Why Companies Underperform: Part V

And what they must do to succeed in the new economy

Please read Parts I, II, III, and IV of this post for background information.

High-performance organizations – companies that have outperformed their competitors – are much more focused on talent management metrics. Top organizations are more than twice as likely to emphasize the measurement of talent management (37%)  versus (16%) by low-performing organizations (i4cp). The metrics for business performance are:

1. Revenue Growth and Revenue per Employee
2. Market Share – Innovation
3. Profitability – Earnings and Earnings per Employee
4. Customer Satisfaction

Other research has shown that this whole area of acquiring and utilizing human resources is ‘just too much like rocket science’ for most STMs (small-to-medium size businesses).  Utilizing metrics to assess the quality of the talent that is currently in their workforce, is a ‘foreign concept’. And thus we get back to "their kind of common sense", and ‘repeating what they did before, again and again’.

The performance metrics used to evaluate employees, should highlight how an employee contributes to the business metrics (above), as well as to measurements of their engagement level, and understanding of, and actual alignment with, the company’s strategy and objectives.

1. Start by auditing current workforce metrics. Are they structured and logical, or are they just gut feel (be honest)? Are they consistent (for every job) and validate-able (measure what they should measure)? Do they correlate with the four performance parameters shown above?
2. The metrication system must promote higher performance. The organization should have specific goals and processes outlined for each department, or team. Management should assure goal congruence, including employee objectives and activity level metrics.
3. Establish a system incrementally, not instantaneously. Make line managers part of the process, so they understand its purpose (and can communicate it), and buy into it. A company should not want to invest in a system that no one believes in, or will act on.
4. Make the system Win-Win. Employees need to know why they are being measured, and what is in it for them, at the end of the day. Success for the company, should also mean success for them, everything about the metrics system must be transparent and consistent.

It is recommended that companies who do not have existing metric systems (or even gut-feel based systems) develop a whole new set of performance based metrics. Metrics that are suitable for the type of business they are in.

These companies should start with just one or two metrics for each group or team in their company. These one or two metrics should support a congruent set of goals, established by management. The metrics must be easily measured; that is the litmus test for choosing any metric.

There are numbers of metric systems that could be adopted, like the "Balanced Score Card" (The Balanced Scorecard –Measures that Drive Performance, Harvard Business Review, Feb. 1992), there are even software packages available. However the objective of this paper is to outline approaches to STM managers that are low cost, low risk with low intrusion-ability (low impact to the day-to-day operation of a business).

Using ‘What We Got’

There is an overall assumption being made in this paper; it is that the STM who has survived the recession, is seeing an up-tick in business, and is desirous of improving its future position and performance. We are also assuming that the STM is not in the position of being able to acquire, new assets (human or otherwise) but will have to use what it already has.

It is clear that the most important area where an STM can begin to make a change is in better utilization of its human assets, especially since they are 50% of the organization’s ‘cost of doing business’. We are also assuming that STMs do not possess a state of the art HR department. Most STMs have limited HR resources (more like personnel departments) or none at all.

What we will outline in this paper will be approaches and tools that STM managers can use, maybe after having co-opted some help, if they think they need it. We have already introduced some suggested methods for improving human resource utilization, i.e. a metrics systems and measuring the level of employee engagement.

Now, as organizations begin to think about recovery, workforce planning emerges as a key strategy to help them identify and address labor imbalances and develop the talent required to grow their operations. What is workforce planning ? While STMs may have a basic manpower process in place to ensure that there are sufficient people to support their current strategy, it is hardly a workforce strategy.

Will it identify critical skill gaps and does it outline how the organization is going to compete for long-term success? Probably not! STMs must display rigor in translating strategic plans to human capital plans. if they are to retain or develop the necessary talent required to achieve business success.

Human Capital Implications

In order to develop a strategic workforce, STMs must know how to interpret the human capital implications of a business strategy, however the stark reality is, few STM managers are capable of doing that. In order to develop a ‘people plan’ supporting business objectives, companies must make critical decisions about what they really want from their workforce.

STM managers need to ask themselves these five questions:

1. Do we have the right number of the right people to make our business strategy work, and have we developed a process to determine who the right people are?
2. Are we developing (managers and leaders), deploying, and rewarding employees properly?
3. Do we have the decision-making, managerial talent and structures, work processes and information systems, to make the workforce effective?
4. Are we doing what is needed to motivate and retain key people, especially during this critical transition period of environmental stress?
5. Do we have a solid plan for integrating people and human capital programs into a combined operation (or, for certain transactions, moving people and programs into separate entities)?

Answering any of these questions negatively, indicates for managers, where to focus, and where they need to develop (or acquire) processes and tools.

A detailed analysis should be made to identify gaps between the current workforce and the desired future workforce, so that management can put a plan in place to close the gaps.

This analysis goes far beyond traditional methods, e.g. benchmarking and best practices. This needs a sophisticated, facts-based analysis that looks at the workforce’s record and overall business performance.

Managers can also use the data contained in employee records (financial and other), and in the operational systems records of the company.

Predicting Performance

Managers should determine the workforce practices and programs that support business performance, and those that are hindering it. They should also perform hard-skills/soft-skills evaluations of each employee. They can use existing employee performance records, resumes, etc to determine hard skills and psychometric tools to determine soft skills and preferences.

There are numbers of psychometric tools available that run on the web, they provide insightful data that allows managers to predict future performance and get the best "job-fit" (essential for the highest performance). The tools used should have validation records of the highest order. Tools like Myer Briggs are not useful for the purpose of predicting performance.

The broad class of tools that should be used are known as "normative" tools, these tools measure various characteristics of an employee against a large and random population. Myers Briggs is what is known as an ‘ipsative" tool in that it measures the characteristics of a candidate against the candidate. To a great extent it expresses the candidates behavioral preferences.

Some normative assessment tools can be used to measure ‘job fit’ by creating standard profiles of cognition and behavior for each particular job. Profiles are developed by evaluating workers who are considered to be performing at a high level, and using their assessment results to statistically develop a standard profile. Job candidates are then assessed, and their results matched against the standard profile. This process is reported to have a high degree of success.

Many company performance problems are caused by poor or low quality management (and lack of leadership) and poor internal and cross-functional communications.
There are numbers of tools available to determine areas for improvement, e.g. 360 degree management & leadership evaluations. These management evaluations will provide opportunities for necessary skills development.

There are also numerous tools like DISC, available at low cost, that can be used to effectively build teams and improve interpersonal and inter-group communications. These easily used tools improve management’s understanding of potential candidates, members of its work teams, and helps team members identify their strengths and areas for development.

Bottom line! STM managers must step out of their box in dealing with the most valuable asset, their people; the old ways won’t work anymore they need to "get with it". They must realize that a more scientific approach is required to get productivity to the level of ‘doing more with less’.

Copyright 2008 – 2010 Henry Gregor, StrategicVisions. All Rights Reserved Worldwide.