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“As we had a paper process, the HR department spent a lot of energy chasing down forms and looking at them to see what they were missing,” says Van Gundy, director of human resources for Belkin International Inc., a Los Angeles-based supplier of electronic cables and accessories. “We had to work on moving paper around, rather than focusing on the review process.”
It wasn’t a highly skilled task. In fact, sometimes she recruited fifth-graders to help her in exchange for treats. Ultimately, Van Gundy figured that “if a fifth-grader can do it, maybe we needed an automated system.”
So two years ago, Belkin automated its performance appraisals with software from SuccessFactors of San Mateo, Calif. The system enabled Van Gundy and her staff to stop shuffling papers and concentrate on higher-level activities. In fact, by going with an online process, Belkin added a midyear update to its annual review process.
But efficiency is not the only reason to move performance appraisalsonline. “These systems have a more strategic role than just automating performance appraisals and helping decide who gets a raise,” says Josh Bersin, chief executive officer and president of Bersin & Associates, a talent management consulting firm in Atascadero, Calif.
In fact, the benefits the software can provide, and the experiences of companies that have ditched their paper review processes for online appraisals, attest to the technology’s value.
Comedian Garrison Keillor’s weekly radio show “A Prairie Home Companion” contains a monologue on the fictional town of Lake Wobegon, where “all the women are strong, all the men are good-looking, and all the children are above average.”
Unfortunately, for many companies, that could also describe the results of their performance appraisals—too many employees receive undeservedly high rankings. Even worse, an overly harsh appraisal from a manager can derail an employee’s career.
Data on performance can be difficult to gauge when looking through stacks of paper, but with performance appraisal systems, HR staff can run reports to see the evaluations before they go to employees. When that’s done, the results can be surprising. When Donna Van Gundy, PHR, HR director at Belkin International, ran her report, she could see that certain managers had their employees all highly rated.
“Since it is in real time, we could go to the managers and say that it seems that most of the company’s ‘fives’—the rating for ‘exceeds expectations’—all seem to be in your group,” she says. “Either you have a great staff, or maybe you need to speak with your managers and help them calibrate performance against others.”
The vice presidents then started working it out with their managers so ratings were more consistent. When Belkin rolls out the system worldwide, it will also ensure that global employees are being evaluated on the same criteria.
“It is a great tool for setting the bar where it needs to be,” Van Gundy says. “You can’t really measure or calibrate if you can’t see all the data together.”
The performance appraisal market is “explosive,” Bersin says, “the fastest-growing area of HR software.” In 2008, the performance management software market is expected to reach about $490 million worldwide, and “it is growing at approximately 22 percent to 24 percent per year,” he says.
The business of automating performance appraisals grew out of forms automation—putting paper forms into an electronic format. Then, the designers of these simple systems began adding features to manage the workflow, as well as providing analytics.
“It has only been in the last two or three years that software companies in this market have really transformed what they sell,” says Bersin. “What they are selling is a whole tool set for managers and HR people to track and manage many aspects of employee performance—goals, performance appraisals, career plans, development plans and even looking at compensation. It is a fast-changing space, but it really evolved from the automation of performance appraisals.”
Bersin attributes rapid growth of the market to the need to address the challenges of an aging workforce. Using the expanded range of performance tools, companies can determine who their top performers are, who has the potential to move into critical roles and where talent gaps are projected to occur.
“That information is very hard to get without a system like this,” Bersin says.
Performance appraisal products are being offered by several dozen companies, but they are generally blended into a broader type of performance management or human capital management suite.
“There are so many products and price points available,” says Colleen O’Neill, Ph.D., the partner who leads Mercer’s talent management practice. “There aren’t many organizations [whose leaders] say they can’t afford the software or can’t find one that meets their needs.”
Larger and more sophisticated companies, O’Neill says, have had automated performance appraisal for some time. They are continuing to streamline processes, make them easier for employees to access and add links to other resources. That way, what employees do in the area of performance appraisal also relates to learning management, business planning, succession planning and other business activities. But adoption of these systems is far from universal.
“Surprisingly, with all the technology out there—from relatively simple software that just automates a form, all the way to enterprise systems—lots of organizations still have paper forms,” O’Neill says. “In certain industries, like health care, it is surprising how little automation you see.”
There are also variations in the way companies of different sizes automate appraisals. Bersin says HR professionals at small companies—those with up to 300 employees—tend to want a completely integrated suite that includes a payroll system and an employee portal.
Those at medium-sized companies, on the other hand, tend to already have a payroll system, a human resource management system and possibly a learning management system, but they want a fully integrated, industrial-strength talent management system.
Larger companies, too, have in place many systems—some they’ve built themselves—and are likely to already be doing automated performance appraisals, though they may not be completely satisfied with the results.
“Big companies can benefit the most but have the toughest time buying appraisal software because they have to replace or integrate with the old systems,” Bersin says.
Beyond the Basics
Automating performance appraisals definitely saves time. Van Gundy says that when looking at a bar chart in the SuccessFactors dashboard, she can click and obtain a list of who makes up a particular rating or group. Then she can e-mail en masse, for example, everyone who is late or needs to complete a step.
But more important than saving time are the processes these systems enable. Freed from administrative tasks, HR staff members can devote their time to more productive efforts.
The traditional approach to performance appraisals was just to do them once or twice a year, as many companies still do, Bersin says. The modern approach is to use continuous coaching—“managers sitting down with employees and talking about where they are doing well, where they need help, realigning their goals.”
Carol O’Donnell, vice president of human resources for New Balance Athletic Shoe Inc. in Boston, says HR professionals’ role in the evaluation process at her company used to be mainly administrative until the process was automated with Halogen Software’s eAppraisal.
This enabled HR to take on a more valuable role, O’Donnell says. “It also gives us insight prior to a review being done so we are not reading a hard-copy review and for the first time hearing about issues that may have been going on during the year. We can stay much more current.”
Employees have access to the system year-round. They can track progress against goals in real time and enter significant accomplishments. Managers can also enter data at any time.
Raymond Ortegaso, director of corporate development at the Los Angeles County Fair Association, implemented the SuccessFactors business goals module along with its appraisal module for his employees.
“Having that management piece keeps those goals on top of everyone’s mind,” Ortegaso says. “We used to check goals maybe quarterly, maybe twice a year. Now employees are regularly keeping track of goals, know where they stand and how they are aligned with company objectives.”
Appraisal software may also improve the quality of evaluations. Van Gundy, for instance, says her application includes a coaching advisor to guide managers in writing reviews. “If you click on any rating level, you can see a lot of information you can cut and paste that relates to, for example, someone who is not a strategist or someone who is overly strategic,” she says. “You choose remedies and can paste into the review if you want to.”
Most systems also have some sort of a legal advisor built in that will flag illegal or inappropriate comments.
“If you are firing someone [or] laying someone off, if he or she has a grievance or sues you, an audit trail is needed to document what occurred,” Bersin says. “Was the employee evaluated? Were they coached? Were they given feedback? If it is not written down, the employer can be liable.”
Companies have an array of vendors and products to select from in choosing appraisal software. Some organizations start with performance appraisal systems and then add other functions, while others add performance appraisal capabilities to their human resource information suites.
Note, too, that most vendors offer software as a service (SAAS)—software applications managed through a central location with the customer paying for the service on a per-user basis. James Holincheck, an analyst at Gartner Inc., a technology consulting firm based in Stamford, Conn., says last year 44 percent of technology customers used SAAS and another 17 percent bought licenses but had the vendor host the software.
“One of the main reasons we went with SAAS is so it wouldn’t impact our [information technology] staff with the burden of work they already have,” says Ortegaso. Bersin says vendors usually charge very large companies about $10 per employee per year, while smaller enterprises might pay $50 to $60. Pricing varies with the modules selected. Los Angeles County Fair, with a core group of about 250 employees, pays $80 per employee per year for performance appraisal, goal management, 360-degree appraisal and compensation components. New Balance, with 4,000 employees, is paying $38,000 for a three-year lease of eAppraisal. The first year may prove more expensive than the others because of training and implementation costs.
Additionally, software selection should take into account future planning and must support the organization’s workflow and appraisal methods rather than demanding that managers change processes to match the system’s features. Ortegaso, for example, is moving to balanced scorecards during the next year or two, so he selected software that would support them.
Consider whether the vendor supports companies of your size. Holincheck says companies such as Halogen and SilkRoad specialize in the middle market, while Authoria and Softscape serve large enterprises.
“But everyone is moving further down market, especially those with an SAAS solution,” says Holincheck. “Some span segments pretty successfully, such as SuccessFactors, which has quite an installed base at the low end of the market but also competes at the high end.”
Software also needs to be appropriate, of course, for the types of employees your organization has and for the areas in which your company operates. About half of Ortegaso’s employees are covered by a collective bargaining agreement, so he is working out a way to add them to the system. Similarly, managers of international companies need to make sure the software complies with regulations such as the European Union’s Data Privacy Directive. (For more information, see “Protecting Employee Data Globally” in the May 2008 issue of HR Magazine.)
And when Belkin was evaluating vendors, for instance, a key factor was language. “One criterion was to select a vendor that has a presence in those places where we do, and also to have those languages available in their systems so the system prompts are already translated,” says Van Gundy. “In the process of rolling out to all our regions globally, the two languages we decided to pilot were French and Simplified Chinese. Everyone else uses English at this time, but we can put in more languages later.”
Making an Impact
Fortunately, systems integration is no longer a major consideration. “Most of these products work pretty well in various environments,” says Mercer’s O’Neill.
When using SAAS or a hosted solution, setting up a system is straightforward with no software to install or configure. First, achieve an understanding of exactly what you are trying to accomplish with the appraisal form, Van Gundy says. The vendor can then tailor the software to meet those needs.
Belkin, New Balance and the Los Angeles County Fair Association populated their appraisal software by running reports out of their payroll systems, sometimes manipulating the data in Excel before uploading them to the performance management system. But that only works when the data in payroll are in good shape.
“One thing we did not anticipate or build into our plan was the error rate in the payroll system in terms of reporting relationships,” says O’Donnell of New Balance. “Cleaning it up in Halogen was more manually intensive than we anticipated.” She advises starting out by auditing the payroll system.
Training Is Key
Finally, all three HR leaders interviewed for this article stressed the importance of training and communication throughout the process.
“Don’t underestimate the level of change management. The application can impact everyone,” Holincheck advises. “Vendors promote how easy it is to use these; the reality is they are not quite as easy as HR believes.”
The Los Angeles County Fair Association, with only one location, held training sessions that were not divided by skill level. Some employees caught on immediately, while others needed help typing in passwords.
New Balance used a “train the trainer” approach where HR staff members learned first and then trained the employees in their areas of responsibility. The company also set up remote training sessions. Slides were posted in a shared file for employees who couldn’t attend training in person. Monthly articles and reminders are posted on the company’s intranet about how employees can use the system to track their career progress.
“We continue to focus on the change management process,” O’Donnell says. “We recognize that success or failure of this project is not ‘did you get through implementation?’ It is, ‘What is your rate of usage, and what is the impact?’ ”
More from this issueHR Magazine homepage
SHRM toolkit: Performance Management
SHRM article: Performance Management Goes Beyond the Annual Form (SHRM Online Employee Relations Disciplines Area)
SHRM research:Why Performance Management Improves Human Capital ROI (Briefly Stated)
SHRM resource: Online Buyers’ Guide
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