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.
A growing number of companies are hoping to rev up their results by better linking employees' individual objectives with broad corporate strategies. "Over the last few years, businesses have placed a far greater emphasis on the relationships between [human capital] performance management practices and financial results," observes Scott Cohen, Wellesley Hills, Mass.-based national leader of the talent management practice at Watson Wyatt Worldwide, a human resources consulting firm.
"Today the C-suite is interested in what it takes to accomplish goals and objectives. They're looking at how people drive value in their roles within the organization," says Cohen. And in many cases, executives are using sophisticated software systems to connect individuals' performance goals, compensation and even training with their organiza-tion's strategic objectives. Says Cohen: "Everyone is striving for the same thing -- improved performance and the ability to deliver better results.
"Success or failure is all in the details," Cohen adds. It's a basic fact that the better workers understand the issues driving the change, the better the odds for success. No longer is it sufficient to rely solely on meetings and memos to communicate corporate goals and align employees' roles with them. Within the past few years, powerful tools have emerged for tracking performance metrics and linking them to individual jobs. Jim Holincheck, research vice president, HR applications, with IT consulting firm Gartner Inc. in Chicago, says human capital performance management software addresses two primary issues: how to "gain visibility into the effectiveness of various initiatives," including Balanced Scorecard and Six Sigma projects, and how to better align performance with compensation.
In most cases, a performance management initiative begins with a CEO or senior executives identifying the company's top goals and objectives. Workers throughout the organization typically follow suit -- in many cases choosing their top five to seven goals. By looking at the goals of employees up and down the corporate ladder -- a view that a growing number of organizations offer -- workers can understand the steps required to achieve the desired results.
More importantly, all workers know what is expected of them at any given time because managers help them translate general goals into specific actions and behaviors. Then, by using job evaluations and 360-degree feedback, managers can identify strengths, weaknesses and gaps. Performance management software can provide reports or visual displays indicating how the organization is faring in reaching its goals.
Holincheck notes that performance management software has been around for more than 15 years, but its use has been limited mostly to individual departments and divisions because of the complexity of scaling it across an enterprise. Today, it's one of the fastest growing segments of the human capital management (HCM) software market, he notes. A wide array of enterprise resource planning and best-of-breed vendors are offering products designed to trim paperwork, simplify administrative tasks and streamline the onerous job of tracking HCM data throughout the organization.
"Companies have focused on the financial aspects of performance management," says Jonathan Hornby, director of performance management with SAS Institute's worldwide strategy group. SAS is a business intelligence provider based in Cary, N.C. "The CFO has typically driven organizational requirements with the focus on better management and understanding of costs." Now "others in the organization are beginning to take notice and questioning how performance management can help them too -- not just with financials but also as a mechanism to better manage the business."
Alignment Goes Global
When organizations launch a performance management initiative, they expect to gain visibility into a growing array of processes in all areas of the company. "Businesses want to tie key performance indicators -- things like growth, customer satisfaction and operational standards -- to the individual level," says Watson Wyatt's Cohen. "They're attempting to take the concept of line-of-sight to a more sophisticated place in order to drive improvement." Simply put, they want to see what's going on at all levels of the organization, even when it's global and highly dispersed.
At Corning Inc., a Corning, N.Y.-based manufacturer of high-tech materials, including glass for LCD televisions and fiber optic cable, a performance management initiative has helped resuscitate productivity by pushing responsibility further into the organization. The company introduced its employee accountability program in the late 1990s and gradually refined it in stages. In 1997, the 152-year-old firm introduced a 360-degree feedback process to its salaried workforce. Two years later, it installed a performance management system from Wayland, Mass.-based Softscape Inc. to automate and expand on the process. By 2001, Corning had introduced cascading goals that linked workers in every department throughout the organization. Managers and other employees could suddenly use the software to gain immediate feedback. "We now have end-to-end measurement capabilities," says Hank Jonas, manager of organizational effectiveness.
One huge challenge for Corning was the complexity involved in applying the program to its global workforce. About 60 percent of the company's 24,000-plus employees reside outside the United States, and ensuring a high level of consistency and standardization of performance criteria in such a highly decentralized environment was crucial. Using a Web-based system, Corning automated and streamlined the previously complex and time-consuming task of monitoring performance and tracking organizational goals worldwide.
Implementing this system has helped the company reduce its administrative costs by $228,000 annually, improve its salary adjustment process to tie each individual's performance and wages into organizational value and focus its workforce on key directives.
Some organizations are now broadening the scope of performance management beyond alignment projects. For example, Yale New Haven Health System, which operates three hospitals and various other facilities in Connecticut, has used a sophisticated business planning process since 1997. In 2004, it added software from SAS Institute to create an electronic scorecard capable of analyzing 31 metrics, including employee turnover rates, employee vacancy rates, cost per discharge and cost per patient per day. The electronic scorecard allows management and clinical leadership to understand how the various factors affect the business plan and bottom-line results.
The health-care provider, with 12,000 employees and 79,000 annual discharges, hasn't looked back. "The system allows people to view performance information on a regular basis and understand when we're hitting our targets and when we're not," says Gayle Capozzalo, executive vice president of strategy and systems development. Not only has the system helped guide performance reviews and other HR processes, but it has also spawned greater cost controls, accountability and results throughout the organization. Performance on some metrics has improved by as much as 30 percent.
Cohen says that an effective human capital perfor-mance management system can provide additional benefits. One of the biggest gains revolves around succession planning. "By capturing solid information about how people are performing today, it is possible to understand their potential and prepare them for the future," he says. In addition, identifying skill and competency gaps can help an enterprise devise adequate hiring and training strategies. And it can contribute to a compensation strategy that reflects the ever-evolving realities of today's global workplace.
Making the Grade
Although success stories abound, achieving positive results with performance management can prove challenging, Cohen says. An April 2004 survey conducted by Watson Wyatt found that only three out of 10 U.S. workers believe that their company's performance management program achieves the desired results. Fewer than two in 10 workers say their company helps poorly performing workers improve. Franklin Covey's December 2003 XQ Leadership Survey found that, out of 12,000-plus U.S. workers, only 58 percent feel that their organization has decided its most important goals and only 37 percent understand its strategic direction.
Cohen says that implementing a well-designed performance management system requires strong leadership, input from various departments and a commitment to detail. Finance executives can play an important role in the process by identifying key performance indicators and helping the organization understand how alignment impacts financial results.
Gartner's Holincheck emphasizes the importance of identifying and institutionalizing goals and objectives. He believes that goals should focus on the details: who, what, when, where, why and how. In addition, they must be measurable, attainable, realistic and time-framed. (See A Performance Management Checklist on the next page). By cascading goals and objectives throughout the organization, companies can create alignment from the executive suite to the factory floor. "The goal is to create a pay-for-performance culture," he says. "When an organization can identify the right goals, [determine] how to measure them and understand what behaviors can differentiate the organization, [it is] on the road to greater success."
A Performance Management Checklist
According to IT consulting firm Gartner Inc., a performance management initiative should encompass: