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The Birth of a Needed New Profession: People Performance Management

Published by: Forum for People Performance Management and Measurement

Northwestern University announces the formation of the Forum for People Performance Management and Measurement, a unit in the Integrated Marketing Communications Department of the Medill School of Journalism.

Management fads come and go. Only occasionally is a new business profession born. With the formation of the Forum for People Performance Management and Measurement at Northwestern University, a new business management discipline is being developed. It will have a significant impact on the way businesses are managed, and how they achieve sustainable bottom-line performance. Big promises, but ones that will be supported in the coming years.

People Performance Management refers to an integrated process designed to help firms maximize long-term financial performance through a strategic focus on their most valuable asset, human capital—customers, employees, business partners, resellers, etc. People Performance Management brings together the traditional internal management disciplines—organizational design, communications, incentive programs, and training—and aligns them with external marketing activities such as advertising and promotion, channel relationships, distribution and logistics, customer service, etc. so that all organizational activities focus on gaining and retaining customers at every level, maximizing organizational income flows and shareholder value.

People Performance Management doesn't replace today's internal and external management and marketing disciplines. Instead, it integrates them strategically so that all activities flow toward the highest, most profitable level for both the firm and its customers.

The Forum for People Performance Management and Measurement will develop, manage, and distribute an extensive research agenda. Its activities will provide a better understanding of the underlying financial benefits of and methodologies for having an optimal rate of customer satisfaction and employee loyalty. From this research will flow usable information for both the academic and professional communities. One major area under development will be a formal curriculum in People Performance Management that can be used in both the academic and corporate worlds. Northwestern University expects to present the first course in People Performance Management in its 2003 academic year.

The Hypothesis

One fundamental hypothesis of People Performance Management is that a firm's long-term profitability and thus, shareholder value, is strongly linked to its ability to generate very close relationships between the organization and its customers. Further, the premise is that these relationships are, to a great extent, dependent on the type, form and manner in which the firm's employees and the firm's customers interact and relate. Thus, while products, price, distribution, and value are all critical ingredients in the long-term success of the firm, it is the customer-facing employees of the firm who create relationships. Relationships, the key to any long-term organizational success, are built by people. It is the people part of organizational management that is critical to the success of the organization.

Most organizations and their marketing programs do a good job of identifying and marketing their unique customer benefits. But many organizations lack the integrated structures to assure that all of their people actually deliver those promises and benefits. While there is a strong intuitive basis and considerable research pointing to the link between achieving long-term financial success and generating satisfied customers through motivated employees, one of the Forum's primary tasks will be to support and coordinate research to substantiate and better understand these assumptions and how they can be developed and managed within the organization. As important will be the task of distributing and communicating these findings to both the academic and business worlds.

Another hypothesis central to People Performance Management is that a failure to address and proactively manage human capital can easily undermine other organizational efforts, such as achieving customer focus, building cross-functional teams, implementing customer relationship management initiatives, or even re-engineering and downsizing. Understanding the relationships both inside and outside the organization, or what is being called the "management of people capital," will be a central theme of the Forum research activities.

The Forum's basic premise is that there is strong evidence to suggest that no matter what type of product or program an organization introduces, it cannot maximize sustainable results without a strong foundation of customer satisfaction. And it is the ability of employees and resellers to profitably build and deliver the type of relationship that generates this ongoing customer satisfaction. Thus, customers and employees are inexorably linked. How that linkage operates will be a key question to be answered by the research conducted at the Forum.

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The Theoretical Model

The considerable research collected to support the foundation of the Forum points to several critical elements necessary for the successful management of people performance. The most comprehensive research, "Incentives, Motivation & Workplace Performance," produced by the International Society of Performance Improvement through a grant from the SITE Foundation, points to the most critical elements.

Gap Analysis. Determining to what extent performance falls short because of a lack of motivation, and what specific actions, if improved, could yield significant results. This entails extensive customer and employee involvement and dialogue.

Program Selection. Identifying the strategies necessary to address the motivation gap and direct efforts in the most productive direction. These can include an integrated combination of incentive, recognition, communication, and training strategies.

Work Value. Introducing programs that can improve sense of satisfaction with work. Sincere recognition and/or incentive programs can boost the value that people assign to their work, and thus their performance. But, that occurs only if companies provide the meaningful rewards, recognition, and support that foster a sense of value.

Training. Once people have the motivation, they need the means. Training identifies and addresses the knowledge gaps, which will translate into better performance if accompanied by greater motivation..

Support. People need to know that the organization supports their performance and rewards people fairly. This requires leadership.

Emotional Appeal. The biggest results come when people feel passionately engaged. With careful consideration, incentive awards recognition, events, meetings, etc. can have positive impacts on emotion.

Measurement. Three motivational outcomes can be measured: active choice—choosing to do the targeted work in the intended manner; commitment—persisting over time; and mental effort—thinking clearly. Economic indicators can include: revenue per employee, profitability per employee, customer retention (and profitability of retained customers versus new customers), employee turnover (and cost of turnover). Using these key measures will assure the firm develops processes that continually focus on the financial bottom line.

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Analysis and Feedback

People Performance Management efforts can be analyzed against the performance objectives and costs, with information recycled in order to adjust future programs.

Successful implementation cannot occur without two critical factors:

Leadership. An individual, such as the President, COO, or Executive Vice President, must have responsibility for optimizing alignment and human capital resources across all business functions toward fulfillment of mutual goals.

Longer-Term Thinking. People Performance Management reaps the biggest financial gains over the longer haul, since it takes time for customer improvement to have an impact on the bottom line. Such strategies don't mesh with quarter-to-quarter performance measures, since the results provide their greatest return on an ongoing basis, rather than on one-time successes.

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The Research Basis

While an objective of the Forum is to develop an economic-based platform for People Performance Management, considerable research and anecdotal evidence exist which strongly support the need to better understand its objectives.

  • A Workforce 2000 study shows that in the 21st century, as the workforce ages, organizations will need extra stimuli to encourage productivity, flexibility, and the willingness to change and learn.

    Source: Compensation and Motivation: Maximizing Employee Performance with Behavior-Based Incentive Plans, McCoy, Thomas, AMACOM, New York, 1992.
  • Research by Bain and Co. found that major companies lose, and have to replace, half their customers in five years, half their employees in four years, and half their investors in less than one.

    Source: Pawliw-Fry, J.P., "Call Centers: Simply a Cost?" Call Center, March 1, 2002.
  • The degree of loyalty your customers have toward you typically mirrors the level of commitment and loyalty you have developed among your employees. The same study indicated that there is an average lag of six months between customer satisfaction and future financial performance in the hotel industry.

    Source: "Building Trust Through Committed Employees," Marketing Management, Chicago; Fall 2000 P41-46 Larson, John A.; Sasser, W Earl.
  • Properly structured incentive programs can increase performance by as much as 44 percent, but only a small number of incentive programs contain all of the elements necessary for success.

    Source: Incentives, Motivation & Workplace Performance, International Society of Performance Improvement, 2002.
  • Boston Consulting Group researched 100 German companies and revealed a strong link between investment in employees and stock market performance.

    Source: "Research Reveals Strong Link Between Training Investments and Stock Market Performance," MPACT! 1999 ACHIEVEGLOBAL.
  • A 5 percent increase in employee retention can generate a 25 to 85 percent increase in profitability.

    Source: "Putting the Service-Profit Chain to Work," Heskett, James L., Jones, Thomas O., Loveman, Gary W., Sasser, W. Earl, and Schlesinger, Leonard A., Harvard Business Review, March/April 1994.

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Real-Life Benefits

People Performance Management can affect individual organizational performance. Three examples of this:

Sears: A five-year detailed analysis of 800 stores found a five unit increase in employee attitude yielded a 1.3 unit increase in customer impression and a 5 percent increase in revenue growth.

Source: "The Employee-Customer Profit Chain at Sears," Rucci, Anthony J., Kirn, Steven P., and Quinn, Richard, Harvard Business Review, January/February 1998.

Taco Bell: Twenty percent of the stores with the lowest turnover enjoy double sales, and profits 55 percent higher than the 20 percent of stores with the highest employee turnover. Taco Bell uses incentive programs and monitors internal quality.

Source: "Putting the Service-Profit Chain to Work," Heskett, James L., Jones, Thomas O., Loveman, Gary W., Sasser, W. Earl, and Schlesinger, Leonard A., Harvard Business Review, March/April 1994.

Southwest Airlines: Low employee turnover is closely linked with high customer satisfaction. The CEO of Southwest can be found aboard airplanes, on tarmacs, and in terminals, interacting with employees and customers. He believes that hiring employees who have the right attitude is so important that the hiring process is sacred, and both customers and shareholders see the difference.

Source: "Putting the Service-Profit Chain to Work," Heskett, James L., Jones, Thomas O., Loveman, Gary W., Sasser, W. Earl, and Schlesinger, Leonard A., Harvard Business Review, March/April 1994.

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The Measure of Success

The founders of the Forum believe that the economic basis for People Performance Management is so compelling that it warrants extensive research, education, and even the creation of a new business discipline that integrates external and internal management and marketing processes.

Because these integrated management practices involve a number of marketing and management disciplines such as incentive programs, promotion marketing, meetings, internal communications, training, etc., the Forum expects to create a number of practice groups that will focus on how specific disciplines affect the People Performance Management function.

The first such practice group focuses on Performance Improvement. Others will cover the above disciplines.

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