publishers take more responsibility for their own pages, so that marthe is not the only point of contact for any it related issues.
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develop the voice to ensure that it is always fresh. continue to publish the voice on the internet and publish a version on the intranet.
continue to contact colleagues to write articles, put the voice on the intranet (training required). keep doing surveys to gauge interest and update accordingly.
the voice is easily accessible both in stores and at home, in paper home and online. the voice contines to be an interesting read.
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save & continue
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4. Where to start with automation? The role of HR is increasingly strategic and it’s time that the approach to people management processes reflected this shift away from an administrational function. Implementing an automated performance management system can help facilitate this change, while also offering tremendous flexibility and scope for business benefits. However, for these reasons, it can be difficult to know where you should start with automation. With this in mind, we have outlined a five step implementation strategy process that we follow, which is essential when planning and embedding a bespoke online performance management system:
Figure 4: Implementation strategy – taking a bespoke approach
Align
Define
Develop
Deliver
Enhance
Align •
Understand the organisational context, underlying business drivers and broader organisational culture – such knowledge is critical when identifying key design principles and success factors for the project
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Identify and agree the scope of the project including the timescale to achieve your identified critical success factors
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Engage key stakeholders to ensure engagement and buy-in from the outset
Define •
Develop the project scope and define the solution, seeking input from relevant stakeholders
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Scope specific requirements of the solution based on best practice techniques and undertake organisational research to inform design
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Assemble project team and run definition workshops with representation from across the business to define system requirements and associated reports and outputs
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Ensure ‘best fit’ solutions are underpinned by best practice advice that draws on relevant research and latest trends
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Develop •
Ensure all systems and processes are developed in line with the solution specification and incorporate regular project reviews and note changes
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The completed design should be validated across the business before signing off. This validation process should include subject matter expert reviews, thorough user acceptance and quality testing
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Agree, design and deliver the supporting processes and materials required for the roll-out of the solution (e.g. training documentation)
Deliver •
When introducing the new solution to your business, ensure the associated communications and training are timely, targeted and effective
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Ensure that you’re familiar with all elements of the solution and are able to answer questions from across the business
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Hold a project review meeting to discuss the project to date and document what has worked well and what improvements may be needed
Enhance • •
Use the reporting from your solution to gain insight into your workforce.
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Evaluation is fundamental to defining the success of any process. You must be able to demonstrate the value of the project to your business, identifying exactly where it has had an impact
Analyse and interpret your results, using the data to inform strategic people focused decision making that delivers tangible business improvements.
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Conclusion The number of organisations automating their performance management processes continues to grow at pace. Of those not yet using automated systems, there is widespread awareness of the benefits that it offers and as research has shown, there is a resolve to automate soon. The biggest challenge for these organisations remains convincing senior management of the business benefits and getting their buy-in. As we’ve demonstrated though, there is a very clear business case for doing so, with substantial return on investment, streamlined and more time efficient people processes and, most importantly, a positive impact on business performance.
About ETS This Original Insight report was written by Hannah Stratford, a Business Psychologist and the Head of Business Psychology at ETS. Hannah works with high profile clients to help them leverage strategic value from performance and talent management, employee research and leadership assessment and development programmes. Dominic Wake and Ben Egan also contributed to the content of this report. To contact Hannah or Dominic about this report, please send an email to dominic.wake@ etsplc.com or call +44 (0)1932 219949. ETS provides business-focused consultancy and custom-designed technology to meet the performance management, employee research and 360-degree feedback needs of worldleading companies. We combine innovative technology solutions with practical experience to designed a solution that fits your business needs. ETS delivers our clients’ ‘ideal world’, which means that our solutions exactly match each client’s corporate culture and processes: we listen to you needs; we do not expect you to bend to our solutions. Where appropriate, we develop the new processes needed to meet your people objectives. Where it is possible, we can integrate with, and automate, any existing HR processes so that new and old work together.
Expert Training Systems 123 New Zealand Avenue Walton-on-Thames Surrey KT12 1QA www.etsplc.com info@etsplc.com HR means business blog www.etsplc.com/blog Twitter @etsplc www.etsplc.com
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References 1 The Employee Performance Management Benchmark Report: Managing Human Capital for a Competitive Edge. Aberdeen Group 2006.
2 Performance Management Review: An analysis of the ETS Employee Survey. ETS plc 2009. 3 The Business Case for Performance Management Systems – Josh Bersin 2008. 4 Performance Management Review: An analysis of the ETS Employee Survey. ETS plc 2009. 5 High-Impact Talent Management: Trends, Best Practices and Industry Solutions. Bersin & Associates 2007.
6 Cornell.edu/research – Aberdeen group 2008. 7 Aberdeen Group – Employee Performance Management 2009 – Jayson Sabba 8 CedarCredstone 2010 – 2011 HR Systems Survey. 9 The Business Case for Performance Management Systems – Josh Bersin 200833. 10 Aberdeen Group – Managing Employee Performance 2008. 11 Aberdeen Group – Employee Performance Management 2009 – Jayson Sabba.
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