2003 AMCHAM HR Seminar Building a High Performance Culture and the Business Performance Management...

2003 AMCHAM HR Seminar

Building a High Performance Culture and

the Business Performance Management (BPM)

Michael KepplerManaging Principal, Asia

May 23, 2003

Private & ConfidentialCopyright © Towers Perrin

High performers

“Of all the things I’ve done, the most vital is coordinating the

talents of those who work for us and pointing them toward a certain

goal.”Walter Elias Disney, Founder, Walt Disney

Company, 1954

Source: Collins and Porras, “Built to Last”.


What Differentiates High Performing Companies?


207 companies in 22 different industries

11 years of data

Avera

ge G

row

th (

%)

0

200

400

600

800

1000

682

166

282

36

901

74

756

1

Revenue Employment Stock Price Profit

With Performance-Enhancing CultureWithout Performance-Enhancing Culture

Companies With “Performance-enhancing Cultures” Significantly Outperform Their Peers

Performance-enhancing Cultures Values aligned with interests of all key stakeholders Top managers invest significant time communicating, modeling, and

reinforcing core values and associated behaviors Leaders at all levels accountable for living and managing values Continuous adaptation — apart from core values


Characteristics of Winners Invest in building organization capabilities needed for long-term success Focus on more than profits Preserve core values while stimulating progress by…

– Setting bold goals – Growing own leaders – Nurturing the culture – Driving continuous improvement – Experimenting

Continually align strategies and practices

High Performing Cultures*$6,356

Comparison Companies** $955

General Market $415

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1948 1960 1972 1984 1990

Leading Companies Manage Their People and Cultures Differently


Study confirms that the “integrated systems” rather than isolated programs makes the difference

$290,000

$310,000

$330,000

$350,000

$370,000

$390,000

0 20 40 60 80 100Quintile Changes in Sophistication of HR

Architecture

Dollar

Ch

an

ge in

Mark

et

Valu

e p

er

Em

plo

yee

Companies With Aligned HR Systems Generate Substantially Higher Shareholder Value Than Their Peers


In This Session We Will…

Review how organizations build high performing cultures Towers Perrin Research The role of the Balanced Scorecard Business Performance Management

What makes high performing companies different regarding their approach to Human Resources?


The Balanced Scorecard


Only 5% of the work force understands

the strategy

60% of organizations don’t link budgets

to strategy

Only 25% of managers have

incentives linked to strategy

85% of executive teams spend less than one hour per month discussing

strategy

9 of 10 companies fail to

execute their business strategy

The People Barrier

The Vision Barrier

The Management Barrier

The Resource Barrier

©1999 The Balanced Scorecard Collaborative, Inc. All rights reserved.

The Balanced Scorecard, Dr. Bob Kaplan

The Balanced Scorecard Was Designed to Overcome Common Barriers


Balanced Balanced ScorecardScorecard

Clarifying and Translation Vision and Strategy

Planning andTarget Setting

CommunicatingAnd Linking

Strategic Feedback and

Learning

Set stretch targets Identify and rationalize

strategic initiatives Invest to support strategy Annual budgets are linked as

milestones to long term strategy

Feedback process to test strategy

Strategy development is continuous and adapts to environment

Shares strategic framework

Facilitate strategy review and learnings

Strategy informs entire management process

Shared vision is foundation for strategic learning

Education and open communication Top to bottom goal alignment Reward system linkage Performance leadership

behaviors

It Provides a Performance Management Framework for Effective Strategy Implementation


Vision andStrategy

Financial PerspectiveGoal Key Performance Indicator Target

Employee Perspective

Customer PerspectiveGoal Key Performance Indicator Target Goal Key Performance Indicator

Target

Goal Key Performance Indicator Target

A statement of intent that supports the organisation strategy and objectives

A specific measure of performance that is quantifiable

Specific, definable outcome for the KPI

The Scorecard Approach Ensures a “Balanced” Perspective on What Is Measured

The interests of all stakeholders are represented:shareholders, customers, management, and employees

Internal Business Process


Key Learnings for Successful Implementation of Balanced Scorecards

The measures used must reflect the key performance drivers and employee influence

The selection and deployment of scorecard measures need to be performed in a rigorous and analytical manner that reflects the economics of the business

The design should involve the explicit consideration of such factors as the organization’s structure, strategy, external environment, and the scorecard objectives

The scorecard design and implementation processes must incorporate a change management framework and leadership involvement

Towers Perrin’s Business Performance Management (BPM) was specifically designed to address these issues


Business Performance Management (BPM)


Why Is BPM Important?

Reality #1 Data suggests that an employee’s positive emotion

about work translates into improved performance for the company

Reality #2 Reward dollars are shrinking and the pay mix is shifting

Reality #3 HR is under pressure to further increase the ROI of this

shrinking reward investment

Reality #4 All of these changes transfer the risk of earning an

“acceptable” level of reward onto the employee

BPM addresses these “realities”


What business results must the organization deliver to be successful?

Are leaders in agreement on how to execute the strategy?

How can managers impact these results?

What metrics have the greatest impact on shareholder value?

What do managers need to know and do to implement the strategy?

What do employees need to know and do differently?

How can we link pay and other rewards to the business strategy?

What pay and performance management plans work best for your organization?

How can we truly foster a results-based culture?

What tools and systems will support the implementation?

Business Performance Management (BPM) Is About Changing the Way People Behave and Make Decisions


RewardsStrategy

Internal Objectives

External Practices

Business strategy Viewpoints of executive/ professionals Overall objectives for plan performance Behaviours required to support

strategy

Compensation practices Best practices for the industry Characteristics of effective incentive

plans

Step 1: Focus on Clarifying Your Organization’s Strategy

Clarify the strategic direction and priorities of the organization, as well as key expectations

Conduct an organizational capability assessment to identify what is important to strategic success

Provides clarity and consensus around the rewards strategy


Business DriverDrives our success as

an organization

First Level MetricsMost relevant components

of the business driver

Sub-metricsFurther breakups of the

first level metrics

Customer SatisfactionCustomer Satisfaction

Product InnovationProduct Innovation Customer ValueCustomer Value

ReturnsReturns

QualityQuality

Failure RatesFailure Rates

Cost ofTransactionto Customer

Cost ofTransactionto Customer

BrandImageBrandImage

DeliveryTime

DeliveryTime

Number of Innovative Features

Implemented

Number of Innovative Features

Implemented

# of CustomerSuggestionsIncorporatedinto Design

# of CustomerSuggestionsIncorporatedinto Design

PricePrice

CustomerSupport

CustomerSupport

Relationshipwith

Customer

Relationshipwith

Customer

CycleTimeCycleTime

Number ofCall BacksNumber ofCall Backs

Step 2: Identify What Drives Value

Value Trees identify the financial and operational drivers of shareholder value, along with the underlying activities which impact these drivers. As such, they demonstrate the quantitative linkage between metrics and identify where value can be added in the organization

Identifies the most important business drivers and metrics. Provides the analytical proof necessary to improve reward

program effectiveness


Step 3: Improve Business Literacy to Build Employee Awareness and Commitment

Provides a tangible tool for employees to make better informed decisions that will increase business

performance


Job title &Description

Global Account Manager: Being overall responsible for the client relationship, its development and its profitability. Developing, pursuing and closing sales opportunities…..

Individual Measures Team Measures

Total revenue of own accounts

Account profitability

Number of accounts won/ lost

Customer satisfaction: Speed, quality of solutions, and relationship

Customer penetration

Team Revenue

Team profitability

Team customer satisfaction

Pers

onal

Perf

orm

ance

Fact

or

10%

20%

30%

40%

50%

Team Measure

80% 100% 120%90% 110%

10%

20%

30%

40%

50%

Individual Measure

Few MostSome All

Com

pany

Perf

orm

ance

Fact

or

Step 4: Ensure That Employees Are Focused on Doing the Right Things and Then Design and Develop the Right Links to Rewards

Determines the appropriate program, measures and share of performance to drive value creating behaviour


Process for

Sustained Change

Measurement and

Alignment

Involvement

Performance

Management System

Business Driver

Linkage

Pay for Performanc

e

Development

Engagement tools provide the feedback and support tools to sustain the performance management process

Step 5: Develop a Performance Management System that Ensures Employee Engagement

Successful engagement must:1. Link Strategy to Actions2. Assign accountability3. Provide visual, timely and

accurate feedback

Our research and experience also suggest that there are six key factors to highly effective management systems performance


Performance Management (feedback and support)Performance Management (feedback and support)

Incentives for nonexecutive managers and employees (including mission-critical functions/roles)

Merit and recognition programs

Manager tools: Performance evaluation, ranking and

calibration Communicating performance, providing

feedback Pay Applications (Kadiri)

HR tools Pay/performance modeling tools Process guidelines High-performer management:

identification, reward analysis,turnover analysis

Employee performance feedback tools

Simulation application (with Root Learning)

Web-based education module

Line-of-sight training

Rewards DesignRewards Design

Performance Management (defining individual performance)Performance Management

(defining individual performance)

Reward/Performance Reward/Performance Management Strategy Strategy

BusinesSightTM Suite of ServicesBusinesSightTM Suite of Services

Goal setting

Competency development

Business Driver AnalysisBusiness Driver Analysis

Financial, customer, operational and employee drivers

Reward strategy clarification sessions and workbooks

Leadership interviews and focus groups

Services and Tools Exist to Ensure an Effective BPM Process


BPM Offers an Opportunity to Effectively Address the Key HR Challenges of Today

Reality #1: Data suggests that an employee’s positive emotion about work translates into improved performance for the company

Reality #2: Reward dollars are shrinking and the pay mix is shifting

Reality #3: HR is under pressure to further increase the ROI of this shrinking reward investment

Reality #4: All of these changes transfer the risk of earning an “acceptable” level of reward onto the employee


Case Study

Orion Frito-Lay


Company Overview

Orion Frito-Lay Founded in 1987 as a joint venture of Tong

Yang Corp. and Pepsico.

One of the favorite snack companies in Korea

Headquarter in Seoul and 2 Factories in Cheongjoo and Icheon

Financial Performance (2001) Revenue 122,988 Mil. Won Net Income 5,049 Mil. won


Business Performance Management was designed and implemented as one component of total HR innovation for Orion Frito-Lay

HR Innovation includes… Business Performance Management

Balanced Scorecard KPIs for each Department and Job Performance Management Process Strategic Incentive System

Job Redesign based on Business Process Innovation Job Grade Structure Compensation Strategy and Program Change Management


First, we clarified the objectives of using balanced scorecard and KPIs

Corp.BSC

Corp.BSC

Division. KPI

Division. KPI

Team KPITeam KPI

Job KPIJob KPI

Financial Customer

EmployeeOperation

Division A

Team A

Job A

Linked with….

Business Planning and Monitoring

Executive Incentive Short-term Incentive Long-term Incentive

Compensation for Managers Base salary Incentive

Compensation for Employees Base salary Incentive


BSC development was the result of sequential interactive work session from top management team to line managers

Development process itself was an organizational learning and consensus-building process -Take out “shading”

Corp. BSCCorp. BSC

Division KPI

Division KPI

TeamKPI

TeamKPI

JobKPIJobKPI

Financial Customer

EmployeeOperation

Division A

Team A

Job A

1. Executive Work Session CEO + Division Heads

2. Division Work Session Division Head + Team Managers

3. Manager Work Session All Team Managers


Balanced scorecard was developed as a result of executive work session based on insights from strategy clarification

FinancialValue TreeFinancial

Value TreeStrategyThemesStrategyThemes

Orion Frito-Lay Strategy Clarification

Organizational

Capabilities

Organizational

Capabilities

OFL BSC Model

EmployeeEmployeeFinancial Customer Operational

Maximize Profitabili

ty

Maximize Profitabili

ty

NOPBTNOPBT

Sales GrowthSales

Growth

RevenueRevenue

Customer

Satisfaction

Customer

SatisfactionM/SM/S

FreshnessFreshness

…..….. …….…….

………………..………………..

…….…….

…….…….

…...…...

……...……...

…….…….

……….……….

Employee SatisfactionEmployee Satisfaction

……..……..

Brand EquityBrand Equity

CRS IndexCRS Index

…….…….

…...…...

OPEX(Operational Excellence)


……….……….


Balanced scorecard map was used as a platform to link strategy with each KPIs

KSFKSF

KPIKPI

EmployeeEmployeeFinancial Customer Operational

Maximize ProfitabilityMaximize

Profitability

NOPBTNOPBT

Sales GrowthSales

GrowthRevenueRevenue

Customer SatisfactionCustomer

Satisfaction

M/SM/S

FreshnessFreshness

…..….. …….…….

………………..………………..

…….…….

…….…….

…...…...

……...……...

…….…….

……….……….

Employee SatisfactionEmployee Satisfaction

……..……..

Brand EquityBrand Equity

CRS IndexCRS Index

…….…….

…...…...



……….……….


Four guiding principles were used to identify KPIs for each organizational unit

1Clear Linkage with Business Strategy

1Clear Linkage with Business Strategy

3Measurability

3Measurability

4Practical

Usefulness

4Practical

Usefulness

2Accountability(Link with EachUnit’s Mission)

2Accountability(Link with EachUnit’s Mission)


Accountability Map was developed to link strategy, process, KSF/KPI, and organizational unit

KSF ………..

………..

Sub-KSF KPI Measurement Detail AccountabilityMain Support

고객니즈 부합

적시성 ( 기획기간 , 적시출시 )/ 정보공유원가절감

신제품 매출액 히트상품출시율

MarketingDivision

R&DDivision

ProductPlanningProductPlanning …..…..

….….

SourcingSourcingProductionProduction

Advertising/ Promotion PlanningAdvertising/ Promotion Planning

MainMainProcessProcess

MainMainProcessProcess

사원 관점사원 관점재무적 관점 고객 관점 운영 관점

….….

StrategyStrategyMapMap

StrategyStrategyMapMap


KPI allocation to each organizational unit was finalized following the validation and prioritization process

Team A

Draft KPI ImportanceAccount-

ability

H

M

H

L

H

M

H

H

L

M

H

H

Team CTeam B

KSF KPI Team A Team B Team C

-------- -------

----- -----

------- -------

-----

----- -----

---- ----

----- -----

---


Job KPI was developed to link team KPI and each job’s mission

Step 2UnderstandTeam KPI

Step 2UnderstandTeam KPI

Step 1Define Job

Step 1Define Job

Step 3Draft Job KPI

Step 3Draft Job KPI

Step 4Set Performance

Standard

Step 4Set Performance

Standard

Step 5Validation

Step 5Validation

Team Mission

Team KSF/Sub-KSF

Team KPI

Job Title

Job Mission

Main Tasks

Brainstorm

Benchmark

Quantitative: Measurement Detail

Qualitative :Clear Definition of Performance Standard

Check consistency with Guiding Principles


Detail performance management process was defined for effective implementation

CEO

COO

Division

Team

Staff

…..

Jan Feb.

….

….

….

….

Goal Setting

Evaluation

Coach

ing


…and Created a broad-based incentive plan aligned with the value drivers

0P r i v a t e & C o n fi d e n t i a l

C o p y r i g h t © T o w e r s P e r r i n

B r o a d - b a s e d I n c e n t i v e P l a n : B a s i c S t r u c t u r e

5 . 5 6 - 1 2 %

1 . T a r g e tI n c e n t i v e

P a y - o u t R a t e

2 . C o r p o r a t eP e r f o r m a n c e

M u l t i p l i e r

3 . D i v i s i o n / T e a mP e r f o r m a n c e

M u l t i p l i e r

I n d i v i d u a lI n c e n t i v e

P a y - o u t R a t e =

K P I : N O P B T

P e r f o r m a n c eS p e c t r u m : 7 0 - 1 3 0 %

M u l t i p l i e r : 7 0 - 1 3 0 %

M u l t i p l i e r : 7 0 - 1 6 0 %

3Private & Confidential

Copyright Towers Perrin

Division/Team Performance Multiplier Matrix

Multiplier를 적용하여 산정된

0% 100% 150%N B M E O

0% N 0% 0% 0% 0% 0%0% 0% 0% 0% 0%

70% B 0% 70%0% 75% 85%

100% M 70% 100% 120%105%

130% E 130%

160% O130% 160

부문 평가 등급팀평가 등급

(70%)

1Private & Confidential

Copyright Towers Perrin

Cost Impact Analysis

80% 100% 120%

CorporatePerformanceMultiplier

150%

Achievement

50%

80% 100% 120%

150%

50%

80% 100% 120%

150%

50%

필요 재원 규모



Total Cost for Each CaseTotal Cost for Each Case

Illustration

* Data presented are hypothetical numbers.


Results…..

Breakthrough performance improvement through... Awareness of strategic drivers from top management

to each employee Executives’ more focused communication around

strategic agenda rather than operational issues Linking employee’s day-to-day activities with

strategic drivers Building a performance-oriented culture


In Conclusion, BPM….

Aligns execution of the business strategy with the creation of shareholder value

Applies a rigorous measurement methodology to focus and align the business measures that define success for the company

Enables measures and weightings to be customized to reflect the cause and effect

Integrates measures across organizational functions, processes, and levels in support of value drivers and key company measures

Creates line-of-sight for employees by linking activities and processes to benchmark measures which are then linked to the financial drivers of success

Supports modeling of impact of changes in behaviors on company performance

The imperative to build a performance based culture has never been stronger


Questions?

2003 AMCHAM HR Seminar Building a High Performance Culture and the Business Performance Management...

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