This June, 15,000 employees at Seagate Technology LLC will receive annual performance reviews that for the first time heavily weigh how close each individual comes to achieving his or her professional goals. The disk-drive maker asked its professional workforce to consider CEO Steve Luczo's top five goals for the company before submitting their own. The resulting personal targets, all 56,000 of them, can be viewed online by any employee in the company.
Sound like a data-management nightmare? It isn't, says Karen Hanlon, VP of human resources at Seagate, thanks to software from Performaworks Inc. that puts the information to use. The process started last year when Luczo typed his objectives into the Web application. In the weeks that followed, senior executives, managers, and professional staffers signed onto the system, viewed the goals set by their higher-ups, and typed in their own.
It's an ongoing process. Each quarter, managers work with employees on updating goals, and a section of the site provides coaching on how to develop and align them with the company's objectives. Through a series of mouse clicks, an employee can see all the objectives that lie between his own and those of Luczo that started the chain. Online reminders alert employees of things such as due dates for meeting goals, and workflow functions let managers transfer goals from one worker to others who might benefit from the same objectives. At evaluation time, the software assigns a score to each employee based on his or her success at meeting goals and other measured behaviors. That score is fed into an internal compensation system that helps determine bonuses and merit increases. The system also ties into Seagate's Oracle HR system, which manages general employee data.
In tough times, companies must do more than develop ambitious strategies; they must also--imagine this--actually execute on their great ideas. Like Seagate, other companies are trying to do a better job of aligning their employees' efforts with top business objectives.
For large companies with tens of thousands of employees worldwide, that's a big job. "To be competitive five years ago was much less challenging than it is today and will probably be more challenging in five years," Hanlon says. "We have to be able to communicate our priorities to employees faster and be able to make changes more rapidly."
Performance-management software produces results and empowers employees when used correctly, says Baxter Healthcare VP Katt.
"Are you empowering your employees, trusting them, and asking them to be responsive and results-oriented?" Katt asks. "Those are shared values, and such a system doesn't become Orwellian. It's about results, and if you're treating people fairly, it works."
Katt says she hasn't measured the system's payback in hard-dollar ROI but "you know it when you see it. You can tell if your organization's more focused. You can tell if you're making a difference."
But there are risks. If done poorly, creating an online accountability system for goals or objectives can backfire. "If you do this, you'll come smack up against your culture, hard and fast," says Maria Schafer, an analyst with Meta Group. "If you have a very autocratic culture, people will feel very threatened."
Communication is key, Schafer says. "If you say, 'We're going to be tracking you and watching you,' who wants that?" Instead, she says, companies must show employees that they're stakeholders in their businesses and that the more insight they have into corporate strategies, the greater chance there is for their companies' success.
At Baxter, the process starts with the company's top strategic goals, or what it calls the four Bs: Best Team, Best Investments, Best Partner, and Best Citizen. The executive team creates specific goals under each category--one goal under Best Investments, for example, is to achieve cash flow this year of $1.3 billion to $1.5 billion before capital expenditures. The top 150 executives then devise their own goals, which are aligned with the corporate goals and distributed to employees.
So what does that mean for an employee handling vendor contracts? He could set a goal of enforcing a 60-day payment-due date on certain contracts. Meanwhile, an employee manufacturing medical systems at Baxter may not have any goals related to Best Investments but several that fall under Best Team and Best Citizen.
The employee goals are collected in a performance-management system from SoftScape Inc., which links to Baxter's core PeopleSoft Inc. HR system. An internal Web site gives guidance on how to write and craft goals, and achievement results are fed into the company's performance-review and compensation systems.
Bob Gerber, who manages E-procurement of suppliers at Baxter and reports to the VP of indirect purchasing, uses the process to manage his own career, plus those of the four people who report to him. "The biggest value is the digitization and consistent fashion of performance information," he says. "Historically, we'd put this information into filing cabinets and pull it out once or twice a year. What this process is, really, is a tool that provides me with an opportunity to better understand Baxter's expectations of me and my team."
It did require some adjustment. "There were some people reluctant to change," Gerber says. "But for me, and most of the people who worked for me at the time, it was a short adjustment period." He believes that's because most Baxter employees viewed the process as a sign that the company was committed to its workforce.
The high-tech approach to performance management at Seagate and Baxter is unusual but growing. Employee-performance management is the No. 3 application initiative among HR execs, according to a survey by AMR Research published last month, making it a higher priority than E-learning, employee self-service portals, and software used for procuring contract workers. Initiatives for core HR management and recruiting systems were only slightly more popular than performance management.
That said, HR applications don't top the list of IT priorities at many budget-strapped companies. "With the exception of a handful of companies, I don't think we're anywhere near the enterprise-adoption level of this software," says Robert Maina, a financial analyst with CIBC World Markets. That could change when budgets relax, says Schafer, who predicts that less than 5% of companies use goal-alignment software.
The difficult business environment actually may drive interest in the technology. "A key factor that's caused many of our customers to start thinking about strategic execution, and getting people aligned with it, is the continuing stagnation of the economy," says Paul Schaut, CEO at Performaworks. "Companies realize they have to do more with the same resources or less, but they still must outstrategize the competition."
Seagate, for instance, has trimmed its workforce by 30%, or 18,000 people, during the past two years. Twenty-seven thousand of the remaining workers--mostly manufacturing employees who don't have regular access to PCs--aren't required to participate in goal alignment. For the rest, the process will have a direct impact on compensation: performance appraisals will be based 70% on how well employees achieved goals and 30% on how they went about achieving them (so, for instance, lack of teamwork would diminish the value of an achieved goal).
Goal-alignment software typically falls under the category of employee-performance management and is sold by several specialists in that market. But the market's potential isn't lost on the big guys. PeopleSoft released its first employee-performance application two months ago, and it includes goal alignment. Implementation can cost $500,000 for a large company, plus another $100,000 in service and consulting fees. The biggest risk for business and IT managers is that people won't use the system properly. Employees who procrastinate on goal setting, managers who don't get involved, and companies that don't give guidance on setting goals can all lead to failure.
Seagate has made sure employees know it's a process not to be taken lightly. The company started collecting goals in June and continued to do so until December. Every few weeks, it sent out a list of people who hadn't submitted their goals. "The first couple of months, after sending out the status, there was a flood of activity of people just wanting to get their names off the list," Hanlon says. "We needed to establish early on that this is a process that matters." By December, the company had collected goals from 97% of its professional employees, and 93% had submitted plans for achieving them. As business conditions change, so can objectives, so employees can update them quarterly.
Seagate has had to face cultural issues with its approach. "In Asia, they asked, 'Why can't we just give people their goals?'" Hanlon says. The company's challenge with the process, which is supported in multiple languages, is getting managers and employees to work together. "We know the first year will be a learning curve for all of us," Hanlon adds.
For the future, Seagate wants to marry data from its enterprise resource planning systems into its performance-management system so, for example, data on the results of on-time deliveries can be correlated with the employees who manage deliveries. Online reminders could tell employees they're missing delivery dates, pushing goals off track. In such a scenario, business processes truly become aligned with workplace performance. "We're a year or more away from a capability to really integrate that data," Hanlon says.
Baxter's Katt also sees value in the idea--to an extent. "In the future, I can see tying manufacturing goal-setting into the supply-chain system," Katt says. But, she adds, "we've all gotten a little wiser about the idea of this one, mammoth ERP system that rules the organization." The payoff for such a project, she says, would have to be clear.
As it is, it's difficult to show a return on investment from performance-management software, such as a direct link to improved revenue, lower operating efficiencies, or even a higher employee-retention rate. But for Seagate and Baxter, employee feedback has been positive, and executives are pleased with the process. Goals are visible and dynamic, rather than collecting dust in a manila file until the next review process.
At Textron Inc., which uses Performance Manager by SuccessFactors Inc., the performance-review process carries more meaning than before, people are happier with it, and there's an overall sense of improved communication at the aircraft manufacturing and financial-services company, says Steve Ostiguy, manager of organizational performance for company division Textron Financial. Those are benefits that can't be measured with hard numbers. "In theory, you should tell employees what you expect of them from day one," he says. But companies usually don't do a good job of that. "Now we have a formalized and very specific process and practice for it. Employees know exactly what their objectives are and how they relate to business units and, ultimately, the entire enterprise."
Textron Financial started using Performance Manager for its 1,200 employees more than two years ago, and the parent company rolled the system out to all its 35,000 U.S. employees over the past year. CEO and chairman Lewis Campbell published his goals in early January, and the business-unit heads completed their objectives in February. Employees have until the end of the month to complete their objectives for the calendar year.
When employees are reviewed in a year, three quarters of their evaluations will be based on how well they achieved their objectives and a quarter on the success of their development plans. The company uses a rating scale of 1 to 5 to determine the percentage of merit increases. Textron's 15,000 international employees use a paper version of the system but will start to go online next year as the company rolls out multilanguage versions of the software.
That's a big IT commitment for an HR process. But it's worth noting that Baxter, Seagate, and Textron performed well in their most recent financial quarters. In the case of these three companies, at least, the all-too-common claim, "Our people are our greatest asset," is more than a worn-out cliché.
Illustration by John S. Dykes