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Performance Management

Accounting 858 Seminar
by

Robert Foral

on 18 November 2014

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Transcript of Performance Management

Performance Management
Today's Seminar
Overview
Increased Interest
Benefits
Steps of Performance Management
Manager's Role in Performance Management
Measures of Performance
Case Study
Challenges
Final Thoughts
"The process of managing an organization's strategy through fully integrated systems of business improvement methodologies, metrics, processes, software tools and systems that manage the performance of an organization" (Gary Cokings)
Increased Interest
Failure to execute strategy
companies struggle to reach their goals
miss the right tools, principles and techniques

Unfulfilled return on investment
struggle to bring positive returns to investors

Escalation in accountability for results with consequences
pace of information/decisions requires more accountability
track performance by employees
THANK YOU!
Employees
Motivation

Satisfaction

Performance

Career Paths
Company
Goals alignment

Performance

Open communication

Retention
Managers
Reduced conflicts

Visible accountability

Cooperation

Efficieny
Types of Indicators
Balanced Scorecard Focus Areas
Financial Performance

Customer Value

Internal Business Process

Learning & Growth

Each area contains actions or goals that employees are expected to achieve
Break
Case Study
Coors Balanced Scorecard: A Decade of Experience

Third largest beer brewer in the U.S.

Case deals with the company in the late 1990s
Questions?
Literature
Balanced Scorecard
Conclusion
Valuable tool for any company

Needs to be implemented effectively

Helps to develop valuable human assets

Workers are accountable for their actions

Helpful for accounting
Challenges
Lagging Indicators: measures of performance that reflect results of a prior period

Leading Indicators: measures that inform the progress made on specific, current initiatives
Lagging Indicators
Based on historical data
Company examples are ROE, EPS, yearly sales, liquidity ratios
Economic examples are unemployment rate, change in GDP and CPI, interest rates
Advantage: easy to identify and calculate
Disadvantage: does not reflect current activities and thus, lacks predictive power
1780 - 1830
Today
1940-1980
3rd Century
China
Nine rank system

Authorities selected talented candidates

Workers were categorized based on their abilities

Bad ranking = dismissal from system
Industrial Revolution
Managers faced new challenges

Employee performance

Production output
Napoleonic Wars
360 Feedback

Officer ratings and recommendations

Review and Feedback by peers

Complaints about officers who didn't perform their duties
Philosophy
Peter Drucker
management by objective
process of defining objectives within organization

Douglas McGregor
employee motivation
Theory X and Theory Y

Emerged with Strategic Human Resource Management
new thinking to change and align employee participation and engagement
need for a more continuous concept

Today
Challenge to be successful in today's rapidly changing business environment

Tool is needed for organization to move as an unified alliance

Misunderstood concept in the business world

It's a process, not a system

Focused on monitoring individual employees

A lot of different expressions for it (BPM, IPM, EPM, etc.)
1803-1815
Leading Indicators
Mostly focus on customer value, internal business process, and learning and growth measures
Company examples: rate of new product development, number of new accounts/customers, and training and development cost
Economic examples: stock market, manufacturing activity, and number of new business start ups
Advantage: predictive and allows organizations to make adjustments to account for the future
Disadvantage: difficult to identify and capture,
can be a new measure with no historical data
to base results off of
Source: Paulson Gjerde, Kathy, and Susan Huges
P.I.s vs. K.P.I.s
Metrics: data produced by events that occur within the company
Performance Indicators: metrics that give an indication of the performance of a business unit or the organization as a whole
Key Performance Indicators: P.I.s that are valuable to the business and indicate if it is successful or at least on the path to success
K.P.I.s have the following attributes: measurable, have a current value as well as a desired target value, and have a time frame for when the target value must be reached
Source
: Metric, PIs, and KPIs
Financial Performance
Mostly lag measures
"Through the eyes of the owners of the business, how will they judge financial success?"
Examples of goals: maintain adequate return to shareholders, increase revenues by 5%, reduce operating costs by 2%
Examples of P.I.s: EPS, ROE, sales, operating expense ratio
Souce: Kaplan and Norton
Customer Value
Mix of lead and lag indicators
"Through the eyes of our customers, how will they judge the value of our products and services? How will we differentiate ourselves in the market?
Examples of goals: increase market share by 6%, produce higher quality products than the competition, achieve highest customer satisfaction within the industry
Examples of P.I.s: % of company product sales/total industry sales, average life of products compared
to competitors, % of return customers
Source: Kaplan and Norton
Steps
1. Plan

2. Monitor

3. Evaluate

4. Review
Study on PM
Danielle McDonald (1995)

Investigated 437 organizations over three years

205 implemented performance management
Results
Seminar
2014 Performance Management Seminars
The Conference Board
NY, New York
04 December, 2014
Workshop I: Reinventing Performance Management through Neuroscience

05 December, 2014
Workshop II: Performance Management: Best Practice for Optimal Business Results
Education
Wolfgang Jetter, Performance Management (2006)
Manager's Effect on PM
Companies invest in world-class systems, but forget the importance of the people element

Manager is key component, who gives the direction of the system

Study on how manager affects effectiveness of the performance management system
Study
Employee rate managers on how much managers:

1. helped employee feel empowered

2. recognized or praised employees' achievements

3. cared about their employees

4. had regular discussion with employees
Seventy percent of employees who gave their managers "best ratings" rated their performance management system as "very good"

In contrast, only 2% of employees who rated their managers "below average" gave their system a "very good" rating
Great Manager
Clearly communicated standards and what good performance looks like

Helped employees understand that performance management system was to aid in the employees development

Regularly communicated with their team members on performance expectation
Gallup, Performance Management (2012)
Steps
Plan
Setting performance expectations and goals for groups and individuals to channel their effort toward achieving organizational objectives

S.M.A.R.T.
Monitor
Constantly measuring performance and providing ongoing feedback to employees and work groups on their progress toward reaching their goals

Provides the opportunity to check on how the process is going and to identify and resolve any issues early

Effective coaching
direction, guidance, and support
maximize strengths and improve weaknesses
Evaluate
Evaluating employee performance against the elements and standards

Summarizing performance /assign a performance rating

Identify areas for improvement
Review/Reward
S.M.A.R.T.
Specific
Specifically define what is expected to do (depending on experience and personality)
What is employee expected to do?
Does the employee understand the goal?
Is it clear who is involved?
Is the outcome clear?
Measurable
Achievable
Goal needs to be achievable
Can the employee achieve the task at hand in the suggested time frame?
Are there any limitations that could get in the way?
Compare to other employee's goals
Relevant/Realistic
Can the goals be achieved with the available resources?
Does employee have the skill to finish the objectives?
If not, how can he/she be helped to obtain them?
Objective linked to other department to show how goal is aligned
Time
When does it need to be completed?
Is there a stated deadline?
When will the objective be accomplished?
Be able to measure if employee is meeting expectation
A method to measure the performance (quality, quantity, time or cost)
Can indicator demonstrate that employee successfully completed task?
Can these measurements be obtained?
Important to communicate the results with employee

Compare actual results to expected results

Recognition for positive results

Identify short-comes

New cycle begins
KPI Institute, Performance Management Review (2012)
Internal Business Process
Mostly lead measures
"How can internal processes be improved to improve product, program and service quality, timeliness, economics, and functionality?"
Examples of goals: improve manufacturing efficiency and create effective distribution networks
Examples of P.I.s: product defect rate, product cycle time, turnaround time
Learning and Growth
Mix of lag and lead measures
"How can our employees continually get smarter, innovate, and improve?"
Examples of goals: Retain employees, create more leaders within the company, and continuously implement new technology
Examples of P.I.s: employee turnover rate, training and development costs, IT department budget
Software Applications
Need for quick trade-off decision analysis
decisions have to be made at rapid pace
tool to make the right decision towards the goals of the company

Mistrust of the financial accounting system
allocation to different departments can lead to confusion
Increased Interest
Poor customer value management
struggle to keep customer happy

Dysfunctional supply chain
money is lost along the process
more difficulties with global companies

Broken budgeting process
hard to combine across departments
poor capacity planning
Increased Interest
Understanding the concept

World-wide acceptance
developed vs. non-developed

Generation Y

Intangible measurements

Tools improvement
Automates task of regularly evaluating employees
Easier for managers to track employee's goals and performance
Employees can use the programs to run self-evaluations
Questions
Link Coors' vision statement to the six planks/key business strategies described on page 4 and identify any shortcomings/gaps
List possible explanations for the performance gaps identified on the benchmarking analysis (page 5)
Identify 2-3 possible performance measures Coors' may use within the four areas of the balanced scorecard
FAQ questions: 4, 5, 12, 13, 14
Discussion
What are some important takeaways from the case?
What kind of challenges does performance management face?
Setting the Strategy
The most effective corporate strategy should focus on sustainability
Sustainability is composed of social, environmental, and financial performance
Focus needs to be on the long-term effects
Setting the Strategy
Only successful if top management incorporates sustainability into the company strategy
Lead by example
Overall employee satisfaction will be increased
Definition
Wrong Leader
Before anonymous feedback was included, everybody received good reviews

Boss is afraid to be honest

Review system
The Rescue
Transferred worker did not perform well

Struggled with identifying problem

Manager mentored
Alleviating Administrative Misery
Performance review process was mundane

Frustrating and time-consuming process

Implemented fitting system
The Developmental Breakthrough
Employee's manager gave harsh comments during performance review

Opened up new opportunities

Became future leader
Bad Apple
Difficulties hiring new workers

Worker experienced problems with women

Employee wasn't good fit
Overseen with Loving Grace
Firm valued group talent reviews

Senior executives want to retain talent

Identification of high and low performers
Successful Stories of PM
Full transcript