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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.

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. Share your thoughts with Michael on Twitter @michaelrander.

The Future of Cybersecurity: Trust as Competitive Advantage

Justin Somaini and Dan Wellers

 

The cost of data breaches will reach US$2.1 trillion globally by 2019—nearly four times the cost in 2015.

Cyberattacks could cost up to $90 trillion in net global economic benefits by 2030 if cybersecurity doesn’t keep pace with growing threat levels.

Cyber insurance premiums could increase tenfold to $20 billion annually by 2025.

Cyberattacks are one of the top 10 global risks of highest concern for the next decade.


Companies are collaborating with a wider network of partners, embracing distributed systems, and meeting new demands for 24/7 operations.

But the bad guys are sharing intelligence, harnessing emerging technologies, and working round the clock as well—and companies are giving them plenty of weaknesses to exploit.

  • 33% of companies today are prepared to prevent a worst-case attack.
  • 25% treat cyber risk as a significant corporate risk.
  • 80% fail to assess their customers and suppliers for cyber risk.

The ROI of Zero Trust

Perimeter security will not be enough. As interconnectivity increases so will the adoption of zero-trust networks, which place controls around data assets and increases visibility into how they are used across the digital ecosystem.


A Layered Approach

Companies that embrace trust as a competitive advantage will build robust security on three core tenets:

  • Prevention: Evolving defensive strategies from security policies and educational approaches to access controls
  • Detection: Deploying effective systems for the timely detection and notification of intrusions
  • Reaction: Implementing incident response plans similar to those for other disaster recovery scenarios

They’ll build security into their digital ecosystems at three levels:

  1. Secure products. Security in all applications to protect data and transactions
  2. Secure operations. Hardened systems, patch management, security monitoring, end-to-end incident handling, and a comprehensive cloud-operations security framework
  3. Secure companies. A security-aware workforce, end-to-end physical security, and a thorough business continuity framework

Against Digital Armageddon

Experts warn that the worst-case scenario is a state of perpetual cybercrime and cyber warfare, vulnerable critical infrastructure, and trillions of dollars in losses. A collaborative approach will be critical to combatting this persistent global threat with implications not just for corporate and personal data but also strategy, supply chains, products, and physical operations.


Download the executive brief The Future of Cybersecurity: Trust as Competitive Advantage.


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Unleash The Digital Transformation

Kadamb Goswami

The world has changed. We’ve seen massive disruption on multiple fronts – business model disruption, cybercrime, new devices, and an app-centric world. Powerful networks are crucial to success in a mobile-first, cloud-first world that’s putting an ever-increasing increasing amount of data at our fingertips. With the Internet of Things (IoT) we can connect instrumented devices worldwide and use new data to transform business models and products.

Disruption

Disruption comes in many forms. It’s not big or scary, it’s just another way of describing change and evolution. In the ’80s it manifested as call centers. Then, as the digital landscape began to take shape, it was the Internet, cloud computing … now it’s artificial intelligence (AI).

Digital transformation

Digital transformation means different things to different companies, but in the end I believe it will be a simple salvation that will carry us forward. If you Bing (note I worked for Microsoft for 15 years before experiencing digital transformation from the lens of the outside world), digital transformation, it says it’s “the profound and accelerating transformation of business activities, processes, competencies, and models to fully leverage the changes and opportunities of digital technologies and their impact across society in a strategic and prioritized way.” (I’ll simplify that; keep reading.)

A lot of today’s digital transformation ideas are ripped straight from the scripts of sci-fi entertainment, whether you’re talking about the robotic assistants of 2001: A Space Odyssey or artificial intelligence in the Star Trek series. We’re forecasting our future with our imagination. So, let’s move on to why digital transformation is needed in our current world.

Business challenges

The basic challenges facing businesses today are the same as they’ve always been: engaging customers, empowering employees, optimizing operations, and reinventing the value offered to customers. However, what has changed is the unique convergence of three things:

  1. Increasing volumes of data, particularly driven by the digitization of “things” and heightened individual mobility and collaboration
  1. Advancements in data analytics and intelligence to draw actionable insight from the data
  1. Ubiquity of cloud computing, which puts this disruptive power in the hands of organizations of all sizes, increasing the pace of innovation and competition

Digital transformation in plain English

Hernan Marino, senior vice president, marketing, & global chief operating officer at SAP, explains digital transformation by giving specific industry examples to make it simpler.

Automobile manufacturing used to be the work of assembly lines, people working side-by-side literally piecing together, painting, and churning out vehicles. It transitioned to automation, reducing costs and marginalizing human error. That was a business transformation. Now, we are seeing companies like Tesla and BMW incorporate technology into their vehicles that essentially make them computers on wheels. Cameras. Sensors. GPS. Self-driving vehicles. Syncing your smartphone with your car.

The point here is that companies need to make the upfront investments in infrastructure to take advantage of digital transformation, and that upfront investment will pay dividends in the long run as technological innovations abound. It is our job to collaboratively work with our customers to understand what infrastructure changes need to be made to achieve and take advantage of digital transformation.

Harman gives electric companies as another example. Remember a few years ago, when you used to go outside your house and see the little power meter spinning as it recorded the kilowatts you use? Every month, the meter reader would show up in your yard, record your usage, and report back to the electric company.

Most electric companies then made a business transformation and installed smart meters – eliminating the cost of the meter reader and integrating most homes into a smart grid that gave customers access to their real-time information. Now, as renewable energy evolves and integrates more fully into our lives, these same electric companies that switched over to smart meters are going to make additional investments to be able to analyze the data and make more informed decisions that will benefit both the company and its customers.

That is digital transformation. Obviously, banks, healthcare, entertainment, trucking, and e-commerce all have different needs than auto manufacturers and electric companies. It is up to us – marketers and account managers promoting digital transformation – to identify those needs and help our clients make the digital transformation as seamlessly as possible.

Digital transformation is more than just a fancy buzzword, it is our present and our future. It is re-envisioning existing business models and embracing a different way of bringing together people, data, and processes to create more for their customers through systems of intelligence.

Learn more about what it means to be a digital business.

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Goswami Kadamb

About Goswami Kadamb

Kadamb is a Senior Program Manager at SAP where he is responsible for developing and executing strategic sales program with Concur SaaS portfolio. Prior to that he led several initiatives with Microsoft's Cloud & Enterprise business to enable Solution Sales & IaaS offerings.