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Performance management software can help you identify and develop high-performing workers.
To be competitive, a company needs to get the most out of its assets, especially the human ones. One way to achieve this is by offering financial incentives to retain high-performing and mission-critical talent. But the funds must be precisely targeted.
“Reward budgets are significantly lower than they were, and companies don’t see that changing any time soon,” says Ravin Jesuthasan, managing principal and practice leader for consulting firm Towers Perrin in Chicago. “This is forcing organizations to segment and differentiate their workforce so they can get a higher return by optimally directing their money.”
This requires the ability to identify the individuals who are outstanding producers, but employees don’t think employers are doing that well. WorkUSA 2004: An Ongoing Study of Employee Attitudes and Opinions, a survey report released in April by HR consulting firm Watson Wyatt of Washington, D.C., found that only 30 percent of employees thought their company’s performance management process actually improved employee performance, and only one in five thought it helped poorly performing employees do better.
HR needs to find an effective way to conduct performance management, because it is an important business process, says Karen Hanlon, senior vice president for HR at Seagate Technology LLC in Scotts Valley, Calif.
One way to boost interest and confidence in performance management is to automate the process, says Scott Cohen, national practice leader of talent management for Watson Wyatt in Wellesley Hills, Mass., and many employers are taking his advice. Companies increasingly are turning to employee performance management (EPM) software to evaluate and manage performance on an individual basis.
In addition to enhancing employee development, EPM has enabled some employers to streamline the performance management process, integrate performance management data with other HR systems, better align individual employee goals with companywide plans and facilitate teamwork.
The EPM software market will grow at a 15 percent annual rate this year and again in 2005, predicts James Holincheck, research director at technology research and consulting firm Gartner Inc. of Stamford, Conn.
Automating the Process
EPM systems have been around for a decade, but early software versions were clunky. Hank Jonas, manager of organization effectiveness for Corning Inc. of Corning, N.Y., started looking at software to manage the company’s 360-degree evaluation process back in 1998. The best-selling product at that time would have required him to load software on several thousand desktops. Then, in order to get any analysis, he would have had to send the data to the vendor and have it run a report.
Instead, Corning selected performance management software from Softscape Inc. of Wayland, Mass., because it was the only web-based product available at that time that could meet the needs of a globally distributed company, Jonas says. (For tips on how to choose the right EPM tools, see “What To Look for in an EPM System”.)
“We had people whose whole jobs came to a standstill for weeks and months at a time because of manually putting together 360-degree views on thousands of employees,” he says. “We needed to automate and take advantage of a powerful web-based system in order to improve our efficiency.”
Web-based products, which are more commonly available now, offer a much higher level of integration with other HR information systems software and provide more than just automation of existing paperwork. (For more information about EPM vendors, see “Market Breakdown”.)
The software Corning selected runs on two Windows 2000 servers; one holds the EPM, and the other hosts an Oracle 8i database from Oracle Corp. of Redwood Shores, Calif. Once a year, the database is refreshed by pulling information out of the company’s HR management systems (HRMSs) from PeopleSoft Corp. of Pleasanton, Calif., and it is updated monthly with new employees. After completion of the annual review, the performance ratings get uploaded into the PeopleSoft system for the compensation process.
In 1999, Jonas rolled out the software to all 6,000 employees in the United States, and this fall it is going into the final major business unit, based largely in Europe, at which point all 20,000 employees will be covered.
A couple of factors affected the implementation schedule. For example, Corning had to roll out its EPM in some locations that didn’t have the company’s enterprise resource planning (ERP) system installed yet. Normally the EPM would interact with the HRMS functions in the ERP, trading employee data back and forth. Where the ERP was not set up yet, the EPM had to be installed on a stand-alone basis.
The implementation schedule also was delayed due to privacy regulations in Europe. “Some of the places in the European Union have been moving very slowly because of data privacy issues and having to get approval from the local and national works councils,” Jonas says. (For more information about European Union data privacy regulations, see the
HR Technology column in the April 2003 issue of HR Magazine.)
Automating processes and saving time, while helpful, is just the beginning. The real value in EPM comes in being able to track performance down to the individual employee level and link it into the overall corporate goals.
“Performance management is more about goal management than it is about automating back-end forms to do performance evaluations,” says Seagate’s Hanlon.
For example, certain EPM systems support “cascading goals,” in which employees can see the goals for the company or its units set by everyone in the command chain from the CEO on down to their immediate supervisor. Employees who set their own goals can base them on those higher goals.
“Automation allows people to cascade goals and align them across the enterprise at a click of a button,” says Cohen. “We have found that organizations with this type of line of sight have four times the total return to investors over time as those that don’t.”
Seagate uses Enterprise Suite from Performawork, which was recently acquired by Workscape Inc. of Framingham, Mass., to provide evaluations and goal management for all of its 39,000 employees—from the 16,000 office and managerial staff to workers on the factory floor. The company set up self-service kiosks for those who don’t normally use a computer in their jobs. Workscape hosts and maintains the server running Seagate’s copy of the software, with daily updates coming from Seagate’s Oracle HR system. This hosted software model compares with boarding your horse at a stable vs. paying to ride a horse that the stable owns, as in the application service provider model. That is, Seagate is free to move its software at will.
At the beginning of the company’s first fiscal quarter, all professional and management employees go into the system and establish their development plans for the coming year in alignment with the corporate objectives set by the CEO and his team. They then do quarterly updates on the plans. At the end of the fourth quarter, all employees, except for the factory workers, go into the system to do self-evaluations that go to their supervisors for additional review and approval. Those in manufacturing are responsible for a list of 12 competencies such as quality, attendance, punctuality and teamwork, but this data is reported to them by their manager throughout the year, and they do not do the self-evaluation.
Using the software has provided a consistent and transparent system for employees throughout the company, Hanlon says.
“Like any large company, we tended to get ‘siloed’ and fragmented the more we grew,” she says. “We needed a better way to pull the global team together and get people focused on what the priorities are for the business.”
Michelle LeDell, senior vice president of HR for Curative Health Services, had similar problems with organizational fragmentation, though on a smaller scale. Curative, a specialty health care company headquartered in Hauppauge, N.Y., has 1,100 U.S. employees. In its case, the fragmentation was caused by acquisition: Curative acquired 11 companies in two years.
“I had 11 different performance management systems that needed to be consolidated and integrated into one,” LeDell says. “Depending on where you came from, you were being evaluated by a different set of competencies.”
Last year, Curative started using CareerTracker from Kenexa Tech-nology Inc. of Wayne, Pa., for evaluations throughout the company.
LeDell likes the additional tools provided by the software that help improve performance. For example, Curative uses the features for cascading goals and tracking action plans as well as other features that assist in employee development. “It has quite an extensive library of books, videos, white papers and seminars that all employees and managers have access to,” she says. “This allows employees to be proactive and manage their own development, as well as being a tool for managers to use in developing employee skills.”
In setting up an EPM system, companies have two choices: automate the existing processes or use the implementation as a means to change existing performance management and compensation systems.
“If you re-think the performance management process, then the implementation process is more involved, but the return is significantly greater,” says Jesuthasan.
Both Curative and Harrisburg Area Community College (HACC) in Pennsylvania used the software not only for cascading goals but also to implement pay-for-performance. “In prior years, pay increases were done across the board, not based on individual performance,” says Bill Holloway, a certified compensation professional and HACC’s assistant director of HR. “This year we used it to adopt a pay-for-performance process, which was a very challenging philosophy to integrate.”
HACC, with four campuses, uses eAppraisal from Halogen Software of Ottawa, Ontario, to evaluate its 500 administrative, classified and professional employees. (Faculty is evaluated separately.) To implement pay-for-
performance, HACC’s managers complete the employee evaluations and then look at the overall performance scores to decide how to distribute the available payroll funds. Using the software makes it easier to take performance evaluation out of the once-a-year-and-forget-it category, Holloway says.
“It is important to us to foster performance management as something that should be ongoing,” he says. “The nice thing about Halogen is that employees and managers can go back to review goals, and the employee can also go back and see prior evaluations as well.”
Getting It Right
Don’t expect overnight results from an EPM system. There can be a fair amount of initial work involved in customizing and integrating software as well as training employees. For example, Seagate had to create supplemental resources for employees in China, Thailand and Malaysia who did not speak English, including online support and brochures detailing how to use the process.
Then there are the corporate culture matters, starting with getting employees to actually use the system before you try to implement it to change compensation processes. Both Corning and Seagate still have some holdouts, with a more than 95 percent participation rate of managers and employees for which their EPM systems were designed.
Drew Robb is a California-based freelance writer who specializes in technology, engineering and business.
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