Each year, organizations invest millions of dollars in good intentions. Unfortunately, these good intentions don’t generate a good return on that investment.
One of these well-intended investments is time spent on performance management processes that provide only views of the past about employee performance. Instead, organizations would be better served by looking forward, with an eye toward maximizing organizational performance and generating a return on investment in their most important asset, their people.
“Managers need to understand how to get people to perform better, leverage their strengths and serve customers in the most effective way possible,” says Keith Robinson, director of leadership development in the department of accountancy at Northern Illinois University. “The current methods of performance management are antiquated and don’t give firms the opportunity to actively manage their portfolio of human assets.”
Smart Business spoke with Robinson about how to manage employees as valued assets in a portfolio and how to change performance management processes to align with this strategy.
How can a company begin to manage people as valued assets and invest in them for the future?
Most businesses will agree that people are their most important asset, yet manage them as a short-term expense. Company financial statements and human resource processes reinforce this notion, especially in lean times.
Firms need to shift their thinking. Would managers act differently if employees were listed on the balance sheet as assets instead of the profit and loss statement as a compensation expense? Doing so would force managers to shift their thinking by creating ways to minimize risk and maximize return.
Managers begin to think prospectively and manage actively, as opposed to current performance management processes that drive retrospective thinking and are static. Managers set an expectation that they will invest in their employees’ futures if they manage them as long-term assets, but they also set an expectation that the asset will perform and generate a return. Under this scenario, employees (assets) will perform, remain motivated and serve customers more effectively.
When managers get people motivated about performing, it builds business and generates return over the long term. However, one of the greatest temptations and biggest risks is cutting expenses by cutting people. Doing this sends a message that employees are just a business expense. Managers risk giving back the investment they made by reducing the assets that generate return, weakening the business and its ability to perform over time.
How can a company change its performance management processes?
Most performance management processes are ineffective and archaic. Managers generally complete performance management twice a year, and do it solely to meet company requirements. And when they find no value in it, the result is a report on the past that generates no return for the future. Taking an active investment approach forces managers to look at the assets in their human portfolio of talent on an ongoing basis, set an expectation for performance and then work with their assets to generate the highest probable return. This means they must continually adjust their portfolio, get feedback on their assets’ performance, look at market conditions that impact their talent strategy and adjust as they go.
What tools are available to manage your human investment portfolio?
There are several tools to actively manage assets, adjust the portfolio, spot trends and replace old processes. These include:
- Comparative values assessment, which assesses values and helps managers ensure alignment with the organization.
- Comparative performance grid, which compares and assesses the performance of assets on an ongoing basis so managers understand relative performance to expected return (goal performance versus actual performance).
- Ability grid, which is used to assess the key attributes of the assets and give managers a view of skill and ability on an ongoing basis.
- Performance return map, which compares the true performance of all assets in a manager’s portfolio against the expected performance and not just against other assets. Old performance management processes are about forced ranking and comparing people against one another, which is a mistake. Instead, managers need to compare assets against the expected performance (return) in ongoing market conditions.
- Asset allocation map, which is used to determine the optimum mix of assets in the manager’s portfolio and adjust for market changes.
What else do you need to consider?
There are several questions leaders should ask when looking to change their performance management process.
Are our processes forward or backward looking? How often do I complete these processes, and do my employees and managers find them valuable? How do people feel when we write and deliver them? Energized or drained? What kind of value do these processes provide? Do they make the company smarter, better and faster? Does our performance management approach generate a return?
What are the benefits of changing your management processes?
Doing so allows managers to actively manage their business risks and opportunities prospectively in a dynamic business environment. People are wired to look toward the future, and this approach leverages that for greater employee engagement, which minimizes risk and maximizes return, thereby making the business stronger.
Keith Robinson is director of leadership development in the department of accountancy at Northern Illinois University. Reach him at (815) 753-1592 or firstname.lastname@example.org.