June 24, 2012

The ABCs of grading performance


by Joy Parr Drach, Entira

It's that time of year again. Kids are getting their final report cards and bringing them home to Mom and Dad. If you have little kids, they probably get grades for spelling and class participation. If they're older, it's English and algebra. The school system determines on which areas your kids' learning should be focused as well as the criteria to judge their performance.

But have you ever thought about what your own company's end-of-year "report card" might look like? Some companies are pretty good at grading their performance. Others are subjective and fuzzy. They don't know what things to grade or how to grade them. And that can be a problem, because as the old saying goes, "No measurement, no control, no improvement."

Strategy plus management equals greater success

It's never too late to get a handle on how your company's doing, and a report card is a great way to start. If you want to put one together for your company, here are some things you should do:

A. Identify your key drivers.

Many companies judge their performance based only on the typical indicators - how sales have changed, how expenses compare, and how profits stack up to those of the previous year. But these indicators tell only what the final figures are, not how the company got there or how to improve those figures next year. Instead, we help clients focus on key metrics that drive profits. They're different for each company based on their market position. These key drivers are the important "subjects" on which your company should be graded, the ones that will make or break your business and foreshadow what will happen to profits.

To determine what your key drivers should be, get your management team together and discuss what's most important to your business. No more than a couple of drivers is best, since it's easier to maintain focus on just a few.

For example, one of our clients is growing by introducing new products and entering new market segments. We're helping them focus on their key drivers of cross sell and new customer acquisition. Another Entira client, a dominant player in its market, faces aggressive new competition. Recognizing this as an important factor in its success, this company is now focusing on customer retention and average selling price. We're helping them to really know and understand who their customers are, since understanding customer behavior will prevent unnecessarily cutting prices and/or buying back the wrong customers.

B. Give everyone a grade.

As unbelievable as it might seem, most employees don't know how they're doing job-wise - at least not as it relates to your key drivers. Typically, their annual reviews cover their supervisor's subjective assessment and whether or not they accomplished a list of objectives that usually have little to do with the company's success. Instead, your employees should be graded on how they contribute to your own key drivers.

C. Align employee incentives.

Once you've rated your employees according to your key drivers, don't be surprised if you wind up giving some of them bad grades. So, what can you do to get those marks up? Align your incentives to reward employees for taking the right actions, the ones that support your key drivers.

For example, perhaps your employees should be graded and rewarded for customer retention. Tying their bonus to retention is certainly one way to get them to focus on it. But will they give steeper discounts than necessary to secure their bonus? A weighted combination based on both customer retention and average selling price may be what you need to truly align employees' incentives with the company's key drivers. Once you've developed the right incentive plan, you can provide the training and routine feedback needed to improve employee performance and your own profitability.

Putting together the report card

One of the questions we get from customers when we first talk about this process is "how will I get the information I need to grade my company and employees?" After all, it's usually tough enough to get this information at a company or business unit level, let alone on an individual employee basis often enough to affect their behavior. One of the best ways to gather the data and make key drivers the engine that moves your business forward is by tying this ABC approach into a customer relationship management (CRM) system.

With the right system, measuring and reporting company and individual employee performance are simplified. The system allows employees to see their performance against key drivers in near real-time. So you'll be well on your way to getting all A's on your company's report card.

If you'd like more information on key drivers, CRM, and company report cards, contact Entira at info@entira.net.

 

This article appeared in the June 2006 issue of Strategic Agribusiness Review.