Dear Mr. Precision:
Your question is extremely important, yet it often goes unasked by organizations when they discuss high-performance culture. Following are a few tried and trusted steps to take.
Step 1. Determine what needs to be measured.
The first step is to define “high performance” in the context of your organization. This necessitates careful thinking about your business strategies and the desired outcomes for customers, shareholders or owners.
Once you define these broad objectives and the expected results, your next step is to identify performance metrics and track progress toward those goals. Typically, measuring only one dimension, such as profitability, won’t suffice. Rather, track a range of metrics that indicate the company’s level of effectiveness at delivering products or services.
The type of industry/business also influences what you should measure. Technology and consumer-electronics companies measure the rate of innovation and the level of profit derived from new product, as well as the speed with which new products are brought to market.
Step 2. Establish a performance baseline, historical trend and competitive benchmark.
Once the right metrics are in place, your next step is to establish the level of performance that is expected. This gets to the crux of your question: “How can our organization know we are getting the highest performance from our people?”
Since many variables can influence performance, it is difficult to know with certainty that your employees are giving the highest possible performance. There are, however, several different approaches to help answer this question satisfactorily. Each approach hinges on the establishment of a performance baseline and an understanding of the historical trend for each key performance metric.
Sample questions: Are you growing revenue year over year? Are you increasing market share or improving profitability? Questions like these provide basic insight on the general performance of your workforce.
It also helps to understand the gap between your organization’s performance and its future potential. This is accomplished by comparing your company’s performance to that of its peers, using aggregate performance measures such as market share, profitability and year-over-year revenue growth.
Additionally, your leadership may wish to measure revenue per employee and profit per employee, in comparison to that of your direct competitors. Naturally, the productivity of some employee segments or functions is easier to measure than others. When it comes to measuring the productivity of the sales force, for example, it may not be enough to look at the revenue generated — you may need to examine the total direct labor costs associated with the sales force to measure the return on sales investment, or ROSI. This is calculated by dividing total sales compensation expenses into total revenue, and then expressing it as a percentage. ROSI is a very helpful comparative benchmark in assessing whether a sales force is productive compared to that of competitors.
Step 3: Measure performance at a level that provides “line of sight.”
To truly understand how productive your employees are, measure their performance on the results over which they have the most influence. This maximizes your line of sight — the relationship between activities, effort and results. For example, a call center might measure average call handle time or the speed with which customer issues get resolved. These measures are also well-benchmarked across industries.
SOURCE: Garrett Sheridan, president, Axiom Consulting Partners, Chicago
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The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.