Steve Sherretta
October 28 2020
Performance Management
Enhancing Execution Through a Culture of Dialogue
Peter is Chief Executive Officer for a medical supply multinational that recently crafted a new strategy to counter competitive threats The plan stressed the need to cut cycle time concentrate sales on highermargin products and develop new markets
Four months after circulating the plan Peter did a walkaround to see how things were going He was appalled Everywhere Peter turned people departments—whole business units—simply didn’t get it
First surprise Engineering The group had cut product design time 30 meeting its goal to increase speedtomarket Good Then Peter asked how manufacturing would be affected It turned out the new design would take much more time to make Total cycle time actually increased Our strategic plan message is not really getting through Peter thought
Second surprise Sales The new strategy called for a shift—emphasize high margin sales rather that pushing product down the pipeline as fast as possible But just about every salesperson Peter spoke to was making transactional sales to highvolume customers hardly anyone was building relationships with the most profitable prospects Sales is doing just what it’s always done Peter thought
Worst surprise Even his top team the people who’d helped him craft the strategy was not sticking to plan Peter asked a team member Why are you spending all your time making sure the new machinery is working instead of developing new markets
Because my unit’s chief goal was to improve ontime delivery he answered
But what about company goals said Peter We came up with a good plan and communicated it very clearly But nowhere it isn’t being carried out Why
Many organizations create good strategies but only the best execute them effectively Fortune magazine estimates that when CEOs fail 70 of the time it’s because of bad execution
Why CEOs Fail by Ram Charan and Geoffrey Colvin Fortune magazine June 21 1999
Weak execution is pervasive in the business world but the reasons for it are largely misunderstood Why is it that no one in Peter’s organization was acting in sync with the strategy Unless we understand the reasons we can’t hope to solve the problem
Imagine someone hitting a tennis ball When the brain says hit the ball it doesn’t automatically happen The message travels through nerve pathways down the arm and crosses gaps between the nerve cells These gaps or synapses are potential breaks in the connection If neurotransmitters don’t carry the message across the gap the message never gets through or it gets distorted When that happens either the arm doesn’t move at all or it moves the wrong way
Creating a culture of dialogue
Just like a nervous system organizations also have gaps that block and distort messages The secret to effective strategy execution lies in crossing hierarchical and functional gaps with clear consistent messages that relay the strategy throughout the organization Sound simple It’s not The reason is that the neurotransmitters in organizations are human beings—executive team members senior managers middle managers and supervisors—whose job it is to make sure that people’s behavior is aligned with the overall strategy Doing what it takes to achieve alignment is very difficult It is what Ram Charan calls the heavy lifting of management and it’s the key to executing strategy
As we’ll see later there is an important difference between companies that successfully align behavior with strategy and those that do not Companies that effectively execute strategy create a culture of dialogue A culture of dialogue encourages pervasive twoway communications where individuals and groups 1) question challenge interpret and ultimately clarify strategic objectives and 2) engage in regular performance dialogue to monitor behavior and ensure it is aligned with strategy
Three keys to managing performance
A culture of dialogue doesn’t happen instantly any more than a fluid tennis stroke does It takes practice persistence and hard work So how exactly can leaders ensure that strategy messages go all the way down the line—that the tennis ball gets hit correctly The three keys to managing performance effectively are
1 Achieving radical clarity by decoding strategy at the top Many organizations think they send clear signals but don’t In some cases managers subordinate broad strategic goals to operational goals within their silos That’s what happened with Peter’s top team Elsewhere top team members often have too many top priorities—we’ve seen as many as 100 in one case—which results in mixed signals and blurred focus Strategy decode requires winnowing priorities down to a manageable number—as little as five
2 Setting up systems and processes to ensure clarity Once strategy is clear organizations must create processes to ensure that the right strategy messages cascade down the organization These include strategycentered budget and planning sessions staff and team meetings to discuss goals performance management meetings and talent review sessions Dialogue drives all these processes Each represents a transmitter opportunity where strategic messages are conveyed and behavior is aligned with goals
3 Aligning and differentiating rewards Leaders must make sure rewards encourage behaviors consistent with strategy which sounds easy but isn’t Differentiation is about making sure that stars get significantly more than poor performers But almost everywhere managers distribute rewards more or less evenly As we’ll see lack of effective performance dialogue is a key contributor to dysfunctional reward schemes
We list these three items separately but they are of course interconnected Systems and processes depend on clarity from the top Differentiation and alignment of rewards depend on managers using performance systems effectively Dialogue is the glue that holds it all together But not just any dialogue will do It must be dialogue with purpose focused on performance
Link to company valuation
Companies that manage performance well—General Electric comes to mind—have higher market valuations Why Because more and more institutional investors view strategy execution as a vital factor influencing stock prices
Just a few years ago institutional investors relied almost exclusively on financial measures for company valuations Now 35 of a market valuation is influenced by nonfinancial intangible factors according to a study by Ernst & Young Based on a study conducted by Sarah Mavrinac and Tony Siesfeld for the Ernst & Young Center for Business Innovation
The study showed that execution of corporate strategy and management credibility ranked number one and number two in importance to institutional investors out of 22 nonfinancial measures John Inch a managing director and analyst at Bear Stearns notes that in some sectors such as diversified industrial companies intangibles account for even more—up to half a company’s value You can take even a mundane asset and inject good management and have something pretty strong says Inch
1 Achieve Radical Clarity by decoding strategy at the top
The first step in successfully executing strategy is achieving clarity on the top team which is frequently the source of garbled signals
Lack of Clarity at the Top
A recent Hay Group study Hay Group partnered with Richard Hackman of Harvard University and Ruth Wageman of Dartmouth College to identify the dynamics of top executive teams and their impact on performance From an initial group of 48 teams the researchers narrowed their study to 14 teams many from large global organizations Each team member represented the head of an organization a major business division or a major geography
shows a disturbing lack of clarity on top teams (organizational clarity measures the extent to which employees understand what is expected of them and how those expectations connect with the organization’s larger goals) The chart below shows dramatically higher levels of clarity on outstanding vs average teams In fact the biggest single difference between great and average top teams and typical ones was in the level of internal clarity See Figure 1
Figure 1 Organizational Climate and Teams
58
18
Figure 1 Measures organizational climate dimensions for outstanding top teams vs typical ones For each dimension of climate we asked how the team was performing in reality and how it should be performing Then we measured the difference or gap in their answers Gaps over 20 hurt performance The clarity gap for typical teams was 58 compared with 18 on outstanding teams
[Change HayMcBer to Source Hay Group Inc in final version]
And a Lack of Clarity Below
Workers at lower levels strongly feel this lack of clarity Figure 2 looks at satisfaction levels for workers planning to leave their organizations within two years versus those planning to stay longer This study showed that a key reason people leave their jobs is that they feel their companies lack direction Even among employees planning to stay more than two years at their companies only 57 felt their organizations had a clear sense of direction
Figure 2 Key reasons why employees leave their companies
Total Satisfied Source Hay Group Inc The results are from our Employee Attitude Survey which sampled some 300 companies representing more than 1 million workers Our survey queried management professionals salespeople information technologists and clerical and hourly workers The gap referred to in the table is the satisfaction gap between workers planning to leave within two years and those planning to stay longer
Satisfaction with
Employees planning to stay more than two years ()
Employees planning to leave in less than two years ()
GAP
()
1 Use of my skills and abilities
83
49
34
2 Ability of top management
74
41
33
3 Company has clear sense of direction
57
27
30
[NOTE HIGHLIGHT SECTION 3 MAKE IT POP GRAPHICALLY]
Clarity matters
Why do employees crave clarity Think about it What could be more demoralizing than the realization that your hard work is not contributing to overall company goals Employees want to do the right thing but they can only do so if they know what the right things are
Unfortunately as we saw in our opening vignette companies often don’t communicate strategic goals effectively An oil refinery client for example set a strategic goal to cut costs To see how well the message had gotten through an operations team leader held a strategy decode session where he quizzed his team members on what they felt was the chief priority Ten team members produced four different top objectives including costcutting safety environmental compliance and reducing sales processing time The message hadn’t got through The team leader called his team together and created a transmitter opportunity
Don’t you guys realize that if we can’t cut our refining costs by three cents a gallon they’re going to shut us down he said
Is that all you need us to do replied the team members taken aback United by a clear direction and shared ownership of the cause team members enthusiastically cut costs by five cents per gallon over the following year while continuing to maintain good safety and environmental records
Narrowing priorities
Having too many priorities can lead to lack of clarity AeroMexico for example had worked with a strategy consulting firm that delivered a 249page report listing key performance indicators (KPIs) for measuring progress by the enterprise The good news was that the KPIs gave the top team metrics for measuring success The bad news was that there were 100 of them and they weren’t prioritized
It was clear that execution would suffer unless we identified the most important ones says AeroMexico CEO Arturo Barahona So we discussed which ones connected most directly with our strategic priorities and where we were in the business cycle and each team member settled on five chief goals By gaining clarity on key objectives the team greatly increased the odds that signals would transmit clearly down the line
Getting buyin at the top
Hay research on teams has shown that it’s not uncommon for team members to nod their heads in agreement when new strategies are set in meetings then go back to their division or department and carry on exactly as they had before In effect they end up sabotaging the plan That’s why gaining buyin is essential to effective execution and dialogue is what makes it happen
IBM created an executive team consisting of six PhDlevel technical leaders at an applied research unit Their mission build strong relationships with top research universities so that IBM could recruit innovative scientists capable of developing breakthrough products The problem was that the PhDs all worldclass scientists were used to competing for research dollars and dismissing each other＇s ideas to advance their own Getting them to work jointly and be held accountable for business results was going to be very difficult
In the first group meeting the vice president simply assigned accountabilities to the various team members I could see the scientists digging in their heels says Harris Ginsberg an internal leadership consultant who attended the meeting No one was going to dictate to them what they should do Even if they＇d said yes to the VP＇s directives adds Ginsberg they would never have followed through
Ginsberg who helps IBM business units clarify and execute strategy knew the key was to get the scientists talking to each other So he coached the vice president to change her behaviors Rather than hand out directives he suggested ways she could stimulate team dialogue about how to meet objectives Ginsberg also counseled other team members about the need for a consensus process on an interdependent team
They all got it At the next meeting the VP said Our mandate is to create breakthrough products Without access to talent at the top universities we won＇t succeed How are we going to get it At first Ginsberg recalls she met silence Finally one team member raised her hand She was willing to get out there to the universities and be more visible go out with the recruiter and the senior human resources people said Ginsberg She also agreed to help some upandcoming scientists learn how to develop relationships with universities
A second team member said he would help her make some calls The ice was
broken and all the team members eventually took on group responsibilities It
was all about dialogue says Ginsberg Until the individual leaders embraced the unifying elements of the strategy for the good of the enterprise they only attended to their own mission The dialogue helped them buyin agree to some shared activities and begin to work more collaboratively
2 Set up systems and processes to create clarity
Why is executing strategy so difficult even when the plan is clear Because good execution only happens when employee behavior is aligned with strategy And many managers can’t won’t or don’t create the transmitter opportunities required to get people to do the right things Managers
can’t because they don’t know how to talk with their subordinates about change andor poor performance won’t because they find it uncomfortable to give candid feedback or simply don’t realize that successful strategy execution will never happen without ongoing performance dialogue
Part of the solution to this problem is creating systems and processes that force performance dialogue General Dynamics Defense Systems (GDDS) in Pittsfield MA is one company where creating such systems has contributed to dramatic results From 1999 to 2001 attrition among its valued software engineers dropped from 20 percent to 24 percent Union grievances dropped from 57 to zero saving hundreds of thousands of dollars And best of all earnings and profit margins doubled
What GDDS did
In 1999 the 200 million plus defense contractor challenged its employees to improve the company’s negotiating leverage on bids and thereby increase margins and profitability To accomplish this goal senior management directed all departments to chase out costs and created numerous processes to transmit the costcutting strategy down the managerial ranks right to the shop floor which is where they felt many of the best costcutting ideas would come from
Carmen Simonelli director of facilities and security says his department’s goal was to push labor costs 5 percent below budget with a stretch goal of 6 percent That was ambitious given that direct applied labor costs had been running 1015 percent over budget But Simonelli’s team slashed applied labor hours to an unthinkable 20 percent below budget Annual savings amounted to about 440000 on a 2 million budget or nearly 10000 per worker
How did they do it The key Simonelli says was the processes the company put in place to enhance dialogue and carry the message to the shop floor For example
The Learning Map
The company made it easy for employees to understand its broad goals by creating a learning map which graphically outlined how each department and team linked directly to core objectives All employees saw at a glance how their jobs fit in Supervisors and assemblers in Simonelli’s group for example could readily see that by reducing applied labor hours in a project GDDS could increase margins shorten delivery schedules and raise the chances for winning new contracts
The Scorecard
Managers and direct reports at GDDS meet one on one to create Scorecards which set out five to seven personal annual goals For example the goals for shipping and receiving supervisor Tom Molleurs included plans to capture all incentive payments for early delivery and to cut direct costs 5 Once a manager and subordinate reach agreement goals they both sign the Scorecard as if it were a contract From the worker’s perspective this was a dramatic shift says Newell Tom Skinner at the time director of product delivery In the past we just set the goals and beat up employees to try to make them but they probably didn’t even know why we had that goal in the first place
Scorecards are transmitter opportunities that clarify expectations and link daytoday activity to company goals And they work Molleur’s group ended up cutting direct costs by 50 percent—not just 5 percent What was the key thing that made it happen Molleurs points to his weekly progress meetings When they were behind schedule Molleurs used the meetings to make sure the workers understood through the Learning Map and Scorecards and other processes how meeting or beating delivery schedules could increase competitiveness and win more contracts
Top management did simple things to make sure strategy messages were getting through For example the president held monthly pizza meetings with everyone whose birthday fell that month At these transmitter opportunities he would ask attendees people to list their top three goals and their boss’ top three goals Within months everyone could answer the questions
When effective dialogue pushes strategic imperatives downward in an organization extraordinary things happen Skinner extended an open invitation to any employee who wanted to attend his weekly budget meeting with his supervisors One day an assembler showed up and said a part design was forcing assemblers to work by hand with dozens of tiny screws lock washers and nuts Skinner had the assembler meet with process control engineers for a redesign The result a job that had taken 12 hours was cut to four The best ideas come from the people doing the job says Skinner Once the conversation got started it took on momentum Soon people were coming into Skinner’s office without waiting for the weekly to discuss misalignment of strategy and behavior Workers themselves were creating transmitter opportunities
It’s about behavior change
The processes GDDS installed forced performance dialogue and ultimately changed behaviors The message got through But like a tennis stroke it didn’t happen quickly or automatically It took coaching and practice
Sometimes you have to get it wrong then make corrections through feedback and dialogue before you get it right One North American insurance company embarked on a new strategy to expand sales with existing customers The president created nine core value statements and broadcast the ideas repeatedly organizationwide Soon every manager could recite them by heart Employees even had cards with the corevalue statements right at their desks
The message however wasn’t sinking in An outside consultant saw one of the value statements on an underwriter’s desk that read Never knowingly undersell a customer But the consultant listened to several of her calls and realized that she consistently failed to explore customer needs or try to upsell The company had told her what to do but didn’t follow through with the necessary rationale and appeals that would result in behavior change says the consultant As a result her behavior was out of sync with the company strategy
So the insurer put together a training session and coached its underwriters on ways to explore customer needs and broaden the sale When the consultant visited the same underwriter a few months later he noted that she was sending birthday cards to customers and calling during the year—not just at renewal time—to identify unfulfilled customer needs It was only after repeated dialogue including feedback and coaching that the underwriter’s behavior aligned with company goals explains the consultant
Figure 3 The coaching style on top teams
[EDITOR’S NOTE Vertical or Y axis needs to be labeled as Percent indicating
Cutline Teams that rely on a coaching managerial style get better performance— percentage of team members who observed the team leader using a coaching managerial style
Creating opportunities to transmit strategy down
Organizations committed to executing strategy devise innovative ways to make connections and circulate key messages AlbertoCulver North America the 600 million division of a 25 billion company whose profits tripled in 19942000 chose 70 growth development leaders (GDLs) from all levels of the company to create clarity about strategy
One strategic goal was to recruit better talent The GDLs moved through the organization to see what people were actually doing to meet the recruitment objectives They found serious disalignment between goals and behaviors says Jim Chickarello group vice president of worldwide operations and one of the GDLs For example when job candidates came in for interviews nobody gave them a basic overview of the business Sometimes candidates would be left standing around because handoffs between various interviewers were poorly coordinated And no one had consolidated interviewer evaluations so there was no central location where AlbertoCulver managers seeking new people could get a snapshot of all candidates the company had interviewed
The top team and the GDLs devised a plan and created simple systems to carry it out For example they created forms outlining an agenda for candidates that specified where handoffs took place No more waiting around The GDLs developed takehome materials so that every candidate now gets a thorough company overview Finally the group created interviewerreport forms that must be sent to the manager who might ultimately work with the candidate As a result Chickarello says the company slashed its openjob rate in half from 10 percent to 5 percent
Hand’soff management means not being onmessage
For years experts have emphasized the importance of dialogue in performance management But too many managers avoid it One veteran says annual performance appraisals are like delivering a newspaper to a house with a growling dog You throw the paper on the porch and get away as fast as possible
Managers don’t want to deal with confrontation says Charlotte Merrell senior vice president for Bostonbased Jack Morton Company a leader in event marketing Even when employees are not doing the right things they’re usually working hard Managers are concerned they might demoralize the employee or cause them to leave
In fact the exact opposite is true Employees get demoralized when they don’t get candid performance feedback When it comes to annual performance reviews the issue is not what goes unsaid on the day of the review but what goes unsaid the other 259 working days of the year Ironically with the right kind of performancebased dialogue managers could eliminate the onerous annual performance review altogether In a true culture of dialogue feedback is given candidly and consistently in small doses—like an IV—and the annual review becomes a nonevent
Don’t overlook the people factor
In sum strong execution occurs when top management creates performance management systems and process (transmitter opportunities) and ensures that line managers are trained to use them Companies often do a good job with the former but underestimate the importance of the latter Many managers got where they are through intellectual and technical abilities—not through their people skills—and need help to become effective performance managers In particular they need the skills to help make those tough performance review sessions go more smoothly But the good news according to Linda Johnston vice president for human resources at Berkshire Bank in Massachusetts is that performance coaching is not rocket science With practice most managers can become quite adept at it (See sidebar on page xx for advice on what managers need to do to deliver performance messages effectively)
3 Making rewards count
Strategy and execution signals get distorted when top teams lack clarity and when managers lack—or don’t use correctly—systems and processes to force performance dialogue Wrongheaded reward policies complete the triplewhammy that cripples strategy execution
Aligning Rewards With Strategy
It sounds obvious that rewards have to be aligned with strategy In fact the idea that a company would reward behavior that’s out of sync with the company strategy seems ludicrous But it happens all the time The reason is that creating reward systems is complex and the critical importance of reward which is just one piece of the strategic equation is often overlooked
A health care insurance company for instance wanted to improve customer service so it invested heavily in a program to train customer service representatives The reps learned better voice technique interviewing skills to ferret out customer needs and upselling skills But the company kept the same reward system as before basing incentive pay on the number of calls completed When management got its first set of customer satisfaction surveys they were bleak reading Customer widely agreed that although the staff was courteous it was remarkably unhelpful in resolving problems Why Because as one reps put it If we spend more than four minutes on a call we would never get our bonus The strategy required that reps engage in longer more indepth conversations with customers But as the rep pointed out the dysfunctional reward system punished reps for doing so
Before AeroMexico had clarified its strategy it had a reward scheme that unintentionally rewarded the wrong behavior Pilots got merit pay based on ontime arrival records This incentive helped give AeroMexico the best ontime record of any airline in North America But this good outcome came with unintended consequences Pilots sometimes left the gate before scheduled departure times to ensure their bonuses leaving passengers stranded and angry AeroMexico later changed the key goal to overall customer satisfaction with ontime arrival as just one component Continual dialogue prevents such missteps
Differentiating rewards
Standard management theory says highperforming workers should get higher rewards than average or belowaverage workers But at many companies it rarely works that way Figure 4 shows the narrow difference separating the merit pay of highperformers—stars—from the average in a Hay survey of 75 US companies
Figure 4 Average Merit Increases 2001 Source Hay Compensation Report involving some 75 companies in the US
2001
Increase to highest performers (Stars)
607
Average Increase
410
Difference
197
(Cutline Despite all the talk about the importance of differentitation in recent years organizations still do not differente salary increases very much
A Hay Employee Attitude survey shows the tragic consequences of failing to differentiate rewards In surveys conducted at 335 companies worldwide only 35 of employees said they believed they’d earn more if they improved their performance
Figure 5 If my performance improves I will receive better compensation
[EDITOR’S NOTE Vertical or Y access needs to be labeled as Percent indicating Series 1 and Series 2 must be removed Also scale needs to be 1100]
Topperforming companies believe that welldifferentiated rewards—even forced ranking of employees—leads to better strategy execution Former GE CEO Jack Welch for example says in his memoir that top performers—The As (the top 20)—should be getting raises that are two to three times the size given to the Bs Bs should get solid increases recognizing their contributions every year Cs (the bottom 10) must get nothing
Welch makes it sound so easy Of course it’s not Without a culture of dialogue and managers willing to do the required heavy lifting effective reward policies and eventually great execution will never happen At many organizations we find managers who want to give stars bigger increases But they see rewards as a zerosum game Increasing one group means cutting another Which means making tough choices Over and over leaders give the same reason why these tough choices don’t get made managers avoid conflict in those tough annual performancereview conversations They haven’t had ongoing performance dialogue with their people during the year and workers assume that their performance—even when below par—is good enough At yearend rather than confront poor performers with the bad news many managers choose the path of least resistance speeding through performance reviews and spreading merit pay out almost evenly—like peanut butter as one manager put it
Managers at John Hancock Financial Services Inc had precisely this problem Our culture six years ago was accepting of being nice to everyone and not wanting to deliver bad news to anybody says Page Palmer senior vice president for human resources
A new CEO came in and championed a highly differentiated pay plan Under the new system there is no limit on what stars could earn in merit increases (though above 20 would be rare) and poor performers got nothing Palmer says that among managers who had to make decisions on merit increases this change required a willingness to tolerate discord and those who had difficulty with performanceoriented conversations got coaching to improve their skills Now Palmer says Hancock usually has some spike in turnover around bonus time when disappointed poor performers leave voluntarily But that kind of turnover is good for organizations It certainly was at Hancock Palmer says the company’s performancebased reward system helped the company’s stock price double two years after going public
Figure 6 Is poor performance tolerated at your company
A lessthanaverage performance often gets an average reward Nearly a third of workers surveyed agree that poor performance is tolerated
Percent agreeing that poor performance is not tolerated
[EDITOR’S NOTE Vertical or Y access needs to be labeled as Percent indicating Series 1 and Series 2 must be removed]
Find new ways to differentiate merit pay
Sometimes there is little or no money available for merit pay increases Reward really is a zero sum game But organizations must find creative ways to link rewards to behaviors that bring better execution For example they might offer high performers extra training and development opportunities or clearer lines to promotions Take the case of two sales managers Both hit their stretch goals of 10 million in sales but only one hit her staff development goals Each should get her bonus of course But the one who developed staff might also get special training opportunities
The Arbella Insurance Group a 600 million regional company based in Massachusetts took another approach Management believed that its reward system had become too paternalistic and not very motivating says Rochelle Powers assistant vice president for information systems Under the old system anyone with a year’s service and no infractions was virtually guaranteed the average 45 increase Outstanding performers might get an extra half percent
But then managers decided to pay for performance instead of time on the job says Powers So the company reduced the average increase to 35—enough to keep up with the cost of living and maintain competitiveness The other one percentage point (45 less the 35 paid to most good workers) went to the top 25 of performers That allowed superior performers to get 715 increases In the end the overall pot remained the same But the best performers got more of it
Conclusion
Dialogue is at the center of effective performance management It enables managers to cross the synapses in organizations where messages get blocked or distorted As we saw in our opening vignette in Peter’s organization strategy messages failed to cross both hierarchical and functional gaps Performance dialogue was missing from the equation The result was a complete disconnect between the strategy and the behaviors of those entrusted with executing it Not to mention extreme frustration for the CEO
Poor strategy execution is a problem shared by many organizations today When companies get it right—when they align behaviors with strategy through effective performance management —research shows that they increase revenues shareholder value interest from institutional investors and employee satisfaction The good news is that poor strategy execution is fixable And it must be fixed
[SIDEBAR]
Four Keys to Delivering
Effective Performance Feedback
1 Put the individual first People who feel forced to defend their self esteem are less receptive—messages do not get through so well Create a safe atmosphere Managers should build trust be empathetic and lead with the positive How managers say what they say is actually more important than what they say The wrong tone can distort the content of the message
This I asked Joan for feedback regarding your presentation skills She said you were very well prepared and extremely professional but that your style was a little formal for that particular audience Let’s set up a meeting with Joan so we can work on this
Not this I thought you had better presentation skills Joan’s feedback was that there was something about you that makes clients uncomfortable
2 Aim for selfevaluation When managers create ongoing dialogue yearround people will already know where their performance lapses are and will almost always raise them themselves That means no surprises no feelings that the manager is being critical which generally raises defensive behavior
This (Immediately after the event) This was the first time you represented the department at the Executive Committee meeting I noticed that you weren’t very comfortable with the more technical aspects Tell me why
Not this (Six months later and in response to a question) The reason you haven’t been asked to represent the department again is that you lack the technical expertise to win credibility
3 Tolerate discord but be specific Creating a safe atmosphere does not mean avoiding disagreement Just don’t let it get personal That causes people either to shut down or push back inappropriately Focus on specific behaviors and their consequences The point of performanceoriented dialogue is to reset direction not to point out inadequacies
This You used a bit of jargon in your presentations You said that we provide hosted collaboration software to connect businesses requiring projectbased resources Do you remember John Smith didn’t appear to understand Did you notice how he behaved for the rest of the presentation
Not this You know you really turned everybody off when you started to use jargon in that presentation
4 Set objectives make accountability explicit and reinforce Ongoing dialogue including performance reviews (though not yearend appraisals) should be about the future not the past Find what is working and what is not and apply the lessons learned Workers should come away knowing how behaviors need to be adjusted what they should do next time The best dialogue also will set specific objectives and followup dates for monitoring progress In other words the end result is a decision
This So we’ve agreed that you’ll spend more time developing the graphics for the next presentation to give them the same impact you create with your text slides Let’s meet two days before so we can discuss them before you go live
Not this (Immediately before the presentation) I hope your graphics are better this time than last time
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Steve Sherretta
October 28 2020
Performance Management
Enhancing Execution Through a Culture of Dialogue
Peter is Chief Executive Officer for a medical supply multinational that recently crafted a new strategy to counter competitive threats The plan stressed the need to cut cycle time concentrate sales on highermargin products and develop new markets
Four months after circulating the plan Peter did a walkaround to see how things were going He was appalled Everywhere Peter turned people departments—whole business units—simply didn’t get it
First surprise Engineering The group had cut product design time 30 meeting its goal to increase speedtomarket Good Then Peter asked how manufacturing would be affected It turned out the new design would take much more time to make Total cycle time actually increased Our strategic plan message is not really getting through Peter thought
Second surprise Sales The new strategy called for a shift—emphasize high margin sales rather that pushing product down the pipeline as fast as possible But just about every salesperson Peter spoke to was making transactional sales to highvolume customers hardly anyone was building relationships with the most profitable prospects Sales is doing just what it’s always done Peter thought
Worst surprise Even his top team the people who’d helped him craft the strategy was not sticking to plan Peter asked a team member Why are you spending all your time making sure the new machinery is working instead of developing new markets
Because my unit’s chief goal was to improve ontime delivery he answered
But what about company goals said Peter We came up with a good plan and communicated it very clearly But nowhere it isn’t being carried out Why
Many organizations create good strategies but only the best execute them effectively Fortune magazine estimates that when CEOs fail 70 of the time it’s because of bad execution
Why CEOs Fail by Ram Charan and Geoffrey Colvin Fortune magazine June 21 1999
Weak execution is pervasive in the business world but the reasons for it are largely misunderstood Why is it that no one in Peter’s organization was acting in sync with the strategy Unless we understand the reasons we can’t hope to solve the problem
Imagine someone hitting a tennis ball When the brain says hit the ball it doesn’t automatically happen The message travels through nerve pathways down the arm and crosses gaps between the nerve cells These gaps or synapses are potential breaks in the connection If neurotransmitters don’t carry the message across the gap the message never gets through or it gets distorted When that happens either the arm doesn’t move at all or it moves the wrong way
Creating a culture of dialogue
Just like a nervous system organizations also have gaps that block and distort messages The secret to effective strategy execution lies in crossing hierarchical and functional gaps with clear consistent messages that relay the strategy throughout the organization Sound simple It’s not The reason is that the neurotransmitters in organizations are human beings—executive team members senior managers middle managers and supervisors—whose job it is to make sure that people’s behavior is aligned with the overall strategy Doing what it takes to achieve alignment is very difficult It is what Ram Charan calls the heavy lifting of management and it’s the key to executing strategy
As we’ll see later there is an important difference between companies that successfully align behavior with strategy and those that do not Companies that effectively execute strategy create a culture of dialogue A culture of dialogue encourages pervasive twoway communications where individuals and groups 1) question challenge interpret and ultimately clarify strategic objectives and 2) engage in regular performance dialogue to monitor behavior and ensure it is aligned with strategy
Three keys to managing performance
A culture of dialogue doesn’t happen instantly any more than a fluid tennis stroke does It takes practice persistence and hard work So how exactly can leaders ensure that strategy messages go all the way down the line—that the tennis ball gets hit correctly The three keys to managing performance effectively are
1 Achieving radical clarity by decoding strategy at the top Many organizations think they send clear signals but don’t In some cases managers subordinate broad strategic goals to operational goals within their silos That’s what happened with Peter’s top team Elsewhere top team members often have too many top priorities—we’ve seen as many as 100 in one case—which results in mixed signals and blurred focus Strategy decode requires winnowing priorities down to a manageable number—as little as five
2 Setting up systems and processes to ensure clarity Once strategy is clear organizations must create processes to ensure that the right strategy messages cascade down the organization These include strategycentered budget and planning sessions staff and team meetings to discuss goals performance management meetings and talent review sessions Dialogue drives all these processes Each represents a transmitter opportunity where strategic messages are conveyed and behavior is aligned with goals
3 Aligning and differentiating rewards Leaders must make sure rewards encourage behaviors consistent with strategy which sounds easy but isn’t Differentiation is about making sure that stars get significantly more than poor performers But almost everywhere managers distribute rewards more or less evenly As we’ll see lack of effective performance dialogue is a key contributor to dysfunctional reward schemes
We list these three items separately but they are of course interconnected Systems and processes depend on clarity from the top Differentiation and alignment of rewards depend on managers using performance systems effectively Dialogue is the glue that holds it all together But not just any dialogue will do It must be dialogue with purpose focused on performance
Link to company valuation
Companies that manage performance well—General Electric comes to mind—have higher market valuations Why Because more and more institutional investors view strategy execution as a vital factor influencing stock prices
Just a few years ago institutional investors relied almost exclusively on financial measures for company valuations Now 35 of a market valuation is influenced by nonfinancial intangible factors according to a study by Ernst & Young Based on a study conducted by Sarah Mavrinac and Tony Siesfeld for the Ernst & Young Center for Business Innovation
The study showed that execution of corporate strategy and management credibility ranked number one and number two in importance to institutional investors out of 22 nonfinancial measures John Inch a managing director and analyst at Bear Stearns notes that in some sectors such as diversified industrial companies intangibles account for even more—up to half a company’s value You can take even a mundane asset and inject good management and have something pretty strong says Inch
1 Achieve Radical Clarity by decoding strategy at the top
The first step in successfully executing strategy is achieving clarity on the top team which is frequently the source of garbled signals
Lack of Clarity at the Top
A recent Hay Group study Hay Group partnered with Richard Hackman of Harvard University and Ruth Wageman of Dartmouth College to identify the dynamics of top executive teams and their impact on performance From an initial group of 48 teams the researchers narrowed their study to 14 teams many from large global organizations Each team member represented the head of an organization a major business division or a major geography
shows a disturbing lack of clarity on top teams (organizational clarity measures the extent to which employees understand what is expected of them and how those expectations connect with the organization’s larger goals) The chart below shows dramatically higher levels of clarity on outstanding vs average teams In fact the biggest single difference between great and average top teams and typical ones was in the level of internal clarity See Figure 1
Figure 1 Organizational Climate and Teams
58
18
Figure 1 Measures organizational climate dimensions for outstanding top teams vs typical ones For each dimension of climate we asked how the team was performing in reality and how it should be performing Then we measured the difference or gap in their answers Gaps over 20 hurt performance The clarity gap for typical teams was 58 compared with 18 on outstanding teams
[Change HayMcBer to Source Hay Group Inc in final version]
And a Lack of Clarity Below
Workers at lower levels strongly feel this lack of clarity Figure 2 looks at satisfaction levels for workers planning to leave their organizations within two years versus those planning to stay longer This study showed that a key reason people leave their jobs is that they feel their companies lack direction Even among employees planning to stay more than two years at their companies only 57 felt their organizations had a clear sense of direction
Figure 2 Key reasons why employees leave their companies
Total Satisfied Source Hay Group Inc The results are from our Employee Attitude Survey which sampled some 300 companies representing more than 1 million workers Our survey queried management professionals salespeople information technologists and clerical and hourly workers The gap referred to in the table is the satisfaction gap between workers planning to leave within two years and those planning to stay longer
Satisfaction with
Employees planning to stay more than two years ()
Employees planning to leave in less than two years ()
GAP
()
1 Use of my skills and abilities
83
49
34
2 Ability of top management
74
41
33
3 Company has clear sense of direction
57
27
30
[NOTE HIGHLIGHT SECTION 3 MAKE IT POP GRAPHICALLY]
Clarity matters
Why do employees crave clarity Think about it What could be more demoralizing than the realization that your hard work is not contributing to overall company goals Employees want to do the right thing but they can only do so if they know what the right things are
Unfortunately as we saw in our opening vignette companies often don’t communicate strategic goals effectively An oil refinery client for example set a strategic goal to cut costs To see how well the message had gotten through an operations team leader held a strategy decode session where he quizzed his team members on what they felt was the chief priority Ten team members produced four different top objectives including costcutting safety environmental compliance and reducing sales processing time The message hadn’t got through The team leader called his team together and created a transmitter opportunity
Don’t you guys realize that if we can’t cut our refining costs by three cents a gallon they’re going to shut us down he said
Is that all you need us to do replied the team members taken aback United by a clear direction and shared ownership of the cause team members enthusiastically cut costs by five cents per gallon over the following year while continuing to maintain good safety and environmental records
Narrowing priorities
Having too many priorities can lead to lack of clarity AeroMexico for example had worked with a strategy consulting firm that delivered a 249page report listing key performance indicators (KPIs) for measuring progress by the enterprise The good news was that the KPIs gave the top team metrics for measuring success The bad news was that there were 100 of them and they weren’t prioritized
It was clear that execution would suffer unless we identified the most important ones says AeroMexico CEO Arturo Barahona So we discussed which ones connected most directly with our strategic priorities and where we were in the business cycle and each team member settled on five chief goals By gaining clarity on key objectives the team greatly increased the odds that signals would transmit clearly down the line
Getting buyin at the top
Hay research on teams has shown that it’s not uncommon for team members to nod their heads in agreement when new strategies are set in meetings then go back to their division or department and carry on exactly as they had before In effect they end up sabotaging the plan That’s why gaining buyin is essential to effective execution and dialogue is what makes it happen
IBM created an executive team consisting of six PhDlevel technical leaders at an applied research unit Their mission build strong relationships with top research universities so that IBM could recruit innovative scientists capable of developing breakthrough products The problem was that the PhDs all worldclass scientists were used to competing for research dollars and dismissing each other＇s ideas to advance their own Getting them to work jointly and be held accountable for business results was going to be very difficult
In the first group meeting the vice president simply assigned accountabilities to the various team members I could see the scientists digging in their heels says Harris Ginsberg an internal leadership consultant who attended the meeting No one was going to dictate to them what they should do Even if they＇d said yes to the VP＇s directives adds Ginsberg they would never have followed through
Ginsberg who helps IBM business units clarify and execute strategy knew the key was to get the scientists talking to each other So he coached the vice president to change her behaviors Rather than hand out directives he suggested ways she could stimulate team dialogue about how to meet objectives Ginsberg also counseled other team members about the need for a consensus process on an interdependent team
They all got it At the next meeting the VP said Our mandate is to create breakthrough products Without access to talent at the top universities we won＇t succeed How are we going to get it At first Ginsberg recalls she met silence Finally one team member raised her hand She was willing to get out there to the universities and be more visible go out with the recruiter and the senior human resources people said Ginsberg She also agreed to help some upandcoming scientists learn how to develop relationships with universities
A second team member said he would help her make some calls The ice was
broken and all the team members eventually took on group responsibilities It
was all about dialogue says Ginsberg Until the individual leaders embraced the unifying elements of the strategy for the good of the enterprise they only attended to their own mission The dialogue helped them buyin agree to some shared activities and begin to work more collaboratively
2 Set up systems and processes to create clarity
Why is executing strategy so difficult even when the plan is clear Because good execution only happens when employee behavior is aligned with strategy And many managers can’t won’t or don’t create the transmitter opportunities required to get people to do the right things Managers
can’t because they don’t know how to talk with their subordinates about change andor poor performance won’t because they find it uncomfortable to give candid feedback or simply don’t realize that successful strategy execution will never happen without ongoing performance dialogue
Part of the solution to this problem is creating systems and processes that force performance dialogue General Dynamics Defense Systems (GDDS) in Pittsfield MA is one company where creating such systems has contributed to dramatic results From 1999 to 2001 attrition among its valued software engineers dropped from 20 percent to 24 percent Union grievances dropped from 57 to zero saving hundreds of thousands of dollars And best of all earnings and profit margins doubled
What GDDS did
In 1999 the 200 million plus defense contractor challenged its employees to improve the company’s negotiating leverage on bids and thereby increase margins and profitability To accomplish this goal senior management directed all departments to chase out costs and created numerous processes to transmit the costcutting strategy down the managerial ranks right to the shop floor which is where they felt many of the best costcutting ideas would come from
Carmen Simonelli director of facilities and security says his department’s goal was to push labor costs 5 percent below budget with a stretch goal of 6 percent That was ambitious given that direct applied labor costs had been running 1015 percent over budget But Simonelli’s team slashed applied labor hours to an unthinkable 20 percent below budget Annual savings amounted to about 440000 on a 2 million budget or nearly 10000 per worker
How did they do it The key Simonelli says was the processes the company put in place to enhance dialogue and carry the message to the shop floor For example
The Learning Map
The company made it easy for employees to understand its broad goals by creating a learning map which graphically outlined how each department and team linked directly to core objectives All employees saw at a glance how their jobs fit in Supervisors and assemblers in Simonelli’s group for example could readily see that by reducing applied labor hours in a project GDDS could increase margins shorten delivery schedules and raise the chances for winning new contracts
The Scorecard
Managers and direct reports at GDDS meet one on one to create Scorecards which set out five to seven personal annual goals For example the goals for shipping and receiving supervisor Tom Molleurs included plans to capture all incentive payments for early delivery and to cut direct costs 5 Once a manager and subordinate reach agreement goals they both sign the Scorecard as if it were a contract From the worker’s perspective this was a dramatic shift says Newell Tom Skinner at the time director of product delivery In the past we just set the goals and beat up employees to try to make them but they probably didn’t even know why we had that goal in the first place
Scorecards are transmitter opportunities that clarify expectations and link daytoday activity to company goals And they work Molleur’s group ended up cutting direct costs by 50 percent—not just 5 percent What was the key thing that made it happen Molleurs points to his weekly progress meetings When they were behind schedule Molleurs used the meetings to make sure the workers understood through the Learning Map and Scorecards and other processes how meeting or beating delivery schedules could increase competitiveness and win more contracts
Top management did simple things to make sure strategy messages were getting through For example the president held monthly pizza meetings with everyone whose birthday fell that month At these transmitter opportunities he would ask attendees people to list their top three goals and their boss’ top three goals Within months everyone could answer the questions
When effective dialogue pushes strategic imperatives downward in an organization extraordinary things happen Skinner extended an open invitation to any employee who wanted to attend his weekly budget meeting with his supervisors One day an assembler showed up and said a part design was forcing assemblers to work by hand with dozens of tiny screws lock washers and nuts Skinner had the assembler meet with process control engineers for a redesign The result a job that had taken 12 hours was cut to four The best ideas come from the people doing the job says Skinner Once the conversation got started it took on momentum Soon people were coming into Skinner’s office without waiting for the weekly to discuss misalignment of strategy and behavior Workers themselves were creating transmitter opportunities
It’s about behavior change
The processes GDDS installed forced performance dialogue and ultimately changed behaviors The message got through But like a tennis stroke it didn’t happen quickly or automatically It took coaching and practice
Sometimes you have to get it wrong then make corrections through feedback and dialogue before you get it right One North American insurance company embarked on a new strategy to expand sales with existing customers The president created nine core value statements and broadcast the ideas repeatedly organizationwide Soon every manager could recite them by heart Employees even had cards with the corevalue statements right at their desks
The message however wasn’t sinking in An outside consultant saw one of the value statements on an underwriter’s desk that read Never knowingly undersell a customer But the consultant listened to several of her calls and realized that she consistently failed to explore customer needs or try to upsell The company had told her what to do but didn’t follow through with the necessary rationale and appeals that would result in behavior change says the consultant As a result her behavior was out of sync with the company strategy
So the insurer put together a training session and coached its underwriters on ways to explore customer needs and broaden the sale When the consultant visited the same underwriter a few months later he noted that she was sending birthday cards to customers and calling during the year—not just at renewal time—to identify unfulfilled customer needs It was only after repeated dialogue including feedback and coaching that the underwriter’s behavior aligned with company goals explains the consultant
Figure 3 The coaching style on top teams
[EDITOR’S NOTE Vertical or Y axis needs to be labeled as Percent indicating
Cutline Teams that rely on a coaching managerial style get better performance— percentage of team members who observed the team leader using a coaching managerial style
Creating opportunities to transmit strategy down
Organizations committed to executing strategy devise innovative ways to make connections and circulate key messages AlbertoCulver North America the 600 million division of a 25 billion company whose profits tripled in 19942000 chose 70 growth development leaders (GDLs) from all levels of the company to create clarity about strategy
One strategic goal was to recruit better talent The GDLs moved through the organization to see what people were actually doing to meet the recruitment objectives They found serious disalignment between goals and behaviors says Jim Chickarello group vice president of worldwide operations and one of the GDLs For example when job candidates came in for interviews nobody gave them a basic overview of the business Sometimes candidates would be left standing around because handoffs between various interviewers were poorly coordinated And no one had consolidated interviewer evaluations so there was no central location where AlbertoCulver managers seeking new people could get a snapshot of all candidates the company had interviewed
The top team and the GDLs devised a plan and created simple systems to carry it out For example they created forms outlining an agenda for candidates that specified where handoffs took place No more waiting around The GDLs developed takehome materials so that every candidate now gets a thorough company overview Finally the group created interviewerreport forms that must be sent to the manager who might ultimately work with the candidate As a result Chickarello says the company slashed its openjob rate in half from 10 percent to 5 percent
Hand’soff management means not being onmessage
For years experts have emphasized the importance of dialogue in performance management But too many managers avoid it One veteran says annual performance appraisals are like delivering a newspaper to a house with a growling dog You throw the paper on the porch and get away as fast as possible
Managers don’t want to deal with confrontation says Charlotte Merrell senior vice president for Bostonbased Jack Morton Company a leader in event marketing Even when employees are not doing the right things they’re usually working hard Managers are concerned they might demoralize the employee or cause them to leave
In fact the exact opposite is true Employees get demoralized when they don’t get candid performance feedback When it comes to annual performance reviews the issue is not what goes unsaid on the day of the review but what goes unsaid the other 259 working days of the year Ironically with the right kind of performancebased dialogue managers could eliminate the onerous annual performance review altogether In a true culture of dialogue feedback is given candidly and consistently in small doses—like an IV—and the annual review becomes a nonevent
Don’t overlook the people factor
In sum strong execution occurs when top management creates performance management systems and process (transmitter opportunities) and ensures that line managers are trained to use them Companies often do a good job with the former but underestimate the importance of the latter Many managers got where they are through intellectual and technical abilities—not through their people skills—and need help to become effective performance managers In particular they need the skills to help make those tough performance review sessions go more smoothly But the good news according to Linda Johnston vice president for human resources at Berkshire Bank in Massachusetts is that performance coaching is not rocket science With practice most managers can become quite adept at it (See sidebar on page xx for advice on what managers need to do to deliver performance messages effectively)
3 Making rewards count
Strategy and execution signals get distorted when top teams lack clarity and when managers lack—or don’t use correctly—systems and processes to force performance dialogue Wrongheaded reward policies complete the triplewhammy that cripples strategy execution
Aligning Rewards With Strategy
It sounds obvious that rewards have to be aligned with strategy In fact the idea that a company would reward behavior that’s out of sync with the company strategy seems ludicrous But it happens all the time The reason is that creating reward systems is complex and the critical importance of reward which is just one piece of the strategic equation is often overlooked
A health care insurance company for instance wanted to improve customer service so it invested heavily in a program to train customer service representatives The reps learned better voice technique interviewing skills to ferret out customer needs and upselling skills But the company kept the same reward system as before basing incentive pay on the number of calls completed When management got its first set of customer satisfaction surveys they were bleak reading Customer widely agreed that although the staff was courteous it was remarkably unhelpful in resolving problems Why Because as one reps put it If we spend more than four minutes on a call we would never get our bonus The strategy required that reps engage in longer more indepth conversations with customers But as the rep pointed out the dysfunctional reward system punished reps for doing so
Before AeroMexico had clarified its strategy it had a reward scheme that unintentionally rewarded the wrong behavior Pilots got merit pay based on ontime arrival records This incentive helped give AeroMexico the best ontime record of any airline in North America But this good outcome came with unintended consequences Pilots sometimes left the gate before scheduled departure times to ensure their bonuses leaving passengers stranded and angry AeroMexico later changed the key goal to overall customer satisfaction with ontime arrival as just one component Continual dialogue prevents such missteps
Differentiating rewards
Standard management theory says highperforming workers should get higher rewards than average or belowaverage workers But at many companies it rarely works that way Figure 4 shows the narrow difference separating the merit pay of highperformers—stars—from the average in a Hay survey of 75 US companies
Figure 4 Average Merit Increases 2001 Source Hay Compensation Report involving some 75 companies in the US
2001
Increase to highest performers (Stars)
607
Average Increase
410
Difference
197
(Cutline Despite all the talk about the importance of differentitation in recent years organizations still do not differente salary increases very much
A Hay Employee Attitude survey shows the tragic consequences of failing to differentiate rewards In surveys conducted at 335 companies worldwide only 35 of employees said they believed they’d earn more if they improved their performance
Figure 5 If my performance improves I will receive better compensation
[EDITOR’S NOTE Vertical or Y access needs to be labeled as Percent indicating Series 1 and Series 2 must be removed Also scale needs to be 1100]
Topperforming companies believe that welldifferentiated rewards—even forced ranking of employees—leads to better strategy execution Former GE CEO Jack Welch for example says in his memoir that top performers—The As (the top 20)—should be getting raises that are two to three times the size given to the Bs Bs should get solid increases recognizing their contributions every year Cs (the bottom 10) must get nothing
Welch makes it sound so easy Of course it’s not Without a culture of dialogue and managers willing to do the required heavy lifting effective reward policies and eventually great execution will never happen At many organizations we find managers who want to give stars bigger increases But they see rewards as a zerosum game Increasing one group means cutting another Which means making tough choices Over and over leaders give the same reason why these tough choices don’t get made managers avoid conflict in those tough annual performancereview conversations They haven’t had ongoing performance dialogue with their people during the year and workers assume that their performance—even when below par—is good enough At yearend rather than confront poor performers with the bad news many managers choose the path of least resistance speeding through performance reviews and spreading merit pay out almost evenly—like peanut butter as one manager put it
Managers at John Hancock Financial Services Inc had precisely this problem Our culture six years ago was accepting of being nice to everyone and not wanting to deliver bad news to anybody says Page Palmer senior vice president for human resources
A new CEO came in and championed a highly differentiated pay plan Under the new system there is no limit on what stars could earn in merit increases (though above 20 would be rare) and poor performers got nothing Palmer says that among managers who had to make decisions on merit increases this change required a willingness to tolerate discord and those who had difficulty with performanceoriented conversations got coaching to improve their skills Now Palmer says Hancock usually has some spike in turnover around bonus time when disappointed poor performers leave voluntarily But that kind of turnover is good for organizations It certainly was at Hancock Palmer says the company’s performancebased reward system helped the company’s stock price double two years after going public
Figure 6 Is poor performance tolerated at your company
A lessthanaverage performance often gets an average reward Nearly a third of workers surveyed agree that poor performance is tolerated
Percent agreeing that poor performance is not tolerated
[EDITOR’S NOTE Vertical or Y access needs to be labeled as Percent indicating Series 1 and Series 2 must be removed]
Find new ways to differentiate merit pay
Sometimes there is little or no money available for merit pay increases Reward really is a zero sum game But organizations must find creative ways to link rewards to behaviors that bring better execution For example they might offer high performers extra training and development opportunities or clearer lines to promotions Take the case of two sales managers Both hit their stretch goals of 10 million in sales but only one hit her staff development goals Each should get her bonus of course But the one who developed staff might also get special training opportunities
The Arbella Insurance Group a 600 million regional company based in Massachusetts took another approach Management believed that its reward system had become too paternalistic and not very motivating says Rochelle Powers assistant vice president for information systems Under the old system anyone with a year’s service and no infractions was virtually guaranteed the average 45 increase Outstanding performers might get an extra half percent
But then managers decided to pay for performance instead of time on the job says Powers So the company reduced the average increase to 35—enough to keep up with the cost of living and maintain competitiveness The other one percentage point (45 less the 35 paid to most good workers) went to the top 25 of performers That allowed superior performers to get 715 increases In the end the overall pot remained the same But the best performers got more of it
Conclusion
Dialogue is at the center of effective performance management It enables managers to cross the synapses in organizations where messages get blocked or distorted As we saw in our opening vignette in Peter’s organization strategy messages failed to cross both hierarchical and functional gaps Performance dialogue was missing from the equation The result was a complete disconnect between the strategy and the behaviors of those entrusted with executing it Not to mention extreme frustration for the CEO
Poor strategy execution is a problem shared by many organizations today When companies get it right—when they align behaviors with strategy through effective performance management —research shows that they increase revenues shareholder value interest from institutional investors and employee satisfaction The good news is that poor strategy execution is fixable And it must be fixed
[SIDEBAR]
Four Keys to Delivering
Effective Performance Feedback
1 Put the individual first People who feel forced to defend their self esteem are less receptive—messages do not get through so well Create a safe atmosphere Managers should build trust be empathetic and lead with the positive How managers say what they say is actually more important than what they say The wrong tone can distort the content of the message
This I asked Joan for feedback regarding your presentation skills She said you were very well prepared and extremely professional but that your style was a little formal for that particular audience Let’s set up a meeting with Joan so we can work on this
Not this I thought you had better presentation skills Joan’s feedback was that there was something about you that makes clients uncomfortable
2 Aim for selfevaluation When managers create ongoing dialogue yearround people will already know where their performance lapses are and will almost always raise them themselves That means no surprises no feelings that the manager is being critical which generally raises defensive behavior
This (Immediately after the event) This was the first time you represented the department at the Executive Committee meeting I noticed that you weren’t very comfortable with the more technical aspects Tell me why
Not this (Six months later and in response to a question) The reason you haven’t been asked to represent the department again is that you lack the technical expertise to win credibility
3 Tolerate discord but be specific Creating a safe atmosphere does not mean avoiding disagreement Just don’t let it get personal That causes people either to shut down or push back inappropriately Focus on specific behaviors and their consequences The point of performanceoriented dialogue is to reset direction not to point out inadequacies
This You used a bit of jargon in your presentations You said that we provide hosted collaboration software to connect businesses requiring projectbased resources Do you remember John Smith didn’t appear to understand Did you notice how he behaved for the rest of the presentation
Not this You know you really turned everybody off when you started to use jargon in that presentation
4 Set objectives make accountability explicit and reinforce Ongoing dialogue including performance reviews (though not yearend appraisals) should be about the future not the past Find what is working and what is not and apply the lessons learned Workers should come away knowing how behaviors need to be adjusted what they should do next time The best dialogue also will set specific objectives and followup dates for monitoring progress In other words the end result is a decision
This So we’ve agreed that you’ll spend more time developing the graphics for the next presentation to give them the same impact you create with your text slides Let’s meet two days before so we can discuss them before you go live
Not this (Immediately before the presentation) I hope your graphics are better this time than last time
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