BPM's Missing Link

Companies know that human capital is their greatest asset and that employee performance is a key factor in achieving corporate goals and objectives, but employees at many companies remain the stepchildren of corporate concern. "Employees are the number one cost of an organization and the number one source of risk, innovation, and competitive strategy, but businesses will spend time analyzing products and services and not the workforce," says Becca Goren, product marketing manager, SAS Human Capital Management. "Strategic human capital management will be playing a more central role in performance management moving forward, as companies recognize the importance of driving accountability into operations."

Linking employee performance to business strategy remains an elusive goal for many organizations for several reasons. One is the inability to bring all of the performance information together. Most businesses fail to achieve full integration of financial and HR systems. "You need to link data from multiple systems," says Farhana Alarakhiya, associate vice president of analytics applications, Cognos. "All of the information necessary doesn't reside in one system. The issue lies either in having the ability within their own organizations to bring that information together or in being able to buy packaged applications that can bring all of that information together."

But technology alone won't lead companies to attain world-class performance in this critical area. A well-developed, technology-based system will help to improve the consistency of application across the organization, a commonly cited barrier in a recent survey of HR professionals and line managers by OnPoint Consulting. However, technology does not address managers' skills or commitment to developing people, nor does it clarify the link between pay and performance.

"Companies will invest a tremendous amount of money in technology to prove that their system works," says Jennifer Forgie, an OnPoint consultant. "But it comes down to the skill of the individual manager in creating clear, measurable goals and providing ongoing coaching and enforcement. While technology can facilitate goal-setting and achievement and can be effective, without the right mind-set, competence, and reinforcement, technology can do more harm than good because it can create frustrations between employees and managers."

Forty percent of the respondents in OnPoint's survey said that managers don't set clear and measurable goals for their direct reports as part of their performance management process. The survey points to four primary obstacles in achieving intended objectives: lack of clarity between pay and performance; inconsistent application of the system across the organization; managers' lack of commitment to developing people; and managers' lack of the skills necessary to use the system effectively.

Best practices are emerging, albeit slowly, and differ from industry to industry. "Best practices depend on their industry's key drivers for growth and the goal of the company," says Alarakhiya. "Companies that are moving ahead are taking packaged applications and adapting them to their particular business needs. It might be sales productivity in one firm and be a completely different set of measures in another company."

Often, best practices are confined to one area within a company. "Unfortunately, employee performance management and overall performance management is often done in pockets," says Goren. "It's not driven throughout an organization at enterprise level. It's often a pilot project in one area or another."

Regardless of industry and company differences that separate the specifics of workplace alignment programs, consultants, academics, and HR professionals agree that the following general best practices are universally important:

• Strengthening the links between HR and finance. Few organizations have fully integrated their financial and HR systems. Best-practices companies have created a single database for workforce information for one version of the truth for performance data.

Another problem is that often finance lacks a firm grasp on return on investment for key HR initiatives that are essential in sustaining a successful employee performance management system, such as training and education, and a solid understanding of how those activities support company objectives. In best-practices organizations, finance and HR have beaten the "silo" mentality and are collaborating with each other.

• Linking monetary rewards to performance goals. A workforce alignment program without consequences for success or failure is like a shark without teeth. But clarifying the link between pay and performance is an uphill battle for most companies as they struggle to quantify the value of employee actions. This is why many businesses focus on pay-for-performance linkage in their sales organization, where performance outcomes are most visible and have enormous impact on business success, according to John Colbert, vice president, service development, BPM Partners. But best-practices companies develop metrics that map the performance of all employees who function at a level that can impact business objectives.

• Selecting the most meaningful metrics. Best-practices companies engage a cross-functional team in setting performance metrics. "A best practice is having top executives across the organization at the strategy table -- operations, finance, marketing, sales, the CEO -- all come together," but it's uncommon, according to Goren. "It's wishful thinking at most organizations, and metrics usually come from one department."

• Avoiding metric overload. "Many times, people will err on the side of too many goals and objectives, and the point of creating the objectives is to focus people on high priorities that will drive the business," says Forgie. "Creating more of them isn't necessarily better. The key is to keep those objectives aligned with the strategy of the department and the organization."

• Using scorecards. The balanced scorecard methodology enables companies to single out employee learning and growth as an area that needs to be managed from a strategic perspective, but still relatively few companies adopt it because of its complexity. In fact, in the past, balanced scorecard companies frequently left HR outside of the system. Now, some best-practices companies are adopting a more comprehensive methodology and tying departmental scorecards with their own metrics to a companywide scorecard that includes HR metrics to help shape the organization's future. "But the adoption rate for scorecards is slow because of the difficulties of linkage," says Alarakhiya.

• Taking a collaborative approach to setting performance objectives. The most advanced businesses include employees in creating performance objectives. A top-down approach in which only the managers set goals discourages employee buy-in and commitment to achieve goals.

• Providing frequent performance updates. Forgie recommends providing employees performance feedback on a minimum of a quarterly basis. "With the fast pace of business change today, goals you set at the beginning of the year can become obsolete two months down the road," she says. "And this gives managers the opportunity to reshape goals so that at the end of the year it's just a summary and not a surprise."