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The Real Revolution In Performance Management

Steven Hunt

After years spent complaining about performance management, companies are finally redesigning this critical, yet much maligned, part of human capital management. Here’s a quick snapshot of what the real revolution in performance management is about based on my experience working with hundreds of companies.  And it is not about ratings.

Performance management refers to processes used to communicate job expectations, provide ongoing support to help employees achieve those expectations, and make decisions about pay, promotions, and other scarce resources based on employee performance against expectations.  The revolution taking place in performance management is a result of companies realizing that performance management is not a single activity.  It is two distinct activities that must be kept separate to be effective but must be linked to be impactful.

Performance coaching: maintaining ongoing discussions about performance expectations.

Performance investment: accurately assessing employee performance and using this data to make decisions related to pay, staffing, and development.

Thinking of these two areas as separate but linked allows companies to make major advances in how they engage employees throughout the year while ensuring the company also invests its resources in a manner that reflects the level of contributions different employees make to the company.

The performance coaching revolution. Managers and employees should discuss performance throughout the year so there are no surprises at the end-of-year review.  But managers and employees inevitably fail to hold these ongoing discussions.  They either forget to have regular check-in meetings or they use the meetings for tactical problem solving instead of engaging in coaching conversations about goal alignment and performance expectations. Happily this is starting to change.

Companies are starting to seriously address managers whose behaviors, intentional or not, suggest they have little interest in the career success of their direct reports.  It has long been said that employees don’t quit companies, they quit lousy managers.  In a scarce labor market companies cannot afford to lose talent due to poor management practices.

To address this issue, companies are making use of innovative, continuous performance management technology that helps managers and employees schedule and hold productive ongoing one-on-one coaching sessions.  It reminds them to have the meetings, helps guide session agendas, and tracks data from the meetings that can be referred to over time.  It also allows companies to measure whether managers are performing the core tasks required to be an effective manager (i.e., talking with direct reports about their jobs and careers).  This technology might be likened to a “health app” for employee-manager dialogue.  Instead of reminding you to eat right and exercise regularly, it reminds you and your manager to have clear goals and discuss them regularly.

The performance investment revolution.  Despite claims about companies “getting rid of ratings”, all companies rate their employees in the sense that they place them in different categories based on perceived performance contributions. I have yet to meet a business leader who didn’t want to know who the high performers are in their company and who didn’t believe there should be some link between pay and performance. Consequently, I have yet to see a company that doesn’t rate its employees in some manner.  The question is whether those ratings are accurate and impactful.

Historically, most companies had managers provide an annual overall rating of the performance of their direct reports.  The problem is these ratings were often inaccurate, failed to differentiate between employees, and/or had limited influence on decisions related to compensation and staffing.  People often viewed the rating process as an exercise in stress, futility, and bad data. Rather than continue using a flawed rating process, many companies have decided to eliminate ratings made by individual managers operating in isolation. The old annual ratings are being replaced by calibration sessions that stress collaborative discussion between managers and other stakeholders to determine which employees provide the greatest impact on company success.

Note that calibration is not the same as forced ranking. Calibration is about coming together to discuss and agree on the performance levels of employees. This may include placing employees into a predefined performance distribution, but forced distributions are not a necessary component of effective calibration sessions.

The shift to calibration is fueled by three things:

  1. Companies are recognizing that the only way to develop a consistent definition of performance across managers and employees is to discuss what defines high performance in their group.
  2. Second, companies are recognizing that how you evaluate someone’s performance is heavily influenced by your perspective.  When a manager evaluates their direct reports, they are primarily evaluating them based on their interactions with that person. To get a true picture of a person’s performance you need input from multiple people who interact with them in different situations and settings.
  3. Third, technology is making it easier to conduct calibration reviews.  It used to take weeks to assemble the performance records and employee profiles necessary to hold a calibration session.  The data was often out of date by the time the session was conducted.  Companies can now access employee data in real time, enabling more frequent and focused use of calibration to gain insight into the strengths and weaknesses of the workforce.

Performance management is both difficult and necessary.  Performance management is difficult because it addresses the reality of performance differences.  Employees do not all perform at the same level and most people believe employees who contribute more to the organization should receive more in return.  But addressing performance differences requires managing issues that can quickly blow up if not dealt with appropriately. Performance management is necessary because it impacts business-critical and legally sensitive decisions around pay, job assignments, and employment.  Leaving managers to make these sorts of high stakes decisions based on intuition is not a good formula for long-term success.  When you consider the sorts of activities and decisions involved in performance management it is not surprising that companies have struggled to do it well.

The good news is there’s a revolution going on in performance management. This revolution is about creating continuous performance conversations between employees and managers and using calibration sessions to gain accurate insight into employee contributions.  Annual ratings are not going away due to this revolution.  But they are playing an increasingly minor role as companies shift their emphasis from collecting performance ratings to creating more effective ongoing performance dialogue between employees, managers, and leaders.

It is my privilege to work with many companies who are on the forefront of the performance management revolution. These companies are demonstrating how technology enables us to rethink this important but historically troublesome HCM practice.  For videos with tips on how to improve one-on-one meetings, please visit these links for employees, managers, and HR professionals.

For more insight on performance management strategies, see How To Get Better At Receiving Feedback.

This story also appeared in the SAP Business Trends community.

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Steven Hunt

About Steven Hunt

Steven Hunt is the Senior Vice President of Customer Value at SAP. He is responsible for guiding the strategy and deployment of knowledge, tools and process improvements that increase the value customers receive from SuccessFactors & SAP Cloud software as a service solutions.

How To Design Your Company’s Digital Transformation

Sam Yen

The September issue of the Harvard Business Review features a cover story on design thinking’s coming of age. We have been applying design thinking within SAP for the past 10 years, and I’ve witnessed the growth of this human-centered approach to innovation first hand.

Design thinking is, as the HBR piece points out, “the best tool we have for … developing a responsive, flexible organizational culture.”

This means businesses are doing more to learn about their customers by interacting directly with them. We’re seeing this change in our work on d.forum — a community of design thinking champions and “disruptors” from across industries.

Meanwhile, technology is making it possible to know exponentially more about a customer. Businesses can now make increasingly accurate predictions about customers’ needs well into the future. The businesses best able to access and pull insights from this growing volume of data will win. That requires a fundamental change for our own industry; it necessitates a digital transformation.

So, how do we design this digital transformation?

It starts with the customer and an application of design thinking throughout an organization – blending business, technology and human values to generate innovation. Business is already incorporating design thinking, as the HBR cover story shows. We in technology need to do the same.

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Design thinking plays an important role because it helps articulate what the end customer’s experience is going to be like. It helps focus all aspects of the business on understanding and articulating that future experience.

Once an organization is able to do that, the insights from that consumer experience need to be drawn down into the business, with the central question becoming: What does this future customer experience mean for us as an organization? What barriers do we need to remove? Do we need to organize ourselves differently? Does our process need to change – if it does, how? What kind of new technology do we need?

Then an organization must look carefully at roles within itself. What does this knowledge of the end customer’s future experience mean for an individual in human resources, for example, or finance? Those roles can then be viewed as end experiences unto themselves, with organizations applying design thinking to learn about the needs inherent to those roles. They can then change roles to better meet the end customer’s future needs. This end customer-centered approach is what drives change.

This also means design thinking is more important than ever for IT organizations.

We, in the IT industry, have been charged with being responsive to business, using technology to solve the problems business presents. Unfortunately, business sometimes views IT as the organization keeping the lights on. If we make the analogy of a store: business is responsible for the front office, focused on growing the business where consumers directly interact with products and marketing; while the perception is that IT focuses on the back office, keeping servers running and the distribution system humming. The key is to have business and IT align to meet the needs of the front office together.

Remember what I said about the growing availability of consumer data? The business best able to access and learn from that data will win. Those of us in IT organizations have the technology to make that win possible, but the way we are seen and our very nature needs to change if we want to remain relevant to business and participate in crafting the winning strategy.

We need to become more front office and less back office, proving to business that we are innovation partners in technology.

This means, in order to communicate with businesses today, we need to take a design thinking approach. We in IT need to show we have an understanding of the end consumer’s needs and experience, and we must align that knowledge and understanding with technological solutions. When this works — when the front office and back office come together in this way — it can lead to solutions that a company could otherwise never have realized.

There’s different qualities, of course, between front office and back office requirements. The back office is the foundation of a company and requires robustness, stability, and reliability. The front office, on the other hand, moves much more quickly. It is always changing with new product offerings and marketing campaigns. Technology must also show agility, flexibility, and speed. The business needs both functions to survive. This is a challenge for IT organizations, but it is not an impossible shift for us to make.

Here’s the breakdown of our challenge.

1. We need to better understand the real needs of the business.

This means learning more about the experience and needs of the end customer and then translating that information into technological solutions.

2. We need to be involved in more of the strategic discussions of the business.

Use the regular invitations to meetings with business as an opportunity to surface the deeper learning about the end consumer and the technology solutions that business may otherwise not know to ask for or how to implement.

The IT industry overall may not have a track record of operating in this way, but if we are not involved in the strategic direction of companies and shedding light on the future path, we risk not being considered innovation partners for the business.

We must collaborate with business, understand the strategic direction and highlight the technical challenges and opportunities. When we do, IT will become a hybrid organization – able to maintain the back office while capitalizing on the front office’s growing technical needs. We will highlight solutions that business could otherwise have missed, ushering in a digital transformation.

Digital transformation goes beyond just technology; it requires a mindset. See What It Really Means To Be A Digital Organization.

This story originally appeared on SAP Business Trends.

Top image via Shutterstock

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Sam Yen

About Sam Yen

Sam Yen is the Chief Design Officer for SAP and the Managing Director of SAP Labs Silicon Valley. He is focused on driving a renewed commitment to design and user experience at SAP. Under his leadership, SAP further strengthens its mission of listening to customers´ needs leading to tangible results, including SAP Fiori, SAP Screen Personas and SAP´s UX design services.

How Productive Could You Be With 45 Minutes More Per Day?

Michael Rander

Chances are that you are already feeling your fair share of organizational complexity when navigating your current company, but have you ever considered just how much time is spent across all companies on managing complexity? According to a recent study by the Economist Intelligence Unit (EIU), the global impact of complexity is mind-blowing – and not in a good way.

The study revealed that 38% of respondents spent 16%-25% of their time just dealing with organizational complexity, and 17% spent a staggering 26%-50% of their time doing so. To put that into more concrete numbers, in the US alone, if executives could cut their time spent managing complexity in half, an estimated 8.6 million hours could be saved a week. That corresponds to 45 minutes per executive per day.

The potential productivity impact of every executive having 45 minutes more to work every single day is clearly significant, and considering that 55% say that their organization is either very or extremely complex, why are we then not making the reduction of complexity one or our top of mind issues?

The problem is that identifying the sources of complexity is complex in of itself. Key sources of complexity include organizational size, executive priorities, pace of innovation, decision-making processes, vastly increasing amounts of data to manage, organizational structures, and the pure culture of the company. As a consequence, answers are not universal by any means.

That being said, the negative productivity impact of complexity, regardless of the specific source, is felt similarly across a very large segment of the respondents, with 55% stating that complexity has taken a direct toll on profitability over the past three years.  This is such a serious problem that 8% of respondents actually slowed down their company growth in order to deal with complexity.

So, if complexity oftentimes impacts productivity and subsequently profitability, what are some of the more successful initiatives that companies are taking to combat these effects? Among the answers from the EIU survey, the following were highlighted among the most likely initiatives to reduce complexity and ultimately increase productivity:

  • Making it a company-wide goal to reduce complexity means that the executive level has to live and breathe simplification in order for the rest of the organization to get behind it. Changing behaviors across the organization requires strong leadership, commitment, and change management, and these initiatives ultimately lead to improved decision-making processes, which was reported by respondents as the top benefit of reducing complexity. From a leadership perspective this also requires setting appropriate metrics for measuring outcomes, and for metrics, productivity and efficiency were by far the most popular choices amongst respondents though strangely collaboration related metrics where not ranking high in spite of collaboration being a high level priority.
  • Promoting a culture of collaboration means enabling employees and management alike to collaborate not only within their teams but also across the organization, with partners, and with customers. Creating cross-functional roles to facilitate collaboration was cited by 56% as the most helpful strategy in achieving this goal.
  • More than half (54%) of respondents found the implementation of new technology and tools to be a successful step towards reducing complexity and improving productivity. Enabling collaboration, reducing information overload, building scenarios and prognoses, and enabling real-time decision-making are all key issues that technology can help to reduce complexity at all levels of the organization.

While these initiatives won’t help everyone, it is interesting to see that more than half of companies believe that if they could cut complexity in half they could be at least 11%-25% more productive. That nearly one in five respondents indicated that they could be 26%-50% more productive is a massive improvement.

The question then becomes whether we can make complexity and its impact on productivity not only more visible as a key issue for companies to address, but (even more importantly) also something that every company and every employee should be actively working to reduce. The potential productivity gains listed by respondents certainly provide food for thought, and few other corporate activities are likely to gain that level of ROI.

Just imagine having 45 minutes each and every day for actively pursuing new projects, getting innovative, collaborating, mentoring, learning, reducing stress, etc. What would you do? The vision is certainly compelling, and the question is are we as companies, leaders, and employees going to do something about it?

To read more about the EIU study, please see:

Feel free to follow me on Twitter: @michaelrander

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Michael Rander

About Michael Rander

Michael Rander is the Global Research Director for Future Of Work at SAP. He is an experienced project manager, strategic and competitive market researcher, operations manager as well as an avid photographer, athlete, traveler and entrepreneur.

How Much Will Digital Cannibalization Eat into Your Business?

Fawn Fitter

Former Cisco CEO John Chambers predicts that 40% of companies will crumble when they fail to complete a successful digital transformation.

These legacy companies may be trying to keep up with insurgent companies that are introducing disruptive technologies, but they’re being held back by the ease of doing business the way they always have – or by how vehemently their customers object to change.

Most organizations today know that they have to embrace innovation. The question is whether they can put a digital business model in place without damaging their existing business so badly that they don’t survive the transition. We gathered a panel of experts to discuss the fine line between disruption and destruction.

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qa_qIn 2011, when Netflix hiked prices and tried to split its streaming and DVD-bymail services, it lost 3.25% of its customer base and 75% of its market capitalization.²︐³ What can we learn from that?

Scott Anthony: That debacle shows that sometimes you can get ahead of your customers. The key is to manage things at the pace of the market, not at your internal speed. You need to know what your customers are looking for and what they’re willing to tolerate. Sometimes companies forget what their customers want and care about, and they try to push things on them before they’re ready.

R. “Ray” Wang: You need to be able to split your traditional business and your growth business so that you can focus on big shifts instead of moving the needle 2%. Netflix was responding to its customers – by deciding not to define its brand too narrowly.

qa_qDoes disruption always involve cannibalizing your own business?

Wang: You can’t design new experiences in existing systems. But you have to make sure you manage the revenue stream on the way down in the old business model while managing the growth of the new one.

Merijn Helle: Traditional brick-and-mortar stores are putting a lot of capital into digital initiatives that aren’t paying enough back yet in the form of online sales, and they’re cannibalizing their profits so they can deliver a single authentic experience. Customers don’t see channels, they see brands; and they want to interact with brands seamlessly in real time, regardless of channel or format.

Lars Bastian: In manufacturing, new technologies aren’t about disrupting your business model as much as they are about expanding it. Think about predictive maintenance, the ability to warn customers when the product they’ve purchased will need service. You’re not going to lose customers by introducing new processes. You have to add these digitized services to remain competitive.

qa_qIs cannibalizing your own business better or worse than losing market share to a more innovative competitor?

Michael Liebhold: You have to create that digital business and mandate it to grow. If you cannibalize the existing business, that’s just the price you have to pay.

Wang: Companies that cannibalize their own businesses are the ones that survive. If you don’t do it, someone else will. What we’re really talking about is “Why do you exist? Why does anyone want to buy from you?”

Anthony: I’m not sure that’s the right question. The fundamental question is what you’re using disruption to do. How do you use it to strengthen what you’re doing today, and what new things does it enable? I think you can get so consumed with all the changes that reconfigure what you’re doing today that you do only that. And if you do only that, your business becomes smaller, less significant, and less interesting.

qa_qSo how should companies think about smart disruption?

Anthony: Leaders have to reconfigure today and imagine tomorrow at the same time. It’s not either/or. Every disruptive threat has an equal, if not greater, opportunity. When disruption strikes, it’s a mistake only to feel the threat to your legacy business. It’s an opportunity to expand into a different marke.

SAP_Disruption_QA_images2400x1600_4Liebhold: It starts at the top. You can’t ask a CEO for an eight-figure budget to upgrade a cloud analytics system if the C-suite doesn’t understand the power of integrating data from across all the legacy systems. So the first task is to educate the senior team so it can approve the budgets.

Scott Underwood: Some of the most interesting questions are internal organizational questions, keeping people from feeling that their livelihoods are in danger or introducing ways to keep them engaged.

Leon Segal: Absolutely. If you want to enter a new market or introduce a new product, there’s a whole chain of stakeholders – including your own employees and the distribution chain. Their experiences are also new. Once you start looking for things that affect their experience, you can’t help doing it. You walk around the office and say, “That doesn’t look right, they don’t look happy. Maybe we should change that around.”

Fawn Fitter is a freelance writer specializing in business and technology. 

To learn more about how to disrupt your business without destroying it, read the in-depth report Digital Disruption: When to Cook the Golden Goose.

Download the PDF (1.2MB)

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Why Small And Midsize Businesses Need More Than Just Data To Act In The Moment

Alison Biggan

Part 4 of “The Road to Live Business” series

The challenges small and midsize businesses face on a daily basis are beyond anything seen before. Over the last five years, companies across all industries have been impacted by:

  • The rise of mobile devices and cloud-based applications that have fundamentally changed how firms interact with customers and manage operations
  • New market dynamics that emerge without warning and threaten to disrupt operations significantly and at a moment’s notice
  • Employees of all roles and decision-making authority who want access to information so they can positively impact overall business performance

To address these pressures and ensure growth and expansion, small and midsize businesses must be agile and highly responsive – all with a drive to act in the moment.

Although a data-driven mindset and analytics are crucial to achieving this state, they only matter if you use them to look into the future, uncover emerging trends, and predict where the company is heading. Then, you can act in the moment, make thoughtful decisions in an instant, and serve customers in the moment of need – all characteristics of a Live Business.

There’s never been a better time for small and midsize businesses to act in the moment

Access to data is better and easier than ever before. You don’t have to be a big, multinational brand to take advantage of the analytics technology that’s available today. Your approach to leveraging analytics can be incremental and the technology is more affordable than ever, which drives down your company’s investment risk and simplifies your technology complexity.

Thanks to cloud technology, analytics solutions that were once siloed are now merging to form a single, integrated solution. From one source, you can capture business intelligence, generate a report, plan for the future, predict outcomes, and visualize insights. You don’t have to be a power user or a Ph.D. data scientist to get insight from your data. Data discovery and exploration are so intuitive that you can drill down and interact with data in real-time to get deeper, more accurate insights into what’s happening in your business. And through predictive modeling, you can pinpoint trends, compare the effectiveness of potential scenarios, and predict the future to drive new business models.

With this level of access and speed, you have the information needed to make the right decisions – in real time. Very quickly, you can see how regional activities, customer behavior patterns, market volatility, and emerging risks can impact your operations in the here and now. And with the rising popularity of mobile apps, all of your business users can make these decisions anytime, anywhere.

The value of combining the strengths of a small and midsize business with analytics

Small and midsize businesses are famous at operating with greater agility and speed than their much larger counterparts. Now that technology is more affordable and right-sized, companies like yours can leverage the technology as a competitive advantage while they are in that agile state.

It doesn’t require big budgets, big teams, or big IT departments. If you think about it from a data analytics perspective, that’s a huge step forward in delivering the features and functions your business needs – right now.

To learn how your business can become a Live Business, check out Forbes Insights’ recent report “Doing Business In-the-Moment: How SMBs Run Live in the Digital Economy.” Over the next three weeks, we will share additional insights from this research. Be sure to check every Tuesday for new installments to our blog series “The Road to Live Business.” 

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Alison Biggan

About Alison Biggan

Alison Biggan is global head of Product Marketing, Digital Enterprise Platform Group, at SAP.