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Aligning Talent with Strategic Priorities
By Ravin Jesuthasan, CFA and the global practice leader of Towers Watson’s talent management division
July 6, 2014 4:20 by kippreport
Many organisations view performance management through a narrow lens. Its tactical and transactional aspects often overshadow its strategic role.
All too frequently, performance management is viewed primarily as a tool that aids in compliance with certain critical HR processes, including goal setting, mid- and year-end reviews, etc., which help to ensure the balanced distribution of compensation and other rewards.
Because they have limited visibility into the value of different employee groups and roles, organisations will often opt to spread HR investments equally across organisational units — for example, investing a comparable amount into critical-skill employees, as in employees whose skills contribute less economic value.
Aligning decision making with business strategy
Unlike many HR processes, performance management has a direct and often missed connection to a company’s business strategy and key value drivers. While much has been written about cascading goals and the importance of aligning individual key performance indicators (KPIs) with business objectives, research suggests there is plenty of room for improvement.
According to the 2012 Towers Watson Global Workforce Study, 37 percent of the global employee sample gave either a negative or neutral response when asked if they understood their company’s business goals. A similar percentage (38 percent) gave either a negative or neutral response when asked if they understood how their job contributes to their organisations achieving their business goals. Moreover, in companies that do attempt to align individual KPIs with broader company objectives, the process of cascading goals is often purely a strategy agnostic, financial exercise. While financial goals may be relevant to executive leaders, they often have minimal relevance to employees at lower levels.
Towers Watson research over the years has found that high-performing companies emphasize specific cultural attributes based on their chosen strategy, whether it’s efficiency, quality, innovation, customer service or brand strategies. These cultural attributes have significant implication for all aspects of performance management, including determining the types of goals to use, how targets are set, the degree of variance between targets across a given employee population, etc. Yet it is rare for an organization to start with the cultural attributes required to execute its strategy when it thinks about designing its performance management process.
Another area of opportunity to reflect an organisation’s strategy — the pathway to delivering financial outcomes — is in employee goals. This integration can be accomplished by cascading the nonfinancial goals of the organisation into individual employee objectives in various functions.
To achieve their strategic priorities, organisations need to understand how different employee groups drive value. Best practice organisations use workforce segmentation to accomplish this objective. Workforce segmentation helps organisations understand where variations in performance among employee groups really matters — that is, where great performance really makes a difference versus good performance.
Knowing this difference is essential to ensuring the right degree of stretch in goals. For example, in a global airline, having 100 percent of pilots operate at the expected level of performance is essential to the integrity of the business model, while having flight attendants strive to exceed customer expectations is critical to differentiating the airline on the basis of its primary strategy: customer service.
Organisations have a great opportunity to transform their use of performance management as a business management tool that aligns decision making differentially across various roles, reflects the unique aspects of the business model and culture, and considers the risk profile of the industry. With an understanding of these issues, they can better calibrate and integrate evidence based performance targets and rewards across the organisation.