Workforce Performance Management: An IDC Assessment of DDI's ...


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Workforce Performance Management: An IDC Assessment of DDI's ...

  1. 1. SPECI AL STUDY Workforce Performance Management: An IDC Assessment of DDI's Capabilities F.508.935.4015 Ellen H. Julian Michael Brennan IDC OPINION As the global economy sustains growth and the war for talent intensifies, P.508.872.8200 organizations are increasingly focusing on change initiatives that will improve operational best practices. The benefits realized by investing in workforce performance management (WPM) solutions are becoming more appealing to businesses across industries and geographies, and they include improvements in goal setting, stronger employee engagement in work, compensation that better Global Headquarters: 5 Speen Street Framingham, MA 01701 USA reflects performance, and more efficient talent management. One company that IDC believes business decision makers and HR executives should consider when evaluating WPM providers is Development Dimensions International (DDI). DDI is a financially stable company with a global footprint and is well-positioned in the emerging WPM market. IDC bases this belief on the following: ! Alignment of cascading goals with organizational strategy. DDI works with its clients' senior management teams to articulate organizational objectives and trains managers on how to set goals up and down the organization. ! View of employee life cycle. A key strength for DDI is that WPM processes and methodologies are natural extensions of the company's domain expertise in employee assessment and selection, succession management, and training and development — all of which have evolved over the company's 34-year existence. ! Consulting expertise. DDI works with client organizations to align business strategy and tactics with performance goals. DDI's approach is to work with clients to design business systems that will enable the companies to achieve their goals and then help clients integrate the systems into their business practices. ! Change agent. Companies that spend wisely on WPM will execute with the conventional wisdom that technology will not create value simply by its deployment. Thus, they will need an organization that is adept at communicating value and training employees and managers on new systems and business processes. DDI has proven that it is adept at both in its work with clients. Filing Information: August 2004, IDC #4193, Volume: 1 Corporate Learning and Performance: Vendor Needs and Strategies
  2. 2. IN THIS STUDY This IDC study is designed to provide an understanding of the role of workforce performance management (WPM) in helping organizations achieving their strategic objectives. In Worldwide Workforce Performance Management 2004–2008 Forecast: What It Means and Key Players (IDC #31446, July 2004), IDC describes the key elements of a WPM system and the potential market opportunity for providing products and services designed to facilitate such a system. This document summarizes several of the principles laid out in that study and provides potential implementers of WPM with recommendations for evaluating vendors. It is with these criteria in mind that we conclude the document by appraising DDI's WPM offerings. SITUATION OVERVIEW Never Lose Sight of the Fact That People Drive Business Performance Organizations that Although systems and processes play large roles in generating returns for cannot find, develop, shareholders, it is impossible to conceive of an organization today where people are and retain the talent they need must not the biggest drivers of success. Corporations, government agencies, and recognize that they educational institutions that cannot find, develop, and retain the talent they need are at a disadvantage. must recognize that they are at a disadvantage. Consider the following scenarios at two DDI client organizations operating in different competitive markets: ! HCA is a $19 billion provider of healthcare services comprising locally managed facilities that include approximately 191 hospitals and 82 outpatient surgery centers in 23 states, England, and Switzerland. The number 1 priority for HCA and others in healthcare is caring for and treating patients. In 2002, the nine- facility TriStar Health System of HCA's MidAmerica Division investigated ways to improve patient experience. ! McKesson Corporation acquired HBOC, a publicly held healthcare IT company, in 1999. Shortly after the deal was consummated, the company was challenged by a significant drop in customer satisfaction scores. On the surface, these two scenarios appear very different from one another. Upon closer examination, however, many of the challenges facing these two organizations were similar. For instance, TriStar was challenged by a shortage of skilled nurses, who are in short supply and routinely change employers. In 2002, management determined that while such churn is a systemic problem, most nurses who had departed HCA's facilities had done so because of issues specific to the organization. These causes included supervisors who were unqualified to manage employees, insufficient professional development opportunities, absence of clear career tracks, and a compensation strategy that was not linked to performance as measured by the most important indicator of all — patient satisfaction. ©2004 IDC #4193 1
  3. 3. For McKesson, a root cause of its customers' disenchantment arose from the departure of more than 20% of the merged company, including the entire senior executive team and a significant number of middle managers. The majority of newly installed leaders had never been exposed to formal management training, and many had received "battlefield" promotions due to high management turnover. Ultimately, these two organizations realized that they needed to boost organizational commitment. Jack J. Phillips, PhD., describes organizational commitment as encompassing employee satisfaction as well as the "extent to which employees identify with organizational goals, mission, philosophy, value, policies, and practices." Organizational commitment is a driver of productivity. This makes perfect sense — when people are engaged in their work and can easily relate their career goals to the mission of the organization, they are set up to perform well. Enter Workforce Performance Management An effective means of increasing organizational commitment is making use of a functional workforce performance management system. IDC defines workforce performance management as an adaptable, ongoing business system that involves a combination of sponsors, managers, and employees. The ongoing processes that compose the system include (see Figure 1): ! Defining job roles and related competencies that align with the mission and goals of the enterprise ! Setting clear performance standards and goals at appropriate levels within the organization ! Observing and measuring moves in key performance indicators at individual, group, and enterprise levels ! Conducting written and oral performance appraisals to give and receive feedback about performance as it relates to the achievement of individual and organizational goals ! Assessing individual and organizational skills gaps impeding performance 2 #4193 ©2004 IDC
  4. 4. FIGURE 1 Dynamics of Workforce Performance Management Enterprise environmental analysis Enterprise environmental analysis and action plans and action plans Performance Job role goals/standards definition WPM Appraisal and Gap analysis measurement Individual competencies and Individual competencies and career strategy career strategy Source: IDC, 2004 Workforce Performance Management: Trends and Business Value Ensuring that Today, most organizations address WPM using a mix of paper-based methods and employees' efforts are general desktop applications. To most companies, a WPM "system" consists of set to execute on business strategy is a annual — and often inconsequential — performance reviews. However, there are key issue for many signs of demand calling for WPM to play a bigger role in the way employees are executives addressing managed and developed to drive business results. Ensuring that employees' efforts the changing demographics (e.g., are set to execute on business strategy is a key issue for many executives age, geographic addressing the changing demographics (e.g., age, geographic locale) of their locale) of their workforces. workforces. For example, globally dispersed workforces need to be managed and motivated to achieve desired performance outcomes. In addition, the established and growing acceptance of HR self-service using portals will drive greater employee involvement in WPM processes. ©2004 IDC #4193 3
  5. 5. The benefits realized by investing in workforce performance management solutions will become more appealing to businesses across industries and geographies as the successes of others proliferate. These benefits include: ! Improved strategy execution through better goal alignment ! Improved employee engagement and performance, since all employees know what is expected of them and often play a role in establishing their expectations ! Objective means of identifying and rewarding top performers ! More efficient hiring, internal placement, and succession management ! More targeted training and development initiatives Recommendations for Selecting a Workforce Performance Management Solutions Provider Implementing a Recognizing the challenges to organizational commitment that lead to employee workforce disenchantment and turnover, as McKesson and TriStar did, is an important step in performance management system setting the context for a performance management system. In practice, however, and ensuring its implementing such a system and ensuring its ongoing use are daunting propositions. ongoing use are IDC believes that because most organizations do not possess core competencies in daunting propositions. organizational behavior or HR systems and processes, they will look to vendors — as McKesson, TriStar, and others have looked to DDI — to provide workforce performance management products and services to assist them. They should look for the following capabilities when evaluating providers: ! Alignment of cascading goals with organizational strategy. An effective system must be holistic in that it considers and aligns measurable objectives related to people in all areas of the business. It must also enable stakeholders to continually account for changes at the individual level (e.g., promotion), group level (e.g., assembly of a new product line), and organizational level (e.g., merger). Therefore, organizational buyers should seek a provider that is willing to familiarize itself with their business and that possesses processes and libraries to assist them in selecting the behaviors/competencies and goals/objectives associated with key job roles. ! View of employee life cycle. Organizations should seek a vendor with capabilities that go beyond performance management. The business value of performance management is enhanced when it is integrated with other HR systems and processes such as recruiting, succession management, compensation, and professional development. 4 #4193 ©2004 IDC
  6. 6. ! Consulting expertise. A vendor should be able to demonstrate its expertise through its work with clients across vertical industries and styles of governance (e.g., centralized, matrixed). In addition, a vendor should have experience implementing workforce performance management systems and aligning them with other organizational systems. It is worthwhile for organizations to look for a vendor that has implemented in technical environments similar to their own. This should cut down on the number of surprises for everyone. Those companies that ! Change agent. Companies should look for an external agent that can help effect spend wisely will change in organizational culture and individual behavior to drive proper use of execute with the conventional wisdom the system. Those companies that spend wisely will execute with the that performance conventional wisdom that performance management technology will not create management value simply by its deployment. Thus, they will need an organization adept at technology will not create value simply by communicating value and training employees and managers on new systems its deployment. and business processes. DDI HAS THE EXPERTISE TO PUT WPM TO USE IN ORG ANIZ ATIONS Company Overview Founded in 1970, DDI is a global human resource consulting firm focused on assisting its organizational clients by designing and implementing employee selection systems as well as identifying, retaining, and developing talent. DDI's consultants offer a full range of services that include system design, communication strategy, alignment with other organizational systems, skills development (conceptual and interpersonal) through direct delivery and train-the-trainer programs, accountability of roles and responsibilities, and measurement. DDI is financially Table 1 provides a composite view of the company. DDI is financially stable and well- stable and well- positioned to leverage the growing demand for WPM and HR solutions in general. positioned to leverage the growing demand Despite a tough climate for business spending in recent years, DDI continues to for WPM and HR generate positive operating cash flows, thanks largely to a loyal customer base and solutions in general. negligible debt. The company invests approximately 7% of revenue in R&D. In addition, the company has established a partnership with Workscape to deliver technology-enabled solutions that meet a wide variety of customer requirements. ©2004 IDC #4193 5
  7. 7. T ABLE 1 DDI Corporate Overview Headquarters Bridgeville, PA Founded 1970 Total worldwide 2003 revenue Just over $105 million; approximately 65% of business done in North America Total number of employees 800 full-time and 400 part-time Average tenure of full-time employee 8 years, which indicates an employee retention rate of 88% Geographic presence 70 offices located in 22 countries Performance management resources • Performance management system evaluation services • Competency libraries for multiple levels/functions customizable to organizations • Performance management training in goal setting, coaching, and performance reviews for managers • Senior management "cascading" goals sessions • Consulting services Major WPM partnership Workscape, which provides WPM application that enables DDI's methodologies Representative clients HCA, BT Exact, Franklin Templeton, Spirox, McKesson, DHL, BIC, and Lily France Key competitors Towers Perrin, Hewitt Associates, Accenture, Deloitte Consulting, IBM Global Services, Mercer Consulting Source: IDC and DDI, 2004 DDI's Position in the WPM Market The market for performance management solutions involving both software and services is evolving, and DDI is well-positioned to take advantage of growing demand. The company's work with clients, some of which are discussed below, shows that it possesses the capabilities that organizations should consider when evaluating providers of performance management products and services. Alignment of Cascading Goals with Organizational Strategy DDI works with its clients' senior management teams to articulate organizational objectives and trains managers on how to set goals up and down the organization. Early on in the relationship, McKesson executives and DDI worked to create leadership competencies based on McKesson's goals. In addition, DDI helps its 6 #4193 ©2004 IDC
  8. 8. clients set goals and manage performance consistently. As part of its work with Australian media firm Sensis, DDI successfully trained managers in several key areas related to WPM — from linking individual performance objectives and company vision to measuring performance relative to these objectives and identifying employee development opportunities. View of Employee Life Cycle A key strength for DDI is that WPM processes and methodologies are natural A key strength for DDI is that WPM extensions of the company's domain expertise in employee assessment and processes and selection, succession management, and training and development — all of which methodologies are natural extensions of have evolved over DDI's 34-year existence. The company is also able to bring these the company's capabilities to bear to complement organizational adoption of WPM. For its problem domain expertise in employee retaining nurses, TriStar (of HCA's MidAmerica Division) initially worked with DDI to assessment and define competencies necessary for certain jobs and categorize positions into multiple selection, succession job families. These exercises helped drive more accurate recruiting — a process for management, and training and which TriStar used DDI's behavior-based interviewing system. In addition, the development. MidAmerica Division has sent its 1,000+ managers to a DDI leadership development program, which includes a module that trains them to administer performance management effectively. Consulting Expertise DDI works with client organizations to ensure strategy execution and goal alignment, instill a culture of accountability, and foster employee-manager engagement. DDI's approach is to work with clients to design a performance management system that will enable the companies to achieve their goals and then help the clients integrate the system into their business practices. This process, dubbed "CASAM," also addresses the cultural aspects of integration: 1. Communications strategy 2. Accountability to drive system 3. Skills to implement 4. Alignment with other systems 5. Measurement DDI recognizes the DDI recognizes the need to demonstrate measurable returns to its existing customers need to demonstrate and potential customers. Over the past 34 years, the company has developed measurable returns to its existing customers standard tools and indices to help its clients better understand the influence of its and potential offerings on moving key indicators of both individual behavior and organizational customers. performance. The center of TriStar's attention was reducing employee turnover; DDI helped the company accomplish this goal. For McKesson, the broad focus was on leadership. With DDI's help, the company measured the following improvements to determine success: ©2004 IDC #4193 7
  9. 9. ! Employee turnover dropped from 20.4% in March 2000 to 4.8% in June 2002. At one point during this stretch, the company reported a decline in turnover for 23 consecutive months. ! The employee referral rate increased from 25% in 2001 to 30% in 2002. ! Customer satisfaction scores increased from 4.94 on a 7.0 scale to 5.38 in two years. ! Revenue and operating income both showed marked improvements. ! The average attendee rating for DDI's leadership courses was a 6.6 on a 7.0 scale, with leaders requesting that additional classes be scheduled. Change Agent Changing behavior is Changing behavior is at the heart of what DDI does. When McKesson turned to DDI at the heart of what to help with its gaps in leadership, company officials credited much of their success DDI does. — measured using indicators such as a 15% decrease in employee turnover in two years and a 5% increase in employee referral rates in one year — to the training and development expertise their vendor of choice brought to the table. DDI not only supported implementation of WPM by training 700 managers on why they should use the system and how to use it, but the company also provided a multiday leadership development program to help prepare managers to help drive performance. CONCLUSION Despite the limited use of WPM today, there is some pull from the marketplace calling for WPM to play a bigger role in the way workforces are managed and developed to drive business results. With a full range of services from system planning, implementation, training, support, and measurement as well as proven success in delivering successful performance management solutions, DDI is well-positioned to drive business results and has established itself as an early leader in this market. Copyright Notice External Publication of IDC Information and Data — Any IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country Manager. A draft of the proposed document should accompany any such request. IDC reserves the right to deny approval of external usage for any reason. Copyright 2004 IDC. Reproduction without written permission is completely forbidden. 8 #4193 ©2004 IDC