building a high performance culture and the business performance management

8/8/2019 Building a High Performance Culture and the Business Performance Management

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2003 AMCHAM HR Seminar

Building a High Performance Culture and

the Business Performance Management (BPM)

Michael Keppler Managing Principal, Asia

May 23, 2003


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Private & ConfidentialCopyright Towers Perrin

High performers

Of all the things Ive done, themost vital is coordinating the

talents of those who work for usand pointing them toward a certain

goal.Walter Elias Disney, Founder, Walt Disney

Company, 1954

Source: Collins and Porras, Built to Last.


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What Differentiates HighPerforming Companies?


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q 207 companiesin 22 differentindustries

q 11 years of data

AverageGrowth(%)

0

200

400

600

800

1000

682

166282

36

901

74

756

1

Revenue Employment Stock Price Profit

With Performance-Enhancing CultureWithout Performance-Enhancing Culture

Companies With Performance-enhancing CulturesSignificantly Outperform Their Peers

q Performance-enhancing Culturesq Values aligned with interests of all key stakeholdersq Top managers invest significant time communicating, modeling, and reinforcing

core values and associated behaviorsq Leaders at all levels accountable for living and managing valuesq Continuous adaptation apart from core values


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q Characteristics of Winnersq Invest in building organization capabilities needed for long-term successq Focus on more than profitsq Preserve core values while stimulating progress by

Setting bold goals Growing own leaders Nurturing the culture Driving continuous improvement Experimenting

q Continually align strategies and practices

High Performing Cultures*$6,356

Comparison Companies** $955

General Market $415

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1948 1960 1972 1984 1990

Leading Companies Manage Their People andCultures Differently


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Study confirms that the integrated systems rather than isolated programs makes the difference

$290,000

$310,000

$330,000

$350,000

$370,000

$390,000

0 20 40 60 80 100Quintile Changes in Sophistication of HR

Architecture

Dollar

ChangeinMarket

ValueperEmployee

Companies With Aligned HR Systems Generate SubstantiallyHigher Shareholder Value Than Their Peers


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In This Session We Will

q Review how organizations build high performing cultures

q Towers Perrin Researchq The role of the Balanced Scorecardq Business Performance Management

What makes high performing companies different regarding their approach to Human Resources?


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The Balanced Scorecard


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Only 5% of the work force understands

the strategy

60% of organizationsdont link budgets

to strategy

Only 25% of managers have

incentives linked to strategy

85% of executiveteams spend lessthan one hour per month discussing

strategy

9 of 10companies fail to

execute theirbusinessstrategy

The People Barrier

The Vision Barrier

The ManagementBarrier

The ResourceBarrier

1999 The Balanced Scorecard Collaborative, Inc. All rights reserved.

The Balanced Scorecard ,Dr. Bob Kaplan

The Balanced Scorecard Was Designed toOvercome Common Barriers


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BalancedBalancedScorecardScorecard

Clarifying andTranslationVision and

Strategy

Planning andTarget Setting

CommunicatingAnd LinkingStrategic

Feedback andLearning

q Set stretch targetsq Identify and rationalize

strategic initiativesq Invest to support strategyq Annual budgets are linked as

milestones to long termstrategy

q Feedback process to teststrategy

q Strategy development iscontinuous and adapts toenvironment

q Shares strategicframework

q

Facilitate strategy reviewand learnings

q Strategy informs entiremanagement process

q

Shared vision isfoundation for strategiclearning

q Education and open communicationq Top to bottom goal alignmentq Reward system linkageq Performance leadership

behaviors

It Provides a Performance Management Framework forEffective Strategy Implementation


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Vision andStrategy

FinancialPerspectiveGoal Key Performance Indicator Target

Employee Perspective

CustomerPerspectiveGoal Key Performance Indicator Target Goal Key Performance Indicator

Target

Goal Key Performance Indicator Target

A statement of

intent that supportsthe organisationstrategy andobjectives

A specific measure of performance that isquantifiable

Specific, definableoutcome for the KPI

The Scorecard Approach Ensures a BalancedPerspective on What Is Measured

The interests of all stakeholders are represented:shareholders, customers, management, and employees

Internal Business Process


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Key Learnings for Successful Implementation of Balanced Scorecards

The measures used must reflect the key performance driversand employee influence

The selection and deployment of scorecard measures need tobe performed in a rigorous and analytical manner that reflectsthe economics of the business

The design should involve the explicit consideration of suchfactors as the organizations structure, strategy, externalenvironment, and the scorecard objectives

The scorecard design and implementation processes must

incorporate a change management framework and leadershipinvolvement Towers Perrins Business Performance Management (BPM)

was specifically designed to address these issues


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Business PerformanceManagement (BPM)


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Why Is BPM Important?

q Reality #1q Data suggests that an employees positive emotion about work translates into improved performance for the company

q Reality #2q Reward dollars are shrinking and the pay mix is shifting

q Reality #3q HR is under pressure to further increase the ROI of this

shrinking reward investment

q Reality #4q All of these changes transfer the risk of earning an

acceptable level of reward onto the employee

BPM addresses these realities


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q What business results must the organizationdeliver to be successful?

q Are leaders in agreement on how to execute thestrategy?

q How can managersimpact theseresults?

q What metrics havethe greatest impact on shareholder value?

q What do managersneed to know and do

to implement thestrategy?

q What do employeesneed to know and dodifferently?

q How can we link pay and other rewards tothe businessstrategy?

q What pay and performancemanagement planswork best for your organization?

q How can we truly foster a results-based culture?

q What tools and systems will support

the implementation?

Business Performance Management (BPM) Is About Changing the Way PeopleBehave and Make Decisions


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RewardsStrategy

InternalObjectives

ExternalPractices

q Business strategyq Viewpoints of executive/ professionalsq Overall objectives for plan performanceq Behaviours required to support

strategy

q Compensation practicesq Best practices for the industryq Characteristics of effective incentive

plans

Step 1: Focus on Clarifying Your Organizations Strategy

q Clarify the strategic direction and priorities of the

organization, as well as key expectationsq Conduct an organizational capability assessment

to identify what is important to strategic success

Provides clarity and consensus around the rewardsstrategy


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Business DriverDrives our success as

an organization

First Level MetricsMost relevant components

of the business driver

Sub-metricsFurther breakups of the

first level metrics

Customer SatisfactionCustomer Satisfaction

Product InnovationProduct Innovation Customer ValueCustomer Value

ReturnsReturns

QualityQuality

Failure RatesFailure Rates

Cost of Transaction

to Customer

Cost of Transaction

to Customer

BrandImageBrandImage

DeliveryTime

DeliveryTime

Number of InnovativeFeatures

Implemented

Number of InnovativeFeatures

Implemented

# of CustomerSuggestionsIncorporatedinto Design

# of CustomerSuggestionsIncorporatedinto Design

PricePrice

CustomerSupport

CustomerSupport

Relationshipwith

Customer

Relationshipwith

Customer

Cycle

Time

Cycle

Time

Number of

Call Backs

Number of

Call Backs

Step 2: Identify What Drives Value

q Value Trees identify the financial and operational drivers of shareholder value, along with the underlying activitieswhich impact these drivers. As such, they demonstrate thequantitative linkage between metrics and identify wherevalue can be added in the organization

Identifies the most important business drivers and metrics.Provides the analytical proof necessary to improve reward

program effectiveness


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Step 3: Improve Business Literacy to BuildEmployee Awareness and Commitment

Provides a tangible tool for employees to make better informed decisions that will increase business

performance


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Job title &

Description

Global Account Manager: Being overall responsible for the clientrelationship, its development and its profitability.Developing, pursuing and closing sales opportunities..

Individual Measures Team Measures

s Total revenue of ownaccounts

s Account profitabilitys Number of accounts

won/ lost

s Customersatisfaction: Speed,quality of solutions,and relationship

s Customer penetration

s Team Revenue

s Team profitability

s Team customersatisfaction

Personal

PerformanceFactor

10%

20%

30%

40%

50%

Team Measure

80% 100% 120%90% 110%

10%

20%

30%

40%

50%

Individual Measure

Few MostSome All

Company

PerformanceFactor

Step 4: Ensure That Employees Are Focused on Doing the Right Things and Then Design and Develop the Right Links to Rewards

Determines the appropriate program, measures and share of performance to drive value creating behaviour


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Processfor

Sustaine

d Change

Measurement and

Alignment

Involvement

Performanc

eManagement System

BusinessDriver

Linkage

Pay forPerformanc

e

Development

Engagement tools provide the feedback and support tools to sustain the performance management process

Step 5: Develop a Performance Management System thatEnsures Employee Engagement

q Successful engagement must:1. Link Strategy to Actions2. Assign accountability

3. Provide visual, timely and accurate feedback

q Our research and experiencealso suggest that there aresix key factors to highly effective management systems performance


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Performance Management (feedback and support)Performance Management (feedback and support)

q Incentives for nonexecutive managersand employees (including mission-critical functions/roles)

q Merit and recognition programs

q Manager tools:q Performance evaluation, ranking and

calibrationq Communicating performance, providing

feedback q Pay Applications (Kadiri)

q HR toolsq Pay/performance modeling toolsq Process guidelinesq High-performer management:

identification, reward analysis,turnover analysis

q Employee performance feedback tools

q Simulation application (with RootLearning)

q Web-based education moduleq Line-of-sight training

Rewards DesignRewards Design

Performance Management (defining individual performance)

Performance Management (defining individual performance)

Reward/PerformanceReward/Performance Management StrategyStrategy

BusinesSight TM Suite of ServicesBusinesSight TM Suite of Services

q Goal settingq Competency development

Business Driver AnalysisBusiness Driver Analysis

q Financial, customer,operational and employeedrivers

q Reward strategy clarification sessions andworkbooks

q Leadership interviews and focus groups

Services and Tools Exist to Ensure anEffective BPM Process


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BPM Offers an Opportunity to Effectively Addressthe Key HR Challenges of Today

Reality #1: Data suggests that an employees positiveemotion about work translates into improved performancefor the company

Reality #2: Reward dollars are shrinking and the pay mix is shifting

Reality #3: HR is under pressure to further increase theROI of this shrinking reward investment

Reality #4: All of these changes transfer the risk of

earning an acceptable level of reward onto the employee


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Case Study

Orion Frito-Lay


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Company Overview

Orion Frito-Layq Founded in 1987 as a joint venture of Tong Yang

Corp. and Pepsico.

q One of the favorite snack companies in Korea

q

Headquarter in Seoul and 2 Factories in Cheongjooand Icheon

q Financial Performance (2001)q Revenue 122,988 Mil. Wonq Net Income 5,049 Mil. won

i f d i d d i l d


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Business Performance Management was designed and implemented as onecomponent of total HR innovation for Orion Frito-Lay

q HR Innovation includesq Business Performance Management

Balanced Scorecard KPIs for each Department and Job

Performance Management Process Strategic Incentive Systemq Job Redesign based on Business Process Innovationq Job Grade Structureq Compensation Strategy and Programq Change Management

Fi t l ifi d th bj ti f i


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First, we clarified the objectives of usingbalanced scorecard and KPIs

Corp.BSC

Corp.BSC

Division.KPI

Division.KPI

Team KPI Team KPI

Job KPI Job KPI

Financial Customer

EmployeeOperation

s s

s s

s

s

s s

s s s s

Division A

s s s s

Team A

s s s s

Job A

Linked with.q Business Planning and

Monitoring

q Executive Incentiveq Short-term Incentiveq

Long-term Incentive

q Compensation for Managersq Base salaryq Incentive

q Compensation for Employeesq Base salaryq Incentive

BSC d l h l f i l i i k i f


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BSC development was the result of sequential interactive work session fromtop management team to line managers

Development process itself was an organizational learningand consensus-building process -Take out shading

Corp.BSC

Corp.BSC

DivisionKPI

DivisionKPI

TeamKPI

TeamKPI

JobKPI

JobKPI

Financial Customer

EmployeeOperation

s s

s s

s s

s s

s s s s

Division A

s s s s

Team A

s s s s

Job A

1. Executive Work Sessionq CEO + Division Heads

2. Division Work Sessionq Division Head+

Team Managers

3. Manager Work Sessionq All Team Managers


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Four guiding principles were used to identify KPIs


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Four guiding principles were used to identify KPIsfor each organizational unit

1Clear Linkage withBusiness Strategy

1Clear Linkage withBusiness Strategy

3Measurability

3Measurability

4Practical

Usefulness

4PracticalUsefulness

2Accountability

(Link with EachUnits Mission)

2Accountability

(Link with EachUnits Mission)

Accountability Map was developed to link strategy process KSF/KPI and


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Accountability Map was developed to link strategy, process, KSF/KPI, andorganizational unit

KSFs ..

s ..

Sub-KSF KPI Measurement Detail AccountabilityMain Supports

s ( , )/

s s s

s

s s s

s

MarketingDivision

R&D

Division

ProductPlanningProductPlanning .... ..

SourcingSourcingProductionProduction

Advertising/Promotion PlanningAdvertising/Promotion Planning

MainMainProcessProcess

MainMainProcessProcess

..

Strategy Strategy

MapMap

Strategy Strategy MapMap

KPI allocation to each organizational unit was finalized following the


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KPI allocation to each organizational unit was finalized following thevalidation and prioritization process

Team A

Draft KPI ImportanceAccount-

ability

H

M

H

L

H

M

H

H

L

M

H

H

Team CTeam B

KSF KPI Team A Team B Team Cq --------q -------

q -----q

-----q -------q -------

q -----

q -----q -----

q ----q

----q -----q -----

q ---

q

q

q

q

q

q

q

q

qq

Job KPI was developed to link team KPI and


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Job KPI was developed to link team KPI andeach jobs mission

Step 2Understand

Team KPI

Step 2Understand

Team KPI

Step 1Define Job

Step 1Define Job

Step 3Draft Job KPI

Step 3Draft Job KPI

Step 4Set Performance

Standard

Step 4Set Performance

Standard

Step 5Validation

Step 5Validation

q Team Mission

q Team KSF/Sub-KSF

q Team KPI

q Job Title

q Job Missionq Main Tasks

q Brainstorm

q Benchmark

q Quantitative:Measurement Detail

q Qualitative :Clear Definition of Performance Standard

q Checkconsistency with

Guiding Principles

Detail performance management process was


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Detail performance management process wasdefined for effective implementation

CEO

COO

Division

Team

Staff

..

Jan Feb.

.

.

.

.

G o a l S e t t i n g

E v a l u a t

i o n

C o a c h i n

g x

yz

and Created a broad-based incentive plan


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paligned with the value drivers

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CopyrightTowersPerrin

Broad-based Incentive Plan : Basic Structure

s 5.56-12%

1. TargetIncentive

Pay-out Rate

2. CorporatePerformance

Multiplier

3. Division/TeamPerformance

Multiplier

IndividualIncentive

Pay-out Rate! ! =

s KPI:NOPBT

s PerformanceSpectrum: 70-130%

s Multiplier : 70-130%

s Multiplier : 70-160%

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Copyright Towers Perrin

Division/Team Performance Multiplier Matrix

s

Multiplier

0% 100% 150%N B M E O

0% N 0% 0% 0% 0% 0%0% 0% 0% 0% 0%

70% B 0% 70%0% 75% 85%

100% M 70% 100% 120%105%

130% E 130%

160% O130% 160

(70%)

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Cost Impact Analysis

80% 100% 120%

CorporatePerformanceMultiplier

150%

Achievement

50%

80% 100% 120%

150%

50%

80% 100% 120%

150%

50%

Total Cost for Each Case Total Cost for Each Case

Illustration

* Data presented are hypothetical numbers.

Results


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Results..

q Breakthrough performance improvement through...q Awareness of strategic drivers from top management

to each employeeq Executives more focused communication around

strategic agenda rather than operational issuesq Linking employees day-to-day activities with

strategic driversq Building a performance-oriented culture

In Conclusion BPM


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In Conclusion, BPM.

q Aligns execution of the business strategy with the creation of shareholder value

q

Applies a rigorous measurement methodology to focus and alignthe business measures that define success for the company q Enables measures and weightings to be customized to reflect the

cause and effect q Integrates measures across organizational functions, processes,

and levels in support of value drivers and key company measuresq Creates line-of-sight for employees by linking activities and

processes to benchmark measures which are then linked to thefinancial drivers of success

q Supports modeling of impact of changes in behaviors on

company performanceThe imperative to build a performance based culture has

never been stronger


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Questions?

building a high performance culture and the business performance management

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