Tuning Up Human Capital Systems

Companies have been aligning work and business processes to forge a new level of efficiency. Now, human capital performance systems are proving integral to their progress.

The way Anne Sample sees it, creating a culture of accountability requires more than edicts from the boardroom and a smartly crafted business plan. Without systems in place to ensure that employees are engaged in meaningful and productive work, all the expertise in the world is wasted. "Translating business objectives into personal objectives is the key to success," says the senior vice president of human resources for PepsiAmericas, based in Rolling Meadows, Ill.

In 2002, Sample's company -- the second-largest bottler of Pepsi products in the world -- recognized that in order to ratchet up corporate financial performance, it needed to foster greater accountability and commitment in its employees. Although the company had a basic information tool to tie together corporate objectives and individual performance, the system couldn't keep up with the organization's growing demands. And, all too often, by the time management discovered a problem, it was too late to do anything about it. "We wanted to take the process beyond an HR function and make it a serious business tool," Sample says.

PepsiAmericas turned to a new human capital performance management system that links individual goals to enterprisewide objectives and connects all the data to performance reviews. Here's how it works. C-level leaders fashion a three- to five-year strategic plan for the company. Then a cross-functional team -- including representatives from human resources, operations and finance -- further defines annual operating objectives and distributes them throughout the organization. Finally, line managers put the last pieces in place by working with employees to address specific objectives and ensure that workers are meeting agreed-upon criteria.

Specialized software, including a new system from Waltham, Mass.-based Authoria Inc., helps the organization map goals, track performance and view the progress of employees. As workers develop their individual goals -- with the assistance of managers -- that data is fed into the system. Later, the organization uses employee evaluations to determine its level of effectiveness and make decisions about compensation.

The performance objectives of more than 90 percent of PepsiAmericas' salaried employees -- including all administrative and professional workers -- are tied to the company's annual operating plan. "Employees are far more engaged and focused. We're conducting business in a more coordinated and synergistic way," Sample says. "The positive effects ripple throughout the organization."

PepsiAmericas has slashed administrative overhead and boosted productivity for its workers. In 2002, the company's return on invested capital was 6.1 percent, and for 2004, the figure spiked to 7.3 percent. During the same period, PepsiAmericas' split-adjusted stock price rose by nearly 80 percent to $21.16 per share.