“Performance Levers” – Is Performance Management wasted on the masses?

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Automated Performance Management for the masses is overkill, and only drives HR further into its role as a “support” function.  Does your senior management really care if your receptionist’s goals are aligned with your strategic plan?  Of course they don’t.  Influencing the behavior of employees that are not core to your strategy can be done through your corporate culture, which doesn’t come with a subscription fee!

What your Performance Management dollars should be focused on, and give highest priority to, are the job functions that drive your strategy.  This is a simple concept, and you already know this intrinsically.  It’s the 80/20 rule (a.k.a. Pareto’s Principle) – “eighty percent of the effects come from twenty percent of the causes.” That means that the effort of a small subset of an organization is disproportionately responsible for the success of its strategy.   

Driving cascading goals to everyone in your organization only waters-down your overall performance management effort.  Your line managers are on the hook to execute company strategy.  Software can help in this effort by “operational-izing” (to coin a term) the behavior of employees in the job functions that directly affect your strategy.   Automating performance for the other eighty percent is really more of a “nice to have.” 

One of the most basic tools of financial management is the concept of “leverage.”  Put a little equity in, borrow against that equity, and build the value of the assets.  The leverage provides a “kicker” that boosts the investors return on investment.  Operational management should be approached in a similar way.  By segmenting roles that drive value from roles that are more support roles, managers can give highest priority to what roles drive their results.  In essence, for a specific strategy there are key roles that act as “Performance Levers.”

 An example:

What’s the most strategic job at an airline?  When presenting this example to groups I usually luck out and someone takes the bait by answering, “the pilots, of course.”   As mentioned in the article covered by my previous post (Performance Variance is your ENEMY!) not all positions are as strategic as they seem.  In the case of pilots, the job function is less strategic because of the extremely small level of performance variance in the job.  Fortunately for we travelers, from company to company most planes take off safe, and land safe.  Pilots are a vital role, but strategically, there really isn’t any opportunity for competitive advantage based on pilot performance (unless you’re Sully!).

So what is the answer? An airline is a utilization business.  This is an over-simplification, but essentially “planes in the air are earning money, planes on the ground are costing money.”  There is an airline that is well known for its financial performance (that will remain nameless here) whose strategy focuses on its Return on Assets (the planes are typically leased – more of that “leverage” thing).  Making sure the planes are in the air for more of their available capacity means reducing the time needed to turn a plane at the gate.   Less time on the ground equals less cost.

It turns out that one of the jobs that directly affect this airline’s strategy is the Gate Agent.  As part of its operations the gate agent serves as the “quarterback” for the various teams that unload/reload, clean, supply and board the plane.   Here’s where the 80/20 rule and performance management becomes interesting to your COO, not just your SVP of HR:

• The company owns or leases 544 planes.
•  Say that 75% are in service at any given time, that’s 408 planes. 
• Based on the number of flights the company says it averages per day and per year, the average plane has 6.2 flights per day (that “.2” must be when I’m stuck on the tarmac).
• Made up number here.  Say it costs a plane $100 per minute to be on the ground (airport fees, wages, vendors that do resupply, etc.  Probably varies by airport- could be more, could be less).
• Say the average time on the ground is 60 minutes.  Multiplied by 6.2 times per day that’s $37,200 in cost per day.  Multiply that by 260 work days in a year and your mild-mannered gate agent is now “General Manager” of $9,672,000 in cost per year.

Listen, the math is imperfect (I lifted numbers from their website fact sheet), but the concept is sound.  The really interesting part is managing out the performance variance.  If you’re not paying attention to hiring and development, your performance results will fall into a standard distribution.  Some good, some bad, most medium.  The GOAL OF PERFORMANCE MANGEMENT SHOULD BE TO SKEW THAT PERFORMANCE DISTRIBUTION TO THE RIGHT—for jobs that are critical to your strategy.  Accross hundreds of gate agents, how much cost could be rooted out of this business by reducing the turn time from sixty minutes to 59? To 58? To 45?  An integrated approach to talent management lets you hire, measure, compensate and develop people for those jobs that are key to your strategy (not your receptionist).

(NOTE: for another example of a business changing its strategy through key roles, see my post: “Nobody hates a Talent Management sports analogy more than me!”)   

To be clear, this post is no late night, Jerry McGuire, “fewer clients, less money” manifesto.  If you don’t automate your appraisal process for everyone you’re just wasting your time and your money. However, automating performance for everybody, completely misses the real potential of performance management.  The true goal of Performance Management is to materially increase the market value of your organization.  If you are not after that, you’re operating in classic HR “support” mode (which is ok, but don’t kid yourself that you’re really doing performance management).  If integrated talent management can be proven to affect financial objectives, in a material way— senior management will pay much more attention (and budget dollars) than they will to automate a yearly appraisal process.

(Mike Ditson)