The ROI of Performance Management

Admin Performance Management

Case Study Finds Companies with High Performance Cultures Can Expect 3 – 5 Times Better Financial Performance

Here’s a great case study from Group50 which demonstrates the financial benefits of cascading objectives throughout an organization and implementing a performance management software.Research on the return on investment for implementing a performance management system is lacking any solid case studies.  The primary study cited in literature is the one done by John Kotter of Harvard that reviewed over 200 companies and found that organizations with high performance cultures can expect 3 – 5 times better financial performance than their peers.

Recently, we put together the results of a $50M/yr privately held company in the Phoenix area. They followed a simple but well thought through methodology.

Over the last two years the company has seen these results:

Revenue: + 159%
Gross profit: + 185%
Gross profit per employee: + 370%
ROI over two years: +1,300%
Served industry growth: < 5% over last two years
Freed up capacity: > 20%

These are great results given the lack of significant growth in the industry they serve.  Figure 1 shows a graphic of this performance.  Note how there are clear points in which the trajectory of improvement changes over time.  In the rest of this article, we will focus on the methods employed by this company to move toward a “high performance culture”, a journey they are just beginning.

In Step 1, the company developed Vision, Mission, Values, Leadership Traits and Strategic Imperatives that were concise and supportive of each other.  After cascading objectives throughout the organization, every employee clearly knew the cultural objectives they were accountable for and understood how they contributed to the strategic success of the company via individual performance objectives that are SMART (specific, measurable, achievable, results oriented and time dependent).

In Step 2, the company implemented a continuous feedback and strategic execution tool.  Irrespective of what tool a company uses, it is important that it has several key features.  In this case, the company utilized a cost effective cloud based system that provides a simple but effective system for managers and their employees to have routine dialogue on performance objectives.

One of the key features in the online performance review is a dashboard to easily see who is performing well and who needs help, which was implemented in early 2011. In mid 2012, the company implemented another key feature called streaming notes.  Now, employees can (using a Facebook like interface) communicate with their managers on activities that are only focused on key objectives any time.  Managers utilize this feature to coach, mentor and develop their direct reports.  This is an example of continuous feedback and true employee engagement.

As the company moved into Step 3, the base was already established.  Employees in this company are always looking for ways to free up capacity, increase profitability and strengthen team work.  One of the cultural objectives for this company is to have an ”active eating and dreaming list” where it is required that every employee look for best practices and ways to develop more cost effective processes and procedures: short term and long term.  Employees routinely celebrate their contributions through the notes they put into the system and gain recognition for them.  This is a simple way to reinforce winning behaviors.

Conclusion

It should be clear that the company is doing a lot of great things and that their performance management effort isn’t totally responsible for its success over the last two years.  But the CEO of this company clearly believes that he wouldn’t have been able to pull these numbers off without his investment in performance management and engaging all of his employees.  As he states, “This is how I run my company!”

It is incredibly refreshing to walk on the shop floor of this company and have the employees tell you what their mission is, how it impacts them and what they are doing in their job to support it.  Operators can’t wait to post in their stream to their manager something they have done during the day to lower cost, increase efficiency or improve a process.  This company has provided its employees with a clear view of how they contribute to a “higher purpose” and provides a system that lets them celebrate the contributions they make.  It also provides an easy to use method for managers and leaders to coach and develop their employees, whether the company has fifteen employees or thousands of them.

There are few investments a company can make where they have the potential to realize a 1,300% ROI in two years.  Realizing this type of ROI requires a holistic approach, a willingness to incorporate modern tools throughout the company, scrap some of the existing processes that clearly weren’t working and have a clear vision of the future state of the company.  In conversation with the senior leadership team of this company, they pointed out that this effort encourages managers and employees to focus on the short and midterm activities in the company and frees them up to focus on the longer term strategies, markets, competitors and growth.

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