What companies need to do to get the best out of their people.
A downturn is a time, we are told, when companies should starkly differentiate their performance management systems and make special efforts to groom and retain their top talent. One entrepreneur told us that he is especially on the lookout for high performers, because if he can get a person who can grow his business in bad times, he is “willing to hire the guy, no matter the cost”.
While there is truth in this adage, we have found that answers to performance management challenges are not so simple. The basic principles of performance management and the need to align employees to company and shareholder performance priorities remain unchanged, however, in times of uncertainty like the present, other challenges pose themselves. In many cases, setting goals is itself a dilemma, given the reduced visibility to how markets and customers are likely to behave. The importance of focusing on the “valued majority” as against the stars is also one that many companies grapple with and where there are no easy answers.
We believe that a considered approach to performance and career management in these situations requires focus on three aspects. First, a company will need to calibrate its goal-setting process to reflect uncertainty and assess performance relative to what the environment suggests and peers achieved. Second, it will need to refine its career management model and align employee progression to the changed business context. Third, it will need to see where current employees stand in this structure and what they can be encouraged to do to see the company through difficult times.
Goal setting
A key challenge faced by companies in times like the present is what goals to set. Set too high and you set people up to fail; set too low, and the company is being unfair to stakeholders and potential that could have been realised. Worse, you could end up rewarding sub-optimal performance. A company we worked with in a fast-growing sector handsomely rewarded its CEO for exceeding the growth targets of 40 per cent, while the industry itself grew at about double the pace (which was not possible to foresee when the goal had been set). The importance of setting goals that measure performance relative to peers is high in a time of uncertainty.
| THE PARAMETERS Performance measures
Performance measurement basis |
- TSR and change in annual net operating earning per share compared to the other companies in the S&P Insurance Index
Company
positioning
earnings
performance
factor
In a slowdown, however, it is important that companies narrow down the number of key initiatives. They need to do this for three reasons. First, it helps the company maintain focus in a tough environment. Second, it helps ensure that energies and resources are conserved for the most critical operations. Finally, it allows for greater control. As the number of priorities increase, the leadership’s abilities to track accomplishments and make appropriate changes slows.
Goal setting in uncertain times also requires a very agile performance management system which can change initiatives and targets quickly to manage flux. The key challenge, therefore, is not just to gain clarity on the few important priorities but to also have a system which can rapidly redeploy targets as circumstances change. Such a system can work through two mechanisms. The company should first ensure that the key result areas are tracked closely. Next, the company should provide for periodic reviews, including ad hoc reviews, to ensure quick changes.
Calibrating career progression
An issue of some contention is the basis on which companies provide career progression to their employees. At one end of the spectrum are companies that provide progression purely based on the role or the “chair” occupied, and they have measures to indicate how much a role is worth. At the other end of the spectrum are companies that link progression to some measure of individual capability, irrespective of the role played. While most organisations follow a hybrid of these two alternatives, there are factors that determine which end of the spectrum is more suited to different organisations, such as the nature of the business (whether it is people intensive or capital intensive), the replaceablity of skills and talent, the degree of customisation versus standardisation required in the business and the degree of predictability.
Capital-intensive businesses, for example, are more likely to look at role-based structures, as a key driver is to maximise asset efficiency through clearly defined tasks and responsibilities. Businesses with a high degree of standardisation and predictability probably require role-based structures whereas one that need a high degree of innovation as a competitive edge are more likely to favour progression based on increasing individual competence.
Mobilising all your resources
Research has consistently shown that the solid citizens are not necessarily less intelligent or less motivated than the high performers. Rather, they are more likely to have carved out relatively stable positions for themselves based on life choices or special skills that they may have. For instance, moving from a lone contributor to a manager requires using certain skills on a regular basis. Some may have chosen not to want to become managers, because they may not have seen themselves enjoying using these skills every day for the rest of their lives. They may have disliked having to hire and fire people, or the constant stress of targets. On the other hand, they may actually be good at building relationships across organisational boundaries, and creating a strong enabling environment for learning. They are often good reservoirs of organisational memory, and we have consistently put across the point of view that structured learning experiences are a great way to leverage people’s abilities in any time, including a slowdown. These abilities would help the company to work more seamlessly.
If a company figures that it may need to have a competency-based structure, which revolves around increasing proficiency in particular kinds of skills, then, in a downturn, all employees can be encouraged to acquire one higher degree of proficiency in their skill areas, as part of their goals. Again, while high performers may already be functioning at one level higher than others and may not necessarily need help in this regard, studies show that a good number of solid citizens are actually proficient in specialist skills and have chosen to follow a specialist career path than a generalist one. Their role in these times can be equally invaluable, as their knowledge can be put to direct use in teaching others. They thereby serve to lift the entire level at which the company can perform. A company that roots its career structures in an appropriate blend of roles and competencies can deploy its solid citizens accordingly.
Strong performance is a mysterious cocktail: some put it down to sheer talent, others to temperament and moderate ability, still others to motivation and persistence. Our experience is that we need to address all these possibilities holistically, to get the best out of people, in good times or bad.
Padmaja Alaganandan is India business leader, human capital, Mercer Consulting (India), and Gopal Nagpal principal with Mercer’s human capital division
