Boost Your Bottom Line with Better People Management
August 2005When a company hires new employees, the goal is to grow, increase productivity and ultimately make more money. But what happens when your new hire or even a long-time team member underperforms? You can forget about increasing productivity, that’s for sure.
Any manager with at least a few years of experience has dealt with an under-performing employee. The problem persists in every department, organization and industry because every company relies on the output of its work force. While the intangible effects of underperformance, such as low morale and reduced productivity, are real, until recently the actual cost of poor performance was too ambiguous to calculate.
The Future Foundation conducted research in seven countries including the United States to understand the costs associated with poor people performance. Their eye-opening research revealed that American managers spend 13 percent of their time managing poor performers and 14 percent of their time correcting the poor performers’ mistakes. This translates into an average of 34 days per year dealing with underperformance.
Compound that with the fact that American employees admit that 68 percent of the mistakes they personally make never come to their manager’s attention. Worse yet, problems increase with organizational size. In larger organizations (those with more than $8.5 million in turnover), managers spend approximately eight weeks per year, or 41 days, on managing poor performers.
So what’s the root of these staggeringly high poor performance statistics? Researchers at Sheffield’s Institute of Work Psychology sampled manufacturing businesses and found that 18 percent of variations in productivity and 19 percent in profitability were attributed to people management practices. In addition, The Future Foundation estimates the United States devotes $105 billion a year correcting problems associated with poor people management and hiring practices. This translates into 1.05 percent of the total United States gross domestic product. Clearly, the current approaches to people management waste corporate profits.
How to Improve Poor Performance
Promising instant results or oversimplifying quick fixes is counterproductive. No one-size-fits-all people management template will work for every organization. The strategy you use must fit within your company’s business strategy and goals. And your management practices must fit together and mutually reinforce each other. However, the following three strategies can be applied to every organization in any industry.
Increase accountability. Everyone’s contribution can and should be measured. The failure to set clear, measurable performance standards expected of each employee often leads to poor performance. The worker may believe he or she is meeting expectations, while the supervisor has a completely different idea on the desired outcome. In these cases, when specific measurable objectives aren’t in place, success is open to interpretation.
As a general rule, when setting performance goals you need to be clear about the following five items:
- Clearly define desired results or outcomes.
- Clarify approved policies or procedures. Be careful you don’t dictate exactly how to reach the end result unless specifically asked. Remember, the same goal can be achieved in different ways.
- Outline available resources. This may include a budget, personnel and equipment.
-Set specific phases for accountability.
-Help the employee see the big picture and how his or her performance furthers the organization’s goals. Make sure you reach a mutual understanding about each item before starting.
Once you’re clear on these five elements, you need to communicate them to your employees. A proven method to increasing accountability is increasing the frequency of performance reviews. For example, new-employee performance reviews and goal-setting meetings are often given every 90 days. With such a long length of time, employees tend to wait until the last few weeks before the review to achieve the desired outcome. When this happens, you lose several weeks of improved performance.
Instead, break the goal into three monthly performance increases. Then the employee is able to focus on a more realistic goal with a shorter duration. This makes it easier for him to stay motivated, you get the benefit of increased performance earlier, and any misunderstandings can be resolved sooner. Plus, shorter timelines increase accountability. Holding each employee accountable and demonstrating how their contribution affects the company is essential for increased performance.
Improve your hiring process. According to The Future Foundation study, an average of eight months of training is required to achieve expected performance levels. Currently, one out of eight American employees leaves his or her job before obtaining competency. Worse yet, co-workers are not immune to the mis-hire. The same study found that nearly one quarter (23 percent) of American workers surveyed feel their colleagues are incompetent.
To combat this problem, review your hiring process and determine your success. Most companies have spent a great deal of time creating their manufacturing and sales process, but have neglected the same procedure to find, interview and hire top talent.
Here are three items you need to review:
- Hold your hiring process accountable. One of the leading causes to employee turnover is a poor job match. Calculate what your success rate is by determining the average length your employees stay before leaving. Calculate the cost of each mis-hire and seek to decrease it on a regular basis.
- Plan properly. The axiom, "Poor planning produces poor performance and proper planning produces proper performance,” is very true when it comes to hiring. Organize your hiring process with the same levels of effort and thought you use with your other critical processes.
- Ask for feedback and conduct exit interviews. After a new employee has acclimated for 30 days, ask for confidential feedback on the hiring process while it is still fresh in his mind. You may receive information that will improve your process. Most companies perform exit interviews as people leave. If you don’t, start now. You are missing out on valuable information on how to improve matching the right person with the right job.
Give your hiring process the time and resources it deserves. The right people in the right positions are your most important asset, so act like it.
Revamp your development process. Today, most senior executives agree on the importance of developing your management team for superior business performance. The gap between current productivity levels and expected performance is often attributed to a lack of skills. Although executives feel they are investing in their people, these programs are often under-funded, antiquated, and not in line with the organization’s goals.
To improve your management’s development process, first stop funding reactive investments dealing with employee performance levels. The capital saved should be invested on proactive solutions to ensure the right people are matched with the right positions within the organization. This will go a long way to free up the manager’s time spent on underperformers.
Second, review your development process to make sure it provides three essential elements: skills training, hands-on practices of acquired skills, and a network of advice from colleagues and mentors. Adults learn best when applying new information in a non-threatening environment to confirm understanding.
Third, be sure your development process is in line with the strategic goals of the business. IBM now begins its development design process by defining desired business results because their most popular training courses were producing a negative return on investment. They had to make changes in their system to attain their goals.
When you use this process to invest wisely, your development process will increase your bottom line.
Better People Management
Now more than ever, as the world continues to merge into a single global economy, human capital is the key driver of profit and innovation. Effective people management practices get superior results by increasing accountability, retaining and recruiting better people, and developing innovative ways to increase profit.
In fact, integrated and appropriately applied people management strategies and practices are the most powerful driver of sustained success. Even quite small improvements can be expected to deliver results.
When you use these people management strategies in your organization, you can increase productivity, eliminate underperformance and boost your bottom line.
About the Author
John Skabelund, president of Altima Consulting Inc., Scottsdale, Ariz., is an authority on employee performance and productivity. He previously held executive- and management-level positions with Stonewater Development and Qwest Communications. Author of the forthcoming book, "The Lexus Way,” Skabelund shows how others can learn from Lexus when it comes to effective people management. For more information on his book, speaking or consulting, visit www.altimaconsulting.com or call 888.925.8462.