Performance Path

This series of articles provides strategy and tools guaranteeing that your business not only thrives during the recession but emerges as a highly-competitive and sustainable organization after this recession the world is experiencing.

Adaptability is the Key to your Success

If your business is suffering from the symptoms of a recession, your first step is to acknowledge that you are partially responsible for this happening Taking responsibility for the condition of your business and/or your job performance empowers you to transform your existing situation starting today. It also helps you from instead falling victim to the economy’s timeline. Your second step in your plan of action to revert your company back to a successful one is to identify the constraints that is impeding your business from attaining the results you deserve.  Common constraints may include:

Step One – Adopt A Progressive Strategy

A study of successful business strategies published in the Harvard Business Review found the most successful strategy employed by organizations during the last three recess were:

• Increase Operation Efficiency

• Ensure Employee Engagement

• Investment in Value Assets

• Selective Spending on R&D and Marketing

Roaring Out Of Recession – Harvard Business Review March 2010

According to this study, companies using this strategy maintained profitability up to 37% over their competitors during and up to three years after the recession ended. Yes, they did reduce headcount, but not more then other firms in their industry. Instead of focusing employees on austerity measures, they engaged their employees on both innovation and efficiency. Companies that focused primarily during the recession not only lost profitability but suffered huge losses in intellectual property as employees defected to other companies when the recession was over. Selectively spending capital on R&D and marketing positioned these companies in a positive to take advantage of increased demand once the recession was over.

Next week we cover Step Two — How do you know if management is building value or destroying it?

By 2010, an estimated 31 million Millennials will be in the U.S. workforce, outnumbering Gen Xers and taking up the slack left by retiring Boomers. (Lee)  As recent college graduates, Millennials can be described as follows (Lee, Orwell, Hamel):

• energetic and tech-savvy
• expect rapid advancement
  • work well in teams
  • not as loyal to the firm as previous generations
• don’t take well to “orders” without understanding their purpose.
• accustomed to direct, ongoing supervision and guidance
• want to be mentored; not micro managed.
• want timely performance feedback – not annual reviews
• want processes and metrics clearly defined
• focus more on non monetary benefits like job security and social commitment

In summary, Millennials want competitive pay, a variety of benefits, a flexible work schedule, and clearly defined opportunities for growth and advancement.

Psychological Contracts- Recommendations to manage Millennials:

Psychological contracts are beliefs and unwritten promises (i.e. loyalty, duties, justification for a raise or promotion) between the individual and the organization (Rousseau).  If the organization fails to uphold the contract, most individuals will leave; potentially costing the company significant long-term revenue and profit growth. 

To effectively manage Millennial employees, organizations need to make their unwritten psychological promises explicit and create consistent processes with well-defined metrics and KPI’s. providing a clear road map and purposeful work. This concept requires corporations to invest in human capital information systems that enable both the employee and organization the ability to tie explicitly defined performance and development to pay and recognition (Lawler).

For example, a web-based performance management system needs to be deployed. Job roles and responsibilities should be defined and linked to key performance metrics and corporate goals (Performance Path ®).  Millennials want access to their individual performance scorecard at anytime.  Team members and management can leverage the system to provide quantifiable feedback on member’s performance at key milestones or on a timely basis.   Managers, acting more like mentors, can praise/correct  and address high and low performance metrics respectively. Organizations also need a web based training and development system that provides Millennials a tool to establish and track career goals, improve upon a skill set, define training required for a new position and create a visual roadmap with timetables to achieve each new skill(s) or position(s).  To motivate and inspire, peer accomplishments should be promoted and celebrated.  Managers need to be engaged in the development process helping guide the Millennial through the process. Like video gaming, healthy competition to achieve new levels of skill or a new promotion should be encouraged.

Employment Relationships – Recommendations to Manage Millennials

The hottest HR issue of the day concerns the lack of employee engagement. The HR Magazine, May issue, sites the cost of disengaged workers for US businesses at

$350B. This is a result of most organizations today having a limited relationship with their employees.  Only a narrow set of incentives are offered in return for a narrow set of employee contributions.  Tsui and Wu suggest firms strive for mutual investment; where employers provide a variety of incentives in exchange for significant contributions from employees.  The Mutual investment model – risk and reward – produces highly productive, committed employees along with strong corporate performance. 

Effectively managing Millennials requires organizations to create a mutual investment model which link performance and development systems to a pay-for-performance compensation and benefit system. The compensation and benefit system should be customized by employee (Sheppeck/Militello & Performance Path ®). Millenials want to track and measure personal performance and how it affects their pay check.  They want personalized contracts that reward – based on personal achievements and provides a variety of customized benefits that suit their life-style. 

The ideal Millennial compensation and benefit system is a customized pay-for-performance model where employees structure their own compensation plan from a list of customized options. For example, Millennials can designate a large portion of their compensation to variable metrics like personal performance in return for higher, but riskier pay.  Risk adverse employees may choose a higher base salary with more traditional metrics which yield less pay.  The goal is to entice employees to take greater risks in return for greater rewards. 

Like pay, unique performance tiered benefit programs should be available for Millennials to customize.  High performers receive premium benefits with the most options.  Unique non – conventional benefits should be used to help attain and retain Millennials.  For example, Health Insurance is less prized than tuition reimbursement because this is the generation that believes “education is cool.” (Site)    Six to nine month education and travel sabbaticals should be considered.   Multi-corporate education and employee swapping should also be considered.   In the 1940’s and 50’s NCR and P&G  – both Ohio based – co-educated and swapped high-potential employees.   The organization benefits from reduced costs and fresh thinking.  Employees benefit from networking improved skills and employment options.

In summary, effective Millennial management transforms implicitly defined psychological contracts into explicitly defined performance and development management systems which are coupled with a mutual investment, pay-for-performance system.  This new model clearly defines and ties recruitment, job description, training, performance evaluation, incentives / compensation, retention/promotion/succession/termination- making it attractive to both Millennials and organizations.  The current stagnant economy is a catalyst for this change. There is no going back to automatic pay increases after salaries have been frozen for years. Not everyone will be paid the same.

Like commissioned sales people…..winners will be paid more.

References:

• Rousseau, Psychological Contracts in the Workplace: Understanding the Ties that Motivate, February 2004.
• Tusi & Wu, The New Employment Relationship Vs The Mutual Investment  Approach: Implications for Human Resource Management, HRM 2005
• Lawler, Make Human Capital A Source of Competitive Advantage, 2008
• Sheppeck & Militello, Determining Organization Alignment: A Research Model
• Lee, Managing the Millennial Generation
• http://smallbusinessreview.com/human_resources/managing-millennial-generation/
• Orrell, On-boarding Millennial Talent: 5 Tips for Effectively Attracting & Recruiting Generation Y – http://www.jobdig.com/articles/1093/On-boarding_Millennial_Talent%3A_5_Tips_for_Effectively_Attracting_%26_Recruiting_Generation_Y.html
• Performance Path ®
• HR Magazine, May 2010
• Hamel, The Future of Management, 2007

Resisting change is like holding your breath; If you persist, you die. – Lao Tzu

Resistance is expected when change occurs. There exists within each of us a set of anxieties that rise up whenever we sense change is coming.  This happens because we sense that uncertainty about our future is an inherent component of any change. This happens despite all our good intentions to be agents of change, willing to champion it because we recognize it as the key to growth, both corporately and individually.

When employees resist change, the impacts are many. Chief among them is the barrier it creates to implementing strategic plans. Here is a real-life example: Last week, I followed up with the senior management team of a utility company.  Strategic planning had been underway since mid 2009, and my visit was a 90-day review of their progress. While I was on sight, I got the distinct feeling things were not going as we had planned. In fact, it was evident to me that the workforce displayed tremendous resistance to the changes that were essential to implementing the new strategic direction. I spoke with the CEO about my concerns and found that he shared them. 

Here is a short list of reasons employees resist change:

• They may feel their job security is threatened.
• It represents a challenge to existing culture or value set.
• They may not be able to relate to the need for change to the work setting.
• They feel it will decrease their authority or control.
• They might think it will decrease their competency.
• They might be anxious about decreased status or recognition.
• If it requires change in reporting or communication channels, they might feel uncomfortable.
• It may require additional training and skill development.
• They may be suspicious of any change effort.
• They may perceive that first line supervisors are not supporting the change effort.

The last bullet point is a huge barrier to any change effort. Leadership is crucial at all levels of any organization undertaking any major implementation. This is true for companies of all sizes. After all, change is the nature of business. At the utility, I met with the CEO and the senior management, agreeing to survey the most critical segment of the management team- the frontline supervisors. The goal was to determine to what extent the planning process had penetrated the corporate mindset.

Frontline supervisors can provide clear signals heralding strategic success or failure, much like the storied canary in the cage. In times past, miners would carry a canary in a cage down into the depths of mineshafts, using the bird as an early warning of the presence of toxic gases. Being smaller, the canary would die, but leave the miners plenty of time to escape the dangerous environment. Because the birds both breathed and sang, they provided visual and audible warnings. Frontline supervisors perform this same function- without the fatal element, of course.

Not surprisingly, the results among these supervisors were varied. According to the survey, most managers were doing little to help supervisors see and understand the need for change, much less reward those that did. For the most part, it was business as usual. Senior and middle managers were shocked when they learned this. After all, mission and vision statements were prominently displayed in all areas. Some managers even held cross-functional team meetings to discuss improvements in key result areas. Still, despite all these efforts, supervisors did not make the connection between their daily actions and strategic imperatives. And if the frontline supervisors could not catch on, chances were good the vast majority of employees were also struggling.

Although we had completed measures cascading from top-level objectives to department activities, no one could identify the established criteria defining success. The vision plainly stated the goal: We will be recognized by an international standards organization as a company managed through best practices by 2013. So the criteria were documented; however, they were also hidden in plain sight. Unfortunately, none of the senior management team knew what the standards were, either.  

When implementing strategic changes, managers and staff must be focused on the key result areas they control. They must continually be aware of the priorities driving mission, vision and strategy. This is never easy, but there are positive actions management can take that support not only the necessary change, but also the people involved in it or touched by it. Here is a brief list of those actions:

• Set challenging but realistic objectives.
• Encourage open discussion of goals and priorities.
• Measure progress against priorities.
• Set time lines for tracking progress against established priorities.
• Regularly reward and recognize individual and team achievements.
• Communicate the crucial requirements for strategic execution, face to face and in small groups.
• Make effective use of symbols, metaphors and stories.
• Show your commitment by staying involved personally and maintain a high level of visibility.
• Discuss strategic imperatives at every key meeting and at every employee interaction.
• Provide persistent, consistent optimistic support for strategic imperatives.
• Influence and persuade others to become advocates for, and contributors to, strategic imperatives.
• Hold others accountable for strategic execution.
• Provide all the solutions.

Note that this list includes mechanical actions such as providing measures and feedback. However, these types of actions by themselves are not sufficient to ensure that supervisors and staff are fully aligned with the new strategic direction. Leadership skills, such as those highlighted above, are crucial in transforming the corporate mindset and establishing a new identity. 

After reviewing the survey, the management team and I agreed that developing new HR policies were essential. These would target key areas such as management and staff accountability, communication, skill development and closer monitoring of key positions affecting vision and strategy. We also agreed to a schedule of regular supervisor surveys. In this way, we can be constantly alert for the chirping from our corporate canary.

This is a great company with brave managers who are committed to growth through change. I have no doubt they will succeed. Stay tuned for later blog posts documenting the progress. In the meantime, consider this quote regarding the nature of organizational change:

“All organizations do change when put under sufficient pressure. This pressure must be either external to the organization or the result of very strong leadership.” – Bruce Henderson, CEO, Boston Consulting Group, Inc.

The challenge of change is always significant for any organization. If you are considering implementing strategic changes within your organization- or if you are already in process but struggling- please contact us. We can help.

Understanding why some organizations boom while others bust.

In a recent article appearing in the Harvard Business Review entitled, “Roaring Out of Recession,” authors Gulatin, Nohria and Qohlgezogen analyzed both the strategies and resulting performance of organizations during the past three recessions. Their analysis revealed which strategies consistently returned up to 12.2% higher Earning Before Interest, Taxes, Depreciation and Amortizion (EBITDA). Their findings represent nothing short of a roadmap to success during these recessionary times.

The authors divided strategies into four categories. We will focus on two: Prevention and Promotion. Prevention strategies include cutting staff, and reducing costs of goods sold. They found organizations practicing this strategy only (21% of the total analyzed) had the lowest potential for success directly following the recession. Those utilizing promotion strategies- meaning they increased expenditures in key areas and did not decrease expenditures any more than their competitors had- have only a 20% chance of bettering their industry direct competitors after the recession passes.

According to this analysis, successful organizations use a hybrid of both strategies to catapult them into the lead during and after recession. Companies with the highest success rate adopt a strategy of selectively reducing costs to increase efficiency while investing smartly in marketing, R&D and new assets.

It is important to understand what prevention and promotion companies do so that these strategies can be identified for what they are: crippling mistakes When implemented alone.. Companies adopting prevention strategies typically only implement strategies that reduce cost. They reduce discretionary spending and reduce headcount. They cut what they view as frills and foolish expenditures wherever possible. They hold on to cash, postponing investments in new assets, developing new business and R&D. The organization focuses on accomplishing more with less, which is no easy trick.  Management and staff adopt a survival mentality, often resulting in lower quality and customer satisfaction.   This strategy produced the lowest  performance during and up to threes after the recession ended.

As you might guess, companies adopting promotion strategies do the exact opposite.  They seize opportunities to add product features, acquire talent, buy assets and implement M&A’s, all the while promoting customer service. While their customers cry out for lower costs, the motto of these companies might very well be “Damn the torpedoes; full steam ahead.” Managers and staff become overly optimistic, failing to respond to the inevitable pitfalls of this strategy.

What strategies do companies that roar out of the recession adopt? Organizations that are most likely to succeed during and after a recession are pragmatic. They look at potential opportunities with a view on short and long term consequences. They recognize the facts at hand and use rational decision analysis tools such as gap analysis, strategic mapping and Ishikawa cause and effect diagrams to make good, sound decisions.

Successful organizations use three main tactics in crafting winning strategies: First, these organizations cut costs by improving operational efficiency. They cut selectively reducing the chances of losing high performance individuals and dampening morale. This is much easier when an organization has effective leadership and a job specific performance management system. The more common one-size-fits-all appraisals force managers to use their gut in making these crucial decisions. I recommend using a more rational objective process rather than relying on someone’s gut reaction in determining the future of people. Only 23% of the most successful companies cut staff compared with 56% of the prevention companies. Second, winning organizations rely on increasing efficiency by encouraging staff to submit ideas displaying innovative thinking and efficient cost cutting. And third, they restructure business functions and suppliers to permanently reduce costs. They cut nonperforming product/service areas and use the money to carefully invest in new markets, R&D and assets. They adopt a mindset of courage and invest for gain versus one of sacrifice and share the pain.

Few business plans fully anticipate the effects of a crisis. However, effective leaders are also agile thinkers, keeping managers and staff focused on ideas that work. The best of these ideas are implemented by engaging everyone in increasing both efficiency and morale. The monies freed from increased efficiencies are invested for the future. After the recession, the company’s costs remain low and its investments pay dividends- but only if its leadership was bold enough to take tough times and transform them into transitional periods marked by top performance.

In a recent coaching session, a supervisor asked if there were any books cataloging recognition phrases. Believing that it is better to teach people to fish rather than give them a fish, here are a few important concepts to keep in mind when using recognition as a way to shape and reinforce staff behavior.

Before we begin, though, let me clarify one key point: Recognition and rewards are frequently used synonymously; however, they are not the same thing. Recognition is a way of signaling progress and reinforcing effort. Recognition is typically exhibited through words of encouragement. Rewards should always be received for specific and / or significant goal achievements. A reward reinforces goal achievement. Now on to our discussion…

Always recognize behaviors you want repeated enough to become habits. Recognition becomes a motivator when it links an observable action with a personal interest. Effective leaders are able to reinforce efforts by linking an acknowledgement of effort with personal interests, values or needs. This boosts personal motivation, transforming it from something you try to instill in them to something they manifest internally on their own. For example, a salaried employee who frequently works late may be motivated if her manager made a comment similar to these:

“I appreciate your commitment, Sandy…I would have no qualms recommending you for promotion.”

“Working late again? It’s so great to know I can always depend on you to get the job done right.”

“I’m glad you’re here, Sandy. I wish I had more people like you on my team.”

Each of us has a personal set of values and needs. Common examples are: being included; increasing our social status; building competency or achievement. Each of the management statements above attempts to link the action being acknowledged with a personal need or value. If a person is not career-oriented, promising promotions has little effect. In addition, recognition has little if any positive effect if there is a negative relationship between the manager and the employee. Reinforcement intensifies when the employee receives something that resonates with their values, interests or needs.  However, the positive impact of recognition declines significantly as the time gap between the action and recognizing it widens.

How can you recognize behavior you did not observe?  Simply ask the person to describe the actions you want to reinforce. Try this approach: “Kim, I heard you did a great job with an angry client yesterday. Tell me what you did.” In describing the event, the employee literally relives the situation, providing you the opportunity to recognize the key actions you want to reinforce. Remember, it is essential that you recognize as quickly as possible the behaviors you want repeated.

You can also increase the impact of your recognition efforts by linking them with their needs or interests. If Kim’s interest is career advancement and recognition from those above her, her manager might offer this as a way to link her accomplishment with both of these values: “Kim, I really appreciate you handling that situation so effectively. You helped this company save a key client. I’ve included comments about your performance in the incident report I’m sending to the Board, letting them know how much you were involved on the frontlines. Good work!”

In summary, recognition is intended to encourage continued effort, and is most effective when it links the action with something the person values. 

Here are other ways to recognize what you want more of:

• Sincere Verbal Appreciation:  Letting people know you appreciate what they are doing often increases the probability of them repeating those behaviors and actions. This is especially true if the recognition comes from someone they respect or want to please.
• Post-It Praise:  Leave a lasting impression with a “Post-It Note” of recognition. Even the little things count.
• Maximum Impact Notepad:  Create your own recognition note pad. Include Who it is for, What they did and Why it was important. Try to link the importance of the action with a need or value that is important to them.
• Public Praise:  Some people like to bask in the light of public recognition; others don’t. Remember, recognition reinforces behavior only if it takes the shape of something valued by the person being recognized. None-the-less, public praise amplifies recognition by giving other staff a reason to applaud someone’s effort with words of encouragement.

Use these words of encouragement wisely in recognizing the good work your people do, and watch their productivity skyrocket!

Performance Path, the next generation in Performance Management software, helps your business prosper by building within your people the intrinsic motivation that is essential to their success- and yours!  Please contact us for a free demonstration.

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Book Review

The Differentiated Workforce

I have been reading an exciting new book.  Exciting, because of the explicit roadmap linking key positions and talent with strategy.  The book The Differentiated Workforce by Bran Becker, Mark Huselid and Richard Beatty provides a compelling explanation for identifying key positions and people whose performance make or break strategic success..

Most organizations are focused on across the board talent development.  This is a very expensive proposition.  The authors make a powerful case that people in high impact positions contribute disproportionately toward strategic success or failure.  Focusing line managers and HR resources on the people in these positions drives down cost, builds value and strengthens long term sustainability.

The authors begin by establishing the benefits of having a differentiated workforce strategy including

• Measurable improvements in strategic execution.
• Senior  managers are as engaged in following workforce issues as they are in following financial issues.
• Enabling HR professionals to distinguish between investments that provide measurable ROI from best practice hype.
• Enable HR managers to make targeted investments in staff and technology that create high strategic returns or eliminate wasteful practices that do not.
• Resulting in obvious and measurable strategic contributions by the workforce.

The authors point out something I have said for years.  That line managers are the most important link in strategic execution.  They have the great influence over the mindset and motivation of their direct reports.  If they do not understand or buy into changing policies and objectives; then strategy will never become a reality. The authors describe the importance of management and HR accountability in delivering talent development.

While the workforce takes up to 70% of all expenditures most organizations do an extremely poor job of accounting for it.  The authors do and excellent job of describing the significance of measurement, accountability and consequences.  The authors emphatically state that effective workforce development ensures that top talent, the authors refer to them as A level employees, in key roles drive strategic capability, create customer and investor value”.

The authors lead the reader through easy to follow steps in creating a fully differentiated workforce. This is a must read for  all managers and HR professionals.

Organizations that continue to use across-the-board raises as an easy and effective way to control compensation costs and reward employees soon find out the truth. Yes, it may be easy- but it is not an effective means of controlling costs and rewarding employees, especially over the long term.

Employee pay is a key tool in fulfilling many corporate objectives. Among these are: attracting top performers; maintaining employee satisfaction; ensuring strategic alignment; increasing performance; and encouraging innovation. However, Robert Heneman, a noted compensation consultant says, “The ultimate goal of a pay system is to align the goals and interest of employees with the goals and interest of the organization.”  How do across-the-board raises help achieve this? 

First, it’s important to recognize that most top performers are driven by achievement.  Since achievement is an internal motivator, organizations can harness its power- as well as the power of other internal motivators- by setting clear goals for individual and team performance. Management By Objective (MBO) is one way organizations have found to tap into the power of motivating employees to achieve. Across-the-board raises are not based on achievement, and so they miss out on harnessing the influence of a powerful internal motivator. Top performers would rather work in an organization that recognizes and rewards both their achievements and the effort that goes into them.

Over the last few years, several federal organizations have raised the salary range for many of their employees. This was done primarily as an effort to both attract and keep high achieving employees. Is this a workable strategy producing positive results? We think not.  As stated previously, most high performers are motivated to achieve. Without a system that rewards their efforts, one of two things almost always happens: Either the high achiever leaves; or there is a noticeable drop-off in achievement. Instead of a race to the top with appropriate rewards for those who make it, across-the-board raises turn beneficial competition into a race for mediocrity. 

Are across-the-board raises effective in helping maintain employee satisfaction? Good question; Iffy answer. There are two ways to allocate across-the-board raises, either through using a set amount or through using a percentage of salary. Some employees respond positively to the first method, others to the second. A flat cash payment typically produces a more favorable impact on low paid employees than it does on higher paid employees. Here is one example that was reported this month in The Tribune-Review. An article by reporter Liz Zemba features this quote: “County Manager Warren Hughes said the total approximate cost of the $1,000 raises is $84,000, compared to $90,000 for the 3 percent raises. At the same time, the $1,000 raises help lower-paid employees who otherwise would have had smaller increases under the 3 percent scenario.”

Then there are organizations that believe across-the-board raises help control costs. Sadly, they are mistaken. Consider this example:  We took a sample group of 500 nurses in the same position and applied across-the-board raises to some, and performance-based pay increases to others. Each nurse in the across-the-board group received a 3% raise.

We divided the performance pay group into these segments:  Top performers received a 3% raise; Meets performers, the middle 80%, received a 1.5% raise; and the bottom 10% did not receive a raise, so their salaries remained the same. Review the spreadsheet below for our results:

Notice pay increases over the first year are 1.46% ($262,500.00) more in the across-the-board group more than the performance-based pay group. In five years, the pay difference is 5.67% ($1,117,674.05) more.  When you differentiate your work force you save money and reward achievement.  Did the County quoted above save money? Yes, about $6,000.00.  Could he have saved significant more by rewarding individual performance with a pay increase, most certainly?

A study by Watson Wyatt Worldwide found doing a better job of rewarding employees for good work—and refusing to accept subpar performance—can earn a company a 16.5 percent higher market value.

Firms that improve their selection and use of health and retirement benefits can increase shareholder value by 7.3 percent.  Linking pay to performance is associated with a 6.3 percent increase.. A company that recognizes variations in performance by promoting the most competent employees, helping poor performers improve and terminating chronic nonperformers can boost its market value by 2.2 percent.

A second study by Michael C. Sturman, Ph.D., entitled, Using Your Pay System To Improve Employees’ Performance, was designed to show how pay policy directly affects employee performance. The study shows that employee performance is significantly influenced by two factors: how much money is involved, and how that money is paid out. While merit pay and bonuses yield minimum performance increases, the study points to the relationship between pay and performance as producing the greatest benefit. Having a strong pay-for-performance link with bonuses- not raises- projected a performance increase as high as 20%. Increasing the merit pool by 1% without changing allocation procedures was projected to increase future performance by roughly 2%.

Study after study proves that providing a clear link between pay and performance not only raises future employee performance; It is also an effective means of containing relative costs. Across-the-board raises are easy to implement. However, the question you must ask is this: “Will the reduction in employee motivation and morale be worth implementing across-the-board raises?” The answer is a resounding “No!”

For more on creating a culture of achievement, and not one of entitlement, visit our website, www.performancepath.com.