Friday, May 09, 2008

Does Forced ranking help ??

It is the waste we rue. 38 years ago, the Harvard Business Review published Harry Levinson’s classic Management by Whose Objectives? Levinson argued that objectives seem to be forced on hapless employees who then had to achieve targets for which they really had no say. He argued for a strong alignment between company and personal goals and for a deeper, more empathetic understanding of employee motivation. Decades later, we have found something more ironical at work. While performance management systems continue to be viewed as unresponsive to individual sources of motivation, they do not seem to be explicitly aligned to achieving organisational goals either. It is this sad, unnecessary misalignment that we want to address.

In an economy where nothing really seems broken, alignment still matters for two reasons. First, because it is possible to build performance management systems that are responsive to both business goals and to personal aspirations . Second, this nurturing of harmony opens up great possibility for individual and company potential to get realised . Currently, many companies feel forced to set limits on achievable, sustainable growth because they do not see any other way out.

We suggest that neither companies nor employees need operate under such unnecessary and painful constraints. We will demonstrate how one of our clients, Wanbury Limited, has reshaped its Performance Management System (PMS). By focusing on alignment and on eliminating slippage, the company and its employees have seen significant improvement in results.
Conserving time: Performance planning and evaluation

Slack stealthily creeps into performance management systems. Take for example the timing of performance related discussions. In India, there is a tendency to conduct performance planning — for the year ahead — and performance evaluation, for the year gone by, in the same meeting.

Though it may sound counterintuitive, companies need to have two separate sessions. This saves time because both processes- of setting strategic goals and of evaluating employees- then receive the attention they independently merit.

Organisations should synchronise their performance planning with their business planning and budgeting processes, usually held in March. This will ensure that goals are set and communicated before the start of the fiscal year. Performance evaluations should take place in the first quarter of the fiscal year, usually May-July , when all necessary data is available. Wanbury Limited, implemented these changes, and found that they not only saved time but also had a better aligned process.

Conserving energies: Focus & alignment

Squandering organisational energy due to lack of focus and misalignment is the second example. This happens when a company focuses on a number of goals rather than a crucial few. Too many KRAs spread across a diverse number of themes and roles usually indicate poor focus. Says Wanbury Limited’s Deputy MD, K.R.N Moorthy, “Before our PMS re-design , we were targeting a laundry list of objectives .

Consequently, we were losing focus on what we really needed to do to achieve more growth and better performance . Focusing on the vital few goals that were aligned with our organisation’s short and long term objectives has shown actual results in improved performance.”
Next, the company conserved energy by building synergies across units. As Moorthy elaborates, “Earlier, each department would define and cascade its KRAs in isolation. We have since understood the importance of integrating KRAs across businesses and functions.

We now see inspired teamwork between teams that are now focusing on a larger goal for the unit rather than the earlier , narrow spectrum of objectives” . One thumb rule for alignment: look at the KRAs for any role and check if similar priorities are reflected in the KRAs for other roles that are expected to collaborate with it. A couple of critical nuances here.

Not all roles during a particular year are likely to have KRAs. Those divisions that are contributing to the company’s strategic goals should have KRAs. Others should focus on what we refer to as function-centric local initiatives and on daily priorities. One of our clients is a leading player in the knowledge outsourcing space. In one year, the organisation’s energies were focused on new product development , hence only the sales and research functions had KRAs.
In another year, the finance function had the most KRAs due to financial restructuring. Second, a company benefits most from having a formal process linking interdepartmental KRAs. At Wanbury Limited, informality, caused slippage. When the PMS honed its focus on a few vital KRAs, and then on systematically cascading functional and individual goals, alignment improved dramatically.

Unlocking energies and talent

We have noted that mutuality should be a central component of goal setting. Unfortunately, goal setting often does become a top-down unilateral process, with little scope for individual inspiration. We believe however that inspiration can be tapped if employees understand what is mandated and what isn’t .

I n d e e d , most employees do not have a say regarding strategic organisational goals, which are reflected in the KRAs. For example, the board may mandate that the company will “launch a new product in the last quarter of the year” . It is in the two other sets of goals mentioned earlier, local initiatives and daily priorities (rather uninspiring terms, we admit) that we see the most scope for personal inspiration.

‘Local initiatives’ refers to the improvements that a department or business unit needs to make to its performance.

‘Daily priorities’ refer to an employee’s job description, the rock solid ‘business-asusual’ activities that need to be done superbly. Organisations can now gain greater control over what gets done while leveraging a bottom-up process to channel individual talent.
The folly of fixed, forced fits

Many companies follow the Bell curve for their performance rating distributions. Usually, companies follow a 4 point scale for employee ratings : 10% get a 1, 40% get a rating of 2 or 3, and 10% get a 4. These percentages are rarely subject to change.

We suggest however that organisations remain open to three kinds of distributions instead. The standard distribution holds good only if the company is on target. When targets are exceeded either by the company or a particular unit, then the company should skew the performance curve. For example, it can follow a 1-4 distribution on the lines of 5-30-45-20 . If one unit merits a 3 rating and another a 4, then support functions like finance and HR can be given a weightage of 3.5, and their staff rated accordingly . If the company does not do well, it can shift its distribution downward to 15-50-30-05 , from 1-4 respectively.

Even the most rigorous systems however cannot replace leadership, wisdom and prudence. The company’s board has to take ownership of the performance management process by asking questions like: Are the goals fair? Can we also reward work on a ’best efforts’ basis rather than only on outcomes, so that initiative and motivation do not get squashed?
This approach worked well in Wanbury Limited. According to Surina Iyer, GM-HR ,

“Normalisation of individual and organisational performance was always a struggle for us, like it is for many companies . We have debated the merits of differentiated recognition so that we could establish a stronger link between organisational and individual performance. When we gave ourselves the flexibility to look at different Bell curves, we found that we were able to truly focus on performance for results and on individual contribution.”

Additional benefits have accrued . As Iyer explained, “When we began focusing on a vital few goals, and on better inter-unit alignment, we saw results immediately. Later, when we began to work with different normal curves and had fully implemented the new system, we were able to gather solid data that helped us in our employee development initiatives.”

None of this is particularly difficult to do. Maps already exist. One does not need to look for new terrain, one only needs to draw the roads afresh. Or, as an old philosopher who doubtless, doubled up as a bossy scold would have said: do not look for fresh vistas, look with new eyes.
(Padmaja Alaganandan leads Human Capital at Mercer Consulting India) (Gopal Nagpal is a principal in the Mumbai office)

Source ET

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