Friday, 7 September 2007

The business impact of Performance Management

I've written at length about the research evidence showing HCM's impact on business results.

One area in which I've always struggled to provide much evidence is performance management, which is a problem, as I do a lot of consulting in this area, and some research showing how effective performance management supports business performance would be very useful.

Well here it is. This is from a presentation made by Jac Fitz-enz on a Human Capital Institute webinar, Return on the Individual, yesterday.

The results come from a survey conducted last year by Fitz-Enz’ Workforce Intelligence Institute. They asked 740 companies two questions:

  • How do they align individuals with the organisation: are personal objectives expressed quantitatively and linked directly to corporate goals?
  • How do they pay for performance: is pay linked to formal, active system components ie job descriptions, personal objectives, performance reviews etc?

The survey found that strong performers in these two questions significantly outperformed others in terms of ROE, revenue growth and net income growth (shown on graph).

Fitz-Enz also described a process for measuring the impact of activities like performance management through a value chain approach in which activity measures are linked to human capital measurement, for example, for poor performance management:

  • 'Percent who improved performance' with 'Performance differential monetary value'
  • 'Percent of number redeployed,' and 'Percent or number terminated' with 'Effects on co-workers / business'.

These can then be linked to the sorts of business results on the graph.