Editor's Note: Today's Café Classic post was first published on May 7, 2009. Its lessons on creating value with the performance management process -- shared via a rather interesting analogy -- are still and particularly applicable today, given the bold steps many organizations are taking with their programs.
Enjoy!!
My refrigerator is a stainless steel, top-freezer Kitchen Aid, what about yours? I’m working up to a crucial issue for performance management, so stick with me for a bit.
The romance of large appliances
Let’s say we put two companies that manufacture refrigerators side-by-side. One is called Cold White Goods, the other Ace Refrigerators. They both have R&D, Marketing, Sales, Customer Service and factories. They both gauge their results in terms of measures like cost of labor, inventory, cost of goods sold and margin.
Are the companies identical? Do their financial results seem interchangeable? If they were, they would have pretty blasé shareholders.
In fact, Cold White Goods was the standard for middle class homeowners in the 1970s and 1980s, but Ace surpassed their market share in the U.S. and Europe recently. Ace has also been working hard on costs. If you take a look at the stock price, you’ll see that the market is noticing.
So what does this story have to do with performance management? In the last few years, Ace’s overriding strategic goal has been to differentiate itself from Cold White Goods. It’s shown customers many ways that Ace refrigerators are better suited to their lifestyle. Of course, this is the external evidence of a range of internal operational changes that Ace has made.
This “sweet spot” feels so good
Ace has become successful by making itself different from its competitor. Its “sweet spot?” All of the ways it’s successfully differentiated itself from Cold White Goods.
When your company cascades goals for performance management purposes, do employees’ MBOs address your company’s “sweet spot?” If not, if employees are just getting the refrigerators built and shipped, you’ve lost track of performance management as a business tool.
Every refrigerator company has R&D, Marketing, Sales, Customer Service and factories. These functions have work to get done that is quite similar from company to company. At Ace, how do employees in these functions help drive the company’s success? By focusing on outcomes that differentiate Ace from their competitor.
Make the first move
Measures like these start at the top. Few companies can exist without them. But somehow, they tend to get watered down and bogged down as the cascade proceeds. Most of the time it happens because no one is paying close attention.
Does your company have a process that reviews objectives after they’re developed, to make sure that the plans will roll up to the results needed? If HR doesn’t have the strategic chops to oversee the review, they sure have the chops to guide and coach it.
Few companies commit to this due diligence. And then, the annual frustration with performance management sets in.
Summer reading or influence building? Get yourself a copy of Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com, the convenient website where you can grab our popular eBook. Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create this DIY guide to compensation leadership. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, Margaret was a Principal at Towers Watson.
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