The Performance Management Conundrum Group50 has been working with small (15 employees) to large (over 20,000 employees) companies who have set performance management as one of their key objectives for 2013. As we continue to dig into corporate needs, the same message continues to come through. Senior management knows that the economy isn’t going to allow them to resume the upward trajectory of growth like the good old days. As we continue to discuss ways to achieve these objectives, the conversation always comes back to performance management. As any leader knows, honing in on maximizing the performance of every individual is an invasive project. It affects every individual in the organization, and requires the long term commitment of human resources and capital to be successful. Before embarking on such a program, they have to ask for proof that undertaking such an effort will have an appropriate ROI. Here is some of that proof: According to a study by John Kotter, Professor of Leadership at Harvard, high performance cultures can expect these kind of results:
Employment Growth 282%
Stock Price Growth
Net Income Growth
According to a study of 162 companies by Dennison Consulting, these results exist:
High Performing Cultures
Low Performing Cultures
Sales Growth 15.1%
The Performance Management Conundrum cont’d Page 2 Although these studies don’t show exactly the same results, they do show that there is a significant difference between organizations that elect to create a high performance culture and stick with it. The logical question is: What do companies with high performance cultures do that others don’t? The answer simple in theory and difficult in practice. The primary differences between one and the other are as follows: 1. They clearly articulate their Mission, Vision and Values 2. Leaders throughout the whole organization know what the expectations of leadership are 3. They know what the2 or 3 most important goals for the business are, and define the from => To => When for those objectives 4. They implement a system where every employee, contingent worker and supplier is held accountable to their objectives that contribute to the corporation’s most important goals 5. Communication around these objectives is routine Most senior leaders get items 1‐4 and have at one time or another attempted to make this happen. Until the last few years, the tools that were available to them were limited to newsletters, town hall meetings, questions at operations reviews and yearly performance appraisals. So, most initiatives like this have disappeared very quietly because of the inability to sustain passion and energy around developing a high performance culture. There are notable exceptions such as: Able Engineering: 20+% CAGRs every year, and better performance on the bottom line Capital American Financial Corporation: They cultivated a ``true believer’’ mindset throughout the company and grew from $3 million to $500 million of revenues in the 15 years before the company was sold for $760 million in 1996. Southwest Airlines: As the United States’ most successful low‐fare, high frequency, point‐to‐point carrier, yearend financial results for 2011 marked Southwest’s 39th consecutive year of profitability. Pulte Holmes: Embarked on developing a high performance culture in 2000, and grew from $4.0 B in sales to $14.7B in sales in 5 years. Phillips Plastics Corporation: A Wisconsin based molding company has had an average return on equity of 23% over the last 40 years. The company grew from $40K in sales to $250M in sales over that period. Simmons Bedding Company: A 125 year old company, operating at a negative net income, was purchased by a PE group in 2003, who rolled out a plan to create a high performance culture. The company went from $500M in sales in 2001 to $800M in sales in 2005, while significantly increasing net income and significantly outperformed competitors. Why are these companies so different? Luck? Timing? No, they are so different because of the passion of the senior leadership around high performance, training, communications and they effectively implement their strategies. John Kaplan, a professor at Harvard recently reported that only
The Performance Management Conundrum cont’d Page 3 10% of strategies are effectively implemented. Every leader wants to be able to achieve these world class results and need guidance on how to do that. Besides expert guidance, they need tools. So, the real question is what new tools are available to increase the probability of successfully moving to a high performance culture and achieving the kind of returns shown above? There are many out there that claim to be able to do this. Type “performance management software” into Google and you will find over 100 companies who make this claim. Daunting at best: Success Factors, Halogen, Rypple, Work Day, 4DX and many others. I have been through all of them in detail and chose what I believe to be the most cost effective, easy to use system out there: Evaluate To Win. Jack Welch, the former CEO of GE and a minority investor in ETW, says, “This is the best performance management system I have ever seen”.
Published on Nov 12, 2012
An article on the financial benefits of performance management and the issues companies are faced with implementing a successful program.