Business performance management tools help companies bridge the gap between corporate strategy and human capital management.
Companies that have achieved some success with business performance management (BPM) systems sometimes find themselves eyeing an ambitious goal: tying employee performance directly to overall corporate strategy. This is the ultimate BPM challenge because it requires a degree of integration between financial and HR systems that few organizations have achieved.
Distilling employee data from multiple sources into a single version of the truth has long been a headache for HR directors and finance executives seeking to better understand workforce performance. "You might have an HR system within your ERP [enterprise resource planning] system which is a basic employee services package, plus a compensation tool which is a niche application, along with other systems focusing on different aspects of employee data," says Mark Smith, CEO and senior vice president of research with Ventana Research in San Mateo, Calif. "All of this becomes cumbersome -- particularly for large companies -- to manage. The CFO has to get more involved with these people-oriented [systems] and realize that financial performance and workforce performance must both come together."
BPM tools that offer HR functionality can help CFOs bring some order to the morass of data. But they cannot by themselves align individual employees' performance with corporate objectives, says Jonathan Wu, senior principal with professional services firm Knightsbridge Solutions LLC in Oakland, Calif. "PeopleSoft, for instance, has an enterprise performance management product with a series of modules that includes HR analytics and metrics for HR, and you can pull information out of that transaction system," he notes. "But when it comes to linking your company's strategies to individual performance and knowing how to set tactics for that purpose, there's a disconnect. It's a challenge for any company to manage, monitor and tie individual performance to strategies."
But it's a challenge that can be met. A select group of innovative organizations have achieved success by combining BPM software with a departmental or enterprisewide scorecard.
Building on the Scorecard
Using BPM software and the Balanced Scorecard to leverage HR data is a new tactic for most organizations. "In the past, when a company would focus on the Balanced Scorecard, HR was frequently outside of it," says Toni Hicks, senior vice president of practices at Parson Consulting in Chicago. HR was often "considered too insular" to participate, she notes. But now companies are adopting a more comprehensive methodology. "Eventually, all the performance information, including employee performance data, needs to feed into one scorecard," she says.
A scorecard-based approach worked well for Maine Medical Center, a teaching hospital in Portland with some 5,400 employees. "We had established an institutional scorecard and 50 organizational unit scorecards within areas such as finance; processes of care; and satisfaction of patients, physicians and family, along with education and academic achievement," reports Dr. George L. Higgins III, the hospital's chief medical officer and vice president of medical affairs. "We took all that data and produced it on paper. Then we realized we needed an electronic tool to translate it into one central system which could populate our scorecards. So in 2003, we chose the SAS BPM solution."
The hospital drove employee performance improvements by analyzing key metrics such as fall rates (the incidence of patients falling out of bed) and identifying internal best practices. "We noticed that some units had lower fall rates than others, so managers would share their data with other managers to help reduce the fall rates across our different functional areas," Higgins explains.
The BPM system tracks such metrics as outcomes of surgeries, operating room starting times and number of prescription errors for some 1,100 physicians. It also compiles critical performance data and delivers it to these employees. "They can compare themselves to other physicians, and if they're able to hit certain performance targets, they receive additional pay," notes Higgins. "It's been a remarkably successful pay-for-performance compensation plan."
Helping Employees Set Goals
CFOs weighing a major software purchase to support a workforce alignment initiative should investigate HR tools that include performance management functionality. When combined with a scorecard program, these systems can deliver stellar results.
Serono SA, a Geneva-based biotech company with about 5,000 employees, has embraced the precepts of the Balanced Scorecard since 2000. "We use the Balanced Scorecard at the corporate level and for each of our business divisions, including finance [and] sales, and for our different geographic regions -- including our non-U.S. locations -- as well as for human resources," says Tom Coleman, director of compensation and benefits at the company's U.S. headquarters in Boston.
"In October 2003, we began searching for a human capital management software solution to help with our individual performance measuring and monitoring, and we chose Authoria's product," Coleman reports. "We spent most of 2004 customizing it to suit our needs, then launched it within our human resources department in November of 2004. In January of 2005, we began using it among our management population globally, and by February it was in use by about 2,500 of our employees."
The initiative's success hinged on tying compensation more closely to perfor-mance and communicating the value of the new system to employees. To achieve those goals, the company implemented a campaign it calls "performance and compensation elections" (PACE); the idea is that employees can elect to impact their pay positively by achieving a higher level of performance. "One of the changes we made via PACE was to shift the paradigm over who was setting the objectives," explains Coleman. "Before PACE, there wasn't a consistent method; sometimes the employees set their own objectives, and sometimes the manager set the objectives for them.
"Now everyone's clear on the process," Coleman says. "The employees have been well-schooled in the principles of the Balanced Scorecard and use it as their guide in creating their objectives. They send their list of objectives to their manager, who may make some changes to it, and then those changes go back to the employees for them to agree upon. Every quarter, they can review performance reports on how they're doing compared to those objectives.
"And we've made our performance very visible to everyone," Coleman reports. "For example, in our lobby is our overall Balanced Scorecard right up on the wall, including how we're performing in relation to our stated metrics and goals."
Starting at the Top
Companies seeking to develop a BPM-enabled methodology for evaluating their employees usually focus their initial efforts at the top of the workforce. "The question becomes: How well are my incentives for senior management aligned with company strategies?" says Dan London, a partner with Accenture in Atlanta. "BPM can provide better information about how the company is doing compared to its stated objectives, which can in turn serve as a yardstick for measuring how well senior managers are supporting those objectives."
John Colson agrees. He's senior vice president of sales for CorVu Corp., a BPM software vendor based in Edina, Minn. "BPM is driven from the top down anyway, so begin with measuring the performance of your senior managers," he advises. "Then eventually work down to middle managers and ultimately the front lines. But keep in mind that to reach that level of granularity may take as long as three years or longer. A lot depends on the corporate culture's willingness to accept this kind of performance measurement. It can be a shock to the system. Some companies end up losing half of their senior executives."
At the senior- and middle-management levels, companies can leverage performance metrics to enhance communication between their departments. For example, RadioShack Corp. evaluates some 250 managers on their ability to achieve certain goals that are specific to their respective business units. These employees understand that if their group does well, they will, too. However, the company's balanced scorecards also include measures that apply to more than one department. As a result, managers in different areas of the company have a shared interest in seeing that a particular target is reached.
"For example, a supply chain manager is accountable for inventory levels, with goals such as improving cycle time between receiving merchandise and getting it out to our stores; in addition, inventory is also a metric within our merchandising group," says Gustavo Rojas, senior director of operational effectiveness at RadioShack's Fort Worth, Texas, offices. "So both areas have a vested interest in improving this common metric. Those kinds of cross-departmental metrics help break down business unit silos and promote more communication across the company."
Salving a Sore Spot
Suppose you want to implement a BPM-powered employee evaluation and compensation system, but you're not a Balanced Scorecard company. Where do you begin?
Start with the area of your business that's most in need of attention, advises Knightsbridge Solutions' Wu. "Drill down within that weak area and concentrate on those employees, laying out key performance indicators for each individual," he says. "Take a metric like cash flow, for instance. One of the submetrics supporting cash flow is days sales outstanding. Look at how your industry fares with that metric. Make the industry average your performance goal, then look at how employees within the A/R area are doing their job. Tell them you're going to reward them if they can improve their performance. If there still is no improvement, look deeper. There may be some other negative force at work; maybe they're getting poor information on customers, which is slowing down their ability to collect."
Wu cautions that offering employees an incentive to improve their performance in one area may adversely affect their performance in others. "If your A/R people end up harassing clients who are late in paying their bills, then your customer satisfaction metric may be hurt at some point," he explains.
Organizations that sink or swim based on the quality of their human capital will be the most innovative proponents of BPM-based HR initiatives. Take, for example, the University of Alberta in Edmonton, Canada. Eighty-two percent of its $1-billion-plus budget goes to salaries and benefits. "Consequently, human capital management is critical for us," says Philip Stack, director of resource planning. "In the past, we had no integration of the performance data surrounding our 1,700 faculty members. All 18 of our different schools were producing piecemeal information, with no linkage between inputs and outputs into HR, no analytic capacity, and a tremendous amount of manual paperwork.
"With the purchase of a BPM solution from Cognos [in 2001], we've gradually been able to integrate faculty data and eliminate redundant data systems," Stack says. "There's also a much tighter linkage between our overall planning and individual faculty members' actions and perfor-mance. The BPM solution has given us a better means for evaluating whether individual faculty members are doing what they should be doing when it comes to metrics such as their research efforts, community service and number of papers produced."
Over the next few years, CFOs can expect to see more and more BPM vendors adding HR performance management modules to their products. Of course, even the most sophisticated BPM tool can't guarantee success for businesses seeking to align workforce performance with overall corporate strategy -- that goal calls for top-notch change management capabilities, effective communication programs, and close collaboration between finance and HR. But for companies that can meet those requirements, the right software can make a huge contribution to their workforce alignment initiative.
7 Steps to Workforce Alignment
Here's how to connect employee performance more closely with your company's key strategies:
- Develop a companywide scorecard which identifies crucial HR metrics that can help you shape your organization's future. Ensure that HR allocates the bulk of its time, money and effort to initiatives that will improve those measures.
- Strengthen the links between finance and HR. Make sure that finance has a clear grasp of ROI for key HR initiatives, such as employee training and continuing education, and a solid understanding of how those projects support the company's strategic objectives.
- Create a single database for workforce information to eliminate redundant systems and enhance performance data.
- Encourage employees to participate in creating performance objectives. Workers who are excluded from the goal-setting process may lack the incentive they need to strive for key targets.
- Offer employees monetary rewards for achieving performance goals.
- Give workers frequent performance updates to let them know whether they're meeting or failing to meet their stated objectives.
- Most important, ensure that your workforce clearly understands the company's goals. Keep employees abreast of any major changes in strategic direction and explain how those changes may affect their job.