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Best Practices for Performance Management

To address the variety of challenges HR executives face, they've increased their use of performance management solutions to achieve greater visibility into their talent pool.

January 1, 2007
Related Topics: Strategy and Management, Competencies, High Performers, Performance Management, Strategy and Management

IDC research shows that HR executives are facing a number of talent challenges in 2006. Chief among these are employee retention, shortages of candidates for key jobs and succession planning. To address these concerns, more executives are looking to workforce performance management solutions as a means to achieve greater visibility into their own talent pool.

The goal is to identify and retain top performers while at the same time streamlining the entire performance-appraisal process so that it is more automated and integrated with other talent functions. Despite these challenges, HR executives already have amassed a number of best practices relating to the execution of effective performance management solutions within their companies.

Defining WPM
IDC defines workforce performance management (WPM) as a dynamic, adaptable communication and reporting system that needs to interact with other processes as part of the larger area of talent management in order to effectively reward and develop the workforce. In addition to WPM, talent management includes processes such as candidate sourcing, workforce planning, development and training, succession planning and compensation.

Although products vary by degree, workforce performance management systems generally include most or all of the following components:

Performance Review Management: A systematic tool for automating the performance-review process for managers and employees at all levels, ensuring a consistent methodology is used across the enterprise.

Goals Management: A mechanism for creating, communicating and tracking corporate goals companywide.

Competency Management: A library of role-based competencies, associated behaviors and development needs.

360-Degree/Multirater Tool: A device available to managers and employees for capturing multiple inputs to the performance-review process.

Analytics and Reporting: Diagnostic tools for the collection and analysis of companywide information needed for strategic performance management decisions.

WPM systems and services suppliers fall into one of three categories: best of breed, full-talent suite or full human resources information system/enterprise resource planning (HRIS/ERP). Some best-of-breed suppliers have begun augmenting their offerings by bringing other talent functions to market. Whether full suite, HRIS or best of breed, however, most offer other talent management solutions as add-on products that are marketed and sold separately.

Recommended Best Practices
IDC is forecasting strong growth for the WPM technologies and services markets over the next five years. Amid the increased adoption of WPM solutions, HR executives should not lose sight of the fact that successful and effective performance management still requires a well-thought-out plan. Companies need to do a thorough assessment of their existing infrastructure and organizational culture in order to identify potential barriers to adoption. The observation that technology solutions help to accelerate but cannot by themselves create change applies equally to performance management. HR executives can't assume that simply acquiring a WPM solution will create the effective program or bring about the results they desire.

At the recent Richmond Events' HR Forum, which ran May 10-13, IDC ran a seminar on workforce performance management that included participation from a group of top HR executives representing a wide range of industries. As part of this workshop, IDC solicited the group for its recommended best practices regarding effective performance management. The group's recommendations span a variety of performance-related topics. What follows are the top 12 key recommendations that came out of this forum.

Remember that people accept change in spoonfuls. Although many WPM solutions provide a host of features/functionalities, consider rolling these out in stages to avoid overwhelming stakeholders. With input from the vendor and buyer communities, IDC has developed a five-stage WPM maturity model that shows the different levels of WPM maturity companies can reach regarding integration, automation, alignment and frequency (see Figure 1). While Stage 5 represents the panacea, IDC recommends that organizations move progressively through the model rather than jump from Stage 1 to Stage 5.

Educate your managers. In order for a performance management system to be successful, managers and supervisors need to understand the value it provides the organization. For many managers, the appraisal process is viewed as a time-consuming administrative task that is required once a year. The key to driving adoption and acceptance of a more robust performance management process is in spending time with supervisors so they see the benefits of a well-aligned and integrated system. They should buy into the process as a result.

Consider an innocuous approach. Particularly within organizations that never have used an automated or multilateral performance management system, HR executives might find greater success if certain features are used first in an innocuous manner. For example, initially use the 360-degree feedback tool solely for employees in order to drive adoption and acceptance of the tool before tying it into the performance-review process.

Reinforce the message consistently. Borrowing a page from change management theory, the successful adoption of any new system requires ongoing communication that promotes its use. Organizations that send out one e-mail informing supervisors that a new system has been rolled out will meet much less success than those whose executives continuously talk about the importance of the new system, put pressure on their managers to use the system and reiterate the value it brings to the organization.

Take time to do competency work. A well-defined, role-based competency library is a cornerstone of effective performance management. When done properly, competencies provide improved visibility into organizational competency levels. With this visibility comes a clearer understanding of employee-development needs that can be communicated to workers during the review process. Putting in the time up front to ensure accuracy and detail is worth the effort.

Give employees small, attainable goals. Automated performance management systems make it possible to cascade organizational goals throughout a company and across business units, but it is important not to lose sight of the individual employees who provide the links in the larger chain. Set small goals in specific areas for employees and recognize them when these goals are achieved.

Be diligent about measurement. To be effective, if not credible, a performance management system must be rooted in sound measurement. Supervisors, therefore, should be encouraged to develop goals with each employee. When goals are specific, measurable, attainable, realistic and tangible, they are more likely to be achieved.

Include peer review as part of the process. Talent managers should design performance management systems that allow for multiple inputs into the review process. Using 360-degree and multirater-type tools to solicit feedback from an employee's professional network ensures reviews are fair and accurately represent that person's contributions to the company. Involving others in the process also helps to reinforce the importance of the performance management throughout an organization. As mentioned previously, however, organizations may first want to consider introducing these tools for individual development before implementing them into the full WPM cycle.

Let employees drive midyear reviews. IDC's research shows that the majority of organizations conduct performance appraisals on an annual basis. Many HR executives, however, acknowledge that their employees would be better served by having more frequent reviews and/or discussions about performance and development. One practice that is helping organizations move in this direction is to put the onus of the midyear review on the employee, rather than the manager. This shift in responsibility accomplishes two things: It gives employees ownership over their own development and review process, and it increases the time a manager and employee spend reviewing performance without adding significant work to the manager’s plate.

Document discussions. Too often the focus of the performance-review process is on an employee’s score or rating. What are often lost in the process are the discussions that the employee and manager have about setting goals, areas of strength and opportunities for development. An effective performance management system should include a mechanism for capturing the qualitative assessment of an employee's performance and any discussions regarding goals that have been set for the coming year.

Give ratings an explanation. In order to be meaningful and fair to an employee, all performance ratings should be accompanied by an explanation of how the number was derived and what the employee needs to do in the upcoming year to maintain that rating or improve. Ratings without an explanation can seem arbitrary and do little to help employees work toward achieving their development goals. Providing an explanation also ensures that a review will be legally defensible later if necessary.

Don't fight subjectivity, and allow room for flexibility. A consistent methodology for employee evaluations and compensation distribution is important to ensure that every employee is treated fairly, but every system should allow room for subjectivity in order to address extenuating circumstances. One forum participant, for example, cited how her company last year had to make considerations for those employees whose lives were affected by Hurricane Katrina. Effective performance management systems should be flexible enough to accommodate intervention when necessary.

This year looks to be a pivotal one in which companies will consider how they address all areas of talent management. With the emergence of well-engineered WPM systems and services, employers who have not already overhauled the function will likely do so, either through the purchase of third-party systems or through in-house development. As the advice provided by their peers indicates, HR executives need to remember that successful performance management relies not only on the implementation of the right kind of technology but on developing the right type of processes to support the initiative.

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