Executive Summary - Managing Performance


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Executive Summary - Managing Performance

  1. 1. EXECUTIVE SUMMARY MANAGING A full report providing additional explana- tions of findings, graphics, and tables is PERFORMANCE: available. Details on how to order the full report appear at the end of this BUILDING ACCOUNTABILITY FOR executive summary. ORGANIZATIONAL SUCCESS AN EXECUTIVE GENERAL PROFILE SUMMARY BY STUDY OBJECTIVES A clear majority of the organizations ROBERT W. ROGERS This study examines the practices and sys- (91 percent) use a company-sanctioned PRESIDENT, DDI tem qualities associated with performance performance management system. On management. average, these systems have been in place PAUL BERNTHAL MANAGER, The objectives of this study are to: for about four and a half years (about one ASSESSMENT DESIGN year longer than systems in 1997). > Describe the structure of performance AUDREY SMITH SENIOR VICE PRES., management systems. Organizations are using a consistent EXECUTIVE SOLUTIONS performance management system DDI > Benchmark practices associated with planning, tracking, and reviewing with a higher percentage of their workforces. performance. > Identify trends in performance Most organizations (74 percent) use their management practices.1 performance management system with at least 70 percent of their employees. > Identify the most common barriers. Although performance management > Measure employee and manager systems tend to be used by most of the perceptions of effectiveness. workforce, some employees rely on other > Identify best practices for system approaches. The percentage of employees effectiveness. using the same system has increased some- > Establish the relationship between per- what in the past five years. In 1997 less BUILDING ACCOUNTABILITY FOR ORGANIZATIONAL SUCCESS formance management and individual than half (46 percent) of organizations and organizational performance. EXECUTIVE SUMMARY — MANAGING PERFORMANCE: used the system with 91–100 percent of This report is based on responses from their employees. Today, almost two-thirds 278 organizational members of DDI’s (61 percent) do. HR Benchmark Group. A subset of these Many organizations (40 percent) organizations also contributed data from intend to make significant changes 1,818 employees and 1,814 managers. to their performance management 1 systems in the next two years. Bernthal, P.R., Sumlin, R., Davis, P., & Rogers, R. (1997). Performance management practices survey report. Pittsburgh, PA: Development Dimensions International. Many organizations recognize that they Rogers, R.W., Miller, L.P., Worklan, J. (1993). Performance need to make changes in their performance management, what’s hot—what’s not. Pittsburgh, PA: management systems. Today, 40 percent of Development Dimensions International. 1 © Development Dimensions International, Inc., MMIII. All rights reserved.
  2. 2. organizations intend to make significant Organizations recognize that performance changes to their system in the next two reviews are much more than just compensa- years. Five years ago, the same percentage tion reviews. Most organizations in our of organizations (41 percent) expressed sample (68 percent) discuss compensation their intent to make changes. at some time other than during the perform- ance review meeting. Performance reviews are occurring more frequently—not just once a year. CURRENT AND PAST PRACTICES In 1997, 78 percent of organizations con- Respondents used a 6-point scale to rate ducted yearly performance reviews. Today, how frequently their employees used 58 percent have a yearly review, while 15 performance management practices. 41 percent perform reviews more often Included in this list were many conventional than once a year. By having more than one practices as well as more progressive performance review each year, employees approaches that reflect the changing role can better gauge their progress toward of performance management. Many of goals. They benefit from more frequent these practices were assessed in DDI’s feedback, and the review process provides past two surveys on performance manage- them with a more formalized assessment ment (conducted in 1993 and 1997). An of their performance. examination of the current most frequently Few organizations (20 percent) use used practices and how extensively they online or software-based performance were used in the past reveals trends in management systems, but many plan performance management over time: to introduce them. Online or software-based performance > Frequency of manager and non-manager management systems are a relatively new training has doubled in the past 10 years. development. Few organizations in our Managers also are being held more accountable for the effectiveness of sample (20 percent) use these delivery the performance management system. formats, but more than one-third plan to move in that direction. An equal number > Relying on input about performance from of organizations are undecided about outside perspectives (peers, customers, making the transition. For the majority direct reports, etc.) is not common but has increased somewhat. BUILDING ACCOUNTABILITY FOR ORGANIZATIONAL SUCCESS of e-system users, web-based or online delivery is the preferred approach. In > Managers rely on a balance of subjective EXECUTIVE SUMMARY — MANAGING PERFORMANCE: most cases (59 percent), users of web-based (66 percent) and objective (71 percent) systems rely on performance management data in performance reviews. software that is independent of any other > Organizations are increasing their use of existing system. competencies in performance planning and tracking. Most organizations (68 percent) discuss compensation apart from > Numbers-based ratings often are the performance review meeting. combined with summary statements. Discussing compensation during the > Over the past five years, forced rankings performance review might have an impact have become more common; however, on the quality and focus of the review. few managers find them to be effective. 2 © Development Dimensions International, Inc., MMIII. All rights reserved.
  3. 3. BEST QUALITIES AND PRACTICES The second regression analysis focused on We conducted an analysis to discover which the specific practices used to plan, monitor, qualities of a performance management and review employee performance. The system are most likely to predict overall analysis revealed the following four prac- system effectiveness—from general qualities tices uniquely predicted the effectiveness to specific practices. We used regression of a performance management system analysis to determine which qualities were (in order of decreasing impact): the best predictors. Two analyses were 1. Development planning conducted—one for system qualities and 2. Manager/Supervisor accountability one for specific practices. 3. Objective data The most effective performance manage- ment systems are characterized by their 4. Competency guidelines consistent use throughout the organization, Interestingly, specific rating methods were their integration with other systems, senior not important predictors of overall success. management involvement, employee involve- ment, and their links to organizational LINKS TO HR SYSTEMS strategy. Performance management systems often The first regression analysis revealed five have close ties with other HR systems. qualities that uniquely predicted the effec- For instance, performance management data tiveness of a performance management can be used to make succession decisions, system (in order of decreasing impact): facilitate career planning, or guide training 1. Consistency in use of the system across selection. Ideally, this data can be closely all managers (i.e., everyone uses the linked to all these systems. By making use system the same way). of competencies, organizations should be able to improve the quality of these links. 2. Integration of performance management with other systems in the organization We asked respondents to indicate how (e.g., training, selection, compensation). closely their performance management system linked to the following HR systems: 3. Involvement of senior management in > Succession planning—Data used to driving the use of the performance BUILDING ACCOUNTABILITY FOR ORGANIZATIONAL SUCCESS identify and develop leaders for future management system. openings in the organization. EXECUTIVE SUMMARY — MANAGING PERFORMANCE: 4. Employee involvement in the perform- > Pomotion decisions—Data used to ance management process. help make decisions about who should 5. Value of performance management be promoted. for driving the organization’s strategic > Career planning—Data used to identify goals/vision. and plan career paths for employees. The most effective performance manage- > Compensation—Data used to determine ment practices include development levels of pay, pay increases, or other planning, manager accountability, objective compensation. data, and competency guidelines. 3 © Development Dimensions International, Inc., MMIII. All rights reserved.
  4. 4. > Training—Data used to determine Lack of System Direction what type of training employees (26 percent selected overall) should pursue. > Unclear or changing business strategy > Selection—Data from the selection makes it difficult to set individual goals. process (strengths, weaknesses) used > Poor link between performance reviews to help establish an individual’s and compensation. performance plan. > Lack of clarity for how the system should We found that most organizations be used (i.e., system objectives). (74 percent) make a strong link between > The performance management process their performance management data and keeps changing. compensation. Also, performance manage- The respondents cited poor compliance ment systems are most effective when they or usage as the greatest barrier to system are linked to other HR systems. effectiveness. In addition, some organiza- tions (26 percent) experience problems BARRIERS TO SYSTEM EFFECTIVENESS with determining the role performance Every HR system encounters unique barri- management should play and its links to ers that interfere with the system’s overall other systems. effectiveness. We asked respondents to indicate which of 10 possible barriers were EMPLOYEE AND MANAGER currently affecting their ability to provide PERSPECTIVES a high-quality performance management Although HR is usually responsible for system. By using a principle components establishing an organization’s performance analysis, we were able to identify three management system, employees and classes of barriers: managers are the real users. So, they Poor Compliance or Usage (60 percent have a unique perspective on how well selected overall) the system is working. We asked employees > Difficult to ensure that all managers and and managers at the participating organiza- employees are using the system correctly. tions to provide ratings for the three stages > No measures available to see how well of the performance management process: the system is working. > Planning—Coming to consensus about BUILDING ACCOUNTABILITY FOR ORGANIZATIONAL SUCCESS > Users are not held accountable for com- performance goals and how performance pleting reviews. will be tracked. EXECUTIVE SUMMARY — MANAGING PERFORMANCE: Lack of Value > Performing—Ongoing monitoring of (38 percent selected overall) performance, providing feedback, > Performance management plan has coaching, and promoting development. low relationship to employees’ daily > Reviewing—Reviewing performance work objectives. and assessing progress. > Employees do not find the system useful Only about half of managers and employees (i.e., they have little use for the process surveyed agree that their organization’s per- and data). formance management system is effective. > Ratings do not reflect actual performance. Also, managers are much more positive 4 © Development Dimensions International, Inc., MMIII. All rights reserved.
  5. 5. about the performance management Depending on the type of result (i.e., hard process compared to employees. However, results like revenue growth, productivity, that might be due to the managers rating and profitability, or soft results like customer their own behaviors. and employee satisfaction or retention), organizations with strong performance Our findings also show that employees and management systems are 41–51 percent managers are most satisfied with a perform- more likely to outperform their competitors. ance management system when it provides data to improve performance and when its CONCLUSIONS reviews reflect actual performance. 1. Performance management is becoming IMPACT OF PERFORMANCE MANAGEMENT more dynamic. When a performance management system 2. Performance reviews need a balance is successful, employees should be able to and a diversity of data sources. CONTACT INFORMATION attain virtually all their performance goals, 3. Integration with strategy and involvement HR BENCHMARK GROUP which will lead to successful business out- PAUL BERNTHAL, PH.D. at multiple levels drives effectiveness. DEVELOPMENT DIMENSIONS comes. Our results show that the average INTERNATIONAL 1225 WASHINGTON performance management system improves 4. Manager accountability is on the rise. PIKE BRIDGEVILLE, PA 15017 the ability of employees to achieve their 5. Development planning has become a PHONE 412.257.7533 goals by 10 percent. Thus, in an organiza- critical component of performance FAX 412.257.3093 tion of 10,000 employees, this would equate management. E-MAIL HRBENCH@DDIWORLD.COM to a benefit of approximately $34 million. 6. Performance management predicts WWW.DDIWORLD.COM And as far as effectiveness goes, the best TO ORDER A COMPLETE REPORT, employee and business success. performance management systems yield up CALL: DDI BOOKS AND PUBLICATIONS AT 1.800.944.7782. to twice the benefit in performance of the ASK FOR PART NUMBER MICABERSR10. lowest rated systems. WORLD HEADQUARTERS 412.257.0600 E-MAIL INFO@DDIWORLD.COM WWW.DDIWORLD.COM/LOCATIONS BUILDING ACCOUNTABILITY FOR ORGANIZATIONAL SUCCESS EXECUTIVE SUMMARY — MANAGING PERFORMANCE: 5 MKTPMGN01-05030MA © Development Dimensions International, Inc., MMIII. All rights reserved.